Seven years ago we were in Amsterdam airport departure lounge when the news came through that Lehman Bros would indeed go bust, which finally triggered the GFC (Global Financial Crisis).
James Headway, Chief Economist for the New Economics Foundation takes a look at what’s happening in China, and it’s scary.
China escaped by letting lending rip. Since then they have produced half the world’s growth. But in doing so they have created a giant property bubble, followed by a share market bubble. It looks like coming unstuck.
There is a possibility that the Chinese authorities get a grip – the article presents the best and worst case scenarios. I guess there is also everything in between.
Part of the worst case scenario:
- Western banks, having loaned massively to China over the last few years, find themselves confronted by a huge number of non-paying customers, and face collapse – the UK has the largest single exposure to Chinese debt of any Western country as a result of bank lending.
Let’s hope our banks have been sensible, and probably they have, but if the whole thing blows it may be hard to find some high ground.
Increasingly and ultimately there may be no high ground, except for the one per cent, if Paul Mason is right about the end of capitalism
Neoliberalism, he says, has morphed into a system programmed to inflict recurrent catastrophic failures. The GFC wiped 13% off global production and 20% off global trade. And it has not been fixed. The favoured solution of austerity actually “means driving the wages, social wages and living standards in the west down for decades until they meet those of the middle class in China and India on the way up.”
- Meanwhile in the absence of any alternative model, the conditions for another crisis are being assembled. Real wages have fallen or remained stagnant in Japan, the southern Eurozone, the US and UK. The shadow banking system has been reassembled, and is now bigger than it was in 2008. New rules demanding banks hold more reserves have been watered down or delayed. Meanwhile, flushed with free money, the 1% has got richer.
At this point I urge you to read the article in full. Mason says something deeper is going on, the corrosion of capitalism itself, by information, along with the emergence of a new human being who is educated and connected.
- we can see their prefigurative forms in the lives of young people all over the world breaking down 20th-century barriers around sexuality, work, creativity and the self.
He sees a “sharing economy” emphasising networks rather than hierarchies emerging over a period of decades.
Mainstream economics struggles to cope:
- mainstream economics proceeds from a condition of scarcity, yet the most dynamic force in our modern world is abundant and, as hippy genius Stewart Brand once put it, “wants to be free”.
- postcapitalism as a concept is about new forms of human behaviour that conventional economics would hardly recognise as relevant.
- The main contradiction today is between the possibility of free, abundant goods and information; and a system of monopolies, banks and governments trying to keep things private, scarce and commercial. Everything comes down to the struggle between the network and the hierarchy: between old forms of society moulded around capitalism and new forms of society that prefigure what comes next.
Perhaps Mason says more in his book about a new agenda for the left. He finishes the article with:
- We need more than just a bunch of utopian dreams and small-scale horizontal projects. We need a project based on reason, evidence and testable designs, that cuts with the grain of history and is sustainable by the planet. And we need to get on with it.
Mason gives us much to meditate upon. Meanwhile in Australia I think we have a predominantly old-style economy, ill-prepared for any external shock. JP Morgan chief economist Stephen Walters commented on the news that business capital expenditure was now below the levels of the 1991 recession:
- My main concern is not the timing of the recession but when it comes, and it’s inevitable, it’s going to be quite a bad one.
We haven’t had a recession, or a serious recession for two and a half decades so we’re carrying some pretty big excesses into whatever downturn comes.
So, household debt’s very high; we’ve got very high house prices so the policy levers are pretty much maxed out already with interest rates at record lows and the budget deficit quite large and public debt exploding.
There were economists in that link with more sanguine views and tonight our ABC man in China seemed to think the Chinese would manage the transition to a ‘normal’ consumer economy. But old Immanuel Wallerstein who has been talking about the end of capitalism for 40 years thinks we are in a turbulent time of transition. So shocks and bursting bubbles may be the new normal.