Fyodor Shelov-Kovediayev is a professor in the World Economy and International Affairs Department at the State University–Higher School of Economics.

The global crisis has given a new lease on life to an archaic view suggesting that the past 150 or so years represent a play of ambitions by several business groups (industrial monopolies, financial clans, banking empires, etc.). These groups ostensibly possess the necessary sufficient resources to manipulate international processes out of their petty egotistic objectives and which misuse national interests, political ideals, social institutions, governments and nations, using them as instruments to cover up their own disastrous designs.

This yet another edition of the conspiracy interpretation of history was thrown to the public by retired intelligence officers who have a tendency to over-exaggerate the effectiveness of total control over unfolding developments. The fact that they have taken part in some successful local special operations adds weight to their extrapolative views in the minds of certain groups of the public at large.

These misconceptions grow out of a false interpretation of actual events. The evolution of capitalism beginning in the 1850s was a chain of crises from which the leading players (Britain and later the U.S.) would recover with the help of extensive use of external sources. This happened because their status and reputation let them mobilize the resources of other parties involved in the same events and reap the maximum profit in their own petty interests.

The sporadic search for possible optimal models for overcoming and preventing the crisis phenomena was interrupted by wars, launched in the hope of cutting the Gordian knot of problems. Attempts to manage crises in periods between the wars were invariably opportunistic – they would smooth out the rough superficial contradictions without getting deep into the root causes. The theories that aspired to offer some new strategies were always frustrated by reality. This was precisely what happened to the emission/liability type of economy that rested on theoretical mathematical premises of its functioning.

The tensions of the second quarter of the 19th century erupted into a series of revolutions in Europe which persisted in the second half of the same century and eventually led to the Crimean War, the Franco-Prussian War and the Paris Commune. Since they did not entail any radical changes in the dominant economic order, the deficiencies inherent in it triggered not only the turmoil in Russia in 1904-1907, but also the crisis of 1907 in the U.S. The Russian and American upheavals did not untangle the skein of contradictions and Europe slid into the First World War, which did nothing to eliminate the economic discrepancies of the capitalist system and could not even escape them. That is why it was followed by the Second World War, forerun by the pan-European crisis of the 1920s-30s and the Great Depression in the U.S.

The tragedy that raged from 1939-1945 was also an attempt to dodge difficulties rather than eradicate them, and this unleashed a series of social cataclysms in the 1940s until the end of the 1960s, bringing about the dramatic crisis of 1971-1975. The ensuing renunciation of the Bretton Woods system was actually the continuation of the same vicious practice of estrangement from efforts to address the snowballing challenges. After several shocks of variable intensity that occurred in the 1990s, this practice eventually ended up in the current systemic global crisis.

While evading the solution of essential problems, the capitalist system expanded its consumer market after each new tectonic shift. During the Great Depression, millions of Americans got highly paid jobs at construction sites in the Soviet Union; in World War II they earned big revenues at home thanks to Lend-Lease contracts; later the U.S. economy grew thanks to the Marshall Plan. This inherent ability of the market to convert everything into benefits for itself gives the deceptive impression of the existence of a conspiracy.

What we said above proves the importance of coming up with a correct diagnosis for the current global crisis. Many of its symptoms may testify that the mechanistic proliferation of capitalism has reached its natural limit and that it requires profound modernization. Unfortunately, an adequate diagnosis of the unfolding events is lacking. Economists have shown a fatal slowness in identifying the problems that befell us. When it was already clear that the crisis was an economic one, they continued branding it as “financial.” And when protests in Iceland, France, Germany, Spain, Greece and Italy gave it an unquestionable social dimension, they reluctantly admitted that it was “economic.” By the middle of the spring of 2009 some experts began to talk about the social and humanitarian threat, although contrary to the plainly evident facts they discussed only Eastern Europe and Central Asia in this context. Yet even if used broadly, this definition has outlived itself. If we put together factors that are separately admitted without reserve, we will see that the case in hand is an in-depth cultural (civilizational) crisis.

If, according to the general conviction, the crisis reveals a systemic nature, then it is only culture that represents a full-fledged self-sufficient system, while the economy – viewed beyond purely scientific analysis – is only a subsystem devoid of all-sufficient significance. (Obviously, any combination of facts can be called a system within the scope of narrow research, but this approach will be of exclusively academic value.)

What is more, when practical experts speak about a crisis of the dominant economic concept or about formational or tectonic shifts, they use the semantics of culture, not economics, while some of them make direct references to it. Allusions to culture are also made during discussions of newly-exposed moral risks, the crisis of trust, the importance of toughening the rules of conduct on the market and even about religion that is destined to play a key role in the control over the direction of reforms so much needed by capitalism (since religion is the main source of moral values). Trust underlies relationships even in the most primitive societies and it is older than economics. The latter does not produce ethics and that is not its objective. All of these notions have been borrowed from the system of culture.

