THE GRAND ILLUSION – MEGA-BUBBLE WORLD ECONOMY

By Andreas Exner

[This article published on: www.social-innovation.org, October 6, 2008 is translated from the German on the World Wide Web, www.krisis.org.]

“Regulation of the financial markets” has become the new mainstream. The CDU politician Heiner Geissler explained, “the market ideology has broken down.” The global justice network Attac feels confirmed. For a long time people have known “deregulated” financial markets are unstable. The death halloo is sounded. “The crisis is the direct consequence of the greed and unscrupulously of bankers and fund managers – and of the inactivity of politics,” Attac Germany proclaims on the title frame of its web page.

Attac is wrong.

The alleged “greed” is built in capitalism. In a money economy, production only makes sense when more money comes out than is invested. Competition forces this. Whoever does not make a profit dies. Profit is also maximized because no one is certain of anyone else on the market. In a money economy, having more money is better than less money. Very wrongly Attac raises its moral finger. More morality does not help one centimeter since the problem lies in the structure of society. People sell themselves to live. Attac should protest this.

Speculation is also not a privilege of the financial markets. Every economic activity in capitalism is ultimately speculative. No producer can be sure his or her business will be successful. Business success always first appears in the future. Whoever has no crystal ball must speculate – whether a factory produces goods or an investment fund buys firms.

Denouncing the “greed” of “Wall Street” is not only wrong. It borders on hypocrisy. As everybody knows, the global North consumes the resources of the global South. We literally devour the world’s future. In comparison, the alleged escapades of managers are peanuts. We ourselves are the “grasshoppers,” not the managers.

Why are “speculators” made responsible for the crisis of a mode of production caused by everyone, consumers, workers and voters? The answer seems to be twofold. Firstly, it is always easy to declare “the other” as the root of the deplorable state of affairs. Going the second mile for those dying of starvation and starting a militant campaign against individualized mass transportation is far more uncomfortable. Radicalizing labor disputes for social control of production would also be inconvenient.

Secondly, the powerlessness and lack of perspectives that Attac opposes appears in the projective apportioning of blame on the scapegoat. Instead of trying to organize production and everyday life, Attac makes demands on “Father state.” Supposedly Father state can settle everything when convinced with good arguments and good will…

The crisis is not really a limited fire on Wall Street that can be handled with a few laws. Rather a historical limit of the capitalist world system is manifest. We near the peak of a crisis of growth and the environment that has been developing since the end of the 1960s.

Natural limits first became conceivable with the 1973 oil shock. A few years before, the profit rates of the world economy began falling. Therefore the 1970s were a decade of weak growth and increasing social conflicts. A whole generation had enough of work and earning money and rebelled against bosses, politics and norms.

The neoliberal policy of Thatcher and Reagan was an effective counterblow. Social cuts, lower wages, intensified work pressure and increased control of wage earners by the state and capital made the profit rates rise again. While the global North spread its consumer model, it also massively speeded up the exploitation of natural resources. When the tiger states India and China walked on the stage of the world economy, the pressure on the foundations of production increased again.

Rising raw material prices and higher prices of food and energy show the capitalist mode of production has reached its limits.

This is already reflected in the economy. Even before the full extent of the financial crisis gradually becoming more blatant, many businesses abandoned their profit forecasts – on account of rising raw material prices. The Provimi group, one of the worldwide leaders in the fodder sector posted 15% lower profits in 2007 than in 2006. The reason was the higher price of raw materials. This was also true for the automaker Toyoto. Finally, Business Standard reports the profits of India’s economy suffered under high raw material prices. The list of these announcements is long.

Higher input costs are also reflected in the crude oil branch, one of the most capital-intensive branches of the world economy. Thus oil drillings become more expensive. A recent report of the International Herald Tribune sees one of the causes for the stagnation of oil production in non-OPEC states. This is plausible because the great oil fields of the world are already old and ever harder to exploit. Opening up new reserves becomes increasingly costly. The energy-returned on energy-invested (EROI), the relation between energetic expense and output, becomes increasingly worse.

Therefore the costs of living for wage earners are climbing. If higher wages were to prevail as a reaction to this, profit would be under a strong downward pressure and the recession would intensify. However this is very unlikely because unemployment rises and readiness for labor conflicts declines in a recession.

The financial bubble loses air in the eyes of the world. However all those that like Attac misjudge the seriousness of the situation and want to sell cheap prescriptions help form a new bubble which is at least as dangerous, the illusion of “regulation.” This bubble will burst much quicker than the real estate bubble when the true extent of the crisis first becomes irrefutable. However valuable time has already been lost.

This is inconvenient and true. In view of resource scarcity and climate change, the world economy as a whole is a “bubble economy,” a monstrous bet on a future that will not come any more. Recognizing this reality is important and drawing the lessons. We must seek ways out that are viable. Politics will hardly help.