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>Subject: A WORLD IN ECONOMIC CRISIS A
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>A WORLD IN ECONOMIC CRISIS*
>
>By Johan Galtung, dr hc mult, Professor of Peace Studies
>American Ritsumeikan Troms" Witten/Herdecke Universities
>Director, TRANSCEND: A Peace and Development Network
>-----------------------------------
>
>
>1. An introduction to hyper-capitalism
>
>We live in an era of hyper-capitalism so absurd, judged by how
>negative consequences turn into crisis, that there is only one
>safe prediction: this is not going to last. What comes in its
>place, the successor era, is another matter; interestingly, the
>intellectual managers of hyper-capitalism have little to say./1/
>
> By "hyper-capitalism" is meant an economic system with
>capital as its (almost) unique raison d'–tre, as means/input,
>goal/output, and measure/indicator: wealth (private, corporate);
>GNP (for the productive national economy, probably soon
>yielding/2/ to GGP, the Gross Global Product); DJI, the Dow
>Jones Index and similar indexes/3/ from other stock exchanges
>(for the finance economy); their averages, their growth rates.
>
> A metaphor may be useful to fathom the depth of our crisis.
>Individually or collectively, as children, adolescents, adults,
>parents, we are concerned with the development of human beings,
>ourselves or others. For infants, for the starving, for some
>patients, it makes sense to look at humans as a body to be fed,
>and measure development in the material terms of food input and
>weight output, using output/input ratios as a measure of ability
>to avoid waste. The consequences of "hyper-foodism" are obvious:
>there is not only a floor, minimum weight, to be respected but
>also a ceiling, a maximum weight beyond which negative side-
>effects will dominate. So much for the body. But - what
>happened to the human mind, the human spirit, to people absorbed
>by weight-consciousness, oscillating between anorexia and
>bulimia?/4/
>
> Hyper-capitalism blocks out the concerns for material floor
>and material ceiling, and for what happens to mind and spirit.
>A minimum level of wealth, or purchasing power, is needed, if
>the basic need-objects have to be bought. Regardless of economic
>system, there is a minimum level for the satisfaction of basic
>somatic needs for clean food/water/air, clothing, housing,health
>care, below which morbidity, and mortality increase rapidly.
>There is misery, not poverty./5/ And there is a maximum level
>of satisfaction of basic somatic needs, beyond which more food,
>clothing, housing, health care rapidly become counterproductive.
>
> However, is there also a maximum level of wealth/GNP/DJI?
>This is a major and so far unanswered question in economics.
>Economic systems with some hyper-rich individuals often also
>have many who live in misery. If the rather rich (RR) are rich
>because others are pretty poor (PP, living in misery, with basic
>needs not met), and/or vice versa, then there is room for the
>argument that RR have exceeded their limit as PP have theirs.
>But we would probably have to show mechanisms whereby bringing
>RR below the maximum would bring PP above the minimum. In the
>Muslim world this mechanism is known as zakat, in the Christian
>world as samaritanism, in the Buddhist world as metta karuna./6/
>Another form is progressive taxation, democratically decided
>upon or not, converting excess wealth into free or subsidized
>objects (food, clothes, shelter) for the most needy. Among
>countries the voluntary form of distribution is practiced as
>development assistance. The mandatory form is discussed as
>global taxation, like assessment to UN organizations. The big
>question is whether mandatory imposition of a maximum reduces
>the ability of the system to generate wealth distributed or not.
>
> We do not need to take a stand on this question. Whether
>economic activity is measured as wealth, GNP, DJI, or by any
>other measure, the average and the distribution are two position
>coordinates for an economic system. When asked "what is the
>geographical position of me/my country/ my stock exchange" a
>geographer who only answers in terms of latitude is not useful;
>we expect the longitude to follow immediately. An economist who
>answers "what is the economic position of my economy-my
>country's economy/my stock exchange" only with averages or
>absolute values, no distribution measures or relative values, is
>an equally useless economist. From a meteorologist we demand
>not only the average amount of sunshine/rain tomorrow; we would
>also like to know on whom the sun shines and on whom not, where
>the rain falls. If not, give us another meteorologist.
