Published by:
Prabhat Kumar
for CPI(ML) Central Committee
Charu Bhawan,
U-90 Shakarpur, Delhi – 110092
Phone: 91-11-22521067
WHEN the catastrophic financial crisis hit the capitalist world order a few years back and quickly metamorphosed into a great recession, we brought out a slim pamphlet titled “Capital in Crisis: Causes, Implications and Proletarian Response”.
“Capitalism has learnt to live with crises and through crises”, the opening sentences read, “but some of them are epochal. Such was the Great Depression of 1930s. Will the one that is currently unfolding prove to be another?” We hinted it would and quoted veteran Nobel laureate Paul Samuelson: “This debacle is to capitalism what the fall of the USSR was to communism.” However, mindful of the experience of the many convulsions – like the dot-com bubble burst of early 2000s – which threatened to but ultimately did not develop into a global systemic crisis, we resisted the temptation to jump to a very definite conclusion at that early stage.
But today on the strength of evidence of the last four years we can say: yes, it is an epochal crisis in the sense that the structures and strategies of capitalist accumulation in the current neoliberal mode are in crisis, are permanently failing to deliver the way it did since 1980s. We have therefore named it more specifically as a crisis of neoliberalism and expanded our analytical horizon accordingly, starting from Marx and Lenin and drawing substantially on the works of later Marxists as well as heterodox economists. Whereas in the previous pamphlet the popular struggles engendered by the unfolding crisis were briefly highlighted, in the present one we have also tried to learn how the dynamics of class struggle crucially influenced – or overdetermined, if you will – the specific course of reform or restructuring that followed every structural crisis in history. How, for example, valiant struggles of the American working class in the upbeat international environment of 1930s forced the New Deal on the bourgeoisie and how in an opposite political milieu setbacks in workers’ struggles paved the way for the neoliberal “structural readjustment” following the structural crisis of 1970s. Such review is important, we thought, for understanding the class dimensions, political implications and possible outcomes of the current crisis – an understanding without which we the global 99% cannot hope to “seize the crisis” (as Samir Amin has put it) for advancement of our own cause as against that of the 1%.
Global experience in the age of imperialism, which Lenin defined as moribund monopoly capitalism under the domination of finance capital, brilliantly confirms and enriches the Marxist-Leninist explanation of business cycles and capitalist crisis. We hope the present publication, which updates and broadens the discussion started earlier, will help activists and observers gain deeper insights into the economic crisis and its political implications.
18 September, 2008. US Treasury Secretary Ben Bernanke put up a sombre face and told the law-makers that if the government did not save the (financial) markets then there might not be any financial markets in the future.
He was speaking the truth. Over 100 mortgage lenders had gone bankrupt during 2007 and 2008. Concerns that investment bank Bear Stearns would collapse had resulted in its fire-sale to JP Morgan Chase in March 2008. The financial crisis hit its peak in September and October. Several major institutions either failed, or were acquired under duress, or were taken over by the government. These included Lehman Brothers, Merrill Lynch, Fannie Mae, Freddie Mac, Washington Mutual, Wachovia, Citigroup, and AIG Insurance – establishments deemed “too big to fail”. So the “Emergency Economic Stabilisation Act of 2008”, which sanctioned a whooping $700 billion for rescuing the fat cats of Wall Street through the Troubled Asset Relief Program (TARP), was passed. There was tremendous popular opposition, including that of some 400 economists – two of them Nobel Prize winners. The basic point was that the package transferred huge amounts of public money into the hands of private financiers responsible for the catastrophe instead of punishing them, thus creating a bad precedent, a “moral hazard”, for the future. The bankers’ government paid no heed, naturally.
As the contagion spread at electronic speed to other rich countries (actually the rot had started earlier: in August 2007 French giant BNP Paribas had terminated withdrawals from three hedge funds citing “a complete evaporation of liquidity”), the latter too launched their own bailout packages. A total financial meltdown was thus averted by governments rescuing financial corporations with taxpayers’ money
But how did things come to such a pass?
To put it very simply, titans like Lehman Brothers, AIG Insurance, Fannie Mae and Freddie Mac (the last two Government Sponsored Enterprises) failed because at the hour of need they could no longer raise money from the market to roll over their short-term debt. During 2004-07, the top five U.S. investment banks unscrupulously increased their financial leverage – reporting over $4.1 trillion in debt for fiscal year 2007, about 30% of US GDP for 2007 – which increased their vulnerability to a financial shock.
Being over-exposed to the sub-prime mortgage market and relying too much on derivatives – instruments derived from the performance of some distant asset (hence the generic name “derivatives”) they suffered huge losses and lost the trust of the market. Investors became reluctant to lend money even to these prestigious financial institutions. Failing to meet their obligations, essentially they went bankrupt, though in most cases (Lehman being the most famous exception) they were rescued by the government.
The “sub-prime mortgage market” or “sub-prime loans” refer primarily to housing loans to those who could hardly afford them and in which the initial interest rate was sub-prime (very low) but escalated over the duration of the mortgage, on the assumption that as the borrower progressed career-wise there would be an increased capacity to pay instalments. The sub-prime loan instruments were then “diced and sliced” (i.e. mixed up with other more viable loans) and the resultant derivatives were sold on by the original mortgage institutions to other banks and financial institutions.
Thus emerged a shadow banking system. The new breed of derivatives generated by dicing and slicing of sub-prime and other risky loans were expected to distribute the risks among many financial institutions and thereby minimise the risks shouldered by each.
This strategy allowed financiers to circumvent regulations and generate easy credit by taking high risk bets and offloading the risks on to others. When, with the collapse of the housing bubble and an avalanche of defaults by sub-prime borrowers, the ‘bets’ began to go wrong, the pyramid of deals began tumbling down. More than once during 2007 and 2008 financial authorities in US and other countries sought to stem the tide by helping the crisis-ridden banks and, to a lesser extent, also indebted homeowners. But in vain. The whole process snowballed and led to the September 2008 debacle.
Strange as it may seem now, the high risk strategy involving excessive sub-prime loans and an endless web of securitisation or derivatives-creation was not restricted or regulated by any public or private authorities. Rather, this strategy was praised as a sure way to prosperity – both for the corporations and for the country. Announcing its 2005 Annual Awards – one of the securities industry’s most prestigious awards – the International Financing Review (IFR) said, “[Lehman Brothers] not only maintained its overall market presence, but also led the charge into the preferred space by ... developing new products and tailoring transactions to fit borrowers’ needs. ... Lehman Brothers is the most innovative in the preferred space, just doing things you won’t see elsewhere.”
Yes, Lehman became too smart and that’s why it met the fate it did. Since the epicentre of the devastating earthquake and its aftershocks lay in the financial sector i.e., the credit network, our investigation into the causes of the crisis should begin from here.
At one time the role of credit – of dealers in credit or financiers – was basically to “grease the wheels” of industry and commerce which turned out real goods, infrastructure and services. But gradually their role expanded and today we find them in dual roles: both as accelerators of growth and harbingers of crisis. US experience under the neoliberal order illustrates this very well.
As a strategy to counter the economic slump that started in 1970s, the working people of America were encouraged to keep up their consumption levels with easy credit made available through aggressive credit card promotions, new and reckless mortgage practices, and other means. This policy had a great political benefit too: the enslavement and immobilisation of the proletariat in credit chains. As Lenin showed in the article “Imperialism and the Split in Socialism” long ago, the imperialist bourgeoisie had devised the tactic of creating a stratum of workers’ aristocracy in their countries by bribing the latter with small fragments of super profits earned in colonies, i.e., by paying them relatively better wages. Today they have improved the tactic further. They now give out huge loans while restricting wages, imposing on the workers a modern version of debt bondage and, with that, the ideological enslavement of consumerism
When the “dot-com” or “New Economy” stock market bubble burst in 2000, the US economy went into recession. It was weakened further by the 9/11 attacks. In order to allay the fears of financial collapse, the Federal Reserve lowered short-term interest rates. But employment kept falling through the middle of 2003, so the Fed kept lowering short-term lending rates. For three full years, starting in October of 2002, the real (i.e., inflation-adjusted) federal funds rate was actually negative. This allowed banks to borrow funds from other banks, lend them out, and then pay back less than they had borrowed once inflation was taken into account.
