Austerity won’t save capitalism from declining

Printer-friendly version

After a miserable 2011, characterised by rising unemployment, inflation and increased hardship for workers everywhere, most people were probably hoping that 2012 would offer some hope for improvement or at least some relief from the relentless assaults on living standards.

Unfortunately, such hopes are increasingly utopian as capitalism continues to grapple with the consequences of the worst economic crisis in its history. The remorseless unfolding of the crisis is pushing every aspect of the capitalist social structure towards breaking point at all levels of society.

In the Eurozone, the impossibility of resolving the debt crisis becomes more obvious every day. The head of the IMF has warned that “the world faces an economic spiral reminiscent of the 1930s unless action is taken on the eurozone crisis”. Several countries in Europe were victim of the recent round of credit rating downgrades, most significantly France. France’s situation is important because their rating has a knock-on effect of the perceived stability of the European bail-out mechanisms, which in turn affect market confidence in the ability of Europe to control the crisis.

The reasons given by S&P, the rating agency concerned, is revealing: “we believe that a reform process based on a pillar of fiscal austerity alone risks becoming self-defeating, as domestic demand falls in line with consumers’ rising concerns about job security and disposable incomes, eroding national tax revenues” ( Without growth, debt reduction becomes impossible - and yet the only way capitalism has to stimulate growth is by government intervention, thus increasing debt! Capitalism is caught in a vicious pincer movement from which it cannot escape.

Closer to home in Britain, the latest GDP figures indicate a contraction of 0.2% in the last quarter of 2011, threatening a new recession. Industrial production is in decline once again, down 2.9% in the year to November, indicating that manufacturing’s brief renaissance on which the ruling class had pinned their hopes has now run out of steam.

Headlines were also made as government net debt passed the £1 trillion mark. The net debt of the state is now 61% of GDP with gross debt at 81%. In fact, Britain’s state debt is lower than that of France and Germany, but its deficit (i.e. the rate at which that debt grows) is much higher. But although it’s state debt that continues to grab the headlines, this focus serves to mask a far deeper problem at the root of the capitalist economy.

Overall debt in Britain (public and private sector) is a staggering 507% of GDP. This means that the entire country would have to work for nothing for 5 years to repay it! The liabilities of the finance sector alone are well over 200% of GDP.

Debt is a form of capital and, like all capital, has to be worked in order to maintain its value and to grow. In practice, this means that it must employ workers who must then produce surplus value (i.e. the value above and beyond what workers have to consume in order to live) which is then paid to the boss in the form of profit. Out of this profit, the capitalist pays back the original capital plus interest. Obviously workers can take out credit too, in which case they pay the interest directly to the capitalist out of their own wages. When governments borrow, they pay back their loans from taxes which are taken from company profits (produced by workers) or wages (again, from workers).

If the borrower cannot squeeze enough surplus value out of the working class to pay off the debt (with interest) then the capital becomes worthless, capitalists go out of business and defaults on the loan while workers are laid off. If many borrowers encounter this problem, a whole wave of such defaults can wipe out the banking system. This is precisely what nearly happened in 2008.

The enormous scale of the debt problem shows quite clearly the underlying structural crisis facing capital, one that can only be answered by extracting more and more value from the working class.

All the left and liberal campaigns about making the rich pay their taxes are thus based on a fantasy. Forcing the rich to pay their taxes so that the state can pay back money to ... the rich! And even were they actually carried out, they wouldn’t begin to scratch the surface of the wider problem as the gigantic level of debt indicates.

What about the argument that austerity measures are self-defeating and should be stopped? The left often points this out and, as we saw earlier, elements within the economic apparatus of the ruling class sometimes also support this view. The problem with this approach is that this inevitably means contracting more debt to fund government spending. It doesn’t help capitalism extract more value from workers (unless, as is often the case, the increased deficit spending creates inflation) and thus doesn’t solve the underlying problem. Growth may appear to take off but actual profits remain depressed, debt increases until it becomes obvious it cannot be repaid, markets panic and the economy falls into recession. In other words, a replay of the same scenario that brought capitalism to the current precipice.1

The so-called “debt crisis” is not really about debt, but a crisis at the level of the capital-labour relationship. Essentially, capitalism cannot exploit us enough to keep itself going and must increase that exploitation as much as it can. Whatever form it takes (government spending cuts, unemployment, pay freezes, etc.), the current austerity is absolutely essential from the point of view of capital and there is no choice about it as long as the system remains in place. The only question is how far they feel they can go in implementing that austerity before the working class feels compelled to respond.

Selling austerity to the workers

So far in Britain, the ruling class has been quite successful in its efforts to impress this reality upon the majority of the population. In spite of some high profile strikes and protests, like the big public sector strike on November 30th, a recent poll   ( suggests 74% of the population support the current programme of cuts. Whatever the merits or otherwise of such polls, it is clear that the response to the avalanche of crisis and austerity has had a mixed reaction within the mass of the working class.

Nonetheless, the ruling class is keeping a close eye on the social front. The determination and violence of the student struggles, while not posing any immediate or direct threat to class rule, reminded the ruling class that the proletariat is not completely under the thumb. The naked application of state force against the students had the potential to strip away illusions about democracy from a whole generation. The explosion of long-term unemployment amongst both the young and the old also has the potential to radicalise the population. The present capitalism has to offer young people is highly indicative of the future it has to offer the whole of society, while unemployment amongst older workers makes the programme of attacks on pensioners harder to sustain ideologically - it is difficult to convince workers that they’ll have to work longer when work itself is so hard to come by.

The bourgeoisie have thus maintained a whole series of campaigns with the aim of keeping the myth of democratic debate alive. To start with, the Labour party maintained the position that the cuts were going “too far, too fast”. As public support has shifted behind the cuts agenda, this element is no longer needed and Labour is even more blatantly pro-cuts. This has manifested in the recent questioning of Miliband’s leadership and Ed Balls’ proclamations in favour of a pay-freeze for public sector workers.

One strand of Labour’s ideology that has been taken up more widely, however, is the issue of “fairer capitalism”. Labour has run a sustained campaign on this question and now Cameron has recently jumped on the bandwagon with his recent critique of the “out of control” bonus culture in the banks and talk about making “everyone share in the success of the market”.

The flipside of the “fairer capitalism” campaign is the open season on bankers’ bonuses. The entire media have joined in the circus with politicians and media pundits from across the political spectrum lining up to criticise the £963,000 share option given as a bonus to the boss of RBS, on top of his £1.2 million annual salary. The monolithic nature of this theme across left and right is an indicator that this is no accident but a co-ordinated effort to provide a public target for the growing anger of the masses and allows the ruling class to hide the true depth of the underlying systemic crisis.

What the ruling class fears above all is that the necessary acceleration of the attacks could still trigger a radical response within the working class. With no alternative but to push ahead regardless, the incessant ideological assaults are aimed at ensuring that workers’ questions about the future of society stay locked within the stultifying framework of capitalism. 

Ishamael 28/1/12


1. It will be noted that the explanation for the origins of the present crisis in this article expresses a minority view within the ICC, since it emphasises the problem of extracting sufficient surplus value rather than the problem of realising it on the market. Both approaches, however, are consistent with our overall marxist framework which insists that the crisis does not derive from surface phenomena like the tricks of the bankers but from the fundamental social relation in this society: “the capital-labour relationship”. 

Recent and ongoing: