The Global Crisis,
the Political Economy of State Restructuring,
and the Campaign for Transformative Social Protection
Bonn Juego
PhD Fellow
Global Development Studies
Aalborg University, Denmark
E-mail: bonnjuego@yahoo.com
Presentation for the Asia-Europe People’s Forum (AEPF) Conference on
Southeast Asia Regional Roundtable Strategizing Meeting:
Building Southeast Asia Peoples' Agenda on Transformative Social Protection
as a Democratic and Human Rights Response to the Crisis
Asian Institute of Management
Makati City, Philippines
1 2009
12 October
The Global Crisis:
Nature, Responses, and Alternatives
CONTENTS



How can we make sense of crisis in capitalist development (in
particular, neo-liberalism)?
Are there fundamental changes to the visions and strategies of global
governance institutions, the states, and the social movements in their
respective responses to the global crisis?
What does transformative social protection mean in this moment of
crisis?
2
Constitutive Role of Crises
in the Evolution of Neo-liberalism
 Relationship: Crisis and Neo-liberalism
 Dysfunctional or Functional (or both)
 Nature of Crisis and Neo-liberalism
 Born out of crises
 Evolved through crises
 Died of crises???
3
NEO-LIBERALISM WAS BORN OUT OF CRISES
Complex interaction of forces/events/phenomena...
...Mutually reinforcing tendencies











recession in the developed capitalist economies after 1973, the OPEC oil crisis, and the
collapse of the Bretton Woods system
de-linking from the ‘gold standard’
internationalisation of financial markets as a result of the widespread abandonment of
exchange controls
the massive increase in foreign bank lending to the Third World as consequence of the
recession in the major economies
the growing stagnation of command economies
the shift from import substitution in favour of export promotion in the Third World and
the rise of the NICs in East Asia
the imposition of structural adjustment programmes (SAPs) on the heavily-indebted
Third World as conditionality attached to rolling over foreign debt
the restructuring of global production towards ‘post-Fordism’ and the growth of MNCs
the revolution in macroeconomic policy that resulted in the weakening of trade unions,
the cutting of state budgets, deregulation, privatisation, etc.
the advances in ICT (as the new ‘techno-economic paradigm’)
Etc....
4
NEO-LIBERALISM HAS EVOLVED THROUGH CRISES
From crisis to crisis in the last 30 years....

National Developmentalism (postwar-1970s)
 Crisis of Fordism/Keynesianism (stagflation)

Washington Consensus – 1st Generation Neoliberal reforms (1980s –
mid-1990s)
 Crisis of market fundamentalism of the Washington Consensus — ‘East
Asian Miracle’ (8 HPAEs showing high growth and high equity with state
intervention)

Post-Washington Consensus – 2nd Generation reforms (mid-1990s 2008)
 Cacophony of crises: financial crises, overaccumulation, overproduction,
over-/under-consumption, climate change, ecological degradation, political
legitimacy, global governance crisis, oil crisis, food price crisis, subprime
crisis
5
NEO-LIBERALISM HAS DIED OF CRISES(?)
Signs of the Times, a Cacophony of Crises:
RIP Neo-liberalism (1980s-2008)
 Is neo-liberalism dead?
 Depends on what we mean by ‘neo-liberalism’....
 The neo-liberal form (i.e., market fundamentalism)
is dead;
 But not the substance of capitalism as a:
 process of capital accumulation;
 relations in which labour is subordinated to capital
6
Neo-liberalism: A strategy for market-led
development, A blueprint for crisis management
Neo-liberal values: well-being of the financial institutions over wellbeing of the people

