NAVIGATING THE NEW WORLD ORDER - JEYAKUMAR DEVARAJ

08 March 2020

THE world order is changing. In fact it has continually been changing over the past 300 years due to the interplay of, among others, the expansion of capital throughout the world, the explosive growth of human technology, the conflict amongst the capitalist nations, the attempts of the USSR (up till the mid-1980s) to build a socialist block, the anti-colonial struggle, the struggle for universal suffrage, the Women’s Liberation movement and Third World national liberation movements fighting for a more egalitarian social order.

Over the past 30 years, three major changes have taken place across the world. The first among these is the implosion of the Western “middle class” which from the 1960s till the 1980s comprised not only the small businessmen, professionals and the managerial class but also a significant portion of the organized working class in the advanced countries of Western Europe, Japan and North America.

Paradoxically, it was the victory of the West in the Cold Paper presented at Socialism Conference in Kuala Lumpur in December 2018. War that has led to this implosion. The collapse of the Soviet Union in 1989 and the demise of a vastly different (albeit flawed) economic alternative to global capitalism meant that capital was able to move freely out of it’s safe havens in Western Europe, Japan and North America. This resulted in massive off-shoring of production to the Far East, China and the ASEAN region as global capital leveraged on the low wages in these regions to amass super profits. This off-shoring weakened the bargaining power of the working class and greatly undermined the union movement in the West. The conditions of employment of the blue collared working class in the advanced countries therefore deteriorated markedly and so did their share of national income.

This massive off-shoring of industrial production to China, Vietnam and other countries in the Far East and ASEAN led to the creation of super surpluses as the rate of exploitation of labour increased dramatically. A large share of this huge surplus went to the few hundred giant multinationals that control the technology and the marketing chains throughout the world – the so-called “supply chains”. However a smaller share of this surplus accrued to the governments and to the national bourgeoisie who collaborated with Tax evasion gets easier when one is super-rich! 11 the MNCs in the production of these enormous surpluses. This is the second important aspect of the recent changes in the World Order. The industrial capacity of the receiving countries – China, Vietnam, India – has increased by leaps and bounds. Their infrastructure has been modernized and there been significant technological transfers to the newly industrializing countries of Asia which now are rapidly acquiring the capacity to themselves pioneer new technological breakthroughs whether it be in artificial intelligence, biomedical research or rocket launchers for satellites.

In the meantime, the large MNCs prevailed on the governments of their home countries (largely the advanced countries) to use multi-lateral institutions like the WTO to liberalize global financial regulations to break down trade barriers (making it more difficult for developing countries to develop independent industrial capacity), make it easier for the MNCs to invest wherever they want, repatriate profits as they wished, create stronger monopoly rights over their “intellectual property rights” and enact measures to diminish the power of governments to discipline them (the ISDS mechanism). Much of these measures were couched in the argument that it is for the common good – that trade is good for all, that foreign investment in beneficial to the host country, that unhindered flow of capital is desirable and that the way forward is to develop a rules based system (the fact that these rules favoured the global super-rich was left unstated!).

The financial liberalization pushed through by neoliberal politicians and economic planners in the advanced countries has made the offshoring of profits easier. This is the third important aspect of the recent changes in the global economy and it has resulted in a drop in corporate tax collection the world over. In Malaysia our corporate tax has dropped from 40% of profits in the mid-1980s to its current 24%. Lim Guan Eng, our Finance Minister apologetically promised at the latest budget that Malaysia plans to reduce corporate tax rates even further in future budgets so as to keep up with Singapore (currently 18%) and Thailand (19%).

The constraints that nations face in taxing their corporations and the richest 1% has had the following consequences:

– The growth of budget deficits and government debt. Malaysia’s sovereign debt is now RM725 billion (June 2018) or about 51% of the Malaysian GDP. Interest payments on this debt will come to RM33 billion in 2019, this more than the total Federal Health Budget for 2019!2 The sovereign debt of UK is 86.6% of the UK GDP, Germany 64.1% of German GDP in 2017, USA 77% of US GDP in 2017 and Japan 254% of GDP.

– The institution of consumption taxes that burden the general public. More than 160 countries have implemented these at various rates – Singapore is at 7% while the VAT in Germany is 19% and in Sweden 25%. These taxes are regressive in that they constitute a much larger portion of the income of the poorer sectors of the population because these sectors consume a larger proportion of their income while the richer families either save or invest a large portion of their income (thus avoiding the consumption tax).