>
> A typical symptom of hyper-capitalism is exactly/7/ the
>attention to capital, and absence of attention to human beings;
>the attention to averages and absence of attention to measures
>of distribution--including simple measures like the purchasing
>power ratio between the top and the bottom 20%, the 20/20 ratio
>(or 20RR/20PP ratio)./8/ It is down at the bottom 20% (or less,
>usually more) that the failure of an economic system shows up as
>the crisis of misery. But neither that, nor the less dramatic
>distribution measures, are reported in today's (often) corporate
>media. Reported are problems of capital accumulation among the
>top 20% (or more, usually less), particularly in the finance
>economy since they have sufficient purchasing power to acquire
>(much) more products than needed to satisfy their basic needs,
>the necessities. They can buy not only "normal goods", let us
>call them normalities, but even luxuries.
>
> Any fool can build an economic system where rich people buy
>expensive products: needed is only the infrastructure for seller
>and buyer to meet so that products (used for consumption) can be
>exchanged for financial objects (used for buying and selling,
>including each other, such as precious metals, currencies,
>stocks, bonds, options, futures, derivatives, and any future
>result of financial differentiation, deepening). The products
>have to be produced, and there has to be compensation for the
>production factors: natural resources (including energy), labor,
>capital, technology, management. But the last three translate
>into interest, fees and salaries for capitalists, engineers and
>managers, themselves RR or at least R (rich). The wages for
>labor can be kept below minimum (to stay out of misery) through
>contract work, or the labor is abroad, and modern products are
>less resource-intensive than before (compare communication chips
>with electro-mechanical machines for transportation).
>
> This is an image of what happens in Third World I (Latin
>America/Caribbean, Africa, Asia/Pacific) and Third World II, the
>former socialist countries, particularly ex-Soviet Union.
>Consumer products are imported, natural resources and financial
>objects are exported. The cycles pass through R and RR; P and PP
>are excluded and M, the middle class, dwindles.
>
> What requires talent is to build an economy with basic
>somatic needs met for (almost) everybody, with a good supply of
>normalities and luxuries on top of easily available necessities;
>with due consideration to the mental/spiritual needs for freedom
>and identity. We do not want forced feeding/clothing/housing
>from above. Humans want human dignity. That excludes commando
>socialism. And it excludes commando hyper-capitalism./9/
>
>2. On economic systems and economic crises in general
>
>The economy (the economic system) can be conceived of as having
>two parts: the product economy, producing products, goods and
>services; and the finance economy based on financial objects.
>
> The product economy is a system of production-distribution-
>consumption cycles that produces products (goods and services)
>from factors of production (natural resources, labor; capital,
>technology, management), distributes them through the market in
>exchange for other products or financial objects, and consumes
>them till end consumption turns the product into waste and no
>further (human) consumption is possible. The products can be
>divided into necessities that humans must consume to be human,
>normalities that most or many consume (a watch, a radio) and
>luxuries that are neither necessary nor normal, but consumed by
>the few, and demanded by them precisely for that reason./10/
> Along the economic cycles there may now be enrichment or
>depletion/pollution of human and non-human nature, basic human
>needs may be met or not, the structure and culture of society,
>and the world society of societies, may be enriched or
>impoverished. The process may or may not be sustainable over
>time depending on the net balance of all the above, noting that
>some (side-)effects may be terminal for the system (like massive
>depletion/pollution/revolution/migration).
>
> The finance economy is a system of buying-selling cycles of
>financial objects, characterized by no end consumption. Along
>the cycles the object may appreciate or depreciate. Any product
>can become a financial object, like paintings, cars, bought for
>selling when the price is right, not for using/consuming. But
>we usually think of precious metals, currencies, bonds,
>stocks./11/
>
> Broadening expands the geographical domain of the cycles
>till they cover the whole globe (globalization); deepening
>differentiates the range of products and objects. We witness
>broadening and deepening of both product and finance economies;
>adding to the latter hedge funds, options, futures, derivatives.
