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The Global Crisis,The Global Crisis,

the Political Economy of State Restructuring,the Political Economy of State Restructuring,

and the Campaign for Transformative Social Protectionand the Campaign for Transformative Social Protection

Bonn JuegoPhD Fellow

Global Development StudiesAalborg University, Denmark

E-mail: bonnjuego@yahoo.com

Presentation for the Asia-Europe People’s Forum (AEPF) Conference onSoutheast Asia Regional Roundtable Strategizing Meeting:

Building Southeast Asia Peoples' Agenda on Transformative Social Protectionas a Democratic and Human Rights Response to the Crisis

Asian Institute of ManagementMakati City, Philippines

12 October 2009

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The Global Crisis:The Global Crisis:Nature, Responses, and AlternativesNature, Responses, and Alternatives

CONTENTSCONTENTS

How can we make sense of crisis in capitalist development (inHow can we make sense of crisis in capitalist development (inparticular, neo-liberalism)?particular, neo-liberalism)?

Are there fundamental changes to the visions and strategies of globalAre there fundamental changes to the visions and strategies of globalgovernance institutions, the states, and the social movements in theirgovernance institutions, the states, and the social movements in theirrespective responses to the global crisis?respective responses to the global crisis?

What does transformative social protection mean in this moment ofWhat does transformative social protection mean in this moment ofcrisis?crisis?

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Constitutive Role of CrisesConstitutive Role of Crisesin the Evolution of Neo-liberalismin the Evolution of Neo-liberalism

Relationship: Crisis and Neo-liberalism Dysfunctional or Functional (or both)

Nature of Crisis and Neo-liberalism Born out of crises Evolved through crises Died of crises???

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NEO-LIBERALISM WAS BORN OUT OF CRISESNEO-LIBERALISM WAS BORN OUT OF CRISESComplex interaction of forces/events/phenomena...Complex interaction of forces/events/phenomena...

...Mutually reinforcing tendencies...Mutually reinforcing tendencies

recession in the developed capitalist economies after 1973, the OPEC oil crisis, and thecollapse of the Bretton Woods system

de-linking from the ‘gold standard’ internationalisation of financial markets as a result of the widespread abandonment of

exchange controls the massive increase in foreign bank lending to the Third World as consequence of the

recession in the major economies the growing stagnation of command economies the shift from import substitution in favour of export promotion in the Third World and

the rise of the NICs in East Asia the imposition of structural adjustment programmes (SAPs) on the heavily-indebted

Third World as conditionality attached to rolling over foreign debt the restructuring of global production towards ‘post-Fordism’ and the growth of MNCs ‏ the revolution in macroeconomic policy that resulted in the weakening of trade unions,

the cutting of state budgets, deregulation, privatisation, etc. the advances in ICT (as the new ‘techno-economic paradigm’) ‏ Etc....

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NEO-LIBERALISM HAS EVOLVED THROUGH CRISESNEO-LIBERALISM HAS EVOLVED THROUGH CRISESFrom crisis to crisis in the last 30 years....From crisis to crisis in the last 30 years....

National Developmentalism (postwar-1970s) Crisis of Fordism/Keynesianism (stagflation)

Washington Consensus – 1st Generation Neoliberal reforms (1980s –mid-1990s) Crisis of market fundamentalism of the Washington Consensus — ‘East

Asian Miracle’ (8 HPAEs showing high growth and high equity with stateintervention)

Post-Washington Consensus – 2nd Generation reforms (mid-1990s -2008) Cacophony of crises: financial crises, overaccumulation, overproduction,

over-/under-consumption, climate change, ecological degradation, politicallegitimacy, global governance crisis, oil crisis, food price crisis, subprimecrisis

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NEO-LIBERALISM HAS DIED OF CRISES(?)NEO-LIBERALISM HAS DIED OF CRISES(?)Signs of the Times, a Cacophony of Crises:Signs of the Times, a Cacophony of Crises:

RIP Neo-liberalism (1980s-2008)RIP Neo-liberalism (1980s-2008)

Is neo-liberalism dead? Depends on what we mean by ‘neo-liberalism’....