– Developed countries have been forced to reduce welfare benefits because their budget deficits do not permit them to be more generous.

– The capacity of national governments to engage in counter cyclic spending should a recession develop has been constrained by their huge sovereign debt. This means that usual Keynesian measure of “pump priming” is now more difficult to pull off. This makes the global economy even more vulnerable to serious contractions of aggregate demand.

– The growing income disparity between the top 1% and the rest of us. The sequestration of so much wealth in the top 1% has meant that the growth of aggregate demand cannot keep up with the growth in investment capital as the former depends on the 99% while the latter comes from the top 1%. So growth in the economy remains sluggish.

The declining economic situation and eroding living conditions of the white “middle class” in the US was a major factor propelling the rise of Trump with his promise of “Making America Great again”. Trump is a product of 12 the economic malaise affecting the advanced nations comprising the G7.

Trump – The Wrecking Ball

Trump has taken the position that the current world order is unfair to the US and that the US is being bullied by other nations through unfair treaties and international arrangements. He wants to tear up all such “unfair agreements”. He has refused to ratify the TPPA Agreement, questioned NAFTA and has taken the US out of the Climate Accords claiming that much of it is made up to disadvantage the US. He has commenced trade sanctions against China alleging that its trade surpluses with the US are due to unfair practices and that China has been “stealing” US technology and not paying for technology transfer. In effect he is challenging many of the multilateral agreements put together by neoliberal economists and politicians over the past 30 years.

But let’s be clear about this, he is not challenging the neo-liberal consensus of the past 30 years from a left or even a social democratic perspective. He is not calling out the super-accumulation of wealth by the global elite which comprises less than 0.001% of the population3 . Nor is he attempting to shift the distribution of income towards the 99% by strengthening the social safety net. Far from it! He has lowered the corporate tax rate in the US to 21% of profits, a big reduction from the 35% levied previously, and has waived penalties for previous attempts of tax evasion. He is trying his best to dismantle Obama Health Care. He has liberalized regulations regarding oil exploration and drilling.

His actions on the economic front seem to be predicated on the belief that excessive regulation by the government has suppressed the American entreprenual spirit. So what is required now (according to Trump) is to remove these troublesome regulations and allow American businesses to flourish as that will create wealth, economic growth and jobs – and make America Great Again. I would classify Trump’s economic policies infantile hyper-neoliberalism. “Neoliberal” because it seeks to remove all restrictions on business whether these restrictions are taxes, environmental regulations or international rules and regulations. “Infantile” because he willfully disregards any argument contrary to his stance – he does not engage in rational discourse but just flatly rejects even scientific predictions (eg on climate change). There is no doubt that his policies will exacerbate the situation of the bottom half of the US population including the white former industrial working class.

Trump may a buffoon, but he is an extremely dangerous one! There is the ever present danger that Trump’s “bull in a China shop” model of diplomacy might inadvertently result in armed conflict with Iran, North Korea or even Russia. And there appears to be very little that ordinary citizens in other countries can do to reduce that risk! Let’s hope that there are enough checks and balances within the US and the international system to prevent those conflicts from developing. The consequences of armed conflict involving nuclear armed states are quite dire!

China in the 21st Century

China is one of the bogeys that Trump has created to drum up support for his right wing populist policies. (The other bogeymen are Mexican, Manufacturing Jobs (% of Total) 13 non-white immigrants, Muslims and closet socialists in the US who are supporting Obamacare).

China has benefited greatly from the off-shoring of industrial production to China. To be sure, the MNCs that relocated production to China were no closet socialists with a hidden agenda of propelling China into the position of an economic super power – already China’s GDP exceeds the US’ if the higher prices of goods and services in the US is factored into our calculations. The MNCs have expropriated a major portion of the surpluses obtained from producing cheaply in China for the US and EU markets and they have made huge profits. But a significant portion (perhaps 30% – and this is my guestimate!) of the surplus was appropriated by Chinese actors. The government managed to appropriate a portion and use it for massive infrastructure improvement. There are now a few hundred dollar billionaires in China4 and thousands of dollar millionaires – they are the emerging Chinese bourgeoisie, many of who collaborated with the MNCs, but are now sufficiently empowered to strike out on their own. But there is also a huge industrial working class that has grown under oppressive conditions and which is already resisting its super-exploitation!