>
> The macro-economy sees the economy as a system of inter-
>locking cycles of products and objects; in the micro-economy the
>individual and collective decision-making are made visible.
>
> At this simple level of reasoning some major, crisis-prone,
>problems of economic systems can easily be identified. Even if
>an economic system can take on a life of its own, as can also a
>malignant tumor, there are three common-sense guidelines:
>
>A: Consumption presupposes consumption of necessities.
>
>B. The productive economy presupposes consumption.
>
>C. The finance economy presupposes the productive economy.
>
>The finance economy is meaningless without a productive economy,
>the productive economy is meaningless without consumption, and
>the consumption is meaningless without basic consumption to meet
>basic needs. This sounds trivial, but the consequences are not.
>Turn it around: "we meet basic needs in order to consume more";
>"we consume in order to sustain the productive economy"; "we
>produce in order to sustain the finance economy" and we run into
>a hyper-capitalist discourse which sees capital, not humans, not
>even the state or the nation, as the measure of all things. The
>media reporting on the crisis write and talk as if they have
>bought into that discourse at the expense of everything else.
>Stock exchanges, not factories and fields, are the major foci;
>human beings are left out completely. Easily done for those who
>can take necessities, normalities and even luxuries for granted.
>
> From (A, B) and (B, C) above follow two ways in which an
>economy can go wrong because of lack of balance/synchrony:
>
>Imbalance/asynchrony between production and consumption:
>-underproduction relative to consumption, especially
>-underproduction of necessities
>-overproduction relative to consumption
>
>Imbalance/asynchrony between finance and productive economy
>-finance economy under-finances productive economy, especially
>-finance economy under-finances production of necessities
>-finance economy over-finances productive economy
>
>To this can be added the problems of distribution: oversupply of
>some products and undersupply of others at the access points,
>well known to any shopper in any shop in any system. What we
>are talking about, however, are major imbalances not due to
>malfunctioning of distribution systems, but to deeper causes.
>
> The present world economy suffers from all four crises:
>
>CRISIS I: undersupply of affordable necessities
>
>CRISIS II: underfinancing of necessities production
>
>CRISIS III: oversupply of normalities and luxuries
>
>CRISIS IV: overfinancing of normalities and luxuries
>
> The general expressions of these problems are well known:
>
>CRISIS I: People who cannot afford necessities starve, fall ill
>and die; the prices go up because of undersupply (inflation).
>
>CRISIS II: Credit underavailable for basic needs production
>considered non-profitable; affordable prices do not cover costs.
>
>CRISIS III: People cannot match supply with demand, the prices
>go down because of the oversupply (deflation); bankruptcies.
>
>CRISIS IV: Credit overavailable for non-basic needs production;
>financial objects--money/bonds/stocks--lose value (bad credits).
>
>Along the disjunction between production and consumption people
>die, companies die. Along the disjunction between the finance
>and productive economies necessities are underfinanced. What is
>underdemanded is overfinanced, and financial objects lose value.
>
> It is interesting to watch how differentially these
>problems have been treated by the media. As pointed out above,
>most of the attention is on Crisis III and Crisis IV, the crises
>suffered by the owners of companies and holders of financial
>objects. That full employment is losing to underemployment
>(contract jobs) and unemployment (no job at all) is mentioned.
>But the implications for the satisfaction of employee basic
>needs, Crisis I, are rarely explored. Nor is Crisis II explored,
>because financing of something non-profitable is seen as even
>more absurd than people starving in a world of plenty. Only
>Providence, private providers or l'’tat provident, none of them
>believed in by corporate media, are expected to do such a thing.
>Economic crisis is seen as crisis at the top, not at the bottom.
