Pritam Singh


As global capital moves East, developing economies need to understand the importance of not aping the entrenched lifestyles of the West. 


There are three interlocking crises currently haunting the global capitalist economy: food shortages, oil-price hikes and the credit crunch. This convergence of crises in agriculture, energy and the credit market is linked, to some degree, to an ongoing spatial shift in global capitalism. The hitherto unquestioned economic dominance of older capitalist countries is now being increasingly challenged by the rise of new economic powers, particularly symbolised by the so-called BRIC countries – Brazil, Russia, India and China. To emphasise this global shift, researchers point to the 18th century as the ‘French’ era, the 19th century as British, and the 20th century as American. Now, they are suggesting that the 21st century will be an Asian century.


This changing balance is a manifestation of what can be thought of as the ‘law of uneven and combined development’. According to this idea, the world capitalist economy is one integrated whole. Its various national and regional components are shaped in different ways by the specific modes in which this economy functions. The national differences in technology, marketing, product range, agriculture and industry linkages, financial institutions, natural and human resources, political and legal structures, socio-cultural hierarchies, military institutions and the bargaining power of competing classes – all of these combine in complex ways to determine the competitive powers of various countries in the global economy.


Changes in the matrix of these forces inevitably lead to a decline in the economic, political and military power of some countries, and the rise of others. As such, the economic, technological and, more importantly, military hegemony of the United States was strengthened during the 1990s by the collapse of Soviet Union. This led to the triumph of the so-called Washington Consensus, led by the International Monetary Fund and the World Bank, as well as to the infamous boast by the political theorist Francis Fukuyama about the “end of history”. This triumphalism has by now been punctured, if not wholly reversed.


Hardly triumphant: At a military level, American hegemony has been undermined by the continuing crises in Iraq and Afghanistan. Due to the interventions in these countries, the American military, as with the militaries of its allies, is showing signs of having overstretched itself. Were this not the case, it is possible that the US would not have opted for what is essentially a non-interventionist approach to the radical political transitions that have been taking place in Latin America and, in the most recent instance, within South Asia as in Nepal.


In terms of economics, the neo-liberal triumphalism has suffered a serious setback due to the crisis currently taking place in the world’s largely unregulated financial markets. What is being referred to as the sub-prime-mortgage crisis, which started in America, is a direct outcome of fierce competition in unregulated markets, in which banking and other financial institutions resorted to unsustainable levels of lending for the sake of short-term gains. The sub-prime crisis has manifested itself in the credit crunch in the US, with fallout also extending to Europe due to the close integration of financial institutions across the Atlantic. The credit crunch, in turn, is leading to a rise in borrowing costs by businesses.


All of this is adversely affecting general economic activity, leading to a slowdown of economic growth rates in both the US and Europe. In an unprecedented move, the central banks on both sides of the Atlantic are being forced to come together to devise regulatory structures to deal with the credit crisis and its offshoots. Interest rates have been slashed in the US, UK and some other European countries, and the central banks are under significant pressure to pump extra liquidity into the credit markets. The deliberate supply of extra money is becoming necessary to ease the existing shortage in credit availability. This coordinated effort by the central banking authorities is a stark admission of the failure of the ideology of deregulation of markets, which had gained mounting favour in recent years.


In spite of the slowdown, the crisis is being further compounded by a rise in inflation, a result of the crisis in the agricultural and energy markets. Oil is a non-renewable resource, and its total global stock is relatively fixed. The political and military situations in West Asia, which has two-thirds of the world’s known oil reserves, is further contributing to a situation of reduced supply of oil in the present and of uncertain supply in the future.


As such, the search for non-oil energy resources is becoming a pressing imperative for the energy-intensive character of advanced capitalism. John McCain, the Republican candidate in the upcoming US elections, has recently been harping on the US’s oil vulnerability in light of the continuing military crisis in West Asia. He has promised an energy policy “that will eliminate our dependency on oil from the Middle East”, and has openly acknowledged a link between America’s oil and military strategies by stating that his promised energy policy will be aimed at preventing the US “from having to send our young men and women into conflict again”.


Indeed, America’s dependence on oil has been increasing, even as the price of oil on the global market has been skyrocketing. At the time of the first worldwide oil crisis, in 1973, 33 percent of America’s oil needs were being met by imports; now, the country’s import dependence has reached nearly 60 percent. According to some estimates, this will rise to 70 percent by 2020. The price of oil has risen from USD 26 a barrel, shortly before the Iraq invasion in 2003, to the record high of USD 130 a barrel now. And, according to estimates by Goldman Sachs, one of the largest Wall Street investment banks trading oil, it could rise to USD 200 dollars a barrel in the next two years, and possibly by the end of this year itself.


