Chapter 5. The Broken Springs of Growth, by François Chesnais and Dominique Plihon

The Other Davos: Globalization of Resistances and Struggles
by Francois Houtart and Francois Polet

Chapter 5. The Broken Springs of Growth, by François Chesnais and Dominique Plihon

Whilst the preceding text highlights the sovereignty deficit resulting from globalisation, the contribution from the ATTAC, looks at new financial forms of global capitalism. It is written by Dominique Pilhon and François Chesnais, economists and members Of ATTAC’s Scientific Council.


Association for taxation of financial transactions for the benefit of the citizen

ATTAC was founded in France on June 3, 1998 on the initiative of the Le Monde Diplomatique monthly. In the early stages, to guarantee its long-term existence, it was constituted around a group of founders bringing together publications, associations, trade unions, as well as various well-known personalities. It was then reorganised to accommodate individual members as well as new trade unions, associations, publications, enterprises and local collectives. In May, 1999, ATTAC had some 9,000 members and more than 100 local committees.

The central objective of ATTAC is to produce information - from books to tracts - to counter all aspects of domination by the financial world on political, economic, social and cultural life. The association organises meetings on a local, national and international level, takes part in public debates and lobbies decision-makers at all levels.

ATTACs principal focus areas at the moment are: the different forms of taxation of financial transactions, in particular the Tobin tax on currency speculation; the creation of new instruments for the regulation and control of finance at the national, European and international levels; the battle against tax havens and financial crime; and the demystification of pension funds.

ATTAC extends these actions at the international level through the contacts it maintains with multiple groups and networks working towards the same goals. ATTAC associations have been created in Italy, Belgium, Switzerland, Brazil and Quebec.

Address: 9 bis, rue de Valence, 75005 Paris Tel: 33/1/ - Fax: 22/1/ E-mail: - Internet:

Since financial globalisation established itself in the world economy, crises have followed at an accelerated rhythm: the 1987 stock market crash, European currency crises in 1992-93, the Mexican crisis of 1994, the crisis in the emerging countries of Asia in 1997 and in Russia in 1998.

The current crisis is doubtless the most serious on account of its gravity and the number of countries affected. Indeed, it started in South-East Asia in 1997, then destabilised Japan, then affected in a more generalised form other emerging countries in Europe (Russia) and soon in Latin America (Brazil). There is no longer any doubt that it will profoundly affect the world economy starting with the United States and the countries of the European Union. It is therefore a global systemic crisis since it cannot be reduced to just a financial accident but affects the underlying springs of world economic growth.

Point of departure: the financial crisis of the Asian ‘Dragons’

These countries which had seen exceptional growth rates, were presented by the defenders of the liberal order as development models which demonstrated the benefits of the globalisation of the world economy. By opening up to the outside world, they benefited from the arrival of capital from the industrialised countries. Their growth was accelerated by a rapid increase in exports to industrialised countries with whom they successfully competed thanks to low labour costs.

This ‘virtuous model imploded for three main reasons. First of all there was the exhaustion of the specialised sectors of the emerging countries which manifested itself in the overproduction of low value-added goods by these countries (textiles and electronics in particular). Secondly their exchange rate, which was anchored to the dollar, became overvalued following the rise of the U.S. currency in 1996-97. As a result of this these countries lost their competitivity, which affected their exports, and they became the targets of speculative attacks since their exchange rates no longer appeared credible. Thirdly were the shortcomings of the emerging banking and financial system. The banks were the beneficiaries of the massive influx of international capital and lent money indiscriminately, creating a speculative bubble, particularly in the real-estate sector and on the stock markets. Such poor risk management was aggravated by the deficiencies of the supervisory authorities which were in most cases incompetent and corrupt.

Why is this crisis more serious than the preceding ones?

The current crisis is a direct consequence of the globalisation process. This last, which has become widespread over the past ten years, has led to two principal changes in the world economy. The first is that the markets have become the dominant mode of regulation, which means that the political bodies have lost their importance in the face of private operators (international investors and multinational enterprises). Secondly, countries involved in this new order are largely open to the world economy, which has reinforced the interdependence of national economies.

The crises preceding globalisation were contained since public authorities still played an important role. Thus the debt crisis at the beginning of the 1980s was a crisis involving the sovereign debt of developing countries. For this reason, they were limited to a small number of borrowers. In this context, it was possible to control it by concerted action between states.

Today, the situation is totally different as the financial crisis involves essentially private players (banks, investors, enterprises). These result from complex interactions between a multitude of players obeying a micro-economic logic. This new complexity of economic crises explains why they can no longer be easily controlled.

The seriousness of the current crisis is exacerbated by the strong interdependence of national economies, the second characteristic of globalisation. This explains why the crisis has spread since 1997, beginning in the emerging countries of Asia which were hit one after the other through a domino effect, and their ailment then being transmitted to the rest of the world, starting with Japan, then the United States, then more recently Europe, Russia and the European Union.

Another factor which has helped amplify the crisis is the role played by speculators. International investors play the markets to realise added value, and in this way take part in the creation of financial bubbles. But when they lose confidence, they withdraw brutally from local financial centres, thus contributing to local crises. These movements are even more brutal since speculators tend to act like sheep, all react together, at the same time, and heading in the same direction.

To sum up, the current crisis, that has not finished in making its effects felt, illustrates the inability of the globalised market economy to self-regulate. This is a rude blow to the dangerous optimism promoted by liberal ideology, according to which the famous ‘invisible hand’ is there to ensure that markets lead to a harmonious economic order, from which everyone would benefit.

