Comments on the financial crisis & possibilities

This is a fantastic paper, one of the most coherent and visionary of texts I’ve read about the contemporary situation, showing full cognizance of the processes of capital accumulation, world system formation and ecological crisis, as well as mapping out some of the implications for South African Left praxis. However, in these brief comments, I hope to contribute to the debate in three ways. First, I do have some minor quibbles with comrade Jeremy’s analysis; second, I’d like to forcefully agree and extend his description of foundational processes in crisis formation and displacement; and third, there are a few more substantial augmentations to suggest for prescriptions associated with South Africa’s independent left.

This text (revised from a version in Umsebenzi last month) follows several from the SACP that appear to be ever stronger in their critiques of capitalism’s core processes, of which two are perhaps most important: the 1998 Alliance analysis of the economic crisis in which the deep theory of overaccumulation crisis was flagged; and the 2006 Bua Komunisi analysis of South African capitalism’s internal contradictions. In both, the disappointments for diverse independent leftists (of which I count myself a member) were largely in the programmatic arena. But this was prior to the Polokwane conference at which a few major initiatives of the left were announced as ANC policies, leaving those arguing for a socialist project within the Alliance with increased confidence. Such confidence, as Cronin says, is ebbing because of the drum-beat of fiscal discipline that has accompanied the crisis. In this context, let me begin by taking up just a few points in the text to cajole and to applaud:

1) What are we up against? Quibbles

JC: “Once again, the inability to appreciate the dialectical character of world capitalism’s trajectory, was to lead Mbeki (like Seme before him) to gravely misread the global situation, to imagine an “African renaissance” based on catching-up and aligning ourselves to the “West”, with the promise of an ineluctable, evolutionary way forward – “today is better than yesterday, and tomorrow will be better than today.””

PB: I imagine the most hostile remark a Marxist given top marks at the Lenin Institute in Moscow could receive is “undialectical”. I think there’s something worse reflected in Mbeki’s analysis though, especially in its full-on endorsement of technology-driven globalisation (of the sort that is found in such a banal form in NEPAD for instance, written in 2001, after the East Asian crisis and the quite Marxish 1998 pronouncements by the Alliance on that crisis). That is a return to modernisation theory as the basis for undergirding neoliberalism, as we saw in ASGISA, namely the sense that microfinance is the missing link, the energy that can bring “dead capital” to life in the De Soto sense. In a collection of political economic texts CCS produced last year, you can find David Masondo’s tough critique of the revived modernisation strategy and my own attempt to unpack ASGISA’s faith in finance. (A cheeky query: did the SACP fall for this in some sense, in the promotion of access to capitalist bank credit for a small sliver of the working class, instead of promoting the kind of bank nationalisation as a form of public utility, as some influential voices in the Western left such as Leo Panitch are now doing? The SACP’s Financial Services Charter campaign work and Mzanzi bank account victories now deserve a fundamental rethink, with not only regulation but a much more profound attack on financialisation and consumer indebtedness now feasible.)

JC: “To be sure, capitalism is seldom free of crisis.”

PB: Though the word ‘crisis’ is very common amongst South African activists (just check the names of numerous campaigns and organizations), there is a ‘chicken little’ critique leveled against classical Marxism for remarks of this sort (e.g. by Doug Henwood and Sam Gindin against yours truly). So I don’t think this is an appropriate statement if we think of the word “crisis” in terms of a disruption to the reproduction of a social system (the way Robert Cox sometimes put it). In that sense, the self-correcting features of capitalism which could deal with the ordinary short business cycle run into much more serious problems when the longer K-cycles begin to have an impact. It is here we should reserve our use of the word “crisis”, and acknowledge – as Cronin does – that periods like 1945-73 were not ones of “crisis” at the global scale. Once it destroys enough overaccumulated capital, the system can reassert the underlying dynamics of accumulation and fully “resolve” its crisis tendencies, we have learned again and again. Cronin is correct that we have not witnessed that process since the early 1970s, though with some $25 trillion in fictitious paper values now wiped off the world’s balance sheet in recent months, at least it’s possible to consider the financialisation displacements now impossible, so that the real work of restructuring underlying systems of industrial production may begin in earnest.