The “cheap money, easy credit” strategy created a new bubble – this time based in home mortgages. This “great bubble transfer” involved a further expansion of consumer debt and an enormous profit explosion in the finance sector achieved through extension of mortgage financing to riskier and riskier customers. The collapse into recession was thus delayed no doubt, but at the same time and in the same measure the latter was made more inevitable and more intense.
The following passages from Marx, with a bit of updating as suggested in square brackets, may help us understand why the economic catastrophe started as a credit and money crisis:
“In a system of production, where the entire continuity of the re-production process rests upon credit, a crisis must obviously occur – a tremendous rush for means of payment – when credit suddenly ceases and only cash payments have validity. At first glance, therefore, the whole crisis seems to be merely a credit and money crisis. And in fact it is only a question of the convertibility of bills of exchange [add here the modern credit instruments– AS] into money. But the majority of these bills represent actual sales and purchases, whose extension far beyond the needs of society is, after all, the basis of the whole crisis. At the same time, an enormous quantity of these bills of exchange represents plain swindle, which now reaches the light of day and collapses... The entire artificial system of forced expansion of the reproduction process cannot, of course, be remedied by having some bank, like the Bank of England, [today we would perhaps say the US Federal Reserve] give to all the swindlers the deficient capital by means of its paper and having it buy up all the depreciated commodities at their old nominal values. Incidentally, everything here appears distorted, since in this paper world, the real price and its real basis appear nowhere ...” (ibid, p 490, emphasis added).
Marx also speaks of “a new financial aristocracy, a new variety of parasites in the shape of promoters, speculators and simply nominal directors; a whole system of swindling and cheating by means of corporation promotion, stock issuance and stock speculation” and of “fictitious capital, interest-bearing paper” which “is enormously reduced in times of crisis, and with it the ability of its owners to borrow money on it on the market.” (Capital, Vol. III, p 493). If this sounds contemporaneous, so would the anxiety expressed by the British “Banks committee” – a predecessor of various expert committees and monetary authorities of our day – more than 150 years ago regarding the fact that “extensive fictitious credits have been created” by means of discounting and rediscounting bills “in the London market upon the credit of the bank alone, without reference to quality of the bills otherwise.” (ibid, p 497, emphasis ours).
Junk securities, then, are no invention of the Wall Street-wallahs of our time!
The role of credit in the capitalist system as a whole went on expanding and reached a qualitatively new stage with the advent of modern imperialism, a parasitic and decaying system marked by new features like all-round monopolisation, export of capital out-weighing export of commodities, the rise of the financial oligarchy etc. Money capital now metamorphosed into finance capital and attained a much more influential position:
“Imperialism, or the domination of finance capital, is that highest stage of capitalism in which the separation [“of money capital … from industrial or productive capital”] reaches vast proportions. The supremacy of finance capital over all other forms of capital means the predominance of the rentier and of the financial oligarchy; it means that a small number of financially ‘powerful’ states stand out among all the rest.”
“... [The] twentieth-century marks the turning point from the old capitalism to the new, from the domination of capital in general to the domination of finance capital.” (Lenin in Imperialism; emphasis added)
Now what is finance capital? Basically it is the coalescence of bank capital and industrial capital, said Lenin, and today perhaps we should include commercial capital as well. This coalescence, however, internalises a good amount of tensions and contradictions between the different sectors which maintain their special identities and interests. Modern banks, Lenin showed, concentrated the social power of money in their hands, and began to operate as “a single collective capitalist”, and so “subordinate to their will not only all commercial and industrial operations but even whole governments.” Also important in this context was the three-way “personal link-up” between industry, banks and the government.
Elaborating on the new stage, Lenin wrote:
“The development of capitalism has arrived at a stage when, although commodity production still ‘reigns’ and continues to be regarded as the basis of economic life, it has in reality been undermined and the bulk of the profits go to the ‘geniuses’ of financial manipulation. At the basis of these manipulations and swindles lies socialised production, but the immense progress of mankind, which achieved this socialisation, goes to benefit... the speculators.”
This separation of money capital from productive capital and the supremacy of the former continued to grow, with the result that today we see “a relatively independent financial superstructure … sitting on top of the world economy and most of its national units”. That is to say, there is now an “inverted relation between the financial and the real”, where “the financial expansion feeds not on a healthy real economy but on a stagnant one” (Paul Sweezy, “The Triumph Of Financial Capital”, Monthly Review, June 1994).
The relative weight of the financial sector in the international economy thus increased steadily all through, but very disproportionately since the 1980s, facilitated by neoliberal deregulation and the information revolution. By far the largest and fastest growing component of this sector is made up of speculation and other reckless activities: derivatives trade, hedge fund activities, sub-prime loans and so on. As Martin Wolf of the Financial Times aptly observed, “The US itself looks almost like a giant hedge fund. The profits of financial companies jumped from below 5 per cent of total corporate profits, after tax, in 1982 to 41 per cent in 2007.” According to the Bank of International Settlements, as of December 2007, the total value of derivatives trade stood at a staggering $516 trillion, growing from $100 trillion in 2002. In other words, this shadow economy was 10 times larger than global GDP ($50 trillion) and more than five times larger than the actual trading in shares in the world’s stock exchanges ($100 trillion).
Trade in derivatives and generally in stock and currencies involve the self-expansion of money capital. As Marx had pointed out, making money out of money without going through troublesome production processes has long been a cherished ideal of the bourgeoisie. In recent decades that ideal has been ‘brilliantly’ put into practice.
In the present context, speculation is trade in financial instruments with the goal of making fast bucks; or to be more precise, buying and selling of risks. Commercial banks, investment banks and insurance companies deal in both industrial financing and speculation – in real life the two categories are thus lumped together – but in terms of specific economic role performed they are different. Traditional credit and production-oriented finance capital serves the real economy – agriculture, industries, services, where wealth is produced and people get jobs – whereas speculative capital produces no real wealth.
As we have seen, top bankers in the mid-19th century cautioned about “extensive fictitious credits” and Marx talked of “over-speculation”. John Maynard Keynes in the mid-1930s warned, “Speculators may do no harm as bubbles on a steady stream of enterprise. But the position is serious when enterprise becomes the bubble on a whirlpool of speculation. When the capital development of a country becomes a by-product of the activities of a casino, the job is likely to be ill-done.” (The General Theory of Employment, Income and Money).
Despite the warnings, and whatever the social costs, speculation has been highly rewarded by the state and other institutions of the capitalist class. But why? Because decadent capitalism or imperialism discovered in it one of the most – if not the most – lucrative escape routes from the crisis of overproduction/over-accumulation that resurfaced since 1970s. The 1997 Nobel Memorial Prize in Economic Science was awarded to America’s Robert Merton and Myron Scholes, who had just developed a model for pricing “derivatives” such as stock options. This model or technique was expected to help speculate ‘scientifically’ and reap mega profits safely. In practice, however, the results were not exactly encouraging. Long Term Capital Management – a hedge fund where Merton and Scholes were partners and which worked according to the prized technique – found itself on the verge of collapse within a year the prize was awarded, and was rescued by the New York Federal Reserve.
Not that there was no saner voices around. Early in the 2000s billionaire investor Warren E. Buffett had called derivatives “financial weapons of mass destruction” and in March 2007 Ben Bernanke, quoting Alan Greenspan, warned that the GSEs Fannie Mae and Fred-die Mac were a source of “systemic risk” and suggested legislation to head off a possible crisis. Then in late 2008 George Soros wrote:
“... [The] current crisis differs from the various financial crises that preceded it. ...the explosion of the US housing bubble acted as the detonator for a much larger ‘super-bubble’ that has been developing since the 1980s. The underlying trend in the super-bubble has been the ever-increasing use of credit and leverage. Credit – whether extended to consumers or speculators or banks – has been growing at a much faster rate than the GDP ever since the end of World War II. But the rate of growth accelerated and took on the characteristics of a bubble when it was reinforced by a misconception that became dominant in 1980 when Ronald Reagan became president and Margaret Thatcher was prime minister in the United Kingdom....
