The current global economic crisis has all the earmarks of an epoch-defining event. Mainstream economists now openly employ phrases like "systemic meltdown" and "peering into the abyss".
On October 29, Martin Wolf, one of the Financial Times's top commentators, warned that the crisis portends "mass bankruptcy", "soaring unemployment" and a "catastrophe" that threatens "the legitimacy of the open market economy itself … the danger remains huge and time is short".
However, one striking characteristic of analysis to date is the almost exclusive focus on the wealthy countries of North America, Europe and East Asia.
From foreclosures in California to the bankruptcy of Iceland, the impact of financial collapse is rarely examined beyond the advanced capitalist core.
The pattern of capitalist crisis over the last 50 years should alert us to the dangers of this approach. Throughout its history, capitalism has functioned through geographical displacement of crisis — attempting to offload the worst impacts onto those outside the core.
This crisis hits a world economy that is truly global. Today, all markets are dominated by a handful of large companies operating internationally through interconnected chains of production, sub-contracting and marketing.
Almost every product we consume has involved the labour of thousands of people scattered across the globe — from the production of raw material inputs, research and development, assembly, transport, marketing and financing.
This interconnectedness has taken a very particular form over the last couple of decades. The world market has been structured around the consumption of the US (and, to a lesser extent, European) consumer. Goods produced in low-wage production zones such as China and India — using raw materials mostly sourced from other countries in the South — are exported to the global North where they ended up in the ever-expanding homes of overly indebted consumers.
Control of this global chain of production and consumption rests in the hands of large US, European and Japanese conglomerates.
This structure helped to fracture and roll-back national development projects across the globe. Coupled with the debt crisis of the 1980s, export-oriented development models were imposed by the International Monetary Fund (IMF) and other financial institutions on most countries in the South.
Many of the elites of these countries bought into this development model as they gained ownership stakes in newly privatised companies and access to markets in the global North.
The ever-expanding consumption of the US market was predicated on a massive rise in indebtedness. US consumers were encouraged to take on vast levels of debt in order to maintain the consumption levels that underpinned global demand.
The dollars that enabled this growth in debt came from financial instruments that were purchased by Asian central banks and others around the world. These institutions lent dollars back to the US, where they were channeled to consumers.
The US real estate market was just one of the financial bubbles that permitted this treadmill of increasing indebtedness to continue. People could continually refinance their mortgages as real estate prices went up. But with the collapse of this bubble, world demand is suddenly drying up.
Because of the interconnectedness of world trade, this will have a very severe impact on every country across the globe, particularly in the South.
Falling commodity prices help demonstrate this drop-off in world trade. Copper prices, for example, have fallen 23% in the past two months. Chinese consumption of the metal, critical to much industrial production, has fallen by more than half this year.
ArcelorMittal, the world's largest steelmaker, stated on November 5 that its global output would decline by more than 30%.
This drop in world trade will have a particularly devastating impact on those countries that have adopted "export-oriented" models of development. This model was heavily promoted by the World Bank and the IMF over the last couple of decades.
As global demand shrinks, countries reliant on exports will be faced with the collapse of their core industries and potential mass unemployment. This will place further pressure on wages.
JP Morgan Chase is predicting that Chinese exports will fall 5.7% for every one percent drop in global economic growth.
China needs to create 17 million jobs a year in order to deal with the large numbers of farmers moving from the countryside to urban areas. This means that even if growth drops from 11-12% annually to 8% the country faces potentially huge social dislocation.
Already, workers in China are protesting in their millions as their factories close and owners abscond with unpaid wages.
A collapse in world trade is not the only potentially devastating threat this crisis presents to the global periphery.
Like the 1997 Asian economic crisis, the rapid withdrawal of foreign funds from stock markets and other investments in the South could cause the meltdown of currencies and the collapse of industries already reeling from slowdowns in trade.
Countries including Mexico, Turkey, Indonesia, Brazil, Argentina, South Korea, as well as the poorer countries of eastern and southern Europe, are faced with collapsing growth rates, capital flight and declines in the value of their currency.
In many cases, these problems have been exacerbated due to a proliferation of low-interest loans taken by individuals and companies that were denominated in foreign currency (such as Swiss francs, euros and dollars).
These loans initially offered a better rate of interest than the domestic currency, but, as local currencies have dropped in value, the amount of money required to be repaid has increased dramatically.
Business Week estimates that borrowers in so-called "emerging markets" owe some US$4.7 trillion in foreign-denominated debt, up 38% over the past two years.
This is the reassertion of a debt crisis from the 1980s that never really went away, but only partially subsided.
This unfolding social crisis has returned the IMF to centre stage.
Typically, the IMF lends to those countries facing potential collapse and, in return, demands the fulfillment of stringent economic conditions. The scale of borrowing is already immense: Iceland ($2.4 billion), Ukraine ($16.5 billion), and Hungary ($15.7 billion) have been extended loans with Pakistan, Serbia, Belarus and Turkey likely candidates in the near future.
The policies that Ukraine is expected to implement by the IMF in return for the loans are not yet known, despite the fact that the country has essentially agreed to take a $16.5 billion loan.
Hungary has agreed to cuts in welfare spending, a freeze in salaries and cancelling bonuses for public-sector workers, yet the final details have not been made public.
Iceland was required to raise interest rates to 18%, with the economy predicted to contract by 10% and inflation reaching 20%.
We can certainly expect that the conditions attached to loans in the poorer countries in the global South will be much more stringent than those imposed on these European countries.
There is little doubt that these countries will face massive job losses, intense pressure to privatise public resources, and slashing of state spending on welfare, education and health in the name of "balanced budgets".
Whether these attacks on the social fabric are successful, however, will ultimately depend on the level of resistance they face.
On October 11, a meeting of progressive economists in Venezuela issued a statement warning that the dynamic of this crisis "encourages new rounds of capital concentration and, if the people do not firmly oppose this, it is becoming perilously likely that restructuring will occur simply to save privileged sectors".
Capitalist crisis doesn't automatically lead to the end of capitalism. Without effective resistance and struggle, the crisis will eventually be resolved at the expense of working people — particularly those in the South.
This could be one of the most serious crises that capitalism has faced in living memory. But we should not be fooled into thinking that the system will somehow be reformed or its contradictions solved through peaceful and orderly means.
The most likely immediate outcome is a hardened, more authoritarian state that seeks to restore profitability through ratcheting up repression and forcing people to accept the loss of jobs, housing and any kind of social support.
In the South, this will inevitably mean more war and military repression.
If this is not prevented, then the system will utilise this crisis to restructure and continue business as usual.
This is why resistance — both at home and abroad — will be the single most important determinant to how this eventually plays out.
In Latin America, for example, attempts to restrict capital flight, place key economic sectors under popular control and establish alternative currency and trade arrangements are important initiatives that point to the necessity of solutions beyond capitalism.
In the Middle East, popular resistance to the political and economic control of the region has undoubtedly checked the extension of US power.
Any displacement of the crisis onto the South means playing different groups of people against one another. For this reason, the ideological corollary of war and military repression abroad is likely an increasingly virulent racism in the North — directed at immigrants, people of colour and indigenous populations.
This means that for activists in North America and other rich countries, the question of global solidarity and resistance to racism must be placed as a central priority of any effective fightback.
Any attempt to turn inwards, or dismiss international solidarity as less important in this phase, will be disastrous for all working people — across the globe.