Richard Brenner
The future looks bleak for the world economy as bailout plans fail and the crisis spreads to every corner of the globe. Richard Brenner argues that we must fight to ensure that the bankers and bosses are made to pay for a crisis caused by capitalism, not the workers
It is now clear that the scale of the global recession is vast and that in every country, workers are confronted with the urgent need to fight back against job losses and real pay cuts.
The International Monetary Fund warns that in 2009 the world is heading for the first year of zero economic growth since 1945 and the devastation of the Second World War. As many as 51 million jobs could go, warns the International Labour Organisation, bringing official global unemployment to 240 million by the end of this year. ILO director general Juan Somavia warned of “painful” pay cuts which “will erode the real wages of many workers, particularly the low-wage and poorer households.”
In the USA, the world’s largest economy, output is plummeting. Figures for the fourth quarter of 2008 revealed a staggering 3.8 percent fall in gross domestic product when compared to the last quarter of 2007 – the worst decline since the depths of the Reagan-Thatcher recession in 1982.
In November a further 500,000 workers were axed – in December another 500,000. All in all 2008 saw 2.6 million US workers lose their jobs. Quite apart from the outright misery this brings for them, their families and their communities, it has also massively aggravated the crisis by reducing spending on consumer goods and increasing still further the number of workers defaulting on their mortgages. This works like a vicious spiral.
In the last quarter companies’ spending on infrastructure like software fell by 28 percent – cuts that haven’t yet filtered through into the growth figures. Yet despite all these cuts in jobs and other areas of spending it seems companies have still not cut enough to keep pace with falling demand. Despite all the cuts, stocks of unsold goods actually rose sharply in the last three months of 2008, so we can expect even deeper declines to come.
In Europe, Deutsche Bank predicts that the entire 16-nation Eurozone will contract by 2.8 percent this year. In industry the picture was even grimmer. Eurozone industrial production was down by 7.7 per cent in November compared to a year before – the worst fall on record. Unemployment in the 27 states of the EU is expected to rise to 8.7 per cent this year and 9.5 per cent in 2010.
In Germany, the biggest European economy, GDP contracted by 2 percent in the final quarter of 2008 – the collapse of its export markets and the falling value of the dollar delivering a really fast decline. All major economists predict a fall of between 2 per cent and 2.8 per cent in 2009: far and away Germany’s worst performance since 1945.
Italy reported that in November industrial production fell by nearly 10 per cent – Italian car manufacturing fell by a staggering 46.4 per cent. And the Bank of Spain announced a 1.1 per cent decline in the last quarter of 2008, accelerating from its third quarter decline of 0.2 per cent. The government now predicts a decline of 1.6 per cent this year.
In Asia, the picture was just as grim if not grimmer. In Japan, the world’s second biggest economy, industrial output declined 9.6% in December – the biggest contraction since records began. Kaoru Yosano, Japan’s Economics Minister, called the situation ‘unprecedented’ and said the drop in industrial output is “likely to continue”. Job losses are rising, with 2.7 million out of work, 400,000 more joining the dole queue last year.
In the previously fast-developing economies of China and India, which were ceaselessly held up by the capitalist press and economists as examples of the dynamism and healthy future of the market system, growth is also slowing sharply.
In 2007, at the peak of the credit-fuelled boom in the West, with cheap exports flooding out of China’s new factories in the coastal provinces, GDP grew by 13 percent – following five years of growth at 10 percent and over. Last year it fell to 9 percent, but the fourth quarter of 2008 recorded growth of just 6.8 percent. The rate of decline is fast: China’s imports and exports actually declined in November 2008, with imports falling by more than 17 percent.
The picture across what the capitalists hopefully call ’emerging markets’ is similarly bad: the IMF says that growth in ’emerging and developing’ economies is expected to fall from 6.25% in 2008 to 3.25% in 2009. This should finally shatter the so-called ‘decoupling’ thesis, which fondly imagined that fast growth in India and China would be sufficient to ‘take up the slack’ of a fall in production in the USA and maybe even save the world economy from a deep recession.
Can the capitalists quickly recover from this steep global decline? It doesn’t look like it.
Even during the credit-fuelled boom and bubble of the period 2004-2007, real industrial production in the USA was declining, and this left huge numbers of workers with falling real wages unable to pay their mortgages. The collapse of the mortgage market punctured all the credit instruments that US (and global) banks and finance houses had secured on a steady flow of mortgage repayments and rising prices. This paralysed the banking system, with banks withdrawing credit from businesses and consumers alike.
Ever more companies found themselves unable to refinance – ever more ordinary people tightened their belts and bought fewer basic and luxury goods. The Western governments attempted to stave off recession by cutting interest rates down to almost zero and letting the dollar and the pound plummet in value – exporting recession to export led economies around the world. The sharp decline in world trade that resulted has further pushed companies into declining production and even bankruptcy – discouraging banks form lending to businesses whose future in uncertain. All the trillions given to the banks won’t force them to lend to companies and people who they don’t think will pay it back – so all the bank bailout plans have failed to get the capitalist economies moving again.
