In May 2009 - this time last year, the global financial crisis was in full swing. The US economy, where the crisis started, due to the sub-prime mortgage market collapse, was in freefall and close to its second quarter in recession. The world’s premier economies were all in recession and attempting to contain the fall out through the numerous stimulus plans, bailouts packages and nationalisations. Talk was ripe of the end of Capitalism as we knew it. Some politicians and think tanks were in horror of the drift towards socialism and Dr Nouriel Roubini the Stern university economist, known as ‘Dr Doom,’ became an overnight celebrity as his constant pessimistic opinions all rang true regarding the collapse of the financial market.The crisis that is now known as the ‘great recession’ was described as the worse financial crisis since the great depression of the 1930’s and for this reason many began writing the obituary of the global free market system. Today however, the US economy has come out of recession as well as China, Japan, France, Germany and the UK. Whilst the rates of economic growth are small and tenuous, they nevertheless show that Capitalism did not collapse, its resilience means once economic activity returns to more normal levels, the jobs created will reduce unemployment and the free market will be back to business as usual. So what went wrong? Why did Capitalism not collapse, bringing a new dawn of a new of a new age with a new global system. A closer analysis shows that the foundations of Capitalism were never brought into question as all the debates that took place deflected such an issue.
Blame the bankers
As bank after bank collapsed the role banks played in the economy became a central debate to what caused the crisis. Whilst bankers, especially investment bankers were considered the gods of the universe prior to the financial crisis, as they had created and accumulated unprecedented wealth in the boom period, they became public enemies when the crisis reached colossal proportions for – what was in essence the same reason. The reckless lending practices of the bankers, their huge bonuses and their innovation of complex financial securitisation products such as collateralised debt obligations (CDO’s) and mortgage debt obligations (MDO’s), that were in reality just debt sold many times over. Once heralded as a landmark creation which spread risk as never before, was now the reason that the global economy was on its knees.
Whilst the bankers were in reality doing their jobs – speculating, the various G20 and G8 meetings all squally laid blame at the bankers for causing the crisis. This lead to a number of global agreements, that included the banking industry should be more regulated and the suspension of short selling – another innovation of the same industry. Due to this no discussion occurred with regards to the validity of the free market, laying the blame on the bankers meant the system works, but the players got it wrong and hence they would need to be curtailed. The global financial crisis was dealt with as a financial crisis in the banking sector which needed to be tackled; as a result the problem was seen to be with one economic sector rather then the system. As a result no discussion took place in the midst of the global financial crisis questioning the legitimacy of free market capitalism when it quite clearly had malfunctioned.
‘Cop Out’
For long free market ideologues have argued financial crisis are cyclical – this means they are a naturally occurring phenomena. They claim historically due to time and nature all economies go through seasons where wealth is created leading to a boom with much wealth being generated. They considered it an inevitable matter that not all would benefit from a boom in an equal manner and once profits reached a particular level there would inherently be a slow down in economic activity, which was considered necessary by some economists as this would lead to the redistribution of wealth. So from this perspective a crash was necessary when during the ascent of the cycle wealth would not be distributed in equal manner. Thus after every crash, downturn, slump and recession free market ideologues blame nature for creating the business cycle. Due to this opinion gaining legitimacy the financial crisis was separated from the ‘market’ and hence the systems legitimacy was never brought into question. As STRATFOR confirmed “Financial panics are an integral part of Capitalism. So are economic recessions. The system generates them and it becomes stronger because of them. Like forest fires, they are painful when they occur, yet without them, the forest could not survive. They impose discipline, punishing the reckless and rewarding the cautious.” [This report is republished with the permission of STRATFOR, The Global Crisis of Legitimacy,’ Geopolitical Intelligence Report, George Friedman, May 4th 2010]
The reason why such crises occur is due to the aims Capitalism attempts to achieve with the economy. The aim of any market economy is to ensure the economy grows every year, perpetual economic growth is the equivalent of the five daily prayers in Islam. The growth of economies is measured by Gross Domestic product (GDP) which is the monetary value of the production of all goods and services in an economy. For the economy to be practically achieving what Capitalism has laid as its ideal the sectors that contribute most towards the economy must always be growing, as any fall in production in such sector’s that dominates the economy will have the effect of forcing the whole economy to shrink.
Perpetual economic growth is not sustainable and is what causes the regular crash. This is because economic growth requires consumers to continually spend. Once consumers have spent beyond their means, a cut in spending will have the effect of cutting off refueling during a flight. During the various financial crises in the post World War 2 world this idea has diverted any potential discussion or criticism of the mechanics of the free market and Capitalism itself.