“The relative safety and stability of the United States, compared to the countries at the periphery, allowed the United States to suck up the savings of the rest of the world and run a current account deficit that reached nearly 7 percent of GNP at its peak in the first quarter of 2006.
...” This inevitably led to the crash, he pointed out. (The Crisis and What to Do About It, The New York Review of Books, December 4, 2008).
So the ace speculator castigates excessive deregulation and dependence on debts and deficits.
Well, he describes the surface froth all right, but fails to relate it to the underlying crosscurrents that work it up. If we are to do that, we must turn to the author of Capital.
BEFORE we proceed, however, we should recall that Karl Marx had to take leave of the international proletariat before he could work out a comprehensive theory of capitalist crisis. Capital Volumes II and III, Theories of Surplus Value and Grundrisse were not made ready for publication in his lifetime; nor could he take up his plans for investigating various other facets of capitalist economy and polity. Naturally there is a wide array of differing interpretations of Marx’s theory, with Luxemburg for example differing with Lenin, and Ernest Mandel arguing against Paul Sweezy and others. Available space does not permit us to review the rich and continuing debate among these schools; we can only present here in barest outline what we believe to be the basic Marxian understanding of capitalist crises.
“For many a decade past” asserted the Communist Manifesto, “the history of industry and commerce is but the history of the revolt of modern productive forces against modern conditions of production, against the property relations that are the conditions for the existence of the bourgeois and of its rule. It is enough to mention the commercial crises that, by their periodical return, put the existence of the entire bourgeois society on its trial, each time more threateningly. ...In these crises, there breaks out an epidemic that, in all earlier epochs, would have seemed an absurdity – the epidemic of over-production. Society suddenly finds itself put back into a state of momentary barbarism... And why? Because there is too much civilisation, too much means of subsistence, too much industry, too much commerce. ... And how does the bourgeoisie get over these crises? On the one hand, by enforced destruction of a mass of pro-ductive forces; on the other, by the conquest of new markets, and by the more thorough exploitation of the old ones. That is to say, by paving the way for more extensive and more destructive crises, and by diminishing the means whereby crises are prevented.”
Marx and Engels talk of an “epidemic of overproduction”. This is overproduction of commodities relative to effective demand: more is produced than can be sold. Thanks to inadequate purchasing power of the masses, a big chunk of commodities remain unsalable and drag their owners (producers/traders) down to ruin. This characteristic feature of capitalism led Marx to remark, “The ultimate reason for all real crises always remains the poverty and restricted consumption of the masses as opposed to the drive of capitalist production to develop the productive forces as though only the absolute consuming power [as distinct from purchasing power – A Sen] of society constituted their limit.” (Capital Volume III p. 484, emphasis ours).
The problem thus appears simply as a realisation crisis and prompts one to ask: why on earth do practical men of business commit the folly of producing more than they can sell?
Going deeper, we find that crises occur not because capitalists are fools, nor do they fall from the blue. They are produced in course of trade/business cycles resulting from a complex interplay of several partially independent variables, the most important being movements in the average rate of profit. As Marx showed in Part Three of Volume III of Capital, over a period of time and in the economy as a whole, this rate tends to fall. Here is how, in brief.
We all know that capitalists are prone to use more and better machinery to boost production and save on labour costs. In Marxist economic theory this is known as increasing the ratio of constant capital (plant and machinery, raw materials, various fixed assets, etc) to variable capital (capital expended on purchasing labour power – “variable” because this part, unlike the “constant” part, grows beyond its own value, i.e., creates surplus value in the process of production) – a ratio which is called the organic composition of capital. Since live labour is the source of surplus value or profit, re-placing labour by machinery means a proportionate decrease in the rate of profit for every unit of total (constant plus variable) capital employed. Suppose a capital worth Rs. 100 crore comprised Rs. 60 crore in constant and Rs. 40 crore in variable capital and the rate of surplus value was 50%. The amount of surplus value was therefore Rs. 20 crore (50% of Rs. 40 crore expended on variable capital) and the rate of profit (calculated on total capital of Rs. 100 crore) was 20%. After say 10 years, the organic composition is increased – constant capital is raised to Rs. 80 crore and variable capital slashed to Rs. 20 crore. The rate of surplus value remaining the same, the amount of surplus value would be Rs. 10 crore (50% of Rs. 20 crore) and the rate of profit 10%.
The illustration is deliberately simplified, but the fact remains that increase in the organic composition of capital and a downward tendency of the average rate of profit, conditioned by the former, are the general laws of development of the capitalist mode of production. However, reduced rate of profit can go hand in hand with increased mass of profit if the total magnitude of capital on which profit is earned is sufficiently increased. And that is what usually happens in real life. As Marx puts it,
“...the same development of the social productiveness of labour
This has another consequence that has acquired much practical political importance in the current context of development debate:
“... as the capitalist mode of production develops, an ever larger quantity of capital is required to employ the same, let alone an increased, amount of labour-power. Thus, on a capitalist foundation, the increasing productiveness of labour necessarily and permanently creates a seeming over-population of labouring people. If the variable capital forms just 1/6 of the total capital instead of the former 1/2, the total capital must be trebled to employ the same amount of labour-power. And if twice as much labour-power is to be employed, the total capital must increase six-fold.” (ibid, emphasis added).
We thus see that the tendential law of falling rate of average profit does not operate in a simple, linear fashion. It is realised only in course of cyclical movements of capital, through breakdowns and restorations of equilibriums. It has its own “internal contradictions” and unleashes a slew of countervailing forces or “counteracting influences”, such as more intense exploitation of labour, depression of wages below value, cheapening of the elements of constant capital, relative over-population (the “reserve army” of unemployed), foreign trade (skewed terms of trade and imperialist super profits), expansion of share capital – and to this list prepared by Marx we must add more modern techniques like monopoly pricing. We should therefore view the law “rather as a tendency, i.e., as a law whose absolute action is checked, retarded and weakened by counteracting circumstances” (ibid, pp 234-35). In other words, its effect becomes decisive only under certain particular circumstances and over long periods.
Our stress on the tendency of the average rate of profit to fall – which Marx regarded as “in every respect the most important law of modern economy and the most essential for understanding the most difficult relations” (Grundrisse, p 748) – should not lead one towards a monocausal understanding of economic crises and business cycles. Crucial other causes are also there, such as anarchy of the capitalist mode of production which, inter alia, periodically upsets the conditions of equilibrium between the two main sectors – one producing capital goods and the other producing consumer goods – of capitalist economy. Marx also discussed several auxiliary factors which influence the specific courses and peculiar features of particular crises. More important among them are: movements in wage levels, competition among capitalist concerns, fluctuations in raw material prices, expectations (or “confidence”, to use a more modern term), movements in interest rates and financial turmoil, trends in international trade, and so on.
The exposition of “the internal contradictions of the law” takes Marx to a discussion of certain “contradictory tendencies and phenomena” which “counteract each other simultaneously”. He mentions a number of such contradictory features – such as falling rate of profit alongside the growing mass of capital, enhanced productivity alongside higher composition of capital – and declares,
“These different influences may at one time operate predominantly side by side in space, and at another succeed each other in time. From time to time the conflict of antagonistic agencies finds vent in crises. The crises are always but momentary and forcible solutions of the existing contradictions. They are violent eruptions which for a time restore the disturbed equilibrium. ...” (ibid, p 249, emphasis added)
Here we have the most concise description of the essential role of crises as an inbuilt mechanism of capitalism that, up to a point, prepares the way for a new upturn, just as a forest fire can prepare the woodland for a new period of growth. To explain how, Marx makes another move ahead in his exposition.
