Draft for discussion
Partido Lakas ng Masa: Statement on the Global Economic Crisis
The global economic and financial crisis has worsened and accelerated in the past few months. The initial epicentre of the crisis was in the United States but the crisis is now a global crisis which is affecting the entire international financial system and is increasingly asserting itself in the spheres of production. The financial crisis has transformed the deceleration of the global economy into a declared recession. The crisis is having a severe impact on Europe, as well as Asia. The wild swings in the Asian financial markets in response to the events in the US have shattered the myth that the Asian economies are ‘decoupled’ from the US economy.
The instability in the global financial markets, the rise in inflation and the rise in commodity prices such as food and oil indicate that the neoliberal program has failed and the main pillars of the neoliberal capitalist economic order are breaking up. The current crisis heralds the ideological defeat of neo-liberalism.
The massive state intervention seen in the last few months, of nationalisation and financial bailouts to save the skins of the capitalist class at the expense of massive public indebtedness of working people and the poor, has as yet not been able to stop the slide. The capitalist governments, through the big-business media, have promoted a panic scenario aimed at blackmailing the population to accept the swindle of nationalisation of the losses or ‘toxic mortgages’ and the handouts to the bankers as economic ‘relief’ for the people. Meanwhile we are also seeing a rapid increase in corporate acquisitions leading to a new round of unprecedented levels of capital concentration. It is yet to be seen if the measures taken by the capitalist governments will be able to reduce or aggravate the collapse.
The deregulation of the finance sector has been blamed for the current crisis and there have been calls for increased regulation. But deregulation was not the whim of individual governments. It was generalised as a mechanism to increase profit levels. Those putting forward the panacea of regulation as solutions to the crisis (Stiglitz, Sorros, Krugman, et al) imply that the bankers are the culprits and are a peculiar form of evil and speculative capitalists lurking in the margins of what should be ‘good’ productive capitalism. But speculation is inherent in the functioning of capitalism and the bankers have acted in unison with the industrialists.
If the current restructuring the capitalist system continues down the same road, there will be enormous productive and social costs and the already fragile sustainability of the environment may suffer even more damage and the consequences of their ‘solutions’ will be truly horrendous.
The need to reform the international economic and financial structure is today unavoidable. But ultimately the solution to the crisis is political and not economic. We need to put forward and struggle for solutions that challenge and ultimately defeat the capitalist system which is the source of the crisis. This requires us to find a post-capitalist solution to the crisis, i.e., a socialist alternative for the Twenty First Century.
As Marxists we understand that economic crisis are a consistent feature of the capitalist system and are rooted in the major contradictions underlying capitalism: the contradiction between imperialism and underdevelopment; of capital and labor. This global crisis today also has a crucial environmental dimension: that of climate change and global warming. Marxists have also predicted that in its attempt to solve these periodic crisis, capitalism deepens these contradictions and raises them to a higher level, thus paving the way for deeper and sharper crisis the next time round.
The particular features of this crisis include a massive expansion in ‘fictitious’ capital and the indebtedness of working people especially in the US; industrial overproduction; and a rapid increase in commodity prices such as food and oil.
Over the past 30 years the frequency of bursting financial bubbles has increased as we have experienced the biggest ever festival of ‘fictitious’ capital in the history of capitalism. When firms invest in purely financial assets they are deciding to invest in “claims” on new value and profit. This sort of investment in itself adds nothing to the mass of value added, although it does help the firms issuing shares or bonds to finance investment in production. Conventional economics blurs this distinction but for socialist thinkers Karl Marx and Frederick Engels, it was central to understanding financial crises and the boom-bust cycle of capitalism. They called these claims on future profit—what the finance industry calls "financial instruments"—fictitious capital.
But beneath this excess of fictitious capital, real profits began to dry up as mortgage defaults on sub-prime loans began to rise. Another reality expressed by Karl Marx was coming into play: "The ultimate reason for all real crises always remains the poverty and restricted consumption of the masses as opposed to the drive of capitalist production to develop the productive forces as though only the absolute consuming power of society constituted their limit." Credit, especially home mortgages, had extended "the restricted consumption of the masses" for a while, but increasingly the credit could not be repaid, undermining the value of all financial instruments based on it.
The current cycle of over-production is based on the expansion of productivity and production and the decline in purchasing power. This surplus in production was fed primarily by Asia, as Asian commodities flooded the world.
