[The now infamous subprime (mortgage) crisis took shape in the US, not so long ago, in the year 2006-07, and thereafter almost unobtrusively graduated to a full scale financial meltdown. This, in turn, came to its head on Sept 15 2008 with the Lehman Brothers going kaput and in the process virtually pulling the rest of the American financial world down. That those at the helm of financial affairs in the US administration, by virtue of their proximity to the traditional rival Goldman Sachs, deliberately allowed it to happen looks far too incongruous when viewed in terms of its subsequent impacts.
Soon thereafter, the real economy also got affected suffering from resultant much restricted access to finance affecting day-to-day operations. The shrinkage of business all around severely affected purchasing powers and thereby demand in the market and the economy entered into a self-reinforcing downward loop.
The "globalisation" saw to it that the disease spread far and wide, much beyond the shores of the US.
While the recent G-20 meet in London on April 2 last, with charismatic Obama straddling the stage, has no doubt generated at least some amount of "feel-good", this could, nevertheless, very well turn out to be rather transitory and illusive.
What, however, strikes one right in the face that despite boastful claims of the experts, of whatever ideological persuasions, the bare fact remains: "Nobody knows nothing!" As regards the future trajectory of the crisis. Nobody knows whether the global economy is plunging towards a Great(er) Depression or a recovery is just around the corner.
Eric Hobsbawm has, going beyond the speculations on the immediate, raised some more fundamental issues in his characteristic lucid and thoroughgoing manner. These deserve a close look. The ongoing economic crisis should not make us forget the looming ecological disaster. The both are, in a way, interlinked.]
I/III.Socialism has failed. Now capitalism is bankrupt. So what comes next?
Whatever ideological logo we adopt, the shift from free market to public action needs to be bigger than politicians grasp
- Eric Hobsbawm
- The Guardian, Friday 10 April 2009
The 20th century is well behind us, but we have not yet learned to live in the 21st, or at least to think in a way that fits it. That should not be as difficult as it seems, because the basic idea that dominated economics and politics in the last century has patently disappeared down the plughole of history. This was the way of thinking about modern industrial economies, or for that matter any economies, in terms of two mutually exclusive opposites: capitalism or socialism.
We have lived through two practical attempts to realise these in their pure form: the centrally state-planned economies of the Soviet type and the totally unrestricted and uncontrolled free-market capitalist economy. The first broke down in the 1980s, and the European communist political systems with it. The second is breaking down before our eyes in the greatest crisis of global capitalism since the 1930s. In some ways it is a greater crisis than in the 1930s, because the globalisation of the economy was not then as far advanced as it is today, and the crisis did not affect the planned economy of the Soviet Union. We don't yet know how grave and lasting the consequences of the present world crisis will be, but they certainly mark the end of the sort of free-market capitalism that captured the world and its governments in the years since Margaret Thatcher and President Reagan.
Impotence therefore faces both those who believe in what amounts to a pure, stateless, market capitalism, a sort of international bourgeois anarchism, and those who believe in a planned socialism uncontaminated by private profit-seeking. Both are bankrupt. The future, like the present and the past, belongs to mixed economies in which public and private are braided together in one way or another. But how? That is the problem for everybody today, but especially for people on the left.
Nobody seriously thinks of returning to the socialist systems of the Soviet type - not only because of their political faults, but also because of the increasing sluggishness and inefficiency of their economies - though this should not lead us to underestimate their impressive social and educational achievements. On the other hand, until the global free market imploded last year, even the social-democratic or other moderate left parties in the rich countries of northern capitalism and Australasia had committed themselves more and more to the success of free-market capitalism. Indeed, between the fall of the USSR and now I can think of no such party or leader denouncing capitalism as unacceptable. None were more committed to it than New Labour. In their economic policies both Tony Blair and (until October 2008) Gordon Brown could be described without real exaggeration as Thatcher in trousers. The same is true of the Democratic party in the US.
The basic Labour idea since the 1950s was that socialism was unnecessary, because a capitalist system could be relied on to flourish and to generate more wealth than any other. All socialists had to do was to ensure its equitable distribution. But since the 1970s the accelerating surge of globalisation made it more and more difficult and fatally undermined the traditional basis of the Labour party's, and indeed any social-democratic party's, support and policies. Many in the 1980s agreed that if the ship of Labour was not to founder, which was a real possibility at the time, it would have to be refitted.
