In just one month, from mid-June to July, the stock market valuation in Shanghai fell by 30%. This city, emblematic of economic expansion in China, also saw its debt grow exponentially over one year.

Up to now, we only heard of economic growth in China, especially since the beginning of the modernization of their economic model after 1978. The so-called Chinese growth rates, starting from an annual 10% or more, confirmed this.

Lately there is talk of deceleration, with rates around 7%, still well above the evolution of any other national economy, whether of developed countries, emerging economies or undeveloped ones. The question is whether, under the new conditions of an evident crisis, this trend will continue, and even affect the rate of growth, thus plunging the world system into a new recessive spiral.

This question is important for us in Argentina, since China is one of the country’s principal purchasers and a new provider of funds for investments and loans denied by the world system. This situation is quite generalized in Latin America and the Caribbean, so the situation is included in the agenda of concerns of the governments and peoples in this part of the world.

The success of the model hid the fact that together with growth, all forms of capitalist relations were consolidated, among them wage labour, stimulated by external investment by transnationals of every kind, sustained with State incentives.

Capitalist relations, money, the State and debt

This meant the insertion of China in the world economy as a great manufacturer and the holder of a fabulous mass of money, employed mainly to sustain the US deficit, converting China into the principal creditor of the largest capitalist State, with a gigantic public debt, the biggest in the world.

With these relations of production, distribution, exchange and consumption, a kind of development was established that was sustained in the expansion of internal consumption and of exports, favouring the development of a system of credit and speculative investment in diverse markets, in particular encouraging the real estate bubble and local personal and business credit.

State intervention had that intention, that is, to stimulate the expansion of capitalist mercantile and monetary relations.

It seemed that the Asian giant, ascending to the podium of production and the world economy, was to remain outside of the global capitalist crisis.

In fact, China disputes the primacy of world production with the US, so some anticipated the rise of a new hegemonic power in the world system, repeating previous transitions in the history of capitalism.

It would appear that this is not the case, that the speculative bubble has now reached China, with a State that has the capacity to intervene strongly from their holdings of four trillion dollars of international reserves. It is this that generates uncertainty and expectations of control of the disastrous effects of any crisis, especially among the more vulnerable sectors.

The US State has the power to act in the crisis thanks to its monopoly of the emissions of dollars. China has the power of its holdings of global assets, especially US assets, and the intention to circulate its own currency throughout the world, generalizing agreements upheld in local moneys. The objective is the globalization of the yuan, the local currency of China.

From there, plus their state property of the principal businesses and their management of the regulatory environment of economic policy, they can intervene to soften the effects of the inevitable crisis.

Emission as anti-crisis policy

This crisis, we repeat, is worldwide and became visible in 2007/2008 in Wall Street, real estate markets, shares and the whole US economy; it was transferred to the world system, with impacts and events visible in Spain, Europe, with Greece at the centre of the news and the present agenda.

In all these countries debt is a key issue. It is a mechanism employed to postpone the problem of the crisis and to attempt to resolve it.

Practically every year, the US needs the authorization of Congress to increase the debt, which is 100% of their GDP.

At the same time, as this debt generates interest that must be paid, the fiscal problem becomes a structural problem and year by year, as the debt grows, so does the fiscal deficit (expenses greater than income), which is resolved by unlimited emission, stretching the possibility that every State has to impose the circulation of its currency.

In the case of the US, as of 1945, the State attained the prerogative to impose the circulation and domination of the dollar on the world, even after the convertibility crisis of 1971.

Today they threaten with rising exchange rates that provoke the fall of other currencies and the prices of raw materials for export, generating conditions to impose an exit from the capitalist crisis based on the national interests of their global transnational domination. They propose to trap excess capital from the world system in search of profits and security.

In the case of Greece, the State is limited by the engagements imposed by the Eurogroup and the monopoly of the emission of the euro, that some hoped to violate, without success, suggesting the emission of virtual euros sustained for internal circulation in Greece. This was part of what was called Plan B in the Greek situation and even for other countries trapped in the logic of the euro and the orthodox hegemony of Germany and its government.

This was something like the provincial bonds in the crisis of 2001, the "quasi currencies" that allowed for interchange among the inhabitants of Argentina, without considering, of course, the remissions and restrictions that private sectors imposed on the circulation of these government securities. It was the same argument used in the bartering clubs, with the recognition and validity that society gave these mediums of payment, which were also the object of speculation and fraud. These means of payment disappeared over time, but the State and society could impose them, albeit on a transitory basis, as means of circulation and payment. 

The sovereignty of nation States is under discussion because of the present crisis and its monetary manifestations that, among other things, according to CEPAL, are explained as monetary volatility for Latin America, with different situational responses in each country, some devaluing their currency and others postponing measures through differential policies, but all within a logic of subordination to the dollar or to currencies accepted in the world capitalist market.

Crisis, hegemony and the alternative

For this reason, we have for some time maintained that the crisis is not one of a few countries made visible through certain difficulties, today Brazil, Greece or China, but that the problem is in capitalism as such and because of this, the principal problem that is intoxicating the world system are capitalist social relations and the exercise of world power by the main capitalist State: the US, which exercises world hegemony with the force of the dollar, weapons and the symbology of its cultural power.

The problem is that their prescriptions impregnate the institutions that formulate policy of universal scope, the WTO, the IMF, the World Bank, and through them they spread their liberalizing recipes in summits and in the protocols of assistance to countries in trouble. When the recipes don't work, it’s always the responsibility of misapplication at the local level, never of the ideological system that promotes these measures.

I understand the difficulty of breaking with the logic of the prescriptions of the dominant power in order to overcome the crisis and reestablish the normality of recovery and accumulation. This supposes overcoming the set of cultural values of capitalist society, of a model of production based on exploitation and pillage, together with a culture of consumerism stimulated by quotas of irresponsible indebtedness induced by the financial system and the public policies of contemporary capitalism.

We face the historical challenge of realizing the emancipatory proposals that were swept away by the project of domination. As we have always said, this is a gigantic task that begins with the debate and the construction of social practice for a different social and cultural order; one of cooperation, solidarity and thinking in terms of the harmony of social metabolism, that presupposes respect for the reproduction of nature, that is, the inclusion of the reproduction of humanity, its habitat and society.

(Translated for ALAI by Jordan Bishop)

- Julio C. Gambina is President of the Fundación de Investigaciones Sociales y Políticas, FISYP, Buenos Aires, Argentina.

www.juliogambina.blogspot.com