The prospects of the Asian economies picking up the slack look weaker. Japan’s economy continues to slide into even deeper recession. As for the rest of Asia, due to its heavy reliance on the US, Europe and Japan for its major export markets, slower growth and recession in the G3 will spill over into the Asian economies. Aggregate GDP growth in Southeast Asia is now expected to decelerate in 2008 and into 2009 and inflation forecasts are the highest in a decade. The risks of a second Asian crisis loom in the horizon.
There has been much discussion about the prospect of China counteracting the world deceleration with the expansion of its internal market. Some economists put forward this possibility, while others rule it out, pointing to the dependence of the Chinese market on the US market. They also point out that if China is to develop its national market it will need time to do this, perhaps in the context of a moderate brake on global economic activity, and not the abrupt recession we are witnessing today.
Philippines
There is a further crisis of legitimacy for the elite and the manager of their system who are completely tied to the neo-liberal economic model. The crisis has been brought about by the rapacious character of the ruling elite who want to continue their monopoly of political and economic power as the only way to amass capital.
The infighting among the elite for control of limited resources and spoils at a time of lingering economic crisis fuels the political instability of the system. The economic crisis will definitely deepen the divide among the elite factions, while it broadens the poor’s dissatisfaction with the elite-controlled government.
The National Economic and Development Authority has announced that the Philippines export growth will be cut down to zero in 2009 as a result of the global financial meltdown. The grim forecast comes in the wake of negative growth posted by the country’s main exports, electronics and garments, in the past few months. Despite assurances from government economic pundit, the Philippines expected growth rates (GDP and GNP) this year and in 2009 are being downgraded by various independent business groups today.
The Philippine Exporters Confederation has noted that the recession in the United States and Europe has significantly affected Philippine exports. The US is the top destination of Philippine products, followed by Japan, China, and Europe in that order.
Massive withdrawals of portfolio investments from the Philippines have been noted the last few weeks. An official of the Bank of Philippine Islands has commented that while inflation is now becoming a secondary concern as a result of the world oil price softening, there is grave concern among investors in the country’s slowdown in economic activity.
The economic doldrums have already set in. Major factory closures—including Intel, one of the largest semiconductors firm, and Franklin Baker, one of the oldest company in the country—are being announced as smaller businesses have already closed shops in the past months.
With recession in the advanced capitalist countries, there will be less demand for Overseas Filipino Workers. The OFWs are expected to lose their jobs or face further reduction in wages. This situation, combined with an increase in food and other commodity prices in countries where they work, will translate in a reduction of remittances to the Philippines which have been bolstering consumption spending in the Philippines since the overseas bonanza. Expect a more severe depression that wil hit the country in the next few months.
But despite the severity of the problems facing global capitalism today, there is no inevitability about the ‘automatic’ collapse of the system. It would be a dangerous illusion to think that capitalism will simply collapse and that a socialist alternative will take its place. The capitalist system is still extremely resilient. Previous forecasts of its inevitable collapse have simply never materialised and have been proven to be wrong. The system will struggle to survive and keep itself alive – at whatever cost.
Social movements alone, struggling around particular issues, are inadequate to face the challenge and defend working people and the poor against their assaults. We need to build political movements, which struggle for power and a socialist alternative, such as the advanced movements in Latin America today.
We must put forward a series of demands which point in the direction of system change leading towards a transitional socialist alternative, based on national policies that give priority to social spending, and to protecting productive and natural resources.
This includes:
(a) The nationalization of banks and the financial institutions under popular to ensure that the funds are used not for profits but to fund social development that creates jobs. The nationalization of banks, not its continued privatization, is the only step forward to prevent the collapse of the banking system and the entire economy.
(b) The banks’ books must be opened; bank oversight must be strengthened as must the mechanisms of strict regulation which make the real situation of national banking systems transparent for they are public service institutions into which the populations’ savings are deposited.
(c) Massive increase in budgetary allocations for social spending. Priorities are employment security, a living wage, public health and education, housing.
(d) The repudiation of public debt and an immediate moratorium on debt payment.
(e) An end to the war and the war spending in Mindanao and the shifting of the war money towards productive endeavour and job creation.
(f) For the migrant, an immediate social fund to be set up with a plan that includes giving them decent jobs and means of livelihood, decent wages, and substantial welfare projects that provide for the needs of public health, education and housing.
(g) For farmers and agricultural workers, implementation of genuine agrarian reforms that include a land-to-the tillers program, access to agricultural credit and assistance, job security and market access.
(h) Withdrawal from the IMF, World Bank and the ADB.
(i) Lastly, the installation of a government that can effectively carry out the necessary reforms lined up above—a government composed and run by the toiling masses themselves.
