You may not have noticed, especially if you’re one of the millions of workers who have lost their jobs recently, but the world economy is officially enjoying a recovery now. Yet it becomes increasingly clear, even to many bourgeois economists, that we’re standing at the threshold of an economic convulsion of major proportions.
This is not a crisis caused by a lack of productivity or technological development, or by neo-liberalism or any other specific policy, it is a systemic crisis of capitalism. The three factors that characterized every capitalist breakdown in the past, are now abundantly present: falling profits, increasing overcapacity and rising claims of an exponentially growing financial capital on an economy that cannot meet them. Despite the increase in the rate of exploitation, the stagnation or fall of wages and the rapidly rising use by developed capitalism of extremely cheap labor in China and elsewhere, profits, as a percentage of GDP, have collapsed to their lowest levels of the post-world war period. For Marxists, this crisis of profit is nothing mysterious: the source of profit, surplus value is drying up. Surplus value is but a part of human labor and the stupendous productivity of modern technology makes human labor increasingly expendable. A study of Alliance Capital Management found that the 20 largest economies lost 22 million factory jobs from 1995 to 2002. No country escapes the trend. The US lost 11 percent of its manufacturing jobs, Japan 16 percent, Brazil 20 percent and China, despite the fact that it is on its way to becoming the biggest manufacturing center of the world, saw a 15 percent drop.
Despite the huge, unnecessary suffering of billions of people whose primary needs are not met, world capitalism is facing a growing lack of demand. The more its productivity grows, the more productive forces are rendered idle. Close to two billion able-bodied people want to work and cannot. This is a recovery in which a quarter of the global industrial machine remains turned off. Yet capitalism, unable to do otherwise, is investing at a feverish pace in expanding its productive capacity. In China, the fastest growing large economy and by far the largest recipient of direct foreign investment, nearly half of the growth is due to the expansion of its industrial capacity, geared towards an already saturated world market. Why? Because the combination of high tech and cheap labor lowers the value of its commodities beneath their international market value. Its cheaper products conquer a larger slice of the market, flooding it at the same time.
Despite the already crushing weight of debt that is taking an ever-larger share out of household budgets, state budgets and profits, the growth of debt is accelerating fast. The mountain of fictitious capital created to keep capitalism growing is now crushing it. This is not a ‘third world’ phenomenon. The aggregate debt of the largest economy, the US, (of corporations, households and government combined) stands now at more than 32 trillion dollars, about three times the size of its GDP, far more than at the time of the great depression. Yet it keeps on climbing.
This is not the first time world capitalism has faced this predicament. What is new is that the deepening of the crisis occurs in a much longer, stretched-out way than before and that it is more global than ever before. Both are related. Globalization has slowed the fall of the rate of profit by giving capital greater access to cheap labor. And overproduction, which forces capitalists to sell its commodities under their value and thereby opens the door to deflation and depression, has been kept at bay by a reckless expansion of the global money supply.
The basic mechanism by which a crash is postponed is well known. Literally every single minute, the US economy buys a million dollars of commodities more than it sells, providing an enormous market for the rest of the world. That adds up to a trade deficit of half a trillion a year, for which the US pays by printing money. This trade-deficit, not coincidently, is now about the same size as the budget-deficit, the amount of money Washington borrows to prop up domestic demand.
In return for the commodities that make up their trade-surpluses with the US, which for a country like China amounts to 9 percent of its GDP, other countries receive dollars. What do they do with them? Convert most of their earnings into their local currencies to spend them at home? That would be the normal thing to do but they have several reasons not to.
First, this would bring so many yuans, yen, etc, into circulation that inflation would ‘overheat’ their economies. Money would seek to protect its value in assets, whose paper value would shoot through the roof, spurred on by speculation. Remember Japan at the end of the ‘80’s, when it had the largest trade surplus with the US: a piece of real estate in Tokyo was worth more than half of California. All that came crashing down of course.
