Global supply chain logjams and global credit/financial crises aren’t bugs, they’re intrinsic functions of Neoliberalism’s completely financialized global economy.
To understand why the worldwide economy is unraveling, we have to look past the headings to the primary dynamic of globalization: Neoliberalism, the ideological orthodoxy which holds that introducing market dynamics to sectors that were closed to global markets generates prosperity for all.
This is known as Neoliberalism, as liberalizing markets means opening up sectors that had actually formerly been restricted. Neoliberalism holds that worldwide market forces introduce effectiveness and opportunities that then pave the way for development. International market forces consist of not simply new buyers and sellers of products and services but the introduction of vast brand-new markets for credit and risk that far exceed what was available in local marketplaces.
So far so excellent: opening markets develops effectiveness and prosperity, blah blah. However the genuine dynamic behind this happy-story shuck-and-jive is unprecedented prosperity for those with access to affordable credit produced out of thin air by reserve banks.
In other words, introducing market forces results in the dominance of those who manage those forces– banks and corporations. Once a regional economy is exposed to global capital, those with the most expansive access to the lowest-cost credit can outbid regional purchasers, snapping up the most efficient properties and controling the regional economy to their own advantage.
Since the core system of Neoliberalism is access to affordable credit, Neoliberalism concentrates monetary power and risk in a handful of financial nodes which every market participant unwittingly becomes depending on. When a developing-nation village was mostly self-reliant and not exposed to global markets, it was mainly untouched by worldwide monetary crises.
But once the town went into the worldwide market via credit-fueled tourist and development funded by worldwide capital, the sudden contraction of credit in a worldwide financial crisis is ravaging. Because the village has become based on tourist, its self-sufficiency has actually been replaced by a reliance on incomes from tourist and access to products provided by international corporations.
Now that the village is dependent on earnings, credit and international goods, it is exposed to potentially disastrous risks that are completely out of its control: the collapse of credit, the closure of foreign-owned hotels and the vagaries of currency decline, which may trigger the purchasing power of their incomes to drop greatly.
Even more perniciously, the flood of global credit cleaning into the town offers the attracting possibility of buying previously unattainable products on credit. Worldwide sourced products such as motorcycles end up being affordable in monthly installations once the employee deserts farming and takes a wage-paying job at a foreign-owned hotel.
The teleology of Neoliberalism— every human activity should be developed into a market exposed to worldwide credit markets–can not be reversed as soon as a partially generated income from (i.e., a loosely bound system) economy is completely financialized (i.e., a tightly bound system). There is no going back to a localized economy due to the fact that global markets rapidly change decentralized regional marketplaces with markets that are dependent on worldwide chokepoints.
In systems terms, loosely bound systems are adjoined by point-to-point links that do not share centralized nodes. A timeless grid of streets and streets is an example. If one street is obstructed, there are lots of alternative routes to link two points in a town. In economic terms, loosely bound markets have multiple providers and customers, each of which is independent of each other.
Loosely bound markets are structurally versatile and versatile– what Nassim Taleb terms anti-fragile— and intrinsically steady due to their several decentralized connections. Picture a semi-random plan of dominoes: some are close together, others are far apart, some face north, others deal with southwest, etc. If one domino falls, it’s unlikely to overturn more than a couple of others.
On the other hand, tightly bound systems link all points through centralized nodes. An example is three lines of dominoes that converge in several locations– nodes in the system. If one domino in any line falls, it will topple every domino in the entire system. Firmly bound markets run materials, credit and deals through central nodes; there are few if any point-to-point links that do not pass through a central node.
Securely bound markets are thus exceptionally vulnerable to any disturbances in any node. This system might be optimized for profitability, but it is naturally fragile and susceptible to collapse due to the reliance of every point on tightly bound nodes: if one node fails, the whole system logjams.
To summarize: Neoliberalism creates systemic fragility by arranging what were once decentralized, redundant connections through credit/trade nodes controlled by elites. Global supply chain logjams and worldwide credit/financial crises aren’t bugs, they’re integrated functions of Neoliberalism’s completely financialized worldwide economy.
The unraveling we’re seeing is simply getting going. The very first dominoes have actually fallen, and there’s no going back to the artificial stability that was offered as irreversible stability. Instability and collapse are the unavoidable outcome of the system’s structure.
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