JC: Crises in capitalism can occur as a consequence of factors extraneous to the accumulation process –wars, natural disasters, social upheavals.

PB: Ah, but which of these is truly extraneous to capital accumulation? (Ok, many natural disasters like the 2004 Tsunami – but as Naomi Klein points out, ‘disaster capitalism’ is able to profit from such events, not just face destruction.) The challenge is to identify ways that the uneven/combined nature of the capitalist system pushes and pulls capital accumulation into different circuits and spaces of capital, a huge undertaking. (For this task, I especially recommend recent books by John Bellamy Foster and Fred Magdoff, David Harvey, Robert Brenner, Ellen Meiksins Wood and Joel Kovel, to name a few.) At that stage it should become possible to connect the dots, and show how WW1 and WW2 were geopolitical reactions to capitalist crisis, and how Katrina and Africa’s worsening drought/flood cycle are internal (not exogenous) reflections of accumulation dynamics.

JC: … under capitalism “over-production” (i.e. more than the market demands – i.e. more than can profitably be sold) triggers a break-down in the system – a crisis of over-accumulation. This, in turn, requires a massive wave of destruction of productive capacity (in the form of retrenchments, factory closures, liquidations, and stock exchange collapses), in order to “clear the ground” for the next round of capital accumulation through growth. It must be stressed that under capitalism “over-production” is not the over-production of products that the mass of the world’s population often desperately needs. It is “over-production” relative to “market demand”, i.e relative to what can profitably be sold. Capitalism, for all its dynamism and robustness, is a profoundly irrational system.

PB: Well said. The implications of this analysis go very far in taking us away from mere Keynesianism – the Northern elite’s momentary current ideology of rhetorical preference (even if not yet the ideology of practice), though apparently not feasible in the South, if Trevor Manuel is to be believed. There is some discussion at the global scale – perhaps best articulated in the January 2009 issue of Development Dialogue journal issued by the Dag Hammarskjold Foundation – about “post-neoliberalism”, but I don’t see it yet, for the reasons that Cronin has specified. The deeper crisis of capitalism we face will require much more than what Walden Bello has over-generously labeled “Global Social Democracy” (I believe Bello incorrect in suggesting we have passed through the neoliberal stage – that extremist version of macro and micro economic policy will continue to return to haunt the world’s poor and working people, and environment.) If we pose the problem in these deep-rooted ways (Cronin’s description is excellent), then we see that the way out of overproduction is in the first instance deflection of the inevitable devalorisation of overaccumulation of capital (defensive maneuvres) combined with the socialisation of markets (our Left offense, as we have accomplished through brilliant social struggles with respect to anti-retroviral medicines in SA and to some extent water here in Johannesburg). This is the agenda of the SACP, reflected in the wonderful slogan “Socialism is the Future, Build it Today”. But is that slogan truly informed by a deep-seated critique of capitalist market irrationalities? This is the opportunity to declare socialisation not only desireable in “the Future” but absolutely necessary “Today”, because of capitalist crisis tendencies.

JC: In SA the last decade of apartheid corresponded to a domestic downturn/recession and post-1994 we have seen a general economic upturn.

PB: A quite complex process was underway from 1984-94 that no one has properly dissected, in my view (though Charles Meth made a good start in the early 1990s in his debates with the SA Regulation School, and Martin Legassick’s excellent contemporary economic analysis has a fine historical sweep). There were far too many political interventions from above and below to characterise it as easily as does Cronin, especially given that from 1989-93 we witnessed the longest depression in SA’s history. The factors we need to better incorporate and that cannot be summed up in a sentence would include:

a) sustained overproduction especially for white consumer markets by the early 1970s;

b) the range of labour-related rigidities and social irrationalities that SA capitalism suffered because of its apartheid shell;

c) the desire of english-speaking capital (and the Ruperts too!) to escape SA, which they did through capital flight and overseas purchases until September 1985 when it became more difficult and expensive in part because of exchange controls and in part because of international opprobrium against SA capital; and certainly not least,

d) resurgent class and community struggles from below.

