The capitalist system is passing through its deepest crisis since
the 1930s and the Great Depression. The apologists of capitalism –
including those in the labour movement – had completely ruled out such
a scenario. After all, they explained, capitalism has changed and
governments are now able to over-come any deficiencies experienced by
the markets. They have learned the lessons of the 1930s.
“Never again will we experience the horrors of the inter-war
period”, the apologists of capital claimed. “We have abolished boom and
slump”, was their confident boast. Consequently, they declared that the
ideas of Marxism were completely out of date.
these people are being forced to eat their words. “Today, they are
struggling with the deepest recession since the 1930s, a banking system
on government life-support and the danger of deflation. How can it have
gone so wrong?” These are the words of Martin Wolf, economic strategist
at the ‘Financial Times’. “Most of us – I was one – thought we had at
last found the Holy Grail. Now we know it was a mirage.” (FT, 6/5/09)
“We have gone to the edge of an abyss that few thought was ever
possible”, stated Stephen Roach, chairman of Morgan Stanley, Asia. “If
the world pulls together, we can avoid the Armageddon endgame.”
According to Bernie Sucher, head of Moscow operations at Merrill Lynch,
“Our world is broken – and I honestly don’t know what is going to
replace it. The compass by which we steered as Americans has gone.”
(FT, 10/3/09)
Marxism long ago predicted this deep crisis. “In the coming epoch”,
wrote Ted Grant and Alan Woods, “a new depression on the lines of
1929-31 is inevitable.” (World Perspectives, 1994) It was not possible
to establish the precise timing of this eventuality as economics is not
an exact science. However, while Marxism cannot provide a timetable of
events, it can analyse and explain the general processes and
contradictions unfolding within capitalism.
Ever since its origins, the boom and slump cycle has been an
inherent feature of the capitalist system. It is equivalent to the
normal inhaling and exhaling of a human being. However, capitalism has
piled up contradiction upon contradiction, which at a certain point,
was always destined to produce a massive collapse of the productive
forces. Over a sustained period, in an attempt to escape from these
contradictions, astronomic amounts of fictitious capital and credit
were artificially pumped into the capitalist system. The Federal
Reserve made three interest rate cuts to boost consumer spending in
1998, to levels not seen since the 1950s. As a result, the personal
consumption share of real GDP rose from 67% in the late 1990s to 72% in
the first half of 2007. The booming housing market – a classic
speculative bubble – also allowed extensive borrowing on the increased
paper value of property. This created the biggest credit bubble in
history. Credit, which allows capitalism to go beyond its limits by
temporarily expanding the market, exploded. Nevertheless even cheap
credit has its limits. Debts have to be repaid with interest sooner or
later. House prices can fall. The “credit crunch” was an expression of
this limit as borrowers began to default on a massive scale. All the
factors which served to fuel the boom have now dialectically turned
into their opposite, causing a mighty crash.
World capitalism is experiencing a deep slump – indeed in many ways
the present crisis is potentially even more serious than that of
1929-33. Its scope is much wider than the thirties and its impact has
been far swifter.
Between 1929 and 1933, the decline of industrial production in the
United States was more than 48%. The decline in the current crisis has
been similar, with US industrial production falling by 12.5% over the
last 12 months. In Japan, the situation has been more serious with
industrial production falling by 37% in 2008 and a projected fall of
25% this year, making the decline over two years more than 60%. In the
Euro zone the fall in industrial production over the last year was in
the order of 20%. In Eastern Europe and the Baltic States the situation
is extremely grave, with Hungary chalking up a fall of 29% in
industrial production over the last year. The exposure of Western banks
in the region is a massive $1,600bn, a significant proportion held by
Austrian banks, an ominous reminder that it was the collapse of the
Austrian Credit-Anstalt bank that further intensified the slump in 1931.
Despite all the talk of “green shoots” of recovery, the situation
remains extremely serious for capitalists internationally. According to
two leading economists, Barry Eichengreen and Kevin O’Rourke, the
recent slide of global industrial output tracks the decline in output
during the Great Depression “horrifyingly closely”. Within Europe, the
decline in the industrial output of France and Italy has been worse
than at the same point in the crisis as in the 1930s. In Britain,
Germany, USA and Canada, the fall has been very similar.