Where bourgeois economists see the surface phenomenon of commodity glut during depression, Marx lays bare the deeper substance of overproduction/over-accumulation of capital and shows how this comes about:
“A drop in the rate of profit is attended by a rise in the minimum capital required by an individual capitalist for the productive employment of labour... Concentration increases simultaneously, because beyond certain limits a large capital with a small rate of profit accumulates faster than a small capital with a large rate of profit. At a certain high point this increasing concentration in its turn causes a new fall in the rate of profit. The mass of small dispersed capitals is thereby driven along the adventurous road of speculation, credit frauds, stock swindles, and crises. The so-called plethora of capital always applies essentially to a plethora of the capital for which the fall in the rate of profit is not compensated through the mass of profit — this is always true of newly developing fresh offshoots of capital — or to a plethora which places capitals incapable of action on their own at the disposal of the managers of large enterprises in the form of credit. This plethora of capital arises from the same causes as those which call forth relative over-population, and is, therefore, a phenomenon supplementing the latter, although they stand at opposite poles — unemployed capital at one pole, and unemployed worker population at the other.
“Over-production of capital, not of individual commodities — although over-production of capital always includes overproduction of commodities — is therefore simply over-accumulation of capital.”(ibid, p 250-51; emphasis added)
Such a situation naturally leads to an unseemly scramble among capitalists:
“So long as things go well, competition effects an operating fraternity of the capitalist class ... so that each shares in the common loot in proportion to the size of his respective investment. But as soon as it no longer is a question of sharing profits, but of sharing losses, everyone tries to reduce his own share to a minimum and to shove it off upon another. The class, as such, must inevitably lose. How much the individual capitalist must bear of the loss, i.e., to what extent he must share in it at all, is decided by strength and cunning, and competition then becomes a fight among hostile brothers. The antagonism between each individual capitalist’s interests and those of the capitalist class as a whole, then comes to the surface ...” (ibid, p 253; emphasis added)
In the age of imperialism this is replicated on an international scale, with nation states engaged in fierce battles over who is to bear the brunt of the huge losses. Costs of crises are spread differentially according to the economic (including financial), political and military prowess of rival states. Imperialist war – being the fastest method of this destruction – appears on the horizon as a real or potential ‘solution’ to capitalist crisis.
In whatever manner and through however fierce a struggle the losses may be distributed among individual concerns (and among different states or trade-and-currency blocs on the international plane), the overriding need for returning the system to some kind of equilibrium has to be fulfilled. And that is fulfilled through destruction of part of capital values:
“...the equilibrium would be restored under all circumstances through the withdrawal or even the destruction of more or less capital. This would extend partly to the material substance of capital, i.e., a part of the means of production, of fixed and circulating capital, would not operate, not act as capital...
“Part of the commodities on the market can complete their process of circulation and reproduction only through an immense contraction of their prices, hence through a depreciation of the capital which they represent. The elements of fixed capital are depreciated to a greater or lesser degree in just the same way.
“... definite, presupposed, price relations govern the process of reproduction, so that the latter is halted and thrown into confusion by a general drop in prices. This confusion and stagnation paralyses the function of money as a medium of payment, whose development is geared to the development of capital and is based on those presupposed price relations. The chain of payment obligations due at specific dates is broken in a hundred places. The confusion is augmented by the attendant collapse of the credit system, which develops simultaneously with capital, and leads to violent and acute crises, to sudden and forcible depreciations, to the actual stagnation and disruption of the process of reproduction, and thus to a real falling off in reproduction.” (ibid, pp 253-54)
But all this does not, by itself, mean the end of the world. Once the necessary devaluation has been accomplished and over-accumulation eliminated, ‘normal’ accumulation can go on:
“...the cycle would run its course anew. Part of the capital, depreciated by its functional stagnation, would recover its old value. For the rest, the same vicious circle would be described once more under expanded conditions of production, with an expanded market and increased productive forces.” (ibid, p 255)
But what is normal need not be permanent. Expanded capitalist reproduction is intensified reproduction of all its contradictions and within the recurring cycles reside the seeds of violent destruction of the system:
“The highest development of productive power together with the greatest expansion of existing wealth will coincide with depreciation [devaluation] of capital, degradation of the labourer, and a most strained exhaustion of his vital powers. These contradictions lead to explosions, cataclysms, crises, in which by momentous suspension of labour and annihilation of a great portion of the capital, the latter is violently reduced to the point where it can go on.... Yet these regularly recurring catastrophes lead to their repetition on a higher scale, and finally to its violent overthrow.” (Grundrisse, p 750, emphasis added).
Drawing attention to a basic contradiction of capitalist accumulation, Marx observed: “The credit system appears as the main lever of over-production and over-speculation in commerce solely because the reproduction process, which is elastic by nature, is here forced to its extreme limits, and is so forced because a large part of the social capital is employed by people who do not own it and who consequently tackle things quite differently than the owner, who anxiously weighs the limitations of his private capital in so far as he handles it himself.”
A very realistic explanation of why the financial institutions behave so irresponsibly with their customers’ money, isn’t it Marx goes on:
“This simply demonstrates the fact that the self-expansion of capital based on the contradictory nature of capitalist production limits an actual free development only up to a certain point, so that in fact it constitutes an immanent fetter and barrier to production, which are continually broken through by the credit system. Hence, the credit system accelerates the material development of the productive forces and the establishment of the world-market. … At the same time credit accelerates the violent eruptions of this contradiction – crises – and thereby the elements of disintegration of the old mode of production.” (ibid, p 441, emphasis added)
IN the age of imperialism or monopoly capitalism (which Lenin identified as the economic essence of imperialism) or even more in the post- war era of monopoly finance capitalism (as Sweezy and Baran had called it) crises, like capitalism in general, have taken on several new features, requiring us to go beyond Marx and enrich our understanding in light of the experience of the past hundred years.
A crisis can be (a) episodic/conjunctural, or (b) structural/ systemic. The former affects only some parts of the system or particular spheres – say financial or commercial -- or this or that particular branch of production, or a particular group of countries. It can be dramatically severe – the South Asian meltdown of late 1990s or the dotcom bubble burst in the first decade of the present century for example – yet amenable to a temporary or partial resolution by means of partial measures without greatly disturbing the existing modalities and structures of capital accumulation. Such crises are like “great thunderstorms” (in Marx’s words) through which they can discharge and ‘resolve’ themselves, to the degree to which that is feasible under the given conditions. This is possible because they do not call into question the ultimate limits of the established global structure in an immediate sense. However, the underlying deep-seated structural contradictions of capitalism wait to reassert themselves again in the form of the next violent eruption. In the process a point is reached where these contradictions no longer lend themselves to adhoc resolution by superficial measurers and their cumulative impact manifests itself in the shape of a structural/systemic crisis – one that is universal in character (affecting all segments of the international economy) and global in scope (sparing almost no country/region). Such is the nature of the crisis we are living through now. It affects the basic structure, the totality of the capitalist system and its very heart, which in our time lies in the hegemonic financial sector.
Relative to a thunderstorm-like episodic crisis, the time scale of a structural crisis is likely to be less instantaneous or convulsive and more extended and protracted; and its mode of unfolding might be called creeping, although it may start with violent eruptions like the collapse of Lehman Brothers and other biggies in 2008 and the “Great Crash” prefiguring the “Great Depression” (GD).
For Marxists the present worldwide structural crisis was not unexpected. To run and stumble from crisis to crisis, restructuring the accumulation process to cope with new challenges after major, epochal ones – such has been the mode of existence of late capitalism. Looking back on its history since the transition to imperialism began, we can locate four such structural crises that occurred with striking regularity at intervals of nearly four decades:
1. The “Great Depression” (as it was called before the greater one that struck in 1929) of 1890s was caused primarily by rapidly shrinking profits resulting from “cut-throat competition” among big trusts and cartels. In the US, the Sherman Act, the first major anti-trust legislation, was therefore passed in 1890. The profitability problem was sought to be overcome by structural changes like the rise of big international banks and the emergence of finance capital through “coalescence of bank and industrial capital”, domination of financial oligarchies and other monopolies, speculation overshadowing production and export of capital surpassing export of goods, etc. – as Lenin pointed out in Imperialism.
2. These changes led to the hegemony of and restoration of profits for finance based on overextension of debt and speculation on the bourses. But the “roaring 1920s” ended in the great stock market crash of 1929 and the GD that followed. How this crisis came about and was overcome we shall discuss shortly.
