The capitalist world economy faces major challenges today. The COVID-19 pandemic, which has caused widespread damage to many economies around the globe, skyrocketing inflation is disproportionately affecting the poor and working-class, and even stagflation (a combination high inflation and stagnant growth) is possible. The conflict in Ukraine has also fueled a global food crisis. According to Shouvik Chkraborty, a radical economist and political economist, the current crisis in food production has its roots in neoliberal policies implemented in agriculture in developing nations.
None of the current global economic issues can be solved without major changes in the workings and structure of the world economy to combat the effects of neoliberal capitalism over 40 years.
Is neoliberalism in decline? What are the alternatives? Is socialism a viable option for developing countries? Chakraborty answers all these questions in an exclusive interview. Truthout below. Chakraborty is research fellow at the Political Economy Research Institute at the University of Massachusetts-Amherst and author of scores of academic articles in macroeconomics and political economy.
C.J. Polychroniou – The world economy will see a slow growth rate and high inflation in 2022. There are even concerns about stagflation. What are the main challenges facing the global economy in 2022
Shouvik ChakrabortyThe global stagflation phase is real concern for the working classes. However, due to the differences in income between advanced and low income economies, the challenges workers face under a stagflationary situation are different. The concerns in the former are more focused on the continuation of a particular lifestyle — whether they would be able to purchase a single-family home, afford a vacation or continue driving their private vehicles. At the same time, the fear in the lower-income countries is related more to the necessities of life — whether they would be able to put food on the table, a minimum supply of clean and safe water, and access to some minimum level of electricity and cooking fuel. Because these countries lack income support such food stamps and social security benefits, the economically disadvantaged are particularly vulnerable to the coming crisis. The retreat of the state from basic welfare measures in low income countries such as providing food through fair-price shops, price-controlled healthcare through primary care facilities and supply of clean water has occurred over the last 40 years with the advent of neoliberal economic policies. dirigisteThese sections are now more vulnerable to market forces.
These poorer sections of society were particularly affected by the pandemic. These marginalized groups have already suffered a severe economic blow to their income and their ability to sustain their livelihoods during the pandemic. The pandemic caused an uneven distribution of income worldwide and increased inequality within countries. This meant that the more wealthy sections were less affected and could protect themselves from the effects of the recessionary conditions. The most affected were however the poorest sections, particularly those in low-income nations. The global economy is facing the threat of an economic recession and an inflationary environment. However, their severity and nature will depend on the income and development levels of the countries. For developing countries, the repayment of their debts at higher rates in a lower growth rate environment would present additional macroeconomic challenges.
Many accuse Russia of using food to fuel war. There is a global crisis in food supply. Many countries around the globe are imposing restrictions on food exports that not only drive up food prices but also reduce food supply. What is causing the current global food crisis? How bad can it get? And what are the best ways to fix it?
The global food shortage will be severe and will be felt more in those countries already experiencing hunger and food insecurity. Already, the UN Food and Agriculture Organization has issued dire warnings. The ongoing Russia-Ukraine War, current export restrictions, supply-chain problems and climate change-related disruptions causing the global food shortage are all points that can be made. One sector that was largely ignored by policy makers during the neoliberal age, especially in the developing countries, was agriculture and its allied industries. According to the OECD Agricultural StatisticsOver the past two decades, the amount of budgetary support for the agricultural sector in emerging economies as a percentage of Gross Domestic Product (GDP), has fallen from 1.25 percent down to 0.81 percent.
The World Development Indicators report that the average annual growth rate for agriculture, forestry, and fishing worldwide has declined from 3.7 percent in 1980 to 2.9 percent in 2010. This is due to negligence in this sector. It is even more stark in the case lower- and mid-income countries. Over this same period, while the overall growth rate of low- and middle-income countries increased from 3.6 percent to 4.7 percent, agriculture and its allied sectors’ growth declined from 3.9 percent to 3.4 percent. These statistics are important because, even before the Russia-Ukraine conflict and pandemic, agriculture was already in trouble and the food supply was affected.
Historically, agricultural markets have been volatile. Global food prices rose last year due to the underlying crisis in this sector and recent events. This trend will continue. Two other factors that contributed to rising prices are the increased profiteering by major multinational agribusinesses as well as the speculative activities in the futures commodity markets. Recent evidence has confirmed the increase in speculative activity. a critical studyIt tracked the movements in commodity markets of financial investors (investment money in particular). Both profiteering, and speculation, must be immediately regulated.
The price of agricultural commodities is usually responsive to market conditions, though there is some lag. If the Russia-Ukraine conflict continues, it is possible for other agrarian nations to respond by increasing production and improving the supply chains. To do this, governments in these countries must support the sector with increased public investment and total budgetary support. This would be a problem for any state that follows neoliberal policies or is obsessed with balanced budgets. The political challenge should be to end the neoliberal order.
Neoliberalism has been a disaster both for the developed and the emerging worlds. Is it possible that neoliberalism may have lost its strength? Is it in crisis now?