Foodgrains, oilgrains: Rising oil dependence, the uncertainty about future supplies from West Asia, and the rising price of oil are the driving imperatives behind the new, intense competition for biofuel alternatives to oil, in America and elsewhere. In the past, US foreign and domestic policy has been decisively influenced, if not controlled, by powerful oil corporations; likewise, the opposition of oil companies to research in non-oil resources has hampered efforts to develop renewable energy sources in the country. In the current context, however, the US seems to have charged to the forefront of the search for biofuels. Even the big oil companies have changed their long-held stances, and are now investing in developing biofuels.


The search for biofuels has had direct implications for the volume of global production, supply and availability of food. Large areas of land that were hitherto used for food production have been diverted towards growth of biofuel crops, such as corn in America and sugarcane in Brazil. The US is the world’s largest exporter of cereals, and has more than one-third share in the world exports of wheat and other food grains. In America, corn is currently the major source of biofuels, and this shift has inevitably resulted in diversion from food production. Globally, bio-ethanol production doubled between 1990 and 2003, and is projected to double again by 2010. As such, the global food shortage is significantly, though not wholly, the result of decline in food output as a result of the increase in biofuel production and the decline in land area used for food output. This is the supply-side dimension of the current global food shortage.


On the flipside, of particular importance is the increased demand for food as a result of the prosperity of some sections of the population in the BRIC economies. The past few decades of continuing prosperity in advanced capitalist countries, coupled with the emerging prosperity of a section of the population in the Asian and Latin American capitalist economies, have led to an increase in demand for meat products. According to the Food and Agriculture Organisation estimates, most of this increase in the next seven years will occur in the developing countries, where consumption is expected to grow by 2.7 percent per year compared to 0.6 percent per year in rich countries.


The mismatch between the supply of and demand for food is only one factor in the rise in food prices. These prices are also being pushed up by the rise in oil price, which manifests itself in rising production and transportation costs of food. Another contributory factor is the role of what is referred to as speculative capital. The speculative capital, through future markets and forward trading in foodgrains, can manipulate a rise in price that is disproportionately more than what would be warranted by the current forces of demand and supply. Speculative capital, by its very nature, feeds on food shortages and the misery caused by it. Back in 1918, responding to speculators’ roles in creating food shortages, Vladimir Lenin gave a famous speech in which he said, “We can’t expect to get anywhere unless we resort to terrorism: speculators must be shot on the spot.” While such drastic measures are questionable, stringent measures are needed to tackle speculation linked to food-commodity prices.


Unlike in advanced economies, in the developing world food constitutes a major component of household expenditure, and the rise in food prices is likely to push up wage demands. It is already leading to a series of social and political conflicts in several such countries, particularly in Bangladesh. Even in the advanced capitalist economies, such as the UK and Germany, trade unions are reporting unease and increasing militancy among their members over the rise in food prices, along with the rise in oil prices. The advanced capitalist economies had a long, lucky run over the past few decades, largely due to low commodity prices. But the rise in those prices is now putting a serious question mark over the sustainability of growth in these countries.


Reverse colonialism?: The spatial shift in global capitalism, in the shape of the emergence of new economic powers in Asia (China and India), Latin America (Brazil) and the ex-Soviet bloc (Russia and Ukraine), is manifesting itself not only in the rise in demand for more food and energy sources, but also in the geopolitical ambitions of the nation states in these regions. Business groups based in these countries, both in the public and private sector, are dramatically expanding and consolidating their transnational ventures. In 1990, the emerging economies accounted for just five percent of the flow and eight percent of the stock of global foreign direct investment (FDI). By 2006, FDI (including mergers and acquisitions) from developing countries accounted for 14 percent of the world’s total, giving these countries a 13 percent share of the stock of global FDI.


Although the phenomenon of ‘third-world’ multinationals is not new, the scale of operations of some recent Chinese and Indian business ventures abroad is significant. China’s sovereign wealth funds – ie, those owned by the Chinese government – have been investing massively in the UK and the US. Though resistance was experienced in the latter, these funds were welcomed in London. The Indian group Tata’s takeover of the British Land Rover and Jaguar group in March 2008 is symbolic of the changing balance in the global capitalist economy. More recently, in early May, India’s Essar Steel was poised to take over Esmark of the US in a USD 668 million cash deal, underlining the determination of Indian companies to continue acquisitions in spite of the global credit crunch. The latest in the Indian companies’ takeover battles in the West is the bid by Religare Enterprises – the New Delhi-based brokerage controlled by billionaire brothers Malvinder and Shivinder Mohan Singh – to takeover Arden Partners, a mid-sized stockbroker in London.


