Progress in Human Geography 22,2 (1998) pp.

159163

Viewpoint*

El Nino capitalism

After months of bizarre meteorological oscillations in many parts of the world

extremes of heat and cold, drought and precipitation we are all quite familiar with the
rudiments of El Nino. Easterly trade winds in the South Pacific are normally comple-
mented by cold currents from the south and upwelling from the ocean depths along
the west coast of South America, but periodically the cold swells never reach the surface,
the Humboldt current is muted, and the Pacific trades are stilled or reversed: the
atmospheric convection loop is seemingly detached from the subsurface hydrology of
ocean currents and heating (Figure 1). But this localized variance of thermodynamic

Figure 1 (a) Normal regime; compared with (b) El Nino conditions

* This is the first in a regular series of breif `viewpoints' contributed by members of the Editorial Advisory Board.

*
c Arnold 1998 03091325(98)PH190ED
160 Viewpoint

norms has global consequences as the altered Pacific convection loop `infects' the entire
atmospheric regime, and therefore the climate, of the planet.
Something strikingly similar is happening in the global economic regime. By July 1997,
just about the time that the most recent El Nino was being forecast, a sudden reversal
overcame the Thai economy as the overproduction of semi-conductors, fuelling the global
computer and electronics industries, precipitated a nationwide depression. Initially
attracted by the low economic pressure of minuscule wages and strong state control over
the conditions of production, the same foreign capitals that had stoked the boom since the
early 1980s now reversed themselves, evacuating the Thai economy en masse. The Thai
capitalist class had little or no power to protect their highly integrated and interlinked
economy, an emblem of post-1980s globalization, and the supposed promise of a new
economic flexibility suddenly transformed into the opposite: an unprecedented structural
rigidity as the global market worked to perfection with Thailand the victim. Changes in
commodity prices, currency rates and wage levels that the Thai ruling class might
previously have deployed to attenuate the crisis were now impossible or futile and within
a few weeks the Thai baht was devalued by more than 40%.
As the same symptoms became only too evident throughout east and southeast Asia,
the local reversal an outward flow of capital from other economies gathered speed,
leading a stunned Malaysian Prime Minister, desperate to find tangible culprits, to com-
plain that global capitalists had in just a few short weeks ravaged the entire country like a
shoal of piranha. What no-one seemed to anticipate, despite the warning signs, was that
by the time the crisis hit Hong Kong long a veritable splice of North American and
European with Asian capital the local reversal in Thailand had `infected' the entire
global regime. Globalization had eroded many of the defenses of local economic immunity
at the centre as well as the periphery. When the Hong Kong stock market collapsed on
27 October 1997 it brought all the others with it: a 4% decline in Tokyo, 7% in Singapore,
912% in the European stock markets and a 7.2% decline in the Dow Jones where the New
York Stock Exchange halted trading to stem the loss. The Latin American and Russian
stock markets were even more battered, leaving capital becalmed in dangerous doldrums.
Even China, newly hitched to Hong Kong, was affected; only the Mongolian stock
market, posting a lonely gain of 6% on the same day, survived the global devaluation.
Desperate metaphors proliferated in the global heartland too. US economists from
Alan Greenspan (head of the Federal Reserve Bank) down, unable to get their concepts
around the new political geography of economic crisis or to fathom (or at least admit)
that the US and European economies were in danger, explained the mounting crisis of
global capitalism as a case of `Asian flu,' then quickly dispelled the threat of economic
`contagion'. Rapid but unremarked was the retraction implied in this language: some-
how the airtight national seals that globalization had supposedly eroded were alive and
well and would work for `our' protection against a stock market epidemic hatched in
Asia. Unlike El Nino the local reversals in the global market could, the pundits insisted,
be kept local. The Hong Kong `chicken flu' scare followed by only a few weeks, and the
ruthless and highly publicized extermination of thousands of chickens in the first days of
1998 seemed to say that Hong Kong capitalists were committed to reassuring the world
that globalization notwithstanding, no epidemic (economic or biological) would be
allowed to escape the shores of the Pearl River Basin.
But if the economy can be understood via epidemiological metaphor, why not meteor-
ological. Pure historical correlation suggests a connection beyond the metaphorical. The
most significant El Nino events in the last two decades have come in 198283, 1991 and
 Neil Smith 161

