Capitalist Economy: Is there a way out of the crisis? (part 1)
Since August 2007, with the collapse of the ‘sub-prime' loans, we have seen further convulsions in the world capitalist economy. Bad news is followed by worse news: rates of inflation are spiralling (in the USA, 2007 was the worst year since 1990); unemployment is rising; the banks have announced billion dollar losses, the stock exchanges have gone down and down; the indicators for growth in 2008 have been revised downwards several times.... These ‘economic' phenomena have a very real and tragic impact on workers' lives: losing your job, losing your home, seeing your pension ebbing away. All this is very powerfully affecting millions of anonymous human beings whose feelings and concerns don't make the headlines.
What stage have we reached in the historic evolution of capitalism?
Faced with a new eruption of the crisis, what do the experts tell us? There's an answer for every taste: there are the catastrophists who see the apocalypse round the corner; there are the optimists who say that it's all down to speculation, but the real economy is doing well. However, the most common explanation is that we are looking at a ‘cyclical' crisis like so many others that capitalism has been through in its history. Therefore, they advise, we should remain calm and go with the wind, because we will soon be sailing in the calmer seas of prosperity...
This ‘explanation' uses as its model, like a yellowing photograph, a picture of what happened in the 19th century, but which is no longer applicable to the real conditions of capitalism in the 20th and 21st centuries.
The 19th century was the epoch of capitalism's ascent and outward expansion across the whole world. Periodically, however, it was shaken by crises, as the Communist Manifesto highlighted:
"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 breaks out an epidemic that, in all earlier epochs, would have seemed an absurdity - the epidemic of over-production. Society suddenly finds itself put back into a state of momentary barbarism; it appears as if a famine, a universal war of devastation, had cut off the supply of every means of subsistence; industry and commerce seem to be destroyed; and why? Because there is too much civilisation, too much means of subsistence, too much industry, too much commerce. The productive forces at the disposal of society no longer tend to further the development of the conditions of bourgeois property; on the contrary, they have become too powerful for these conditions, by which they are fettered, and so soon as they overcome these fetters, they bring disorder into the whole of bourgeois society, endanger the existence of bourgeois property. The conditions of bourgeois society are too narrow to comprise the wealth created by them".
This periodic entry of capitalist society into a phase of collapse had two main causes, which are still present today. First, the tendency towards overproduction, as described in the Manifesto, resulting in hunger, poverty and unemployment, not because there was a shortage of goods (as had been the case with previous societies) but on the contrary because of an excess of production, because there was too much industry, two much commerce, too many resources! Secondly, because capitalism functions in an anarchic way through ferocious competition which pits one enterprise against another. This results in a constant repetition of moments of uncontrolled disorder. However, because there were still new territories to be conquered for wage labour and commodity production, sooner or later it was possible to overcome these moments thanks to a new expansion of production that extended and deepened capitalist relations of production, especially in the central countries of Europe and in North America. In this epoch, the moments of crisis were like the beating of a healthy heart and periods of want were soon replaced by new periods of prosperity. But even at that point Marx saw these periodic crises as something more than an eternal cycle, which would always give rise to new phases of growth. He saw them as expressions of the profound contradictions which lay at the roots of the capitalist system and which would ultimately lead to its ruin.
At the beginning of the 20th century, capitalism had reached its peak. It had spread across the whole planet. The greater part of the globe was dominated by wage labour and commodity production relations. It thus entered into its period of decadence:
"At the origin of this decadence, as with the other economic systems, lies the growing conflict between the development of the productive forces and the relations of production. Concretely, in the case of capitalism, whose development had been conditioned by the conquest of extra-capitalist markets, the First World War constituted the first significant manifestation of its decadence. With the end of the colonial and economic conquest of the world by the capitalist metropoles, the latter were forced to confront each other in the dispute for each other's markets. From then on, capitalism entered into a new period of its history, defined by the Communist International in 1919 as the epoch of wars and revolutions" (Resolution on the international situation, 17th ICC congress, 2007).
The essential features of this period are, on the one hand, the outbreak of imperialist wars, expression of the deadly struggle between different capitalist states to extend their influence at the expense of others, of the battle to control a world market which has become increasingly narrow and could no longer provide a sufficient outlet for such an abundance of rivals; on the other hand, there is a growing tendency towards overproduction, so that economic convulsions pile on top of each other. In other words, what characterises the 20th and 21st centuries is that the tendency towards overproduction - which in the 19th century was temporary and could easily be overcome - has become chronic, subjecting the world economy to a semi-permanent risk of instability and destruction. Meanwhile competition - a congenital trait of capitalism - became extreme and, crashing up against the limits of a world market which constantly verged on saturation, lost its role as a stimulant for the expansion of the system, so that its negative side as a factor of chaos and conflict came to the fore. The world war of 1914-18 and the Depression that began in 1929 were the two most spectacular manifestations of the new epoch. The first resulted in 20 million deaths and untold suffering, inflicting the most terrible moral and psychological trauma on entire generations. The second was a brutal collapse leading to unemployment rates of 20-30% and atrocious poverty among the workers of the so-called ‘rich' countries, the USA in particular.
The new situation of capitalism on the economic and imperialist level led to important changes on the political level. In order to ensure the cohesion of a society facing chronic overproduction and violent imperialist conflicts, the state, ultimate bastion of the system, intervened massively in all aspects of social life and above all the most sensitive: the economy, war, and the class struggle. All countries headed towards a state capitalism that took on two basic forms: the one falsely labelled ‘socialist' (a more or less complete statification of the economy) and those defined as ‘liberal', based on a more or less open association between the classical private bourgeoisie and the state bureaucracy.
