The Economic Crisis: State Capitalism Is Running Out of Room for Manoeuvre

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There is no place to hide now. According to the December announcement by The National Bureau of Economic Research - the agency responsible for dating the beginning of a recession in the US - the American economy has been in recession since December 2007. In other words, for most of last year Mr. Bernanke, Mr. Paulson, the White House and Congress were busy denying the existence of, and trying to avoid, a recession that had already started!  

But, we are being told, that is all in the past. Who cares about the Bush administration's faulty sense of reality? This is 2009 and with the new year comes a brand new president predicting that the economy will get worse before it gets better, a new congress ready to act where the past one fumbled, and a great new economic team educated at the most prestigious American institutions, with fresh ideas on how to save capitalism from catastrophe.

As if there weren't continuity with the departing economic officials who represented a national capital that, as a rule, white-washed the gravity of the economic situation and often predicted that there was light at the end of the tunnel; the incoming administration seems to be sticking closer to reality, openly acknowledging that the economy is going through the worst recession since the Great Depression, and that there won't be an easy turnaround in the next couple of years. Why this change of language in the dominant class to which both the departing and incoming politicians belong? It is possible that given the stubborn facts of a developing economic catastrophe, the bourgeoisie economic theorists are finding self-delusion more difficult to achieve? It is more likely that this more truthful language is, above all, a political ploy to give the new administration a better chance to manoeuvre in its quest to reverse the current economic disaster. In particular this policy is geared to temper illusions about a better future spread by Obama's presidential campaign rhetoric about "change."

Yet given the fact that so far the bourgeoisie has failed to contain the crisis, the odds for Obama's success are definitely not good. Nothing in the toolkit used by the doctors of moribund capitalism seems to have worked so far. After uncountable monetary and fiscal gimmicks -the Fed's key interest rate is close to being negative, trillions of dollars have been injected into the financial system, the federal budget deficit has ballooned to over one trillion dollars - the economy just keeps getting worse. The financial system is still in shambles, while the so-called real economy is getting worse by the day. Economic production and commodity sales are rapidly falling, bringing with them a wave of company bankruptcies and a massive upsurge in the numbers of workers being laid off throughout all the sectors of the economy. Although there are still no comprehensive figures about the economic performance during the past holiday season, all estimates predict historically low sales, while the last official figures on unemployment have the unemployed rate running at a 7.2 percent, the highest in the last 16 years. If discouraged workers, who have given up looking for jobs that don't exist, and underemployed workers, who want fulltime jobs but are forced by the economic situation to accept part-time jobs, are included, would put the rate of unemployment and underemployment by some estimates at almost 13 percent.

And even if the US economy is at the centre of the storm, this is not an American event, but rather a worldwide economic crisis. The whole world is plunging into recession. The Organization for Economic Cooperation and Development (OECD) has forecast that the United States, the world's biggest economy, would suffer a huge 2.8-percent contraction in the fourth quarter of 2008. Germany, the biggest European economy and number three worldwide, officially tumbled into recession last November as output contracted for the second quarter running. France with a miserable 0.1 percent growth in the third quarter managed to just avoid a technical recession. Italy is officially in recession and the Bank of England has said the British economy is also probably already there. Outside the Euro zone, the Japanese economy, the world's second biggest, was predicted to be in recession at the end of 2008 and continue contracting in 2009. According to a recent OECD statement, "the OECD as a whole is currently in recession and will likely stay there for some time."

Furthermore, even the so-called "emerging markets," represented by Russia, China, India, Indonesia and Brazil, that until recently where thought to be somehow insulated from the present financial tsunami, are now also treading water, cutting to size these supposed new upcoming superstars of world capitalism.

These massive convulsions rocking world capitalism the last two years have revived the ghost of the Great Depression of the 1930's. The bourgeoisie specialists themselves are talking about the similarities and many are arguing for the same state interventionist policies with which the bourgeoisie back then responded to the worst ever - up to that time - open economic crisis of its system. One can even read in the bourgeois press descriptions of the return of "state capitalism" referring to the economic policies which all national states are enacting in their attempts to contain the present crisis.

Towards a reinforcement of state capitalism

In the face of the current earthquake shaking capitalism throughout the whole world, all governments are responding with a flurry of "bail out" programs, nationalizations and "economic stimulus" packages. These policies, which are in open contradiction with the much cherished "free market" ideology, according to which capitalism can, through "the invisible hand" of the market, resolve its own contradictions, are what some economic commentators refer as a return of state capitalism.