E.g.
 Debt crisis in Latin America (1982)
 Crisis Response: SAPs
 Financial Crises: Scandinavia (early 1990s); Mexico (1994); East and
Southeast Asia (1997); Russia (1998); Argentina (2001); Turkey (200102); US Subprime mortgage (2007-09)
 Crisis response: ‘open’ international financial architecture
 US subprime crisis (2007-09)
 Crisis response: Bush-Paulson-Bernanke-Obama Bailout Programme
(restore power of corporations; assure ascendancy of finance capital)
7
In times of crisis,
“assets return to their rightful owners”!
‘Financial crises have always caused transfers of ownership and power to
those who keep their own assets intact and who are in a position to
create credit, and the Asian crisis is no exception....there is no doubt
that Western and Japanese corporations are the big winners.....The
combination of massive devaluations, IMF-pushed financial
liberalization, and IMF facilitated recovery may even precipitate the
biggest peacetime transfer of assets from domestic to foreign owners
in the past fifty years anywhere in the world, dwarfing the transfers
from domestic to US owners in Latin America in the 1980s or in Mexico
after 1994. One recalls the statement attributed to Andrew Mellon: "In
a depression assets return to their rightful owners”.’
—R. Wade and F. Veneroso (1998),
‘The Asian Crisis: The High Debt Model versus the Wall Street-Treasury-IMF
Complex,’ in The New Left Review, 228 (1998), 3-23.
8
The Cacophony of Crises Today
 Overproduction
 Finance (securitisation, speculative investments, Ponzi
scheme)
 Environment
 Climate (global warming)
 Oil
 Food (post-Green Revolution, the Great Hunger of 2008)
 Governance (WB, IMF, WTO, states)
 Etc.
9
Mechanisms of Financial Crises
and their Effects on the Real Economy
The real economy
“Güterwelt”
”Black
Box”
Production
of goods
and services
Financial economy
“Rechenpfennige”
Money/capital
THE CIRCULAR FLOW OF ECONOMICS
10
COMPLEMENTARY FUNCTIONS, DIVERGENT NATURE
Financial capital
Production capital
Money and paper wealth
Static property
“Investible” capital
Wealth-producing wealth
Fixed capital,
technical capital,
human capital, good will
Mobility
Essentially mobile
Knowledge indifferent
Tied to fixed assets, to
knowledge of products,
processes, capabilities,
clients and markets
Bias
Quasi-liquid assets,
SHORT-TERM GAINS
Wealth-creating assets,
LONG-TERM GAINS
Assets
Socio-economic results will differ
depending on the criteria that lead investment
11
SHIFTING ROLES OF
MONEY ON THE REAL ECONOMY
“In the years preceding the First World War
there were in common use among economists a number of metaphors . . .
'Money is a wrapper in which goods come’; 'Money is the garment draped
round the body of economic life’; 'money is a veil behind which
the action of real economic forces is concealed’ . . .
During the 1920s and 1930s
. . . money, the passive veil, took on the appearance of an evil genius; the
garment became a Nessus shirt; the wrapper a thing liable to explode.
Money, in short, after being little or nothing, was now everything . . .
Then with the Second World War,
the tune changed again. Manpower, equipment and organization once more
came into their own. The role of money dwindled to insignificance. . .”
Arthur Cecil Pigou (1949) The Veil of Money, Macmillan pp.18-19
12
Three basic and complementary mechanisms behind the conflicts
between the real economy and the financial economy
(Financial Crises)
1.
THE HAMMURABI EFFECT (Babylonia ca. 1795 – 1750 BC)
•
2.
The Effect of Compound Interest.
THE PEREZ EFFECT (Carlota Perez, Venezuelan economist)
•
3.
Technological Revolutions Create Financial Bubbles.
THE MINSKY EFFECT (Hyman Minsky, US, 1919-1996)
•
•
Liquidity preference turning point
+ ‘bad projects’ killing credit to healthy projects.
13
THE HAMMURABI EFFECT
(The Effect of Compound Interest)
“A shilling put out at 6% compound
interest at our Saviour’s birth
would . . . have increased to a
greater sum than the whole solar
system could hold, supposing it a
sphere equal in diameter to the
diameter of Saturn’s orbit.”
—Richard Price, English Economist, 1769.
14
THE PEREZ EFFECT
Technological Revolutions and Finance Capital
Approximate dates of the installation and deployment periods
of the great surges of development -- 1771 to the present
GREAT
SURGE
Technological
Revolution
Core country
INSTALLATION
IRRUPTION
FRENZY
Turning
Point
DEPLOYMENT
SYNERGY
MATURITY
1st
The Industrial
Revolution
Britain
1771 1770s and early 1780s late 1780s early 1790s 1793–97
1798–1812
1813–1829
2nd
Age of Steam
and Railways
Britain (spreading
to continent and US)
1829
1830s
