Mohammad Jamil

The liberalisation of imports exposes local producers to subsidised foreign competition, but, on the other hand, the governments of developing countries are not allowed to grant subsidies to domestic producers by the IMF and WTO

In 1989, Francis Fukuyama declared in his controversial treatise The End of History that capitalism and liberal democracy had won, communism had lost, and there would be no more ideological conflict in the world. But he ignored the ongoing war between the exploiters and the exploited. Secondly, his myopic vision could not visualise the rise of China as a superpower, whose leadership came out with the new concept of market economy controlled and monitored by the communist party. Finally, capitalism with its inherent contradictions like business cycles, boom, gloom and doom, led to recession, which inherently gives rise to crises, turmoil and wars. The two world wars in the 20th century were imperialist wars. In the recent financial meltdown and ensuing recession, the bailout packages of trillions of dollars by the US, Britain, Japan and other industrial countries could not make much difference in stemming the slowdown.

Last year, when the dollar was losing its value, the global economy found itself in dire straits, with serious ramifications for the world. President Barack Obama announced a $ 700 billion package so that credit could flow again to prop the economy. The European Central Bank pumped $ 70 billion into the inter-bank money market. Japan and Australia also pumped billions of dollars into their banking system. Then, with the declining value of the US dollar, global currencies turned volatile, as more and more global investors and investment advisors were thinking of investment in the most solid investment asset: gold.

James Grant, a global financial expert, reposed his faith in gold in place of the US dollar.

In an article in The Wall Street Journal at the height of the crisis, Grant pointed out: “Return to the gold standard is the best possible solution. In these times of financial troubles, investors around the world are losing faith in the dollar and the problem lies with its management. The prescription offered by central bankers and politicians to cure the disease has been more of what made the patient sick in the first place — more credit and more leverage; this time not from the private sector but from the public sector.” One would agree with him, as for years due to availability of easy credit and low interest rates, consumers shopped more. The credit card system, auto-financing and housing loans created enormous demand in the market, resulting in sky-rocketing prices. Today, the US faces complex challenges like a huge fiscal deficit due to its misadventures, flawed policies and enormous current account deficit, which is 6.4 percent of GDP. The deficit, now a recurring feature, was heavily financed by foreign central banks that bought dollars and invested in US Treasury Securities with a view to keeping the value of the dollar stable and to increase their exports.

This in effect was a subsidy, because the dollar had been revalued due to this increase in its demand, making imported goods cheaper for Americans. But American households have been spending more than they earned; hence technically speaking, many of them do not have any net worth. And this is due to globalisation, easy credit and trash produced by corporations impacting the developed as well as developing economies. David Korten in his book, When Corporations Rule the Earth, describes multinational corporations as “instruments of a market tyranny that extends its reach across the planet’s living space, destroying livelihoods, displacing people, rendering democratic institutions impotent and feeding on life in an insatiable quest for money”. The fact remains that MNCs originating from the US, Japan and the West, with surplus capital, have been able to expand the market for capital, whereas labour-surplus countries cannot expand the market for labour.

Though there is no indication of a Great Depression-like situation at present, it appears that this is the end of the globalisation era and one will witness more protectionist policies from governments throughout the world. Proponents of globalisation have been describing it as a process that cements economic, cultural and political bonds between peoples of different countries around the world. And that large-scale flow of commodities, capital, technology and labour has precipitated the process leading to an integrated world market, and what they call a global village. But the result was contrary to the much-touted merits of globalisation, as it resulted in the creation of global monopolies and cartels through the mergers of MNCs that were otherwise likely to compete with each other. Globalisation, once the popular paradigm of development for European and developing countries, for quite some time has become unpopular even in western countries, and during the last decade wherever the IMF, World Bank and World Trade Organisation (WTO) held meetings, activists, mainly from Europe, chased them and protested against their policies.

In fact, the Europeans have also suffered from the undesirable effects of globalisation, effects that transcend national frontiers, relegating the nation-state to a secondary position. When MNCs dismantled factories in European countries to shift them to emerging economies and developing countries to benefit from cheap labour, and also save on transportation costs, the Europeans suffered in the form of unemployment. Secondly, most developing countries owe large sums to the IMF and the World Bank, and they need loans to pay back loan instalments and interest. These countries are pressured into privatisation of public sector enterprises at throwaway prices, and government departments responsible for the social sector are also privatised.

The state thus abdicates its responsibilities in the spheres of education, health and utilities; the reason being that the IMF advises the governments of debt-ridden countries to balance their budgets by reducing current expenditure. But in the presence of an alarming rate of unemployment, it is undesirable to resort to retrenchment of the government employees. The axe, therefore, falls on development or social sector programmes. The liberalisation of imports exposes local producers to subsidised foreign competition, but, on the other hand, the governments of developing countries are not allowed to grant subsidies to domestic producers by the IMF and WTO. That said, the superstructure of the market economy is crumbling, and the world will have to find a new paradigm, a new currency, or invoke the gold standard.

The writer is a freelance columnist. He can be reached at mjamil1938@hotmail.com