STABLE INSTABILITY

History shows that the development of the economy has a cyclic, not an even-progressive nature. The economy regularly experiences a decline, depression, revival and growth. Every cycle lasts 55 years, 10 years, and two years and four months respectively. Therefore, economic growth has some sort of consistency. An economy hat is in the lowest phase of the cycle - a crisis - is characterized by overproduction, a slump in prices and revenues, mass bankruptcy of businessmen, a decline in investments, a cut in the volume of production and reserves, a decline in demand for labour, unemployment among a considerable part of the population, falling salaries and a slump in the rate of shares.

The first economic crisis occurred in 1825 in Britain, and the second one in 1836 in Britain and the USA. The world has seen 22 crises, including 19 global ones. The last major crisis that affected first of all the financial sector occurred in 1997-98. At the same time, it must be noted that these were crises of major manufacturers. They demonstrated the durability of small and medium-sized businesses due to their higher ability to adapt to the changing situation on the market. With globalization, crises started covering the whole world economy - crises became global (financial, energy and so on). Globalization changed the structure of the world economy and predetermined the rapid development of financial markets (currency, shares and credits). If several decades ago, the main purpose of financial markets was to ensure the functioning of the real sector of the economy, in recent years the world financial market has started demonstrating its self-sufficiency. As a result, today we see a growth in the volume of this market by several times, which is a result of the wide spectrum of speculative operations with diverse production and financial instruments such as futures and options, as well as playing on the difference in the rates of world currencies. Speculative operations with financial instruments turned into the most profitable type of business. Today only 10 per cent of all financial operations on the international currency market service foreign trade.

The colossal scale and turnover of the international financial market really poses a serious danger to the world economy. Large masses of speculative capital that freely moves around the world can easily enliven and bring down the financial system of almost any state. Modern history knows many examples of this. This is the collapse of British currency caused by speculative operations by the George Soros Foundation and the latest Asian crisis. The redistribution of resources in the world economy from the production sector to the financial sector, in other words from the real sector to the fictitious sector, which has been going on for the last 25 years, was accompanied by numerous sectoral and local crises.

Alas, sooner or later, we approach the absolute limit of redistribution when it is no longer possible to subsidize the speculative economy by reducing expenses in the real sector.

The money flow that has fallen upon national economies today is above all related to the fact that there are fewer spheres left in the world economy where it would be possible to make rational and profitable use of means. The speculative game with oil is becoming one of the most attractive types of business just like a similar game with food prices. The "powers that be" are not so concerned that such games lead to a global catastrophe.

According to the UN, the three richest people in the world own capital that equals the GDP of the 48 poorest countries. Some 360 families of billionaires have as much money as 2.3 billion people in Asia, Africa and Latin America. It is exactly these families that manage and control the world economy, i.e. they exercise anonymous world power.

The current world financial crisis broke out in these conditions. The bankruptcy of the fourth largest American investment bank Lehman Brothers and the takeover of the third most capitalized investment giant Merrill Lynch & Co totally ridded investors of the illusion that the world financial crisis will be solved with "little blood" and everyone finally lost hope that at the end of 2008, the international financial system will start taking off.

As we said above, modern economic crises have their own causes and specific features. In our view, one of the causes of the current situation in the world economy is feverish, irresponsibly venturesome and unjustified global consumption cultivated by the Western way of life or the phenomenon of the so-called "society of consumption".

The society of consumption is one of the specific features of modern society. This is linked to such social changes as the growth in revenues, which significantly changes the structure of consumption, the fall in the duration of the working day and the increase in the duration of free time. The washing-out of the class structure and the multi-factor nature of social differentiation lead to the fact that the formation of identity is moving from the labour sphere to the sphere of leisure and consumption.

The individualization of consumption forms an individual style and image. As for the economy, according to these changes, it is often called "a consumer's economy" (not a manufacturer's economy) where it is not supply that forms demand, but it is demand that forms supply. The market is segmented, while individual consumption reflects not only social features of the consumer, being a demonstration of his social status, but also the specific features of his individual lifestyle. In Western countries, two of three employees who start their career work in the sphere of services, while the number of those who do not work in material production is growing due to an increase in labour productivity.

The society of consumption that has taken shape in the West is characterized by a relevant system of values and directions: "Eat, drink, try it on and listen" - this is what advertisements say everywhere. Advertisements say: "Buy me and I will make you happy." Advertisements influence the psychology of people aggressively and importunately: they offer consumer credits, discounts, show rooms and so on. Advertising experts manipulate people's subconsciousness, introducing new advertising technologies: the 25th shot, increasing the sound during commercials or showing commercials at the most interesting moment of a sporting event or film. Shopping has become a disease in modern society - even such holidays as Christmas have turned into total shopping with which people suppress their feelings, fears and social inhibitions. In this society there is no room for ordinary people. In this society you always must be a hero or a rich person, attractive and successful, if not in business, then in the eyes of people around you. It does not matter at all who you are - a student or a farmer, a waiter or a designer. According to Western standards of life, you must consume, and the process of consumption should bring profound satisfaction and a feeling of superiority, because we are surrounded by great and successful people who live in a completely different dimension, spend their holidays in the ocean, drive a Rolls Royce and wear a Rolex on their wrist, and advertisements impose all these values of life on all mankind. Advertisements offer an unusual show called "Touch the Beauty", i.e. you can own what belongs only to the elite. A shirt from Donna Caran, a coat from Ermenegildo Zegna, socks from Brioni or a bag from Louis Vuitton - anything that definitely has a name on it. Of course, if you can't afford such expenses, you can choose more democratic brands such as Sisley, Benetton or Lacosta. The process of consumption must give us unspeakable pleasure and bring us closer to the high class of people who can no longer enjoy such expenses because they can afford to visit boutiques and shop like in a supermarket. Then they use watches that cost as much as a flat, castles, yachts and island mansions. In the society of consumption, every individual must prove to the world what he is capable of, if not with his deeds and achievements, then by having products from famous brands…

Now let's have a look at how the consequences on the consumer market, to which the structure of the economy is not restricted, affect everything else. In order for growing demand (demand is growing because the consumer is deluded into thinking that he needs more stuff) to remain solvent, there is a consumer credit. You can buy anything on credit today. At the same time, a consumer credit requires money supply in a specific form… Any credit is fictitious money. If you need to issue a loan to a consumer, your demand for credit resources is growing, more fictitious money is pumped into financial markets.

