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26 September, 2008

Capitalist self-help societies

George Bush has reduced the dosage of capitalism slightly. Pinarayi Vijayan, Secretary of the Kerala State Committee of the Communist Party of India (Marxist), has reduced the dosage of revolution also slightly. Is this not enough to realize that the world is changing? Ronald Regan became US President with a promise to the people to get the government off their back. The reforms initiated by him in US and by Margaret Thatcher in Britain strengthened world capitalism. Gorbachev’s reforms brought down Communist regimes in the Soviet Union and East Europe. The US and the World Bank together brought about a new global capitalist order. While all this was happening, China, through timely policy changes, emerged as the biggest beneficiary of the new order.

When Mao proclaimed the ‘great leap forward’ he only had the modest goal of overtaking Britain. But, in the three decades since Deng set cats, without regard for their colour, to catch rats, China has registered an average annual growth of 10 percent and is now poised to get past the US and become the world’s largest economy. China got ahead not by refusing to deal with Uncle Sam but by enlisting his cooperation. It was more than a decade before Deng joined hands with world capitalism that T.V. Thomas, CPI Minister of Kerala, thought of rescuing the State with the help of Japan, then the fast growing country. The plan got aborted since E.M.S. Namboodiripad, CPI (M) Chief Minister, was not willing to reduce the dosage of revolution. Even if Pinarayi Vijayan had incarnated earlier, Japan might not have showed interest in Kerala. Prime Minister Indira Gandhi’s visit to Japan in 1969 to enlarge economic cooperation with that country did not yield much.

The world has been waiting for a century and a half for the collapse of capitalism forecast by Marx. Although the internal contradictions of capitalism grew continuously during this period, it did not collapse. It was the Communist countries which were waiting for its fall that collapsed. But Dr T.M. Thomas Isaac, Kerala’s Finance Minister, has not given up hope. He has pointed out that what we are seeing in US now is anarchy which, Marx had said, would appear in the closing stages of capitalism. Marx had envisaged Communism as the post-capitalist phase of the industrialized world. But the world has moved into the post-industrial phase without waiting for Communism. When China overtakes the US it can claim two special attributes. One, of course, is that it is the world’s largest economy. The other is that it is a capitalist country under Communist rule. The US, too, has special attributes. Its external debt is 40 percent of the GDP. No other developed country has an external debt of this size. Some economic experts are of the view that the US, which has been the undisputed leader of the developed world since long, is now rapidly undeveloping.

For many years, the US has been incurring expenditure in excess of its revenue. It has able to survive because of the inflow of money from abroad. This is true of Kerala too. But the circumstances are not similar. Money is flowing into Kerala because people from the State are sweating it out somewhere else. When Japan and Germany, which were defeated in World War II, started making economic progress, they had good relations with the US. Economic interests brought them together. One factor that helped in the US economic advance was the availability of cheap oil. When oil prices shot up in the 1970s the US had reasons to worry. But the US did not suffer as the Gulf States invested their oil money there in a big way. Whenever the US experienced difficulties, the other capitalist countries have come to its rescue. When dollar slumped, Japan and other developed countries entered the currency market to arrest its slide. The reason is that their interests, too, demand that the dollar must survive. They know that if it goes down, along with the US economy, their economies too would flounder.

The US buys from China each year much more than China buys from it. China’s trade balance is now estimated at more than $ 100 billion. Using this money, China has bought a pile of US treasury bonds. It can be said that Americans are now buying Chinese products with money lent by China. That more than half of US government bonds are now with the Asian countries proves their interdependence. If the US economy declines, the country will stop buying Chinese goods. China will then stop buying US bonds. It may even sell the bonds in its possession. As a result, the US economy will deteriorate further. If the Chinese economy suffers, again, it will stop buying US bonds. That is to say, the money the Chinese are holding will not reach the US. Thus, it is in China’s interest to keep the US going and in the US interest to keep China going.

The collapse of the leading US financial institutions is the inevitable result of the irresponsible policies pursued by the government for years. Now the Bush administration has drawn up a $ 700 billion package to rescue the economy. This is about a quarter of the country’s annual expenditure. The cost of the Iraq war is also of this order. Three big financial institutions of the country have come under the government’s control as a result of the measures taken by the administration. The people have to carry the government on their back again! The impression that the economy suffered badly under Bush is not quite correct. Until last year it had in fact recorded respectable growth. However, only the very rich, constituting five percent of the population, benefited by the growth. Bush took a special interest in this group. He did not show the same consideration to the victims of typhoon Katrina. Aren’t things here more or less the same? After all, the ruling establishment does not have the same intense interest in the agitating landless people at Chengara as in those who have filed applications to set up special economic zones.

We should be more concerned about what is happening in the Gulf States than in what is happening in the US and China. As a result of the steps they took, looking ahead to the post-oil period, the Gulf region, especially the United Arab Emirates, Kuwait and Bahrain, have gained recognition worldwide as major financial and trading centres. More than 700 US firms are making use of the facilities there. The Gulf States view the problems of the US as a rare opportunity. They are trying to buy whatever they can. The Kuwait Investment Authority, which has at its disposal $ 200 billion to invest, recently acquired $ 5 billion worth of stocks in the troubled Merryl Lynch and Citigroup. The Abu Dhabi Investment Authority has lent $ 7.6 billion to Citigroup. At present, a Saudi prince is the largest shareholder (4.9%) of the Citigroup, which is the world’s largest bank. Abu Dhabi will now take the first place. So long as the current developments do not affect the Gulf States adversely, Keralites can be at ease. Their dream destination is safe.
Based on article written for ‘Nerkkazhcha’ column in Kerala Kaumudi

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