Bleak prospects for the world economy

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Contribution from a sympathiser which examines the background to the convulsions shaking the world economy and the way they may develop in the period ahead.

The recent economic crisis began with the explosion of the ‘sub-prime' mortgage market in the US and has been jolting the world economy with aftershocks ever since. The bourgeoisie has mobilised the full resources of the state, intervening on a global scale, in an effort to contain the crisis of the financial system which, if left to itself, would most likely have imploded.

Unfortunately, although the strategy has managed to prevent a complete rout of the financial apparatus, the crisis has not been resolved. In terms of surface phenomena, the shockwaves have now rippled through every sector of the world economy. It now seems certain, even in a best case scenario, that the world economy will experience a sharp slowdown with individual countries being more or worse hit depending on their specific economic weaknesses. And, for Marxists, it goes without saying that the strategies of the bourgeoisie have done nothing to counter the underlying systemic contradictions of a decadent capitalist economy.

Nonetheless, as with all previous crises, history cannot stand still. The crises of the 70s gave birth to ‘Thatcherism' and ‘Reaganomics'. The crises of the 80s led to the downfall of the Soviet Union and the development of ‘globalisation'. We are now standing on the cusp of a new period in the unfolding drama of decadent capitalism. It is impossible to see the exact form which capitalism will evolve in the coming period but it seems possible to trace two major tendencies that will undoubtedly impact on that evolution.

The historic decline of the US ...

The process of US decline has been an incipient worry for that bourgeoisie ever since the 70s, when the economic crisis reasserted itself exacerbated by the US's entanglement in Vietnam. Increasing commercial competition from Japan and the impact of the crisis at home, led to talk of ‘imperial overstretch' - the worry that the US would be unable to meet its strategic military commitments with the decline in its economic performance.

The policy of containing the Soviet Union, most closely associated with the Reagan administration, and the increased military spending of this period appeared to demonstrate that these worries were for nothing. In fact, the Western bloc suffered enormous drains on its resources which were overcome only by new mechanisms of deficit spending which allowed the great powers to square the circle to some extent, even if it only put off the day of reckoning.

The US was able, through mechanisms such as the IMF and the World Bank, to co-ordinate the response to the crisis to some extent. Even after the break-up of the US military bloc, the US was able to maintain its economic dominance through these mechanisms and also through its position as the ‘world locomotive'.

Today, the US's capacity to continue in this role is becoming visibly weaker. The ‘Washington Consensus' - a global strategy based on neo-liberalism and massive debt - is now lying in tatters. Not only has the US been severely wounded by the current crisis, its financial apparatus has been forced to go to its former subordinates in the Middle and Far East for hand-outs in order to maintain the stability of its banking system. Although this has been successful up to a point, it represents a long-term weakening of the US's global economic position and a transfer of power to these smaller financial players. The continuing current account deficit is also a sign of this long-term weakening, because it depends on other players in the world economy to essentially fund American consumption. This was possible while the US provided the world reserve currency, but the US's current fiscal policy, which has flooded the world with cheap dollars, is now causing the economies of China and India to dangerously overheat. US decline will more and more put the dollar into question.

... Leads to the break-up of the world economy

The use of the dollar as the world's reserve currency has been a lynchpin of global economic strategy since the Second World War. The collapse of Bretton Woods in the 70s was simply the first step in the unravelling of this policy even though it did, initially, allow the US and the world economy to prevent an immediate collapse. Moreover, the bourgeoisie worldwide made conscious efforts to resist any effort to return to the ‘beggar-thy-neighbour' policies of the 30s which not only failed to resolve the crisis but also provided fertile ground for the drive to war.

Today, as American authority continues to unravel, this consensus is beginning to break down. The first signs of a new phase of American weakness were signposted several years ago when the ‘developing nations' became much more assertive in the world trade talks. The new crisis has put protectionism firmly back on the agenda both in the US and internationally. The Doha Round of trade talks has still failed to reach agreement, despite being in progress since 2001! In addition, the apparent stability of the Euro as compared to the dollar will undoubtedly shift the balance of financial power back toward Europe.

However, even the Euro area will have problems due to the pressures created by the differing economic performance of the member states. Supporters point out that the US has the same problem with the dollar and the varying regions of the United States, but the various US states have a history of unity far longer than Europe and don't have developed regional bourgeoisies in the way that the European Union does. There are thus very powerful centrifugal forces threatening the integrity of the Euro that can only be exacerbated by the current crisis, particularly if it proves to be long-term.

Another step into the abyss

The exact pace that these tendencies will work out their logic in the world economy is impossible to foresee. For the moment, despite enormous pressures, the bourgeoisie is aware of the stakes in the current situation and its more lucid segments will do everything in their power to prevent such a disintegration taking place. Nonetheless, it seems possible that we could have reached a point that will have as crucial repercussions in the world economy as the collapse of the Eastern bloc had nearly 20 years ago. They also demonstrate clearly the growing impasse of the entire capitalist system. So far, the world economy has not suffered the spectacular effects of decomposition that have been visible in the social and political spheres. If the economic sphere begins to disintegrate, then all the other self-destructive tendencies of decomposing capitalism will be unleashed on a new and unprecedented scale.

The only solution to this growing threat to human civilisation is the conscious dismantling of capitalist society and its replacement with one based on truly human values. The bourgeoisie cannot entertain this as an option while the other classes in society have no alternative vision. Only the working class, the revolutionary proletariat, can destroy this rotting system before it destroys humanity.  

Silver (1/10/8)

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