This isn't the sort of thing society grows out of. It's the sort of thing that society grows into
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World Capitalism 2005: Living beyond its means.
For the first time in over 100 years, American capitalism has started its economic recovery with it current account in deficit. That deficit currently stands at an historic high of over $600 billion, nearly six per cent of its GDP.
Washington and Wall Street have expressed concern about the sustainability of this burgeoning deficit, and alarm is growing at the steady rate of decline for the dollar. The dollar has fallen consistantly since the fisrt quarter of 2001, and is set to fall further.
Many people still call America a 'super-power', but in terms of its importance to the global economic system it is in fact a 'hyper-power'. But the structural deficiencies that produce the US deficit have made America the largest debtor nation on earth. It used to be the largest creditor nation for much of the last century, up until the mid 1980's.
America is in debt, more than any other country, and this debt keeps growing - it casts a dark cloud over the world economy and US relationship with its creditor nations, notably, Japan and China. That is the USA, the budget deficits in nearly all the G7 nations have also become larger since 2002.
Their resilience: A price worth paying?
The capitalist elite of today is a survivor, none of them would ever contemplate being a loser or a victim. Notwithstanding all the pressure generated by global competition, they still manage to stabilise economic imbalances.
The old economies of the West now have 'flatter' economic cycles, no more 'boom and bust' - as observed by the Chairman of the Federal Reserve Board, Alan Greenspan states that 'the recovery was more modest than usual'.
See: Chairman Alan Greenspan - Economic outlook.
So what we have today is 'weak expansions and weak recessions', with minimal growth - thereby undermining social progress in general. It seems that todays capitalists are content with just plodding-a-long. They will no doubt muddle-through by becoming more flexible. There is no limit to inventing mechanisms that can offset structural imbalances.
The debt crisis of Argentina (who defulted), Mexico and Russia certainly caused deep anxiety in Western financial circles, but such impacts have in fact caused little disturbance in the financial system as a whole. This shows to me that they have an in-built resilience to managing economic damages.
China is the sixth largest economy, reckoned to be the third largest by the year 2010 - over taking Britain, France and Germany. China provides the world economy with enormous stability today, as it contributes to global growth. Greater stability sounds fine, but, in the West investment has been anaemic to say the least.
The lacklustre performance of the 'old' economies in the West, combined with the rise of 'new' economies in the East temporarly wipes out any fiscal inbalances, in the short-term. But in the near future, lenghty periods of mediocre economic growth will amount to large wastes' of potential productive resourses. Long-term drags on the economy underminds consistant wealth creation. In turn, it will act as a brake on social progress.
The cost.
National budget deficits are fast becoming like cocaine, addictive. There are side effects. The general rule is the more you borrow, the more difficult it becomes to borrow more in the future and it costs. Not having a recession or a boom is more a sign of economic weakness, rather than any inherent dynamism in Western capitalism itself. There will be a heavy price to pay in the long-term.
Submitted on Sun, 2005-01-16 19:03
Re: World Capitalism 2005: Living beyond its means.
Courtney, I agree that the US budget deficit is an issue, as is the level of public and private indebtedness in that country. I am not sure how this will express itself politically. There have been catastrophic predictions made about the deficit and indebtedness in the US many time since the collapse of the long boom in the early 1970s,. However the FED has managed to iron out the more extreme points of the crises (turning catastrophes into regional or sectoral disasters, for example death of the family farm, death of certain types of industries and their transfer to low cost locations).
I don’t think capitalists in developed states are content with ‘plodding along’. Their ‘thirst’ for profits has energised them to all kinds of expansive processes, whether that means wholesale transfer of industries to low cost regions with few or no environmental protection’s and weak labour movements, or outsourcing, or taking over huge sections of state functions. In the US, the social welfare system of some states, basic activities of the military, and the criminal justice system have been taken over by private corporations. The ‘marketisation’ of state functions will generate many contradictions and conflicts.
I agree with you that capitalism has had a very uneven record in restoring profitability. We certainly have not been able to return to the profit rates of the ‘long boom’ from 1945 to 1973. That failure will drive capitalism to ‘force more out of us’ and the social impact of that will undoubtedly be significant.
I don’t have a problem with deficits as a matter of principle. After all, borrowing can be a productive activity. The only society I know with an aversion to debt was Tyrant State Enver Hoxa (sic.)
Re: World Capitalism 2005: Living beyond its means.
"So what we have today is 'weak expansions and weak recessions', with minimal growth - thereby undermining social progress in general. It seems that todays capitalists are content with just plodding-a-long. They will no doubt muddle-through by becoming more flexible. There is no limit to inventing mechanisms that can offset structural imbalances. [...] Long-term drags on the economy underminds consistant wealth creation. In turn, it will act as a brake on social progress."
There's an assumption here that I don't accept - that "growth" and/or "wealth creation" equal something you describe as "social progress." What does that mean? It's certainly not an exact correlation. I think your responder hints that debt creation might be part of a deliberate political project (as in manufacturing a Social Security Crisis in the US to privatize, make it more expensive, and eventually destroy it). I'm not the first to suggest that conservatives with too much faith in markets might deliberately over-spend to justify cuts in social welfare.
