1 December 2024
International

Another day, another crisis

Events are moving at lightening speed.
Stock markets are in freefall around the world. Some days bring
temporary relief only to be followed by greater convulsions. The whole
situation is reminiscent of 2008, or more correctly the 1930s

Events are moving at lightening speed.
Stock markets are in freefall around the world. Some days bring
temporary relief only to be followed by greater convulsions. The whole
situation is reminiscent of 2008, or more correctly the 1930s.

World
Bank chief Robert Zoellick warned of a "new and more dangerous" time in
the global economy, as Europe struggles to resolve its debt crisis.
Zoellick said the eurozone’s sovereign debt issues were more troubling
than the "medium and long-term" problems which saw the United States
downgraded by Standard and Poor’s, sending global markets into panic.
"We are in the early moments of a new and different storm, it’s not the
same as 2008," said Zoellick. "In the past couple of weeks the world has
moved  … to a new and more dangerous phase," he said in an interview
with an Australian newspaper.

Following the collapse of the world
economy three years ago this September, the bourgeois economists
declared the crisis over in the summer of 2009. As always, they were
looking at the surface and ignoring the underlying contradictions. All
their talk of “green shoots” has completely vanished. For most of
Europe, the United States and Japan, there is no recovery. They are
staring at an unprecedented situation. They are moving from one crisis
to another.

“The new phase of the crisis”, states Satyajit Das,
author of ‘Extreme Money’, “is different to 2008 and that Lehman moment.
Then, governments had the financial capacity to backstop the private
sector, especially financial institutions. The crisis now involves
nations.” (FT, 11/8/11)

In other words, the crisis of capitalism
has not been resolved by the bailout amounting to trillions of dollars
but has got far worse. There is widespread panic at developments in
Europe and America, where the fear of a stagnant economy could push
things over the edge. In the last six months, the US economy has only
grown by an annualised 0.8%. With a fiscal contraction of some 2% of GDP
next year – the biggest of any large economy – it could be enough to
drag the economy into a double-dip recession.

Confidence

The
bourgeois economists say the recent turmoil is to do with a crisis of
confidence. However, the crisis is not a subjective thing but is rooted
in the objective situation. The dangers in the US, where output has yet
to retain its 2007 peak, are provoking panic. “America is six years into
a lost decade”, states the Economist (6/8/11) It is this crisis,
arising out of the contradictions of capitalism, which results in a loss
of confidence and not the other way around. Of course, the fall in
confidence can then reflect back and contribute to a deepening of the
economic crisis.

The downgrade of the US economy by S&P
reflects the growing malaise of world capitalism. The US economy is
barely growing and unemployment remains at 9%. This becomes a drag on
the world economy at a time when Europe is in a state of deepening
crisis. The ruling class is staring over an abyss, paralysed by their
impotence.

The fear that contagion will spread from Greece to the
other European economies is being borne out in practise. Italy and now
France are feeling the heat, with banking shares  under attack. There
are rumors of a French downgrade. Only the intervention of the European
Central Bank in buying Italian and Spanish debt has served to delay the
collapse, at least for the moment. In effect, it has become lender of
the last resort but this is a short-term palliative. The bailout of
Greece only gains time. Greece is essentially bankrupt and cannot afford
to pay back its debts. It will inevitably default in the coming period,
with massive consequences throughout Europe. While the ECB and IMF can
bailout Greece and Portugal, they do not have the resources to bailout
Spain or Italy.

Even Guilio Tremonti, Italy’s finance minister,
likened the eurozone crisis to the sinking of the Titanic, where “not
even first-class passengers can save themselves.”
The break-up of
the eurozone may have a similar impact to the break-up of the rouble
area after 1993, where countries of the former Soviet Union were forced
to fund their deficits by printing their own money. This resulted in
hyper-inflation and a collapse in living standards. Other parallels can
be made with Germany in 1923.

Saving Greece, Ireland, and Portugal
is one thing. Attempting to save Spain and Italy is another. Some have
estimated this could cost at least 5,000bn euros but this is a guess and
only guaranteed by Germany. However, Angela Merkel is facing a revolt
not only from her own party but from her junior coalition partner,
support for which has collapsed in the polls. German taxpayers do not
want to pay for the crisis in other countries. However, without support
from the Germans, the whole thing will fall apart and German
manufacturing is already slowing down. That is the dilemma. Heads they
lose, tails they lose.

Spectre

The spectre of a currency
war is also looming again as capitalists seek a safe haven from the
financial storms. The likelihood of new quantitative easing in the US
has driven the dollar lower and encouraged speculative capital flows
into emerging markets. Not only has gold rocketed in price but the Swiss
franc has gone through the roof, up a massive 6% in a single trading.
The Swiss National Bank, in an attempt to protect manufacturing, has
been almost powerless to prevent this happening even with the pouring of
large amounts of cash into the system and cutting interest rates to
zero.

The best the capitalists can look forward to is not economic
recovery – this is not on the cards – but decades of stagnation. The
world economy is facing a similar situation to  the Japanese after the
property bubble collapsed in 1989, pushing their economy into a slump
lasting nearly two decades. However, when the eurozone implodes, the
effects will be worldwide and will make 2008 look like a tea party by
comparison.

Freefall

After the crisis of 1929 we did not
see a continual freefall on the US stock market. There were periods up
until 1933 when there were certain rallies and recoveries but each such
rally was followed by a fall.

After 1933, the US economy recovered
partially albeit slowly, although unemployment remained high, until a
new slump in 1937. These were still the years of the Great Depression.
There was no real recovery until the outbreak of the Second World War,
based upon rearmament and war production.