The collapse in the volume of world trade, at around 10%, has been
far worse than was the case during the first year of the Great
Depression. Despite the recent bounce, the fall in world stock markets
is far larger than during the corresponding period of the Great
Depression. The conclusion of both economists is posed starkly:
“Globally we are tracking or doing even worse than the Great
Depression… This is a Depression-sized event.”
What we are experiencing is a fundamental crisis of capitalism, with
collapsing markets and over-production, leading to mass unemployment
and cuts in living standards across the world. Apologists of capitalism
today talk glibly of the crisis being caused by various things, such as
“de-regulation”, speculation (‘short-term’ selling), lack of credit,
bad luck and so forth. We would say that these are nothing more than
the appearances of crisis as opposed to the real causes of the crisis.
While there are many secondary causes of capitalist crisis inherent in
“the real movement of capitalist production, competition and credit”,
Marxists have always explained that in the final analysis real
capitalist crisis is always a crisis of over-production. This means
general over-production, both of consumer and capital goods for the
purposes of capitalist production. This in turn, is caused by the
market economy, and the division of society into mutually conflicting
classes. Such a phenomenon is peculiar to capitalist society alone.
“The ultimate reason for all real crises”, explained Marx, “always
remains the poverty and restricted consumption of the masses as opposed
to the drive of capitalist production to develop the productive forces
as though only the absolute [physical] consuming power of society
constituted their limit.” In other words the capitalists are constantly
revolutionising production, throwing enormous amounts of commodities
onto the world market, which periodically come into conflict with the
limits of consumption caused by the exploitation of the masses who are
unable to buy the goods they produce, having been robbed of the full
fruits of their labour by the bosses.
Capitalists do not simply sell commodities, but aim to sell them at
a sufficient profit to accumulate wealth for themselves. In a slump,
they cannot continue to sell their commodities at a price that
guarantees the necessary average rate of profit for the bosses. Prices
are reduced. The surplus-value contained within the commodities cannot
be realised as before, resulting in a collapse of profits. Factories
are therefore closed and workers made unemployed, further reducing
demand for consumer and capital goods in an ever downward spiral.
“In these crises there breaks out an epidemic that, in all earlier
epochs, would have seemed an absurdity – the epidemic of
over-production”, explained Marx.
Capitalist economists do not like referring to “over-production”,
but prefer the term “over-capacity”, which is basically the same thing
and expresses the limits of the market. “The world is awash with
goods…” explained ‘Newsweek’.
“For economists, over-capacity is a tricky concept. Human wants are
unlimited, so how could the world ever produce too much of a good
thing? The key is what people can pay: In many goods sectors, prices
still aren’t low enough to bring forth enough buyers. There will have
to be some combination of falling prices and destruction of productive
capacity before supply and demand come back into balance.” (Newsweek,
4/2/09)This crisis of over-production has been unfolding on a world scale.
As the ‘Newsweek’ article continues,“That’s not to say the Obama
Administration is on the wrong track with its nearly $900 billion-plus
stimulus plan. But it’s important to have realistic expectations. The
stimulus can ameliorate the downturn, but not prevent continued
contractions in the sectors of the economy where global over-capacity
is the most extreme. The world is able to make 90 million vehicles a
year, but at the current rate of production, it’s making only about 66
million, according to estimates from market researcher CSM Worldwide.
Global production of semiconductor wafers is running at only about 62%
of capacity, estimates market researcher iSuppli.”
