I think that what we’re going through now — which is really just starting, we’re nowhere in the middle of it yet either, I think — is much bigger and more extensive than the Great Depression. There are particular difficulties of fixing it because of the fact that it is bigger, it is more global, and the inter-linkages are greater. . . . The reason why it’s so difficult to fix this time around is because there are three simultaneous imbalances that are finally — shall we say — expressing themselves beyond repair. These imbalances, people have known about them for a while, everyone, even the mainstream, has been noting and talking about them, but each one of them has been sort of dealt with on a separate track, and now everything is imploding at the same time — exploding and imploding, both actually.
The first imbalance is kind of obvious — it’s between finance and the real economy. It’s very clear that finance became of course this haven for speculative activities, but I think what was more significant is the extent of financialization of all economic activities everywhere meant that everyone is implicated. So whether you’re talking about pensioners in Malaysia or municipalities in Norway, everyone’s real income is affected by the generalized collapse of finance. Now, it’s also true that, therefore, as a result, the problems that are emerging are a bit of a bottomless pit. Every day brings additional problems, and of course, because of what’s called a “counterparty risk,” the risk that people you are dealing with may actually not be able to repay, or have further problems that they cannot handle, that is now so extensive that nobody really knows how this can be resolved. I don’t think we are anywhere near seething this fully play out. I think it’s very clear that eventually it’s not just that finance has to be controlled but banking will have to be nationalized, and I do believe that, within a few years, we’ll see nationalized banking throughout the core capitalist countries and probably in many developing countries as well, simply because there’s no option. Banking today is untenable the way it’s done, so just to get it back on the rails, there will have to be some amount of social control over it.
But, before we get too excited about it, I have to warn you: it’s not necessarily good news, because nationalizing doesn’t necessarily mean that it’s going to be progressive, it can be . . . basically socialization of the losses. We take it over and hold it and taxpayers pay for the excesses that were committed and then we hand it back to those who continue to do the same. So, we have to watch out for the kind of nationalization that we go for.
But, you see, that’s just one of the problems. Even if we do nationalize banking, have we solved it? No, we haven’t solved it. Why? Because there is this other big thing, which is the macro imbalance between economies. This wasn’t as large during the Great Depression. We’ve had periods when it was large, but it has never been the case that we have had these huge, enormous imbalances in terms of the biggest, most significant capitalist economy, the US, running these humongous deficits, which have been financed by a combination of surplus countries. This cannot continue. In addition, we also have this huge debt overhang in all the major capitalist countries. By all the major ones, I mean including emerging markets. There’s a very large debt overhang. So, there’s a limit beyond which you cannot spend your way out of trouble anymore.
So, there is a big, fundamental issue that these macro imbalances will have to be resolved. If we don’t resolve them, the market will resolve them, in a sense. The US current account deficit will have to shrink. So, the US therefore cannot play the same global economic role that it’s been playing as the engine of the demand for the world system. It has been like the source of final demand for everyone else. Then, that growth has allowed the other economies to take different sectors along with it. That cannot continue. On the other hand, there’s no clear alternative. China cannot take its place. It’s simply not large enough. All these hopes that China will come and save the world are completely misplaced. China can barely save itself. It probably can save itself.
So, there are all these talks about coordinated expansion. And of course everyone says it now. It’s again, like, Keynes is back in fashion. Coordinated expansion — I mean the UN is talking about it, the UNCTAD is talking about it, even the BIS mentioned it. So, suddenly, you have this whole emphasis on coordinated expansion. The people who are supposed to do it don’t seem to show the same inclination for wanting to do it. If you look at the discussions in the G8 talks, look at the statements made by most of the leaders of the core capitalist countries, it’s not very promising. But it’s very clear that recovery cannot happen without it. But, I would argue, even that coordinated expansion doesn’t get you out of this particular hole, because of the third big imbalance, and that’s the ecological imbalance. . . .
You see, the problem is that all the stimulus packages we’ve seen, even the ones that are still on the agenda, are essentially more of the same. They are really trying to create yet another bubble, trying to get a fiscal expansion going on the same buttons of demand and consumption, which are essentially unsustainable. So, you can’t actually try and revive the economy by trying to recreate something which is not going to work. It’s not just that it’s bad that we are using up too much natural resources. It’s that the environment is actually biting back. It’s actually letting you know that it’s not going to work. It’s not just climate change. Of course, climate change is big and all that kind of thing, but there’s a sheer overuse of resources. In the developing world, pollution and degradation are our biggest problems. Congestion, pollution, degradation — we are losing resources dramatically. The quality of soil in India has fallen 20% in 10 years. So, we are really in a situation where expansion cannot continue in the same way. But that means that the way we design our fiscal packages has to be fundamentally different. A huge bailout for automobiles doesn’t solve the problem. It creates the problem again. So, even a coordinated expansion — even if everyone gets together, which is unlikely to happen, but let’s say everybody gets together — even that will come up very quickly against an inflationary barrier . . . and against an ecological barrier, an environmental barrier.
OK, gloom and doom. Is it all bad news? Actually, no. I’d like to say that, of course, we are entering a period of crisis and certainly uncertainty, but it’s not always so terrible. It’s only terrible for those who thought what we had was the best of all possible worlds, whereas if you want change it’s much easier to change when really the existing model is beyond fix irretrievably. Otherwise, everybody will keep trying to fix it, some way or the other, you know, the safety pin approach will carry on. And I think that if you look at it historically, periods of crisis have been periods of opportunities, not just in terms of changing the economic paradigm, which of course is the case, but also, in geopolitics, in terms of changing the power balances between regions, in internal political economies, in terms of changing opportunities for groups which have otherwise been excluded or oppressed by the system. So, even if it becomes a depression, it’s not necessarily that depressions will inevitably lead to fascism and other terrible things. They can also lead to periods where you have different phases of expansion and growth. We have to remember that the Great Depression was one of the phases of expansion and industrialization of the developing world. Simply because the former trade routes were cut, the former patterns of consumption changed, so there was some industrialization in the developing world. I think that it is possible to use what’s going to happen — it hasn’t fully happened yet, but once we know it’s going to happen, we can perhaps figure out how we deal with it — I think it is possible to use what’s going to happen in a way that we actually do reorient production and consumption — as I said, that’s absolutely essential — but we also reorient international distribution of income, domestic distribution of income, in positive ways.
The point is that you have to remember that capitalism has a remarkable ability to reinvent itself. I think that many people of earlier generations and I think some of my own have been predicting a final crisis of capitalism for a very long time, but we have to recognize that this is not the final crisis of capitalism. But I think what it does do is to provide us with an opportunity for genuine alternative change simply because this system is in a state of quite comprehensive collapse on all these three levels that I have mentioned. And I think this comprehensive change has to be based on much greater imagination than has been shown so far, certainly by policymakers anywhere in the world. And, of course, for policymakers to show imagination, they have to be pushed to it by the society, so that means all of us have to be much more aware of genuine alternatives that do exist and the possibility of creating economies that are more equal, that do provide greater access, that do unleash the creative capacities of everyone in this society, not just a select few, and that do operate in a fundamentally more democratic way both domestically and internationally. Thank you.
Jayati Ghosh is Professor of Economics and currently also Chairperson at the Centre for Economic Studies and Planning, School of Social Sciences, at the Jawaharlal Nehru University, in New Delhi, India. With C.P. Chandrasekhar, she co-authored Crisis as Conquest: Learning from East Asia. The text above is a partial transcript of her talk that was broadcast by the Guardian on 13 March 2009 and The Real News on 17 March 2009.