"The global capitalist system is coming apart at the seams."
Judging by the fact that the day before Clinton had announced his recovery plan involving lifting literally billions of people around the world to the status of members of the "middle class"; and that today, the Governor of the Bank of England, for the first time ever, addressed the Trades Union Congress Annual General Meeting, with a coded statement that interest rates had probably peaked, echoing Greenspan; And that Blair gave an interview endorsing Clinton's call for leadership by the Group of 7 industrialised countries ... judging by all of this, Soros is not only right, but his message is part of a new reformist offensive to reshape the global economy.
Unlike Clinton, he could be blunt to House of Representatives. Euphemisms were not necessary about what he was talking about. "Capitalism" and "Capital" was discussed directly without synonyms. On many points the analysis sounded well grounded, of course, in practice, and one could say, materialist, and if not actually dialectical it certainly treated global capitalism as a dynamic unstable system.
He analysed his proposition that the global capitalist system is coming apart at the seams.
1. The financial collapse in Asia was followed by an economic collapse. [A perceptive disctinction- cf how Marx describes different sorts of crises]. The global capitalist system, he argued, is characterised not just by the free movement of goods, but also the free movement of capital. In fact "the system is very favourable to financial capital", he said without a blush. He referred to the almost absolute freedom for capital to move around at will, but suggested no way of slowing this down.
Until this year he said it has operated like a sort of circulatory system. The centre has sucked in capital but is has also pumped capital out, especially to the emerging markets. What has gone wrong now is that this has become a one way movement. [Soros has now concept of the law of value and the fact that there is a glass ceiling on the total value in the world economy, which limits the ability of capital to go on accumulating without periodic crashes.]
He spoke clearly about the centre and the periphery. [Although not analysing it in terms of the tendency towards the centralisation of capital] "Capital started fleeing the periphery." At first this helped the centre earlier this year when the western economies enjoyed a happy interlude benefitting by lower raw material prices and lower interest rates, but the collapse in demand may be about to catch up with them. "There comes a point when the stress at the periphery cannot be good for the centre."
Bank stocks have plummeted in Asia. "A global credit crunch is imminent."
2. Individual countries have started to opt out of the global capitalist system. Countries like Malaysia have managed their markets for the benefit of "local capitalists" [national bourgeoisie]. He was clearly also stung by Hong Kong. In the case of Malaysia he lamented that this beggar my neighbour policy would harm [not necessarily himself] but neighbours. So it may spread. [He forget to note that they might decide to cooperate against people like himself.]
3. The IMF programmes are not working. The House of Representatives has a significant responsibility for failing to back the IMF. This did not have the resources to intervene in Russia recently. And now the flight of capital has spread to Brazil, and from there is may spread to Argentina. Soon 40% of the world economy could be in recession. The west cannot expect to remain insulated from this.
But it is more than that. There is an imminent breakdown in free trade coming.
"There is an urgent need to reshape and reform" global capitalism.
Poacher turned game-keeper, he informed the Representatives bluntly that "Financial markets are inherently unstable." "The belief in equilibrium is false". Financial markets are "given to excess".
And if they once flip they may remain stuck at much lower level of functioning than before. [Quantitative and qualitative change? Phase shift?]
"Maintaining stability in public markets should be a matter of public policy." [What would Reagan and Thatcher say?] This happens in national policy but there is a lack of appropriate international financial institutions. Additional institutions are necessary. He has already proposed an Interntional Credit Insurance Corporation. (He noted the irony that market like to pretend to work as if nothing mattered than economics, but they also like to believe if terminal crash threatens they will be rescued by society.)
There needs to be international supervision over national supervisory authorities. [See my post on European Banking Integration.]
The capital of the IMF should be increased. Here he criticised the arguments of George Schultz.
Everyone looking after his or her own interest does not lead to equilibrium. He quoted Greenspan saying markets swing into exuberance and then into panic.
The IMF is learning fast however. For example in the Ukraine, unlike Mexico, it has imposed penalties on the lenders as well as on the debtors. To impose obligations on the debtors alone is anomalous.
Lower interest rates at the centre may helf but are not sufficient.
A way is needed to provide further liquidity not only at the centre but also at the periphery. Special Drawing Rights should be created for this purpose. These SDR's should be used to reward virtue [as defined by Soros, international finance capital and the leading industrial powers]. There is a need to pump money directly into the peripheries.
Despite limitations from a marxist point of view, it is a powerful reformist critique of the present international capitalist system virtually from the inside. If it works it will work by a mixture of expanding the global money supply relative to total value, but also by bringing more labour power back into circulation, by increasing the total amount of work done in the global economy.
It seems highly likely that the US and British governments would have known the direction of his thinking. It seems highly likely that Clinton and Blair are cooking up a Third Way, to announce at the conference being held, if I heard correctly in New York next week, with Prodi present too. Both premiers need desperately to avoid their domestic economies going into recession. Both have cooperated in peace initiatives in Ireland, both could produce the framework of an innovative plan that would minimise opposition from capitalist and other vested interests. Blair is already comfortable with the sort of international supervision represented by the sub-committee of the European central bank. We will have to see whether the group of 7 produce something similar, although of a more tentative nature.
Neo-liberalism is over.
Although some SDR's may be given to developing countries on conditions that maintain their dependence on and compliance with the rules of the advanced countries, the bulk of extra purchasing power will almost certainly go to aid capital accumulation and mass consumption in the advanced capitalist countries. Nevertherless the establishement of more coherent agencies for international global financial regulation, is objectively a progressive step enhancing the fundamentally social role of capitalist production, despite private ownership. It can raise the question of where the funds go, not ignoring the needs of the environment. But what will be crucial is if these agencies get the right to raise taxation, rather than being dependent on the goodwill of the House of Representatives for gifts or the right to print SDR's.
As Engels points out, the ability to raise taxes is crucial to the emergence of a state that can ride over and moderate class contradictions. We are talking about emerging global state structures. But global currency trading taxation, is not something we could expect Soros himself, to advocate. His other proposals however are consistent with the centralising tendencies of monopoly capitalism. And in some form or other have a high probability of eventual implementation.
There is a historical inevitability about it.
Is anyone going to organise an alternative G7 summit?