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  Straits Times 2 Nov 07
All that is solid melts into air
By Janadas Devan

'THE need of a constantly expanding market for its products chases the bourgeoisie over the whole surface of the globe. It must nestle everywhere, settle everywhere, establish connections everywhere. The bourgeoisie has through its exploitation of the world market given a cosmopolitan character to production and consumption in every country...It compels all nations, on pain of extinction, to adopt the bourgeois mode of production; it compels them to introduce what it calls civilisation into their midst, that is, to become bourgeois themselves. In one word, it creates a world after its own image.'

That prescient forecast of how capitalism was bound to triumph was not written by a 21st-century neo-liberal celebrant of globalisation. It was written by Karl Marx and Friedrich Engels in their famous 1848 Communist Manifesto. The pair got a great many things wrong, but they were right about one big thing: Capitalism will ensure that 'all that is solid melts into air'.

And what an extraordinary number of things has melted in the 160 years since Marx and Engels penned their manifesto. Colonial empires have disappeared, technology has abolished distance, global markets have smudged national boundaries, poverty has been eradicated in many parts of the world, most nations have been forced 'to adopt the bourgeois mode of production' - and the polar ice caps are literally melting as a result.

The Arctic ice cap, scientists reported recently, is shrinking at a faster pace than they had expected. 'On Sept 16 this year, when the sea ice reached its summer minimum, there were about one million fewer square miles of ice than average,' the New York Times reported.

This suggests that the dire effects of global warming may well occur sooner than scientists had previously predicted. Vast river systems, sustaining hundreds of millions of people, may dry up as the glaciers that feed them disappear. Sea levels may rise as ice in Alaska, Siberia, Canada and Antarctica melt, threatening the lives of hundreds of millions more. The resulting migration of vast multitudes, in search of water and sustenance, may result in terrible conflicts.

In the meantime, there are the other problems of triumphant capitalism. Global warming is a long-term problem. In the medium term, we have income inequality and environmental pollution, among other things. And in the short term, we have periodic financial market upheavals that ricochet from one end of the world to another at astonishing speeds.

Income inequality is essentially a by-product of a very good thing - rapid technological change, as former US Federal Reserve chairman Alan Greenspan noted in his recent memoir. But income inequality also threatens the very system that makes possible that rapid change. An increasing number of people in the United States, seeing their incomes drop, feel that being plugged into competitive global markets does them no good. People elsewhere, including in Singapore, may come to feel the same way.

'Competitive markets and, by extension, globalisation and capitalism cannot be sustained without the support of a large proportion of society,' Mr Greenspan warned.

Environmental pollution too is the by-product of a very good thing - rapid economic growth. But pollution also threatens the very system that caused it. Chinese leaders, for example, have acknowledged that this is so and are desperately trying to counter the threat. China's 'economic miracle may end soon because the environment can no longer keep pace', warned Mr Pan Yue, a vice-minister of the State Environmental Protection Administration, in 2005.

Other rapidly developing countries, including India - and along with them, the world, for pollution does not need passports to cross borders - will also learn this bitter lesson.

Global financial upheavals form yet another by-product of a very good thing - global market integration. The most remarkable thing about the sub-prime mortgage crisis in the US today is that few saw it coming. Financial instruments have become so complex that even the experts do not understand them.

An excellent Wall Street Journal article last month on dicey off-the-books Structured Investment Vehicles (SIVs) that major banks had established to hold mortgage-backed securities, reported: 'Mr Nazareth Festekjian, a 15-year Citigroup veteran who runs a group that deals with unusual situations...hadn't known what an SIV was until he received a call several weeks earlier from a government contact asking him to work on a solution' to the crisis. US Treasury officials hardly knew more than he did.

All these - global warming, income inequality, environmental pollution and global financial upheavals - represent crises of complexity. What are we going to do about them?

The first thing to note about these various crises is that the market alone cannot be relied upon to solve them. A clean environment, social stability, financial regulation are commons: Everyone benefits from them, but markets do not have an incentive to provide them. Only governments, acting on behalf of the common good, do. Only governments can deal with crises of complexity.

The last long period governments did not intervene to smooth out the effects of capitalism - from around the time Marx and Engels issued their Manifesto to the Great Depression of 1929 - there was great upheaval under heaven. Vast inequalities among and between various peoples led to revolutions, violence and wars.

The income inequalities seen today in many advanced economies cannot be solved without concerted government action - preferably, without weakening the incentives for people to work, upgrade their skills and better themselves.

Similarly, environmental degradation and global warming cannot be avoided without the coordinated and concerted actions of governments, within and across national borders - preferably, using market incentives to encourage the development of clean-energy sources and to reduce pollution.

All that is solid may melt into air unless there is a new progressiveness, leading to a reinvogarated vision of government, in both developed and developing states.

Marx and Engels were not wrong about everything.
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