Perspectives for Britain and the world
Discussion document for Socialist Party congress 2009
Crisis of world capitalism
The dominant issue facing the Socialist Party, the working class and the labour movement now and for the foreseeable future is the crisis of world capitalism, within which is the special crisis of British capitalism.
We were amongst the first to state that this system would confront an economic situation worse than anything seen since the ‘Great Depression’ of the 1930s.
This is now taken for granted and has become almost a cliché amongst capitalist commentators, with even those on the sceptical ‘left’ catching up with our analysis.
The only contentious issue is how deep this crisis will be and how long will be its duration.
The vogue phrase of the capitalists is that the economy, whole industries and even countries, as Iceland indicates, have gone or are about to go ‘over the cliff’.
Moreover, the crisis is not restricted to the ‘financial sector’ – as the majority of capitalist commentators argued or hoped for originally – but has, as we predicted, spread to the so-called ‘real economy’.
The economic ‘plague’ has leapt from ‘Wall Street to Main Street’ and to virtually the entire world.
What is this but the shattering of the capitalist theory of ‘decoupling’? This held that the advanced industrial countries’ economic meltdown would not hit parts of the economically buoyant neo-colonial world, which would therefore shore up world capitalism.
These so-called economically ’emerging’ markets are or will soon be ‘submerging’ under the economic wave emanating from the ‘rich’ world.
In China, over 100,000 factories in the dynamic export-orientated capitalist sector including 65,000 toy factories, have closed in 2008, adding to the army of the unemployed and threatening the rule of the Chinese elite.
Hope was also entertained that there would be a ‘decoupling’ of the ‘toxic’ financial sector from the ‘real economy’ as well.
Yet the allegedly ‘discredited’ Karl Marx wrote about the inevitability of the financial sector impacting on the economy as a whole: “Interest-bearing capital always being the mother of every insane form.” He pointed out; “The credit system… is one enormous centralisation and gives this class of parasites [financiers, banks, etc] a fabulous power not only to decimate the industrial capitalists periodically but also to interfere in actual production in the most dangerous manner – and this crew know nothing of production and have nothing at all to do with it.” [Capital, Volume 3.]
The effects of the meltdown in the subprime housing sector in the US – itself a visible expression of the debt-fuelled boom which the US and world capitalism is still reeling from – is just one of the many financial ‘bubbles’ which have been created and are now being burst, that is unravelling, with such devastating effects.
Nouriel Roubini, the capitalist economist who has come empirically to the same conclusion as the Marxists of the dire character of this economic situation for capitalism, has restated that during the boom, capitalism created the “largest leveraged (based on borrowing and debt) assets (property, ‘financial instruments’, etc) in history”.
He has also warned that following the US housing subprime ‘unwinding’, other bubbles have begun to deflate.
As he put it, we now have “a housing bubble, a mortgage bubble, an equity bubble, a bond bubble, a credit bubble, a commodity bubble, a private equity bubble, a hedge funds bubble, all now bursting at once in the biggest real sector and financial sector de-leveraging since the Great Depression”.
‘Deregulated’ and unrestrained capitalism threatens an ‘unrestrained’ slump unless capitalists and their governments step in, as they have done, with bank bail-outs and fiscal stimulus packages.
Yet despite all their best efforts, they may not succeed in avoiding this catastrophe. This is why after the failure of Lehman Brothers bank, which threatened complete financial meltdown, governments throughout the world – led by ‘Superman’ Gordon Brown – have sought to first of all save the banking system and recapitalise it.
This is a frantic attempt at economic resuscitation of the system which faced ‘cardiac arrest’ and is still in ‘intensive care’.
The purpose of economic state intervention is to try and put a ‘floor’ under the crisis to cushion its effects, to avoid a complete slump or depression.
Ben Bernanke, the chair of the US Federal Reserve – a student of the 1930s Depression – has completely discounted a repetition of that event in the US or the world today.
Not so other capitalist economists such as Larry Elliott, economics editor of the Guardian, who openly writes of the prospect of a ‘slump’, particularly in relation to the British economy.
Moreover, a ‘depression’ in the modern era would probably not mean a decline in production and national income on the scale of the US in the 1930s where national income fell by 36% and manufacturing production by 45%.
Nevertheless, a drop of 10% or more would constitute a depression. Fear of this has been reinforced by the rapid deterioration in the US economy and its repercussions worldwide.
In the month of November 2008 alone, US unemployment increased by half a million. This was followed by a further half a million rise in December. This is the biggest rise in job losses in a single month since 1974; if part-time workers looking for a job are included, these are the worst figures since 1940! The US, bourgeois economists have now belatedly admitted, has been in recession for more than 12 months, with two million more unemployed since the recession began.
Two thirds of them lost their jobs between September and November 2008; just three months! Moreover, latest estimates allow for more than one million workers a month losing their jobs in the US until the middle of next year, making an increase of four to seven million unemployed.
President-elect Obama – who now confesses he “doesn’t know where to start when he gets up in the morning” – openly admits that the US government will not be able to stop this economic catastrophe.
The hope is to just ‘cushion’ its worst effects, to ‘shorten the pain’ and hopefully move to sunnier economic uplands in the future.
However, the strategists of capital are not at all confident that they will achieve this. All the ‘levers’ of economic control have so far failed to work. The financial system – the arteries of capitalism – remains frozen, particularly the crucial ‘interbank’ lending’.
The ‘re-capitalisation’ of the banks does not alter the reluctance of the banks to lend to big or even ‘small’ businesses because they correctly fear that they will not receive their money back.
As one European bank executive remarked to the Financial Times: “If GDP is shrinking, how can lending grow?”
GDP in the US economy could shrink in the fourth quarter of 2008 by as much as 6%, with an even greater decline predicted for the whole of 2009.
A serious situation requires serious measures. We have seen fictional ‘weapons of mass destruction’ used to launch war in Iraq. This provoked Warren Buffett – the world’s greatest stock exchange gambler – to warn about the even more destructive ‘financial weapons of mass destruction’, which are now wreaking real havoc in world capitalism.
Capitalist governments are reaching out now for ‘weapons of mass desperation’. Led by the Brown government in Britain, eagerly supported by Obama and even Bernanke, when all else fails, they will be forced to resort to “quantitative easing, a fancy name, in reality a disguise, for the government’s use of the printing press, to print pound notes or dollars in a desperate attempt to stimulate demand” [The Independent].
