The World Economic Crisis: a Marxist Analysis
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The World Economic Crisis: A Marxist Analysis By Nick Beams, 19-25 December 2008, World Socialist Website The following is a lecture delivered by Nick Beams, national secretary of the Socialist Equality Party (Australia) and a member of the International Editorial Board of the World Socialist Web Site, to audiences in Perth, Melbourne and Sydney in November and December, 2008. It is now clear that the greatest financial According to official statistics, all the crisis since the Great Depression is on the major areas of the world economy are now in verge of becoming the deepest global slump recession: the United States, the eurozone, since the economic catastrophe of the 1930s. Britain and Japan. We could spend the entire time available for The growth estimates for China and the this lecture simply enumerating the myriad so-called emerging markets, which, once expressions of this crisis and examining their upon a time—and I use the fairy-tale form far-reaching implications. I propose here to advisedly—were supposed to provide a boost deal only with some of the most significant. to the world economy, are now being revised On November 24, Bloomberg News downwards virtually on a daily basis. reported that after the $306 billion bailout of Like the financial crisis that caused it, the the US bank Citigroup, organised at midnight economic slump is centred in the United the previous day, the US government had States. The number of private sector jobs has now committed itself to providing more than fallen for the past 11 months straight. Some $7.76 trillion to the financial institutions and 533,000 jobs were lost in November—the banks. This amount was the equivalent of half worst monthly decline since December the American gross domestic product (GDP), 1974—with predictions that losses in or $24,000 for every man, woman and child in December will be even greater. At least one the US. quarter of all US businesses plan to reduce Within 24 hours, however, the Bloomberg employment next year. The mayor of Chicago, estimate was outdated after the Treasury Richard Daley, recently warned of "huge" announced that a further $800 billion was layoffs in the rest of the year, comparing being deployed to support mortgage today's "frightening economy" to that of the companies Fannie Mae and Freddie Mac and Depression years of the 1930s. launch a new initiative to provide credit to With unemployment rising and home holders of student loans, auto loans and prices continuing to slide—some 12 million credit card loans. homes in the US are said to be "under water", One reads these figures and asks the that is, worth less than the mortgages on question: who is going to bail out the United them—consumer spending has dived. States? US consumption spending, which Stock markets around the world have comprises around 70 percent of gross tumbled, with an estimated $25-30 trillion domestic product, fell by 3 percent in the third wiped off the value of shares in the past six quarter. According to a survey of economists months. Around 38 percent of the value of conducted by Bloomberg, it will fall by a major companies has been erased. General further 2.9 percent in the fourth quarter and Motors, once the most powerful industrial 1.3 percent in the first quarter of 2009. concern in the world, teeters on the edge of Consumer spending has never declined for bankruptcy. 1 three quarters in a row during the entire post- have decreased since the deep recession of World War II period. 1982. Consumer prices in October fell by 1 On November 15, the leaders of the G20 percent, the biggest monthly drop since 1947. group of countries, whose economies But instead of lower inflation providing a account for about 90 percent of global output, boost to financial markets, it had the reverse met in Washington to discuss proposals to effect. Wall Street took a dive on fears that meet the economic and financial crisis. It deflation, which raises the real level of debt, might have been better if they had not. The could take hold. meeting demonstrated not only that the The Detroit "Big Three"—Chrysler, Ford leaders of world capitalism are bereft of any and General Motors—have been seeking a program to deal with the situation, but the $34 billion lifeline from the government in divisions among them are widening. order to avoid bankruptcy. It is estimated that On the eve of the meeting, Bush, anxious if one or more of the auto manufacturers were to repulse calls for greater regulation, to collapse, around 3 million jobs could be delivered a speech extolling the virtues of the wiped out across the US economy. "free enterprise" system. The summit, he The statistics on the global economy are insisted, had to be devoted, above all, to a as bad, if not worse. According to the reaffirmation that "free market principles offer International Labour Organization (ILO), the the surest path to lasting prosperity". It was financial crisis will lift world unemployment necessary to "move forward with the free- from 190 million in 2007 to 210 million next market principles that have delivered year. And the ILO has warned that the 20 prosperity and hope to people all across the million predicted increase could prove to be globe." One might have wondered whether an underestimation "if the effects of the the speech was actually being delivered by a current economic deterioration are not quickly satirist from "Saturday Night Live", following confronted." Tina Fey's success with Sarah Palin. Last week, in a desperate measure to try Three weeks before the summit, in a to combat the crisis, the Bank of England hearing before a US Congressional lowered its interest rate to 2 percent—equal Committee, the high priest of the free market, to the lowest level since its founding in 1694. Alan Greenspan, the former chairman of the In its latest global outlook report, the Federal Reserve Board, had been forced to World Bank has forecast a growth rate in acknowledge the bankruptcy of the entire 2009 of just 1 percent for the world economy system he had been instrumental in building, as a whole, and a contraction of 0.1 percent and over which he had presided for almost for the high-income countries. According to two decades. the Bank's chief economist, the world now "Those of us who have looked to the self- faces "the worst recession since the Great interest of lending institutions to protect Depression." shareholder's equity, myself included, are in a The OECD, which covers the world's state of shocked disbelief," he said. The risk major industrialised economies, has forecast management system, based on the use of contractions of 0.9 percent, 0.1 percent and financial derivatives, had not only got out of 0.5 percent for the US, Japan and the control but had helped exacerbate the crisis. eurozone respectively. "This modern risk-management paradigm One of the most significant statistics held sway for decades. The whole intellectual concerns world trade. For 2009, the World edifice, however, collapsed in the summer of Bank has forecast a decline of 2.5 percent in last year." The crisis had "turned out to be world trade volumes, compared with an much broader than anything I could have increase of 5.8 percent this year and a rise of imagined. It has morphed from one gripped almost 10 percent in 2006. This will be the by liquidity restraints to one in which fears of first time the actual volume of world trade will insolvency are now paramount." 2 Before the summit opened, the But to put such a system in place is economics commentator of the Financial impossible. The reasons lie in the very Times, Martin Wolf, explained why, in his structure of the world capitalist economy. All view, preventing a global slump had to be the markets are global in scope, but the world priority for governments and central banks. remains divided among capitalist powers— The idea that a quick recession could purge some greater, some lesser. Each section of the world of past excesses was "ridiculous." capital is in a continuous struggle against its "The danger is, instead, a slump, as a global rivals to maintain and advance its profit mountain of debt—in the US, equal to three share. Those that fail to do so go under or are times GDP—topples over into mass taken over by their more powerful rivals. In bankruptcy. The downward spiral would begin this struggle, each section of capital looks to with further decay of financial systems and its "own" national state as a political force proceed via pervasive mistrust, the vanishing through which it can advance its interests. of credit, closure of vast numbers of There exists a conflict of each against all. businesses, soaring unemployment, tumbling As the British magazine the Economist commodity prices, cascading declines in noted: "International finance cannot just be asset prices and soaring repossessions. ‘fixed', because the system is a tug-of-war Globalisation would spread the catastrophe between the global capital markets and everywhere. ... This would be a recipe not for national sovereignty. ... Governments broadly a revival of 19th century laissez-faire, but for welcome the benefits of global finance, yet xenophobia, nationalism and revolution. As it they are not prepared to set up either a global is, such outcomes are conceivable. ... financial regulator, which would interfere Everything possible must be done to prevent deep inside their national markets, or a global the inescapable recession from turning into lender of last resort." There is a fundamental something worse" [Financial Times, October dilemma, it concluded: "[I]nternational rules 29, 2008].