Socialist Intervention
Another factor that has led to the saviour of Capitalism has been what it has always done throughout its history – that is to provide a leg up to the system, in order to give it a lifeline when it has malfunctioned. Whilst many argued the free market like democracy is the best the world has seen, this has masked the shaky theoretical foundations from ever being questioned. This is because the free market and democracy, when they are scrutinised, they are only compared with the alternatives; liberals argue these alternatives are despotic monarchies, dictators, inefficient pubic sectors and centrally driven and controlled economies – in this context they argue Capitalism is the best we have. This has always ensured no discussion or debate takes place regarding Capitalisms foundations.
To keep democracy functional the leg up of an unelected chamber was constructed, along with the unelected Supreme Court in the US. In the realm of economics monopolies and mergers commissions were created to keep the market competitive, alongside regulation to restrict the apparent free hand of the market. Rather then letting the free market sort itself out in reaching equilibrium governments across the world engaged in Socialist State Intervention to ensure Capitalism didn’t fall apart. So whilst the global economy led by the G8 was shrinking causing unemployment and company closures and untold misery to millions, Western Capitalist economies intervened with bailouts for banks and companies, stimulus plans to replace consumer spending and when these didn’t work outright nationalisation.
These pragmatic moves were high-octane boosts and temporary measures. They were designed to kick-start stalled economies, not to fuel sustained economic growth. Hence the current growth seen in many nations are the inflated results of stimulus measures achieving their intended effect to be temporary. Government intervention – the bidah of all bidah’s in free market economics, most certainly led to the stabilising of the global financial crisis, but it also deflected discussion and debate away from the unsustainable free market growth and the foundations of Capitalism.
Decay
The underlying problem of Capitalism has been masked from the people with a deliberate strategy of subversion. The huge debt levels and massive wealth disparity across the Western world has created the have’s and have not’s. All the mentioned factors have deflected attention away from the actual causes and this has led to the West to accept a situation where a handful of billionaires control most of the world’s wealth.
The US, the world’s superpower and the shining beacon of democracy and free market capitalism has the largest reported crime rate. There is one murder every 22 minutes in the US, one rape every 5 minutes, one robbery every 49 seconds, and one burglary every 10 seconds in the US. Britain has the largest percentage of teenage pregnancies and Europe has the highest rate of single mothers in the world. There are many simmering problems in the West, which in some places has led to social unrest and will at some point implode, as more and more people are ending up in the ‘have not’s category.’
Liberal thinkers and politicians have linked many social problems to individual circumstances and causes. This means whenever a crisis occurs, be it in politics such as the expenses scandal in Britain, the high robbery rate in the US, the suicides committed by women in France, greed, materialism and drug abuse, these are not viewed as problems that are all interlinked as individuals pursue the their individual freedoms to live their lives as they want. As a result the debates that do take place, take place around the issue - separated from others, and as a result no debate takes place on the West’s fundamental values of freedom of expression and the freedom to pursue ones desires at any cost.
A major factor that deflects attention from the foundations of Capitalism is the legalisation of everything due to the liberalisation drive – which is central to any Capitalist society. Through this seemingly illegal and immoral acts over time become accepted as they are legalised. Hence we find prostitution has been legalised under the guise of protecting women, drugs have been legalised due to health considerations and pornography has been legalised in order to protect the individual rights of people. This pragmatic approach means Capitalist foundations will never be questioned as it deflects attention to other factors.
Conclusions
The financial crisis could not have come at a worse time for the Capitalist world. The threat posed by the Islamification of the Ummah globally has led to a War on Terror that has seen the reversal of ideals which represent the very foundations of western civilisation. Guantanamo Bay, extraordinary rendition, Abu Gharib, the Patriot Act and the reversal of Habeas corpus shows what is really meant by universal Human Rights. Similarly ideals that formed the cornerstone of Capitalism, which have been exported to the world for decades were thrown aside at the first challenge. Whilst Capitalism has survived for now, its says a lot about the system when its central tenets are thrown aside, for its defense.
Subversion through deflecting criticism and the creation of lies about alternatives has been the West’s method to defend itself. From an economic perspective with the wide disparity in wealth allocation around the world, the astronomical debt levels and when half of the world will having nothing to eat tonight shows something has seriously gone wrong with Capitalism, however can anyone argue that it’s the best we have, when such colossal problems are interlinked with the ascendancy of Capitalism.
With regards to the potential decline of Capitalism as we know it, this will only occur when Western Capitalist societies questions the basis of Capitalism. This will in all likelihood take place when comparisons are made between the nature of society now and before. These will begin to focus on the problems currently and compare them to the reasons of their absence in the past. This should lead to the questioning of the legislation used to solve such issues and the basis of where the legislation is deduced.
Whilst the Global Financial Crisis has brought the sustainability of free market Capitalism into question, it appears to have survived its demise for now. However Western societies suffer from so many ills, it is only a matter of time before Capitalism self destructs like it always does.
[Article written by Adnan Khan, May 2010]
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