Opinion Sur
A great crisis is also a great opportunity to institute reforms that ground an economy on a more sustainable basis. It is precisely this that is at stake right now in the United States, after a truly historic presidential election. The global capitalist system, with its base in the United States, has not been vanquished, though it is indeed in danger. Nonetheless, it is a system that boasts sizeable reserves, enormous advantages and a historical capacity to bet big. The time for new and radical state policies is upon us. Will the new government be up to the task? “You will see things, friend Sancho, that will make stones speak.” Don Quijote was right. As I noted in my last article, the twenty-first century’s global capitalist crisis has given rise to a kind of rescue socialism, backed by the loftiest members of the global elite. And, to be honest, something very serious must be happening when orthodox economists start talking like Hegelian philosophers.(1) Indeed, the president of the World Bank, the very technical and sensible Mr. Robert B. Zoelick, argues in an article published in The Washington Post that a world in crisis offers, in turn, a chance for greatness.(2) Thesis: a capitalism dominated by the financial sector, without limits or restraints; Antithesis: a catastrophic crisis; Synthesis: a new, happy world, reorganized by strong and rational leaders and built around a healthier economy. It makes sense to take a closer look at this dialectic, which shows some optimism in place of the usual pessimism. In the end, Hegel himself said that the most sublime concepts are fruits of existence and that the essence of existence is overcoming pain.
The first proof is easy. As increasing numbers of industries go bankrupt, that is, as the financial-real estate crisis impacts the “real economy,” the tendency is – given the general impotence of banks and multinational organizations – to regulate markets, nationalize businesses and move closer toward protectionism, i.e. some form of economic nationalism. While these trends may manifest themselves differently in diverse countries and regions, the conclusion is clear: the neo-liberal model is, beyond a shadow of a doubt, history. It has been replaced – silently, without preaching or ideological proclamations – by a pragmatic model, in essence “Chinese” (in the sense of Deng Xiao Ping), that nationalizes and regulates but falls short of constructing a planned economy. Just as the neo-liberal model generated a real revolution in the planetary division of labor – but a revolution built on a weak and speculative foundation – so the new model will create a new order and a new equilibrium, built on a more sustainable foundation, which will make possible a new era of accumulation.
The second proof is more difficult, because it runs counter to common sense or, better put, counter to today’s hysteria. There are those who claim that the crisis marks the end of American hegemony and that U.S.-style capitalism will now be obliged to share power and profits with emerging and resurgent world powers: the BRICs, Europe, Russia and perhaps other countries with natural and energy resources. This claim is not completely erroneous. Comparative social indicators show the U.S. at a disadvantage relative to other countries and even to its own past prosperity in terms of health, education, social protection, transport, environmental stewardship and infrastructure. This is the consequence of a quarter-century of neglecting its own social and human capital while shifting the bulk of industrial production to other continents and compensating for this with deficit spending and speculation. This was the great illusion of “easy money:” economic growth sustained through massive consumption on credit, “guaranteed” by a false valorization of properties. The current crisis is nothing more that the dramatic and painful correction of the excesses of that phase of accumulation. But the crisis need not represent a terminal condition, provided that conditions for a strategic exit are fulfilled. I will now take a look at these conditions.
Contrary to the titles screaming from the shelves of commercial bookstores, this crisis cannot be compared to the fall of the old Roman Empire. “Roman” collapses occur when a system expands too much and wanders dangerously far from its base. It is then attacked from the periphery and retreats, until finally the “barbarians” (those from the outside) seize the center and destroy it. In other words, it is an exogenic and centripetal process. The current global crisis, on the other hand, is endogenic and centrifugal: It began in the center of the system, contaminated the immediate surroundings and produced the most harmful effects on the periphery. This insight helps to make sense of the fact that, in the middle of the American collapse, governments and investors around the world are lining up to buy dollars rather than turning to other currencies. In this so-called “fall” of the American empire, the “barbarians” are not besieging the Capitol but seeking refuge there. What is this magic power of the dollar? Why, instead of repelling, does the dollar attract so many foreigners, above all the governments of those countries supposedly standing in line to replace the United States as the dominant power?
Ever since the famous decoupling of the dollar from the gold standard, effected by President Nixon in 1971, the world has lived with a flexible, or floating, dollar. In that time, the United States has become the financial center of the world. After the decoupling, the Federal Reserve, the U.S. central bank, proceeded to issue the national currency, without any backing in precious metals, as an international currency. Since then, the Federal Reserve has regulated international interest rates and issued Treasury bonds that function as the true backing for the global dollar. This has enabled the United States to amass a foreign debt in its very own currency – a privilege that no other country has secured and one that is almost inconceivable. Today nearly all American liabilities for goods and services are owed in dollars. This kind of system is fail-proof: It represents the only truly “bullet-proof” system in the world.
