World economic crisis gives us a chance to see things differently | by Patrick Bond

by Sep 16, 2011All Articles

Amidst World Cup hoopla 13 months ago, one of the greatest losers, team Argentina, was consoled by a Buenos Aires magazine which congratulated the victors: “Crisis, unemployment, poverty, the end of welfare, submission to the International Monetary Fund and sporting success: the poor countries of the world salute the Spanish – Welcome to the Third World!”

Says Rodrigo Nunes of the magazine Turbulence, “Apart from being a brilliant joke, the headline made an excellent point: why is it that what is crystal clear for people in the global North when talking about the global South seems so difficult to process when it happens ‘at home’?”
Nunes continues, “Ask any relatively well-informed British citizen about violence in Brazil, and they are likely to tell you something about unequal wealth distribution, lack of opportunities… how the police make matters worse by being widely perceived as corrupt and prejudiced, and how the political system mostly reproduces this situation.”

In England last week, the productive economy wallowed in recession following the country’s biggest-ever bank bail-outs and accompanying state fiscal crisis, with bankers receiving massive bonuses and inequality soaring. Last month, top police officials in league with Rupert Murdoch’s phone-tapping ‘journalists’ resigned in disgrace and the Tory-Liberal government took the axe to social programmes, raising tuition fees at nearly 40 percent of universities to £9000 per year.

Why is anyone surprised at the logical consequences: an anarchic insurrection of multiracial, working-class, supremely-alienated youth?

The scream from the margins, plus the loss of $5 trillion of paper wealth in the world’s stock markets since the beginning of August, shocked establishment observers. Except one: a man nicknamed “Dr Doom” because of his prescient warnings about the financial meltdown of 2008, Nouriel Roubini.

Last Thursday, the Wall Street Journal asked the New York University business professor, “What can government and what can businesses do to get the economy going again or is it just sit and wait and gut it out?”

“Businesses are not doing anything,” replied Roubini: “They claim they’re doing cutbacks because there’s excess capacity and not adding workers because there’s not enough final demand, but there’s a paradox, a Catch-22. If you’re not hiring workers, there’s not enough labour income, enough consumer confidence, enough consumption, not enough final demand.”

Was the election of Barack Obama – for many voters the man to rectify George W. Bush’s systemic economic corruption – just another Wall Street scam? Aside from former NASDAQ chair Bernie Madoff, not a single banker has been prosecuted. Goldman Sachs still rules the roost, and an S&P ratings downgrade can set off a panic. So much was broken in financial markets, and apparently nothing was fixed.

According to Roubini, “In the last two or three years, we’ve actually had a worsening because we’ve had a massive redistribution of income from labor to capital, from wages to profits, and the inequality of income has increased. And the marginal propensity to spend of a household is greater than the marginal propensity of a firm because they have a greater propensity to save, that is firms compared to households. So the redistribution of income and wealth makes the problem of inadequate aggregate demand even worse.”

Add to this that the supposed prosperity of the middle class was ultimately a fiction based on consumer debt.

Here in South Africa, debt-to-income rates soared over the last five years, and “impaired credit” status rose from 37 percent of all  borrowers in 2007 to nearly half this year (an additional 2.3 million).  What with worsening inequality since the end of apartheid, extremely  militant labour and community battles against capital and state, and  more than a million jobs lost since 2009 and another half-million  anticipated to disappear in coming months, of course we are a frontline state in the world class struggle.

So upon reading the SA National Planning Commission’s fascinating diagnostic analysis of why South Africa is beginning to slide off the rails, it struck me that the screaming silences on economic management are more important than the NPC’s easy critiques.

To be sure, the NPC’s main revelation was striking, though we already know so much about the character of the governments in Pretoria, Pietermaritzburg and Durban: “State agencies tasked with fighting corruption are of the view that corruption is at a very high level. Weak accountability and damaged societal ethics make corruption at lower levels in government almost pervasive. Corruption in infrastructure procurement has led to rising prices and poorer quality.”

Durban’s senior municipal management gives us much to chew on: the Mpisanes’ township housing; Remant Alton’s privatized bus destruction; ex-mayor Obed Mlaba’s so-called waste-energy incineration tendering; and unending, unplanned subsidies for the Point redevelopment and uShaka amusement park, Luthuli International Convention Centre and Moses Mabhida Stadium. There, vast construction cost escalation and post-2010 utilisation planning by outgoing city manager Mike Sutcliffe raise questions of competence and cronyism, questions that Danny Jordaan implicitly asked in his apology for baiting SA with an uneconomic World Cup.

No matter South African vulnerability to chaotic world markets: e.g., last week’s 10 percent currency crash and the unprecedented hike in foreign debt from $80 billion last June to $104 billion today. The NPC diplomatically deferred from analyzing the deeper corruption of the economy – the wasting of productive capacity in favour of what is now regularly termed “financialisation” – even though amongst the world’s four dozen largest economies, interest rates are higher only in Greece.  Perhaps such a diagnostic would have implicated the minister in charge of the NPC, Trevor Manuel, who was finance minister from 1996-2009.

Upon launching the NPC two months ago, Manuel remarked, “When you can’t  locate where you are, your ability to reach your destination will be constrained. Last week the centenary of the Titanic was marked. If there are going to be icebergs on the route then you’d better know.”

NPC members didn’t want to see the world financial iceberg looming immediately ahead. Had they, there was an old navigator they could have turned to. At the end of last week’s Wall Street Journal interview Roubini reminded us, “Karl Marx had it right. At some point, capitalism can destroy itself. You cannot keep on shifting income from labor to capital without having an excess capacity and a lack of aggregate demand. That’s what has happened. We thought that markets worked. They’re not working.”

Instead, democratic planning is the only way forward, unless we want the contagion of looting from Tottenham and Wall Street alike.

The Mercury, Eye on Civil Society column, 16 August 2011

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