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Rethinking on model of development: Lessons from global financial-economic crisis
4/12/2013 21:34' Send Print

Properties and characters of the crisis

Belgium professor of sociology Francoi Houtar and quite a few progressive scholars believe that the ongoing global financial-economic crisis is a mix of a number of crises, including cyclical economic crisis with new properties and new, unprecedented crises in the history of mankind.

First, the financial-economic crisis stemmed from surplus production, free market and capitalization of the economy. Robust development of scientific-technological revolution has brought about highest ever productivity which induced surplus supply over demand since 1970s. To expand the space for profit making, political and economic leaders of Western countries, headed by the United States and the United Kingdom, promoted the application of neoliberalism in replace of Keynes theory which was applied after the great depression in 1929 - 1933 and World War II. Its key measures are deregulation which minimizes the role and intervention of the state in the market, expansion of free trade, commoditization of people’s essential needs and expedition of privatization in larger scale. Stimulus measures on consumption and purchase, loosening of loan conditions and investment stimulating schemes etc. have constantly increased individual and public debts. Particularly, the capitalization of the economies have been strongly implemented with increasing trading of valuable papers, speculation of securities and currencies which have created a much greater virtual economies than real economies. The globalization process has created conditions for expanding these activities in global scale and nurturing the bubble finance and economy in a long period, and therefore creating global effects.

The crisis happened first in the United States which pioneered in deregulation, privatization, capitalization of the economy, extension consumption loan and loosening conditions of providing sub-standard credits over the past three decades.

Second, energy crisis due to over consumption of traditional energy surpassed natural recovery. The root cause here is derived from energy - intensive production and utilization models as such energy - consuming industries and promotion of individual transportation means etc.

Third, ecologic crisis and climate change derived from excessive exploitation and use of natural resources, pollution of environment and imbalance of nature. Natural resources, fresh water sources and biodiversity have become exhausted and mankind faces for the first time the failure of the Earth to meet material needs of the people.

Fourth, the food crisis caused by both instant direct cause and deep - rooted reasons in the structure of agricultural production.

Fifth, the human and socio crisis caused by ever - greater disparity in distribution of resources, wealth and benefits. According to the United Nations Development Program (UNDP), 20% wealthy people owns 84% of wealth and resources in the world while 20% poor people owns only 1.6%. As wealthy people account for almost the purchasing power, the major part business production and services are mostly geared to serve this minor group of people. Unemployment is seen increasing, population (in term of quantity, quality and structure) and pattern of family becomes more of a concern. Social, ethnic and religious conflicts are severe. Culture and morals are degenerated as consumption lifestyle, individualism and win - or - lose competition between people are promoted. Social evils, crimes and suicides have increased in highest developed countries.

In general, one can see that this is the crisis of development model based on the neoliberalism, and of the contemporary civilization governed by capitalist mode of production. In essence, it is a regular cyclical crisis unavoidable of capitalism. This crisis, however, bears a few new features:

Firstly, this is the most comprehensive structural crisis of the capitalist mode of production which caused economic, social, human and ecological effects. The previous crises in periods of 1873 - 1895 and 1929 - 1933 happened only in some capitalist countries whose population accounted for less than one fourth of the world population , and capitalist countries still had external space to expand their market, and to further exploit natural resources and labor. But with this crisis, such things no longer exist as globalization is taking place.

Secondly, the crisis happened at the time when natural energy and recycle natural resources are approaching the limit without any further increase or expansion of exploitation; ecological environment is seriously destroyed and disbalanced. These two new features disallow the application of traditional measures to deal with crises as before.

Thirdly, the development of science and technological and the knowledge economy have created objective conditions for capitalist countries to restructure their economies in order to get over the crisis.

Fourthly, the formation and development and the dominating role of transnational corporations and financiers as the key subjects play a decisive role in both capitalist countries and global economy, as well as the process of curing the crisis.

Fifthly, there is no real political forces opposing the ruling bourgeoisie while capitalist groups and corporations take absolute control of power institutions, communication system and intellectual facilities, and the socialist system has collapsed and the communists, working and left wing forces in capitalist countries are weakened and polarized, and social movements were pluralized and politically neutralized. In addition, the mobility in investment in the globalization process and the narrowing of the economic – political sovereignty of signatories to free trade agreements or economic unions and associations also limit the struggle ability of the working people in these countries. This feature allows bourgeoisie, instead of making interest concession, employs measures to place burden and loss on working people, and sacrifice social welfare for the protection of employers’ interests.

Sixthly, the arrival of newly emerged economies. This is both cooperative and competitive factor to central capitalist countries and the driving force to multi-polar trend. In essence, however, this factor is just an addition of new player to the old game as the order and the rule of the game is unchanged.