The neo-liberal form (i.e., market fundamentalism)is dead;

But not the substance of capitalism as a:

processprocess of capital accumulation; relationsrelations in which labour is subordinated to capital

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Neo-liberalism: A strategy for market-ledNeo-liberalism: A strategy for market-leddevelopment, A blueprint for crisis managementdevelopment, A blueprint for crisis management

Neo-liberal values: well-being of the financial institutions over well-being of the people

E.g.

Debt crisis in Latin America (1982) Crisis Response: SAPs

Financial Crises: Scandinavia (early 1990s); Mexico (1994); East andSoutheast Asia (1997); Russia (1998); Argentina (2001); Turkey (2001-02); US Subprime mortgage (2007-09) Crisis response: ‘open’ international financial architecture

US subprime crisis (2007-09) Crisis response: Bush-Paulson-Bernanke-Obama Bailout Programme

(restore power of corporations; assure ascendancy of finance capital)

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In times of crisis,In times of crisis,““assets return to their rightful ownersassets return to their rightful owners””!!

‘Financial crises have always caused transfers of ownership and power tothose who keep their own assets intact and who are in a position tocreate credit, and the Asian crisis is no exception....there is no doubtthat Western and Japanese corporations are the big winners.....The

combination of massive devaluations, IMF-pushed financialliberalization, and IMF facilitated recovery may even precipitate the

biggest peacetime transfer of assets from domestic to foreign ownersin the past fifty years anywhere in the world, dwarfing the transfers

from domestic to US owners in Latin America in the 1980s or in Mexicoafter 1994. One recalls the statement attributed to Andrew Mellon: "In

a depression assets return to their rightful owners”.’

—R. Wade and F. Veneroso (1998),‘The Asian Crisis: The High Debt Model versus the Wall Street-Treasury-IMF

Complex,’ in The New Left Review, 228 (1998), 3-23.

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The Cacophony of Crises TodayThe Cacophony of Crises Today

Overproduction Finance (securitisation, speculative investments, Ponzi

scheme) Environment Climate (global warming) Oil Food (post-Green Revolution, the Great Hunger of 2008) Governance (WB, IMF, WTO, states) Etc.

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Mechanisms of Financial CrisesMechanisms of Financial Crisesand their Effects on the Real Economyand their Effects on the Real Economy

”Black Box”Production

of goods andservices

Money/capital

Therealeconomy“Güterwelt”

Financialeconomy“Rechenpfennige”

THE CIRCULAR FLOW OF ECONOMICSTHE CIRCULAR FLOW OF ECONOMICS

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COMPLEMENTARY FUNCTIONS, DIVERGENT NATURECOMPLEMENTARY FUNCTIONS, DIVERGENT NATURE

Socio-economic Socio-economic results will differ results will differdepending on the criteria that lead investmentdepending on the criteria that lead investment

Production capitalFinancial capital

Money and paper wealthStatic property“Investible” capital

Wealth-producing wealthFixed capital,technical capital,human capital, good will

AssetsAssets

Essentially mobileKnowledge indifferent

MobilityMobility

Tied to fixed assets, toknowledge of products, processes, capabilities,clients and markets

Wealth-creating assets,LONG-TERM GAINS

BiasBias Quasi-liquid assets, SHORT-TERM GAINS

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“In the years preceding the First World Warthere were in common use among economists a number of metaphors . . .'Money is a wrapper in which goods come'Money is a wrapper in which goods come’’; 'Money is the garment drapedround the body of economic life’; 'money is a veil behind whichthe action of real economic forces is concealed’ . . .

During the 1920s and 1930s

. . . money, the passive veil, took on the appearance of an evil genius; the

garment became a Nessus shirt; the wrapper a thing liable to explode.

Money, in short, after being little or nothing, was now everythingMoney, in short, after being little or nothing, was now everything . . .

SHIFTING ROLES OFSHIFTING ROLES OFMONEY ON THE REAL ECONOMYMONEY ON THE REAL ECONOMY

Then with the Second World War,the tune changed again. Manpower, equipment and organization once morecame into their own. The role of money dwindled to insignificanceThe role of money dwindled to insignificance. . .”

Arthur Cecil Pigou (1949) The Veil of Money, Macmillan pp.18-19

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Three basic and complementary mechanisms behind the conflictsThree basic and complementary mechanisms behind the conflictsbetween the real economy and the financial economybetween the real economy and the financial economy

(Financial Crises)(Financial Crises)

1. THE HAMMURABI EFFECT (Babylonia ca. 1795 – 1750 BC)

• The Effect of Compound Interest.