Partido Lakas ng Masa: Statement on the Global Economic Crisis
The global economic and financial crisis has worsened and accelerated in the past few months. The initial epicentre of the crisis was in the United States but the crisis is now a global crisis which is affecting the entire international financial system and is increasingly asserting itself in the spheres of production. The financial crisis has transformed the deceleration of the global economy into a declared recession. The crisis is having a severe impact on Europe, as well as Asia. The wild swings in the Asian financial markets in response to the events in the US have shattered the myth that the Asian economies are ‘decoupled’ from the US economy.
The instability in the global financial markets, the rise in inflation and the rise in commodity prices such as food and oil indicate that the neoliberal program has failed and the main pillars of the neoliberal capitalist economic order are breaking up. The current crisis heralds the ideological defeat of neo-liberalism.
The massive state intervention seen in the last few months, of nationalisation and financial bailouts to save the skins of the capitalist class at the expense of massive public indebtedness of working people and the poor, has as yet not been able to stop the slide. The capitalist governments, through the big-business media, have promoted a panic scenario aimed at blackmailing the population to accept the swindle of nationalisation of the losses or ‘toxic mortgages’ and the handouts to the bankers as economic ‘relief’ for the people. Meanwhile we are also seeing a rapid increase in corporate acquisitions leading to a new round of unprecedented levels of capital concentration. It is yet to be seen if the measures taken by the capitalist governments will be able to reduce or aggravate the collapse.
The deregulation of the finance sector has been blamed for the current crisis and there have been calls for increased regulation. But deregulation was not the whim of individual governments. It was generalised as a mechanism to increase profit levels. Those putting forward the panacea of regulation as solutions to the crisis (Stiglitz, Sorros, Krugman, et al) imply that the bankers are the culprits and are a peculiar form of evil and speculative capitalists lurking in the margins of what should be ‘good’ productive capitalism. But speculation is inherent in the functioning of capitalism and the bankers have acted in unison with the industrialists.
If the current restructuring the capitalist system continues down the same road, there will be enormous productive and social costs and the already fragile sustainability of the environment may suffer even more damage and the consequences of their ‘solutions’ will be truly horrendous.
The need to reform the international economic and financial structure is today unavoidable. But ultimately the solution to the crisis is political and not economic. We need to put forward and struggle for solutions that challenge and ultimately defeat the capitalist system which is the source of the crisis. This requires us to find a post-capitalist solution to the crisis, i.e., a socialist alternative for the Twenty First Century.
As Marxists we understand that economic crisis are a consistent feature of the capitalist system and are rooted in the major contradictions underlying capitalism: the contradiction between imperialism and underdevelopment; of capital and labor. This global crisis today also has a crucial environmental dimension: that of climate change and global warming. Marxists have also predicted that in its attempt to solve these periodic crisis, capitalism deepens these contradictions and raises them to a higher level, thus paving the way for deeper and sharper crisis the next time round.
The particular features of this crisis include a massive expansion in ‘fictitious’ capital and the indebtedness of working people especially in the US; industrial overproduction; and a rapid increase in commodity prices such as food and oil.
Over the past 30 years the frequency of bursting financial bubbles has increased as we have experienced the biggest ever festival of ‘fictitious’ capital in the history of capitalism. When firms invest in purely financial assets they are deciding to invest in “claims” on new value and profit. This sort of investment in itself adds nothing to the mass of value added, although it does help the firms issuing shares or bonds to finance investment in production. Conventional economics blurs this distinction but for socialist thinkers Karl Marx and Frederick Engels, it was central to understanding financial crises and the boom-bust cycle of capitalism. They called these claims on future profit—what the finance industry calls "financial instruments"—fictitious capital.
But beneath this excess of fictitious capital, real profits began to dry up as mortgage defaults on sub-prime loans began to rise. Another reality expressed by Karl Marx was coming into play: "The ultimate reason for all real crises always remains the poverty and restricted consumption of the masses as opposed to the drive of capitalist production to develop the productive forces as though only the absolute consuming power of society constituted their limit." Credit, especially home mortgages, had extended "the restricted consumption of the masses" for a while, but increasingly the credit could not be repaid, undermining the value of all financial instruments based on it.
The current cycle of over-production is based on the expansion of productivity and production and the decline in purchasing power. This surplus in production was fed primarily by Asia, as Asian commodities flooded the world.
