THERE appears to be a lot of confusion regarding the nature, the human impact and the causes of the unfolding recession. Bagan Member of Parliament (MP) Lim Guan Eng submitted a question asking the government to clarify the persons or institutions which persist in “attacking” the Malaysian economy once every 10 years. Opposition Leader Datuk Seri Anwar Ibrahim quoted Schumpeter’s “gales of creative destruction” and opined that perhaps the gales will also blow away corruption and wasteful practices.
Meanwhile, the government acts like the proverbial ostrich hiding its head under the sand, repeatedly attempting to reassure itself and others that everything will be okay. Apparently, the turmoil that threatens financial markets in the centres of capitalism will subside without bringing any negative impact to Malaysia. All this because our “fundamentals” are strong, and we have a foreign reserve that is approximately 60% of our gross domestic product.
I guess one cannot blame any of them because, not having read enough Marx, they do not understand.
The capitalist cycle
From the socialist perspective, all economic activity undertaken by private individuals within the capitalist economy is to realise a profit. The activity could involve producing a particular product, investing in a bank, extending a loan or trading in the futures market. The parties partaking in all these activities do so in the expectation that they can realise a profit.
At the base of all this economic activity is production of goods and services for the people. People must buy the goods and services that the capitalists produce – only then will the capitalists keep producing more of those goods and services. If the capitalists cannot sell their product, if there is a slackening of demand, they will cut back on production.
It has been 20 years since the fall of the Soviet Union, which itself was a grotesque caricature of socialism. The past two decades have seen a dramatic shift in the balance of power between workers (represented by their unions and social democratic parties) and employers (the capitalists).
Despite the fact that technological advances have augmented productivity, the real wages of working people in many parts of the world have actually fallen. Downsizing of companies, outsourcing of work, the importation of huge numbers of foreign workers, contractualisation of work, and similar mechanisms have dramatically reduced the share of the world’s wealth that goes to working people.
In other words, capitalists are producing more and more goods. The productive capacity of the world economy is expanding. But the capacity of the people to provide a market for the capitalists’ goods has not kept pace with the growth of the economy. There is a serious problem of “under consumption” that is continuously driven by the squeezing of labour by capitalists all over the world.
The continuous downward pressure on wages and the resulting slow expansion of the consumer market has a counterpart: huge and increasing funds that capitalists wish to invest. There is a relative lack of investment opportunities in the production of goods and services that ordinary people can buy. And this is one major cause why there has been an explosion in speculative activities in the past 15 years.
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The stock market, futures market, and currency markets, the financial instruments which were created to spread the risk of the massive sub-prime loans in advanced capitalist countries — all these were casino-like activities. They used sophisticated, but ultimately fraudulent, advertising to offer better prospects of making a quick buck compared to actually producing goods and services for the majority of the world’s population.
These financial transactions do not create wealth, but they act as instruments that redistribute the wealth amongst the capitalists. Some individuals have become fabulously rich!
Bubbles have been created by speculative, casino-like activities that depend on new entrants to come in and sustain over-priced assets. These bubbles are bursting now, causing a run on the assets of banks. There is a high likelihood that this will precipitate a sharp recession. Many will lose jobs and there will be a drop in income for ordinary people the world over.
Fix the system
So it is not an individual or institution with malevolent intent that is the cause of the current economic downturn. The recession is a reflection of the inability of the free market system to self-regulate. It underlines the inherent instability and unreliability of an economic system that is based on maximisation of the profits of a miniscule number of capitalists.
It is also not appropriate to give a positive spin on what is in reality a serious defect of the capitalist system by terming it “creative”. There is nothing “creative” about the pain and suffering caused by lay-offs, the inability to find a replacement job, and the loss of homes due to inability to meet loan obligations. These and many other hardships are what an economic recession foists upon the ordinary people of the world.
Millions are going to be plunged into poverty and despair. We shouldn’t help propagate the positive spin put forward by apologists for a flawed and irrational economic system.
And then there’s the budget tabled in Parliament at the end of August 2008. Although the Malaysian economy has not yet gone into a recession, a responsible government would make contingency plans to deal with potential problems in case of a downturn.
A retrenchment fund should be set up for workers laid off but not given retrenchment benefits as specified in our employment laws. The Malaysian Trade Union Congress (MTUC) and Jaringan Rakyat Tertindas (Jerit) have been asking for such a fund for several years. Now would be a good time to set it up.
The government should also offer temporary employment to retrenched workers, use them to upgrade the run-down infrastructure in our urban areas and build affordable houses for the poor.
A mechanism to deal with loans taken by workers who are subsequently retrenched should also be established. Retrenched workers should be given the option of renegotiating their housing loans. They should be excused from making loan repayments for a few months, until they are able to find new jobs.
In smaller towns and at the fringes of big towns, unused land should be leased out to families without jobs so that they can grow vegetables or rear animals.
Unfortunately, none of these ideas are contained in the recent budget. There are no contingency plans to deal with a recession, because the government is in denial. It is high time the rakyat send it a wake-up call. It is after all the responsibility of government to look into the problems and needs of the rakyat. Especially problems due to the failure of an irrational economic system.
Dr Michael Jeyakumar Devaraj is a physician by training and a founding member of Parti Sosialis Malaysia. He is currently Member of Parliament for Sungai Siput.