The Global Economy-Depending on the Authorities - Assignment Example

Drawing upon D Harvey, J Frieden, I Wallerstein and N Klein describe the economic events and processes that led to a crisis in the global economy- depending on the authorities you consult, sometime between 1968 and 1972. According to Wallerstein, there is a trinity of characteristics that differentiate the modern world-capitalist system from earlier historical social systems. These characteristics tend to highlight the economy/polity contradiction. This states that the economic interlinkages coupled with the integration of the world economy are more thorough and wide-ranging than its political counterparts, which are more sectioned and geographically limited (Frank and Gills 145). Thus in order to fathom the basis of the economical crisis that emerged during the late 1060s and the early 1970s, a more thorough and wide-ranging approach needs to be taken. At the start of the 1970s, the opinionated left had created strict doctrinal views about the purpose of capitalism. They believed that capitalism was inherently a system of exploitation and oppression (Jørgensen 125). The global and economic activities that took place in the 1960s were largely the result of capitalism as it had emerged since the Great Depression. However the 1970s were witness to a crisis and transformation of capitalism, initially displaying its faults but later on escaping the clutches of the left. Indications of a crisis were being sighted in the late 1960s, attributable not merely to the global unrest of 1968 but also due to the fact that the economic system was not fail-proof to the pervasive effects of crisis in capitalist systems. One of the major effects of the protest cycle that had initiated in 1968 was the emergence of newly revived working class militancy (Jørgensen 125). This militancy was responsible for shattering the peace of the labor market that had been present for a long time now. The time period between 1968 and 1972 attested to a series of strikes in Western Europe, specifically characteristic of wildcat strikes that were held beyond the structural setup of negotiation. Jørgensen observes that “the official trade union leaderships were more often than not taken by surprise by their members’ militancy” (125). The unrest occurring during this time period, along with the fall of the Bretton Woods system and the dollar crisis, cumulated together and made the global crisis into an impending reality. It was in 1973 that the crisis finally struck, and the hopes of stable capitalism as a reasonably organized perpetuum mobile were dampened (Jørgensen 125). The rising unemployment, the Arab Oil Embargo and the rising prices led to the economic crisis of the 1970s. In the US, during the time before the global economic crisis, there was little free market activity. The US government was characteristic of organized capitalism, as described by Jeffry Frieden. The government spending on consumption and investment was relatively higher than it has been in the recent years. Many of the major enterprises of the country, such as transportation, communications, utilities and banking, were under the control of the government. It was believed that the tight regulation of the financial sector would help to keep financial instability under check. Unions had a safe place in the economy of the country. The rate of unionization was as much as 20% in the mid 1970s (Reuss). However the implications of the capitalist-citizen accord, which the government had made to avert increases in unemployment, was the main underlying cause for the social unrest that appeared in the country is the 1960s. The social unrest was because of the fact that the accord excluded a major part of the US population (Reuss). These policies did not make the most dominant capitalist state of the world immune to the global economic crisis. The US was submerged by problems of rising inflation costs and unemployment and falling productivity in the 1970s. The country became a victim of trade deficits in the 1960s and government deficits in the 1970s (Reuss). Immanuel Wallerstein is of the point of view that there was a change in the world system in the late 1960s and the early 1970s. The time period was witness to the downfall of two operative mechanisms of the modern world system i.e. the hegemonic cycle and the overall economic cycle. After the Second World War till the 1970, the US was characteristic of hegemony in the world system. Furthermore, this period was marked by “the most expansive Kondratieff A-upturn” which the capitalist world-economy had ever been witness to (Wallerstein). The years between 1965 and 1970 saw the decline of hegemony and Kondratieff-A phase, which contributed to the world revolution of 1968. The world revolution further led to the aggravation of the global economic crisis, with the fall of the Old Left. The Old Left was also at the peak of their power in the period after WWII till the 1970. Jeffry Frieden was of the point of view that ever since the Second World War, there was a clash between the communism and social democracy, which culminated in a new product called, organized capitalism, in the 1990s (Arner 95). During this time period, the large scale economic expansion created a belief in the entrepreneurs that yielding to the demands of the workers was less costly than any interruptions that might occur in the production processes. This created rising production costs, which was one of the reasons that accelerated the decline of quasi-monopolies of leading industries. The period of late 1960s and 1970s was marked with increasing international competition, along with worldwide economic stagnation, increased oil prices, which were the most prominent factors that caused the crisis to exacerbate. The result of these economic problems was that the US had no choice but to initiate a painful restructuring of the economic framework. The government reduced its regulation, layoff many people, along with assaults on organized labor, the shift of overseas factories to low-wage regions, introduction of tax policies that promoted the growth of businesses, and implementation of mergers. This led to an increase in profits and “more globally competitive corporate behemoths” (Winslow). The regulated capitalism period that started after the Depression in the US was replaced by neoliberal capitalism after the 1970s crisis, which led to a decrease in the role of the government and a fall in the power of unions. According to Harvey, “neoliberalism is in the first instance a theory of political economic practices that proposes that human well-being can best be advanced by liberating individual entrepreneurial freedoms and skills within an institutional framework characterized by strong private property rights, free markets, and free trade” (2). After the 1970s, it was noted that it had become increasingly difficult to govern the society and the long-held traditions of governance and classifications were no longer applicable to the changed economic times. The result of the economic and social conditions of the 1960s was that there was lesser certainty about the state of things in the 1970s (Jørgensen 125). In post-1970, neoliberal globalization took its hold on the economy, leading to the deterioration of social democratic states. This led to the overarching preponderance of market primacy on popular interests. The consequence of the global economic crisis of the 1970s was that social democracy was no longer functional, assuming the role of an electoral machine which did not have the drive of the previous years. In the wake of the global economic crisis of the late 1960s and the 1970s, the US government reacted by capitalist mobilization. Firstly, there was an increase in the funding of policy organizations which were integral to the development of conservative economic policies. Secondly, the capitalists increased the extent and usefulness of their lobbying efforts. Thirdly, they bolstered conservative candidates for nomination to public office. These changes brought a huge change in the economic policy of the US, also referred to as the “right turn” (Reuss). According to Frieden in Global Capitalism, “Between 1979 and 1985 the advanced industrial countries turned from the conflict and confusion of the 1970s to financial orthodoxy and economic integration” (378). Klein observes in her book, The Shock Doctrine, that crisis is the only event that can cause a real change. When a crisis takes place, the response depends on the ideas that are lying around. Klein contends that governments respond differently to a crisis, with many resorting to stockpiling of goods. Klein talks about how the crisis of the 1970s led to hyperinflation in countries such as the Chile. The Chilean government responded to the crisis by a process that has been referred to as the economic shock treatment. When countries have to resort to such treatments, they impose free market programs. Klein also adheres to the notion that shock treatment programs can only be effective if some supplementary collective trauma has been developed. It is after great disasters such as the global crisis, that the proponents of the shock doctrine plunge their hands and initiate the process of remaking (Klein). The remaking process after the global crisis constituted the emergence of neoliberalism. The neoliberal agenda contributed to the accumulation of capital and increased economic growth in the US; therefore it can be assumed that the policies that the government implanted in response to the crisis were effective. The neoliberal globalization that emerged after the crisis was not as profound in rich capitalist countries other than the US and UK. Thus the global crisis did not have the same implications in all the countries. Developing countries were the most affected by the crisis; the more interlinked the country and the global economy were, the greater were the effects of the crisis. The global crisis led to a very low growth rate of 3% in India (Balakrishnan). The developing countries were not prepared to deal with the crisis. They lacked the resources to promote their economy. They dealt with the crisis by increasing their cooperation with each other (Gurtner). Harvey is of the point of view that neoliberalism, which has dominated since the crisis, has been a complete failure. There has been increased accumulation of capital and the rise of the elites in the US and UK and development of capitalist class formation in countries like China, India and Russia (156). Harvey contends that the neoliberalism has increased the power of the elites on the expense of the working classes and is a “naked class power, locally as well as transnationally, but most particularly in the main financial centres of global capitalism” (119). Thus he is of the point of view that the policies that the government has taken since the crisis have led to monstrous and unjust accumulation of wealth by the elite. Works Cited Arner, Douglas W. Financial stability, economic growth, and the role of law. Cambridge University Press, 2007. Print. Balakrishnan, Chandrasekaran. Impact of Globalisation on Developing Countries and India. About.com, 2004. Web. 16 Dec. 2010. Frank, André Gunder and Barry K. Gills. The world system: five hundred years or five thousand? Routledge, 1996. Print. Frieden, Jeffry A. Global Capitalism: Its Fall and Rise in the Twentieth Century. W. W. Norton & Company, Inc, 2006. Print. Gurtner, Bruno. The Financial and Economic Crisis and Developing Countries. International DEvelopment Policy Series, 2010. Web. 16 Dec. 2010. Harvey, David. A new history of neoliberalism. Oxford University Press, 2005. Print. Jørgensen, Thomas Ekman. Transformation and crises: the Left and the nation in Denmark and Sweden, 1956-1980. Berghahn Books, 2008. Print. Klein, Naomi. The Shock Doctrine. NaomiKlein.org, 2010. Web. 16 Dec. 2010. Lendman, Steven. Immanuel Wallersteins Worldview. SteveLendman Blog, 2010. Web. 16 Dec. 2010. Reuss, Alejandro. What can the crisis of U.S. capitalism in the 1970s teach us about the current crisis and its possible outcomes? Dollars & Sense, 2009. Web. 16 Dec. 2010. Wallerstein, Immanuel. Crisis of the Capitalist System: Where Do We Go from Here? Monthly Review Foundation, 2009. Web. 16 Dec. 2010. Winslow, George. Capital Crimes: The Political Economy of Crime in America. Monthly Review, 2000. Web. 16 Dec. 2010. Read More