A manufacturer who has not yet received money from the seller for his product takes a loan from a bank and begins a new cycle of production. A consumer who buys the product on credit and has not paid for it yet, starts using it.

Why is the manufacturer doing this? In order to increase his production, i.e. to introduce new capacities, carry out re-equipment, bring new types of products into the period when nothing has been produced and bought yet, another credit is required. In fact, this is a spiral that spins all the time. If we look at the proportions of the American economy (the one that is farthest from common sense), we will see the following: the so-called real sector of the economy accounts for 15 per cent of GDP, while 85 per cent comprise financial markets. From year to year, the state debt of the US government is increasing: now it totals 9,130 billion dollars. This is the indicator of the US "National Debt Clock" at Times Square. The US state debt is increasing at a speed of one million dollars per minute. According to analysts' predictions, from January 2001 when George Bush came to the White House to January 2009 when Barack Obama takes the presidential chair, this sum will increase from 5,700 billion to 10,000 billion dollars.

Many experts call the state debt "a time bomb" for the US economy which is far from being in good shape now due to the credit crunch. The servicing of the debt is one of the major articles of the US budget. This sum is behind only expenses on pension support, health and defence and totalled 430 billion dollars last year. The increasing amount of fictitious money circulating in the economy inspires horror. At the same time, it must be taken into account that if the whole world loses trust in the US dollar, no success of the American economy will protect it from collapse. The masses of American dollars that have flooded the world exceed the possibilities of the American economy by many times, and if the whole world returns the dollars to the USA and demands something real instead, this would probably cause economic collapse.

Thus, the economy of consumption - its existence - is maintained with the help of a whole number of measures. Excessive and prestigious consumption is being promoted, pointless standards of consumption are being imposed on people, artificial demand is being thought up and new modifications of goods and services are appearing. The price of subjects of consumption is kept at an artificially high level; it includes not just consumption, but also prestigious features of these goods and services: people pay for the brand of a company - "the label", for the image that advertisements link these goods to and for the advertisement itself. More than 40 per cent of the cost of goods is comprised of marketing expenses which are paid by the consumer himself. At the same time, a great number of expensive goods and services that belong to the circle of prestigious and excessive consumption affect the price for the most important products. Inexpensive goods of high quality are being ousted. In order to make a consumer buy more, the expiry date of goods is being reduced. The introduction of new technologies is artificially delayed, while fundamental technological improvements are replaced by design and comfort novelties. For example, telephone manufacturers normally totally change their model row during a year, making insignificant changes to their models. If in 2003 we could see telephones created three years ago on sale, now there are no one-year-old models in shops. Finally, a great part of the employable population is being ousted from the production sphere into the services and distribution sphere, the sphere of advertising and show production, the sphere of "self-employment", petty trade and small businesses. These secondary sectors of the economy are being blown out of proportion. All this results in the irrational development of the economy.

We often hear different ideas by scientists and experts that we will soon encounter an energy crisis, that the resources we have are being exhausted and so on. This concern is serious and well-founded, but apart from that, the resources we have are being used rapaciously. For example, if fashion dictates that every three years you have to change your car which can be used for another 10 years, this means that during this period, you need four cars instead of one. You don't have to think that anything that was used for the manufacturing of this car is recycled. Most of it, i.e. the materials that were used for its production, as well as energy resources, beginning from metal smelting to disposal, is discharged into the atmosphere in order to heat the world. Four times more energy than necessary is used in order to satisfy basic needs. If we understand that our resources are restricted, then why are we spending more than necessary on worthy existence?

Many scientists believe that it will never be possible to explain to people born and raised in an economy of consumption that they have to do something with themselves. An economy of consumption and the arrangement of information space which was created in its interests deprive people of the opportunity to think about the need for serious changes in their lives.

However, world economic crises, coupled with the arms race, gigantic unproductive military spending in various countries, global problems such as famine, poverty, illiteracy, disease, natural disasters, ecological and climatic cataclysms, require joint efforts to solve the most important problems of mankind. Otherwise, recurring and deepening world economic crises may lead to unpredictable consequences for the whole human civilization.

Most economists regard the current fever of the world financial system as a consequence of the US mortgage crisis which stems from collective mistakes by the management of some companies. The former chief of the US Federal Reserve System, Allan Greenspan, considers attempts to link the current difficulties to the crisis in the US mortgage system to be fallacious. "The financial crisis is an event that should have happened a long time ago. If the crisis had not been provoked by the wrong assessment of the US mortgage system, it would have occurred in any other sector or on any other market," he said.

"Stable instability" is a specific feature of the modern "society of consumption" whose development is acquiring a convulsive, spasmodic and confused nature. The anarchy of production and turnover, which is typical of capitalism, is increasing and manifesting itself in various crises. In these conditions, people should still control the world economy, otherwise they have no future.