It has been a year since the legendary financial giant Lehman Brothers collapsed on September 15, 2008. This global giant had weathered the railroad bankruptcies that rocked the USA in the 19th century and also the Great Depression of the 1930s. On this occasion, it became the first victim as well as the trigger that shot down financial markets globally, causing probably the worst recession in capitalism's history.
The World Bank has explicitly stated that 2009 would be the first year on record since the World War II to register an absolute fall in world output. It has revised its earlier estimate of a minus 1.7 to a minus 3 per cent fall in global GDP. During these twelve months except, for China (7.5 per cent) and India (5.5 per cent), all other major economies have seen a decline in their GDP.
Despite having injected over 2.3 trillion dollars into the US financial system, its GDP fell by a minus 2.6 per cent. Similarly, all the G8 countries have registered negative growth rates, Germany minus 6.2, France minus 3.0, Italy minus 5.1, Japan minus 6.0, UK minus 4.2, Canada minus 2.3, Russia minus 6.5. Among the emerging economies, Brazil registered a minus 1.3 per cent, Mexico minus 7.3 and ASEAN countries minus 0.3 per cent.
According to the World Bank, nearly 100 million people will be trapped in absolute poverty in 2009 and 2.8 million more babies may die by 2015. The ILO has declared that more than 50 million are going to join the existing ranks of the unemployed this year. The real estimate is bound to be higher as the ILO relies on the data supplied by respective governments, many of whom are not counting the vast number of migrant labour losing their jobs and returning home. In USA alone the official unemployment rate has climbed close to 10 per cent while unofficial estimates record 16 per cent. In absolute numbers the unemployed have crossed the seven million mark in the USA.
Such is the gloom that according to a Washington Post-ABC news poll released on September 15 2009, President Obama's approval rating on the handling of the economy dropped from 62 per cent in February to 45 per cent now. It is becoming increasingly clear that all the bailout packages have mainly helped the financial corporates to beautify their balance sheets and not stimulate the real economy for generating jobs for the people. As we have repeatedly stated in these columns earlier, these bailout packages always put profits before people rather than putting people before profits. This is evidenced by the fact that Goldman Sachs and JP Morgan Chase, the two financial giants that collapsed on the Wall Street have now emerged from the ruins, feasting on the monies they have received through such bailout packages. On the back of billions of dollars of taxpayers’ money, JP Morgan Chase has announced a record 2.7 billion dollars profit in the second quarter of 2009.
On the occasion of this anniversary of 9/15, many books have been published seeking to unravel the manner in which this crisis unfolded. One of these makes an analysis of the cyclical capitalist business cycle in the entire history of capitalism. It shows that in the aftermath of an average crisis asset prices fall sharply, real housing prices fall on an average by 36 per cent over six years, equity prices by 56 per cent over three and a half years. Unemployment tends to rise by seven percentage points during the down phase of the cycle, which on average lasts four years. Government debt increases by 86 per cent. GDP falls by over 9 per cent on the average, and typically takes ten years to return to what it was before the crisis. This is the history of an ‘average’ crisis. What we are witnessing is much worse than an average crisis. Under these circumstances, it would be naive to exude confidence of a visible turn-around in the global economy.
Such optimism being exuded by the prime minister and the Planning Commission could well be a case of gross overestimation of the Indian economy. During this year India's growth plummeted from over 8 per cent to 5.5 per cent. During the first quarter of 2009 industrial growth was 0.3 per cent compared to 6 per cent in the last quarter of 2008. India's exports fell from a 10.4 per cent growth in September 2008 to minus 33.2 per cent in the first quarter of 2009. Over 30 lakh jobs are estimated to be lost in the organised sector alone by the end of 2009. Nearly 12 lakh jobs have already been lost in the export oriented sectors. In the unorganised sector the job loss is bound to be much higher. In addition are those lakhs of people returning from abroad having lost their jobs there particularly in the Gulf.
Like elsewhere in the world, in India too the stimulus packages announced by the government have helped the corporates to emerge from the crisis but have not helped to stimulate the real economy into generating a larger number of jobs. We have in the past analysed that the relative resilience shown by the Indian economy in the wake of the global recession has been due to two specific factors: the prevention of greater financial liberalisation by the Left under the UPA-I government and the injection of huge liquidity into the economy due to the sixth pay commission and the fifteenth general elections. The latter is a one off expenditure which cannot sustain expanding domestic demand in the future to maintain higher levels of production. This can happen only if a quantum leap is made in the levels of public investment which would lead both to the building of the much needed economic and social infrastructure in the country as well as generate new employment.
Instead, as we have seen, the budget papers for this year inform us that as much as Rs 4.18 lakh crore were foregone as tax collection last year as a result of various tax concessions. While continuing these concessions the government has now abolished surcharge on corporate tax and increased the exemption limit for income tax giving an additional bonanza of Rs 10,000 crore. Thus Rs 4.28 lakh crore are the amount that is being foregone by the government's own admission. This is being done under the presumption that with greater availability of capital, the corporate world would expand its activities and thus stimulate the economy. There is a fundamental flaw in this reasoning. No amount of availability of capital can stimulate the economy unless there are people who have the purchasing power to consume what is produced. Instead, if this amount of money was put into direct public investment for building our infrastructure, the consequent job creation would have vastly increased the purchasing power of the people and thereby stimulated the economy. However, like everywhere else, as is the internal logic of capitalism, the governments have stepped in to shore up the corporates through various bailout and stimulus packages rather than bailing out the people through increased public investment. This is clearly reflected in the performance of the top Indian firms (BSE 200) during this year since the collapse of Lehman Brothers. In the last quarter of 2008 the income of these firms rose by 12.8 per cent while their net profits declined by minus 17.6 per cent. In the first quarter of 2009, while their income grew by a minuscule 0.2 per cent, their net profits jumped by 28.6 per cent. In the second quarter of 2008, their income declined by minus 7 per cent, yet the net profits rose by 20.7 per cent. Clearly, while the economic activity is contracting, leading to unemployment and misery for the people, they continue to reap super profits thanks to ‘bailout packages. Such is the logic of capitalism that puts profits before the people.
It is thus imperative that popular struggles must be strengthened to force our government to adopt policies that put people before profits by vastly expanding public investments.
Note:Article took from the People's Democracypeoples Democracy