In relation to car production, ‘Business Week’ makes the following
observation: “Having indulged in a global orgy of factory-building in
recent years, the industry has the capacity to make an astounding 94
million vehicles each year. That’s about 34 million too many based on
current sales, according to researcher CSM Worldwide, or the output of
about 100 plants.” The article continues, “To become profitable,
according to Michelle Hill of consulting firm Oliver Wyman, U.S.
automakers will need to close at least a dozen of their 53 factories in
North America in the next few years.” (Business Week, 31/12/08)
As we can see, we are not simply dealing with a normal cyclical
crisis of capitalism. Such crises will continue periodically until the
death of capitalism itself. Today we are seeing a cyclical crisis
exacerbated by what Marxists refer to as an organic crisis of the
capitalist system itself. Capitalism has become a barrier to the
development of society, where the productive forces – industry,
technique and science – are increasingly constricted and hemmed in by
the nation state and private ownership of the means of production. This
organic crisis is graphically illustrated today by the inability of
capitalism to fully utilise the productive forces it has brought into
being. It has become a fetter and drain on the productive forces, which
are the key to the development of society. In times of boom, capitalism
can only use 80% of productive capacity and in times of slump only 65%.
In other words, 20%-35% of production cannot be utilised profitably.
This clearly shows the impasse of the modern capitalist system and the
unprecedented degree to which it is holding back society. “The world’s
productive capacity is simply too big”, explains ‘Newsweek’. “That
means prices need to fall further, or more factories need to close in
the US and abroad, or some combination of the two.” (Newsweek, 4/2/09)
This organic crisis, which emerged with a vengeance during the
inter-war period, was temporarily overcome by the massive development
of world trade following the Second World War. This development in turn
had a dramatic beneficial effect on world production. The whole system
of capitalism, where every factor interacts on every other factor,
requires rising production, investment and an increased market in an
upward spiral. With growing living standards, this provided the system
with relative social stability. The 1974-75 world recession signalled
the end of the upswing and ushered in a new period of crisis where
capitalism could no longer reach the figures of growth, investment,
profitability, etc., of its so-called Golden Age.
While they were able to put off a deep crisis in the 1980s and 1990s
and even into the new century, capitalist crisis has now returned with
a vengeance. Today, all the fundamental contradictions have re-emerged
and have served to intensify the crisis at all levels. World trade has
collapsed, dragging down production. The development of the productive
forces has reached a complete impasse as production tumbles in one
country after another. The anarchy of the capitalist system itself has
become a barrier to the progress of society, with millions losing their
jobs, workplaces closing down and living standards falling. After a
protracted delay of some 50 years, the capitalist system is returning
to its “normal” state of chronic instability. It is what Lenin and
Trotsky called the “historical crisis of the whole capitalist system.”
A further contradiction that bears down upon capitalism and
aggravates the crisis has been the tendency of the rate of profit to
fall. The massive development of the productive forces following the
war meant a colossal increase in investment. As the source of surplus
value comes from the unpaid labour of the working class, the more spent
on capital investment (constant capital) in proportion to that
employing workers (variable capital) eventually results in a falling
rate of profit. Marx referred to this double-edged “law” as a tendency
due to the fact that there were a whole series of counter-veiling
factors, such as the increased exploitation of the working class, which
could neutralise or reverse its effects – for a time anyway.
Throughout the post-war period, this tendency for the rate of profit
to fall intensified the pressures on the capitalist class. After a
period of high profitability throughout most of the 1950s, the rate of
profit began to fall steeply by the mid-1960s. This decline carried on
until the 1980s, when after a series of defeats for the working class,
the capitalists began an all-out offensive to drive up profitability.
The election victories of Thatcher and Reagan were the signal for this
onslaught and a “counter-revolution” on the shop-floor. Down-sizing,
multi-skilling, short-term contracts and other techniques were
introduced. This squeezing of the working class resulted in an increase
in absolute and relative surplus value. In Marxist terms, this reduced
necessary labour-time and increased surplus labour-time, and so
increased the rate of surplus value.
In the last decade, despite the loss of a million jobs, workers in
British manufacturing have increased production by 50%. In other words,
the capitalists have squeezed more unpaid labour from fewer workers.
Other factors, such as pressure on real wages, the cheapening of
commodities, globalisation and the intense exploitation of world
markets also served to increase the rate of profit.
Between 1989 and 1997, US corporate profits increased by about 82%
and the corporate rate of profit by 27.8%. By 1997 profitability in the
corporate sector had returned to within 15% of its 1960’s high. The
non-manufacturing sector had recovered to above its 1969 level to
within 15-20% of its heights in the post-war boom.
Despite a dip in profitability during the recession of 2001, profits went on rising until the financial crisis hit in 2007.
