The current global financial crisis has far-reaching implications in every corner of the world. The global economy is entering into a protracted recession on a scale not seen in recent times. While the US and Europe are threatened by negative rates of economic growth, the Asian nations including once-prosperous Japan, are facing severe economic downturn.
All export-oriented Asian economies linked to the US and Europe, like Japan, Korea, Taiwan, Hong Kong and Singapore, are facing severe recession. Since Europe and North America account for 35% of India’s manufactured exports, a fall in export orders would result in job loss in India. The Indian government has already expressed fears that half a million workers in the textile sector would lose their jobs by April 2009.
China also would suffer due to the reduced global demand for Chinese export goods. The World Bank predicted that China’s growth would likely be around 7.5% in 2009, which is its lowest growth rate since 1990. India’s gross domestic product growth was over 9% since 2006 and this year it will probably be lowered to 7.5% and next year, to about 6.5%.
European Commission chief Jose Manuel Barroso gave a simple formula to tackle the crisis: “each country would have to decide what was right.” So the developed nations are using their state power to save their corporations and financial systems. They now do it even at the expense of other developing poor countries. When it comes to safeguarding the interests of the corporations, the advocates for global free trade, who have so far advised the poor countries to wide open their economies for the free play of finance capital, have suddenly begun to preach “nationalism.”
However, many countries in Asia took measures to do “what was right” for their economies. To safeguard their banks and improve money market liquidity, many countries announced cuts in the interest rates. Korea has cut rates 1.25 percentage points; Taiwan announced a number of small reductions; Indonesia has stopped its rate-hiking cycle. Will these measures improve the health of their economies?
Since the current financial crisis is mainly caused by the rise of deregulation in the operation of markets, especially financial markets, maintaining regulatory mechanism is a rational solution. Take the case of China, which will find it easier to boost the economy. China has more scope to increase government spending and announced a $585 billion package to boost the economy. Also, it has more ability to order companies to keep investing and to control them than any other country in Asia. It could avoid the worst problems due to its controls on capital flows, its huge trade surplus and its ability to maintain stability of its financial system. But other countries in Asia with neo-liberal regimes at the helms have to cope with the deadly effects of global recession. Actually, they are following the footsteps of the US and Europe in tackling the current crisis, by simply appeasing the corporate interests.
The current bailout attempts of the developed nations to inject massive liquidity into their systems will impact the economies of the South, resulting in more unemployment and declining real wages. As explained by Asian economist Samir Amin, tackling the current crisis through the support of the state would create conditions “for companies from the developed world to plunder natural resources and cheap labor.” The current crisis would impact the already dwindling food security of the poor in the third world. In the food-importing countries, the loss of foreign exchange earnings due to the decline in exports would naturally cause a decline in food grain availability and decline in the incomes of peasants and small producers. This will decrease the purchasing power of the peasants to spend on food.
Why do the governments all over the world try to solve the crisis through the usual monetary instruments such as the liquidity injection into the system? Why don’t the governments act to inject demand into the economy, apart from injecting liquidity, with a special fiscal package for employment-intensive public expenditure, thereby increasing the income and consumption of the working people? Why don’t they mobilize the monetary resources by taxing the wealthy corporates, who had actually benefited from the liberalized, profit-bubbling policies? The serious pain on the developing nations’ economies was mainly caused by their dependence on the exports of goods. Why don’t they expand the domestic market, creating domestic demand with the financial support of the state?
All these questions have to be raised by the working people all over the world, because they are the actual victims of the global crisis.
N. Gunasekaran is a political activist and writer based in Chennai, India.
From The Progressive Populist, December 15, 2008
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