Presently, the capitalist system is endeavoring to conceal and lower the severity of the crisis in order to mislead the public into thinking the crisis is a normally periodical financial - economic crisis. Nevertheless, from the elite and conservative circle of bourgeoisie comes the voice about the severe criticalness of this crisis. American professor Emanuel had to admit that capitalist regime entered the final phase of crisis and its existence could not be prolonged for more than 30 years to come.

Causes of the crisis and constraints of development model

The above - mentioned crises closely interrelate and converge on the root causes which is the excessive expansion of the development model geared to profit making and not for people’ benefits. With the application of neoliberalism, and after the socialist model of the Soviet Union and East European countries collapsed, capitalism has shown the true nature against progress and humanity.

The essence of the driving forces of capitalism is capitalist reproduction to produce profit and maximize capital accumulation. The logic of development of neoliberalism focuses on making profit. According to Francoi Houtar, all key development indicators such as economic growth, GDP, competitiveness index, effectiveness etc. established and popularized over the past time concentrated in market place; development programs and projects only calculated expenses and costs that directly related to profit of capitalists (market cost) without any reference to external cost, particularly environmental and social losses. In reality, external costs are extremely huge, and in some cases, it is much greater than the immediate economic gains. One can say, therefore, that the above - mentioned development model only aimed at economic growth to produce instant profit for the minority while place the burden of external cost on present society and future generations. It is said that the prosperity of many Western countries mainly comes from hundreds of years of applying such logic through colonialist regime, appropriation of natural resources, destruction of environment in the process of industrialization in the past and the establishment of inequitable international economic order, and the monopolistic operation and dominating role of transnational groups and corporations has brought about extremely huge consequences for humanity, especially the third word countries.

A basic philosophy serving as the basis for capitalist market economy is constant promotion of material consumption. Demand stimulation is considered key measure to ensure growth rate, thus more commodities can be sold and in return more profit can be gained. Consumption index, retail index, purchasing power etc. become indispensable gauge of development level of individual economy. The generalization of this philosophy paved the way for the domination of consumerism and subsequently the significant waste of resources. According to scientists, in order to increase the living standard of the mankind to that of the Finnish people, 4 planets like the Earth are needed. The exhaustion of natural resources puts limit on the material consumption and an end to the future of such mode of development.

The excessive expansion of market space coupled with the explosion of trading activities are also among the causes leading to social unrest. In order to expand space for profit making, all means are used to commoditize essential needs for survival and development of people, including educational, medical, cultural and public services. This practice makes consumption more dependent on the level of income which in its turn increases the inequity in society and forces people to make more money and fiercely to compete with each other in order to survive. These policies have stripped the ability of people especially farmers and indigenous people, to control themselves their economy, and make them vulnerable to market fluctuations. The commercialization of cultural activities in fact turn them into commodities for mediocre entertainment needs, not for educating and improving dignity of the people.

The expansion of deregulation and privatization not only narrows the equal access of people to essential services but also gives all social and economic activities to those who consider profit the first priority. The development of joint stock companies (public companies) over the past years has facilitated the process of turning people into stockholders, creating asocial consensus psychology on the priority of profit which serves as the basis for the expansion of exploitation, destruction of environment and speculation. Free competition is applied to the utmost between subjects who are unequal in capacity and conditions leading to the subsequent inequality in operational outputs and distribution of benefits.

The capitalization of the economy in order to quickly earn profit through trading virtual commodities and financial speculation has significantly distorted economic relations and created huge financial bubbles much greater than the real economy. The crash of such bubbles demolished labor outcomes of millions of people in countries across the globe.

The globalization expanded the space and prolonged the period of existence and further exacerbated the problems of capitalism. These problems transmitted to developing countries through the globalization, direct intervention or indirect influence by international financial, monetary and trading institutions, free trade agreements, and assistance agreements etc. The losses caused by these problems badly affected the economy and social security of third world countries. The reverse side of deregulation of trade and investment and the inequity in international competition weakened economic sovereignty and drove the economy of various developing countries dependent on developed nations. At the same time, it accelerated “the race to the bottom” between developing countries.

Parallel to the economic neoliberalism is the model of politic freedom. In the form of democracy with multi-party politics, freedom of election, freedom of press etc., capitalist countries, in reality, do not satisfy the essential nature of democracy which is the power is of the people, by the people and for the people. The governing role of money in politic life actually downgrades the liberal democracy to procedural democracy consisting of formalistic procedures while in essence, it is the corporate democracy, not people democracy. People are becoming more frustrated with politics as they can replace government via elections but they can not alter the status of society, because the governing and deciding power still belongs to corporations.

As stated by Samiar Armine (South - South people solidarity network and The World Forum for Alternative Solution), the aforesaid development model is undergoing a great crisis caused by accumulated and prolonged contradiction of capitalism.

