“Rarely have financial markets had a more traumatic start to the year. Shares plunged, the price of oil clattered to its lowest level in 11 years, trading on the Chinese stock market was halted twice, and the World Bank warned that a ‘perfect storm’ might be brewing.
“George Osborne chose his moment well to go public with his concern that the UK faces a ‘cocktail of threats’ . In addition … $2tn [was] wiped off global stock markets…” (Larry Elliott, ‘Is 2016 the year when the world tumbles back into economic crisis?’, The Observer, 10 January 2016).
All the financial pundits are predicting a further lurch during 2016 in the direction of total global economic meltdown of the capitalist system. There are numerous ominous signs in the world capitalist economy that point inexorably to disaster:
“All major economies have higher levels of borrowing relative to GDP than they did in 2007, according to the McKinsey Global Institute.
“Global debt has grown by $57 trillion, posing new risks to financial stability and threatening global economic growth, it warns.
“Last year, total debt stood at 286 per cent of global GDP, and the pile continues to rise as emerging markets try to prop up their ailing economies. China’s has quadrupled in just seven years, to $28tn from $7tn…
“Robin Griffiths, the chief technical strategist at ECU Group, said last year that stock market valuations, as measured by the price-to-earnings ratio, have only been this high on three occasions since 1882: in 1929, 2000 and 2007. No prizes for guessing what happened next .” (Harvey Jones, ‘Are we about to witness global financial meltdown again?’, The National [UAE], 16 January 2016).
Another sign is that the value of goods crossing international boundaries for the purposes of the export/import trade fell by no less than 13.7% in 2015 as compared to 2014, and whereas the volume of trade (as opposed to the value of the goods traded) actually increased by 2.5%, global economic growth increased by 3.1%, “extending a depressing trend in the global economy“, say Shawn Donnan and Joe Leahy in the Financial Times of 26 February 2016 (‘World trade records biggest reversal since crisis’). They further note that China, for example, has reported double digit falls in both exports and imports.
Martin Wolf of the Financial Times considers that the chances of significant recession in the UK before too long are “very high indeed” and that “The same surely applies to the US, eurozone and Japan. Indeed, the imbalances within the Chinese economy, plus difficulties in many emerging economies, make this a risk now. The high-income economies are likely to hit a recession with much less room for conventional monetary loosening than before previous recessions.” (‘Why it would be wise to prepare for the next recession’, Financial Times, 4 February 2016).
Martin Wolf is recognising that the economic crisis is going deeper despite the various Keynesian recipes for artificially boosting demand in an attempt to eliminate overproduction that have been tried; that these attempts have only succeeded in gobbling up the resources of those who attempted them; and that therefore these ‘financial tools’ are no longer available. There is no way left to attempt to slow down the economic meltdown.
A crisis of overproduction
Bourgeois economists find it hard to accept that capitalist economies have a logic of their own which cannot be contravened by human will. It seems to them that a human construct such as a way of structuring economic production must be compliant to the will of humanity. Marx, however, demonstrated theoretically that this was not so, and practice has proved time and time again the correctness of Marx’s theory that capitalism inevitably brings about overproduction and as a result total disruption of the production and distribution of the necessaries of life, exacerbating severely the misery of the masses for decades at a time and sparking off bitter social conflict and war.
Moreover, a crisis of overproduction feeds on itself. What has been produced in excess of demand dampens all further interest in producing, leading to the closure of businesses, the loss of demand for the raw materials and various services that business was formerly using, and the loss of demand for the labour power of its workers whose purchasing power is decimated when they are made redundant. Only when the accumulated stock of goods has been destroyed or exhausted through a long period of slump or some catastrophe such as war has eliminated all overproduced stocks can ‘normal’ capitalist growth return full steam ahead, until it hits overproduction again and the whole miserable cycle starts again.
While bourgeois economists and financial pundits rarely ever admit that the world is facing a still deteriorating crisis of overproduction, they all scream, as the IMF is doing at present, for measures to be taken to boost demand, which is their way of saying the same thing – effective demand has fallen way behind production. However, no government feels it can afford to listen.
Slowdown of the Chinese economy
A major feature of the crisis of capitalism at its present stage of development is the undoubted slowdown of the Chinese economy from years of double digit growth of GDP to the comparatively ‘paltry’. 6.5% growth last year. Even at 6.5%, however, China is still expanding at least twice as fast as any imperialist country and is adding the equivalent of an additional average G20-sized economy every year according to the Financial Times. China cannot afford to stop producing and just like other producers all over the world it cannot prevent itself or be prevented from adding to the overproduction stockpile.