THE DEFICIENCY OF POSTMODERNISM

Since this is a cultural crisis we should understand what type of culture is experiencing it. Cultural crises have occurred many times in the past and all of them represented the decline of a separate type of culture. The current crisis is not an exception.

To my mind, the world has come to grips with two major interconnected sets of crisis phenomena in contemporary culture.

The first set encompasses a variety of aspects of postmodernism as a cultural type.

First, postmodernism has long lost the main reference point: genuine art was replaced by mass culture and variety shows, which signaled the start of the breakdown of civilization in the West. Then the same happened to politics, which manifested itself in the spread of dictatorial regimes in the 20th and 21st centuries, the proliferation of fashionable Western concepts about the end of democracy, and neglect of public opinion in post-Soviet countries. Economic agents resisted the postmodernist virus much longer than others. Still, it eventually hit the economy and grew into a mechanism that triggered economic destruction (since the circulation patterns of both derivatives and futures only have a formal link to the basic value which they have been derived from). It has become obvious that postmodernism poses a fatal danger as a worldview and as a strategy.

Second, the ideologeme of a “civilization of means, not objectives” that Western European intellectuals took pride in fairly recently has proven bankrupt. One could suspect that this philosophy was disastrous long before, but only now we are beginning to realize that humankind will not survive if it is not guided by eternal values and places ideological and material values above them.

Third, the “civilization of speed” has proven deficient. After the collapse of stock markets, referring to speed as a major achievement of an informational and post-informational economy has become inept. Apart from this, there are at least three more negative consequences of the passion for speed, although this factor has received little attention from analysts so far. Speed is especially dangerous for society as it kills normal communications between people and deprives them of the spiritual comfort that is essential for their personal progress; speed also overshadows eternal values.

Remarkably, acceleration for the sake of stimulating consumption and constantly bringing new brand name products to the market has yielded the same results for the liberal economy as it did for the planned economy – a decline in the quality of goods. However paradoxical this might seem, producers see no sense in manufacturing durable commodities, as they become morally outdated increasingly rapidly. The deterioration of quality has gradually embraced all things offered, including ideas and solutions, as more and more of them are promoted without due account of even their medium-term impact.

Another pitfall lies in accelerating the rate of innovation. The time between the development of technological novelties to their marketing, which would previously take years or decades, has been cut to several months and may fairly soon shorten to just several weeks. And when, in the long run, this timeframe is reduced to just a few days (due to the unending desire to optimize profits), innovative activity will lose all sense, as innovations will become morally outdated before people have an opportunity to use them in full. This may result in a crash worse than the current one.

THE DOWNFALL OF ECONOMIC CENTRISM

The second set of crisis phenomena in contemporary culture involves the crisis of concepts rooted in Marxism and related theories (since even those who reject Marx’s predictions and practical advice tend to recognize him as an outstanding sociologist and economist). Marx was the first to make economics absolute, turning an ordinary instrument for serving the interests of society into a self-reliant entity that ostensibly has an imperative power over man. Naturally, he has been extolled to the skies by those who appeal to the chimera of the supremacy of economic needs.

The first factor of the crisis of Marxist conceptions is the psychological deficiency of economic centrism that dominated, in one way or another, the entire world over the past 150 years.

Generally speaking, this is far from the first instance where humankind initially defies man-made things and then starts worshiping them. Religious concepts known as fetishism were an initial form of this fallacy. In subsequent eras, the public would hold ideologies, governments, etc. as idols. This practice has always had a lamentable finale, so today’s evolution of the economy into a routine fetish is quite logical. It looks like the time has come to part with this idol and start treating it as a trivial instrument – the way it was conceived. We should realize that it is not people that must work for the economy, but the economy that must work for people.

The second factor is the deficiency of the expansion of market relations beyond their legitimate borders, which again stems from Marx’s economic centrism. Many outstanding minds agree with Adam Smith’s postulation: even if the market is efficacious in the sphere of private interests, it is absolutely ineffective in the sphere of the public good. Although the crisis dealt a blow to the economy of consumption, the blame for the situation goes to the consumer society, which emerged as a result of ignoring Smith’s warning.

The two notions are confused so often that they require a special note: there is nothing bad about consumption per se; the evil hides in the extrapolation of the principles of material (economic) consumption to the spheres where they are completely inapplicable (human contact, arts, etc.). This extrapolation forms a society where consumption suppresses everything else. When people start treating each other as consumers, they lose genuine mutual responsibility. The transformation of education, science, culture and medicine into simple services perverts their import. Infatuation with pragmatism turns education and science into trivial craftsmanship, culture stops cultivating recipients and regresses to their level, and medicine undergoes cynical commercialization and starts neglecting the Hippocratic Oath.