>
> But will Crisis III/IV at the top not produce Crisis I/II
>at the bottom? In a globalized and privatized world economy,
>yes, but not in a more diverse world economy with an intact,
>local subsistence economy at the bottom. It all depends on the
>degree of coupling across state, nation, class, generation and
>gender borders. The higher the coupling, the higher the crisis
>linkage. Thus, an increasing proportion of the population with
>decreasing purchasing power means decreasing demand and not only
>for necessities, but also for normalities (for luxuries there
>will always be that small, closed, market described above).
>
> So Crisis I/II also produces Crisis III/IV at the top. An
>obvious response at the top is fusion, joining companies
>together so that they can eliminate not only employees but also
>competition, and fix prices so as to become less vulnerable.
>Thus, some corruption, particularly in Japan, may be to save the
>company rather than the private manager/employee, the corruptor.
>
> A more global and holistic view of the crisis is needed to
>avoid some elementary, and very ubiquitous, analytical mistakes.
>But that presupposes analysts inside and outside the media that
>do not reify "the economy", and do not view the economy with the
>eyes of those able to pay for their analytical services only.
>
> If the economy is an iceberg then some of the stockexchange
>behavior is the part made visible. The value of currencies, bond
>and stock, and the more exotic financial objects, gain and lose
>relative to each other; trajectories show cycles (bullish,
>bearish), linear declines (crises), and sharp falls (crashes).
>Analysts will relate trajectories in the same economy (stock
>exchange), and across economies, noting imbalances/asynchronies
>(eg, in the cash flow). Metaphors, like dominoes and epidemics,
>are used to imply causality. No doubt there are such effects
>within and between finance economies. But eyes trained only on
>the top of the iceberg will even indulge in discourses about the
>"Asian Crisis": it "started" in Thailand, then "it" went on to
>South Korea and Indonesia--maybe Malaysia--China is the next to
>fall, Japan has been ill for a long time. The time perspective
>is limited. Analysts talking like that seem to have forgotten
>the chronic "Russian/ex-Soviet Crisis", the "Mexican Crisis" of
>1994, and that a "USA Crisis" was identified in the 1980s and
>beyond. This virus, the "Crisis", has at the time of writing
>moved to Brazil, and seems to be thriving. "It" will move on.
>
> Of course this is a 10% analysis due to a limited viewing
>angle and a narrow discourse. Look at the total economy, and
>take globalization sufficiently seriously to see the world as
>one economic system (with subsystems), and we might be able to
>identify some of the common factors in that invisible 90% mass.
>-------------------------------
>
>NOTES
>
>* The author would like to acknowledge the valuable comments by
>participants in seminars where this paper has been presented,
>particularly at Ritsumeikan University 4 November 1998 and at
>Universit“t Witten/Herdecke 9 December 1998; particularly
>Akifumi Fujita. I am also as always very grateful for comments
>by Dietrich Fischer, and for comments by Ash Amin. The paper was
>written when the author was Fellow at the Swedish College for
>Advanced Studies in the Social Sciences, Uppsala, Spring 1999.
>-------------------------------
>
>1. As an example of the incapacity of the high commands of the
>system to understand itself consider this quote from Dudley
>Fishburn, The Economist (from The World in 1998):`"1998 will be
>year of prosperity. It will see the fastest rate of economic
>growth in a decade, despite shudders in the global stockmarkets.
>--it is the world's poor who will benefit most". He actually
>also says "Everywhere there will be peace.---This peace and
>prosperity are lost entirely the result of America's
>leadership". A hagiography at this level is rare even on highly
>ideologized circles.
> Paul Krugman, in "Is Capitalism Too Productive", Foreign
>Affairs, Sept/Oct 1997, pp. 79-94, concludes (p. 94) that "those
>who preach the doctrine of global glut are tilting at windmills,
>when there are some real monsters out there that need slaying"
>(among the "monsters": fatalism, giving up the idea of growth,
>or a balanced budget, protectionism). "What seems hard for
>Westerners to visualize is a world in which Chinese and
>Indonesians earn decent wages" (p. 92). What seems hard for
>Krugman to visualize is how economic growth can go hand in hand
>with rapidly deteriorating distribution.
