August 2011        

International investors on strike in the west


The first week of August has been noteworthy in again bringing to the surface the underlying structural weakness in western capitalism. This has been most notably evident in market responses to the continued euro-zone crisis and investment fears surrounding the “spread of contagion” to the European “core.”
     Despite political attempts by the EU, costing billions of pounds, to convince international investors that sovereign debts are sorting themselves out, investors continue to demonstrate an unwillingness to invest without securing excessive interest rates in exchange.
     The weaknesses in western capitalism have been further illustrated in the response of investors on the Dow Jones this week in regard to that second great malaise, the continuing stagnation of the American economy. The capital-rich financial class, who control vast stocks of money, have come to realise what a bad bet they made on an economy that is now likely to face a period of prolonged austerity.
     Yet while sitting on capital reserves in the west, international investors are putting their money into various safe-haven currencies overseas, such as the yen and the Swiss franc. Investment has also shot up in what has become something of a new speculative bubble in recent months, gold.
     But principally western capital, while on strike in the west, is fully active in the east and the developing market economies. Western capital is flowing into Asia and Latin America, investing in countries that are producing the goods that the west in turn is consuming. However, these countries are in such a strong position that they simply don’t need the west: they can simply allow their currencies to appreciate and consume their own production. They may in fact seek to exercise capital controls, as they are receiving too many inflows from the west.
     The control of capital is something that progressive forces are advancing as one option for a way out of the current malaise. Western societies need to curb the outflow of capital and tap into the reserves of an investment class who are sitting on cash mountains.
     This is the alternative to the present stratagem of taking money from societies’ lower and middle-income workers in pursuit of an austerity programme that is simply not working. Alongside a negotiated default of socialised private debt, governments could invest on their own account in transport, infrastructure, education, and housing, which would actually restore prosperity and lower the deficit.
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