Global crisis: towards ‘no-man’s land’

In my view, the accumulated data at hand is not yet sufficient to compare them properly. Through retrospective analyses, today we know what happened during the Great Depression in terms of a deep and long-lasting contraction of economies, the unemployment that increased globally, the chain of serious corporate collapses, and finally -- and perhaps the most dramatic of all -- the rise of protective measures that resulted in the collapse of the global trade and payment system. The result was World War II.

However, the current crisis is not complete. At best, we know what happened during its first wave, which started in the last quarter of 2008 and became more stable by the second half of 2009. Relatively speaking, since then a process of normalization and rebound has started. During the first wave, we can argue that the global reaction was proper in the sense that the public sector has taken quite an active role in containing the negative repercussions of this shocking crisis. Through the use of huge amounts of public money, confidence came back to the markets and the freefall of asset prices stopped. Thanks to these early and proactive, yet a posteriori, measures, global cooperation, a dangerous process of panic and the rise of a Keynesian type of “animal spirit” have been prevented.

This “normalization” process gave the international community a critical chance to go beyond monetary and fiscal measures and start a process of deep global structural reform measures, and bring a new mechanism of control and guidance to “corporate capitalism.” Those who follow this column might remember that although we approved these initial measures, we argued that they are necessary but not sufficient.

To put it more boldly, sufficient conditions are the entire overhaul of the current global architecture that was shaped in the early 1980s. As a reaction to a decade of continuous and successive crises during the 1970s, the world economy was reshaped according to the liberal economic doctrine, a process which has been called the “neo-liberal consensus” or “Washington consensus,” a strange consensus that had never been seen before and was imposed on the international community from above.

The logic of the new paradigm was to create a surrounding for corporate capitalism in order to allow and motivate it for the (ab)use of almost all “innovative” methods for creating a virtual economy -- a process that separated the real and production-oriented economy -- and the system was consciously forced toward the hegemony of global finance capital. In order to do so, markets were deregulated, and almost all conventional tools that were used by nation-states to control and bring discipline to the market mechanism were abolished. The first negative repercussion of such a system was the rise and decline of a bubble economy in Japan at the beginning of the 1990s, when central planning collapsed as well.

The collapse of central planning was declared as the “final victory of capitalism” over its alternative. The bursting of the Japanese bubble, on the other hand, was declared to be an unavoidable result of an underachieving, unproductive economy due to overregulation of the market by idle bureaucratic mechanisms. It was declared by the proponents of the neo-liberal order that in order to revitalize both ex-central planning economies as well as Japan’s market, conformist liberal reforms have to be carried out sooner rather than later through “shock therapy.”

Japan followed several deep reform schedules but failed to prevent the collapse of many gigantic financial powerhouses, such as the bankruptcy of Yamaichi Securities in 1997. However, with the passage of time, it became clearer that communism had been defeated; however, the final victory did not go to capitalism. The rise of the neoliberal order resulted in a different kind of crony capitalism around the early 2000s, when the Enron, Watergate and WorldCom scandals became apparent, amongst others.

In my view, the fall of Lehman Brothers symbolizes the end of “Godzilla’s capitalism.” However, the beneficiaries of the status quo -- that is global capitalists -- organized in the media, bureaucracy, politics and the state is so powerful that they are still resisting changing governments, bringing in whoever they prefer without being elected. This suggests that we have already entered into a process in which there might be a collective crime taking place, but without any “visible” responsible authority.

To sum up, the rise of the neoliberal order in the 1980s was a wrong -- in my view --- but real and deep response. It changed the entire system, and the current crisis took almost 30 years to emerge. However, there has not been as significant a reaction to the current crisis so far. The threat or danger is real but the reaction is far from sufficient. Uncertainties, inertia or inaction is taking us into no-man’s land.