Jim O'Connor, part 2

[Doug Henwood]

In sum, world economy needs more effective regulation by governments and
international bodies (led by the U.S.) while these governments and bodies
(and the U.S. itself) have yet to show that they can imagine, implement,
and enforce a meaningful crisis management strategy. As noted above, U.S.
leadership, while not repudiated by its leading allies, is being challenged
on a number of fronts. It will be recalled that no one in power in the U.S.
anticipated the crisis in Asia that began in the summer of 1997 nor the
disastrous results of IMF policy in Russia and some Asian countries.
Another (mainly) U.S. policy failure is the proven inability of the World
Bank to meet more than a fraction of the accumulating social costs
attendant on the world's financial trouble. Also is the resistance of many
G7 and OECD governments in Europe (and Asean in Asia) to the U.S.'s theory
of the crisis and attempts to resolve it. A final example is the
negotiations between the U.S.-dominated IMF and Brazil (where a capital
flight was near-fatally bleeding the economy) in October, which were far
from reaching an agreement about an austerity package for a country that
one Latin American financier called the "linchpin of world finance."
U.S./IMF success in stabilizing currencies in Thailand and Korea, which has
yet to boost the real economies of these countries, seem hollow compared
with the accumulation of U.S.-IMF policy negatives. Such considerations
suggest that the world crisis will not be easily resolved; that the U.S.'s
role in crisis resolution will be smaller than the U.S. government would
like, excepting perhaps its role as market of last resort; and that we
might be in for a long period of national and international political
economic restructuring - perhaps a global New Deal for business and finance
(but not for labor, which to date has been  weakly represented in the
deliberations of the big global players).
It's also worth noting that those countries where the political classes and
public policy are most disorganized are experiencing the greatest financial
problems and economic depression. First and foremost is Russia. Second is
Japan, where the political class is both corrupt and sharply divided along
a number of axes, most especially with regard to the desirability of more
political independence from the U.S. With respect to domestic issues, the
key split is between rural and city interests. The former don't want city
folk to socialize Japanese bank debt, which places too much of the burden
of crisis resolution on the rural districts. The latter don't want to
nationalize the financial system with the aim of restructuring banks and
other financial institutions from the bottom up because too many jobs and
privileges enjoyed by city folks owning and working in the financial sector
are at stake. (This is why I wonder if the bailout package approved by the
Diet in late October - a package that divides the burden between rural and
urban interests - will have the expected positive effects on the Japanese
economy, or if it is merely a political compromise without teeth.) Nor is
Japan able or willing to join the U.S. as a market of last resort for the
surplus products of Asia. Japan (like Europe), whatever the relative
importance of export versus home demand at any given time, will not give up
its balance of payments surpluses (hence strong currencies) nor will its
workers and small businesspeople uncritically ape mindless American
consumerism. That leaves investment and government spending as possible
sources of new effective demand. Home investment for the time being is dead
in the water, hence the great stress that the U.S. (and Japan) are placing
on tax reductions and an expansion of government spending, specifically
public works, to restart the Japanese economy. However, there are strong
conservative pressures in Japan to keep the already high budget deficit
from growing even higher; and because public works have been the main
avenue of internal economic expansion in Japan for a long time, it's
difficult for planners to develop new projects that make sense in terms of
economic rationality and social welfare. More important is the question
whether or not the Japanese will trade away their familist, groupist, and
egalitarian values and practices for more Anglo "economic efficiency" -
read dog-eat-dog economic practices. I don't think so, since it's Japanese
"groupism" that is mainly responsible for Japan's export powerhouse status,
that is, its superior capacity to compete with foreign countries, while
enjoying a relatively egalitarian society at home.
The other East Asian governments and political systems may be more or less
coherent than Japan's; there have been so many political upheavals in the
region in the last year or so it's difficult to say. Whatever the case,
there seems to be an unstable balance in most East Asian countries between
foreign exchange rate stabilization and macro-economic policy; between
financial stabilization and real economic growth (partly because of the
problem of intermediation between banks and industry); and between IMF
recipes for economic recovery (now less severe than they were up until
September) and social and political stability. In October, there was happy
talk that the Asian economies had bottomed out. This was inspired by the
fact that Asia has decided to deal with their bank crises by the
tried-and-true method of socializing business and bank debt, thereby
placing the burden not only of the crisis itself but also of
crisis-resolution on the popular classes (instead of the rich and foreign
lenders) - with what effect only time will tell given that most structural
reforms called for by the IMF have been tabled by Asian's political and
ruling classes. The only certainty seems to be that the East Asia export
machine won't recover without strong growth in the U.S., Japan, and Europe,
which in turn is increasingly less likely through the turn of the century.
(Japan is in a depression; the U.S. and Britain are headed for a period of
low growth and possibly recession; and European authorities are
periodically adjusting projected growth rates through 2000 downwardly. In
October, the IMF reduced its projection for world economic growth in 1999
by over 30 percent [from 3.7 percent to 2.5 percent], while some economists
expect no more than a one percent growth rate.)
In Europe, there is arguably more coherence within the economic ruling
classes but less coherence between the economic classes and (new center
left) governments than in the past. History strongly suggests that the
economic classes will get most of what they want because they control the
levers and switches of economic growth. But they will certainly have to
compromise with the new governments. One trade off is likely to be more
state monies spent to retrain workers in return for somewhat more
flexibility in labor market policy; another might be a shorter work week in
return for higher labor productivity. Any trade off will slow economic
growth.
Lastly, the U.S. government, the political party system, the political
class generally, and relations between the economic and political classes
are all less coherent than they were in the 1980s and early 1990s - with
respect to the capacity for effective action within the broad scope of the
country's self-defined growing global responsibilities. Economic and
political class unity in the 1980s was forged in the face of common enemies
- the Soviet Union and the U.S. working class. The first is dead and the
second is (temporarily) badly wounded. Hence the problem for the economic
and political classes is to develop a coherent policy to deal with the many
divisions within  the castle walls, between economic sectors and industries
(especially to decide what sectors of capital will be allowed to go under
when and if a deep recession strikes). The other problem is the need to
confront in a united way the whole problem of global crisis resolution. On
the domestic front there is a growing divide between export industries
(e.g., high tech and agriculture) and industries such as steel and textiles
seeking more protection; between industry generally and the financial
sector, which is tightening credit and also financial markets; between the
educated, well-paid salariat based in finance, export and related sectors
and workers in smokestack industries that have yet to show they have export
potential; between the rich who love globalization and the poor who only
suffer from it; between the suburb and the city (which has largely replaced
the old division between the rural and the urban), the former more
pro-globalization than the latter, older working class suburbs and urban
financial centers both excepted. At the international level, the problem of
economic policy and management reveals a basic weakness of the U.S. ruling
and political classes: As the fight against NAFTA, fast track, MAI, and IMF
funding revealed, the U.S. government has no political mandate to promote
global economic recovery at even the temporary expense of the economic
interests of many well-organized groups, especially labor. The line that
U.S. prosperity depends on the health of world economy, which in turn
depends on short-run or limited U.S. economic sacrifice in the name of
global economic recovery, is a hard sell. This was why the Notable
Economist Lawrence Summers, Deputy Secretary of the Treasury, reassured the
Philadelphia Bar Association in mid-October that the "present IMF (read
U.S.) policy is the lowest cost policy for the United States." This
application of the neo-liberal concept of efficiency to U.S. global
economic strategy (to my knowledge, a first) yields a very different policy
than would be the case if macro-economic effectiveness, environment, and
social equity and justice were the relevant criteria.
To conclude, the most hopeful signs in my opinion are: First, the fateful
sense shared by more Americans that the costs of globalization are greater
than the benefits - a sense that the present world crisis has done much to
define and clarify. Second, also partly the result of the global crisis,
are the elections in Europe that have put into place new pink-green
political governments. While the U.S. and UK remain the home of neo-liberal
ideology and practice, the leaders of Germany, France, and Italy (at least)
are not afraid to talk about capital controls, currency zones, and the euro
as a reserve currency, that is, about a primarily regional rather than
global organization of world economy (a penchant that Japan more and more
shares and which the U.S. despises). Third is the revival of populism and
labor action in Japan and East Asia generally, as well as in Europe, which
bodes ill for pro-globalization forces in those parts of the world. Fourth
are the very clear self-destruct tendencies by the ruling and political
classes in the big sub-imperialist powers, Mexico, Brazil, India,
Indonesia, Nigeria, South Africa, and last but not least Russia. All of the
above suggest the tremendous importance of international organization and
action by red greens and popular forces generally. The line of devolution,
localism, and simple populism, never theoretically satisfactory or
practically effective, is politically (not economically and culturally)
dangerous given the fast-evolving politics of the global crisis. The
Investor needs to be knocked=20down a notch or two more and the ecologically
and socially destructive system of global capitalism must be attacked
harder intellectually and in more practical ways. None of this can be done
in one country alone; the success of red-green politics in one country
depends on its successes in other countries (as is true of center-left
governments in Europe today). If the history of our movement during the
past decade or so proves anything, it's that border politics defined in the
broadest and even metaphorical senses is where it's at.

