Editorial: Prospects for the World Economy

The global economy is mired in its deepest economic crisis since the “great depression” of the 1930’s. Moreover, despite the claims of the statesmen, politicians, business leaders, and economists, who share Barack Obama’s optimistic picture of “green shoots” of recovery for later in ‘09, or – “certainly” – 2010, an analysis of the actual situation of world capitalism reveals new shock waves to come. Marxism, which provides us with the analytic framework to grasp the trajectory of capitalism, its immanent tendencies, however, is not a science that has unearthed universal historical laws on the basis of which the actual course of economic, political, social, and cultural, events can be accurately predicted. Marxism is a “tool-box,” and the theoretical concepts that it contains make it possible to grasp discrete events as over-determined by the complex interaction of social, economic, political, and cultural, factors, each having a considerable degree of autonomy. Those same concepts allow us to see how contingency also plays a significant role in the historical trajectory, even as the capitalist totality is shaped by the value-form, which in the present epoch has permeated every domain of human life. It is, then, on the basis of an understanding of the contradictory tendencies inherent in the value-form in the present epoch of capital’s real domination that an analysis of the current perspectives for global capital can be made. While the hegemony of the US in the world is not fated, and the period to come, even in the absence of mass movements of the collective worker against capitalist order, may see significant challenges, economic, political, and military, to that hegemony, at the present time Washington remains the cockpit from which the capitalist reaction to the global crisis will be primarily managed.

The past several months have already demonstrated that the Obama administration best serves the needs of capitalism as it confronts a devastating economic crisis. While the rhetoric of the Obama administration is in sharp contrast to that of the Bush administration, which has greatly facilitated its capacity to manage the crisis, there has been a real continuity in economic and foreign policy, such that the replacement of Hank Paulson by Tim Geithner as Treasury Secretary meant that fiscal policy would remain fundamentally the same as the crisis deepened, while the fact that Fed Chairman Bernanke remained in charge of monetary policy, and Secretary of Defense Gates continued to manage America’s wars guaranteed that the change of administration would not produce a change in policy in those crucial domains. With respect to the credit freeze and the threat of insolvency in the banking and insurance sectors, the policies of the Fed and the Treasury -- the TARP, a massive injection of capital, and low interest rates -- changed not one iota on January 15, when Obama became President, and the injection of money into the banking and insurance sectors by the Fed and the Treasury, coordinated with the Bank of England and the European Central Bank (ECB), did succeed in preventing a feared meltdown of the global financial system. In foreign policy, to the Bush surge in Iraq, can now be added the Obama surge in Afghanistan, where thousands of battle-hardened American troops are now going, and the expansion of that war into the heart of Pakistan. So, while the unemployment rate in the US rises towards 10% based on official statistics that underestimate the actual numbers of those who are jobless, while home foreclosures and homelessness continue to rise, and while the new administration re-negotiates labor contracts in the automobile industry to sharply cut the wages and benefits of workers, Obama’s popularity, abetted by the media -- the organs of mass manipulation in late capitalism -- for the moment soars, though there can be little doubt that had capitalism been saddled with a McCain administration, the same policies would have elicited far more opposition and resistance. The same is true with foreign policy, where it is unlikely that a putative McCain administration could have simply shifted combat brigades from Iraq to Afghanistan, used drones to attack villages in the tribal areas of Pakistan, or “ordered” the Zadari regime in Islamabad to wage war against the Taliban, all without provoking a storm of protest, domestic and international.

One issue, then, where the continuity between the Bush and the Obama administrations was absolute, lay in the determination of both to preserve the fruits of the globalization of world capital that had shaped American economic and foreign policy for most of the twentieth century, and that had veritably transformed the landscape of global capital. No less than Bush, Obama was determined to reject the siren call of protectionism, despite his willingness to sometimes play that card during the electoral campaign. Indeed, Obama has not just rejected calls for protectionism within the US, but is also waging a tireless campaign to prevent an eruption of protectionism and any tendencies towards autarky in America’s trading partners, actual and potential. And here the rhetoric of internationalism, and universal values, in which the Obama administration has bathed itself, is far more synchronous with the actual needs of the American hegemon than the unilateralism that came to characterize the Bush administration after 9/11.

With the continuity between Bush and Obama in mind, we can point to three basic tasks that the Obama administration needs to confront: first, the need to respond to the sharp contraction of global economic output and world trade, a deflation not seen for decades; second, the need to assert ideological control over the collective worker, to prevent its anger and fear from translating into a massive wave of class struggle, as capital and its state seeks to manage the draconian austerity and slashing of living standards that the crisis imposes; third, the need to preserve the global hegemony of American capital, economic, military, and political.

