This is a very dangerous situation that may change the course of history. Poorer countries will be affected more than anyone is anticipating: there may be new bloody revolutions in many parts of the world
As the possibility of worldwide depression threatens to become reality, leftists are hoping that the capitalist system is coming to its logical end. Participants in recent demonstrations in France and elsewhere have been expressing such hopes. They feel that now the socialist dream has become more realisable than ever before.
It may be premature to declare the demise of the capitalist economic order, but in the next few years, the entire world economic order will be reconfigured in one way or the other. It will have profound effects on developing countries like Pakistan.
Marxist theory propounds that a socialist economic system can only be realised in a mature capitalist system. Given the stages of history defined by Marx, a socialist system can only replace a capitalist order if the latter has entirely exhausted its potential. This means if the capitalist system starts stagnating and cannot fulfil the ever-increasing needs of society, it will be replaced by socialism.
Has capitalism, then, exhausted its potential?
Given the strict Marxist theoretical perspective, the socialist revolutions in Russia, China and Vietnam were premature and do not deserve to be called socialism. These societies had not passed through the capitalist stage and hence were not ready for a socialist economic change. This is why the imposition of the socialist doctrine turned into dictatorship of the elite because these societies were still feudalistic and could not embrace the idea of collective ownership.
Despite these historical drawbacks, the systems in Russia, China and Vietnam benefited the masses quite substantially. However, stagnation of economic production forced these societies to revert back to the capitalist market system as we have seen in the last few decades. This further proved that a historical stage cannot be bypassed if Marxist theory has to withstand the empirical test over time.
Dashing the hopes of 20th century revolutionaries, the capitalist system prospered, with Europe, America and Japan registering unprecedented economic growth. On its way, the capitalist system had stumbled many times: recessions and depressions have been recurrent throughout the history of capitalism.
However, after the 1930s’ depression, the captains of capitalism developed economic instruments to deal with the ‘down’ cycles. Autonomous central banks, with broad powers to intervene in the economy, were put in place. These central monetary authorities have been quite successful in averting recessions and inflationary pressures.
Two types of strategies, monetary and fiscal, were deployed to fight the downturns. To fight recessions, interest rates were lowered to increase investment levels. Conversely, price hikes were fought with higher interest rates. Over the last sixty years, economists had become quite confidant that they now had sufficient and tested tools to deal with economic crises.
But the fact of the matter is that monetary tools proved ineffective during the Great Depression in the 1930s, although the monetarist school of economics claims otherwise. Nonetheless, large economic stimulus packages were used to get out of the depression using newly articulated ideas by Keynes.
In addition, the capitalist state adopted some welfare measures by providing universal health, education, unemployment allowance and old age income. The US did not embrace the full range of these welfare measures, but under the New Deal certain programmes like Social Security, old age benefits and unemployment allowances were incorporated into the American capitalist system.
Conservatives in capitalist countries have been fighting the welfare aspects of the state since their very inception. They made a major breakthrough when Ronald Reagan and Margaret Thatcher came to power in the United States and the United Kingdom respectively. Every effort was made to curb state intervention in the economy to unleash the unregulated market system.
In the initial stages, this strategy delivered quite well as recurrent downturns were successfully overcome with available economic instruments. No wonder that same instruments were deployed when the current economic crisis emerged. The US Federal Reserve Bank continued to lower interest rates to boost investment without any success. By now, monetary policy has completely failed while the fiscal stimulus remains to be tested.
President Obama is trying his best to inject billions of government dollars to stabilise the economy. Many economists who have been critical of conservative policies of the last few decades are reasonably optimistic that fiscal stimulus will be successful and the US capitalist system will come back on track.
However, what if the fiscal stimulus also fails? Leftist theorists feel that such an eventuality is quite probable, i.e. economic instruments will not succeed in rehabilitating the overall capitalist system.
If the leftists’ wishful thinking comes true, the world will be in mammoth turmoil for many decades. Ideological battles may not stay within the US Congress or European parliaments and may spread to the streets. In short, a full-fledged socialist system may not emerge, but the capitalist system will not remain the way we know it.
This is a very dangerous situation that may change the course of history. Poorer countries will be affected more than anyone is anticipating: there may be new bloody revolutions in many parts of the world.
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Reproduced by permission of DT