3. In the 1970s and 80s, the downward movement of profit rates resurfaced and, compounded by the oil crisis and chronic inflation, assumed the shape of stagflation. The crisis of the dollar and end of the Gold Standard became conspicuous fallouts of the crisis. Capitalism went through another bout of restructuring – the neoliberal globalisation and financialisation (more later).
4. And now this new model of growth is engulfed in a severe crisis apparently brought about by unscrupulous activities of greedy, “too big to fail” banks with full state support, and one that demonstrated the unsustainablity of credit- driven, bubble-led growth. The quest for a solution continues, with hardly a ray of light expected at the end of the tunnel.
This is not purported to be a complete account of the entire history: for example, we have not touched the role of wars. We have only tried to show that these epochal crises were watersheds differentiating distinct phases of late capitalism – violent ruptures leading to paradigm changes in its structure, in its forms and mechanisms, partly obfuscating the essential continuity of this mode of production. There is another important point, which we have saved for separate discussion in the last two chapters. It pertains to the impacts of mass movements, past and present, against attempts of the bourgeoisie and its state to transfer the entire burden of crisis on to the shoulders of the working people.
Among the four structural crises, we shall do well to take a closer view of the GD (and its consequences) and the present crisis. Both of them, significantly, had their common proximate causes in unfettered activities of monopoly finance capital (e.g., debt explosion and excessive speculation) and in this sense constituted crises of liberalism – liberalism of the old type then and of a new variety now.
As mentioned above, the big monopolistic banks and corporations that marked the advent of imperialism at the turn of the 20th century went about their reckless plunder in a way that led to the Great Depression. Combined with other factors like powerful struggles of working classes (more on this later) and the political challenge posed by vibrant socialism, the devastation caused by GD forced the lords of capital to mend their ways to some extent. This came to be known as the New Deal (in the United States) and welfare state/ social democracy (in Western Europe).
(From memoirs of Marriner S. Eccles, who served as Chairman of the Federal Reserve under Franklin D. Roosevelt from November 1934 to February 1948. Here he gives his own interpretation of the Great Depression.)
“As mass production has to be accompanied by mass consumption, mass consumption, in turn, implies a distribution of wealth -- not of existing wealth, but of wealth as it is currently produced -- to provide men with buying power equal to the amount of goods and services offered by the nation’s economic machinery. [Emphasis in original.]
Instead of achieving that kind of distribution, a giant suction pump had by 1929-30 drawn into a few hands an increasing portion of currently produced wealth. This served them as capital accumulations. But by taking purchasing power out of the hands of mass consumers, the savers denied to themselves the kind of effective demand for their products that would justify a reinvestment of their capital accumulations in new plants. In consequence, as in a poker game where the chips were concentrated in fewer and fewer hands, the other fellows could stay in the game only by borrowing. When their credit ran out, the game stopped.
That is what happened to us in the twenties. We sustained high levels of employment in that period with the aid of an exceptional expansion of debt outside of the banking system. This debt was provided by the large growth of business savings as well as savings by individuals, particularly in the upper-income groups where taxes were relatively low....The stimulation to spend by debt-creation of this sort was short-lived and could not be counted on to sustain high levels of employment for long periods of time. Had there been a better distribution of the current income from the national product – in other words, had there been less savings by business and the higher-income groups and more income in the lower groups – we should have had far greater stability in our economy. Had the six billion dollars, for instance, that were loaned by corporations and wealthy individuals for stock-market speculation been distributed to the public as lower prices or higher wages and with less profits to the corporations and the well-to-do, it would have prevented or greatly moderated the economic collapse that began at the end of 1929.
The time came when there were no more poker chips to be loaned on credit. Debtors thereupon were forced to curtail their consumption in an effort to create a margin that could be applied to the reduction of outstanding debts. This naturally reduced the demand for goods of all kinds and brought on what seemed to be overproduction, but was in reality underconsumption when judged in terms of the real world instead of the money world. This, in turn, brought about a fall in prices and employment.
Unemployment further decreased the consumption of goods, which further increased unemployment, thus closing the circle in a continuing decline of prices.
This then, was my reading of what brought on the depression.” [from Beckoning Frontiers (New York, Alfred A. Knopf, 1951)]
Essentially, the rich reckoned the time had come to accept some sort of compromise and a modicum of regulation, hoping that by giving up some of their privileges, they would be able to preserve most of them. Key sectors of the economy, including banking, transportation, electric power, and communications were thus brought under state regulation. Big corporations began to – in the US they were compelled to by the National Labor Relations Act, known as the Wagner Act (1935) – bargain with labour unions rather than trying to crush them. Important social programmes such as unemployment compensation and public health care were created and expanded.
Simultaneously, the Marshall Plan was launched by Washington to aid the process of rejuvenation of war ravaged economies of Japan, East Germany and other allies, while the IMF and the World Bank were set up to help development under US tutelage.
In the US, the marginal income tax rate on the rich rose to 92% on the highest incomes in the early 1950s. Abandoning the old “free market” belief that recessions and depressions would automatically cure themselves, governments began to intervene more vigorously (through fiscal and monetary policies for example) to stabilise the economy and keep the unemployment rate low.
All this, together with other factors like the pent up consumer demands of war years, ushered in the so-called Golden Age of Capitalism (1948–73) which experienced unparalleled growth in advanced capitalist countries. While evils of imperialism did not vanish, there was noticeable improvement in the economic conditions and purchasing power of the working people in these countries, which helped sustain extended reproduction, but sure enough, not permanently.
In two to three decades, the space for expansion newly created by the devastating war was exhausted. From late 1960s and particularly since the oil shock (1973) which substantially raised production costs, the bad old maladies began to resurface: overproduction, excess capital, dwindling profit rates. In the face of heightened competition from firms in Japan and the newly industrialising countries, employers in the US and Europe tried to push their labour costs down, giving rise to sharpened conflict between labour and capital. The ruling classes went on an offensive – as we shall soon see – both directly (e.g., by crushing strikes and curbing TU rights) and indirectly through the state (e.g., transfer of state funds from social programmes to the private sector in the shape of trade credits, direct subsidies, tax cuts for corporations and the rich etc.; privatization of public services – which also helped capitalists find investment opportunities for their excess funds – and so on).
This was about when, from mid-1980s onwards, liberalism – the doctrine of absolute freedom of capital from social control – returned with a vengeance in a new shape in a new historical context marked by the gradual retreat of (a) welfare state/social democracy in Europe; (b) the “actually existing socialisms” and (c) nationalist mixed economies in certain third world countries. Neoliberal capitalism was born. At first it was better known as Reaganomics and Thatcherism, and spread from the US and the UK through the developed economies and then Latin America to the rest of the world. Theories like monetarism, supply-side economics, trickledown theory (if top echelons get rich fast, the wealth will percolate down; so growth alone and not egalitarianism is to be cared for) etc were used to justify whatever capital found necessary. Even the name of the system was sought to be changed from good old capitalism – simple yet revealing – to the vague and ideologically cloaked term “free market” or “market system”. Side by side with a patently fraudulent economic system thus arose what John Kenneth Galbraith called, in the title of his last book, “The Economics of Innocent Fraud” (2004).
After more than two decades of good times for the super rich, the largely deregulated financial system collapsed in 2008, pulling the global economy down with it. The more important specific causes responsible for this can be located in three most visible features of neoliberalism in the advanced economies: international relocation and reorganisation of production and associated services; enormous debt traps that caught hold of individual consumers as well nations; unprecedented dependence on financialisation as a way of circumventing stagnation in the productive sector and on asset bubbles as growth steroids. These are the major factors that first promoted nearly three decades of economic expansion and then led to a massive crisis. Let us discuss these in barest outline.
First, the relocation referred above – a component of the accelerated global integration of capital, production processes and markets, briefly called globalisation – restored handsome profits for TNCs but led to huge job losses and relative destitution of the majority in the advanced capitalist countries. Inequality grew rapidly, as profits rose while workers’ real wages fell. Between 1979 and 2007, the average inflation-corrected hourly wage of non-supervisory workers in the US declined by 1 percent, while inflation-corrected nonfinancial corporate profits after taxes rose by a remarkable 255 percent. Surging profits pleased the capitalists, but it also gave rise to a problem: who would buy the growing output that comes with economic expansion?