The backdrop to the tasks faced by capital today is a crisis of over-accumulation, itself inherent in the very operation of the capitalist law of value, and in the conjoined necessity for a massive devalorization of capital if a new round of accumulation is to be possible. The vast increase in the role of the state in the management of the capitalist economy, the tendency to state capitalism, which has been a hallmark of the past century, has in no way eliminated the crisis tendencies of capital, its tendency to periodic and devastating breakdowns. Such crises are inherent in the value-form, in the dual nature of labor and production in a capitalist society, in the contradiction between concrete and abstract labor, the use value and the abstract value of commodities, the limits to the possibilities for valorization and the insatiable drive of capital to develop the productive forces. When there is an open crisis of capitalism, the response needed for a new cycle of accumulation to begin historically entails a lowering of real wages, a cheapening of raw materials, and a reduction of production and circulation costs, in which both the mechanism of deflation and a concerted effort at the further rationalization of the economy and technological innovation play important roles. To these must be added a massive devalorization of capital, which in the devastating economic crises of decadent capitalism, in the twentieth century, has entailed the massive destruction of both productive capacity and living labor in horrendous wars. It is this necessity for devalorization, which operates, so to speak, behind the backs of both corporate and state bureaucrats, that constitutes the unseen dimension of the tasks that confront the Obama administration.

While globalization and de-regulation have been the twin mantras of capital for more than two decades, shared by right and left, by Reagan and Clinton in the US, by Thatcher and Blair in the UK, by Christian Democrats and Social Democrats in Germany, the present crisis has already led to a severing of globalization from de-regulation. Now it is regulation that has become the new mantra of capital, even as globalization continues to be the primary concern of the capitalist class. Milton Friedman and Alan Greenspan are discredited. Paul Krugman is the new guru amongst American economists, and Lord Keynes again provides capital with its Bible. The monetary and fiscal policy of the US and its British partner is predicated on easy credit and low interest rates supported by the Central Banks, together with enormous budget deficits; indeed, with expectations that American fiscal policy may soon result in a deficit/GDP ratio of 75%. Here a division has appeared between Anglo-Saxon capital on the one hand and European capital on the other. The ECB is far more concerned about the specter of inflation than is the Fed, for example, and the EU has rejected the kind of stimulus packages that the Obama Administration has already written into law. In that respect, the EU, and Japan too, are far less Keynesian than the US hegemon, far more leery of huge budget deficits, leaving the burden of spending its way out of the crisis to Washington. Yet the destruction of capital over the past year, enormous though it has been globally, on the order of trillions of dollars of “wealth” wiped out, has been insufficient to provide a basis for a new cycle of accumulation, and Paul Krugman to the contrary notwithstanding the expected budget deficits, and interest rates sometimes at virtually zero for lending to commercial banks, does raise the specter of a new credit bubble and an inflationary blowout long before it could produce any new expansion of capital.

While the green shoots of economic recovery may be an illusion, the anger of the working class faced with the crisis, the unemployment, and the drastic reduction in living standards that are taking place, is very real. That anger, indeed rage, has expressed itself on virtually a daily basis in plant occupations in the US (the Republic Windows and Doors plant in Chicago last December, for example) Britain (the Visteon car parts factories, in April, for example), and France (Caterpillar, for example, where in addition to the occupation of the plants, workers have also held managers captive). Where transnational corporations have sought to shut or downsize plants in France and Germany, at Continental Tire, in May, for example, coordinated actions of workers across national frontiers have erupted. Nonetheless, most of these actions have focused on the payment of back wages and benefits legally due to workers who have been laid-off, and have not directed challenged the waves of unemployment itself. The determination of workers to take direct action, and not proceed through the courts, has been both exemplary, and pregnant with possibilities, but despite this, and a willingness to go outside the unions, these actions have not yet posed a significant challenge to the power of capital, and its state and unions to impose the austerity that capital in crisis requires. Similar outbreaks of struggle in the face of massive lay-offs are now occurring regularly throughout China, where tens of millions of workers are not just losing their jobs, and typically being robbed of months of wages, but are also being sent back to villages in the countryside, which they left over the past few decades to work in the coastal industrial zones, with no prospect of even earning a living. This reverse migration too is pregnant with possibilities for massive struggles, against which the Chinese regime is mobilizing the police power of the state. The capitalist landscape has also seen the outbreak of social struggles on a national scale in Greece, where the economy was paralyzed for weeks last December as students and workers seized control of urban streets and the public space. But there too the rage was eventually spent, and capitalist order restored to the streets of Athens and Thessaloniki. In Iceland, in late January, as the financial and banking crisis literally brought the country’s economy to a halt, massive protests led to the fall of the Conservative government. But there too, order was restored as a Social-Democrat formed a new left government with promises of major reforms, amidst a draconian austerity. Meanwhile, in the US, the Obama administration has succeeded in imposing its restructuring plan for bankrupt Chrysler and GM, which has entailed the support of the United Auto Workers (UAW) for massive lay-offs, and wage and benefits cuts, as well as speed-up and work rule changes, for the workers who remain – a capitalist success for which the unions have played an essential role, in exchange for shares and a seat on the GM board of directors, no less.