2. THE PEREZ EFFECT (Carlota Perez, Venezuelan economist)

• Technological Revolutions Create Financial Bubbles.

3. THE MINSKY EFFECT (Hyman Minsky, US, 1919-1996)• Liquidity preference turning point• + ‘bad projects’ killing credit to healthy projects.

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THE HAMMURABI EFFECTTHE HAMMURABI EFFECT((The Effect of Compound InterestThe Effect of Compound Interest))

“A shilling put out at 6% compoundinterest at our Saviour’s birthwould . . . have increased to agreater sum than the whole solarsystem could hold, supposing it asphere equal in diameter to thediameter of Saturn’s orbit.”

—Richard Price, English Economist, 1769.

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THE PEREZ EFFECTTHE PEREZ EFFECTTechnological Revolutions and Finance CapitalTechnological Revolutions and Finance Capital

Crash Institutionalrecomposition

The IndustrialRevolutionBritain

Age of Steamand RailwaysBritain (spreadingto continent and US)

Age of Steel, Electricityand Heavy EngineeringUSA and Germanyovertaking Britain

Age of Oil, Automobilesand Mass ProductionUSA (spreading to Europe)

Age of Informationand TelecomunicationsUSA (spreadingto Europe and Asia)

1829

1875 1895–1907

20??

late 1780s early 1790s1770s and early 1780s

1840s

1875–1884 1884–1893

Turning Point

1771

1830s

1908 1920–19291908–1920*

1971 1987–20011971–1987*

1908–1918*

1943–1959 1960–1974*

1893–95

big-bang

1929–33Europe

1929–43USA

1798–18121793–97 1813–1829

1850–1857 1857–18731848–50

2001–??

INSTALLATION DEPLOYMENTIRRUPTION FRENZY SYNERGY MATURITY

TechnologicalRevolutionCore country

1st

2nd

3rd

4th

5th

GREATSURGE

Note: * Observe phase overlaps between successive surges.

Approximate dates of the installation and deployment periodsApproximate dates of the installation and deployment periodsof the great surges of development -- 1771 to the presentof the great surges of development -- 1771 to the present

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THE MINSKY EFFECTTHE MINSKY EFFECT((Ponzi SchemesPonzi Schemes))

Types of financing

1. HEDGE financing• Low risk - can fulfill contractual payment obligation

2. SPECULATIVE financing• involves future renegotiating of the debt (rollover)

• A typical speculative position consists on financing long term assetswith short term liabilities.

3.3. PONZIPONZI financing financing•• ‘‘cash flows from operations are not sufficient to fill either thecash flows from operations are not sufficient to fill either the

repayment of principal or the interest on outstanding debts byrepayment of principal or the interest on outstanding debts bytheir cash flows from operationstheir cash flows from operations’’

• expected revenues can not afford even interest payments, and agentsare submitted to increasing debt

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Ponzi Ponzi SchemesSchemes

Ponzi schemes (such as subprime loans)

cause financial institutions to redefine thegame

they no longer compete for market sharebut instead pull out in order to be moreliquid.

In this way also, SOUND PROJECTSARE REFUSED CREDIT, AND ADOWNWARD SPIRAL STARTS.

Third World debt/lending was also a Third World debt/lending was also a PonziPonzischeme.scheme.

Myrdalian ‘perverse backwashes’ Funds tend to flow from poor to richfrom poor to rich

countries!

(Charles Ponzi - police mugshot, 1910)

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Responses to CrisisResponses to Crisis

SCHUMPETERIAN: ‘IT HAS TO BURN OUT ALONE’

KEYNESIAN: ‘REPAIR IT’, but without encouraging the very behaviour

that caused the problem in the first place.

MARXIST: ‘REPLACE IT’ — overthrow crisis-ridden capitalist system;

establish socialism, a democratic economic planning

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“Times of innovation ... are timesof effort and sacrifice, of workfor the future, while theharvest comes after.... Theharvest is gathered underrecessive symptoms and withmore anxiety than rejoicing....[During] recession ...[During] recession ... muchmuchdead wood disappearsdead wood disappears.”