The ‘solution’ was found in easy credit and subprime loans. As noted earlier, banks and other financial institutions made a fortune from these practices, while markets for goods and services were kept up by ordinary people buying with borrowed money. Here is the second feature of neoliberal capitalism: a veritable credit explosion and near absolute hegemony of the expanding financial sector. Big manufacturing businesses diversified rapidly into banking, insurance, real estate, wireless communications etc., which became their main source of profit. The beginnings of such trends were noted by Lenin in his time, but now they reached unprecedented proportions.
The repeal of the Glass-Steagall Act in the US (which was passed in the wake of the crisis of 1930s and prohibited the mixing up of ordinary commercial banking and the more precarious operations of investment banking) in 1999 symbolized the almost complete deregulation of the financial sector. It became extremely complex, opaque, and ungovernable, with huge banks and financial institutions pursuing ever-riskier activities. Reckless lending was also made to several nations, giving rise to the phenomenon of sovereign debt crisis. The US borrowed its way to growth and became the world’s largest debtor since the onset of the neoliberal era. It is currently spending more than 8% of its national income on interest payments, which is expected to rise to 17 % by the end of the 2010s.
The third feature of neoliberal capitalism has been a “stagnation-financialization trap”
Long ago, American economist Hyman Minsky theorized that cheap credit and easy liquidity would sow the seeds of an asset price bubble and when the inevitable crash came, businesses and households would find themselves in an over-borrowed situation. Broadly speaking, this was what happened. The 2000s real estate or housing bubble created an estimated $8 trillion of bubble-inflated real estate value, which was about 40 percent of the market value of homes in the United States. The real estate bubble created “fictitious” wealth that enabled people to borrow from banks to pay their bills, with their home as security. Household debt grew and grew, from a manageable 59 percent of household income in 1982 to an unmanageable 126 percent by 2007. Then the whole house of cards tumbled down. The banks held trillions of dollars in exotic assets that lost their value when home prices plummeted – suddenly they were bankrupt. Working people suddenly could not borrow any more but had to start repaying their debt in 2008, and so their purchasing power fell sharply, leading to a severe economic collapse. The big crisis had begun.
IN its country of origin, the federal government and the Federal Reserve bailed out the banks and passed a stimulus bill that stopped the initial freefall in the economy. Governments across Europe followed suit. However, precious little was done to solve the problems of the 99%: high unemployment, low wages, unredeemable debt, homelessness, and underwater mortgages. Today, corporations have plenty of funds but hesitate to invest because there is hardly any increase in demand from cash-strapped or unemployed consumers. The Federal Government is cutting expenditure under the 2011 “austerity deal” in the US House of Representatives, further dampening the markets. The housing sector is yet to recover from the body blow it suffered nearly five years ago.
In sum, three years after the recovery phase of the business cycle began, officially ending the Great Recession in the United States in June 2009, the US economy continues to stagnate – call it “Third Depression” after Paul Krugman or “The Long Slump”, as Robert E. Hall, the then president of the American Economic Association (AEA), said in an address to the AEA in January 2011. In his 2011 bestseller The Great Stagnation, Tyler Cowen showed that the U.S. economy has been characterized by “a multi-decade stagnation” that started well before the financial crisis hit the country. The defining characteristic of the present stagnation is limping, halting recovery punctured by relapses. This was what the US experienced in the 1930s and Britain did even earlier. Regarding the British experience, Engels wrote in the middle of the 19th century: “a chronic state of stagnation ... Neither will the full crash come; nor will the period of longed-for prosperity... A dull depression, a chronic glut of all markets for all trades, that is what we have been living in for nearly ten years.” (The Condition of the Working Class in England )
“FAILURE of policymakers, especially those in Europe and the United States, to address the jobs crisis and prevent sovereign debt distress and financial sector fragility from escalating, poses the most acute risk for the global economy in the outlook for 2012-2013. A renewed global recession is just around the corner. The developed economies are on the brink of a downward spiral enacted by four weaknesses that mutually reinforce each other: sovereign debt distress, fragile banking sectors, weak aggregate demand (associated with high unemployment and fiscal austerity measures) and policy paralysis caused by political gridlock and institutional deficiencies.”
-- From Executive Summary, World Economic Situation and Prospects 2012(United Nations Publication)
No better is the situation in Europe and Japan. In Japan growth slowed to 0.3% by the middle of this year. Surveys released on 1 August 2012 showed manufacturing activity in the 17-nation euro zone contracting for the eleventh straight month in July as a downturn that began in the periphery sank deeper roots into the core, not sparing star performer Germany or France, the region’s second biggest economy. (By the way, India’s industrial output shrank by 1.8 percent in June 2012). Across the Chanel, Britain’s PMI (purchasing managers’ index, computed on the basis of monthly statistical reports from private sector managers covering items like new orders, output, employment, suppliers’ delivery time and stocks of purchases) plummeted to a more than three-year low, shrinking at its fastest rate in more than three years. GDP growth in the 27 countries of the European Union (EU) has fallen from 2.4 per cent in the first quarter of 2011 to 0.8 per cent in the last quarter, according to the Organisation for Economic Co-operation and Development (OECD) Secretariat. The severity of the downturn can be gauged from employment figures too.
International Labour Organisation’s “World of Work Report 2011” dubbed chronic high unemployment “the Achilles heel of economic recovery in most developed countries” and added, “... there is a vicious cycle of a weaker economy affecting jobs and society, in turn depressing real investment and consumption, thus the economy and so on. This vicious circle can be broken by making markets work for jobs – not the other way around.” However, this is not being done. “Recent trends reflect the fact that not enough attention has been paid to jobs as a key driver of recovery. Countries have increasingly focused on appeasing financial markets.” (Emphasis ours)
Precisely because of this policy orientation, the job crisis is only worsening. According to the ILO report “EuroZone Job Crisis: Trends and Policy Responses” released in July 2012, total employment remains 3.5 million lower than before the crisis. “Most alarming, following a modest recovery in 2010 and 2011, employment has fallen since the start of 2012 in half of the Eurozone countries for which recent data are available.” The same trend is witnessed in most other countries, and for the same reason.
According to the World Development Report 2013 released by the World Bank in September 2012, at a time when the world is struggling to emerge from the global crisis, some 200 million people including 75 million under the age of 25 are unemployed. “The youth challenge alone is staggering,” World Development Report Director Martin Rama said, adding that “More than 620 million young people are neither working nor studying. Just to keep employment rates constant, the worldwide number of jobs will have to increase by around 600 million over a 15-year period.”
From people’s perspective the unemployment problem is one of the most painful manifestations of the systemic crisis and together with food crisis it presents a grave danger to the system itself. This is best appreciated by the World Economic Forum (see report on third cover) and no less concerned are other international authorities.
According to World Bank Chief Economist and Senior Vice President Kaushik Basu, “Jobs are the best insurance against poverty and vulnerability. Governments [he forgot to add: should but do not] play a vital enabling role by creating a business environment that enhances the demand for labour.” World Bank Group President Jim Yong Kim said, “We need to find the best ways to help small firms and farms grow. Jobs equal hope. Jobs equal peace. Jobs can make fragile countries become stable”. Such advice, of course, has absolutely no takers among policymakers hired by monopoly finance capital.
One of the novel features of the present round of economic turmoil is that some countries – such as Greece, Portugal – in the Euro area have sunk so deep in debt that they find it difficult or impossible to re-finance their government debt (i.e., pay interests and repay the principal) without the assistance of third parties like the IMF. This is known as the European sovereign debt crisis, which has called in question the very sustainability of the European monetary integration and the future of the euro. One wonders, how did things come to such a pass?
To be brief, when the common currency (Euro) was created, banks utilised the opportunity and the euphoria to lend freely to Spain, Greece and other financially weak nations. This flood of easy credit fuelled huge housing bubbles, enormous profits for lenders and real estate dealers, as well as mountains of debt. Then, with the financial crisis of 2008, the flood dried up, causing severe slumps in the very nations that had boomed before.
