Vol.2 No.35, 04 December 2002

The Global Economic Crisis

by Walden Bello

(This article appeared in the Nov 6, 2002, issue of Corriere de la Serra - the leading newspaper in Italy - under the title 'Significance of the European Social Forum'. Although SANE is specifically concerned with South Africa and with New Economics, the issues dealt with here are directly relevant to us because of our exposure to the global economy - SV editor)

The European Social Forum is taking place in Florence (6-12 Nov) against the backdrop of a global capitalist system that is in serious crisis. What makes the current crisis particularly volatile and unique is the way the crisis of overproduction or overcapacity is intersecting with a crisis in the ideological and political processes that sustain the productive system.

Crisis of Overproduction

Central to the current economic climate is a crisis of over-production and over-capacity that could portend more than an ordinary recession. Tied to an increasingly integrated global production system and market, the manufacturing sector of the world's leading economy saw its profits stop growing after 1997. By the end of the decade, practically all key industrial sectors, in the US and globally, were suffering tremendous overcapacity, with the worst situation existing in the telecommunications sector, where only 2.5 per cent of the infrastructure laid down was being utilized.

With manufacturing stagnant, it has been the dynamics of finance capitalism which has driven the US economy over the past decade. But with the profitability of the financial sector being dependent on the underlying, actual profitability of the manufacturing sector, the finance-driven growth ultimately had to run out of steam. The loss of $7 billion dollar in paper wealth in the US stock market collapse that began in March 2000 represented the rude reassertion of the reality of a global economy crippled by over-capacity, overproduction, and lack of profitability.

The US economy is part of a world economy that has become increasingly integrated so that overproduction is now a common synchronous deflationary crisis that is wrenching Europe, Japan, and East Asia. Globalization has eliminated previous situations wherein one country's growth could counter recessionary trends in another's.

Crisis of Legitimacy

Alongside and intersecting with the crisis of overproduction is a massive crisis of reproduction. There are three processes that are severely complicating the ability of the system to stably reproduce itself: the crisis of ideological legitimacy, the crisis of liberal democracy, and the crisis of over-extension.

The crisis of ideological legitimacy refers to the increasing inability of the neo-liberal ideology that underpins today's global capitalism to persuade people of its necessity and viability as a system of production, exchange, and distribution. This crisis has enveloped global capitalism's main institutions of economic governance - the World Bank, the International Monetary Fund, and the World Trade Organization - owing to the disastrous impact of their policies in the developing world.

The crisis of liberal democracy stems from the popular perception in both the poor South and the rich North that representative democracies have become thoroughly perverted by money politics. In the United States, the feeling is rife that the world's oldest modern democracy has turned into a plutocracy. In Europe, there is also much concern over corporate control of political party finances. But even more threatening is the widespread sense that power has been hijacked from elected national parliaments by unelected, unaccountable Eurobodies like the European Commission.

The third crisis, that of over-extension, is not immediately discernible, but is operative as well. The recent expansion of US military influence into Afghanistan, the Philippines, Central Asia, and South Asia may communicate strength. Yet, despite all this movement, the United States has not been able to consolidate victory anywhere, certainly not in Afghanistan where anarchy, and not a stable pro-US regime, reigns. Uncertainty over the success of an invasion of Iraq continues to be felt at the Pentagon. The Iraq question has brought the Atlantic Alliance to its worst state since World War II. Latin America is exploding with political rebellions against neo-liberal economics, as Washington's attention is focused on the Middle East. All these are signs not so much of undisputed hegemony as of, what Paul Kennedy called, "imperial overstretch".

Hope amidst Crisis

These intersecting crises are unfolding even as the movement against anti-corporate globalization is gaining strength. The European Social Forum (ESF) is one of the latest incarnations of this movement, one directly inspired by the World Social Forum (WSF) held in Porto Alegre, Brazil over the last two years. The WSF and ESF might be said to perform three functions for a global community that is troubled, angry, and searching for alternatives. First, they represent a space - both physical and temporal - for this diverse movement to meet, to network and, quite simply, to feel and affirm itself. Second, they are a retreat during which the movement gathers its energies and charts the directions of its continuing drive to confront and roll back the processes, institutions, and structures of corporate-driven globalization. Third, they provide a site and a space for the movement to elaborate, discuss, and debate the vision, values, and institutions of an alternative economic and political order.

As the crisis of global capitalism deepens, the WSF and ESF processes become all the more important. As the brilliant German thinker Rosa Luxemburg predicted, "barbarism" in the form of fascism with which reactionary elites made common cause, nearly triumphed in the thirties and early forties. Today, corporate-driven globalization is creating much of the same instability, resentment, and crisis that are the breeding ground of fascist, fanatical, and authoritarian populist forces. The forces representing human solidarity and community have no choice but to step in quickly to convince the disenchanted masses that a better world is indeed possible for, as in the 1930s, the alternative is seeing the vacuum filled by terrorists, demagogues of the religious and secular right, and the purveyors of irrationality and nihilism.

Walden Bello is the executive director of Focus on the Global South based in Bangkok. Among his works is Il Futuro Incerto published by Baldini and Castoldi.

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