A global meltdown

Pritam Singh

WHEN the last major financial crisis of capitalism occurred in 2007-08, triggered by the collapse of the over 160-year-old investment bank Lehman Brothers, some analysts who wanted to deny that this was symptomatic of a deeper crisis of capitalism argued that it was nothing unusual because capitalism by nature develops in an uneven manner. The rising economic power of some emerging economies such as BRICS (Brazil, Russia, India, China and South Africa), particularly of China, was referred to as a sign of capitalism rising while it was declining in the old traditional capitalist economies clubbed under the OECD (Organisation of Economic Cooperation and Development).

From the viewpoint of global capitalism, it was argued, it did not matter that capitalist development declined in one country as long as it rose in another country and it was claimed that this was even more important now than ever because contemporary capitalism is more globally integrated and connected than it ever was. Massive hopes were pinned on the phenomenal economic expansion and growth taking place in China and India in the BRICS club, but also in MINT (Mexico, Indonesia, Nigeria and Turkey) economies. According to one estimate, if the growth rates prevalent at that time persisted, by 2050 China and India will be the dominant global suppliers of manufactured goods and services, respectively, while Brazil and Russia will become the principal suppliers of raw materials. To emphasise this global shift in world economy, it was argued sometimes that the 18th century was a French century, the 19th century was a British century, the 20th century was an American century and that the 21st century would be an Asian (or perhaps Chinese) century. 

This narrative was not wholly untrue because capitalism does develop unevenly. The entire history of capitalism has been a history of uneven development. This uneven development is in terms of class, region and gender to just point out a few nodal points of this uneven development. This uneven development is not unique to the capitalist mode of production but the onset of the capitalist mode of production has intensified and exacerbated this tendency towards uneven development. This is both the source of strength and weakness of capitalism. Capitalism is a dynamic economic system — constantly upsetting existing technologies, markets, products, designs, consumption patterns and life styles. This is what Schumpeter called creative destruction. The national differences in technology, marketing, product range, agriculture-industry linkages, financial institutions, natural and human resources, political and legal structures, socio-cultural hierarchies, military institutions and the bargaining power of competing classes — all of these combine in complex ways to determine the competitive power of nations in the global economy. Changes in the matrix of these forces inevitably lead to a decline in the economic, political and military power of some nations and to the rise of others.

What was missing, however, in this narrative was that it did not recognise that the current phase of uneven development was critically different from all earlier periods of uneven development, mainly from the viewpoint of colossal global sustainability implications of this spatial shift in global capitalism. In all earlier phases of uneven development, it was assumed that the standard western model of development — whether of the Anglo-Saxon variety or of the European variety — would be repeated. This is, more or less, what happened in the NICs (Newly Industrialised Countries) model of development in South Korea, Taiwan, Singapore and Hong Kong in the late 1960s and 1970s. The rise of the neo-liberal economic doctrine since the 1990s meant that it was believed that China, India and other emerging economies would also similarly duplicate the western model of capitalist development. This model of development was based on the incessant growth of consumerism which then is relied upon to sustain the maximum possible rates of production and growth to meet this consumer demand, and further, to create new demand. This pattern of growth is accompanied by increasing reliance upon borrowing from financial institutions to support this demand and economic growth. One part of China’s current crisis is the huge growth of indebtedness of households, companies and local governments. At some point, this growing debt becomes unsustainable and the balloon bursts. The other part of China’s crisis — which, in fact, is deeper than what is being reported now — is the environmental crisis. The recent industrial disaster of Tianjin explosion of toxic chemicals, killing more than 100 persons, is one of the many environmental disasters taking place in China. For example, the air pollution in Beijing, some months ago, rose so high that the government had to officially appeal through the public address system that residents should not come out of their houses because of the fear of pollution causing illness and possibly deaths. This has occurred more than once in Beijing. 

Both the unsustainable debt and the growing environmental crisis highlight a very important lesson of critical historical significance, namely that the western model of capitalist development can no longer be duplicated. The ecological limits to the application of that model make it now unsuitable for duplication. There are some indications that sections of China’s policy-making elite are becoming aware of the ecological limits to continuous growth due to the lurking dangers of climate change and global warming caused by unsustainable growth. However, this awareness remains isolated and scattered. 

A new model of development, and not piecemeal patchwork of policy change, is the answer to the crisis emerging in China which is engulfing the global economy with its worst consequences for many commodity-producing developing economies dependent upon Chinese demand for their commodities and natural resources. This alternative model of development has to be different from the western model of capitalist development due to its anti-environmental and anti-egalitarian consequences, as well as from the old Soviet style of socialism which was also environmentally-destructive and anti-democratic. The current Chinese model is the worst combination of all — capitalist in its economy, authoritarian in its politics and anti-environmental in its consequences. The vision of eco-socialism based on marrying ecology with economy along with social egalitarianism holds hope for the future during these times of multiple crises. 

— The writer is a Professor of Economics at Oxford Brookes University, Oxford, UK