Third, the bluntly mechanistic approach to regulating social processes, which also sprang from 19th-century socialism, has outlived itself. While a similar method in economics was fathered by the utopianists Owen and Fourier, various types of social engineering were conceived by Saint-Simon, one more predecessor of Marxism whose disciples – exclusively engineers from the Ecole Polytechnique in Paris – inspired Marx to work out the prescriptions for universal happiness. Although the ideas predominant today have largely deviated from Marx’s recommendations, the habit of looking at individuals and society as simple mechanical devices – not really more sophisticated than ordinary machines – persists.

The work of governments, corporations, consultants, experts and researchers at all levels began to be dominated by the technological constructs of society that overshadowed its real appearance. This phenomenon has prompted the famous Horngren’s Observation: “Among economists, the real world is often a special case” (that is, of their conceptions). Administrators and managers have developed a habit of trusting the efficiency of artificial patterns that totally disregard the diversity of the natural world. This practice, which was made absolute in the second half of the 20th century, is far from harmless, since the vitality of all forms of everyday activity – and the crisis has made it clear as day – hinges exactly on their superfluous diversity.

Fourth, the vulgar interpretation of the rational choice theory that was a logical extension of Marxism and that was unconditionally spread to all players and segments of the market has been discredited by reality. Its stipulations fall short of describing the behavior of all the participants in retail trade where women constitute the majority of buyers and their preferences do not fit into the Procrustean bed of rational motivation. Nor does the theory help model the situation on exchange markets. The volatility of financial and stock markets, the dynamics of which depend to a greater degree on the swift emotions and moods of exchange gamblers rather than on the real situation in the economy or on information about it, has manifested itself the strongest during the current crisis and it clearly points to the limitation of its applicability.

Fifth, the era of the Marxist political economy is over. Marx analyzed the economy of a classical type based on the production and sale of physical material values, and his adversaries and followers have been doing the same thing ever since. Although the situation changed dramatically at least a quarter of a century ago, the power of inertia has kept everyone on the track of applying the old rules, suitable only for days gone bye, to the new reality, and this partly explains the unexpectedness and depth of the global crisis.

The policy of an unnatural whipping up of growth (i.e. consumption) and speculative markets that was launched in the U.S. in the 1970s had brought up a new type of economy by the mid-1980s. It can be tentatively labeled as an emission/debt economy. Its hallmark is the transformation of the markets of all commodities – from wheat to metals to crude oil – into exceptionally financial or speculative markets (through a system of trading in futures and derivatives).

Today the exchanges trade not in the real volumes of products with precise dates of delivery but in securities issued against these products. The securities are nothing more than a financial instrument existing in the virtual world, since neither of the parties is interested in the availability of physical commodities at any stage of the transaction. This explains, for example, how the bubble of the food crisis appeared out of nothing several years ago. As it turned out, it had nothing to do with the threat of famine, which was fanned in the interests of exchange gamblers. This means that commodity markets have turned into analogues of stock markets and trading there abides by the same logic of financial speculation.

The same thing has happened to the capitalization of businesses, the parameters of which are used almost entirely for speculative considerations. The current situation stands in dramatic contrast to the one known to Marx and his opponents. This new reality calls for a new assessment and old instruments do not fit the purpose. No adequate methods of curing the hitherto unknown disease will be devised and one will not be able to claim the evidence of a steady revival from the crisis until this urgent intellectual work is done.

Unfortunately, this moment is far ahead and the global crisis is unfolding against the background of a chain of crises in specific spheres that further complicate it. Most of them offer extra confirmation of the cultural character of what is happening, as none of them has a purely economic source.

SPECIFIC CRISES

First among them comes the crisis of economic science. Theoreticians and practical economists as different as Robert Zoellick, Joseph Stiglitz, Nouriel Roubini, Martin Gilman and Warren Buffett are all lost in reasoning on when the current upheaval may end. Ben Bernanke demands that U.S. banks continue to get support at any price. U.S. President Barack Obama says that the economy is beginning to move out of the recession, and Alan Greenspan warns that a fall of the mortgage loan market by another 5 percent (a realistic prospect) would kill the U.S. economy.

This dissonance of opinions is easy to understand, as scholars are unable to say anything definite about the nature of the global crisis. All of their answers reflect their negative knowledge: the ongoing crisis is not cyclic and not related to overproduction, in which lowering interest rates results in a shrinking money supply, a drop in demand, falling prices and, subsequently, a new reduction in the rate. The research community has no consensus even on the origins of the crises of the distant past, which adds to the general pessimism and breeds apprehensions about the scientific incapacity of previous concepts. There is no clarity about the further course of the economic crisis, which is based on artificially boosted consumption, is divorced from the gold standard, and is characterized by volatility and speculative commodity markets.