The prospects of the Asian economies picking up the slack look weaker. Japan’s economy continues to slide into even deeper recession. As for the rest of Asia, due to its heavy reliance on the US, Europe and Japan for its major export markets, slower growth and recession in the G3 will spill over into the Asian economies. Aggregate GDP growth in Southeast Asia is now expected to decelerate in 2008 and into 2009 and inflation forecasts are the highest in a decade. The risks of a second Asian crisis loom in the horizon.
There has been much discussion about the prospect of China counteracting the world deceleration with the expansion of its internal market. Some economists put forward this possibility, while others rule it out, pointing to the dependence of the Chinese market on the US market. They also point out that if China is to develop its national market it will need time to do this, perhaps in the context of a moderate brake on global economic activity, and not the abrupt recession we are witnessing today.
Philippines
There is a further crisis of legitimacy for the elite and the manager of their system who are completely tied to the neo-liberal economic model. The crisis has been brought about by the rapacious character of the ruling elite who want to continue their monopoly of political and economic power as the only way to amass capital.
The infighting among the elite for control of limited resources and spoils at a time of lingering economic crisis fuels the political instability of the system. The economic crisis will definitely deepen the divide among the elite factions, while it broadens the poor’s dissatisfaction with the elite-controlled government.
The National Economic and Development Authority has announced that the Philippines export growth will be cut down to zero in 2009 as a result of the global financial meltdown. The grim forecast comes in the wake of negative growth posted by the country’s main exports, electronics and garments, in the past few months. Despite assurances from government economic pundit, the Philippines expected growth rates (GDP and GNP) this year and in 2009 are being downgraded by various independent business groups today.
The Philippine Exporters Confederation has noted that the recession in the United States and Europe has significantly affected Philippine exports. The US is the top destination of Philippine products, followed by Japan, China, and Europe in that order.
Massive withdrawals of portfolio investments from the Philippines have been noted the last few weeks. An official of the Bank of Philippine Islands has commented that while inflation is now becoming a secondary concern as a result of the world oil price softening, there is grave concern among investors in the country’s slowdown in economic activity.
The economic doldrums have already set in. Major factory closures—including Intel, one of the largest semiconductors firm, and Franklin Baker, one of the oldest company in the country—are being announced as smaller businesses have already closed shops in the past months.
With recession in the advanced capitalist countries, there will be less demand for Overseas Filipino Workers. The OFWs are expected to lose their jobs or face further reduction in wages. This situation, combined with an increase in food and other commodity prices in countries where they work, will translate in a reduction of remittances to the Philippines which have been bolstering consumption spending in the Philippines since the overseas bonanza. Expect a more severe depression that wil hit the country in the next few months.
But despite the severity of the problems facing global capitalism today, there is no inevitability about the ‘automatic’ collapse of the system. It would be a dangerous illusion to think that capitalism will simply collapse and that a socialist alternative will take its place. The capitalist system is still extremely resilient. Previous forecasts of its inevitable collapse have simply never materialised and have been proven to be wrong. The system will struggle to survive and keep itself alive – at whatever cost.
Social movements alone, struggling around particular issues, are inadequate to face the challenge and defend working people and the poor against their assaults. We need to build political movements, which struggle for power and a socialist alternative, such as the advanced movements in Latin America today.
We must put forward a series of demands which point in the direction of system change leading towards a transitional socialist alternative, based on national policies that give priority to social spending, and to protecting productive and natural resources.
This includes:
(a) The nationalization of banks and the financial institutions under popular to ensure that the funds are used not for profits but to fund social development that creates jobs. The nationalization of banks, not its continued privatization, is the only step forward to prevent the collapse of the banking system and the entire economy.
(b) The banks’ books must be opened; bank oversight must be strengthened as must the mechanisms of strict regulation which make the real situation of national banking systems transparent for they are public service institutions into which the populations’ savings are deposited.
(c) Massive increase in budgetary allocations for social spending. Priorities are employment security, a living wage, public health and education, housing.
(d) The repudiation of public debt and an immediate moratorium on debt payment.
(e) An end to the war and the war spending in Mindanao and the shifting of the war money towards productive endeavour and job creation.
(f) For the migrant, an immediate social fund to be set up with a plan that includes giving them decent jobs and means of livelihood, decent wages, and substantial welfare projects that provide for the needs of public health, education and housing.
(g) For farmers and agricultural workers, implementation of genuine agrarian reforms that include a land-to-the tillers program, access to agricultural credit and assistance, job security and market access.
(h) Withdrawal from the IMF, World Bank and the ADB.
(i) Lastly, the installation of a government that can effectively carry out the necessary reforms lined up above—a government composed and run by the toiling masses themselves.
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