20.12.2009
Who Is to Blame?
№4 2009 October/December

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.