The question is whether capitalism’ historical mission has come to the end? Most progressive scholars assume that this crisis can not make capitalist system collapse. Partly because it has solid financial potential, experiences of dealing with previous crises, knowledge economy and monopolistic power in dominating international financial and economic system. Besides, as V.I. Lenin had said “Capitalism will not collapse if there is no social forces strong enough to make it collapse”. Such social forces is not strong enough both within and outside capitalism. Although the capitalist system can solve immediate financial and economic problems, it can not avoid other crises in medium and long-term future. It can not resolve resources and ecological crises as the truly effective solutions will contradict the nature and development logic of capitalism. Vivid evidence shows the focus of recent solutions against crisis is mostly on the protection of interests of financial capitalists and corporations without much attention to redress structural issues such as surplus production, virtual economy and financial speculation. Interests of working people is still heavily trespassed; neoliberalism is furthered in many new forms. Root causes of crisis remain untouched which will drive mankind into new catastrophe in future. Seeking true solutions to replace such unsustainable and inhumane development model is both a pressing and long term demand.

Matters relating to alternative development model

Humankind now need to resolve some basic contradictions on the way to find new development model, such as:

- The contradiction between constantly increasing people’s need of material consumption and definite limits of exhausting resources; the existence and development of humankind and the contraction and degeneration of living environment. This is the relation between people and nature.

- Contradiction between following market economy to liberalize and develop productive forces with sustainable and equitable development. These are matters of mode of production, services, consumption and distribution.

- Contradiction between increasing production capacity and more abundant wealth and the greater disparity in income distribution and rising social injustice. It is the matter of relation between ownership and distribution in society.

- Contradiction between pragmatic, material value and moral, spiritual, humane value; between individual, egoistic, local interests and common interests. It is the matter relating to culture ethics and morality.

- Contradiction between the desire of human liberation and democratization and the concentration of power to serve the interest of a minor group of people; the governing role of money in political life and the implementation of human rights in the existence of inequality and disparity in economic conditions. This is the matter of politics.

An ideal development model capable to solve the above - mentioned contradictions should satisfy following requirements:

Development point of view, it is necessary to replace profit - based development with the people-centered, sustainable and comprehensive development, good and happy life instead of accumulation and appropriation of wealth, production and services development for reasonable demands of people instead of infinite demand stimulus for the purpose of profit making, and nature friendly development instead of development based on infinite exploitation of nature. Each development program and project should adequately takes into account economic, social and environmental efficiency, ensuring interests of related stakeholders without harming common interests of society and community.

Economically, replacing the appropriation of public assets and speculation for immediate profit with production and services serving society, and creative activities for developing advanced productive forces. Markets need to be effectively regulated by the State in order to bring into full play positive elements and restrain negative phenomena so as to better meet common interests of entire society. Beside the private sector, the public sector assumes dominant role and conducts non-profit operation for common interests of society and community.

With regard to social aspect, practicing and ensuring social progress and social equity at each step of economic development and in each economic policy. Gradually eliminating human exploitation regime; practicing distribution policy on the principal of working according to capacity and earning in accordance with labor; further developing public services and social welfare to better and equally satisfy essential needs of people to survive and develop; practicing equality between ethnics, religions and sex; providing assistance to needy people; creating more jobs to ensure full employment and meeting the needs of the public and society which is beyond capacity of the market and replace unemployment subsidy which marginalizes a certain group of people and causes waste to society.

Culturally, constantly developing progressive and humane, moral and spiritual values and making them dominant elements in everyday life and social relations to replace materialistic and consumption lifestyle, individualism and egotism. Promoting solidarity, humane and mutual assistance spirit to replace win - or - lose competition.

Politically, building genuine democracy to guarantee that the power is of the people, by the people and for the people; building a transparent, untarnished, and solid politics which is outstanding in wisdom and morals and associated with people; constantly building the great national unity on the basis of common values and objectives in order to replace the institutional setting which only serves the power and interests of a minor groups of wealthy people.

The new model of society, in essence, is the one heading to progressive and humane values without competition for interest. The new society does not ignore interest in general, instead it ensures the appropriateness and harmony between individual interest and common interest, and strives toward fine values. In such a society, the freedom and development of each individual are the conditions for the freedom and development of all people.

By nature, this is the socialist society to which Vietnam is heading for.

Building such a new society is completely not easy, especially in the process of applying market economy, opening up and integrating into the world where there are complex changes. This is a great creative cause, continuous endeavor requiring the intelligence and bravery of the ruling party and support and active participation of the people.

Although the road ahead is full of challenges and difficulties, only socialist society is capable to completely redress the impasse and contradictions of the present crisis – ridden model of development, and open up a bright future for future generations. Therefore, President Ho Chi Minh chose for Viet Nam a path combining national independence with socialism. Generations of revolutionaries have spared no sweat and blood to fight and sacrifice for that lofty objective. Such choice is, once again, proved to be quite appropriate in the context of ongoing financial - economic crisis./.


(*) Published on the Communist Review, Issue No 852 (October 2013)

Tran Dac LoiVice Chairman of the Party Central Committee’s Commission for External Relations