China at least has healthy reserves that puts it in a better position than most to ride out the world economic crisis, but it is by no means immune from the economic crisis in the capitalist world to the extent that it has become dependent on selling the products of its industry to that world. In January China’s imports were down 11% while its exports slid 18%, for instance. It does not take much imagination to realise the disruption to China’s internal economic life that these enormous decreases must necessarily cause. However, if the world economic crisis is causing trouble for China, China’s economic downturn is even more of a disaster for the imperialist world.
“[N] ominal U.S.-dollar figures … show how much demand China is pumping into the global economy, both in volume terms (buying more stuff) and in price terms (pushing up the prices of the stuff it buys).
“When we look at things this way, China’s slowdown has been precipitous and scary. At its post-crisis peak in mid-2011, China’s nominal U.S.-dollar GDP grew at an astonishing 25 percent annual rate. During the four-year period from 2010 to 2013, the average growth rate was around 15 percent. By the last quarter of 2015, though, it had slowed to a tortoise-like 2 percent.
“This dramatic fall in the growth of China’s effective international demand has already hit the global economy hard, through commodity prices. In the past 18 months, the prices of iron ore, coal and oil, and other commodities have all fallen by about two-thirds, thanks in part to the slowdown in Chinese demand and in part to the glut of supply built up by mining companies that hoped China’s hunger for raw materials would keep growing forever. This has badly hurt emerging economies that depend on resource exports: Brazil, for instance, is now mired in its worst downturn since the Great Depression. The slowdown also hurts manufacturers in rich countries like the United States and Japan, which rely on sales of equipment to the mining and construction industries “ (Arthur R. Kroeber, ‘Should we worry about China’s economy?’, New York Times, 9 February 2016).
Poor old imperialism would be so happy at China’s difficulties – if only they didn’t make things so much harder for imperialism!
The collapse in the price of oil
Another major feature of the present stage of the crisis is the collapse in the price of oil.
The New York Times is even prepared to admit that this is a question of overproduction: “The world is awash in crude oil, with enough extra produced last year to fuel all of Britain or Thailand. And the price of oil will not stop falling until the glut shrinks. … As prices have dropped, the amount of excess production has been cut in half over the last six months. About one million barrels of extra oil is now being dumped on the markets each day. But that means the glut is still continuing to grow, and it could take years to work through the crude that is being warehoused, poured into petroleum depots or loaded onto supertankers for storage at sea. The shakeout will be painful, taking an even bigger toll on companies, countries and investors ” (Clifford Krauss, ‘Stock prices sink in a rising ocean of oil’, 15 January, 2016). The US has been particularly hard hit by this as the vast majority of investors who sank significant capital into the shale oil business are being driven out of business.
Obviously those who suffer most from the overproduction of oil are the oil producers (including Britain and the North Sea oil which kept it financially afloat for many difficult years – but that was then). Oil is being massively overproduced because depressed levels of production have significantly reduced the demand for it. The losses caused to the countries which produce the oil and the investors who put their money into oil production are enormous:
“The sums involved are potentially huge. Most of the $7.2 trillion in sovereign-wealth funds – financial portfolios owned by governments – is from nations that rely on oil and gas profits to sustain their economies and societies. From April through September last year, as oil prices fell from the high $50s to the low $40s a barrel, sovereign wealth funds pulled an estimated $100 billion from their investments … More recently, The Financial Times reported that prolonged low oil prices would empty the $64.2 billion sovereign fund of Kazakhstan within 10 years .” (The Editorial Board, ‘When oil rich countries need more cash’, New York Times, 16 January 2016).
To the extent that countries, e.g., the US, need to borrow money in order to support public spending, including the servicing of existing debt, the relative paucity of investment cash is liable to drive up interest rates, thus increasing the cost of debt servicing and yet again reducing effective demand for the goods and services that the global economy is churning out.
Onerous debts servicing
Unprecedentedly high levels of personal and public borrowing have severely undermined demand because of the diversion of income into debt servicing. It seems that ’emerging economies’ are particularly hard hit by this because they tended to borrow heavily in foreign currency debt throughout the years when this borrowing was cheap because of the US’s then “ultra-loose monetary policies, which have since gone into reverse...” In fact, “Foreign currency debt at EM [emerging market] companies rose from $900bn to $4.4tn in the decade to mid-2015″ (Jonathan Wheatley, ‘EM squared’, Financial Times, 11 January 2016). But now, because of overproduction, the commodities produced by the ‘EM exporters’ have fallen in price while at the same time their currencies have devalued, leaving these countries with higher bills for debt servicing and a great deal less income with which to pay.
