Capitalism’s crisis, lessons for Pakistan

[dr.umer]

Capitalism’s crisis, lessons for Pakistan​

6 Oct 2008

A crisis is usually considered something bad that either needs to be averted or overcome. However, a period of crisis can sometimes be an ideal opportunity for soul-searching and finding creative solutions to seemingly intractable problems.

A crisis may be necessary to bring about much-needed change in taken-for granted assumptions about how we order our collective existence as a nation.

The current global economic crisis can be viewed as an opportunity to rethink, re-evaluate and reformulate our political and economic policies. The looming collapse of free market, unbridled capitalism appears to spell doom for global economic systems as it threatens to envelop the countries that depend on the US for their exports. The prospect of a prolonged recession in the US means the potential loss of markets for several less developed countries, and this is causing concern and fear among exporters and governments in these countries.

The nationalisation by the US government of housing industry giants like Fannie Mae and Freddie Mac as well as the insurance company AIG, coupled with the collapse of investment banks like Merrill Lynch and Lehman Brothers, exposes the limits of deregulation, a creed that has been preached by the gurus of a free market economy for the last three decades. In the Reagan era, car manufacturer Chrysler was rescued by the government as the company was engaged in the manufacture of tanks for the US military. The military-industrial complex had to ensure that armament capitalism was saved so the state had to intervene.

In other instances too the state had to intervene in the market to help out the likes of Chase Manhattan and Citibank — all this in a country where state intervention in the market is considered a cardinal sin against the ‘sanctity of the free market’.

Now that the controversial economic rescue package has been approved by Congress, and promptly signed into law by President Bush, a US administration committed to promoting a market unencumbered by regulation and state oversight will be spending over $700bn to bail out an economy in dire straits. It will be buying out sub-prime housing loans with taxpayers’ money. In other words, the money owned by middle-and lower-income America will bankroll the bailout of super rich Wall Street America.

The US government and giant engines of global capitalism, such as the IMF and the World Bank, controlled and dominated by Europe and the US, never ceased to hawk the virtues of privatisation, liberalisation and deregulation to the less developed economies. The latter economies were informed that the only way to eradicate poverty was to let the markets operate freely as they were subject to self-correcting and self-regulating mechanisms. The state was demonised as a hindrance that distorts markets.

So subsidies were to be withdrawn, production was to be oriented towards exports, trade barriers were to be lifted and the free flow of capital, goods and services was to be allowed. Now the state in the US has moved in to regulate and nationalise — the exact opposite of deregulation and privatisation.

It seems that no lessons were learned from history. The capitalist crisis of the early 1930s had led economists to argue for regulation and state intervention to protect the weak against the strong. The construction of the welfare state was partly the result of a historical compromise between capital and labour, and partly the consequence of the fear generated by a workers’ revolution in Russia in 1917.

State intervention logic promised that people’s economic, social and political rights would be guarded against exploitation by ruthless markets. However, in the 1970s, when the Arab-Israeli war disrupted the regular flow of oil to the developed capitalist countries, the state became an evil that had to be removed from the market. The mantras of deregulation, liberalisation and privatisation began to be preached with the certitude of a religious belief.

Two inseparable spheres of existence — politics and economics — were ideologically separated into the state and the market. It was argued that the state should simply conduct politics and leave the economy to the vicissitudes of the market. This obfuscated the deeply intertwined nature of politics and the economy and led to the false illusion that exchange is conducted among equals in a market. The essential inequality of market actors — those with only labour power to sell and those who own the means of production — was denied in the proposition that markets have the capacity to ultimately lower prices and create equality.

The current crisis has brought the state back to the heart of the issue. As the US state steps in to rescue the rogues of the market, the irresponsible CEOs who are getting away with so-called golden parachutes, George Bush has been forced to admit that the entire economy is in danger. The bailout, he added, will finally benefit Main Street and not only Wall Street. The limits of capitalism have been exposed in that the very state which is offering to pour in trillions to rescue banks riddled with bad debts had failed to provide $6bn to ensure healthcare for nine million children. This shows the essential heartlessness of an unfettered free market economy.

There are lessons here for Pakistan which has been under pressure from its bilateral and multilateral donors to deregulate its services, financial and labour markets, open its borders to the free movement of goods and services, end protectionism of all kinds, privatise national assets and liberalise the economy. In the name of good governance, the state’s role has been redefined as the creator of a conducive environment for foreign capital and MNCs rather than the provider of basic rights and protection to its citizens. Our state has been restructured to cater to private rather than public good by giving massive incentives to foreign capital to invest freely, repatriate all profits, and use cheap credit and cheap labour which have been provided by changing our laws and labour regulations.

Most of the political parties in power, including the dominant PPP, have veered towards a right-wing ideology and are now pro-privatisation and pro-liberalisation. They need to remember that they have been brought in by the people and are accountable only to them. Given the ravages of unbridled free market capitalism, they must rethink their economic policies to make them serve the citizens to whom they owe their power.