The global ruling class is caught in the grip of panic and confusion. Until only recently there were hopes that the world’s newly emerging economies – such as China and others that had undergone rapid growth – could offer a way out.
Some economists even talked of a “decoupling”, through which these countries would insulate themselves from the West and avoid recession.
Today even those faint hopes have gone. As swathes of small and medium size Chinese businesses close due to lack of orders, the country’s rulers have been forced to admit that its employment outlook is “grim” and that this could lead to social unrest.
Already many towns and cities report growing numbers of “mass incidents” – the Chinese state’s euphemism for riots and demonstrations.
Professor Joseph Cheng, of Hong Kong’s City University, points out that the legitimacy of the Chinese government is built on prosperity.
“If people see that economic growth can no longer be maintained, then the very basis of the government has been eroded,” he says.
The widening gap between rich and poor in China could make the current problems worse, he adds. “Because of this, the hardships of those who suffer might become unbearable.”
The crisis is by no means restricted to China, as one day last month, 6 October, showed. In Brazil, the powerhouse of Latin American economies, the stock market closed down 5.4 percent.
Trading had been suspended twice throughout the day – in one instance when stocks fell by 15 percent. Stock markets in Chile and Argentina both fell by 6 percent.
Indonesian markets fell by 10 percent after being hit by the withdrawal of huge quantities of foreign investment.
Other countries with large deficits and dependence on foreign money – such as India, Turkey, and the Baltic states – also suffered.
This instability led counties that had been previously regarded as rising stars to scramble to the International Monetary Fund (IMF) too, seeking help to ward off bankruptcy.
Countries including Hungary, Iceland, Latvia, Pakistan, Turkey and Ukraine have sought, or are seeking, a bail out.
Unfortunately the IMF’s money comes with neoliberal strings attached.
The fund demands that recipient countries agree to “open up” their economies to international competition and push through privatisation – usually the same policies that have made their economies vulnerable to crisis in the first place.
Decades of free market policies, such as scrapping import tariffs, and cutting government spending and subsidies, have made developing countries increasingly dependent on the global economy, but less well placed to cope with the fluctuations in the global market.
This fact is well illustrated by the recent crisis of spiralling food prices.
Countries that were pushed to sign up to IMF structural adjustment programmes as the price for financial assistance in the past saw their markets flooded by cheap food imports from the West – decimating local food production.
But this year the price of imported basic foodstuffs rocketed, and millions of the world’s poorest people are going hungry as a result.
The IMF package’s pay-off was supposed to be “export-led growth”, but as the world economy slides from recession into slump many poorer countries that relied on export earnings are being hit hard. They now find that they are forced to spend an ever-greater proportion of their resources on paying the interest on their debts.
In a time of crisis the fragile nature of the weaker developing economies means that investors rush to withdraw their money and minimise their “risk”.
This trend has hit countries such as Hungary and Indonesia particularly hard – both have a large trade deficit and rely heavily on foreign investment.
By authorising a massive bailout of the banks, the rulers in the West have been quick to abandon their old prescription that the market be allowed to do its work.
Unfortunately, there has been no change in their insistence that poorer countries must continue to swallow the free market medicine.
Hungary, the eastern European country worst affected by the crisis, got a $15.7 billion loan from the IMF earlier this month. In return, the IMF demanded “essential upfront measures” that focus on slashing government spending and further “reform” of public services.
Ordinary people in Hungary are well aware of what this means – cuts to wages, pensions and social spending.
Hungary joined the IMF in 1982 and pushed through a number of structural adjustment programmes in return for loans. Several waves of attacks on wages and services followed, leading to soaring unemployment and rising poverty.
Between 1989 and 1993, as the economy shrank by a staggering 20 percent, official unemployment figures grew from zero to 13 percent. In the first half of the 1990s real wages fell by around a quarter.
Today, even before the next round of IMF inspired cuts takes effect, child malnutrition is a growing phenomenon in Hungary and there is a widespread realisation that the free market has failed.
This is a feeling echoed among the millions across the world whose lives are in the process of being destroyed by unemployment and poverty.
The twisted logic of capitalism – which closes factories and throws engineers and steel workers on the dole on one side of the world, while denying others the basic technology that could deliver clean water – is apparent to all.
The hope must be that anger at the scale of economic destruction can be turned into a protest movement so powerful that the rule of the rich and their market can be ended.