Financial Crisis a Crisis of Capitalism Compare Essay
- Length: 8 pages
- Sources: 25
- Subject: Economics
- Type: Essay
- Paper: #92559053
Excerpt from Essay :
financial crisis a "crisis of capitalism?
Compare and contrast the theories of Susan Strange, Karl Polanyi and Giovanni Arrighi. Explain how three of them accessed issues of Financial crisis and its relationship with capitalism
Starting from 2008 onwards, we are currently experiencing an unremitting state of economic recession. Each of the three theorists stated in this essay have different perspectives of whether or not the recession indicates crises of capitalism. Whilst Susan Strange and Karl Polanyi have a more optimist perspective on the subject and indicate that rather than crisis, the recession may, in effect, be, in the first case, a misplaced paradigm (or different, tortured perspective) and in the second case, only a slight wrench that necessitates government intervention for amending a temporary situation, Arrighiri sees the situation as indeed manifesting something that is intrinsically, irremediably, and inherently wrong in the structure of capitalism itself. Each of these views will be dwelled on in turn, and each will compared and contrasted in order to assess their perspective to the financial crisis and its relationship with capitalism
Susan Strange on Capitalism
Susan Strange published Casino Capitalism (1996) at a time when few others realized that the world of finance was growing and dominating the world in a global way devoid of production. Written in the1970s, Strange realized that finance was becoming a global phenomenon breaking free of states and of industrial production. Nixon's sundering the dollar from gold and the World Wide Web would lead to these phenomena where finance would represent global markets that would be active 24 hours, 7 days a week.
In Mad Money: When Markets Outgrow Governments (1998), Susan argued that governments harbored mythical beliefs that what they had created rested on an eternal order, or on the beliefs of an 'invisible hand'. Similarly too were they mistaken in the assumption that their bogus systems and inflated loan systems could be willfully sustained.
Their erroneous belief that they had created something natural and eternal was, she argued, based in ignorance of history.
To elaborate, historically nations operate on myths. The Aryan nation, for instance, believed itself to be of a superior race, and America, too, believed that it has certain hegemony in the sector of economic advantage (America is the country of gold and opportunity"). Today, many believe that America has lost its hegemony and become just like others (as witnessed by the recession). This too, according to Susan, is a myth and dangerous.
In historical memory, the optimism of the United States gave itself and others a new and better and attainable future for the world. Today, the myth of lost hegemony is apt to introduce in everybody "only pessimism, despair and the conviction that in these inauspicious circumstances the best and only thing you can do is fight for your own self-interests.." (States and markets, 1998, 204). This can be a dangerous thing, as Strange notes since it spells anarchy for a nation and leads to lack of cooperation.
These and other academic notions are erroneous.
The world has changed, and America has not lost its power but simply has to adjust to a global economic market that dances to a different political tune. At one time, states competed over territorial possession. Today, they compete over market share as the surest means to greater economic security. In their search for greater market share and wealth, business on a local scale is no longer sufficient and the competitiveness has taken global proportions. "The most successful and industrialized countries are those who have been able to take and keep a larger share for the world market for goods or services or both" (224).
This reality has been hidden from the U.S.A. due largely to its largeness, and it is still not completely aware of the fact. It was Japan that was more cognizant of this state of reality first, and not having the benefits of the defense contracts of the U.S., was obliged to find other means to apply existing technology and hence turned to the global market as means to do so.
The USA is the foremost nations in terms of defense. It used to dominate too the world's production structure. Today, some American economic analysts state it to have lost that power, but Strange thinks this to be a misperception. A perusal of all of the top 1000, 500, or 100 world corporations shows over and again that the leading names are American and that the decision-making power of production for the world is accordingly over and again American. This is due to the fact that the U.S.A. provided the first large mass market for manufactured consumer goods and its laws and policies therefore shaped the corporations that dominate the market. Operations and mores of today's business world were created in America; developments in the U.S. still influence developments elsewhere.
Finally, America also has the power to dominate and control the supply and availability of credit that is dominated in dollars. The dollar currency is the only assets that are saleable and credible worldwide and thus America controls the world's monetary system.
And then, besides all of that, America is also preeminent in the knowledge structure. Knowledge is the most sought after, prized possession for whoever can create something that others seek and are interested in is able to dominate. Today, the most sought after knowledge structure is technology, and America has the lead in this.
Taking all of these aspects into consideration, the assumption that America has lost its power and no longer dominates is solely that a myth. Americas still has its hegemony, perhaps more now than ever before, but its analysts and it fails to see it due to the shifting of paradigmatic perspectives of power. At one time, territorial rights defined a country's might. Today it is the extension of global market possession. With a shift in its perspective and elimination of the myths that propel it, America will realize that the current financial crisis does not spell its doom nor represent a crisis of capitalism. On the contrary, America is as strong as ever. Economic and political realities have, however, shifted, and America needs to adjust itself to this new situation. Doing so, it will realize that rather than crisis existing, opportunity may be a better perspective of the situation.
Polanyi on Capitalism
Polanyi challenges the assumptions that there is anything 'unnatural' about the modern markets. Modern markets have cultural and political underpinnings and are the outcome of modern industrial society. It has to be regulated and controlled by the state. They are human and contingent entities contingent, based solely on human and social affairs. There is no such as a 'hidden hand' and therefore their doings and operations are and have to be monitored by the state.
In the preface to Trade and Market in Early Empires, published in 1957, Polanyi and Arensberg said that
We asked, abstractly and analytically, what social action does the free market entail ...
... they [the economists] agreed with us upon the following tentative formulation: In the free market of supply and demand, a man can reverse roles, being supplier or demander as he can or wills. A man can go to this market or that as he sees his advantage; he is free of fixed and static obligation to one center or one partner, he may move at will and at random, or as prices beckon. He can offer to all and any comers, dole or divide among them, "corner the market" so that they all pay his price and so dance to his tune. .. (p.225)
Capitalism, as Polanyi, argues is generally seen as a system of traders and merchants who are seeking profitable opportunity. How this happens has been explained in the past by economists such as Adam Smith who have attributed it to 'behind the scene' rules such as an 'invisible hand' of competition where competition drives profit. The emphasis is on the merchants and traders, but ignores the whole area of production. Capitalism requires a market for labor and this market cannot be a naturally occurring and freely functioning entity. By defining it as a purely self-regulating entity as classical economists did, such n entity, Polanyi argues cannot exist. It needs more and what it needs, he says, is to be protected by the state. Capitalism must be restrained. The unrestrained, unregulated allowance of pure competition will be destructive for companies and for nations. In order, therefore, for productivity to be most successful it needs the world's -- or nations' intervention to help it succeed and to control it.
Land and money can also not be valued at their cost of production and, therefore, also do not share the laws of capitalism. For this reason, the state too has to intervene in monitoring these aspects.
In fact, as Polanyi points out
"Economic history shows the genesis of national markets was not the consequence of the slow and spontaneous emancipation of the economic realm from state…