The deepest and longest economic recession in
the advanced capitalist economies since the 1930s is more or less
over. But it won’t be long before capitalism plunges into another.
That won’t happen in 2010, but there will be another economic slump
before the new decade is out.
The Great Recession was great
because it was very deep in the contraction that global capitalist
production suffered for over 18 months from the beginning of 2008 to
mid-2009. Most of the top capitalist economies experienced a real fall
in national output of between 5-7% over that period, while exports
slumped by up to 25% and unemployment rose 60% (and is still rising).
The
Great Recession was also great because it lasted the longest time
(around 18-24 months) of any economic slump since the Great Depression
of the 1930s. And it was also great because it affected every part of
the globe from the US to Europe to Asia and to all the so-called
emerging capitalist economies of Latin America, Africa, Eastern Europe
and the Middle East. No country escaped – a far wider impact than even
the Great Depression.
But now there are recovery signs
everywhere. In nearly all the advanced capitalist economies, namely
the G7 countries of the US, Canada, Europe’s big four and Japan, there
has been a rise in national output in autumn 2009 that has continued up
to Christmas. There is every likelihood that these economies will
continue painfully to recover some life as we go through 2010 and
beyond.
Only the UK is still mired in recession. And that is no
accident. The UK is lagging the others because it is a rentier
economy, heavily dependent on making its profits from earning interest,
dividends and fees on money and capital deposited in the City of London
by Middle Eastern oil states, European banks and corporations and Asian
exporters.
The UK financial sector suffered a massive hit
from the credit crunch when the huge speculative bubble in exotic
financial scams, real estate and the stock market finally burst asunder
in 2007, starting in the US and quickly spreading to the UK. As we
know, some of the biggest banks had to be bailed out by the government
at huge cost, while others bit the dust.
The UK’s huge
financial sector and its associated property and professional services
provide up to 20% of annual GDP and over 40% of the profits of British
capitalism. The cost of bailing out the fat cats in the bank
boardrooms has tripled the annual deficit that the government runs on
its income (taxation) and spending. And it has a doubled the debt that
the public sector now must pay interest on to the holders of government
bonds.
The British New Labour government allowed the
financial sector to create a huge credit and property bubble. And when
it burst, they bailed out these financial sharks. They did not take
over the big banks, writing off the debts at the shareholders expense
and sacking all bank management responsible. On the contrary, the
government recompensed the shareholders and kept most of the managers
in place, while making token gestures on controlling their grotesque
salaries and bonuses. It has become business as usual for the banks now.
The
cost of this financial disaster has so far been funded by the
government borrowing money by issuing bonds at good interest rates to
the banks themselves or directly to the Bank of England, which in turn
has just printed money to buy the bonds.
So the real cost has
been put off – but eventually the piper must be paid. Taxes are set to
rise sharply in 2010 and beyond, while public sector workers
(completely blameless for this credit crisis) are to have their wages
frozen and their jobs cut.
The banks could have been taken
over and run by the public sector. Shareholders would have taken the hit,
bank managements removed and the bonus culture ended, with new lending
to small businesses started to help them through the crisis. But that
would have meant an end of the profitability of UK’s financial sector –
the key to British capitalism. So it could not be.
The UK
economy has still not bottomed as we go into 2010 and its recovery
next year is likely to be the weakest in the G7. The UK economy
contrasts with Australia, a capitalist economy that relies on sales of
its huge mineral and food resources to Asia, particularly China. With
China continuing to grow, boosted by massive state spending on roads,
bridges and other schemes, along with state-directed cheap bank loans
to industry, that has increased the demand for Australia’s iron ore,
coal and other minerals. So Australian capitalism had a relatively
mild recession compared to unproductive financially-driven British
capitalism.
Some of the so-called emerging economies also
experienced a shallower downturn, either because they depend less on
world trade than others (India) or because their exports are mainly
food where demand tends to hold up (Brazil). But others took massive
hits to their economies. The ‘new’ capitalist economies of Eastern
Europe saw falls of over 20% in national output, the biggest drops
since the collapse of the Stalinist regimes just 20 years ago. And
next year will be very hard for the people of the Baltic states and
south-eastern Europe in particular.
Everywhere, as we go into
2010, the capitalist world is saddled with new debt, mainly in the
public sector, because governments have bailed out the capitalist
sector with borrowed or printed money. Also, governments have borrowed
to provide handouts to businesses and households through tax cuts and
special benefits to avoid capitalism dropping even further into a Great
Depression.
Indeed, there is still a risk that the sheer burden
of debt will cause a new economic slump, a double-dip recession as it
is called. There have been tremors in places as far a field as Dubai,
with its property collapse; Austria with its banks going bust because
of losses in Eastern Europe; and Greece, where the public sector debt
burden has reached astronomical proportions.
Nevertheless, for
now, the world economy is turning up. But economic growth will be
weaker than after the last mild economic slump of 2001. The G7
economies will do well to achieve 2% real GDP growth in 2010, while the
world as a whole may manage 5%. That’s not enough to keep pace with
new people coming onto the labour market looking for jobs. So
unemployment will continue to rise and stay at their highest levels
since the 1970s.
At the same time, everywhere businesses are
still left with huge amounts of excess capacity in the form of idle
plant and machinery, stocks of raw materials and aging technology.
That won’t help boost profitability while it remains unused.
That
is why we can expect a new capitalist slump not to be too far away. We
won’t have to wait another nine years for the next contraction, as we did
between 1982 and 1991 or between 1992 and 2001, or between 2001 and
2009.
We are in a very weak period for capitalism, so
profitability will stay low and eventually start to fall back again.
That will keep the accumulation of capital, or investment weak. Excess
capacity will have to be written off and or run down further for a
really ‘healthy’ period of growth to begin. So another recession is coming.
There is likely to be no more than a three to four-year
period of expansion leading up to 2014, as happened between 1975 after a
worldwide economic slump and 1979, when the world descended into
another slump that lasted between 1980-2. Again, after the Great
Depression of 1929-32, the world economy recovered for about four years
to 1937, before dropping back again.
In the meantime,
unemployment will stay the highest that it has been for over 25 years,
work incomes will hardly grow, while public debt will be so high that
taxation will rise and public services and employment will suffer.
Happy New Year!