—Joseph Schumpeter (1939)Business Cycles

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““I I sympathize, therefore, with those whosympathize, therefore, with those whowould minimize, rather than withwould minimize, rather than with

those who would maximize, economicthose who would maximize, economicentanglement among nations. Ideas,entanglement among nations. Ideas,

knowledge, science, hospitality, travelknowledge, science, hospitality, travel–– these these are the things which should ofare the things which should oftheir nature be international. But lettheir nature be international. But letgoods be homespun whenever it isgoods be homespun whenever it is

reasonably and conveniently possible,reasonably and conveniently possible,and, above all, let finance beand, above all, let finance be

primarily national.primarily national. Yet, at the same Yet, at the sametime, those who seek to disembarrasstime, those who seek to disembarrassa country of its entanglements shoulda country of its entanglements shouldbe very slow and wary. It should notbe very slow and wary. It should notbe a matter of tearing up roots but ofbe a matter of tearing up roots but ofslowly training a plant to grow in aslowly training a plant to grow in a

different direction.different direction.

For these strong reasons, therefore, I amFor these strong reasons, therefore, I aminclined to the belief that, after theinclined to the belief that, after thetransition is accomplished, a greatertransition is accomplished, a greatermeasure of national self-sufficiency andmeasure of national self-sufficiency andeconomic isolation among countries thaneconomic isolation among countries thanexisted in 1914 may tend to serve the causeexisted in 1914 may tend to serve the causeof peace, raof peace, rather than otherwise. At anyther than otherwise. At anyrate, the age of economic internationalismrate, the age of economic internationalismwas not particularly successful in avoidingwas not particularly successful in avoidingwar; and if its friends retort, that thewar; and if its friends retort, that theimperfection of its success never gave it aimperfection of its success never gave it afair chance, it is reasonable to point outfair chance, it is reasonable to point outthat a greatethat a greater success is scarcely probabler success is scarcely probablein the coming years.in the coming years.””

—— John Maynard Keynes (1933 [1972]) John Maynard Keynes (1933 [1972]) NationalNationalSelf-sufficiencySelf-sufficiency

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““Modern bourgeois societyModern bourgeois societywith its relations ofwith its relations ofproduction, of exchangeproduction, of exchangeand of property,and of property, a societya societythat has conjured up suchthat has conjured up suchgigantic means ofgigantic means ofproproduction and ofduction and ofexchange,exchange, is like a sorcereris like a sorcererwho is no longer able towho is no longer able tocontrol the powers of thecontrol the powers of thenether world nether world whom he haswhom he hascalled up by his spells.called up by his spells.””

——Karl Marx and Frederick Karl Marx and Frederick Engels Engels (1848)(1848)Communist ManifestoCommunist Manifesto

““These are signs of the times,These are signs of the times,not to be hidden by purplenot to be hidden by purplemantles or black cassocks.mantles or black cassocks.They do not signify thatThey do not signify thattomorrow a miracle willtomorrow a miracle willoccur.occur. They do show that,They do show that,within the ruling classeswithin the ruling classesthemselves,themselves, the forebodingthe forebodingis emerging that theis emerging that thepresent society is no solidpresent society is no solidcrystal,crystal, but an organismbut an organismcapable of change, andcapable of change, andconstantly engaged in theconstantly engaged in theprocess of change.process of change.””

——Karl Marx (1867)Karl Marx (1867)Capital, Capital, VolVol. 1. 1

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The World Bank, IMF and their G-20 allies:The World Bank, IMF and their G-20 allies:Using the global crisis to their advantage....Using the global crisis to their advantage....

G-20: IMF is back!G-20: IMF is back!Dominique Strauss-Kahn, Managing Director of the IMF, G-20 Press Conference, 2 April 2009

Maybe some of you were in the IMF pressconference at the end of the Annual

Meeting last October. And if some of you were there,then you may remember

that what I said at that time is that IMF is back.Today you get the proof when

you read the communiqué, each paragraph, oralmost each paragraph – let's

say the important ones – are in one way or anotherrelated to IMF work.

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WORLD BANK: WORLD BANK: Exactly Exactly the same global neo-liberal project!the same global neo-liberal project!World Bank, Global Monitoring Report 2009: A Development Emergency, p. xii.

