Global impact

By
Ignacio Ramonet                                                               Read Spanish Version

From
Le Monde Diplomatique

The
financial Apocalypse is not yet over. It is becoming a global
recession. And everything indicates that we’re headed for a Great
Depression. Spectacular though they may be, the measures adopted in
Europe and the United States will not bring an end to the
difficulties. Henry Paulson, the U.S. Secretary of the Treasury
himself, admitted it: "Despite our great rescue plan, more
financial institutions will go bankrupt."

In
a report about the crises in the past 30 years, the International
Monetary Fund (IMF) confirms that the crises that affect the banks
and the real estate sector are especially "intense, long, deep
and harmful to the real economy." Their effects have spread to
five continents: in one week, the Brazilian real lost 30 percent of
its value; the Polish zloty, 22 percent; the Indian rupee, 10
percent; the Mexican peso, 14 percent. Similar pressures weigh on
Indonesia, the Philippines and the Czech Republic.

U.S.
authorities have injected more than 1½ billion euros (twice
the cost of the wars in Afghanistan and Iraq since 2001) into their
various rescue plans for banks, savings banks and insurance
companies. And the world’s major banks still need several billion
euros, a situation that forces them to restrict credit to businesses
and private individuals, with the very negative consequences all that
has on the real economy.

The
developed countries, Spain among them, which have turned to financial
innovation to guarantee high profits to the investors, are suffering
the hardest blow. The IMF estimates that the economies in those
countries will have the weakest improvement in the past 27 years. The
world is about to experience its worst nightmare since 1929.

Because
of its unprecedented dimensions, this crisis puts an end to the
neoliberal period based on the monetary theories of Milton Friedman,
which for three decades dominated the capitalist camp and dazzled
international social-democracy. The sudden collapse of that creed
leaves most of the political leaders vulnerable. The pathetic
spectacle of responsible people wildly staging meetings and devising
"rescue measures" gives us an idea of their lack of
understanding.

In
the United States, banks have worked under conditions of absolute
laissez-faire
adopted
in the name of ideological fundamentals. For that reason, the U.S.
political class bears the responsibility for the present chaos. The
dogma of an infallible market has self-destructed.

In
contrast, the model of the countries that have maintained some sort
of exchange control — China or Venezuela, for instance — is now
vindicated. And although the impact of the crisis will be felt
throughout the planet, the economies that did not adopt the
ultraliberal deregulation will come out in better shape. Some
analysts point out the value of mechanisms for Latin America such as
the Bolivarian Alternative for the Americas (ALBA), the Bank of the
South, or the idea of a bank backed by the Organization of
Petroleum-Exporting Countries (OPEC), a proposal recently made by
Venezuelan President Hugo Chávez.

This
is a historic moment [1]. It marks the collapse not only of a model
of economy but also of a style of government. That development alters
U.S. leadership in the world, particularly its economic hegemony. Its
finances depend on the continued infusion of large sums of foreign
capital, and the countries where that money originates — China,
Russia, the oil monarchies in the Gulf — will now influence the
United States’ future.

In
2006, China and the Near East equally financed 86 percent of the
deficit of the industrial nations. In 2013, the Chinese surplus will
exceed the entire deficit of the industrial nations. All that gives
Beijing a decisive role in maintaining the stability of the
international financial system. And it is likely that, in exchange,
China will try to obtain concessions on issues such as Taiwan or
Tibet. 

A
decline in the economy usually portends the decadence of empires [2].
Can the weakened U.S. economy continue to assume the very costly war
in Iraq? The Vietnam conflict terminated the equivalence between the
dollar and gold, and caused the Bretton Woods system to totter.

Because
of its cost, the war in Iraq has provoked a transfer of wealth from
the U.S. to its competitors. The influence of sovereign funds and
China has been reinforced. The current crisis reinforces that
movement and provokes a basic change in balance: the world’s center
has moved from the West to the East.

But
that displacement unleashes cascading consequences, such as those
posited by British essayist John N. Gray: "If the U.S. withdraws
from Iraq, Iran will remain as the regional winner. How will Saudi
Arabia react? Will there be more or less likelihood of military
action to prevent Iran from acquiring nuclear weapons?" [3] It
is evident that Washington is losing power. The war in Georgia, last
August, showed Russia redesigning the geopolitical map in the
Caucasus, with the U.S. unable to do anything about it.

The
economic situation is so grave that many governments are dumping
their ideological beliefs and are ready to adopt measures that they
themselves would have branded as heretical in the recent past. For
example, to increase public spending and to relaunch investments in
major infrastructural work as an economic stimulus. The IMF itself is
advocating a more radical public intervention.

The
model of capitalism designed by the northern states for the increased
gains of rich countries is dead. The new architecture of the market’s
social economy will be defined, as of the Nov. 15 meeting in
Washington, not only by the Big Eight of the G8 but also, and for the
first time, by powers from the south, such as Argentina, South
Africa, Brazil, China, India and Mexico. It was about time.

Notes:

(1)
John N. Gray, "A lot more than a financial crisis," El País
, Madrid, Oct. 11, 2008.

(2)
Paul Kennedy, The Rise and Fall of the Great Powers, Debolsillo,
Barcelona, 2004.

(3)
Op. cit .