> On the other hand, in his remarkable book The Crisis of
>Global Capitalism: Open Society Endangered (Public Affairs,
>1998) George Soros goes a long way to sustain his major thesis
>that the market is not self-regulating, that "financial markets
>are inherently unstable", that "imposing market discipline means
>imposing instability" and that "if the global system is not torn
>apart by deflation or depression, it will be undone by political
>rebellion" (also see review by William Greider in The Nation,
>January 15 1999, pp. 25-27).
>
>2. The Gross Global Product as indicator is an obvious and
>welcome consequence of globalization: with the decreasing
>significance of the state as economic actor the GNP wanes in
>significance. But less disaggregation for states is no excuse
>for no disaggregation for class.
>
>3. Such as Standard & Poors also in New York, the Nikkei in
>Tokyo, the Hang Seng in Hong Kong, the Merval in Buenos Aires,
>etc.
>
>4. This particular concern goes beyond an affliction for young
>and not-so-young women to a civilizational problem: an obsession
>with the material/somatic as strong as the obsession with the
>transcendental/spiritual (am I saved, am I not) in other eras
>and parts of the world and the society.
>
>5. The poverty line is usually defined at an income below 50%
>of the average, with the obvious implication that to be poor in
>one country may be to be rich in another. Thus, to have
>another, more absolute concept, misery, is indispensable and the
>definition chosen here is in terms of basic needs satisfaction.
>
>6. Compassion.
>
>7. For a superb exploration of Market = God; economists =
>priests, see Harvey Cox, "The Market as God; Living in the New
>Dispensation", Atlantic Monthly, March 1999.
>
>8. The phenomenon of an increasing gap between rich and poor
>also applies to China where by now the richest 1.3% of the
>families control 31.5% of the assets and the poorest 44% of the
>families control 3%. See Le Monde Diplomatique, January 1999,
>pp. 16-17. A very bleak picture is given in the famous China's
>Pitfall, by He Qinglian (Hong Kong: Minjing Chubanshe, 1998),
>reviewed in The New York Review of Books, October 8 1998 by Liu
>Binyan and Perry Link as "A Great Leap Backward?" (pp. 19-23).
>Thus, "by 1994 the disparity between rich and poor was already
>greater in China than in the United States. In that year the
>richest 20 percent of the US population owned 44.3 percent of
>the country's wealth, whereas in China the richest fifth owned
>50.2 percent of the wealth; the poorest fifth in the US owned
>4.6 percent of the wealth, in China 4.3 percent).
>
>9. Capitalism is embodied in the market; the market is about
>buying and selling; buying and selling is about assets; the more
>assets the more impact on the market; the more skewed the
>distribution of the assets the more skewed the impact on the
>market; the more skewed the impact on the market the more
>justified the expression Commando Capitalism.
>
>10. Known as Giffin goods, or positional goods: the buyer
>demands not only a car for locomotion but the status as a
>Mercedes (BMW, Acura, Lexus) owner, which means that the seller
>can, indeed has to, overprice the commodity to ration the access
>and more so the more demand there is. In the current shift
>toward luxury goods this phenomenon will probably play even more
>of a role than before.
>
>11. Or the "Black Tulip". Lester Thurow ("Asia: The Collapse
>and the Cure", The New York Review of Books, February 5, 1998,
>pp. 22-26) uses the Tulip Mania in Holland in the 1600s to
>illustrate what happens in a crash (p. 22): "At the top of Tulip
>Mania one black tulip bulb bought one of the row houses along
>the canals in Amsterdam. That price was crazy, and everyone
>knew it, but prices were just as crazy when six tulips bought
>one house, and those how got ut of the tulip market when it was
>6 to missed a chance to multiply their wealth by a factor of
>six. Every investor (no one thinks of himself as a speculator)
>imagines that he will be able to see the end coming and get out
>in time - but few do". The end came.
>