The report sets out six priority areas for action to confront the development emergency that now facesmany of these countries. First, we must ensure an adequate fiscal response in developing countries toprotect the poor and vulnerable groups and to support economic growth. Priority areas must bestrengthening social safety nets and protecting infrastructure programs that can create jobs whilebuilding a foundation for future productivity and growth. The precise fiscal response needs to be tailoredto individual country circumstances, consistent with maintenance of macroeconomic stability. Second,we must provide support for the private sector and improve the climate for recovery and growth inprivate investment, including paying special attention to strengthening financial systems. Helping smalland medium enterprises get access to finance for trade and investment is vital for job creation. But thecrisis has also underscored the importance of broader reforms to improve the stability and soundness ofthe financial system. Third, we must redouble efforts in human development and recover lost ground inprogress toward the MDGs. We can do this not only by strengthening key public programs for healthand education, but also by better leveraging the private sector’s role in the financing and delivery ofservices.

In support of these efforts to help developing countries, the report emphasizes three key globalpriorities. Donors must deliver on their commitments to increase aid. Indeed, the increased needs ofpoor countries hit hard by the crisis call for going beyond existing commitments. National governmentsmust hold firm against rising protectionist pressures and maintain an open international trade andfinance system. Completing the Doha negotiations expeditiously would provide a much-needed boost inconfidence to the global economy at a time of high stress and uncertainty. Finally, multilateralinstitutions must have the mandate, resources, and instruments to support an effective global responseto the global crisis. The international financial institutions will need to play a key role in bridging thelarge financing gap for developing countries resulting from the slump in private capital flows, includingusing their leverage ability to help revive private flows.

Source: World Bank, Global Monitoring Report 2009: A Development Emergency, p. xii.

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World Bank President Robert World Bank President Robert Zoellick Zoellick (31 March 2009, prior to the G-20(31 March 2009, prior to the G-20Meeting): Meeting): New Powers for the Multilaterals!New Powers for the Multilaterals!

• “a WTO monitoring system to advance trade and resisteconomic isolationism, while working to complete the Dohanegotiations to open markets, cut subsidies, and resistbacksliding”;

• “a monitoring role for the IMF, to review the execution of ..stimulus packages and assess results, calling for furtheraction if necessary”;

• IMF and World Bank Group monitoring of actions andresults in the banking sector, with financial sectorassessments to be extended to developed countries, “withthe results published, taken seriously, and followed up”;

• an overhaul of the financial regulatory and supervisorysystem” in which “most of the actual authority overregulation will rest with national governments”, but withinwhich an expanded FSF [Financial Stability Forum] “couldbecome another important institution of a strongermultilateral system, working with the IMF and the WorldBank group on implementation”

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IMF: IMF: ‘‘An opportunity to make progress on seemingly intractable An opportunity to make progress on seemingly intractable issuesissues’’IMF (February 2009), Initial Lessons of the Crisis for the Global Architecture and the IMF

Bottom line. The crisis has revealed flaws in key dimensions ofthe current global architecture, but also provides a uniqueopportunity to fix them. On the flaws, surveillance needs to

be reoriented to ensure warnings are clear, successfullyconnect the dots, and provide practical advice to policymakers. An effective forum for policy makers with the

ability and mandate to take leadership in responding tosystemic concerns about the international economy is key.

Ground rules for cross-border finance need to bestrengthened. And, given the growing size of internationaltransactions, resources available for liquidity support and

easing external adjustment should augmented andprocesses for using them better defined so they are morereadily available when needed. These are all ambitious

undertakings. But the damage wrought by the crisisprovides an opportunity to make progress on seeminglyintractable issues. The moment should not be missed.

