Now Wall Street has made it official:
the boom is finally over and the world economy is not going to be quite
the same for a while. But before we think of how to deal with the current
mess, we need to figure out what that boom actually meant for most people
in the world.
Everyone now knows it was unsustainable, a flimsy house of cards that
greedy and irresponsible financial institutions could build because deregulation
allowed dodgy practices. The economic boom drew rapaciously and fecklessly
on natural resources. It was also deeply unequal. Contrary to general
perception, most people in the developing world did not gain from that
boom.
The bubble in the US attracted savings from across the world, including
from the poorest developing countries, so that for at least five years
the south transferred financial resources to the north. Governments of
developing countries opened up their markets to trade and finance, gave
up on monetary policy and pursued fiscally "correct" policies
that reduced public spending. So development projects remained incomplete
and citizens were deprived of the most essential socio-economic rights.
Nor was there a net transfer of jobs from north to south. In fact, industrial
employment in the south barely increased in the past decade – even in
China, the "factory of the world". Instead, technological change
in manufacturing and the new services meant that fewer workers could generate
more output. So old jobs in the south were lost or became precarious and
the majority of new jobs were fragile, insecure and low-paying, even in
China and India. The agrarian crisis in the developing world hurt peasant
livelihood and generated global food problems. Rising inequality meant
that the much-hyped growth in emerging markets did not benefit most people.
Of course, crises tend to make things worse, not better. As economies
slow down, more jobs will be lost and people, especially those in the
developing world who did not really gain from the boom, will face deteriorating
conditions of living.
But the gloom and doom are not inevitable. Now that there is overwhelming
evidence of the failure of the economic model on which the boom was based,
we can think afresh about how to organise economic life, both nationally
and globally.
Such new thinking has got to take into account the changed international
context, in which the overwhelming dominance of the US is likely to be
replaced by inter-imperialist rivalry and scramble for resources and markets,
in which it will be harder for any individual country (or even the G8)
to impose conditions on others. Three points must be noted if we want
real democratic change and not just more of the same.
First, finance must be controlled and the "innovations" in financial
markets that are actually no more than sleight-of-hand scams must be disallowed.
Otherwise we will remain vulnerable to more financial crises and continue
to face speculative swings in prices of important commodities like food
and oil. And poor countries will continue to send to rich ones the capital
they desperately need for their own development.
Second, fiscal policy and public expenditure must be brought back to centre
stage. Across the world, we need significantly increased public expenditure
to revive demand in flagging economies, to manage the effects of climate
change and bring in widespread use of green technologies, to fulfil the
promise of achieving minimally acceptable standards of living for everyone
in the developing world.
Third, restructuring the world order will have to be based on conscious
attempts to reduce income and wealth inequalities, both between countries
and within countries. We have clearly crossed the limits of what is "acceptable"
inequality. The effects are upon us every day: in growing socio-political
conflicts; in the spread of enthusiasm for terrorism and violence among
the dispossessed and the frustrated; in the growing insecurity of daily
life anywhere.
Reducing inequalities is not going to be easy. It will require the north
to reduce its consumption of scarce resources and carbon emissions, which
means some reduction of average consumption generally. It will require
the global elite, spread across both developed and developing worlds,
to curb extravagant lifestyles. It will require wage shares of national
income to rise from their current very low proportions, with corresponding
declines in the shares of profits and interest. And it will require governments
in the powerful developed countries to recognise that they can no longer
call the shots in all important international decisions.
This may seem like an impossible wish list, but it may be essential. When
an economic order has so clearly outlived its usefulness and is collapsing,
it makes sense to build a new one on different principles.