If these factors are at the core of our analysis, it becomes easier to see how an unsustainable accumulation process has occurred from 1999-present, based largely upon expansion of the credit system and momentarily-successful commodity exports which together began to generate the fabled 5% GDP growth rates of the 2000s. But at the same time, with this foundation, we can see how the underlying problems of the SA economic structure worsened throughout the period of “general economic upturn”. Macroeconomic policies (as well as microdevelopmental strategies which emphasised markets) here were central, reflecting a power shift to capital (“the 1996 class project”). Another important factor in the recent “upturn” has been the bubbling of real estate prices, which from 1997-2004 grew more than three times faster than the US, including in our own ‘subprime’ township markets. This in turn reflects an uncomfortable fact we cannot but mention in this room today: Joe Slovo’s housing policies (designed by Billy Cobbett with important pressures from the old Urban Foundation and the World Bank) explicitly recommodified township housing (“normalisation of the markets” in the words of the 1994 Housing White Paper), so that the Kuznets real estate cycle went into hyperactive mode once the earlier round of housing devalorisation (1989-98) had played itself out.

JC: [we are entering] a period of several years of downturn if not actual recession. We obviously make this point, in order to prepare our defences against what is likely to be a political discourse in the coming years – blame a largely “objectively” (and externally) determined downturn on “Polokwane populism”.

PB: This is a point that needs to be defended in much greater detail, especially with the resurgent hype about Trevor Manuel’s successes in macroeconomic management (in Financial Mail and M&G reviews of Pippa Green’s new biography, but more generally).


PB: I have a few more quibbles:
* Myth one: Did “growth” really occur? If it had been measured correctly, in a way that calculates the depletion of natural resources, then no. Correcting SA GDP in this way, even the World Bank acknowledges that the economy – including its stock of nonrenewable natural assets (mainly minerals) – actually shrinks each year.
* Myth two: the massive upturn in commodity prices from 2001-08 was not simply a missed opportunity, it is extraordinary how little the mining houses here reflected the huge profits on their books and in GDP contributions. This is probably a result of the way they were allowed to internationalise their operations starting with DeBeers in the early 1990s but accelerating with so many other offshore deals done since 1994.

* Myth three: if we measure profits properly within economic fundamentals, we’d see a major increase in financial and decline in manufacturing activity, which is one of the most important problems in capitalism globally.

* Myth four: on current account vulnerability, the crucial factor Cronin neglects is the outflow of capital to London thanks to the 1999-2001 permissions that Manuel gave to Anglo, DeBeers, Old Mutual, SAB, Didata, Mondi and other corporations to externalise their financial headquarters. That is a critical area for reversal, via exchange controls.

* Myth five: on the health of the financial sector, would this not be a good chance to ask auto-critically about SACP theory/practice in relation to access by the black working class to credit? What, indeed, is the basis for an appropriate system of capitalist credit flows to townships and rural areas, given that finance invariably amplifies uneven/combined development? Each circumstance is different, but some guidance on how we might turn the myth upside down by socialising finance would be welcome.

* Myth six: why not embrace the choice: “between no-change or imprudent macro-populism”, and then redefine macro-populism to incorporate the kinds of policies we want on the Left, and turn away from the Gono-style policies we don’t? Why not take advantage of the way that the beastly Lawrence Summers now must confess “We are all Keynesians” and then establish the controls necessary to have a major upsurge of state spending without either inflationary damage to poor people’s budgets and capital flight?
* Myth seven: no quibbles here…

2) Uniting on analysis

The words below are powerful and deserve amplification. I have no real quibbles, aside from desiring more detail about “combined and uneven development”, that evocative phrase (of the unmentionable Leon Trotsky in his 1906 work on permanent revolution). This is for the simple reason that what David Harvey terms “accumulation by dispossession” – which in our SA phraseology corresponds to the “articulation of modes of production” (popularized by SACP theorist Harold Wolpe) in which capitalism superexploits precapitalist social relations – is an ever more important part of profitability, a factor not disturbed much by the current capitalist crisis (even if the commodity price collapse has slowed dispossession in some sites, like the Copperbelt, as Cronin observes). Our rereading of the works of Rosa Luxemburg is especially useful, as her SA and African analysis holds up well today (Jeff Guy pointed out in a CCS seminar in 2006), and the Luxemburgist analysis is also the best South-North rendition on the question of imperialism.