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ASEAN: ASEAN: ‘‘Ensure free flow of goods, services and investmentEnsure free flow of goods, services and investment’’ASEAN Member States, Press ASEAN Member States, Press CommuniqueCommunique, Thailand, 1 March 2009, Thailand, 1 March 2009

• “the necessity of proactive and decisive policy actions to restore market confidence and [to] ensure continued

financial stability to promote sustainable regional economic growth”

• “expansionary macroeconomic policies, including fiscal

stimulus, monetary easing, access to credit including trade

financing, and measures to support private sector, particularly small and medium enterprises (SMEs)

undertaken by each ASEAN Member State to stimulate domestic demand”

• “ coordinating policies and taking joint actions that would be

mutually reinforcing at the regional level”

• “determination to ensure the free flow of goods, services

and investment, and facilitate movement of business persons, professionals, talents and labour, and freer flow of capital”

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StatesStates’’ Bailouts and Resiliency Plans Bailouts and Resiliency Plans(Bailouts for the poor???)(Bailouts for the poor???)

Malaysia

First stimulus measure: increasecapitalisation of a governmentinvestment company by USD 5billion (also to stabilise stock

exchange)

Philippines

Economic Resiliency Plan(ERP): PhP 330 billion

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Global Civil Society ChallengeGlobal Civil Society Challengeand the Challenge to Global Justice Movementsand the Challenge to Global Justice Movements

—— ‘‘Another World Is NecessaryAnother World Is Necessary’’ ——

““TThhe crisis consistse crisis consistsprecisely in the factprecisely in the fact

thatthat the old is dyingthe old is dyingand the new cannotand the new cannot

be bornbe born; in this; in thisinterregnum a greatinterregnum a great

variety of morbidvariety of morbidsymptoms appear.symptoms appear.””

—Antonio Gramsci (1971)Prison Notebooks

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Crisis as a Crisis as a ‘‘Turning PointTurning Point’’

CRISIS from Greek ‘krisis’ “the turning point of a

disease when an importantchange takes place, indicatingeither recovery or death”

People from left, right, centre lookat the crisis the ‘Chinese way’ —i.e., an opportunity to advancetheir respective interests!

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Transformative Social ProtectionTransformative Social Protection

Neo-liberals

Well-being of themarket/financialinstitutions

TSP

Well-being of thepeoplepeople

MaterialMaterial — not justideational — basisfor alternatives

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Lessons of the 1997 Asian Crisis for TSP Campaign(Towards a Democratic and Human Rights Response to Crisis)

Democratisation Democratisation may be stalled.may be stalled. Justification for authoritarian rule (e.g. ‘Asian Values’)

Human Rights compromised.Human Rights compromised. Human rights obligations sidelined in the name of

surveillance and internal security (Malaysia, Singapore)

The poor severely neglected.The poor severely neglected. e.g., ASEM Trust Fund failed to target the poor,

workers, and the vulnerable, adversely affected groups.

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Emergent AUTHORITARIAN LIBERALISM in AsiaEmergent AUTHORITARIAN LIBERALISM in Asia(Authoritarian Polity, Market Economy)(Authoritarian Polity, Market Economy)

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CONCLUDING REMARKSCONCLUDING REMARKS

1. The Constitutive Role of Crises in the Evolution ofNeo-liberalism

i. was born out of the crises of the 1970s

ii. has evolved through a series of crises over the last30 years

iii. died of the cacophony of crises culminating in thecurrent global economic crisis.

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As it shows, crises have so far been functional,rather than dysfunctional, to neo-liberalism:

Crises reshape class and social relations but in ways thatperpetuate the hegemony of capital over labour and thepreservation of elite rule.

Crises restrategise development plans of institutions frominternational organisations to states to further advance, notretreat from, market-led development.

Crises restructure states and societies in which social institutionsare oriented towards the logic, requirements, and imperatives ofneo-liberalism.

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2. The responses to the global crisis from themultilaterals, to regional organisations, to statesare fundamentally the same through the years,with or without crisis.

But there are differential catastrophic impactsacross social classes, amongst the poor,marginalised, vulnerable sectors.

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3.3. Another world is necessary!Another world is necessary!

Tranformative Tranformative SocialSocial Protection Protection nownow!!!!!!

‘‘Social SecuritySocial Security’’ (at a minimum, right to livelihood, food,healthcare, water, housing, education, and other essentialservices): both timeless and universal

The TSP Campaign: find, advance, and create a democratica democraticand human rights responseand human rights response — protect, care for, and workwith the most vulnerable sectors such as the urban and ruralpoor, the workers, women, migrants, farmers and fisherfolks,persons with disability, and indigenous peoples

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Thank you very muchThank you very much..

—Bonn Juego