This brief summary of the general characteristics of the present historical epoch can help us situate the present crisis, analysing it in a considered way and avoiding both alarmist catastrophism and all the optimist demagogy about the ‘cyclical' crisis.
40 years of crisis
After the Second World War, capitalism, at least in the big metropoles, entered a more or less long period of prosperity. The aim of this article is not to analyse the causes of this, but what is certain is that this phase (contrary to all the sermons of the governments, trade unionists, economists and even some people who called themselves ‘marxists', telling us that capitalism had definitively overcome its economic crises) began to come to an end in 1967, first with the devaluation of the Pound, then the Dollar Crisis of 1971 and the so-called ‘oil crisis' of 1973. With the recession of 1974-75, a new stage was reached and the convulsions got worse. Summarising very rapidly, we can mention: the inflationary crisis of 1979 which hit the main industrialised countries, the debt crisis of 1982, the Wall Street crash in 1987 followed by the recession of 1989, the new recession of 1992-93 which caused disarray in all the European currencies, the crises of the Asian ‘tigers' and ‘dragons' in 1997 and the crisis of the ‘new economy' in 2001. Can this succession of shocks be explained by grafting on the formula of the ‘cyclical crisis'? No, a thousand times no! The incurable sickness of capitalism is the result of the dramatic lack of solvent markets, a problem that has not ceased to sharpen throughout the 20th century and which reappeared violently in 1967. But unlike in 1929, capitalism today has been able to face up to this situation armed with the weapon of massive state intervention, allowing it to ‘go with' the crisis in order to avoid an uncontrolled collapse.
What is the main tool used by the state to try to rein in the runaway horse of the crisis, enabling it to soften, delay, avoid - at least in the central countries - its most catastrophic effects? Experience has shown us that this tool is the systematic resort to credit. Thanks to debts that have reached colossal proportions in a relatively short span of time, the capitalist states have created an artificial market that has offered an outlet to mounting overproduction. For 40 years, the world economy has managed to avoid disaster through increasingly massive doses of debt. Debt to capitalism is what heroin is to an addict. The drug of debt has made sure that capitalism has managed to stay standing, albeit leaning on the arm of the state, whether ‘liberal' or ‘socialist'. The drug gives it moments of euphoria where it feels that it is living in the best of all possible worlds, but more and more frequently it is plunged into periods of convulsion and crisis, such as the one we entered in August 2007. As the dose increases, the drug has less and less effect on the addict. He needs a bigger and bigger dose to achieve a high that gets weaker and weaker. This is what has happened to capitalism today! After 40 years of injecting the credit drug into its raddled veins, the world capitalist economy is finding it harder and harder to get into new periods of euphoria.
This is what is happening now. Last August we were told that everything had gone back to normal thanks to the loans injected by the central banks into the financial organisations. Since then, they have injected no less than five hundred billion euros in three months, without this having significant effect. The ineffectiveness of these measures ended up sowing panic and January 2008 began with a general fall in the world's stock markets. In order to stop the bloodletting, in the USA government and opposition joined hands with the Federal Reserve to announce, on 17 January, the miracle remedy - an $800 dollar cheque to all households. However, such a measure, which had been very effective in 1991, led to a new fall in the stock market on 21 January - as grave a decline as the debacle of 1987. On the same day, the FED urgently reduced the rate of interest by three quarters of a point, the biggest reduction since 1984. But on 23rd January the world's stock exchanges, except for Wall Street, went through another plunge. What is the cause of this continuing slide, despite all the credits pumped in by the central states, using all the resources available to them: the loans to banks between August and November, reductions in interest rates, fiscal reductions? The banks, used on a massive scale by the state as a way of drawing companies and households into a spiral of debts, now find themselves in a pitiful state, beginning with the really big ones like Citigroup, and are announcing a series of enormous losses. There is much talk of a phenomenon which can further aggravate the situation: a number of insurance companies, which specialise in reimbursing banks for their ‘bad' credit linked to subprime mortgages, seem to be having a hard time keeping this up. But there is an even more worrying problem that is shaking the world economy like a tsunami: the resurgence of inflation. During the 1970s, inflation made life extremely difficult for anyone on a modest income, and it is now returning with a vengeance. This shows that the resort to credit and state capitalist measures did not eliminate it, but simply put it off to the future. There is a real fear that it will start to reach runaway levels and that the gigantic loans to the central banks, the fiscal reductions and cuts in interest rates, will drive it even faster without getting production going again. The general fear is that the world economy is entering into a phase of so-called ‘stagflation', in other words a dangerous combination of recession and inflation, which for the working class and the majority of the population would mean a new flood of redundancies and a growing difficulty in meeting the rising costs of basic necessities. To which we can add - and this is just one example - 2 million American households unable to pay their mortgages.
Like a drug, the desperate resort to credit little by little undermines the foundations of the economy. From this brief analysis of the situation in recent months, we can see that we are facing the most serious convulsions of world capitalism in these 40 years of crisis. And it is by looking at the last 40 years, rather than at the last few months as the economic ‘experts' do, that we will gain a much clearer picture of the real direction of the world economy. We will return to this in a second article, where we will show how the bourgeoisie has no choice but to push the most brutal effects of the crisis onto the backs of the workers; and we will try to provide an answer to the question: is there a way out of the crisis?
Translated from Accion Proletaria 199, January-March 2008, the ICC's publication in Spain.