A global economic crisis has the potential to disturb the imperialist balance of power, to threaten the status of the hegemonic state, and its order, and to propel contender states to challenge the hegemon. The Obama administration is determined to preserve American global dominance from any such challenges.

While EU leaders, especially Sarkozy and the new French “anti-capitalist” party, and the German Greens, have adopted an increasingly anti-American rhetoric, blaming Anglo-Saxon capitalism for the crisis, and while the ECB and continental governments have been hesitant to reflate and embark on the kind of stimulus package that Obama has championed, they have nonetheless in practice tailed after the Americans, and resisted any real tendencies towards responding to the crisis with outright protectionist policies or moves towards autarky. And the far-right, which has proposed such policies, along with anti-immigrant policies too, has so far not mounted an effective challenge to center-right and center-left governments in Western Europe. Moreover, the fact that the EU is a loose federation of sovereign states, and the divisions between the ECB on the one hand, and the finance ministries of each state on the other, mean that a coherent and unified monetary and fiscal policy for Europe is extremely difficult to achieve, while the Anglo-Saxon powers have a long history of just such coordination between the Central Bank and the Treasury. Meanwhile, beyond national divisions, and a lack of political unity, the renewed danger represented by a Russia determined to expand its own power, means that the EU is not a real threat to American hegemony at this point. And while Russia seeks to use its control of gas to Western Europe to reassert some power over its “near abroad” in the Ukraine, the Trans-Caucasus, and perhaps the Baltic states and the Balkans too, lower oil prices leave the Kremlin with its own huge economic problems. That said, it’s worth noting that in Latvia the “Harmony” party, which is pro-Russian succeeded in winning 20% of the votes in the recent EU parliamentary elections, while a second pro-Russian party won nearly another 10%, indications that as the crisis deepens there may be opportunities for Russia to challenge the imperialist “boundaries” post 1991. Yet that prospect, still remote, only heightens the military and political dependence of the EU on the American hegemon.

The aftermath of Iran’s presidential elections, which have provoked such political turmoil internally, and which is still ongoing, provide a glimpse into the situation of a country whose integration into the American dominated world market is complicated by geopolitical antagonisms between Washington and Tehran, where significant divisions within the local ruling class have arisen, and where the policy of the Obama administration also appears to sharply diverge from that of the Bush administration. The global economic crisis has exacerbated Iran’s economic problems and the discontent that those problems have created within broad strata of the population, including the working class. Both high rates of unemployment and inflation plagued the Iranian economy even before the onset of the global downturn, and the sharp fall in the oil revenues with which the regime of the Mullahs had sought to both fund its regional imperialist objectives and purchase social peace domestically. The presidential election revealed deep splits within the Iranian ruling class over whether to moderate a foreign policy that the West, and especially the US, has seen as threatening, and to concentrate on strengthening its economic base. At stake was a choice between a reliance on hyper-nationalism or better economic integration into the global market, including a possible modus vivendi with the US, as the best way to develop Iranian capital, as well as to ideologically guarantee its control of the population. Ahmedinejad, and his sponsor the “Supreme Leader” Ayatollah Ali Khamenei, was opposed by the “reformist” Mir-Hossein Mousavi, who claimed that Ahmadinejad’s policies -- foreign and domestic -- were a threat to both Iran’s capacity to weather the growing economic storms and to keep the social peace. Mousavi had the powerful backing of Iran’s ex-president Akbar Hashemi Rafsanjani, the head of one of Iran’s most powerful economic clans and like Khamenei a protégé of the Ayatollah Khomeini. That split in the clerical caste that has been the personification of capital in Iran since the “Islamic” revolution is far more important than the issue of whether or not the ballots were counted honestly. All elections in capitalist societies are “rigged,” either through ballot stuffing or the power of the mass media or charismatic leaders to guarantee the outcome that serves the interests of capital. What perhaps was unexpected, though, was that the division within the highest circles of the clerical leadership spilled into the streets, where the discontent of significant strata of the population fed the challenge of the reformists to the authority of the Supreme Leader. What has so far been missing from the demonstrations is an autonomous action on the part of the working class; and here it is important to remember that what spelled the beginning of the end of the reign of the Shah in 1978-79 were the massive strikes of workers in the oil sector and the formation by them of worker’s councils.