The underlying cause for the falling profitability that hit US industry and can now be seen around the world is what Marxists call the ‘over-accumulation of capital’. As we have shown in article after article since as early as March 2007, the underlying tendency for the rate of profit to fall appears every seven to 10 years in the form of a crisis in which there is ‘too much’ capital – not enough of which can be invested to make a worthwhile profit in capitalist terms. This leads to a withdrawal of credit and then a destruction of ‘excess’ capital – companies, plants, equipment, goods and workers’ jobs – until the conditions for sufficiently profitable production are restored.
A struggle then begins over who will pay the price of the destruction (or ‘devaluation’) of capital: the bosses, or the workers. Sometimes the bosses fight among themselves, forcing other countries to bear or share the burden. Sometimes, tragically, the workers even fight among themselves, as is happening in the reactionary strikes in Britain for ‘British Jobs for British Workers.’ But very often, the capitalists and the workers square up to each other in fights over jobs, pay, services and conditions.
It is now clear that the USA began its downturn in late 2006, as repossessions soared, house prices fell and the projected profits of non-financial corporations declined sharply. Yet at first the US and UK financial and monetary policymakers were sanguine; they imagined that the same or similar devices they had deployed in 1998 and 2000-2001 could be utilised again either to offset recession or to switch the impact of devaluation elsewhere once more. The first inkling that this was unlikely to work emerged in march 2007 when the crash of the Shanghai stock exchange was followed by a sharp fall in share prices on western exchanges. Attention focused on the vulnerability of US policy’s assumption of a continued deflationary effect of Chinese development. As output prices from China rose sharply in April 2007, realisation set in that the period of temporary equilibrium that had created simultaneous cheap credit without inflation was coming to an end.
Bond markets and then credit markets focused on the long-term impact of the new inflationary environment in driving up commercial and inter-bank interest rates. They realised that this would aggravate the mortgage repayments crisis in the USA, and that this meant that a vast proportion of mortgage-backed lending that has expanded exponentially in the boom was chronically overvalued. The credit crunch ensued, banks ceased lending and there was a dash for the highest quality money, driving banks first into a crisis of liquidity and then into a crisis of solvency. This fed back into corporate and consumer spending. Aggressive state refinancing of the financial sector began, bank runs and bailouts ensued.
Central bank interest rate cuts and recapitalisations failed to restore credit lines. The process continued to deepen and spread for over a year, culminating in the great collapse of September-October 2008 and the historic (and criminal) $3 trillion socialisation of banking losses in the Paulson and Darling plans, matched and followed around the world. None of these measures – including even outright nationalisations and the purchase of government majority stakes in the leading UK clearing banks – forced banks to re-extend credit. Now, as many non-financial corporations face falling profits and approach their decennial refinancing rounds, cheap credit is simply not available, massively exacerbating the trend towards corporate bankruptcy and collapse, as we see in the effective collapse of General Motors, Ford and Chrysler.
The ‘stimulus packages’ announced by Obama and Brown show no sign of being capable of acting as anything other than a weak parachute slightly slowing the tempo of descent. The crisis of national finances being created by the vast expansion of state debt to finance the bank bailouts and the stimulus packages will have no appreciable effect on the scale of devaluation in progress – nor can it halt a massive rise in unemployment without further undermining national currency and even hugely limiting the ability of the next recovery phase to restore equilibrium of stability. The crisis in China, India and Russia will heavily impact on world trade and dispels for good the illusion that ‘decoupling’ will allow ’emerging markets’ to ‘take up the slack’ of a collapse in US profits, outputs and consumption.
Class struggle
The epic scale and visibility of the bank bailout strikes quite a contrast with the demands being made on Labour and the refusal to commit the public finances to the protection of jobs, pay and services. In Germany, France, Spain and Ireland students are marching. In Italy and Greece the youth rebellion is feeding into a workers’ strike movement as one-day general strikes take place against the impact of the crisis. In France, 2.5 million workers took to the streets to say ‘we won’t pay for the bosses’ crisis’. This shows that notwithstanding the chronic crisis of proletarian leadership, working class resistance will impede the ability of capital to effect devaluation at the speed it requires: though the stranglehold of the reformist bureaucracy may allow givebacks in wages and job cuts to go through in many places.
The conclusion to be drawn is that this crisis cannot be reduced in impact or switched away from the metropoles as before: it is a powerful world recession. What is more, there are no signs that it could be brought to a swift conclusion because of the volume of overaccumulated capital, the removal of previously effective policy options, the continuing restriction of the credit system and the currency crisis. No single mighty world hegemon exists that could swiftly restructure the world market and re-establish a new expansionary equilibrium. There is every reason to expect a very severe world recession, one that will take years to complete its devaluing business, and that the new global economic environment is one in which the next recovery phase will be anaemic and weak.
The one great factor that can speed capital’s restoration of equilibrium by assisting them in making the workers pay the price is the reformist political and trade union bureaucracy: the effect of social democratic, Stalinist and populist-nationalist bureaucracy in demobilising the resistance or even diverting it down tragic nationalist and reactionary dead ends. We are well aware that unless their hold is broken, the working class will be unable to convert its resistance into a revolutionary challenge for power and the overthrow of capital – but we do not for one minute imagine that in each of the main centres of class struggle, the bureaucracy will be able to abolish resistance altogether. It is to this contradiction and this political struggle within the heart of the struggling masses that Marxists should orient themselves in the period ahead.