Trumps sanctions on Chinese exports to the US will tend to raise the costs of consumer goods in the US. This will probably lead to substitution by goods imported from other lower cost producers such as Mexico, Vietnam and Malaysia. It is unlikely that the trade sanctions are going to promote import substitution within the US and significant growth of employment growth in the US as there are other low wage countries that can fill the demand for these goods, and the MNCs which control the supply chains will utilize these alternative countries.

 It also appears quite unlikely that US sanctions will bring China to its knees! The proverbial cat is out of the bag! The past 40 years have led to the massive development of China’s industrial capacity, technological expertise and infrastructure. No amount of sanctions can undo these advances. Of course, the loss of the US markets will be a major challenge to the Chinese regime, as China’s total exports in 2017 came to USD2.26 trillion or 17% of China’s GDP (nominal). Of this 2.26 trillion, USD 0.5 trillion were exports to the US. US trade sanctions will hurt, but China will come out of this confrontation even stronger as it has a huge domestic market and a well-balanced industrial sector.

Trump’s sanctions will probably have the unintended effect of forcing China to disengage economically from the US and maybe the EU as well. A downturn in the economy due to loss of the US export markets and the resulting spike in unemployment will be profoundly destabilizing for China. It is unlikely that the Chinese government will allow that to occur. It is probable that the government will adopt Keynesian policies and legislate that wages be increased across the board in China so that aggregate demand, economic growth and employment opportunities are maintained. That might also help to reduce class tensions in China – China’s huge proletariat that is labouring under oppressive conditions is getting increasingly restive, and it is being supported by youth who are armed with Marxist concepts. The Chinese state does have a much tighter grip on power than the average state in Europe, but it may see the wisdom of attempting to co-opt the industrial proletariat by moving towards a West European type of Welfare State.

China will also try to increase its markets in the rest of Asia, Africa and in Latin America. (The late Samir Amin argued that developing countries need to form regional blocs and “de-link” from the exploitative “Triad”) It appears that Trump’s antics might accelerate that process which might over the next 20 years see a more independent and economically more resilient China!

What Does All of This Mean for Malaysia and Other Developing Countries?

In the short run, there might be a recession as the Trade War between the US and China takes effect. A significant portion of Malaysia’s ex- 14 ports to China are part of supply chains that end in the US or EU consumer markets.

– But we might see relocation of industries from China to ASEAN so as to circumvent the sanctions. The potential benefits to ASEAN member economies can be augmented if there is an ASEAN wide agreement to abstain from the race to the bottom so that we can together bargain that a larger share of the value added in ASEAN countries accrues to ASEAN either as wages or as taxes.

– If China decides to adopt a policy of stimulating aggregate demand by mandating wage increases across the board in China, it will create room for the ASEAN countries to do the same so as to deepen the regional ASEAN market and wean ourselves off the ailing consumer markets of the West. We need to mobilise our societies around this demand.

– The questioning of the neoliberal consensus by Trump opens the door for the developing countries to renegotiate other aspects of this “consensus” including

  • conditions for capital transfer in and out of countries
  • provisions for companies to pay taxes to countries based on the actual creation of value in that country. Loopholes that allow companies to under declare their earnings must be identified and closed.
  • the closure of tax havens
  • the renegotiation of Intellectual Property Rights from the standpoint that human knowledge represents our collective commons. Rich companies cannot be allowed to ring fence what is actually the product of human effort and ingenuity through the ages!
  • Better balance between the growth of investment capital and the growth of aggregate demand. ie Better wealth distribution
  • The right to work. Which means available work has to be shared with everyone by reducing the duration of the working week. But the hourly wage rate needs to go up many times over for workers to sustain themselves and their families. This means that the rate of profits have to be reduced.

Malaysia is already active in various international fora – we are a vocal member of the “Like Minded Developing Countries”5 in the Climate Change negotiations for example. We need to continue these initiatives and might find that significant portions of the populations of the advanced countries are with us on some of these issues as they too are now on the receiving end of capitalistic greed!

The “unipolar world” of the past 30 years is going to become more multipolar as China and the other members of BRICs grow economically and this will increase policy options for smaller developing countries. But we must not imagine that it will re-create the situation of the post World War II period where the existence of a non-capitalist USSR created significant policy space for developing countries. China today is a far cry from the USSR of that period. It would be unrealistic to hope that Chinese capitalists will be more benign and more progressive than US, EU or Japanese capitalists.

And What of the Malaysian Left?

There are a lot of opportunities for the Left the world over, as the deficiencies of uncontrolled capitalist development are so clear for all to see. Objectively speaking we should be well placed to put forward an alternative narrative, rally people around us and make a bid for state power. But are we equal to this task?

