The current economic crisis, despite (or maybe because) of the hullaballoo about its premature ‘end’, gives a good perspective on the failures of liberal economic policy. Precisely those nations that had in the past attempted a get-rich-quick scheme by relying on extreme liberalism to draw in capital in search of unrestricted territory for expansion are now the ones suffering the most from the inevitable cyclical collapse that is attendant on the movement of capital.
Such ‘success stories’ of liberal development as Ireland and Iceland have gone into deep recession. Ireland has seen a -4% growth, with unemployment rising to 10%, levels unseen since the great post-war boom, and the government has had to implement severe budget cuts. Additionally, many Irish are now in trouble since they had used the low interest rates of the eurozone to buy housing on credit, creating a speculative bubble that has now burst as elsewhere.(1) Iceland in the meantime has seen such significant bank failure that the country has gone into virtual receivership, leading to diplomatic conflicts with creditors in the Netherlands and Belgium, a rare development for a traditionally nonbelligerent nation. Circumstances were so severe that the government fell over the matter, with Prime Minister Geir Haarde having to resign in infamy after pressure from the left party. It has been forced to prop up all three Icelandic banks with government credit, which it has borrowed from the International Monetary Fund, leading to a collapse in the krona, which severely damages the prospects of an island nation highly dependent on imports. Its economy is forecast to shrink by an astounding ten percent.(2) It has liabilities of over $100 billion on a national product valued at merely $14 billion. The collapse of Iceland’s financial speculative bubble, again caused by policies of drawing in capital by removing restraints on its accumulation, has thrown interest rates upward to the absurd level of 15.5%. And this when Iceland was supposedly such a success story of liberal capitalism, as described by the Daily Telegraph:
The dramatic change in Iceland, from the poor relation of Europe to one of its wealthiest and apparently most successful, and now back again, dates from the mid-1990s with the privatisation of the banks and the founding of the country’s Stock Exchange.
The free market reforms unleashed a new generation of thrusting, young businessmen, many of whom picked up their banking trade in the United States. They were determined that their country would no longer have to rely on fishing for its principal source of wealth; they loathed the international perception of Iceland as a parochial nation of farmers and fishermen who could not hold their own on the world business stage.
Similar stories hold true for the ex-Communist countries of Eastern Europe. Having been ‘liberated’ from their vassal status under the USSR and the enforced policies of permanent socialist state capitalism and militarism, the new governments under the friendly advice of Western nations flung themselves headlong into the ‘freedom’ of capitalist markets. They forgot who their friends are and who their enemies are, as Mao was fond of saying, and the results are as expected. Ultraliberal Latvia has suffered so badly from the crisis and the IMF conditions of loans that it is now forecast to have an astounding growth of -18%.(4) Just in January alone, its economy lost 10.5% of its GDP value. The various Eastern European currencies have been greatly undermined, wiping out much of the position staked out by the so vaunted new middle class in nations such as Poland, Hungary and the Czech Republic, especially since much of the loans for mortgages are from foreign sources. Their inability to repay this has also undermined the position of the Austrian banks, for geographical-historical reasons the first to eagerly invest their capital in the ‘free markets’ of Eastern Europe.(5) Indeed, to the dismay of the ultra-orthodox liberals in Eastern Europe, they are now suddenly reproached for following the same Manchester School advice that they had been taught to give by their Western ‘friends’:
Tomas Sedlacek, who served as an economic adviser to former President Vaclav Havel, noted that in the 1990s, the West lectured the former Eastern bloc about the need to privatize and deregulate. Now, the message emanating from Washington is to nationalize and to regulate.
“This crisis has turned the world upside down,” he said. “People here who argue that open markets are the solution to everything are no longer being taken as seriously.”
This does not just affect Europe, either. Argentina is another example of the folly of following the economic advice of liberals. It had during the 1990s made itself wholly reliant on agricultural exports, as it has often been during its economic history, and also by currency pegging tied its currency’s performance to that of the United States. Initially, this had some success in drawing in investors, but as always this at the same time means increasing subjection to the logic of capital as expressed through the world market. As agricultural prices fell around the late 1990s, Argentina was thrown into severe recession and eventually even had to default on its foreign debt. The economic crisis of the late 1990s hit not just East Asia, but also Brazil, and Argentina is very reliant on exports to that nation. The IMF subsequently lent large sums on condition of following policies of zero deficit, which implied extreme cuts in public expenditure and a great drop in living standards. A run on the banks as a result of the subsequent default on this debt led to complete economic collapse. The only positive developments in this is that once again liberalism has been exposed as the vampiric theory that subjects living labor to dead labor and subsumes the will of the living under the will of capital. Many Argentinian workers have now recognized this system for what it is, and are occupying factories and managing their own affairs, the only true guarantee against being ruled by the logic of capital. But the crisis continues, and the impact is severe: even the football season has had to be suspended for want of funds(7), and a new agricultural crisis looms as rich farmers are resisting attempts to allow the nation’s economy to recover at their expense.(8)
In the meantime, the Ukraine has just accepted another $500 million in aid from the World Bank, on condition that it “deepen structural reforms” aimed at “improving the investment climate”.(9) Indeed, in the world of the liberal financial institutions the ‘investment climate’ must always be sunny, even if entire peoples are meanwhile suffering under the torrential rains of capitalist crisis. Liberalism never learns, because it cannot learn: it is and will always be the ideology of capital, its economic theory the self-serving theory of capital accumulation, its political advice that of subservience to the bourgeoisie. Liberalism is slavery of the world’s working classes, whether in industry or agriculture or so-called ‘services’, to the rule of the great mass of world commodities that they have themselves produced; it is submission to the logic of capital which lives by sucking them dry of their lifeblood and creative energies. It is the ideology which justifies the technology that should be subject to our conscious will to dominate us instead, and which props up the power of dead labor over the living people. When it comes to liberalism and its political ‘advice’, our watchword must always be: Timeo Danaos et dona ferentes.
(1) Charles Forelle, “Ireland’s Boom Falls Hard in Global Crisis”. Wall Street Journal (Feb. 7, 2009).
(2) David Blair, “Financial crisis causes Iceland’s government to collapse”. Daily Telegraph (Jan. 27, 2009).
(3) Andrew Pierce, “Financial crisis: Iceland’s dreams go up in smoke”. Daily Telegraph (Oct. 6, 2008).
(4) Edmund Conway, “IMF aid conditions risked deepening financial crisis in some countries, says CEPR study”. Daily Telegraph (Oct. 5, 2009).
(5) Pelin Turgut, “The Economic Crisis Hits Eastern Europe”. Time (Feb. 25, 2009).
(6) Dan Bilefsky, “A Crisis Is Separating Eastern Europe’s Strong From Its Weak”. New York Times (Feb. 23, 2009).
(7) Roy Carroll, “Cash crisis forces Argentina to postpone big football kick-off”. The Guardian (Aug. 5, 2009).
(8) Sara Miller Llana, “Argentina: Farming crisis batters world food provider”. Christian Science Monitor (Aug. 9, 2009).
(9) “World Bank Supports Ukraine’s Structural Reforms to Mitigate the Financial Crisis”. World Bank Press Release No:2009/194/ECA.