=46ootnotes

1 In fact, IMF policy succeeded only in bailing out foreign creditors by
using foreign exchange reserves to (in economist Rajiv Lall's words)
"facilitate [the creditors'] exit" from Asian foreign exchange and other
financial markets. The IMF's austerity plan prevented  these same reserves
from being used to increase imports of goods needed to help Asia recover
economically.
2 Thanks to Doug Henwood for supplying an inside look at IMF thinking about
the U.S. economy on his lbo-list.
3 Here the gap, always present, between available data and Marxist-type
economic concepts is greatest. Data showing a fall in the growth rate of
profits or a decline in corporate profits measured in absolute terms may
mean that less surplus value is being realized because of deficient market
demand or that less surplus value is being produced because of an increase
in the composition of capital (falling rate of profit theories) and/or a
rise in wages and other costs (cost-push theories). And this is just the
(meager and poor) beginning of the discussion on Marxist surplus value and
profits and reported corporate earnings.
4 Neo-liberal story tellers fail to mention that the reduction in Federal
deficits, which they regard as the main reason for the decline in interest
rates, also had a depressive effect on aggregate demand. What took up the
slack? Clinton's tremendous export drive (kicked off by a managed decline
of the dollar during 1993-April, 1995), and increases in consumption based
on a boom in stock prices from 1996-summer of 1998, did the trick.
Neo-liberals don't like this part of the story because the key role of
exports in the expansion of the 1990s required massive government
intervention. Also, neo-liberals don't like the idea that consumption
increases are determined by speculative hence unsustainable increases in
capital gains (stock prices) rather than by increases in employment and
income.