The reality is that state capitalism is not "returning," basically because it never went away.  But obviously what revolutionaries consider as state capitalism and what this concept means for the specialists of the bourgeoisie are not the same thing. Thus some general remarks are necessary to make clear what we mean by state capitalism. For us:

  • state capitalism is not an economy policy that governments can adopt or abandon at will, but a historic new form of capitalism itself that all countries have adopted in the decadent phase of this economic system. Since 1914 in a world torn apart by perennial economic rivalries, barbaric imperialist confrontation and the spectre of revolution, the dominant class has rallied behind the national state as the last guarantor against the disintegrating tendencies of the economic crisis and the main defender of the national imperialist interest in the world arena.
  • the core characteristic of state capitalism is the tendency by the state to concentrate in itself all the life of society. Economically it is manifested by the tendency for the state to take direct control of the production and distribution of goods, politically by the concentration of political power in the hands of an omnipotent permanent bureaucracy that presides over all aspects of the life of society. Political dissent is suppressed, particularly that of the working class -its former permanent organizations, parties and unions have been integrated into the state- but also even within the dominant class itself.
  • state capitalism can take several forms depending on historical specificities of the country or conjunctural circumstances. It appeared for the first time during World War I when every government of the warring adversaries saw fit to take control of the productive apparatus and focus all of society's energy on the war effort. However, state capitalism is not limited to periods of open warfare or open economic crisis such as FDR's "New Deal", etc. The now defunct ‘socialist" regimes of Russia and Eastern Europe, and "communist" China and Cuba today, represent in reality nothing more than a particular type of state capitalism. The same goes for the Nazi and Fascist regimes and the overt military dictatorships that have on-and-off existed in much of the third world countries. And likewise for the so-called western democracies of today, their ideological loyalty to the "free market economy" and "political freedom" notwithstanding.
  • State capitalism is neither progressive, nor a solution to the crisis of the system. On the contrary state capitalism is itself an expression of the crisis of the system, a manifestation of the fact that capitalism's relations of production have become too narrow for the existing productive capacities of society. The economic policies of the state, when they are not a simple tool for the mobilization of all the resources of society for imperialist war, have as a goal to keep capitalism afloat by way of cheating the economic laws of this system. This is the explanation behind the government apparently absurd policy of saving at all cost enterprises that are deemed "too big to fail" forgetting capitalism own economic principle of "survival of the fittest."

Mr. Obama's "New Deal"

With the present economic crisis's similarity to the Great Depression in the foreground, the incoming Obama administration is often being compared to the assent to power of FDR in 1933. Obama's promised "economic stimulus" with its blend of tax cuts and government financed infrastructure programs is being presented as a some kind of "New Deal" that is supposed to "jump-start the economy" and save American capitalism.

However, in our view, whatever the similarities of the present situation to the Great Depression, the situation today of world capitalism is much worse than in the 30's. Of course, in a formalistic sense, the collapse of the financial system, the plunge in production, and the unemployment rate, to mention some economic indicators, were much more dramatically affected in the Great Depression than what we have seen so far today. By 1933, unemployment in America had risen to 25 percent of the work force, domestic production had fallen by more than 30 percent, the stock market had dropped close to 90 percent, and more than a third of the nation's banks had failed. By comparison the present 7.2 percent rate of unemployment and the still positive GDP seem insignificant.

But this is not the whole story. First of all what the specialists often ‘forget' is that the present crisis did not begin in 2007. As we have often pointed out the present economic slump is just one moment in the open crisis of capitalism that started at the end of the 1960's, and that has only gotten worse ever since, despite the "recoveries" which follow the progressively worse "recessions" over the last four decades. Throughout these years -up to now - state capitalist policies have been able to avoid a dramatic collapse similar to that of the great depression, but only at the price of aggravating on the long term capitalism chronic crisis. Thus the ongoing recession -in America and throughout the world - with its dramatic shakeup in the financial system and its apparent unresponsiveness to the government economic manipulation, expresses the reckoning with reality of a system in crisis kept artificially alive by state capitalist policies.

Let us be clear, the policies being prepared by Obama's bright boys are not new, they are variants of the same capitalist policies implemented by the state at one moment or another during the last four decades and that were widely used before during FDR's Depression era. However the failure of this state capitalist economic toolkit to work its magic and keep this moribund system alive is what gives the present world economic slump its true historical significance. And this does not bode well for the Obama's administration. If anything, the margin of maneuver that the state has today to manipulate the economy is far more reduced than what the bourgeoisie had in the 30's.  In any case, it is a myth that the New Deal constituted a "solution" to the economic crisis in the 1930's. After managing to contain the devastating spiral downturn initiated in 1929 the New Deal run quickly out of steam. There was another ruinous economic downturn in 1937 and the economy only recovered its pre-Depression era level in the context of the war economy during the slaughter of World War Two.  Even the prosperity in the postwar reconstruction period was not  just a result of state capitalist policies, but a product of  unique set of historical circumstances that can't be replicated today -see the series of  articles on the reasons for the post-war prosperity in the last issues of the International Review.

As we have said before many times the reality is that the bourgeoisie has no solution to the crisis of its system and no future to offer society other than an increasingly devastating crisis and more murderous imperialist wars. State capitalist policies have never been able to overcome the crisis, the most that they can do is to provide a kind of last resort life-support for the bourgeoisie's moribund system.

The solution to the crisis rests on the historical overcoming of capitalism and with it of society's class divisions and exploitation.  It is the historical responsibility of the working class to give a true alternative to society. The present upsurge in class struggle throughout the world is a necessary step for the world working class's own solution to the crisis: the overthrowing of capita lism and building of a real human community. 

Eduardo Smith 01/15/2009