How do we understand the present crisis of capitalism? Can it be grasped theoretically using the categories of neo-liberal economics? What is the sound theoretical perspective that helps us understand the crisis? Of course there is no mono-causal theory of crisis since crises are invariably caused by multiple factors. The most pronounced and seemingly correct explanation of the crisis has been directed to what is generally called over-financialization.
Referring to rioting youth in Tottenham, London, the Daily Mail called them "nihilistic and feral teenagers". Are the teenagers feral? Or, is it the capitalistic system as it has failed in the capitalistic West to provide a secure future for their young people? According to Professor Tony Chapman, only 49% of young people in the UK believe that they would have secure jobs in five years’ time. What have we witnessed since 2008? Credit rating of the USA was downgraded by the Standard & Poor from AAA to AA+. A Euro-fascist in Norway with close links with UK right wing groups killed in cold blood about 80 people. London has experienced severe riots and UK right wing groups have informed that they wish to confront rioting youth in London. All these and other similar incidents signify that everything has not been hunky dory for the capitalistic system in the West. And this is the most serious crisis since the Great Depression in the 1929-33. As the internationally reputed economist, Paul Krugman, has noted, the US economy is not on the mend and there is no significant change in the job growth there. Data released by Eurostat, the region’s statistics body, on Friday showed that French GDP had been stagnant between April and June. Economists had expected the French economy to grow by around 0.3%. Hong Kong’s GDP declined by 0.5% between April and June. The Greek economy shrank by 6.9% on a year-on-year basis during the last three-month period. Compared with May, production across the Eurozone declined by 0.7% in June. The UK economy grew by 0.5% in the first quarter of 2011, and 0.2% in the second. Thus, deceleration or the complete shrinkage has become the central feature of the recent trends in the capitalistic economies in the West.
An interesting feature of the current crisis is that it is not just an event, but a series of connected events covering a wide spectrum of spheres. Hence, it is quite clear that the crisis would eventually grow into a serious generalized one. It first hit banks and financial institutions and revealed that very large multinationals are in a grave trouble showing that the crisis was not limited to the sphere of finance and that the crisis in the financial system was in fact a reflection of the serious issues in the real economy. The governments of Ireland, the US, the UK and the Continental Europe then moved in either nationalizing banks or bailing them out by buying their downgraded shares. As a result, governments in Iceland, Ireland, Spain, Greece and Portugal faced grave fiscal crisis that made those countries once again vulnerable to outside pressures. In this context, economists have become the jokers of the pack as their sophisticated models have failed not only to forecast crises but also to understand them. French President Sarkozy suggested that it might be imperative to invoke Marx once again to understand the present situation. As Al Jazeera notes: "The world is undergoing seismic economic changes, from the international financial crisis to the shifting balance of power between developed and developing countries."
How do we understand the present crisis of capitalism? Can it be grasped theoretically using the categories of neo-liberal economics? What is the sound theoretical perspective that helps us understand the crisis? Of course there is no mono-causal theory of crisis since crises are invariably caused by multiple factors. The most pronounced and seemingly correct explanation of the crisis has been directed to what is generally called over-financialization. In simple and ordinary language, over-finacialization means an issue of so many loans in the forms of multiple financial assets that in recent times include the so-called toxic assets or NINJA (No income, No jobs or assets) loans. For example, the amount of capital invested in hedge funds grew massively in the last decade of the 20th century and the first seven years of this century. In 1990, the amount of capital invested in hedge funds was $ 39 billion. By 2001, this had grown to $ 537 billion and by 2007, it stood at $ 2 trillion (2,000,000,000,000). Facilitating the process of over-finacialization, Western governments, especially those of the UK and US, had eased financial regulation imposed by the state allowing markets to achieve their own equilibrium. Markets works in different ways. They may lead to either convergence or divergence. The heavy growth of ‘predatory lending’ during the 1990s and 2000s in advanced capitalistic countries and the hegemonic position of the financial institutions there have shown the crisis tendency of capitalism as well as the new systemic changes in it. However, excessive financialization in itself does not explain the crisis since it is, in fact, a symptom of the systemic crisis. Even the leading neo-liberal economists and policy makers failed to see that excessive finacialization might generate centrifugal forces in the system. Alan Greenspan was confused by the bankruptcy or near bankruptcy of the big banks and financial institutions including insurance companies. He wrote: "I made a mistake in presuming that the self-interest of organizations, specifically bank and others, were such that they were best capable of protecting their own shareholders and their equity in the firms … So the problem here is something which looked to be a very solid edifice and indeed a critical pillar to market competition and free markets, did break down."
It is interesting to note that the excessive fiancialization was not just a mere outcome of the actions of the greedy bankers who reaped enormous amount benefits in the form of share ownership, bonuses and so on and so forth, but a necessary corollary of the operation of the free market dynamic. The question that has to be posed is why the capitalistic system especially in advanced countries in the West did go for such a risky operation. The answer is the system itself had demanded it. The reason can be found only in political economy. First, during the last three decades or so, many industries that were previously located in the advanced capitalist countries have shifted to the countries in the periphery for multiple reasons. In the face of and in spite of this process of de-industrialization, advanced countries have to maintain its hegemonic position in the world and consumerist desires in their own countries. In other words, political imperialism linked with what Marx called the ‘realization crisis’ had forced capitalist West to find new ways of domination not through the hegemony of productive capital but through the hegemony of financial capital. Banks, Insurance companies and similar financial dealers with their head offices in London and New York were the main agents of transferring capital from industrialized periphery to the centre. Secondly, the West has to spend an enormous amount of money on wars waged abroad, in Iraq and Afghanistan and now in Libya and other Arab countries. Recently, Chinese state media has rammed home its economic warnings to the west, scolding Europe and the United States for spending beyond their means, and for Washington’s political battle over the debt ceiling."If the US, Europe and other advanced economies fail to shoulder their responsibility and continue their incessant messing around over selfish interests, this will seriously impede stable development of the global economy," the People’s Daily, the official Communist party newspaper, warned in a commentary.
The crisis of the moribund system has now come to the surface and is visible. The protests in Wisconsin, student campaign in the UK, London riots and Norway killing symptomize the fundamental problems of the capitalistic system.