Capitalism as a system transcends borders, and so does the latest capitalist crisis. Sometimes pictures tell a story better than words. A brilliant animated cartoon appeared this summer on youtube, illustrating a lecture by CUNY-based British social theorist David Harvey in which he outlines his explanation of the 2008-20xx economic crisis.

Harvey’s analysis of the structural politico-economic origins and mechanisms of the crisis is poignant. The witty animation brought to life by the RSA is a true delight, regardless of what one may think of his arguments. A certain part of Harvey’s narrative caught my eye in relation to microfinance (more below). But first, let me briefly recap his story (in an unduly simplified manner). Harvey says:

There are five common explanations of the crisis, all of which are somewhat true:

[1] It stems from human nature – predatory instincts, greed, etc.

[2] The regulators failed, therefore institutions need to be reconfigured.

[3] Everyone believed in a false theory – forget Hayek, return to Keynes!

[4] It has cultural origins – homeowning-obsessed Americans and lazy Greeks, your fault!

[5] It’s a failure of policy – too much regulation of the wrong sort.

Amidst all these stories, the Queen of England got very confused, called the Bank of England for an explanation, and received a letter back saying, “The one thing we really overlooked was systemic risk” – which, in fact, is the same as blaming the internal contradictions of capital accumulation.

So, actually, the form of this crisis is dictated by how the last capitalist crisis (1970’s) was overcome. With labour  disciplined by Thatcher and Reagan, by the late 1980’s capital could reign freely. Now, nobody blames the excessive power of labour. Instead, we seen an excessive power of finance capital.

This power imbalance led to global wage repression (even in China). That in turn causes a lack of effective demand for the goods produced. How to solve this problem? Extend universal credit!

… And that’s where I stop spoiling the video for you, and come in with a small comment on how the global spread of microcredit fits into Harvey’s picture. He spells out :

So, if you diminish wages, where is your demand going to come from? And the answer was, well, get out your credit cards. We’ll give everybody credit cards. So we’ll overcome, if you like, the problem of effective demand by pumping up the credit economy.

The debt crises of developing countries in the 1980s were understood by International Financial Institutions like the IMF and World Bank as the result of too high wages and low productivity. Structural Adjustment Plans (SAPs) were aimed at “freeing down” wages to “competitive” levels. One usual element of SAPs was the extension of microcredit, which if we believe Harvey, would not only have been aimed at making SAPs more bearable for the poor, but also at bouying effective demand for local and foreign products and services. The ensuing transnationalisation and commercialisation of microcredit in turn opens up a gate through which excess finance can be put to innovative new uses, and the poor brought into the process of accumulation.

As we have seen from the latest crisis, credit brings with it an inevitable transferal of risk onto the borrower, and in the last instance, onto the general public. The winner, in this case, is the financier. As Harvey explains the innovative capacity of finance:

Actually, if you look at the accumulation process of capital, you see a number of limits and a number of barriers … [but] capital cannot abide a limit. It has to turn it into a barrier which it then circumvents or transcends. … The whole history of capitalism has been about financial innovation. And financial innovation has the effect of also empowering the financiers.

As to how that pertains to microfinance, I’ll leave without a comment. Maybe someone else has thoughts on this?

In any case, I hope I’ve persuaded you to watch the video. For me, at least, watching it was some 11 well-spent minutes of my life. Enjoy.

(phil)