Sunday, January 19, 2014

The Metamorphose of the Crisis

Six years after the start of the Great Recession, the world is not any better. The outlook is gloomy despite  signs of recovery that some economists claim as a demonstration of success of austerity policies. During these years, capitalism  has undergone an intense  restructuring with dramatic cuts in wages and social services.  But large firms have restored their profits and banks are cleaning up their balance sheets. 

The Economist  (Dec.7) devotes a special issue to Blackrock, the largest investment fund in the world.which is the first shareholder in half of 30 biggest multinational corporations. It represents it as a black rock hanging over a background of blue sky, which reminds a painting of Magritte. Its power relies on managing other firms' money and controlling their investments in bonds, commodities or other assets. 

There are other examples of 'financiers' who are now returning on the scene, such as Icahn, a raider who became famous for his take over on the US airline company in 1985 but who challenges Apple for being responsible of  having too much liquidity without distributing profits to shareholders. A big sense of the general interest? Those investment funds can own anything. There is one called Marathon Asset Management which has taken control of an entire city, Scotia, at 250 km from San Francisco. This may pave the way for other cities like Detroit, where even museums will be sold in an auction. 

The question is whether their dominance is a problem? The return of the 'masters of the universe' is seen by big magazines as a sign of dynamism of capitalism. .Remember what Adam Smith used to say his classic 1776 treatise on capitalism, the Wealth of Nations : " All for ourselves and nothing for other people seems in every age of the world to have been the vile maxim of the masters of mankind. Crisis, what crisis? Not for the super-capitalists.

The contradiction  is that capitalism cannot continue with the same model of growth and rules which prevailed before the crisis. This means the pursuit of the 'financialization' of the economy, with the concentration of economic power in the hands of few large corporations and investment funds. Furthermore, it would represent a continuing widening of social inequalities, with gains of growth still flowing to the richest part of the population. A recent research study of the Washington University suggests that top 5%  has too much saving while the bottom 95% is forced to reduce their savings to offset the worsening of their living standards.

Did we learn something from the crisis ? In a recent speech at the IMF, Larry Summers, the former President adviser, has warned against the risk of prolonged stagnation and deflation. These are the words he pronounced on Nov.8: "my lesson from this crisis, and my overarching lesson, which I have to say I think the world has under-internalized, is that it is not over until it is over, and that time is surely not right now, and cannot be judged relative to the extent of financial panic. And that we may well need, in the years ahead, to think about how we manage an economy in which the zero nominal interest rate is a chronic and systemic inhibitor of economic activity holding our economies back below their potential"

We are perhaps at the end of a capitalist era, but we do not know how the world in which we are living will look like in the next ten years. From his prison, the Italian philosopher Antonio Gramsci, wrote : "The old world is dying away, and the new world struggles to come forth: now is the time of monsters"