Since the domestic markets of the countries with trade-surpluses are already saturated, the money they earn with these surpluses must be sterilized. But there is another compelling reason for not spending these earnings at home. The US needs its dollars back. Its needs them to finance the debt it makes in order to continue to consume more than it takes in. It needs them to buy its tangible assets, to increase the demand for, and therefore the “value” of, its houses, land, companies, etc, because it is on the basis of this expanding “wealth” that its ability to expand credit to itself, and thereby provide a market for the rest of the world, rests. More than 40 percent of the world’s savings is now flowing to the US. If that flow were to stop, reverse or even substantially slow down, the dollar would not just decline, but fall precipitously, with consequences that would be even more catastrophic for its creditors than for the US itself: it would make their commodities much more expensive in dollars and therefore cut them off from the US market, it would devalue their own currency reserves which are mainly in dollars and it would push up interest rates globally, triggering a global contraction, deflation and, quite likely, depression.
So the creditors have no choice. Since the US economy is “too big to fail”, they must continue to prop up the dollar, despite growing doubts about whether the dollars the US keeps printing are actually real money. But the question becomes ever more nagging: what is the wealth that the dollar represents? Is it real wealth or merely an illusion? Investors cannot ignore the fact that the country that is backing the dollar is one whose industrial capacity is increasingly hollowed out, a process that is continuing during this ‘recovery’: as we write, manufacturing has declined in the US for almost 4 years in a row. 55 percent of the manufactured goods it consumes are now imported. And even less can they ignore the fact that the net-debt of the US to the rest of the world is growing at an unsustainable pace. Now standing at over 3 trillion dollars or 30 percent of the US’s GDP, it will grow, if the current trend persists, to 35 percent by the end of this year, 40 percent by the end of 2005 and so on. Even the IMF, no foe of American capitalism, warned in a report in January that this can’t go on. It predicted that the US budget deficits would climb to nearly 500 percent of the current GDP in the coming decades. So clearly, even if the governments of Japan and China continue to buy US debt-notes, the financial markets will not. Its demand would fall rather quickly to the point at which the US can only finance its debt by offering high interest rates. Then it’s goodbye recovery, hello recession. Or would depression be the more appropriate word? The US real estate bubble, dependent on very low interest rates, would collapse, the China bubble, dependent on the continuing expansion of its exports to the US, would collapse, stock markets would crash, a great unraveling would risk becoming unstoppable.
In order to avoid this, the US will have to do something to slow the expansion of its debt, which would induce a recession too, but one it could still hope to contain. No other country is in a position to take over the role of locomotive for the world economy. Japan’s budget deficit is even higher than that of the US and those of France and Germany are climbing rapidly. So world capitalism seems headed towards a great contraction. That is the background against which the current wars and attacks against the working class must be seen.
The wars in Afghanistan and Iraq were not just about oil or terrorism, although these elements were certainly part of the mix. But they were waged in the first place in defense of a belief: not Christianity, but the belief in the wealth and power of American capitalism. It is, after all, this belief that makes America the ‘safe haven’ for the savings of the world to seek refuge in, it is this belief that props up the value of American stocks, bonds, houses etc, it is this belief that underpins America’s credit worthiness. These wars were waged to demonstrate the power of the US. To eliminate and discourage challenges to it, to demonstrate and strengthen America’s grip over oil and gas and money flows, to knock down all obstacles to American capital’s hunt for more surplus value, to demonstrate and sharpen the political weakness and division of Europe, and thereby undermine the competing belief in the euro as an alternative international reserve currency. They were -are- a ‘shock and awe’ operation to maintain the belief in something that is increasingly fictional.
America’s profits more and more are coming from intangible sources. While it shrinks as an industrial powerhouse, it tightens its control over international banking, over strategic resources. This control -and the rewards it yields- ultimately rests on its political and military strength. While its share in tangible production declines, its income from copyrights, patents and licences, has grown fast. The yield of these is not determined and enforced by market forces. It is enforced by the rule of a global political order of which the US’s military might is the ultimate guarantor. These trends reinforce the importance of the military for US capital. The sicker the world economy becomes, the more the global political order will be challenged and the more crucial it will be, from the point of view of American capital, to inspire ‘shock and awe’. This, rather than the desire to create jobs or to boost the profits of Halliburton, is the main reason why the US’s military budget keeps rising, despite the alarming size of the deficit. The hegemonic policy of the US is not a choice, it’s not something Republicans do and the Democrats would change. It’s its mode of survival. Note that none of the leading Democratic contenders, not even the ‘anti-war candidate’ Howard Dean, is advocating cutting the gargantuan military budget.