Today, with the world slump, the rate and mass of profit have
collapsed. This is directly linked to the collapse of markets and the
emergence of over-capacity and over-production. As Marx explained, “It
[capitalism] comes to a standstill at a point fixed by the production
and realisation of profit, and not the satisfaction of requirements.” (Capital Vol 3, Chp 15)
The credit boom allowed capitalism to artificially escape serious
crisis for a whole period of time, but by using such measures to extend
the market – and therefore boost their profits – during a time of
upswing rather than downturn, like pouring petrol on a blazing fire,
they in turn laid the grounds for a massive collapse of the financial
framework propping up the whole world capitalist edifice. The virtual
disappearance of bank lending, as the world banking system rushed to
try and shore up their wildly overstretched finance, left many firms
unable to cope with even a small blip in their profits hence the
cascade of closures and downsizing. That which had aided capital in the
past is now having a reverse effect.
This has resulted in a massive attack on the workers in Britain and
elsewhere in an attempt to make them pay for the crisis of capitalism.
British Airways workers were asked to take wage cuts or to work for one
month without pay! The bosses are still intent in cutting wages and
propose the sacking of some 6,000 workers “to save the company”. More
than half of British workers have experienced a cut in pay or hours or
benefits since the recession began. Now six million public sector
workers are being threatened with a pay freeze to help plug the swollen
budget deficit.
This is the real meaning of capitalist crisis for millions of
workers. But despite the difficulties workers are not simply accepting
these attacks lying down. Workers in Royal Mail, London Underground,
Visteon, Vestas, the construction industry and many other sectors, have
taken industrial action, and even occupied their workplaces, in defence
of their livelihoods. There is enormous anger in the ranks of the
working class that is threatening to explode. Even the capitalists are
very worried about this increasing anger.
“There are many questions hanging over global financial markets, but
none more pertinent, perhaps, than the following: will the global
economy rebound in time to quell rising discontent among the millions
of workers who have turned – violently in some cases – against
capitalism?” asks Joe Quinian, a strategist at the Bank of America.
“The capitalist global order was under attack even before the
current crisis began, but the virulence against free enterprise has
become more intense in the last year. And with the global economy in
the midst of the deepest declines since the Great Depression, the
backlash is bound to intensify.” (Financial Times, 12/5/09)
As a result, the capitalists are desperately looking for an economic
recovery. But they are concerned that the present green shoots may well
be no more than a false dawn. However, even when the recovery comes, as
is inevitable, it will be very slow, painful and shallow. There is a
dread that the world economy will go the way of Japan in the 1990s,
with weak growth punctuated by periods of contraction. “Empirical
evidence of the effect of past crises shows … that the economy will not
return to its pre-crisis expansion path but will shift to a lower one.
In other words, the crisis will entail a permanent loss in the level of
political output”, states the recent European Commission report (FT,
3/7/09).
The massive overhang of debt – personal, business and state – will
be a colossal lead weight on the economy. The move to reduce the
unprecedented levels of government deficits will result in massive cuts
to public spending in the years that lie ahead. The British Treasury
thinks that there will be a permanent loss of output amounting to 5% of
national income, making households worse off by around £75bn every year
– forever. Government finances are spiralling out of control. The
Institute of Fiscal Studies believes that public finances, which will
require more than £20bn cuts each year for at least the first
parliament, will not return to “normality” for another two decades.
This means 20 years of austerity! Trish Haines, head of the Society of
Local Authority Chief Executives, stated: “People are talking about
possible reductions in public spending of 10 to 15%, even of up to
30%.” These will be draconian cuts whoever wins the next election.
The capitalist system has now become an enormous fetter on human
society. The re-emergence of this organic crisis has enormous
implications for the working class: a socio-economic system which
proves incapable of developing the productive forces enters into steep
decline. A new era of social revolution has opened up on a world scale,
an era of revolution, counter-revolution and profound instability at
all levels. Such a period will repeatedly propel the working class
internationally to look for a way out of the crisis. It will place the
socialist reconstruction of society on the order of the day as the only
answer to capitalist crisis and the ills that go with it