Late last year, the European Central Bank (ECB) lent some 489 billion Euros to European Banks at the extremely generous rate of just 1% over 3 years. The latter are relending from this fund to these governments at 10% or more. Why doesn’t the ECB lend directly to the governments? Because an article in the treaty governing ECB forbids it to do that. Actually the purpose of this particular article was to ensure that the ECB is not pressured by governments to print money and make loans and this is understandable. But there should be some flexibility for serious contingencies like the present one, which is missing.
This rigid rule helps big banks make easy money by borrowing cheap and lending at high interest. The banks can take the risks because they know they will be bailed out if their loans go bad. This is one of many instances showing how vested financial interests formulate selfish policies that hamper recovery and make life even more miserable for ordinary people.
The crisis is no doubt global, but the fundamental law of uneven development of capitalism remains in operation. Thus on an international scale you cannot equate the performance or position of Germany, US and China for example with Spain, Greece or even France, not to speak of poorer nations.
Nor can we overlook the enormous disparities in performance within the euro zone. While Southern Europe is caught in deep, long depression, German exports in 2011 set a record of a trillion Euros with its trade surplus reaching 158 billion Euros, that too after a 155 billion surplus in 2010. (BBC News, 8 February, 2012). Of course, this is not to ignore recent data on the inevitable German slowdown.
Again, differences in youth unemployment (among jobseekers between 16 and 25 years) figures are quite pronounced: Spain 48.7%, Greece 47.2%, Italy 31%, and Portugal 30.8% as against Germany 7.8%, Austria 8.2% and Netherlands 8.6%. The concentration of high youth unemployment in Southern Europe explains why mass street protests are centred there. On the other side of the same coin is the fact that the great mass of unemployed youth provides a handy tool for employers to threaten and replace older permanent workers drawing relatively higher wages.
We should also be careful enough to note that while the working people and the capitalist system as such are suffering badly, the top 1 % have sufficient clout and power of manipulation to continue to amass enormous fortunes. Thus in the US, “the profit margins of the S&P 500 (top 500 companies identified by the American rating agency Standard and Poor’s) leapt from 6% to 9% of the GDP in the past three years, a share last achieved three generations ago.” (Financial Times, 13 February, 2012). Another study reports, “US corporate profits are higher as a share of gross domestic product than at any time since 1950” (FT, 30 January, 2012).
In The Crisis, A View from Occupied America, an essay based on his opening plenary presentation at the 2012 Left Forum in New York City, William K. Tabb pointed out: “Between 2009 and 2011, 88 percent of national income growth went to corporate profits, while just 1 percent went to wages. In terms of personal income, in 2010 (the last year for which we have data) 93 percent of all income gains went to the top 1 percent of Americans. An early 2012 story in the Wall Street Journal said ‘U.S. companies are booking higher profits than ever. But ‘Corporate tax receipts as a share of profits are at their lowest level in at least 40 years.’”
The crux of the matter is that a mortal crisis did strike the capitalist class – Wall Street bankers in the first place – but the neoliberal state’s unprecedented massive transfer of wealth from the public treasury to the corporate sector quickly restored profits for the latter and furthered the centralisation of capital. Big financial corporations took bailouts and used them to engage in unscrupulous activities and become even bigger than before 2007.
Recently, debt defaults on the part of South European nations have resulted in substantial losses for banks in France, Germany and England and they are preparing for further ‘haircuts’. But while ordinary share-holders suffer, the corporate honchos know how to fast recover their losses, if any, and resume the personal accumulation spree.
Right since 2007, governments have taken series of measures to tide over the crisis. Among recent ones, mention must be made of new financial regulations aimed at reducing global risks, such as the internationally agreed framework known as Basel III and the Dodd-Frank Wall Street Reform and Consumer Protection Act of the United States. The Financial Stability Oversight Council (FSOC) established under the Dodd-Frank Act is mandated to identify and monitor excessive risks to the U.S. financial Protests Against Austerity Measures in Greece system arising, for example, from distress or failure of large banks or financial companies. The European Stability Mechanism (ESM) is another international organisation in formative stage which, if and when it becomes operational, will provide financial assistance to members of the Euro-zone in financial difficulty. Critics have noted that the ESM provides excessive powers and immunity to the board of ESM Governors and severely curtails the economic sovereignty of its member states.
Central Banks in the US (the Federal Reserve), the UK (the Bank of England) and the Eurozone (European Central Bank) have taken recourse to quantitative easing
But all these measures, even bourgeois experts agree, do not adequately address risks in the international financial system and that the world economy is heading toward a steeper decline than what was experienced in 2008-09. The previous economic engines of global expansion have exhausted their potentialities. Manufacturing in the world’s biggest economy grew at its slowest pace in nearly three years last July, and the inevitable correction of the enormous US fiscal deficit (less spending and more taxes) will worsen the situation from 2013. As for the second largest economy in the world, Chinese factory output grew at its slowest rate in eight months. Overall, the BRIC countries, which provided a new impetus for growth during the first decade of this century, are de-accelerating more or less rapidly. With fewer resources, greater debt and increasing popular resistance to shouldering the burden of saving the capitalist system, nation states and international organs of finance capital are at a loss what to do.
Indeed, policy makers are running out of options. Monetary policy tools – such as reduction in interest rates and printing paper money or electronically generating virtual money – have also become ineffective through overuse. In 2008-09 and thereafter, recourse was taken to astronomical amounts of fiscal stimulus (mostly for bailing out banks and then even countries like Iceland and Greece) but that, on top of previously accumulated debts, resulted in unsustainable budget deficits and public debts in most advanced economies. So much so, that “austerity” – the opposite of fiscal stimulus – became the new mantra.
But austerity, i.e., the savage spending cuts in an attempt to reassure bond markets, have led to growing political instability particularly in Europe, with the masses hitting the streets and toppling governments. And why not? The ruling bourgeoisie shamelessly call upon the working people to suffer the agony of austerity, but it is their policies that are solely responsible for the mountains of debt burden on individuals and nations. In the US for example, simultaneously with personal and household debt, national debt also skyrocketed and is projected to hit 75 percent of the national income in 2012 compared to the post-World War II low of 26 percent when Ronald Reagan took office, and 40 percent in 2008.
Behind this rise lie three major policy thrusts of the successive governments: the superpower syndrome that waste enormous resources on military expenditure; huge tax cuts for corporations and the rich, which reduce revenues drastically; and the costly bailouts of greedy banks. The responsibility thus rests squarely with the government(s).Why then should the public be asked to bear the burden of so-called austerity now?
Moreover, spending cuts are being imposed at a time when precisely the opposite policies are needed: a sharp increase in productive government investment and spending on crucial social programs to stimulate growth and employment. As the 2011 ILO Report observed, “efforts to reduce public debt and deficits have disproportionately and counter-productively focused on labour market and social programmes. ... For instance, cutting income support programmes may in the short-run lead to cost savings, but this can also lead to poverty and lower consumption with long-lasting effects on growth potential and individual well-being. Increasing active labour market spending by only half a per cent of GDP would increase employment by between 0.2 per cent and 1.2 per cent in the medium-term, depending on the country. Moreover, pro-employment programmes are not expensive to the public purse. ... there is scope for broadening tax bases, notably on property and certain financial transactions. Such measures would enhance economic efficiency and help share the burden of adjustment more equitably, thereby also contributing to appease social tensions.”
However, this is not acceptable to the lords of finance. Their opposition to a financial transaction tax is understandable, but that is not all. When state funds are routed through private financial institutions, they can use it for high-risk, high return investments like lending to Greece and Spain as well as stock and currency market operations. Direct state expenditure can contribute towards mitigating stagnation but do not offer this special privilege to high finance; rather it adds to the worry about unmanageable sovereign debt. Hence the opposition of governments dominated by bankers to such rational policies, reflecting a deep mismatch between the sectarian interests of the finance oligarchy and overall long-term interests of the capitalist system as a whole.