Our analysis shows that it is necessary to propose right now another way of regulating the world economy. We must try to reduce the two negative dimensions of financial globalisation. We need to limit the exorbitant power of the markets by giving importance back to public regulation. We must, in particular, re-regulate and impose a tax on financial operations in order to discourage pure speculation. We also have to reduce the negative effects of the interdependence of economies. It is neither possible nor desirable to question the development of international exchange, but it is necessary, by contrast, to bring about international co-operation to control the international operators and sanction practices which are contrary to national interests, particularly those of developing countries. Clearly, the international bodies today, and the IMF in particular, are incapable of correctly playing this role.

However, these measures would be insufficient to attack the basis of the current crisis which is the manifestation of the deep-rooted malfunctioning of world capitalism, as is explained below.

Crisis of overproduction, crisis in the regime of financial accumulation

This crisis is not simply restricted to the financial sphere, which could be dealt with at this level alone. We need to look at the roots of the financial convulsions. They herald the re-emergence of the classical crisis of generalised overproduction, the basis of which, as Marx showed better than anyone, is to be found at the level of production relationships which are at the same time the relationships of the distribution of wealth.

What is new, however, is that the return of this increasingly intractable economic crisis, is happening in explosive circumstances. There is firstly a globalisation of capital based on liberalisation and deregulation, i.e. the widespread disassembling of the governmental mechanisms which were previously in a position to manage anti-cyclical policies. Moreover, there is a certain blindness and unpreparedness among the dominant capitalist classes, intoxicated by the ‘victory over communism’ and committed to a neo-liberal utopia about the self-regulating and omniscient nature of the market mechanism.

The crisis is thus one of overproduction in the framework of a new regime of globalised accumulation of the financial capital. This expresses in the impossibility of ensuring to a sufficient quantity of capital, the completion of the cycle of production and commercialisation, of creation and realisation of value and of added value, due to the endemic insufficiency of effective world demand.

Marx did good work on the paradox of overproduction where he underlined its relative nature and said that, far from displaying a surplus of wealth, it is the sign of a system where the fundamentals set limits on accumulation due to the endemic distribution mechanisms. Keynes tried to provide a response without leaving the framework of the private ownership of the means of production. He was devoted to hegemonies. Over the last twenty years the countries of the Third World have seen the re-emergence of the worst scourges of malnutrition, even famine, sickness, often pan-epidemics and, in OECD countries, a rise in the number of unemployed, weak homeless and those without rights. These scourges are not “natural”. They affect populations which are marginalised and excluded from satisfying their need for the basic necessities of life, and thus from the basis of civilisation given their incapacity to transform these pressing needs into effective demands, monetary demands.

This exclusion is thus of an economic nature. In certain cases, it is recent and, in all countries, it has worsened seriously compared to the situation in the 1970s. It is the direct product of the system of accumulation born from deregulation, liberalisation and the destruction, not only of jobs, but of entire systems of social production. These were enabled by the submission of technical progress to the most narrow indicators of profit, through the total freedom of movement of capital and to the competitive battle of the forms of social production whose final objective is contradictory: maximising profit on the one hand and, on the other, ensuring the conditions of social reproduction of communities of farmers, fishermen and craftsmen.

It was well thought-of to celebrate the “victory of the consumer over the producer” as well as “revenge on the lenders”. They forgot that the “producers’ i.e. the wage earners, are also consumers and that by sacking workers in the advanced capitalist countries and taking away, through liberalisation, the livelihood of peasants in Third World countries, the consumer loop closes up.

Consumption by the shareholder groups, those who live completely or partially from financial revenues - interest from bonds or dividends from shares - can support demand and economic activity in the United States or in some other “shareholder countries”, the source-countries for massive capital investments. This has been the subject of several theoreticians of imperialism, many of whose analyses became a total reality again. But at the macro-economic level of the world system, no stockholder-consumer can ever compensate for the markets which are being destroyed by massive unemployment or absolute impoverishment imposed on communities which previously could ensure their reproduction and exercise a certain level of effective demand.

The world economy is facing the brutal return of the reality principle: before being able to appropriate value and added value, these have to be created on a sufficient scale. This supposes that the cycle of capital has been achieved and production commercialised. The managers of the large investment funds - mutual funds or private Anglo-Saxon pension funds - as well as the other major operators in the financial markets, have developed yield norms for their investments. They have imposed these on companies as well as on those financial markets which are reliant on the system and which are the links in the global process of the centralisation of wealth towards the shareholder countries.

In their eyes, these standards, these constant pressures, are the conditions for the flow of revenue transfer towards the financial markets at a pace, and on a scale necessary to satisfy this international shareholder economy. It is beautiful, it appears to function. In fact, it only works provided the returns on the capital which is creating value and added value, the bases of distribution and transfer of wealth towards the creditors of production, has been achieved on a grand enough scale and without shocks or interruptions in the flow of wealth.

The financial markets which have resulted from liberalisation, deregulation and financial globalisation, have their own time-frame which is not that of the value-creation process and less still creation itself, with the slow-downs, or, worse, the interruptions in the returns process. It seems that the operators have no memory of past crises and do not even know, even through vague bookish memories, what happened in 1929 and in the 1930s and thus find themselves totally defenceless. Their behaviour cannot be anything else but “helpless”, or even panic, which serves to accelerate the crisis at key moments, by strengthening the subjective dimensions of the propagation mechanisms and propelling them even more rapidly forward.