From my friend John Wight in Scotland comes this thoughtful piece, detailing why we need a new economic system, because it is now achingly obvious that our current predatory system of capitalism isn’t working.
Over the past days and weeks economists and commentators have clogged our TV screens and newspapers to share their analysis of the economic crisis that has beset the globe. Credit crunch, sub-prime lending, inflation, deflation, currency devaluation, these terms have fallen from their mouths and pens like snowflakes on a winter’s day as they attempt to explain the cause of the current fiasco, which by all accounts is predicted to get significantly worse before it gets better.
Interestingly, and unsurprisingly, not one mainstream commentator has attributed the cause of the present economic downturn to the economic system itself. Instead it is all to do with bad lending, poor investments, overinflated financial markets, the insidious practices of international speculators, and the fear that has gripped investors, leading to a sharp drop in share prices and the imminence of global recession.
It seems incongruous that as yet not one financial analyst or expert has seen fit to suggest that capitalism might be the root cause of this global economic crisis. Surely even the most tentative reliance on logic points to the conclusion that an economic system predicated on continuous and relentless profit, is one doomed to lapse into crisis when its in built requirement for constant growth outstrips markets and leads to the kind of irrational and desperate activity on the part of lenders in order to maintain market share, profits, and ultimately shareholder dividends.
It is a mechanism of madness which in the past, when manufacturing constituted the base of western economies, led to overproduction, inflation, and mass unemployment. These periodic crises were marked by regional and global conflicts when rival powers fought over access to colonies and with them new sources of raw materials and new markets in which to offload surplus commodities, including capital, once their domestic markets had been satiated.
In the UK, beginning with Thatcher, successive governments have adopted the economic paradigm of the United States, the world’s only global hegemonic power, committed to the spread of the free market to every corner of the planet, and willing to use military power to smash open the door wherever this economic penetration is resisted. With the removal of Britain’s manufacturing base to the developing world, we became evermore and dangerously reliant on the economic activity of the City of London and the money generated in new and more sophisticated packaging of securities and bonds. These involved in many cases merely the repackaging and selling on of existing debts, which propped up a virtual economy of inflated property prices, consumer credit, and a service sector to satisfy the demands of consumers. Combined with the lax regulation of the City introduced by then Chancellor Gordon Brown, under the Blair government, it was a train wreck waiting to happen. Banks and financial institutions, drunk on bloated commissions, were now lending money they couldn’t guarantee and became dependent on the liquidity provided by the large lending banks to see them through.
Northern Rock was a case in point. Traditionally building societies and banks would only lend what they held in deposits. Northern Rock, desperate to compete on the international stage and break into the top tier of mortgage lenders, decided to adopt an aggressive policy of borrowing to lend, which enabled it to grow exponentially year on year regardless of the deposits held in its accounts.
An investigation by the Guardian newspaper at the end of last year revealed that Â£53bn of Northern Rock mortgages, amounting to 70 percent of the bank’s entire mortgage portfolio, was not even owned by the bank but by a separate offshore company. Such a frightening statistic calls into question the government’s assurances that taxpayers’ money is safe. It also reveals the precarious nature of an economy largely reliant on a property market underpinned by the ability to borrow and lend.
But what sets this global crisis apart is that it is unfolding at a time when energy prices are at the highest they’ve been in real terms since the end of the Second World War, caused by increased demand on existing reserves by the emerging economies of China, India, and Brazil. It is this pressure on the world’s oil reserves that lay at the root of the invasions and ongoing occupations Iraq and Afghanistan. Put another way, the US is determined to assert control over the huge, untapped reserves located in Iraq with the objective of breaking the stranglehold exerted by OPEC over oil production and prices.
Such an objective also requires secure pipelines in order to trans-ship this oil to friendly ports, thus revealing the real impetus behind the invasion of Afghanistan. It also goes some way to explaining the break-up of Yugoslavia and its absorption into the US sphere of interest, along with US moves to absorb former Baltic states such as Georgia into the same sphere. Both occupy strategic locations in proximity to the oil and gas reserves of the Caspian Sea, with the recent conflict between Russia and Georgia ultimately a result of US pressure to secure its economic interests in the region.
The global economic distortion created by the unfettered greed of the US economy, a nation which constitutes just 5 percent of the world’s population but which uses up 25 percent of the world’s available resources year on year, has led to an increasingly polarised world. If allowed to continue this distortion will inevitably lead to conflict as the emerging economies of China, India, and Russia pose an increasing threat to US economic hegemony and the need to maintain the exorbitant consumer lifestyles of a US population grown fat on excess.
This is why the present economic crisis runs deeper and contains within it graver implications than so far described by mainstream commentators.
Bailing out failed banks and financial institutions is clearly not the solution to the current economic crisis. Indeed, it is merely an exercise in closing the stable door after the horse has bolted.
As this crisis deepens, replacing the economic system responsible for it will increasingly become a necessity if we hope to avoid entering the abyss of global depression and major conflict between competing economies in the not so distant future.