1993, followed by the most recent and most severe in 199798. The first of these came at
the end of the deepest economic recession since the early 1970s (197983) while the
second came amidst a more serious recession that set in belatedly after the stock market
crash of 1987 and lasted until at least 1992. If the 1993 El Nino bucks the trend, the
massive 199798 event should not be taken so lightly. Economists have correlated the
business cycle ups and downs in the economy with many environmental happen-
ings, including the flaring of sunspots on the sun; and geographers of a century ago
would presumably have invoked a somewhat determinist connection between El Nino
and the Dow Jones or the FTSI. But we live now in social constructionist times where we
could reasonably expect the causation to be reversed, and indeed the El Ninos of 198283
and 1991 were both preceded by significant economic depressions. But evidence from the
most recent El Nino complicates the picture and may even lend credence to a certain
environmental determinism. Thus in California, after meteorologists issued strong
warnings that the coast would be battered by abnormally strong winter storms as a result
of El Nino, the local economy was significantly boosted by anxious property owners
expecting the worst. By some estimates, as many as a quarter of the properties in the
erstwhile desert environment of Los Angeles County received new roofs or repairs to old
ones in anticipation of the rain, winds and floods that El Nino was supposed to bring.
Something quite real lurks amidst the ready media fetish of El Nino, however. The
dislocation of the atmospheric system from the oceanographic at the centre of El Nino
offers an excellent allegory for the economic dislocation that led to the economic crisis
initiated in late 1997. The global financial system has become dislocated from the
productive economy that supports it. This is evident from one simple comparison. From
1987 to 1995 the global Gross National Product (GNP) increased an estimated 98.3%, but
over the same period the US stock market rose approximately 285%; by August 1997 the
increase in putative stock value was 370%. In so far as stocks are claims on real value
produced in the economy, the dislocation of the financial and productive systems could
hardly be more stark. And while no absolute parity between GNP and Dow Jones is
required, the euphemism that the stock market is `overvalued' dramatically under-
estimates the economic dislocation.
After the October crash, the unprecedented and initially unconvincing bailout of the
bankrupt South Korean economy a record $65 billion finger in the dyke by the Inter-
national Monetary Fund (IMF) and some of the world's largest banks was followed by
the complete collapse of the Indonesian economy even after its own $40 billion IMF
bailout. The bankruptcy of several large banks and corporations in Japan continued the
trend. As the glut of Asian commodities fills warehouse inventories rather than market
shelves and world commodities find sparse markets in Asia, Asian leadership of global
expansion in the 1980s and 1990s suddenly evaporated. The Pacific trades were indeed
stilled if not reversed, the warm current of capital reinvestment no longer bubbling to the
surface, and the resulting slowdown threatens the whole regime of global capital.
But the geography of economic disarray is, as ever, uneven. At one level, while Asian
workers pay for globalization through lost jobs, skyrocketing prices and decimated
savings, investors in the US stock market are siphoning huge profits. The `high exposure'
(as the euphemists put it) to Asian investment makes Japan vulnerable, but its stock
market has not expanded significantly in the last decade, and so an impending devalua-
tion crisis there may not be so deep. The 1990s recovery in Europe was only ever
half-hearted and the central engine of the German economy suffers chronic unemploy-
ment and low growth rates. Many economies in the former USSR have yet to regain
162 Viewpoint

pre-1989 levels of production and social well-being, and despite the ANC victory in
South Africa, the continent as a whole shows few signs of escaping the global redlining it
has suffered since the early 1980s. Much of Latin America strives desperately to retain the
solid if narrowly dispersed gains of neoliberalism (bought at an exorbitant price as the
Zapatista rebellion made clear) while avoiding `Africanization.' More than anything it is
the US economy, with relatively low unemployment and inflation and with healthy
increases in productivity and GNP, the surreal stock market notwithstanding, which
bucks the trend. The USA, the spiritual home of globalization, is the upbeat capitalist
enigma in a world where the side-effects have far outshone the promise of globalization,
but even there the cost has been a declining standard of living since the late 1980s.
1998 is the hundredth anniversary of the AmericanSpanish War which, by some
measures, gave the first intimation of the so-called `American Century'. The end of that
century is chronologically nigh but whether it is also economically nigh is much more
difficult to appraise, even if the US economy, keeping globalism afloat, is very pre-
cariously perched. The US stock market rebounded fitfully after the October 1997 crash,
largely because small investors `rode in . . . to rescue Wall Street' while the larger
institutional investors discretely reduced the percentage of stocks in their portfolios
(Eaton, 1997). So far the economic crisis has been contained in Asia, with Japan in serious
recession. In the USA capital exiting other stock markets has flowed overwhelmingly into
real estate development, and while this might absorb excess capital over the short run, the
flight to real estate is highly reminiscent of the years preceding the depression of 1973
75. It would certainly be odd in terms of economic history if such a broad restructuring
as that captured in the language of globalization were not to be punctuated by a signifi-
cant crisis at its core, but there is nothing inevitable about such an economic collapse.
It would also be odd if economic crisis did not also spur political crisis although of
what form is impossible to predict; the Suharto regime in Indonesia may be only the first
casualty. And so 1998 marks another anniversary, 150 years since the publication of The
Communist Manifesto. Never a major fan, I recently reread this polemic after more than a
decade and found that while some of the political barb is resolutely and predictably of its
own time, the opening analysis contained some astonishing crystallizations that remain
as freshly relevant now as then:
The need of a constantly expanding market for its products chases the bourgeoisie over the whole surface of the
globe. It must nestle 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. To the great chagrin of reactionaries, it has drawn from under the feet of
industry the national ground on which it stood . . . [Old industries] are dislodged by new industries, whose
introduction becomes a life and death question for all civilized nations (Marx and Engels, 1955: edn., 13).

