Stabilisation is worse than depression
Russian officials have become optimistic again. Russia’s President Dmitry Medvedev criticizes his Minister of Finances Alexey Kudrin in public because he said that Russia’s favorable economic trends had become a thing of the past, and the Central Bank representatives joyfully speak about the growth of gold and currency reserves.
Russian officials have become optimistic again. Russia’s President Dmitry Medvedev criticizes his Minister of Finances Alexey Kudrin in public because he said that Russia’s favorable economic trends had become a thing of the past, and the Central Bank representatives joyfully speak about the growth of gold and currency reserves. Everybody is inclined to believe that the crisis will not get deeper any more and that long-awaited economic recovery is just on the point of starting.
This optimism as well as currency reserves are nourished by the same resource – oil price that grows and is about to reach $60 for a barrel.
One would think that the last year experience should make it clear that this tendency is bad for us. The raw materials prices growth could be considered to be a serious long-term trend if the world industry grew and if fuel was more and more in demand. But fuel is in less and less demand, which is aggravated by the price increase. In other words, the price increase throws the world and Russian economy into depression.
The prices come up on the speculative basis, the stockbrokers redistribute and misappropriate the money allocated by the governments within the framework of different anti-crisis programs. This money does not reach the real sector. All over the world the same things happen: the demand slackens, people lose their jobs. It is the key industrial goods, for example cars, that are in catastrophically poorer and poorer request in Russia.
When operating for a rise, the raw materials and financial markets speculators do the things that have already led to the current crisis, they continue to kill the economy.
We deal with a classical market economy irony, which Karl Marx noted: not only don’t short-term actions coincide with long-term ones, but also the former is in contrary to the latter. However the players should be guided by short-term factors, otherwise they are losers. The speculators controlling the raw materials markets are interested in the price rise. Operating for a rise is easier and more advantageous than the attempts to make money when the prices are tumbling (although it is also possible technically). The money goes from the real sector. Sooner or later the slump, which destroys the industry and worsens the consumption, will make the prices plummet and the uncontrollable collapse will start. It is impossible to win while playing against the reality, but in the short term it is possible to make a fortune.
The crisis shows how bad the system is, in the long run the whole mechanism of the exchange trade can suffer from the crisis and the trade would be replaced by direct supplies and long-term contracts coordinated at the intergovernmental level. However this requires that at least some of the community planning be introduced into the world and national economies. This issue was in many respects solved after the Second World War and ironically the Soviet planned economy was an important factor of stability and predictability of the entire world economy, thus assuring the stable demand and supplies over the long term. But now that the mixed economy became a thing of the past, the market demonstrates its destructive force.
The main lesson that the governments have to learn from the crisis is that there is a need to stop the stockbrokerage in the goods markets. This stockbrokerage is a very powerful factor of exhausting the real sector. It aggravated the disproportions between demand and supply and stimulated the inflation processes. The strategic raw materials and food trade should be removed from the exchange and should be regulated by the long-term intergovernmental agreements.
However, for that we have to go through quite a few convulsions without which the lesson would not be learned. For the time being the anti-crisis measures seek to help those responsible for the crisis. They make it possible to hurt the society at the expense of investing extra money when such activities came to be less intense. The international and national anti-crisis campaigns not only do not remove the reasons for the slump, but, on the contrary, strengthen them. The “anti-crisis” policy is an important factor of making the crisis deeper and longer.
The stabilization risks turning into “another wave” of dismissals, bankruptcies and shutting down enterprises, after which no stockbrokerage could prevent the oil prices from coming down, curb inflation and prevent the bank depositors from panicking.
The only good piece of news is all of that can be predicted.
Please, don’t say that you were not warned!
© Copyright 2004-2008 Eurasia Heritage Foundation
Boris Kagarlitsky, socio del Transnational Institute, es el Director del Instituto para el Estudio de la Globalización y los Movimientos sociales de Moscú. Su ultimo libro es Empire of the Periphery: Russia and the World System (2008).