Economic devastation is being wreaked throughout Latin America and Africa also. Their exports to China that had been so buoyant during the years of China’s exuberant growth are now reducing severely – but of course it is not only China that is cutting back production in the situation of overproduction but also all capitalist countries who therefore have a considerably reduced demand for the raw materials produced in the countries of the third world. Brazil in particular is facing its worst recession in more than a century. The countries of Latin America such as Venezuela, Brazil and others in ALBA, whose governments had begun to do so much to relieve the poverty of the masses, are being knocked right back to square one, while the imperialist media, of course, eager to turn a bad thing into a good thing for imperialism, use of the occasion to blame progressive governments for ‘economic mismanagement’, with a view to having them replaced by craven imperialist puppets.
Bad debt is a destroyer of capital, causes the bankruptcy not only of many businesses but also of banks. To try to prevent this destruction of capital, bourgeois governments rush to the rescue of the banks at taxpayers’ expense – and at the expense ultimately of the various social services that governments are supposed to finance with taxpayer contributions, such as health, education and welfare. Again the austerity imposed by bourgeois governments in their efforts to rescue capital detracts still more from the effective demand of taxpayers and service providers (especially local authorities) alike. Yet the extent of bad debt is gargantuan and expanding:
” Bad debts have been a drag on economic activity ever since the financial crisis of 2008, but in recent months, the threat posed by an overhang of bad loans appears to be rising. China is the biggest source of worry. Some analysts estimate that China’s troubled credit could exceed $5 trillion, a staggering number that is equivalent to half the size of the country’s annual economic output.….
“But it’s not just China. Wherever governments and central banks unleashed aggressive stimulus policies in recent years, a toxic debt hangover has followed ” (Peter Eavis, ‘Toxic loans around the world weigh on global growth, New York Times, 4 February 2016). In Europe bad debt is thought to amount to over $1tr.
One has only to consider that ” The world has continued to borrow hand over fist since the financial crisis, adding nearly $60 trillion since 2007 in the process of pushing the worldwide debt load to $200 trillion , or nearly three times the size of the entire global economy. And that figure takes us only to 2014; we don’t yet have fresh debt tallies from last year ” (Matthew Phillips, ‘The world’s debt is alarmingly high, but is it contagious?’, Bloomberg BusinessWeek, 22 February 2016) to realise the devastating potential of bad debt.
This debt came about because on the one hand, in the light of world overproduction of practically everything, making industrial production an unattractive investment, lending money became – for a while – the best means for the owner of capital to secure a good return. And bad debt follows inexorably in its wake because the returns on risky debts are higher than the returns on safe ones. On the other hand, borrowing is strongly encouraged by ruling circles because it props up demand, thereby helping to counter – for a time – the effects of overproduction. However, as is well known to anybody who has resorted to borrowing when in financial straits, this can at best provide temporary relief until the financial problem is fixed. It cannot of itself fix the problem, but can only make it worse as interest payments are added to the overspending problem.
The disappearance of the middle class (or replacement of high wage jobs with low wage jobs) in the centres of imperialism.
One of the effects of the crisis is that austerity measures have had to extend to attack the privileges of the so-called middle class:
“The US economy died when middle class jobs were offshored and when the financial system was deregulated“, says the relatively progressive blogger Paul Craig Roberts, who was formerly Undersecretary of State in the Reagan administration, but has become thoroughly disillusioned with US imperialism and its various governments. He continues:
” Jobs offshoring benefitted Wall Street, corporate executives, and shareholders, because lower labor and compliance costs resulted in higher profits. These profits flowed through to shareholders in the form of capital gains and to executives in the form of ‘performance bonuses.’ Wall Street benefitted from the bull market generated by higher profits.
“However, jobs offshoring also offshored US GDP and consumer purchasing power. Despite promises of a ‘New Economy’ and better jobs, the replacement jobs have been increasingly part-time, lowly-paid jobs in domestic services, such as retail clerks, waitresses and bartenders.
“The offshoring of US manufacturing and professional service jobs to Asia stopped the growth of consumer demand in the US, decimated the middle class, and left insufficient employment for college graduates to be able to service their student loans. The ladders of upward mobility that had made the United States an ‘opportunity society’ were taken down in the interest of higher short-term profits .” (‘The US has not recovered and will not recover’, 18 February 2016).
We would point out, however, that, while everything Roberts says in this quotation is of course true, it is not only the demand of the middle class that has been blighted but also the demand of the working class people who are unemployed or under-employed in their hundreds of thousands, and also the demand of businesses which have closed down through inability to trade profitably, as well as the demand of government and local authorities forced to implement policies of austerity. In fact even sovereign wealth funds and Saudi princes are having to tighten their belts (relatively speaking, of course), such is the severity of the current crisis, so there is no particular reason to focus on the ‘middle class’ other than because one happens to belong to it.