1848–50
1850–1857
1857–1873
3rd
Age of Steel, Electricity
and Heavy Engineering
USA and Germany
overtaking Britain
1875
1875–1884
1893–95
1895–1907
1908–1918*
4th
Age of Oil, Automobiles
and Mass Production 1908
USA (spreading to Europe)
1908–1920*
5th
Age of Information
and Telecomunications
USA (spreading
to Europe and Asia)
1971–1987*
1971
big-bang
Note: * Observe phase overlaps between successive surges.
1840s
1884–1893
1920–1929
1987–2001
1929–33
Europe
1929–43
USA
2001–??
Crash
1943–1959
1960–1974*
20??
Institutional
recomposition
15
THE MINSKY EFFECT
(Ponzi Schemes)
Types of financing
1.
HEDGE financing
•
2.
Low risk - can fulfill contractual payment obligation
SPECULATIVE financing
•
involves future renegotiating of the debt (rollover)
•
A typical speculative position consists on financing long term assets
with short term liabilities.
3.
PONZI financing
•
‘cash flows from operations are not sufficient to fill either the
repayment of principal or the interest on outstanding debts by
their cash flows from operations’
•
expected revenues can not afford even interest payments, and agents
are submitted to increasing debt
16
Ponzi Schemes
 Ponzi schemes (such as subprime loans)
 cause financial institutions to redefine the
game
 they no longer compete for market share
but instead pull out in order to be more
liquid.
 In this way also, SOUND PROJECTS
ARE REFUSED CREDIT, AND A
DOWNWARD SPIRAL STARTS.
(Charles Ponzi - police mugshot, 1910)
 Third World debt/lending was also a Ponzi
scheme.
 Myrdalian ‘perverse backwashes’
 Funds tend to flow from poor to rich
countries!
17
Responses to Crisis
 SCHUMPETERIAN:
 ‘IT HAS TO BURN OUT ALONE’
 KEYNESIAN:
 ‘REPAIR IT’, but without encouraging the very behaviour
that caused the problem in the first place.
 MARXIST:
 ‘REPLACE IT’ — overthrow crisis-ridden capitalist system;
establish socialism, a democratic economic planning
18
“Times of innovation ... are times
of effort and sacrifice, of work
for the future, while the harvest
comes after.... The harvest is
gathered under recessive
symptoms and with more
anxiety than rejoicing....
[During] recession ... much
dead wood disappears.”
—Joseph Schumpeter (1939)
Business Cycles
19
“I sympathize, therefore, with those who
would minimize, rather than with
those who would maximize, economic
entanglement among nations. Ideas,
knowledge, science, hospitality, travel
– these are the things which should of
their nature be international. But let
goods be homespun whenever it is
reasonably and conveniently possible,
and, above all, let finance be
primarily national. Yet, at the same
time, those who seek to disembarrass
a country of its entanglements should
be very slow and wary. It should not
be a matter of tearing up roots but of
slowly training a plant to grow in a
different direction.
For these strong reasons, therefore, I am
inclined to the belief that, after the
transition is accomplished, a greater
measure of national self-sufficiency and
economic isolation among countries than
existed in 1914 may tend to serve the cause
of peace, rather than otherwise. At any
rate, the age of economic internationalism
was not particularly successful in avoiding
war; and if its friends retort, that the
imperfection of its success never gave it a
fair chance, it is reasonable to point out
that a greater success is scarcely probable
in the coming years.”
— John Maynard Keynes (1933 [1972]) National
Self-sufficiency
20
“Modern bourgeois society
with its relations of
production, of exchange
and of property, a society
that has conjured up such
gigantic means of
production and of
exchange, is like a sorcerer
who is no longer able to
control the powers of the
nether world whom he has
called up by his spells.”
—Karl Marx and Frederick Engels (1848)
Communist Manifesto
“These are signs of the times,
not to be hidden by purple
mantles or black cassocks.
They do not signify that
tomorrow a miracle will
occur. They do show that,
within the ruling classes
themselves, the foreboding
is emerging that the present
society is no solid crystal,
but an organism capable of
change, and constantly
engaged in the process of
change.”
—Karl Marx (1867)
Capital, Vol. 1
21
The World Bank, IMF and their G-20 allies:
Using the global crisis to their advantage....
G-20: IMF is back!
Dominique Strauss-Kahn, Managing Director of the IMF, G-20 Press Conference, 2 April 2009
Maybe some of you were in the IMF press
conference at the end of the Annual
Meeting last October. And if some of you were there,
then you may remember
that what I said at that time is that IMF is back. Today
