People's Democracy

(Weekly Organ of the Communist Party of India (Marxist)


No. 15

April 19, 2009



Finance Capital Reasserts  Its Supremacy At G-20

Prabhat Patnaik

THERE was a brief period, around October 2008, when the supremacy of finance capital appeared to be under threat. British prime minister Gordon Brown talked of nationalisation of banks and of a fiscal stimulus to overcome the crisis, both anathema for finance. Barack Obama, catapulted into the front-runner’s position in the US presidential race because of the crisis, appeared as a new incarnation of Franklin Roosevelt, the author of the New Deal of the thirties, even though he himself was scrupulously silent on how to deal with it. The story that Obama’s campaign was financed largely by internet donations, each not exceeding $100, by millions of voters, raised hopes that this president, not beholden to finance capital for his election, will be free to challenge its hegemony, as the bulk of the American population, disgusted by the shenanigans of finance, wanted him to do. And in the UN General Assembly, Third World countries unanimously demanded a changed financial architecture for the world economy, where neither the IMF in its old form, nor its favourite shibboleths like “sound finance”, “liberalisation”, and “stabilisation” (which actually accentuated crises) would have any place.

That moment has passed. International finance capital has managed to regroup its forces. Or more accurately, the forces in its favour have turned out to be far more formidable than appeared at the time. The German government had never been part of the forces opposed to finance anyway, its finance minister even pillorying the fiscal stimulus plan as “crass Keynesianism”. But even Obama turned out to have been counted wrongly among the oppositional forces. The story about Obama’s campaign being financed by small donations was a sheer myth. Wall Street funded his campaign massively, through intermediaries like Rubin, Geithner and Summers. And the trio was duly rewarded, upon his assuming office, by being appointed as the top economics team of the new administration. Not surprisingly, the bank bailout plan that Geithner has announced is nothing short of a scandalous use of public money to bolster the fortunes of private financiers, as Joseph Stiglitz has shown.

Even Obama’s fiscal stimulus plan has turned out to be a damp squib. Of the total amount he proposes to spend for reviving the economy, a part is for supporting the banks. The remainder, which is really meant for stimulating demand, comes to $400 billion. Now, the crisis which entails reduced income in the economy also entails reduced tax revenue for the state governments in the United States. The reduction in tax revenue of the state governments is estimated to be $400 billion. Since state governments cannot run fiscal deficits, their expenditure too must go down by $400 billion. Obama’s fiscal stimulus package therefore merely offsets the reduction in expenditure of the state governments, having zero net impact as a stimulus for the economy. It would prevent the aggravation of the crisis that would have occurred because of the reduction of state governments’ expenditure, but it would do nothing to get the economy out of the crisis. And the timidity of Obama’s fiscal package is due to the pressure of finance capital that is always opposed to State pro-activeness in demand management and employment generation (indeed to any State pro-activeness except that which serves its own interest).

The latest example of the assertion of the supremacy of international finance capital is the G-20 summit. The talk in the past had been not only about a fiscal stimulus, but about a coordinated fiscal stimulus, i.e. about a host of major economies simultaneously undertaking larger expenditures as a means of stimulating demand. The G-20 summit was deafeningly silent about this proposal. Instead it was reportedly caught up in a debate between the Americans and the Europeans about which should have priority, regulation of financial markets or fiscal stimulus. Since regulation as such generates no demand and since fiscal stimulus has in the process been quietly sidelined, this means that any coordinated injection of demand into the world economy has been shelved for now. And as regards uncoordinated individual stimulus, since the mightiest capitalist economy’s stimulus plan amounts, as we have just seen, to a damp squib, State intervention for overcoming the crisis has been effectively given the go-by, exactly as finance would have liked.