Although all markets have actually turned into financial ones, there is no reliable theory that would explain how they function; even the leaders of the financial world do not have much of an idea about the specificity of the new financial instruments. It appears that the theory of long-term economic cycles has become outdated, while the theory of real cycles does not have a practical value. The existing models of business cycles do not guarantee that computations and the results presented in them are realistic and this makes them a pure play of mind. This fact was brilliantly proven by the gap between the results of mathematical calculations and the true market performance of derivatives.

Then comes the psychological crisis. The enthusiasm caused by the gains on derivatives and the financial sector on the whole has given way to a deep pessimism. After yet another mirage vanished, many people began to bid a final farewell to capitalism as such and to curse the greedy bankers.

The third factor exerting a most profound impact on the events is the crisis of the liberal economy when its actors remained unaware of the threats coming from the absence of alternatives to it. There was no need to compete for a place in the sun and this quickly stripped that economy of its self-control. The West’s victory came to an abrupt halt because, amidst overblown euphoria, it lost the basic idea of liberalism – personal responsibility for the results of one’s own actions.

This lost value should be urgently regained in a situation where blows are dealt to the very core of freedom with a rare unanimity that deserves a better application. Voices from the left and the right of the political spectrum propose giving up freedom. They obviously do not understand that freedom is not to blame and that the root causes lie in its internal monotony which everyone took for granted. This is a wily trap as it conceals the danger of reviving “the socialist paradise” as an alternative (attempts have already been made in Latin America) and spreading it globally.

The sad thing is that the fourth crisis, namely the crisis of philosophy lies in wait for world leaders exactly in the sphere of ideas which is so much needed now. At best, the leaders confine the entire reform of capitalism to the ritual confirmation of their banal dislike of its Anglo-Saxon model. At worst, they themselves foster socialism and thus are pushing the world towards a new disaster.

The fifth crisis is the crisis of action which stems directly from the four previously mentioned ones. Since no one understands the paradigm of the global cataclysm, the moves being taken are measures to cure previous upheavals, not the present one. The tightening of the state’s control over the rules of market relations, the growth in a number of global and/or regional currencies and financial centers, or redistribution of quotas and votes in the IMF may be really needed, but the problem is that all of these measures do not relate directly to the circumstances of the current crisis. That is why the efficacy of time-tested regulatory mechanisms and the designing of new mechanisms based on old logic remains highly questionable. In other words, the therapy seems to be correct, but only if applied to a different disease.

NEW CHALLENGES

Meanwhile, humanity is facing challenges that are far from ordinary. The first challenge consists of whether or not capitalism will show a capability for intensive development. This sounds like a paradox, since everyone is accustomed to drawing an equation mark between the two phenomena. Yet it appears that this applies only to technological progress, while the capitalist system itself has been developing extensively on its own. It explored new markets with the aid of the same methods that had been tested in the old markets. At present, it has reached the geographic limits of its mechanical expansion. Of course there are still the poorest countries of Asia and Africa and it is still possible to move deep down into India and China with their billions of people. But the development of these regions will require new and massive investment which would not inspire anyone, except for China and Arab countries. And it will only mean a continuation of the same extensive way of development.

The same logic was behind the so-called innovative financial technologies. The regularly surfacing novelties, like futures and derivatives, were instruments (types of securities that did not exist before), while the method of their circulation (the technology) remained the same as in Theodore Dreiser’s The Financier, which describes the events of a century and a half ago.

If hopes for capitalism’s quality growth are not futile, it should be based on the understanding that the world should no longer be viewed as a trivial raw material for action or as a theater which stages a play of interests of virtual persons. The world has really become our common and very compact home and our behavior must consider that fact accordingly.

The second challenge is closely linked to the previous one and revolves around whether or not economic science will be able break out of its incipient descriptive condition where there is no consensus even concerning past events and arrive at working theories like botany and zoology did, which later merged into biology.

The third challenge has to do with China. Will it become the main beneficiary of the crisis or will it decline into chaos because of the crisis? Whatever the outcome, it will have a profound impact on the situation in the entire world. Beijing already knows everything about the transactions and financial flows of foreign companies working in China through a network of Communist Party committees based there. China has clearly stated that it does not intend to help anyone (hundreds of thousands of foreign businesses that used to operate in China have gone bankrupt) or to share its reserves with anyone. With reliance on Moscow (which expects who knows what), China is demanding a reform of the IMF. China is confidently moving towards making the yuan a reserve currency, simultaneously buying up Africa’s mineral resources and territory (along with the Persian Gulf Arabs). If everything works out well for the Chinese, this will be something bigger than a mere return to the 17th century situation when the East had a clear technological lead over the West. China will then have all the opportunities to become a global dictator. In the reverse case, it may slide into an abyss, and the information it possesses makes it quite capable of pulling all the developed countries down with it.