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Global Economic Meltdown

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Global Economic Meltdown Contents About the Editor/Contributors . 7 Foreword . 11 Introduction . 17 1. The Global Financial Crisis and India JAYSHREE SENGUPTA . 21 2. India after the Global Economic Crisis M.K. VENU . 51 3. Organic Crisis and Capitalist Transformation MARIO CANDEIAS . 67 4. Currency War versus Monetary Cooperation FABIO DE MASI . 91 5. From the Great Recession to Deflation and Stagnation HANSJORG HERR . 105 6. Current Crises, European Union: Alternatives and the Idea of Socioecological Reconstruction of a Society beyond Neoliberalism and Capitalism JUDITH DELLHEIM . 113 6 THE GLOBAL ECONOMIC MELTDOWN 7. Europe: To Be or Not to Be FABIO DE MASI . 125 8. From Exportism and Growth Fetish towards an Ecosocialist ‘Economy of Reproduction’ MARIO CANDEIAS . 141 9. Deconstructing India’s Inclusive Development Agenda SAMIR SARAN AND VIVAN SHARAN . 147 About the Editor/Contributors Editor: Jayshree Sengupta is a Senior Fellow at the Observer Research Foundation (ORF), Delhi, India. She was a consultant for World Bank (1985- 1990) and OECD (Paris) (1991). She coauthored a book with Prof S. Sideri of ISS (Hague) on The 1992 Single European Market and The Third World (Frank Cass, London, 1992). She was a lecturer at Miranda House and Indraprastha College (Delhi University) from 1970 to 1977. She has also served as the Programme Coordinator at Indian Council for International Economic Relations (ICRIER) from 1981-1985. She had studied at the London School of Economics, where she completed MSc (Economics) and M Phil (Economics). Contributors: Mario Candeias is the Co-Director of the Institute for Critical Social Analysis at the Rosa Luxemburg Foundation. He is also on the editorial board of the reviews ‘Luxemburg’ and ‘Das Argument’. His main fields of research include: political economy of the crisis, strategies for the ‘mosaic-left’ and socialist transformation. Dr Candeias has been involved in movements for the last 25 years. Judith Dellheim is an economist working as Research Associate for Solidaric Economy. She has been active in the Party Die Linke as well as in the World Social Forum movement. Her current research areas include socio-ecologic transformation in the context of Left economic policies and a solidaric economy. 8 THE GLOBAL ECONOMIC MELTDOWN Hansjörg Herr is the Professor for Supranational Integration at the Berlin School of Economics and Law, Germany. He has studied economics and pedagogy at the Free University Berlin and obtained a Masters in Economics (1980) as well as in Pedagogy (1981). His research interests are the development of the international monetary system, European monetary integration, transition processes from planned to market economies and Asian economies. Fabio De Masi is currently working as freelance journalist and pursuing a Masters Degree in International Economics at the Institute of Management Berlin, Berlin School of Economics and Law. He is also a tutor for Macroeconomics at Global Labour University (a joint project of University of Kassel and Berlin School of Economics and Law (Germany), University of Witwatersrand (WITS), South Africa and Tata Institute of Social Sciences (TISS), India, under the auspices of the International Labour Organisation. He holds a BA (Hons) degree in Economics (Hamburg University of Economics and Politics), a Masters of Social Sciences in International Relations (University of Cape Town, South Africa) and is alumni of the Rosa Luxemburg Foundation. Vivan Sharan is an economist, educated at the University of Edinburgh, and St Stephens College, University of Delhi. He has professional experience as a futures trader in equity and commodity markets in India and abroad, and writes on issues around economy, trade, finance and energy. Particular issues of interest include: sustainable energy policies and market-based response mechanisms, multilateral economic relationships and strategies, and monetary policy. He regularly contributes to leading newspapers and journals. He is also a guest lecturer at the Institute for Government Accounts and Finance, an international training and capacity building institute, run by the Ministry of Finance, India. Samir Saran is a Senior Fellow and Vice President at the ORF, New Delhi, India. Since October 2008, he is developing partnerships and implementing outreach and development programmes at ORF on ABOUT THE EDITOR/CONTRIBUTORS 9 issues of domestic and international relevance. He has also written several papers and contributed chapters on the economic crisis, radical Islam, climate policy, and other development issues in India and the region. His ongoing research projects include: representation of Islam and mediation of radicalism; climate change; economic crisis; regulation