One of the important prerequisites for gaining political traction would be to convince people that we have a workable, realistic alternative that is better for the 99% than the programme being put forward by the Pakatan Harapan government. And this alternative we are proposing must seem WORKABLE and reasonable in their eyes. But all too often we see slogans from a different era about smashing the capitalist state which some in the anarchist fringe would identify with, but which does not at all impress the majority that the Left has a workable solution. And we still hear calls from some progressives influenced by the analysis of the Labour Party analysts from the 1967 - 1969 period (when many of the more seasoned Labour Party leaders were detained) that the struggle for cultural equality should be elevated as the prin- 15 cipal objective of the progressive movement in Malaysia at this point in time.

If we want to move our agenda forward in Malaysia we need to answer some crucial questions honestly. Questions such as

  1. Can Malaysia to disengage from the global economy to pursue an independent “socialist” economy given that we are so deeply integrated into the global economy – the value of our exports is about 70% of our GDP! And there is no longer a Soviet bloc that will be prepared to accept all our exports.

– Or do we have to formulate a trajectory where we have to, for the immediate future at least, remain within the global capitalist system, while trying to redistribute income to the poorer half of the population and create democratic spaces for people to learn and practice the skills necessary for self-governance? And at the same time work in multi-lateral international institutions to control transfer pricing, tax evasion, regulate capital flows and reclaim knowledge as the common property of humankind.

  1. How do we overcome 60 years of race based politics and build a multi-ethnic people’s movement that will provide both the electoral and the popular support for the changes we want to bring?

– Would classifying cultural oppression of the minority ethnic groups as the “Primary Contradiction” help us in building this broad multi-ethnic movement of the Malaysian Marhein? Or would we be shooting ourselves in the foot?

  1. What is our position on Political Islam? (This question has been around since the time of Tan Malaka who argued in the mid-1920s that the Left needs to accommodate political Islam if it wishes to make headway in the Malay Archipelago.) Are we going to insist that our People’s Movement must be completely “secular” given the reality that in a survey in 2017, more than 70% of Malays answered saying their religion, Islam, is a more important component of their identity than ethnicity or nationhood?

– Or do we recognize that upholding Islam can be a legitimate component of an anti-imperialist stance, and that there are different strands within political Islam, some of which are more tolerant of diversity and are based on universal principles, and try to work together with the more progressive strands?

  1. Working within the capitalist system creates many “moral hazards” for individual leaders as well as for the party as a whole. What can we do to reduce the risks of being coopted by the corporations – what are the institutional measures we can adopt that will serve as a check and balance for our leaders and for ourselves?

A discussion of these 4 topics has been underway in the PSM ever since its inception 22 years ago, and we are slowly getting some clarity on these issues. But there are still many divergent views among others in the larger Malaysian Left.

We in the Left really have to get our act together if we want to make an impact on the political process in Malaysia. As Marx said, “the point is to change the world”. The crucial question is – how do we engage with our people such that we can build the critical mass to together steer our society towards a better future?

Endnotes

  1. A good exposition of this subject can be found in John Smith’s Imperialism in the 21st Century. Monthly Review Press.
  2. Malaysian Treasury Website
  3. As of 2018, there are over 2,200 US dollar billionaires worldwide, with a combined wealth of over US$9.1 trillion, up from US$7.67 trillion in 2017. According to a 2017 Oxfam report, the top eight richest billionaires own as much combined wealth as “half the human race”. Wikipedia Nb: 2200 is 0.000031% out of 7 billion.
  4. China produced 2 new billionaires a week last year according to Swiss banking giant UBS. Star 27/10/2018.
  5. In the United Nations Framework Convention on Climate Change discussions, the countries that grouped themselves under the “Like Minded Developing Countries” tag were Algeria, Bangladesh, Bolivia, China, Cuba, Ecuador, Egypt, El Salvador, India, Indonesia, Iran, Iraq, Jordan, Kuwait, Malaysia, Mali, Nicaragua, Pakistan, Saudi Arabia, Sri Lanka, Sudan, Syria, Venezuela and Vietnam.

(Jeyakumar Devaraj Member of Socialist Party of Malaysia (PSM) Central Committee. Paper present at Socialism Conference in Kuala Lumpur in December 2018)

The Communist movement in India has a history of almost a century after the salvos of October Revolution in Russia brought Marxism-Leninism to the people of India who were engaged in the national liberation struggle against the British colonialists. It is a complex and chequered history.