you get the proof when
you read the communiqué, each paragraph, or
almost each paragraph – let's
say the important ones – are in one way or another
related to IMF work.
22
WORLD BANK: Exactly the same global neo-liberal project!
World Bank, Global Monitoring Report 2009: A Development Emergency, p. xii.
The report sets out six priority areas for action to confront the development emergency that now faces
many of these countries. First, we must ensure an adequate fiscal response in developing countries to
protect the poor and vulnerable groups and to support economic growth. Priority areas must be
strengthening social safety nets and protecting infrastructure programs that can create jobs while
building a foundation for future productivity and growth. The precise fiscal response needs to be tailored
to individual country circumstances, consistent with maintenance of macroeconomic stability. Second,
we must provide support for the private sector and improve the climate for recovery and growth in
private investment, including paying special attention to strengthening financial systems. Helping small
and medium enterprises get access to finance for trade and investment is vital for job creation. But the
crisis has also underscored the importance of broader reforms to improve the stability and soundness of
the financial system. Third, we must redouble efforts in human development and recover lost ground in
progress toward the MDGs. We can do this not only by strengthening key public programs for health
and education, but also by better leveraging the private sector’s role in the financing and delivery of
services.
In support of these efforts to help developing countries, the report emphasizes three key global
priorities. Donors must deliver on their commitments to increase aid. Indeed, the increased needs of
poor countries hit hard by the crisis call for going beyond existing commitments. National governments
must hold firm against rising protectionist pressures and maintain an open international trade and
finance system. Completing the Doha negotiations expeditiously would provide a much-needed boost in
confidence to the global economy at a time of high stress and uncertainty. Finally, multilateral institutions
must have the mandate, resources, and instruments to support an effective global response to the
global crisis. The international financial institutions will need to play a key role in bridging the large
financing gap for developing countries resulting from the slump in private capital flows, including using
their leverage ability to help revive private flows.
Source: World Bank, Global Monitoring Report 2009: A Development Emergency, p. xii.
23
World Bank President Robert Zoellick (31 March 2009, prior to the G-20
Meeting): New Powers for the Multilaterals!
• “a WTO monitoring system to advance trade and resist
economic isolationism, while working to complete the Doha
negotiations to open markets, cut subsidies, and resist
backsliding”;
• “a monitoring role for the IMF, to review the execution of ..
stimulus packages and assess results, calling for further
action if necessary”;
• IMF and World Bank Group monitoring of actions and
results in the banking sector, with financial sector
assessments to be extended to developed countries, “with
the results published, taken seriously, and followed up”;
• an overhaul of the financial regulatory and supervisory
system” in which “most of the actual authority over
regulation will rest with national governments”, but within
which an expanded FSF [Financial Stability Forum] “could
become another important institution of a stronger
multilateral system, working with the IMF and the World
Bank group on implementation”
24
IMF: ‘An opportunity to make progress on seemingly intractable issues’
IMF (February 2009), Initial Lessons of the Crisis for the Global Architecture and the IMF
Bottom line. The crisis has revealed flaws in key dimensions of
the current global architecture, but also provides a unique
opportunity to fix them. On the flaws, surveillance needs to
be reoriented to ensure warnings are clear, successfully
connect the dots, and provide practical advice to policy
makers. An effective forum for policy makers with the
ability and mandate to take leadership in responding to
systemic concerns about the international economy is key.
Ground rules for cross-border finance need to be
strengthened. And, given the growing size of international
transactions, resources available for liquidity support and
easing external adjustment should augmented and
processes for using them better defined so they are more