What I'm surprised you don't seem to see is how the very "mechanisms" you describe - such as importing illegal aliens to work in US meatpacking plants, as recently documented by Human Rights Watch (http://www.humanrightswatch.org/english/docs/2005/01/25/usdom10052.htm)
to offset labor costs - might work AGAINST social progress, while maintaining a modicum of economic growth.
Re: World Capitalism 2005: Living beyond its means.
I'm afraid Ben Kuhlman, I would have to strongly disagree with you about the issue of growth/social progress.
Obviously, you can have a wealthy society, that has little, or static social progress, such as Saudi Arabia, or China. Saudi Arabia has great wealth, but it's citizens (or subjects) have little in the way of human rights. The same could be said of China. But this is a narrow view of social progress.
A broader definition of social progress would refer to the progress of society, on an economic dimension, as well as social. The two are closely linked because economic development and prosperity are key determinants of sociological change. Hence economic growth enables society to organise it's expenditure. As you well know, economic production has social implications, but what is not so well known, is that social change significantly influences economic events. The relationship between social change or progress, and economics is reciprocal - it's very difficult to to draw a line between the two.
So when our economy goes through weak expansions and weak recessions, for long periods - will mean that our growth settles at a low average rate. It is this tendency of prolonged economic atropy that undermines, even the possibility of having systematic social progress.
On the question of 'mechanisms' that capitalists develop, in order to address economic tensions and problems - you were right to highlight the issue of workers rights. It is the lack of workers rights and the decline of traditional trade unionism, worldwide, that have given capitalists greater room for manoeuvre. Industrial action these days are a mere shadow of the former conflicts and stuggles that took place 30, 40, or even 50 years ago. Indutrial conflict is not only less frequent, it lacks the class struggle component of earlier years.
The absence of any sharp social or political conflict, means, business and political elites have found it easier to iron out their economic imbalances - as in this case with the packing workers.
Re: World Capitalism 2005: Living beyond its means.
"A broader definition of social progress would refer to the progress of society, on an economic dimension, as well as social. The two are closely linked because economic development and prosperity are key determinants of sociological change."
That's the problem. To misuse Samir Amin's word, the two - economic growth and social progress - are becoming "delinked." Simultaneous tax cuts for the wealthy and social welfare cuts means the rich stay rich, and the poor stay poor, right? Then you can have "jobless recoveries" and the like. And health care? While I agree that economic growth and social progress are often linked, have historically been linked, and continue to be linked in many countries, I don't agree that it's a NECESSARY or CAUSAL connection. The economies you cite are examples of this. I don't think that "money" and "growth" are the same thing.
This speaks to the larger problem I have with your remarks. Who says that economies have to grow? What's so great about growth? I imagine an economy needs to be able to absorb population growth and inflation, but is growth intrinsically good? What are the costs of continuous growth?
Re: World Capitalism 2005: Living beyond its means.
Economies have to grow - or at least, not contract - to provide ongoing employment and to fuel the increasing demands of social programmes such as health, pensions and welfare. A contracting economy is an invitation to either reduced social programmes or to medium to long-term government borrowing to cover the gap between revenue (tax receipts) and expenditure. A government can only do this for so long before the piper has to be paid, as the US is now finding out.
While I can't remember the exact figures, the Bush tax cuts were badly skewed towards benefiting the wealthy - something like 1% of the wealthiest people (in excess of $200,000 pa) getting something like 60% of the benefits? - and the payroll tax was regressively adjusted, increasing payroll taxes for the vast majority of workers (which don't include the wealthy, who typically don't actually get paid a salary as a large percentage of their incomes). Although the Bush administration claimed that the tax cuts would only reduce receipts by something in the order of £500 billion, it turns out that the real figure is nearer £1.3 trillion. Read Paul Krugman's columns in the NYT for the actual numbers. He talks about it at least once a month! The fact that the "recovery" that the US is currently experiencing is fuelled by the extension of credit (thanks, Mr Greenspan) which is not being offset by increased production or productivity AND that what growth there is seems to be concentrated in the non-exportable service sectors AND that the recovery is not noticeably increasing the number of jobs being created AND the dollar is continuing to descend into the monetary abyss means that this isn't a "normal" recovery. The Fed's manipulation of the base interest rate is not having its "normal" effect of stimulating the US economy, and I would imagine that Mr Greenspan is a rather worried chappie right now. It must feel like putting your foot on the brakes in your car only to find that they don't work.
The net outcome will be that the Bush administration will now be able to push through cuts to existing retirement and medical benefits and will continue to extol the virtues of partial privatisation of retirement funds, using the excuse that "there isn't enough money", a situation which they have quite deliberately created. But there is a real danger that this will be the least of the US' problems.
All it will take now for the US to go into full-scale depression is for one of the US' creditor nations to start selling down T-bills. This will cause the whole thing to unravel rapidly instead of gradually. I fondly hope and imagine that this won't happen, because most of the US' creditor nations have a lot to lose if the dollar drops through the floor.
Yet the few economists - and certainly, not those working for the White House - who seem worried about the situation are being rubbished as unpatriotic jeremiahs. Paul Krugman and Steven Roach from Morgan Stanley have both been proven correct more than once in the past. Who's to say that they won't be right about this?
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