There is an eerie similarity here to what had happened during the Great Depression of the thirties. Then too a proposal for getting the world out of the Depression through a coordinated fiscal stimulus among major countries had been put forward by many, including Keynes and also a group of German trade unionists. Had this proposal been accepted, perhaps fascism and war could have been prevented. But the intransigence of finance with its insistence on the principle of “sound finance” (i.e. balancing budgets) killed this proposal, heaping massive miseries upon the working masses of the world in the form of prolonged unemployment, fascist terror and a savage war. We are witnessing a re-run of that script, at least as far as the opposition of finance to a coordinated fiscal stimulus is concerned.

The most newsworthy announcement of the G-20 summit was the $1.1 trillion package of help, ostensibly for the developing economies. This help consists partly of an increase in Special Drawing Rights of the IMF which will be distributed on the basis of the existing quotas, and partly on support routed through the IMF by the major countries. The most amazing thing about this $1.1 trillion is that its exact distribution across groups of countries is as yet totally unknown. The South African representative reportedly kept asking how much of it would actually go to the Third World countries which are the most hapless victims of the crisis, but was given the cold shoulder. The general expectation is that the bulk of this fund will go to the former socialist countries of Eastern Europe and not the primary producing countries of the Third World which are witnessing massive deindustrialisation to boot. (In any case, of the new SDRs amounting to $250 billion, which will be distributed on the basis of existing quotas, Third World countries will get very little). Since these former socialist countries are now members of the European Community and have been demanding EC help in the hour of their crisis, the G-20 summit has in effect shifted the burden of supporting them from the shoulders of the EC (where Germany was most reluctant to pick up the bill) to those of the G-20.

It is not just that the distribution of the $1.1 trillion assistance is unknown; this distribution will be routed through the IMF and will be accompanied by IMF “conditionalities”. The IMF, which in any case was a dying organiSation owing to the paucity of funds at its disposal, whose structure and modus operandi had been the object of much criticism by Third World countries, and whose reform was generally accepted by most countries as constituting a precondition for its revival (if at all it was to be revived) for playing a major role in the context of the current crisis, has now been given a fresh lease of life in its existing form. In short the single most pressing demand of the Third World within the agenda for democratisation of the world financial structure, has been rejected by G-20. This constitutes a most significant victory for international finance capital.



This victory was made possible because of the total betrayal of the cause of the Third World by those countries of the developing world which happened to be represented at the G-20; and among them were India and Brazil. India’s role was particularly reprehensible. It not only espoused the cause of international finance capital with much enthusiasm, against the interests of the Third World, and against the general efforts to democratise the financial structures of the world economy, such as for instance characterised by the Stiglitz Commission report, but it actually even put up an ideological defence of financial interests, going beyond countries like Britain in this respect. Prime minister Manmohan Singh in his speech reportedly even cautioned the assembled delegates against “bank bashing”!

But the G-20 decisions do not by any means constitute the last word on the subject. The nature of the world economic crisis is such that overcoming it requires an attack on the hegemony of international finance capital. As long as this does not happen, the world will continue to remain sunk in crisis. As in the thirties, there might be mild recoveries but these would again be followed by fresh onslaughts of crisis. The anger against finance capital will only increase as a result; and the more the assembled group of G-20 world leaders ignore this anger, the more it will take forms that by-pass them. Some of them will learn to respect this anger and act to assuage it; others will simply find the ground slipping from under their feet. The current crisis in short is not a minor hiccup in the functioning of the capitalist system that will go away on its own after a suitable time-interval; it is a defining moment for capitalism much the way the 1930s crisis was. Then as now there will be many more twists and turns in the unfolding sequence of events; the G-20 meeting constitutes only one of the early incidents in that sequence.

What it does show however is the determination of international finance capital not to make any concessions even in the midst of a crisis, and the reach it has in making that determination count. Overcoming the hegemony of international finance capital appears at first sight to be a relatively small and esoteric demand; but what the reassertion of its supremacy by international finance capital has shown is that it is a “transitional demand”, in the Leninist sense, of immense significance.