Could there be a more succinct description of contemporary globalization?

By the same token, Marx was equally aware of the revolutionary nature of capitalism:
`The bourgeoisie cannot exist without constantly revolutionizing the instruments of
production, and thereby the relations of production, and with them the whole relations
of society' (p. 12). Thus has modern capitalism `conjured up such gigantic means of
production and of exchange' that it best resembles `the sorcerer who is no longer able to
control the powers of the nether world whom he has called up by his spells.' And quite a
power it is:
It is enough to mention the commercial crises that by their periodical return put the existence of the entire
bourgeoisie society on trial, each time more threateningly. In these crises a great part not only of the existing
products, but also of the previously created productive forces, are periodically destroyed. In these crises there
 Neil Smith 163

breaks out an epidemic that, in all earlier epochs, would have seemed an absurdity the epidemic of
overproduction (Marx and Engels, 1955: 15).

Rousing stuff: a threat, without doubt, to the comfortable life, and an analysis of the
`epidemic' that lies behind Alan Greenspan's `contagion'. But for laid-off workers in
South Korea or Sao Paulo, indeed for opponents of `neoliberalism' everywhere, it also
presents an instantly recognizable portrait of their own predicament. It was a critique
that Marx spent the rest of his life working up.
Whatever can be said about the implosion of official communism after 1989, broadly
similar conditions of wage labour and exploitation that provoked Marx's brilliant critique
persist, sustaining capitalism to the present day. Indeed they are dramatically more
pervasive. The very societies that led the capitalist cataclysm of 1997 were still
thoroughly feudal when Marx and Engels penned the Manifesto; it was still five years
before Commodore Perry would sail into Tokyo Bay to insist on trading rights. The
unabashed victory of capitalism at the end of the twentieth century prosperity,
poverty, crises and all makes Marx's analysis more, not less, relevant for the twenty
first. Yet the erosion of national economic boundaries has done little to foster the
sustained international class solidarity Marx deemed vital (except perhaps among the
ruling classes, as initiatives like NAFTA make clear), and harnessing the trenchant
economic critique to a stirring and viable political movement precisely the point of the
Manifesto remains elusive.
The name El Nino was coined by Peruvian and Ecuadoran fishermen who noticed that
the periodic advent of warmer water, which drastically depleted their catch, always
struck around Christmas, and so they named it after the birthday boy. The hot and cold
currents of the capitalist market, by contrast, are no godsend. From Bangkok to Jakarta to
Seoul, as the prices of rice and other basics escalates, as wages fall and layoffs multiply,
and as the biting IMF strictures squeeze more and more tightly the ability of the poor to
survive, political responses seem inevitable. The imposed neoliberal austerity today is
much more drastic than two decades ago when the so-called IMF riots were provoked.
What form these responses will take and whether they stay local or or go global, is much
less predictable, and may have as much to do with an understanding of the Manifesto as
with the Pacific trade winds.

Acknowledgements
The author thanks James DeFilippis for research assistance and David Robinson for
inspiring Figure 1.

City University of New York Neil Smith

References
Eaton, L. 1997: Stocks Rally on Record Volume as Marx, K. and F. Engels 1955 edn.: The Communist
Small Investors Take Lead. New York Times, 29 Manifesto. New York: Appleton-Century-Crofts.
October, 1997.