and the emergence of BRICs. Samir is a Masters in Media Studies from the London School of Economics and Political Science and an Electrical Engineer from the Manipal Academy of Higher Education. He is also a Chevening Fellow from the University of Cambridge on the Economics of Climate Change. M.K. Venu is Managing Editor and heads a team of editorial writers that articulate the views of the Financial Express on all important economic and political issues. Previously, he was Chief Editor, News with the Economic Times. He has written extensively on India's dynamic role at the WTO and its quest to become part of regional trade blocs such as ASEAN, East Asian Summit and BRICS. He has been on a special programme to the European Commission to study how the European Union works. He was a part of a very select Indian delegation to China in 2005 to discuss larger energy cooperation between the two most populous countries. Foreword The global financial crisis (GFC) of 2008, which marked the most severe economic downturn since the Great Depression, shook the very foundations of the global financial system. The events, beginning with the mortgage crisis in the US, snowballed into a recession so deep that even four years later, any musings on recovery spawn equal speculation about a double or a triple dip recession. A combination of high risk lending by banks, regulatory failure, poor surveillance mechanisms, inflated credit ratings and investment bank abuse set off a chain reaction leading to a prolonged global economic slowdown that has now brought the Eurozone to the precipice. The ripples of the GFC were not limited to the global economic system. The crisis brutally exposed fundamental shortcomings in the governance and regulatory structures of some of the most powerful governments in the world. And this was when, for the first time perhaps, in the aftermath of 2008, powerful state actors confabulated and coordinated with each other to bring in some of the most aggressive financial interventions ever seen in the history of the world. Governments across the world struggling to stabilise economies wracked by deep systemic uncertainty, seemed prepared to throw everything they had at the problem. Despite all these interventions however, the year 2009 saw the first decline in the global GDP since 1946, i.e., the end of World War II. Even today, as we listen to the news flow coming out of Europe as well as other parts of the world, the worst may be far from over. In the immediate aftermath of the crisis, national governments rushed in with stimulus measures to relieve the pressure on their economies and compensate for a reduction in aggregate demand. The United States (US) intervened to rescue faltering financial institutions whose collapse would have had catastrophic consequences for the world 12 THE GLOBAL ECONOMIC MELTDOWN economy. Developing countries like India stepped in with packages that targetted systemic social inequity and structural imbalances, correctives that would eventually feed consumption led growth. Even as the first waves of the global tsunami reached Indian shores, the fortuitous effects of programmes like the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA), Jawaharlal Nehru National Urban Renewal Mission (JNNURM) and National Rural Health Mission (NRHM) were beginning to kick in. These together with loan waiver packages served in many ways to counter the immediate fallout from the global crisis. Enhanced social spending and investments in infrastructure growth were glibly seen as solutions that would help steer the country back to the nine per cent growth that by now seemed a birthright. Global growth trends in the immediate aftermath of the crisis seemed to substantiate this outlook. The decline in the global GDP in 2009 was far from universal. Within the doom and gloom, in spite of the much vaunted interconnectedness of the global economic system, there seemed to stand out islands of unencumbered prosperity—economic powerhouses like India and China that continued to sustain very high levels of growth. It should come as no surprise then, that the mood in this part of the emerging world begun to turn self-congratulatory. Four years on, the same economies are no longer so sure. Self- congratulation has given way to self-doubt. The crisis that hit in 2008, not only continues to retard growth throughout the world, but developing economies that previously thought themselves to be crisis-averse are now experiencing the tsunami. Clearly, global recovery is going to be a far longer haul than had been imagined in 2009. Iceland, Greece, Spain, Portugal, and other countries that are teetering on the precipice, are only symptoms of a deeper malaise. Threatened by financial turmoil and facing serious political dysfunction, leaders across the world in general,
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