readily available when needed. These are all ambitious
undertakings. But the damage wrought by the crisis
provides an opportunity to make progress on seemingly
intractable issues. The moment should not be missed.
25
ASEAN: ‘Ensure free flow of goods, services and investment’
ASEAN Member States, Press Communique, Thailand, 1 March 2009
 “the necessity of proactive and decisive policy actions to
restore market confidence and [to] ensure continued
financial stability to promote sustainable regional economic
growth”
 “expansionary macroeconomic policies, including fiscal
stimulus, monetary easing, access to credit including trade
financing, and measures to support private sector,
particularly small and medium enterprises (SMEs)
undertaken by each ASEAN Member State to stimulate
domestic demand”
 “coordinating policies and taking joint actions that would be
mutually reinforcing at the regional level”
 “determination to ensure the free flow of goods, services
and investment, and facilitate movement of business
persons, professionals, talents and labour, and freer flow of
capital”
26
States’ Bailouts and Resiliency Plans
(Bailouts for the poor???)
Malaysia
Philippines
First stimulus measure: increase
capitalisation of a government
investment company by USD 5
billion (also to stabilise stock
exchange)
Economic Resiliency Plan
(ERP): PhP 330 billion
QuickTime™ and a
TIFF (Uncompressed) decompressor
are needed to see this picture.
27
Global Civil Society Challenge
and the Challenge to Global Justice Movements
— ‘Another World Is Necessary’ —
“The crisis consists
precisely in the fact
that the old is dying
QuickTime™ and a
TIFF (Uncompressed) decompressor
are needed to see this picture.
and the new cannot
be born; in this
interregnum a great
variety of morbid
symptoms appear.”
—Antonio Gramsci (1971)
Prison Notebooks
28
Crisis as a ‘Turning Point’
 CRISIS from Greek ‘krisis’
 “the turning point of a
disease when an important
change takes place, indicating
either recovery or death”
 People from left, right, centre look
at the crisis the ‘Chinese way’ —
i.e., an opportunity to advance
their respective interests!
29
Transformative Social Protection
Neo-liberals
 Well-being of the
market/financial
institutions
TSP
 Well-being of the
people
 Material — not just
ideational — basis
for alternatives
30
Lessons of the 1997 Asian Crisis for TSP Campaign
(Towards a Democratic and Human Rights Response to Crisis)
 Democratisation may be stalled.
 Justification for authoritarian rule (e.g. ‘Asian Values’)
 Human Rights compromised.
 Human rights obligations sidelined in the name of
surveillance and internal security (Malaysia, Singapore)
 The poor severely neglected.
 e.g., ASEM Trust Fund failed to target the poor,
workers, and the vulnerable, adversely affected groups.
31
Emergent AUTHORITARIAN LIBERALISM in Asia
(Authoritarian Polity, Market Economy)
32
CONCLUDING REMARKS
1. The Constitutive Role of Crises in the Evolution of
Neo-liberalism
i.
was born out of the crises of the 1970s
ii. has evolved through a series of crises over the last
30 years
iii. died of the cacophony of crises culminating in the
current global economic crisis.
33
As it shows, crises have so far been functional,
rather than dysfunctional, to neo-liberalism:
 Crises reshape class and social relations but in ways that
perpetuate the hegemony of capital over labour and the
preservation of elite rule.
 Crises restrategise development plans of institutions from
international organisations to states to further advance, not
retreat from, market-led development.
 Crises restructure states and societies in which social institutions
are oriented towards the logic, requirements, and imperatives of
neo-liberalism.
34
2. The responses to the global crisis from the
multilaterals, to regional organisations, to states
are fundamentally the same through the years,
with or without crisis.
 But there are differential catastrophic impacts
across social classes, amongst the poor,
marginalised, vulnerable sectors.
35
3.
Another world is necessary!

Tranformative Social Protection now!!!

‘Social Security’ (at a minimum, right to livelihood, food,
healthcare, water, housing, education, and other essential
services): both timeless and universal

The TSP Campaign: find, advance, and create a democratic
and human rights response — protect, care for, and work
with the most vulnerable sectors such as the urban and rural
poor, the workers, women, migrants, farmers and fisherfolks,
persons with disability, and indigenous peoples
36
Thank you very much.
—Bonn Juego
37