Although one period of
capitalist development is different from another, we could be facing a
very similar situation today. The Roaring Twenties prepared the way for
the collapse of 1929 just as the credit boom and speculation led to the
2008-9 slump. Just as there was very little recovery in the 1930s, so we
are facing years of stagnation and austerity today. The fundamental
difference is that today world war is ruled out. American imperialism
cannot even pacify Afghanistan, let alone go to war with China or
Europe! In the Second World War, the capitalist system was able to purge
itself of the crisis of over-production. Today, that is not an option.
As a result, all the contractions will be internalised and reflect
themselves in a ferocious struggle between the classes. The period
opening up will be the stormiest period in world history.

Limits

The
reality is the capitalist system has reached its limits. In the past,
it was able to develop the productive forces at a colossal pace. The
recent period of globalisation and intensification of world trade
reflects the latest efforts of the system to overcome its
contradictions. Credit was used to extend the market beyond the limits
of capitalism but this has now reached its limits also. Every country is
deleveraging. Austerity and debt reduction is on top of all the
agendas.

The problem with credit is that it has to be paid back
with interest.  As a result, consumer spending, which makes up
two-thirds of US economic activity, is stagnant or shrinking.

While
corporations are flush with cash, they are not prepared to invest given
the lack of markets but without investment there can be no recovery.
This, in turn, adds to a collapse in demand. It is a vicious circle.

The
bourgeois commentators recognise these problems but do not understand
them. “By far the main problem is a huge overhang of debt that creates
headwinds to faster normalisation of post-war growth – that is why
post-financial crisis growth is typically very slow”, states Kenneth
Rogoff, professor of economics at Harvard. “It is better to think of the
global economy as going through a ‘Second Great Contraction’ (the Great
Depression being the first) involving credit and housing, and not just
output and unemployment.” (FT, 9/8/11)

Profit

Marx 
analysed capitalism long ago. He explained the contradictions of a
system based upon the drive for profit. The capitalists employ workers
in order to squeeze surplus value from their labour. This surplus value
is then reinvested by the capitalists to make more money which serves to
develop the productive forces. However, the barrier to capitalism is
capital itself. The outpouring of commodities seeking new markets
reaches a crescendo at the height of the boom. However, there comes a
point where the limits of the market come into collision with the
unlimited production of commodities. This leads to an inevitable crisis
of over-production, as witnessed in 2008-9. Everything comes to a
complete standstill. The capitalist system is paralyzed, not because
people do not want things, but because of a shortage of effective
demand, i.e. money to buy the products.

As Marx himself explained,
“The ultimate reason for all real crises always remains the poverty and
restricted consumption of the masses, in the face of the drive of
capitalist production to develop the productive forces as if only the
absolute consumption capacity of society set a limit to them.” (Capital,
vol.3, p.615)

Credit can overcome this contradiction for a
period, but not indefinitely. Sooner or later, the market reaches its
limits and a crisis ensues. “At first glance, therefore, the entire
crisis presents itself as simply a credit and monetary crisis”,
explained Marx (Capital, vo.3, p.621) But this is not the case says
Marx. It is the crisis that causes a shortage of credit and not the
shortage of credit that causes the crisis.

Decline

Some on
the left have tried to explain the crisis exclusively by reference to
profitability but this is a very mechanical approach. There is an
attempt to equate the level of profits as an indication of the health of
capitalism, but once again this is very simplistic. The mass of profit
slumped in 2009 after the massive collapse of world trade. Profits have
recovered since then. Even if you exclude the banks, the profits of the
S&P 500 companies were up by 18.7% last year, according to Morgan
Stanley. Profits in the US have jumped by US$528bn. However to conclude
that US capitalism is relatively healthy is fundamentally wrong, as can
be seen from the sluggish growth, continuing high unemployment, and
declining productivity.

This “recovery” is at the expense of the
working class. Despite the boost in profits, US real wages have only
risen by US$68bn since the recovery began. While profits in Germany have
increased by 113bn euros, workers’ pay has only increased by 36bn euros.

In
Britain, the picture is far worse, where profits have risen by £14bn,
but real aggregate wages have fallen by £2bn. Labour’s share of the
national income has been in decline across the OECD since 1980, which
explains to a large extend the rise in the rate of profit during this
period.

More importantly, capitalism could be in the grip of a
downward spiral. “We are talking of a game-changer and a systemic
crisis,” explained Willem Buiter, Citigroup’s chief economist. Faced
with another slump, the world’s central banks and governments do not
have the ammunition to deal with another crisis.

The capitalist
system is being buffeted by a whole series of shocks. The contradictions
of private ownership and the nation states have come to the surface. It
is not this or that problem that determines the crisis, but the general
organic malaise of the system. In the past, the world economy would
have rebounded. For instance, after the 1982 recession, the US economy
leapt forward by 5.6%, as opposed to 1.6% today. The capitalist system
finds itself in a complete impasse. No amount of “stimulation” will do
any good. The drugs don’t work any longer.

As for the working
class, they are faced with unparalleled austerity. All the gains of the
past can no longer be afforded by capitalism. Only with the overthrow of
the system can the nightmare of capitalism be put behind us. On this
basis, a socialist plan of production can be organised which would allow
the resources of society to be fully utilised in the interests of the
majority, and with it an expansion of the productive forces to an
undreamed of level.

Poverty, squalor, unemployment, homelessness
and the other evils of capitalism can be abolished once and for all. The
alternatives of ‘Socialism or Barbarism’ explained by Rosa Luxemburg,
are now more relevant than ever. For us, the only choice is socialism.