But it was not refitted. Under the impact of what it saw as the Thatcherite economic revival, New Labour since 1997 swallowed the ideology, or rather the theology, of global free-market fundamentalism whole. Britain deregulated its markets, sold its industries to the highest bidder, stopped making things to export (unlike Germany, France and Switzerland) and put its money on becoming the global centre of financial services and therefore a paradise for zillionaire money-launderers. That is why the impact of the world crisis on the pound and the British economy today is likely to be more catastrophic than on any other major western economy - and full recovery may well be harder.
You may say that's all over now. We're free to return to the mixed economy. The old toolbox of Labour is available again - everything up to nationalisation - so let's just go and use the tools once again, which Labour should never have put away. But that suggests we know what to do with them. We don't. For one thing, we don't know how to overcome the present crisis. None of the world's governments, central banks or international financial institutions know: they are all like a blind man trying to get out of a maze by tapping the walls with different kinds of sticks in the hope of finding the way out. For another, we underestimate how addicted governments and decision-makers still are to the free-market snorts that have made them feel so good for decades. Have we really got away from the assumption that private profit-making enterprise is always a better, because more efficient, way of doing things? That business organisation and accountancy should be the model even for public service, education and research? That the growing chasm between the super-rich and the rest doesn't matter that much, so long as everybody else (except the minority of the poor) is getting a bit better off? That what a country needs is under all circumstances maximum economic growth and commercial competitiveness? I don't think so.
But a progressive policy needs more than just a bigger break with the economic and moral assumptions of the past 30 years. It needs a return to the conviction that economic growth and the affluence it brings is a means and not an end. The end is what it does to the lives, life-chances and hopes of people. Look at London. Of course it matters to all of us that London's economy flourishes. But the test of the enormous wealth generated in patches of the capital is not that it contributed 20%-30% to Britain's GDP but how it affects the lives of the millions who live and work there. What kind of lives are available to them? Can they afford to live there? If they can't, it is not compensation that London is also a paradise for the ultra-rich. Can they get decently paid jobs or jobs at all? If they can't, don't brag about all those Michelin-starred restaurants and their self-dramatising chefs. Or schooling for children? Inadequate schools are not offset by the fact that London universities could field a football team of Nobel prize winners.
The test of a progressive policy is not private but public, not just rising income and consumption for individuals, but widening the opportunities and what Amartya Sen calls the "capabilities" of all through collective action. But that means, it must mean, public non-profit initiative, even if only in redistributing private accumulation. Public decisions aimed at collective social improvement from which all human lives should gain. That is the basis of progressive policy - not maximising economic growth and personal incomes. Nowhere will this be more important than in tackling the greatest problem facing us this century, the environmental crisis. Whatever ideological logo we choose for it, it will mean a major shift away from the free market and towards public action, a bigger shift than the British government has yet envisaged. And, given the acuteness of the economic crisis, probably a fairly rapid shift. Time is not on our side.
• Eric Hobsbawm's most recent publication is On Empire: America, War, and Global Supremacy
II.
http://monthlyreview.org/nfte090401.php
Notes from the Editors
April 2009
It is now universally recognized that the U.S. economy is experiencing a deep downturn unlike anything seen since the 1930s. Hence, the question continually arises: How close is this to a depression? One way of answering is to look at the unemployment rate. The Great Depression hit bottom in 1933 when unemployment peaked at 25 percent. Today the United States is losing jobs at the rate of 600,000 a month. But the official unemployment rate currently stands at 8.1 percent (seasonally adjusted, February 2009). This is the highest rate of official unemployment in a quarter-century, but hardly what is considered a depression-level rate, which is usually thought of as well into the double-digits.