So while the US and other countries must reduce their deficit spending, the military budget is off limits and the share going to interest payments on the debt grows ineluctably. That means that the bulk of the cuts must come out of the social wage: social security, health care, pensions. It is on these aspects of the living conditions of the working class that the capitalist class is focusing its attacks. A wave of ‘pension reforms’, from France to Brazil, is reducing benefits and increasing the retirement age. Health care services are cut back in scores of countries. ‘Reforms’ of social security systems are being prepared.
In contrast to attacks on wages or employment, which usually affect only a fraction of the working class, this offensive is directed at the working class as a whole and therefore can foster the unification of its struggle. The fight against pension reform last year in France was promising in this regard. It was characterized by many spontaneous initiatives on the part of the workers to spread and unify their resistance and a growing awareness that it is the capitalist system, not this or that party or leader, that is at the root of the problem. In the US, more than 70 000 supermarket workers in California have been on strike since October against cuts in health care benefits. The unions have embraced this struggle but its embrace is suffocating it: an occasional sit-in in front of supermarkets is the most ‘radical’ action they’ve organized. Strike benefits are paid (now already cut in half) but nothing has been done to spread the strike, even though the union itself is recognizing that workers across the country are facing the same kind of attacks.
As these attacks are becoming more frequent and occurring in several countries at the same time, the conditions to spread the class struggle across sectoral and national borders may become more favorable. But that will not be the automatic result. In Argentina last year, the struggle of the working class became very broad, going beyond the workplace, beyond the industrial working class. It was neither corporatist nor unionist. There was a lot of self-organization, there were general assemblies in factories and neighborhoods, road-blockages and other spontaneously organized radical actions. Yet it went nowhere. In the end, order was restored with remarkable ease, thanks to the powerful influence of nationalism. The movement did not develop an autonomous perspective and therefore was encapsulated in a populist narrative of Argentine patriotism against Yankee imperialism.
The danger that something similar could occur on a more global scale should not be underestimated. No matter how compelling the objective conditions may be, what’s decisive is how they are understood, in which framework they are placed to make sense of it all. Through which window will the workers look at their world? The impending economic convulsions will chase even more migrants across borders. Will we see them as class brothers, victims of a sick system, or swallow the narrative that paints them as competitors, a menace to “our” nation? Will we condemn them for the crime of trying to survive? The shrinking of the global economic pie will transform economic rivalries into armed conflicts and trigger more wars. Will we recognize those for what they are, the poisoned fruits of a rotten system? Or will we swallow the narrative of nationalism, and once again learn to hate “the other” and die so that capitalism can live? The attacks on health care and social security will be explained to us as the unavoidable result of ‘the greying of the population’, the retirement of ‘the baby boomer generation’. Will we recognize how absurd this narrative is? As if there could arise a shortage of workers, a lack of productive capacity to meet the increasing needs of the elderly…while the real problem is that capitalism has more productive capacity, more workers than it can find use for. Will we recognize that ‘the social security crisis’ is really an attempt by the capitalist state to make room for the increasing burden of debt-service by slashing the social wage?
The fight for working class interests is a battle for humanity’s future. It can only be won by overthrowing the law of value but that cannot yet become the goal in the near term. The objective conflict between the needs of the working class, for a living wage, for health care, pensions, unemployment compensation, etc, and those of capitalism, for higher profits, debt-service, war-making, etc, will sharpen abruptly in the coming years. The narrative of the right will be: we must take care of the latter first and the results will trickle down to all. The narrative of the left will be: we can take care of both at the same time. The second, which tries to make us believe that the needs of the working class and those of the system that is responsible for the whole mess, are reconcilable, is the most dangerous. Against it, we must articulate a third narrative that arises instinctively from the class struggle: let’s fight for what we deserve, as workers, as humans, and to hell with capitalism’s needs.
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