Neoliberalism has weakened the working class globally — the race to the bottom in wages, de-unionization and privatization. In the advanced countries, the workers’ wages have got tethered to those in the lower-income countries and, therefore, the share of labor compensation in GDP has been declining for several advanced countries around the world. This share fell by 5 percent in the United States between 1975 and 2017. The decline in other countries, such as France and Japan, is even more dramatic, with Canada accounting for almost 11 per cent.
This has increased inequality in countries, particularly in advanced economies, both in terms of income and wealth inequality. In these advanced countries, income inequality has increased since 1990. It also further accentuated the already existing wealth inequality globally — while the bottom half of the global population owned less than 1 percent of all wealth in 2018, the richest decile (top 10 percent) owned 85 percent of all wealth, and the top 1 percent alone held almost half of it. The pandemic has only made this inequality worse, as hundreds of millions have been forced to leave the workforce. This level inequality leads to a lot more vulnerability and precarity in the working classes.
With the rise of nationalist slogans and racist mongering in the advanced countries, the right-wing forces blamed the poor workers in the emerging economies — Mexico, India, China and African nations — for the loss of employment faced by the workers in the advanced countries. The right-wingers claim that the workers of the advanced economy have to suffer as some guy in Shanghai or Bangalore takes away their job. But the workers in these emerging nations are flourishing. It is true that inequality between per capita national incomes has fallen in relative terms over the past decade. However, the income levels of advanced economies remain very high. For example, the median income of people living in the European Union 11 times exceeds that of sub-Saharan Africans; while that of North Americans is 16 times greater than that of subSaharan Africans.
Despite this fact, right-wing forces continue to tell the story and challenge globalization. They also encourage nationalism. This false narrative, along other factors such as immigration, led to the rise undemocratic and authoritative regimes in many advanced nations like the U.S., France or Germany. These regimes supported the narratives of nationalism and xenophobia. For example, in the U.S., Trump’s administration escalated trade wars with China and walked out of the Paris Climate Accords. They also turned their backs on the European Union to protect the national economy and nationalism. Many scholars, including some progressives wrote the epitaph for the neoliberal system.
Although it is true that neoliberalism and especially the free market are facing challenges, this is especially after the pandemic, during which a large part of the population in advanced nations benefited from the welfare programs of the state, I am still unsure if the neoliberal system’s integral components, including international trade and free movement, can withstand the same challenge. Capital, particularly speculative finance capital is still free to travel across borders in search for speculative profits. The U.S. dollar remains the world’s most popular currency and is considered a global reserve currency. The Federal Reserve’s actions force most central banks around the world to adjust their interest rates to match the Federal Reserve’s. This means that they have to sacrifice their independent monetary policies. Because these central banks fear capital flight, this could even cause their economies to fall into recession. Although Main Street has significantly challenged Wall Street, I believe the former still has a long way to go before it can make a lasting impact on the latter. While it is true that neoliberalism has significant challenges ahead, it might not be too early to write the end of its story.
If the neoliberal agenda has indeed failed, what alternative paths of development are realistic for today’s world?
Although neoliberalism is not dead, it has been challenged, as I mentioned earlier. The Green New Deal, which was presented and discussed in Global North by various sections from the progressives, offers an alternative to the neoliberal agenda. Any alternative progressive path of development in today’s world must keep the science of climate change at the center of policy making. The world is facing an existential crisis, and an alternative progressive development path must consider these policies’ environmental and ecological impacts. It should be directly linked to access to natural resources like water, air, and land.
However, from a developing country’s perspective in the Global South, the pursuit of the Green New Deal in the Global North should not become a cause of pain and exploitation for the workers, peasants, petty producers and miners in the former. Historically, the economic interactions of the advanced economies through the mechanisms of “free and fair” trade led to the exploitation of human and natural resources in the Global South. The Green New Deal should be viewed as a Global Green New Deal. This means that the interests of the Global South are protected equally with those of the Global North. In addition, the North is partially responsible for the costs of the Green New Deal program in South. The Global North would prosper at the expense and history has proven it time after time.
Is socialism an option for the Global South or not?
Socialism is a viable option for developing nations. It seems more possible with the recent victories of the progressives from Peru, Chile, and Colombia. The question is: What model of socialism are these emerging countries going to follow? It could be the Chinese model. In such a case, I believe that progressives worldwide need to pause and question whether they wish to continue following that path. I say this because many leftists, including India, seem to blindly follow the Chinese model for socialism without actually understanding its consequences in a democratic setting.
I believe democracy should be an integral part today’s socialist agenda. Individual dignity must also be upheld. A top-down approach to planning, with the state making all the decisions, needs to be questioned. A new socialist agenda should be based on local participation, democratic interaction, and decentralized administration. A rights-based approach, where the right to life and the basic necessities for it — food, clean water and air, housing and clean energy are upheld, needs to be a central part of a socialist program, along with other rights like the right to health care, the right to education and employment. We need to protect social and economic rights more effectively, which means that the state has to play a larger role. Protection of the workers’ rights, petty producers, small farmers and miners, whose interests have been sacrificed in this neoliberal era, must form the core of the new socialist agenda. A new socialist order must be established in the emerging economies of South Asia. It must learn from the mistakes of previous regimes.
This interview was lightly edited to improve clarity.