However, it is increasingly apparent that the official unemployment rate is much too conservative in its measure of labor underutilization, causing some of the better economic analysts to place their emphasis on the most inclusive unemployment rate provided by the Bureau of Labor Statistics (BLS), known as the U-6 measure, as opposed to U-3 (the official unemployment rate). U-6 is comprised of three components: (1) The "officially unemployed," or U-3, those who are jobless and have looked for work in the past four weeks. Plus (2) "marginally attached workers," or jobless individuals who desire employment and have looked in the past year but are not presently looking. (This includes as subcategories: [a] "discouraged workers" who consider the job market effectively closed to them; and [b] all other marginally attached workers, who often point to structural reasons for not pursuing employment, such as lack of childcare or transportation.) Plus (3) those "part time workers" who are part time for economic reasons and desire full-time employment. (John E. Bregger and Steven Haugen, "BLS Introduces a New Range of Alternative Unemployment Measures," Monthly Labor Review 118, no. 10 [1995].) The U-6 unemployment rate is currently at 16 percent (non-seasonally adjusted, February 2009).
U-6 is clearly the most developed measure of the real unemployment rate. As Paul Krugman has argued, "the official unemployment rate [U-3] has been a poor guide to the reality of the labor market in recent years," while U-6 is to be preferred as a more comprehensive measure ("Labor Market Deterioration," New York Times blog, April 5, 2008). Still, it is worthwhile to note how far U-6 itself is from measuring labor underutilization. Some of the limitations of U-6 include the failure to account for the effects on unemployment figures of large numbers of people on Social Security disability, and a high incarceration rate (which falls on populations with a disproportionately high rate of unemployment). Both of these arguably represent forms of "hidden unemployment" (See Hasmet M. Uluorta, The Social Economy [New York: Routledge, 2009], 48-49.)
Indeed, dissatisfaction with the unemployment series, whether U-3 or U-6, has caused some analysts to turn to a separate measure sometimes known as the "jobless rate" (not to be confused with the colloquial use of the same term to refer to the unemployment rate). This is defined as the percentage of the civilian non-institutional population ages 25–54 (or prime working age) without a job. Since women's labor force participation has changed radically in the last thirty years, drastically affecting these numbers, direct comparisons between the official unemployment rate and the jobless rate usually focus on men.
The important fact is that although fluctuations in the unemployment and jobless rates for men followed each other closely until the 1980s, after that the unemployment rate fell while the jobless rate increased, widening the gap between the two. At present there is a 10 point gap between the two rates (with the unemployment rate for men in February 2009 at 8 percent and the jobless rate for men at 18 percent). This compares to about a 3 point separation between the unemployment and jobless rates for men in the mid-1970s. In fact, today's jobless rate for men is currently 12 percentage points higher than it was in 1948 when it was only 6 percent. The jobless rate for all workers (women as well as men) at present (February 2009) is 23 percent. Clearly, where men in particular are concerned, the percentage of the prime-age population that is jobless has risen dramatically, well into double-digit levels, even without considering the effects of part-time employment. (Bureau of Labor Statistics; Yoonsoo Lee and Beth Mowry, "Gender Differences in Employment Statistics," Cleveland Federal Reserve Bank, May 13, 2008; Floyd Norris, "Many More Are Jobless Than Are Unemployed," New York Times, April 12, 2008).
What does all of this add up to? Namely this: unemployment/underemployment in the U.S. economy is massive and growing rapidly—a fact which can no longer be disguised. To be sure, current measurements reflect the organization of labor markets in a capitalist society. Employers and government statisticians are mainly interested in how much slack there is in the economy and not in the level of human misery. Yet, a close examination reveals the depth of human misery as reflected in unemployment statistics is nonetheless profound. One out of every six workers is currently unemployed or underemployed according to the U-6 accounting. While close to one out of every four prime-age adults are jobless according to jobless rate calculations. Providing useful and (to the extent possible) rewarding employment for all is something that should be demanded of any economy. If the existing system cannot provide this, then reason and morality suggest that the underlying population should rise up and replace it with one that can.
—March 6, 2009
III.
World Bank Updates Global Economic Forecasts
- First decline in global output since World War II expected in 2009
- GDP growth projected to sharply contract in the developing world this year
- Weak recovery possible in 2010, but pace and timing highly uncertain
March 31, 2009— Rich countries across the world are in simultaneous recession, with their output falling sharply in the last quarter of 2008. And of the 16 developing countries that have quarterly data available, 15 have shown a fourth-quarter GDP decline.
