The capitalist world is in turmoil, with widespread financial crisis, bankruptcy of the largest investment and insurance corporations, massive injection of state funds to avert banking collapse, stock market declines world wide, capital flight, and the onset of economic recession in the US and the Euro-zone. The US is in recession and the Euro-zone’s expected 2009 growth rate has been revised down from 1.9 to 0.1 percent. There is downturn in employment in countries closely integrated through trade with these industrial regions, especially in China. A number of countries have already seen capital flight and currency depreciation of such severity that they have been forced to turn to the IMF (Iceland, Ukraine, Pakistan ) or enter into emergency financial arrangements (Hungary, South Korea). Many observers call it the severest crisis since the Great Depression. Reportedly world leaders are pouring over the works of not only J. M. Keynes but also of Karl Marx in a desperate search for a way out.
There are certainly many points of similarity of the present situation with that in the late 1920s. A recession in world agriculture from 1925 preceded manufacturing slowdown and the 1929 stock market crash, similarly there has been agrarian depression in the developing world for a decade before the 2008 crash. However this pervasive agrarian depression has been entirely ignored by economists, who cannot see the connection between increasing poverty in the global South, and the world of high finance. Another point of similarity is the undermining of the position of the world capitalist leader. From the mid-1920s Britain, the then capitalist leader, found it increasingly difficult to maintain external lending to support growth abroad while keeping its own markets open to imports. The US, the present world capitalist leader similarly finds its position severely undermined: it is unable to shore up demand in the world by keeping its own market open and expanding at an adequate rate. Despite borrowing massively from other countries to sustain its import-dependent consumption it is now unable to avoid domestic recession. This is the stuff of serious crisis, when the capitalist leader can no longer lead effectively, and there is no substitute leader or set of institutions in sight.
Who will emerge as the world leader on the economic crisis? But do not worry, the government is here to help! (sarcasm intended)