JC: The present long-term cycle in the world capitalist system began in 1945, with the upswing reaching a turning point around 1970/3. Since then, globally, we have been in a long downturn – somewhat longer than normal, partly because capitalist-aligned economists and central banks and multi-lateral institutions (like the IMF), believing that they had finally “beaten” recession forever, introduced a range of interventions which we can now see have simply temporarily displaced the epicentre of crisis into semi-peripheral regions, thus delaying and deepening the full-blown crisis in whose midst we now are… while many leading politicians in capitalist countries are beginning to express grave concern about the future of our planet – denialism; or market mysticism (somehow the hidden hand of the market will find a solution); or a cynical, even genocidal, social Darwinism (“don’t worry there will be losers but there will also be winners”); or hopelessly inadequate piecemeal reforms remain the order of the day… The geographical shift in hegemony. Marx, Lenin and others following them have demonstrated how capitalist development is characterised by high degrees of combined and uneven development. It is a global system characterised by geographical zones of various importance within the accumulation process – core zones, semi-peripheral zones, and marginal or peripheral zones. Within this hierarchical system there is a tendency for a single zone/region or country to emerge as the dominant hegemon… it is the people of the South who will bear the burden of the crisis. For instance, as the core capitalist economies focus on their own crises and their own stimulus packages, already paltry development aid is diminishing; trade protective barriers are going up; FDI is pulling out of much of the South; premiums on international loans have increased; and portfolio investments are even more disinclined to bet on the South.

3) South African challenges

PB: I think Cronin misses two essential challenges for the SA left: withstanding the particular pressures of the Bretton Woods Institutions, now resurgent with ‘Washington Consensus’ logic thanks to their relegitimation in South Africa (a R50 billion Eskom loan for coal-fired power plants) and probably globally in coming weeks thanks to Barack Obama; and the inability of SA’s neoliberal bloc to change world conditions (as witnessed today in Davos where president Kgalema Motlanthe and Trevor Manuel will again exert zero pressure for genuine global financial governance, in the wake of their apathetic role in the G20 in Washington). The first pressure was felt on October 22, when hundreds of pages of IMF reports were dumped on South Africa, overwhelming our slovenly business press corps. The five key points made in the most important report, the Article 4 Consultation, are:

* The SA government should run a budget surplus
* SA government should adopt privatisation for “infrastructure and
social needs” including electricity and transport
* SA Reserve Bank should maintain existing inflation-targeting and raise interest rates
* SA Treasury and Trade Ministry should remove protections against
international economic volatility, especially financial and trade rules
* SA Labour Ministry should remove worker rights in labour markets,
including “backward-looking wage indexation” to protect against inflation

Reports from Davos today already mirror the sense we have from the November meeting of the G20 (the major financial economies): SA will play deaf and dumb to the needs of Africa, for massive debt cancellation, reparations and an end to capital flight. Those needs cannot be doubted, yet the only real pressure SA is known for applying is to extend African membership on the boards of the Bretton Woods Institutions. This has been an extremely difficult job, even though the IMF and Bank desperately relegitimation, and the main question to be asked is, “so what if Africa gets another seat or two?” (Especially if the likes of Manuel and his allies across Africa determine the agenda.)

