In the midst of this euphoria, I remain very skeptical and tend to cling to those who are not convinced that the crisis is over. In my previous posts, I have already explained my position on the reasons for the current crisis and there is no need to repeat myself now. But I would like to focus on the very nature of the modern world economy as I see it. My understanding of things may sound strange to mainstream economists, but the funniest thing is that I am not alone – there are others who think that way too, and this is the reason why.
First of all, it must be mentioned that any talk of free market can be ruled out from the very beginning. The world economy is now under very severe influence of global oligopolies. They are large enough to push entire countries around – and they do it in a very efficient way. The existence of the global transnational capitalism must be pretty obvious to everybody by now. I hope I do not need to explain myself on this point.
Secondly, the global market encourages further division of labor, which places industries and entire countries as international economic players. They are dependent on foreign demand and often become detached from their domestic markets. In case of sudden rapid shifts in the global demand, these countries and industries will have to take the brunt.
Thirdly, it is rarely taken into account that global production volumes are limited by the purchasing power of global markets. The situation is identical to what happens within a national economy when its respective markets are no longer able to consume what is produced within them. Finding external markets solves the problem by channeling resources out of the national markets into newly opened ones. At such a point, the ability to identify external markets and gain access to them becomes crucial. Ultimately, we may say that consumption capabilities of a market are, in a sense, similar in importance to production factors like land, labor, capital and enterprise. In the globalized economy, when consumption capabilities are scarce due to inability to expand markets any further, countries that can consume large portions of the global output reach dominant positions on the global arena and start dictating their will to the rest of the world.
This is the position of the United States of America. The role it plays in the global economy is similar to the role of oligarchs that gain control over production and distribution of a scarce resource within a rent-based economy, thus levying an economic rent on the entire economic system. The US markets have assumed the role of the most important global consumer responsible for consuming the largest portion of the world GDP. The US consumption has become an important factor in the global economy, the mere scarcity of which gives that country an advantage over all the others. Off course, it would be impossible without the special position of the US dollar as the international reserve currency, whose status has been promoted and protected by the transnational elite all these years. High US consumption rates allow the US dollar to remain the main currency to service the global transnational economy in spite of the fact that it has not been backed with gold since the 1970s. The status of the dollar seems likely to be preserved as long as the US economy remains the largest global consumer.
Such re-channeling of the world’s resources into one economy – the US – accounts for the favorable business conditions widely praised by transnational corporations (mainly represented by US companies) and US governmental agencies. They would convince people in various countries as well as their respective governments that the reason for the American success lies in the entrepreneurial spirit of the industrious American people. In fact, the wealth accumulated in the US economy over the years has nothing to do with all that. The image so fervently spread through the media worldwide is in fact a deliberate mirage.
The possibility of the American economy to gain access to cheap resources lies entirely in its ability to create financial assets widely accepted throughout the world under political and military pressure from the respective corporations and governmental institutions. The exchange of real assets for IOU’s together with the credit-driven consumption on the worldwide scale is able to conceal many domestic socio-economic problems within the US. Cheap money combined with cheap foreign resources boosts economic activity, pushing the US GDP to record highs while the official inflation stays surprisingly low.
Initially, financial markets were designed to perform specific functions and service the needs of the real sector. Now the gigantic and ever-expanding financial sector is no longer under the control of the real-world economy. In fact, now it is an “economy” in its own right – an artificial superstructure that pursues its own goals and follows its own rules. That is why it is now possible for stock markets and investment banks to post positive performance data while the actual economy still struggles along, unable to keep up. Under the current rules of the global financial market, this situation is quite normal.
Political and business elites are convincing investors worldwide that the money they make on global financial markets is wholesome and valid. By means of established mechanisms, global transnational corporations and transnational investment banks facilitate the exchange of real goods for financial assets on the global level. In this way, various markets get “addicted” to the constant flow of unsecured financial assets falling under the influence of the global financial system. As long as everybody continues to accept the financial assets produced by this system and willingly exchange them for real goods, the system will continue to flourish.
The same system has been artificially boosting US consumption, which is clearly demonstrated by the respective rise of the US household debt. Many companies from various countries have been lured into US markets in search of large revenues. Since the solvent demand is in reality artificial, these profits are artificial as well – they are the product of that same financial system. The only guarantee that these profits will keep on flowing to corporations while retaining their artificial value is the continuation of the existing financial system at any cost. No extraordinary merit on the part of the US economy can account for the enormous consumption levels as compared with the rest of the world.
Countries have been encouraged to emulate US consumption levels. People throughout the world are getting under the impact of the consumerist sentiments deliberately spread all over the place. The global economic activity will have to be boosted dozens of times in order to bring consumption of all other countries to the US level. This would undoubtedly lead to an environmental disaster of such a scale that none of us has ever seen.
This gigantic colossus of artificial economic activity managed by the global financial elite and propped up by the ever-growing debt and consumption bubbles stands on feeble legs of the real sector largely represented by low-wage and thus low-cost developing countries. People at the top seem to believe that the load the global real sector is carrying can be increased indefinitely. The current global economic crisis has proved them wrong. They had to respond to prevent the collapse out of fear for the economic might and political power they possess on the global arena. The massive financial interventions can influence the statistics and calm down the panic on the market (we have seen this happening lately) but fail to address the economic roots of the problem by postponing solutions and thus aggravating the situation even more. By re-inflating bubbles, I am convinced, the colossus can be prevented from tilting over for some time, but sooner or later more intensive interventions will be needed. The elite will have to face the ugly reality of their own making. Should the global real sector refuse to collaborate within the existing economic framework, artificial financial assets will be of no avail in attempts by the elite to preserve the system.
The system is now under attack from within – growing household debts in the US are threatening the entire structure of the global transnational economy by reducing the US role as the largest consumer in it. Addressing this problem will not be easy. It is apparent that new markets will have to be found if the existing ones are no longer of any use. It appears plausible to draw developing countries’ population into the global economy, but in exchange, emerging economies will, most likely, demand more clout on the global arena, which will reshape the global political landscape.
We are living in a world of global transnational capitalism. The global elite, whose interests are mainly represented by US corporations, banks and government, has created an efficient money-making machine which produces artificial assets and exchanges them for real goods and services not through effective and fair economic mechanisms but through political dominance, military bullying, and financial manipulations. Political economy points to the fact that no ultimate change in an economic paradigm is possible without a change in respective political thinking. Politics has a lot to do with what is happening now and it is mainly political reasons that force elites to preserve ineffective and unfair economic systems at any cost.