To blame ‘offshoring’ [i.e., export of capital – one of the chief characteristics of imperialism] is also short-sighted. Businesses cannot survive unless they generate profit, and it is this that forces them to emigrate to places where wages and overheads are low. Were they not to do so they would be wiped out by competitors based in low-cost areas, so their US employees would find themselves just as redundant as offshoring has made them. It is the monopoly capitalist system which forces businesses to maximise profit by hook or by crook and that drives them to scour the world in search of the means of reducing costs of production to a minimum.
What all this shows is that the ‘middle class’, i.e., privileged intellectually-skilled workers, who have traditionally been loyal to imperialism, who have identified with their country’s ruling class and been enthusiastic propagandists of the capitalist system because they prospered under its aegis, need to realise that they are, after all, only proletarians, albeit privileged, and that their interests are no more allowed to stand in the way of profit than are those of the blue collar workers to whom they have habitually considered themselves superior; that they cannot protect themselves from the ravages of capitalism, that they too are as much subject to the devastating workings of the capitalist system as are the less privileged proletarians.
Effect on the working masses
During this manmade cataclysm wrought by overproduction, most of humanity suffers terribly. The number of people in the world suffering, and dying from, malnutrition multiplies, the needs of humanity – from the maintenance of infrastructure to healthcare and education – are neglected, and life for a few more million people turns into a nightmare. The refugees pouring into Europe in their hundreds of thousands are not all fleeing imperialist-inspired wars – many of them are fleeing starvation in their home countries where already there are no jobs to be had, so they flock to imperialist countries hoping to find the means to ensure their survival and that of their families, just as in their day Europeans flocked to America and other parts of the world because there was nothing for them at home. As the world economic crisis deepens, this suffering is set to deepen too:
“The number of jobless people in the world is set to rise this year, as problems in emerging markets prevent the global unemployment rate from returning to pre-crisis levels.
“The International Labour Organisation, a UN agency, forecasts that the number of unemployed people in emerging and developing countries will increase by 4.8m in the next two years.
“In particular, rising jobless numbers in China, Brazil, Russia and elsewhere will offset improvements in the US and Europe, it says. The ILO’s annual employment report warns such problems will hold back the expansion of the middle class and risk fuelling social discontent.
“‘The significant slowdown in emerging economies coupled with a sharp decline in commodity prices is having a dramatic effect on the world of work,’ Guy Ryder, the ILO’s director general, said. (Sarah O’Connor, ‘Global unemployment set to rise’, Financial Times, 20 January 2016).
As more and more people get caught up in this inexorable financial maelstrom, the spontaneous response of the masses to the injustices visited upon them (hunger, insecurity, lack of access to health and education provision, etc.) is sometimes counter-productive, as people turn on each other in attempts to survive at each other’s expense. People become vulnerable to being mobilised on various sectarian and communal agendas against others, as poor and hard pressed as themselves, who do not ‘belong’. People in large numbers in the centres of imperialism fall prey to the calls of xenophobic demagogues. Clearly none of these tendencies has any kind of solution to the problems that are facing the world, leaving those misguided enough to follow them to either meekly submit to the dictates of capital or be mobilised to join fascist outfits serving the interests of imperialism.
This situation is aggravated by the weakness of the working-class movement through the ravages caused by opportunism within its ranks over a period of several decades, especially in the aftermath of the victory of Khrushchevite revisionism in the Soviet Union in the mid-1950s, hand in hand with a betterment in the conditions of the working class produced through a combination of special circumstances after the second world war. However, despite all its proponents’ weaknesses, it remains the case that only communism offers the way out from the hell of the rotting imperialist system. This involves the working class setting up its own states that will suppress the bourgeois class and its irrational capitalist economic system; which will forcefully take possession of all the major means of production of the things that people need; and which will, with full consultation with the working people, draw up plans for production and distribution that will match resources directly with people’s present and future needs.
The proletariat desperately needs the leadership of genuine and fearless Communist Parties, and it is the urgent task of anybody today who seeks to right the world’s wrongs to join wholeheartedly in the difficult task of fighting today’s rampant opportunism, rebuilding effective communist parties and restoring communism’s prestige so that the proletariat the world over can fight back and win. This is the message that must permeate the working-class movement. And unless it does permeate it, the working masses face decades of misery and war as imperialism, ridden by its incurable crisis, heaps misfortune upon misfortune upon them and subjects them to the torments of endless war.