As heads of governments convene in London this week for the G-20 summit, the World Bank has sharply marked down its November 2008 forecast of 4.4 percent GDP growth in the developing world in 2009 to 2.1 percent, noting that there may be a weak recovery in 2010. However, the pace and timing of recovery remain highly uncertain.
Global GDP growth, after a robust eight-year stretch, is now set to contract by 1.7 percent this year, the World Bank predicts. This is a historic contraction, with world output set to decline for the first time since World War II.
"Even if global growth turns positive again in 2010, we are not yet out of the woods," said Hans Timmer, Manager, Global Trends in the World Bank's Development Prospects Group, "We expect that the level of GDP will remain well below potential, and so economic distress will remain acute for the next two years."
Feeling the pulse of the global economy
Timmer explained that the global economy was going through "a perfect storm," with the global recession, the credit crunch, and languishing confidence working together in a very negative dynamic.
The investment banking collapse last year and the ensuing credit crunch were followed by a sharp decline in industrial production across the world, especially in economies specializing in investment goods, such as Taiwan, China; and Japan.
The crisis was preceded by eight years of extraordinary economic growth in developing countries, supported by double-digit growth in investments. And investments are especially hard hit now by the tough financial conditions.
With the decline in industrial production has come an immediate fall in commodity prices—more than a 50 percent drop in oil prices and more than 40 percent in non-oil commodity prices.
The World Bank now expects a 6.1 percent contraction in 2009 in the volume of world trade in goods and services. The value of world trade will collapse much more because of the fall in commodity prices.
This is bad news for government revenues. It is the poorest countries that depend most on trade for their fiscal revenues. For example, in Lesotho, Swaziland and Cote d'Ivoire, between 40 and 50 percent of fiscal revenues come from trade.
"The immediate impact of the financial crisis has been on the private sector, but before the year is out, we will likely see many countries run into fiscal problems," Timmer warned. "This is because governments are already beginning to see a decline in revenues, while their spending has to increase and borrowing costs are up."World GDP growth is likely to increase to 2.3 percent in 2010, but significant risks could mar this outlook. For example, if balance of payments crises are not prevented, much sharper contractions would occur in 2009, possibly continuing into 2010.
The outlook for developing regions
Europe and Central Asia has been worst affected by recent developments. GDP in the region is expected to fall by 2 percent in 2009, compared with a 4.2 percent increase in 2008.
Latin America and the Caribbean will also likely see GDP contract in 2009, although at the country level outturns may be diverse. Overall, GDP is projected to decline 0.6 percent following gains of 4.3 percent in 2008.
East Asia and the Pacific is likely to be most affected by the falloff in global investment and trade. Already this has cut sharply into industrial production and capital spending. GDP growth is expected to ease to 5.3 percent in 2009, as growth in China slumps to 6.5 percent, and several smaller economies in the region, including Thailand fall into recession.
Prospects for South Asia have been marked down to 3.7 percent growth for 2009, down from 5.6 percent growth in 2008. Though terms of trade have moved in the region's favor with lower oil prices, weaker export demand is being felt sharply.
Growth in the Middle East and North Africa appears least affected among developing regions, now projected to be 3.3 percent in 2009. Reduced oil revenues and cuts in oil output will restrain GDP among oil exporters to 2.9 percent from 4.5 percent in 2008.
In Sub-Saharan Africa, GDP growth is expected to halve from 4.9 percent in 2008 to 2.4 percent in 2009. The dramatic shift in commodity prices will have strong effects across countries.An emergency for development
World Bank analysis shows that the impact of the crisis is being felt by poor people across the world, many of whom were already hit hard by the food and fuel crises. The pace of poverty reduction has slowed, with about 65 million people estimated to remain under the $2 a day poverty line in 2009 as a result of the crisis.
"Conditions of recession are affecting the world's poorest people, making them more vulnerable than ever to sudden shocks—but also reducing the opportunities available to them, and frustrating their hopes," said Justin Yifu Lin, World Bank Chief Economist and Senior Vice President, Development Economics. "This could reverse years of progress, and is nothing less than an emergency for development."
The upcoming Global Monitoring Report 2009, published annually by the World Bank and International Monetary Fund, and due to be released in late April, will assess the impact of the crisis on the 2015 Millennium Development Goals.
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