This system creates a tremendous asymmetry between the external exposure of the United States and of other countries.3 As Latin Americans who have suffered repeated foreign debt crises know all too well, financial obligations must be paid in the currencies of others. For the U.S., however, debts are paid by printing green bills. It is the only case of a country capable of determining the interest rate on its own foreign debt. To reprise my earlier argument, this system in question is circular, centrifugal and nearly unbeatable. Even the world’s biggest creditor, the People’s Republic of China – which boasts international reserves of more than 2 trillion dollars – has to play by this system’s rules. I will only be convinced of the end of American hegemony when this circular, dollar-based system is replaced by other reference currencies. And this seems unlikely.(4)
Now it should be clearer why the dollar system is centrifugal: It distributes the crisis from the inside to the outside, from the center to the periphery and, at the same time, prevents the unexpected breakage of the bonds of globalization. It is a system in which the creditor is at the mercy of the debtor. This enables the system, currently in crisis mode, to rebalance itself without loss of hegemony, provided that there is strategic management from the centers of power.
Continuing with the example of China as creditor tied to the prow of the American debtor, this rebalancing act will be achieved through the accelerated development of the creditor’s domestic market, with greater domestic consumption and a progressive lessening of the need to invest reserves in the American debt. For the United States, this same process may afford the time needed to make significant investments – many of them “socialized” – in new, cutting edge technology – with an emphasis on “green” machinery – and in the modernization of infrastructure and human capital.
Over the medium range (i.e. investments that see returns after 15 or 20 years) this strategy will drive a new cycle of growth, which will be less speculative and based more on technical and scientific content than on financial content. In other words, this growth will owe less to a “gambling economy” and more to a “real economy.” Provided there is effective management of public policy and a good sense of strategy, this new model of accumulation should arrive just in time to address, intelligently and productively (rather than merely defensively), the environmental challenges that loom over a planet that in a few decades time will be home to more than 9 billion people.
Let’s be frank: The current global crises originated within the hegemonic power. They are crises of exuberance and not of anemia. In crises like these, the system “suspends” its own rules and ideology while it readjusts, ideally to reemerge as the engine that drives the growth of other countries engaged in the global economy. Any assessment of the leadership of a world power must take into account more than good times of growth and expansion. It must also consider the intensity of its “pain,” as Hegel would say, and, ultimately, the speed of its recovery.
In this respect, the presidential election in the U.S. is the first test of the country’s capacity for recovery through means that are heterodox and novel, i.e. that are experimental. New and radical measures are precisely those that no one wants to take during “normal times.” In “normal times,” major political players and interest groups have the power to veto audacious policies and even those state policies that do not bear fruit within the short election cycle. But during “times of great crisis” the game changes. The main political actors grow paralyzed and the big interest groups find themselves in need of help. These times amount to a true “state of exception” and endow the ruling power a freedom of action inconceivable otherwise. For example, consider that, during the great depression of the 1930s, president Roosevelt enacted the era’s most daring (i.e. “socialist”) policies during the span of only 100 days.
The time has come for a significant change in America’s ruling team, which is, of course, the world’s ruling team. Though it began in the financial sector, the crisis is already generating a global deflationary tendency, i.e. a true depression. The coming changes will be painful. The new ruling team must adopt mid-range and long-term state policies, the only kind of policies suitable for cultivating sustained global leadership over the course of the next century. The new president must rise above the two traditional parties and launch, with the backing of a good team, his own 100-day program. President-elect Barak Obama, in my opinion is up to the challenge. The other party, and its candidates, only offer the platitudes of tired men now condemned to regroup while in opposition.
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Notes: (1) See Joseph Stiglitz, “How to Get Out of the Financial Crisis,” Time, October 17, 2008. (2) Robert B. Zoelick, “A World in Crisis Means a Chance for Greatness,” The Washington Post, October 26, 2008.
(3) See F. Serrano, “A economia Americana, o padrão ‘dólar-flexivel’ e a expansão mundial nos anos 2000,” in J.L. Fiori, F. Serrano e C. Medeiros, O Mito do Colapso Americano, Rio de Janeiro: Editora Record, 2008.(4) To understand how this system works, see the interesting article written by two American economists, Maurice Obstfeld y Kenneth Rogoff, “Global Current Account Imbalances and Exchange Rate Adjustments,” Brookings Institute Papers on Economic Activity (No.1, 2005), pp. 67-146.