It is important to note, however, that these developments are not necessarily a sign of the emergence of any ‘reverse colonialism’ or ‘reverse dependency’, as has been suggested by some. Indian and Chinese multinationals that acquire Western multinationals continue to have a negligible role in the economic, business and political decision-making that goes on in Western countries. That is one reason that there has been hardly any opposition to their acquisition ventures, except in Germany and France. It is also important to remember that, in spite of impressive aggregate growth rates in China and India, both of these countries continue to have massive numbers of very poor people due to the uneven nature of the development paths they have pursued. This mass poverty limits the potential for growth of the internal market, and also defines the nature of their competitive power in the world economy. Chinese growth is highly dependent on the export of manufactured goods produced with low levels of technology. Indeed, it is precisely due to low labour costs that China has been able to compete successfully in the international market.


The high growth of gross domestic product in India has been driven by developments within the services sector. But while this growth is impressive in its contribution to overall growth, as in China it remains dependent upon relatively low labour costs in order to compete with US and European multinationals. Meanwhile, labour productivity in China and India remains far below that in these two areas. At this point, the technological superiority of advanced capitalist countries over emerging capitalist countries is simply too entrenched to start making statements about the emergence of China and India as superpower rivals of America and Europe.


What is important in deciphering the changing balance of global capitalism, however, is the emergence of new economic alliances. In various ways, China has allied itself with Russia, Japan, West Asian oil-rich countries, and countries in Latin America and Africa; likewise, India has allied with Pakistan, its traditional ‘enemy’, as well as Iran, Japan and African countries, among others. Each of these connections is leading to the development of a range of technological, economic and financial ties.


Of particular interest is the nascent imperialist competition between China and India in Africa. Chinese and Indian multinationals, backed by their respective governments and supported by international finance capital, are making massive forays into Africa. Recently, Bharti Airtel, India’s leading mobile operator, made a multi-billion-dollar bid for the Johannesburg-listed MNT, which would make it one of the largest telecom companies in an emerging market. Even more imperialistic is China’s recent decision to buy large swaths of land in Africa and South America, in order to grow food for its own consumption.


Law of ecology: In spite of relatively low per-capita income levels in China and India, the sheer size of these economies makes them significant economic players on the global field, even if one is still justified in discounting descriptions of these economies as rivalling the advanced capitalist economies. The most significant implication of the high growth rates in China and India is the likely impact on ecological limits to the growth of global capitalism. Given their large populations, even a marginal increase in income levels in China and India would lead to significant increase in overall consumption of natural resources – not to mention the subsequent waste and pollution likely to be generated.


Given the populations in China and India, it simply would not be ecologically possible to sustain a level of capitalist growth that is anywhere close to what has been experienced by advanced capitalist economies in the past. During the long period of capital accumulation throughout the history of advanced capitalist economies, there was neither the material reality of the scarcity of natural resources, nor the theoretical comprehension of the ecological implications of economic growth, in any way similar to what is being experienced today. Even the critics of capitalism, such as Karl Marx, visualised the communist alternative as an era of abundance. That imagined abundance is not possible ecologically, though the end to dehumanising poverty is certainly not only desirable but within the realm of possibility.


One consumer item that most symbolises modern prosperity is the car. At present, there are about 10 cars in China for every 1000 people. In the US, on the other hand, that number stands at 480. If China were to aim to achieve the present American level of car ownership, it is simply not possible to see a way that the planet would be able to sustain itself, if for no other reason than the resultant pollution. The solution, therefore, is not for emerging economies to try to copy the lifestyles of advanced capitalism, but rather for advanced capitalist countries to reduce their own levels of consumption and waste generation. Ecologically sound global policy demands a critique of consumerism in the West, as well as a reduction of poverty (and a move away from aping Western lifestyles) in developing countries.


The relative decline in the economic powers of older advanced capitalist economies, and the emergence of new economic powers such as China and India, certainly arouses strong passions of nationalist pride in these nation states. One can even invoke the discourse of global justice to go so far as to celebrate the possible decline of the old, rich countries and the rise in living standards in countries that were once poor. However, neither nationalist pride nor global-justice arguments should hide from us the realisation that the alternative to ecologically unsustainable advanced capitalism cannot be another ecologically unsustainable capitalism in the newly developing countries.


The alternative to modern capitalism – whether in the old, rich countries or in the emerging economies – is to imagine and build economic and political systems that are based on the principles of ecological sustainability, social justice and democratic participation. Cuba’s success in organic farming, along with many transport, housing and recycling initiatives by Green party councillors in some British cities, are some examples of sustainable, just and democratic experiments that need to be further developed. That is an intellectual and political challenge that the critics of capitalism need to grasp at this very moment of great historical possibility, danger and hope.

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