The reaction of the Obama administration has been muted, lest it give Ahmedinejad the ammunition he needs to portray his reformist opponents as simply tools of American imperialism. Indeed, the Obama administration has held out the prospect of normalizing relations with Iran and its present regime provided it enters into serious negotiations over the question of its putative nuclear weapons program. Where the Bush administration had used the threat of military action on the part of the US or giving its Israeli ally “permission” to attack Iran’s nuclear facilities, Obama speaks the language of negotiations, and acting on a multilateral, not unilateral, basis vis-à-vis Iran. And while Obama would clearly prefer to deal with Mousavi as opposed to Ahmedinejad, he is prepared for a second Ahmedinejad term, confident that the split within the Iranian ruling class, and the deepening world economic crisis, will combine to moderate Iranian policy. It is a stance that for the moment appears to serve the interests of the American hegemon well.

What, then, of China, the growth of whose economy over the past few decades has been prodigious? Quite apart from the impact of the global economic crisis on China’s export dependent industries, which have already led to a slow-down in its vaunted economic growth, the Chinese ruling class faces significant challenges as it seeks to formulate a coherent policy for Chinese capitalism; challenges that appear to have provoked debate within the ranks of the capitalist rulers in Beijing. (1) One faction of Chinese capital, increasingly vocal, is especially concerned about the risks entailed by China’s huge dollar denominated holdings, its vast accumulation of American debt, which has made possible its export–led economic growth of the past several decades. The fear is that a possible collapse of the dollar will leave China with worthless American paper, wiping out decades of its “savings.” For that faction of Chinese capital, the answer seems to be tentative moves towards a new reserve currency, perhaps at some point the Yuan, in the short run a “super-sovereign reserve currency” to replace exclusive reliance on the dollar. This is a faction of Chinese capital that also favors a more robust imperialist policy, seeking raw materials throughout the Third World, and investments in infrastructure to extract them, and propelling China’s military sway throughout the Pacific and Indian Oceans. It also means beginning to detach China’s economy from an exclusive reliance on exports to the West. By contrast, another faction of Chinese capital, still apparently the most powerful, no less concerned by the weakness of the dollar, sees little prospect of replacing it as the world’s reserve currency in the short-term or seamlessly finding an alternative to Western export markets, even as it seeks to stimulate effective demand domestically as an alternative to continued massive American trade deficits with China, which exacerbate the weakness of the dollar, and threaten Beijing as the largest holder of American debt. The Obama administration has its own view of how China should respond to the world crisis: continuing to fund America’s debt, even as the US pledges to reduce its massive fiscal deficit once the crisis is past (sic.), spending more on its own social safety net, paltry even by American standards, and opening its own economy to global market mechanisms and foreign investment.

What, then, are the prospects for the global capitalist economy over the next few years? There is no such thing as a “death crisis” of capitalism, no automatic or inevitable end to capitalism. The breakdown of capitalism, a global crisis, such as this one, creates the conditions for the “collective worker” to overturn the value-form, to smash the capitalist state, to construct a human Gemeinwesen or community, but that depends on the negative potential of the working class being realized, on the capacity of the collective worker to reject both the ideologies of the right, racism, xenophobia, and the left, which seeks not the destruction of the value-form but its reform, a humanization of capital, a more equal distribution of the wealth, in the commodity form, that is produced. Both of those alternatives, because they leave the value-form intact can only end in barbarism; the barbarism of race war or the barbarism of ecological destruction and a purportedly “equal” distribution of the austerity that the continued existence of capitalism entails. But what of a new cycle of accumulation as a result of the massive devalorization of capital wrought by the crisis itself? As we suggested above, the scale of devalorization necessary for a new cycle of accumulation would have to exceed by far the levels that we have seen this past year, an outcome only possible, if possible at all, by the ever greater ecological catastrophes, and wars, that the continued existence of capitalism will provoke. That is why, Rosa Luxemburg’s vision, socialism or barbarism, marks out the real stakes of the present crisis. Pro-revolutionaries can contribute to the realization of socialism by providing a clear theoretical explanation of why the value-form, however it is institutionalized and structured, whatever ideologies accompany it, means barbarism. Only an intervention into ongoing struggles of the collective worker can contribute to liberating the negative potential that the collective worker represents.

Internationalist Perspective


1. There is another issue around the Chinese trajectory that we also need to point to: For many, China’s becoming the dominant economic power in the world sometime this century has assumed the status of an historical “law.” That is certainly the case for Giovanni Arrighi, who argued that such a putative Chinese hegemon will be a market economy, but a non-capitalist one! See Adam Smith in Beijing. Arrighi, and others on the left who believe that China is a Smithian paradise based on a market economy without capitalism or exploitation, should have spent a day or two in a Shanghai factory, or a Chinese owned mine in Congo, and then they might also have taken the time to explain how an economy based on the export of cheap consumer goods to the West, Department II, will become the economic hegemon of the future.

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