In contrast, showing genuine Third World financial leadership, the Ecuadoran government recently led the world with a debt default based on the premise of Odious Debt (SA remains in conflict with Jubilee SA and Khulumani over precisely the same principle in the US apartheid reparations lawsuits). And the Venezuelan government has called for the closure of the IMF (as did Joseph Stiglitz in 2002) and has catalysed a Bank of the South to operate outside the logic of “sound banking principles” (meanwhile in mid-January, Manuel agreed on a 17.5% ownership in a $25 billion “African Investment Bank” destined to run precisely on “sound banking principles”, according to the founding documents). Our economy lost $6 billion when the currency crashed in October 2008 after Mbeki’s office released Manuel’s resignation letter, so once again SA’s vulnerability to world finance – and so far untried ability to reverse this through tightened exchange controls – was revealed as a huge challenge, which the left has not really joined so far. In other countries, excellent protests have been recorded against the neoliberal project that has intensified because of the world financial crisis (most recently in Iceland of all places), while South Africans retain what I believe to be the world’s highest protest rate per capita (far higher than China’s) yet have not connected the dots between their micro problems and the ongoing influence of IMF logic. Booting out the IMF consultants who make Article 4 recommendations in direct contradiction to what their boss, Dominique Strauss-Kahn, has been saying (he advocates a 2% increase in deficit spending ‘everywhere’), would be a good first step.

JC: [critique of Moleketi] Typical of this line of reasoning is a caricature of what we are actually attempting (supposedly “a total U-turn”). What we are arguing for is exaggerated, the better to be able to demonstrate our “lack of wisdom”.

PB: But why NOT a total U-turn? Why not the demands of Keynesianism as against neoliberalism and monetarism? Why not a (non-subimperialist) African continental orientation and major inward push to change wealth and income relationships so as to revive markets for basic-need goods and services? Why not a full U-turn on the kinds of international relations – free trade, repayment of apartheid debt, inviting TNC direct investment – that made SA so vulnerable over the years? Why not a U-turn on unemployment and inequality, and on reliance upon the market in so many ways?

JC: We have to be realistic about these and other related challenges. But what we absolutely must not allow this time around is that the “but is it affordable?” refrain should be used to deflect us off our strategic and programmatic DIRECTION.

PB: Affordability is a factor in the ideological debates with Treasury and the bourgeois press. But I think it will be in the micro interventions  – of which probably the National Health Insurance proposal will be most contested – that the Left must firm up its critique of market processes and outcomes. On anti-retroviral medicines and water, we have come a very long way from a decade ago, when insisting upon locally-produced, decommodified AIDS drugs and Free Basic Water supplied by a municipality (not a Paris company) were sacrilege.

JC: … it is decent work and sustainable livelihoods (and not 6% growth, or some other arbitrary figure) that will be the key indicator of progress or otherwise. This, in turn, will require the marshalling of our resources around a state-led industrial policy that prioritises the transformation of our productive economy.

PB: All of these strategies are excellent as transitional demands but hang on, there are just as rich a set of economic strategies emanating from the radical social movements and labour that deserve building upon, in addition to the AIDS medicines and deprivatised water that the Treatment Action Campaign and Anti-Privatisation Forum have won. What about land? Housing? Free education? Larger quantities of free municipal services with greater local and national cross-subsidies? A Basic Income Grant? Radical changes to the SA state’s pro-corporate environmental policies on biofuels, biopiracy, timber, fishing and especially climate? And reparations for apartheid debt? These are all the actually existing campaigns by social movements, churches and labour which we need to promote and support where appropriate. The Party has been weak in its acknowledgement much less solidarity with these campaigns (and vice versa), so let’s figure out ways to reverse our lack of unity in the crucial period ahead.

In addition, we need to always get back to a Left programmatic synthesis and, of course, to analysis. With the SACP and Diakonia, our Centre is now discussing how to generate a reading circle beginning next month, to tackle Das Kapital, Luxemburg’s Accumulation of Capital and contemporary texts. I will propose to the broad church of comrades from the Party, the liberation wing of the faith/justice movement and our independent left community and intellectual stalwarts who take part, that this text of comrade Jeremy is our first read. Thanks very much for it, and for the chance to comment on it with the full respect it deserves.

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