It is such conflicts of interests between hegemonic monopoly finance capital and the rest of capitalist society – popularly perceived in the US as a tussle between Wall Street and Main Street – that find expression in the endless policy debates among economists and policymakers. While some advocate relatively progressive or regulatory reforms, others push for pseudo-changes that will safeguard the interests of the financial sector. Of course, academic debates and rational arguments do not decide policy orientation. Intra-class (between different sections of the bourgeoisie) and inter-class struggles do, with a given national-international political milieu – precisely the balance(s) of class forces in particular countries and on the global scale – also exerting a major influence. Such is the evidence of history, to which we now turn.
CRISIS always intensifies class struggle. Within the available space, we can only take brief glances at the most important flash-points of the crises-class struggle interface, historical junctures which threw up new challenges for both capital and labour.
Preceding and during the GD all kinds of “direct action” rocked the USA and tilted the balance of class forces in a way that made the New Deal possible. Howard Zinn in his “People’s History of America” gives us a graphic account of this process, which is all Demonstration of the Unemployed in the US, 1931 but suppressed in conventional accounts of the period. Here are stimulating extracts for you:
Democratic Party candidate Franklin D. Roosevelt took office in the spring of 1933 on the promise of relief from hard times. The reforms introduced by him “had to meet two pressing needs: to reorganize capitalism in such a way [as] to overcome the crisis and stabilize the system; also, to head off the alarming growth of spontaneous rebellion ... .”
Right since 1931, “desperate people were not waiting for the government to help them; they were helping themselves, acting directly. All over the country, people organized spontaneously to stop evictions. Unemployed Councils came up all over the country, in many cases organized and led by communists. The Councils’ function was to prevent evictions of the destitute, or if evicted to bring pressure to bear on the Relief Commission to find a new home; if an unemployed worker had his gas or water turned off because he could not pay for it, to see the proper authorities; and so on. In Seattle, the fishermen’s union caught fish and exchanged them with people who picked fruit and vegetables, and those who cut wood exchanged that.
Perhaps the most remarkable example of self-help took place in the coal district of Pennsylvania, where teams of unemployed miners dug small mines on company property, mined coal, trucked it to cities, and sold it below the commercial rate. By 1934, 5 million tons of these “bootleg” coals were produced by twenty thousand men. When attempts were made to prosecute, local juries would not convict, local jailers would not imprison. Breaking through the confines of private property in order to live up to their own necessities, the miners’ action was, at the same time a manifestation of the most important part of class consciousness – namely, that the problems of the workers can be solved only by themselves.
“Were the New Dealers – Roosevelt and his advisers, the businessmen who supported him – also class-conscious? Did they understand that measures must be quickly taken, in 1933 and 1934, to give jobs, food baskets, relief, to wipe out the idea “that the problems of the workers can be solved only by themselves”? Perhaps, like the workers’ class consciousness, it was a set of actions arising not from held theory, but from instinctive practical necessity.
“Perhaps it was such a consciousness that led to the Wagner-Connery Bill, introduced in Congress in early 1934, to regulate labor disputes. That same summer of 1934, a strike of teamsters in Minneapolis was supported by other working people, and soon nothing was moving in the city. In the fall of that same year, 1934, came the largest strike of all- 325,000 textile workers in the South. They left the mills and set up flying squadrons in trucks and autos to move through the strike areas, picketing, battling guards, entering the mills, unbelting machinery. Here too, as in the other cases, the strike impetus came from the rank and file, against a reluctant union leadership at the top. The New York Times said: “The grave danger of the situation is that it will get completely out of the hands of the leaders.” In the rural South, too, organizing took place, often stimulated by Communists, but nourished by the grievances of poor whites and blacks who were tenant farmers or farm laborers, always in economic difficulties but hit even harder by the Depression. In 1934 and 1935 hundreds of thousands of workers, left out of the tightly controlled, exclusive unions of the American Federation of Labor, began organizing in the new mass production industries – auto, rubber, packinghouse. The AFL could not ignore them; it set up a Committee for Industrial Organization to organize these workers outside of craft lines, by industry, all workers in a plant belonging to one union. This Committee, headed by John Lewis, then broke away and became the CIO – the Congress of Industrial Organizations.
“But it was rank-and-file strikes and insurgencies that pushed the union leadership, AFL and CIO, into action. ... A new kind of tactic began among rubber workers in Akron, Ohio, in the early thirties – the sit-down strike. The workers stayed in the plant instead of walking-out, and this had clear advantages: they were directly blocking the use of strikebreakers; they did not have to act through union officials but were in direct control of the situation themselves; they did not have to walk outside in the cold and rain, but had shelter; they were not isolated, as in their work, or on the picket line; they were thousands under one roof, free to talk to one another, to form a community of struggle.” In early 1936, when the Firestone rubber plants in Akron were faced with a wage cut and several union men were fired, a sit-down strike spread through all the plants. “A court issued an injunction against mass picketing. It was ignored, and ISO deputies were sworn in. But they soon faced ten thousand workers from all over Akron. In a month the strike was won.
“... In December of that year began the longest sit-down strike of all, at Fisher Body plant #1 in Flint, Michigan. ... For forty days there was a community of two thousand strikers. ... There were classes in parliamentary procedure, public speaking, history of the labor movement. Graduate students at the University of Michigan gave courses in journalism and creative writing.
“There were injunctions, but a procession of five thousand armed workers encircled the plant and there was no attempt to enforce the injunction. Police attacked with tear gas and the workers fought back with firehoses. Thirteen strikers were wounded by gunfire, but the police were driven back. The governor called out the National Guard. By this time the strike had spread to other General Motors plants. Finally there was a settlement, a six-month contract, leaving many questions unsettled but recognizing that from now on, the company would have to deal not with individuals but with a union.
“In1936 there were forty-eight sitdown strikes. In 1937 there were 477 ... even thirty members of a National Guard Company ... now sat down themselves because they had not been paid.
“The sit-downs were especially dangerous to the system because they were not controlled by the regular union leadership. It was to stabilize the system in the face of labor unrest that the Wagner Act of 1935, setting up a National Labor Relations Board, had been passed. The wave of strikes in 1936, 1937, 1938, made the need even more pressing. The Wagner Act was challenged by a steel corporation in the courts, but the Supreme Court found it constitutional.”
Now, why did the ruling class accept the rapid growth of unions, which appear rather strange to us today? The explanation lies in the difference in situations. In our time the bourgeoisie find non-unionized workers more manageable; opposite was the case in those days of spontaneous, vigorous class action. Writes Zinn:
“Unions were not wanted by employers, but they were more controllable – more stabilizing for the system than the wildcat strikes, the factory occupations of the rank and file. In the spring of 1937, a New York Times article carried the headline “Unauthorized Sit-Downs Fought by CIO Unions.” The story read: “Strict orders have been issued to all organizers and representatives that they will be dismissed if they authorize any stoppages of work without the consent of the international officers. .. .” The Times quoted John L. Lewis, dynamic leader of the CIO: “A CIO contract is adequate protection against sit-downs, lie-downs, or any other kind of strike.” Thus, two sophisticated ways of controlling direct labor action developed in the mid-thirties. First, the National Labor Relations Board would give unions legal status, listen to them, settling certain of their grievances. Thus it could moderate labor rebellion by channeling energy into elections – just as the constitutional system channeled possibly troublesome energy into voting. The NLRB would set limits in economic conflict as voting did in political conflict. And second, the workers’ organization itself, the union, even a militant and aggressive union like the CIO, would channel the workers’ insurrectionary energy into contracts, negotiations, union meetings, and try to minimize strikes, in order to build large, influential, even respectable organizations.”
Thus it was that the exceptional circumstances of the GD – and of course the double threat of communism in USSR and fascism in Germany – forced upon the American bourgeoisie a relatively accommodating labour policy as one of the major components of the ND. When the situation improved somewhat after the war, and a new wave of strikes ensued in 1946, a partial rebalancing was effected through the Labor-Management Relations Act (or Taft Hartley Act) passed in June 1947. It amended the Wagner Act, defining, in particular, “unfair labor practices” on the part of unions. Thirty four years later, this very Act would be used by a Republican president to crush a major strike – an event symbolising the rollback of ND and initiation of the neoliberal regime.
The crisis of 1970s too saw workers fighting valiantly against job cuts, wage freeze despite high inflation (which meant reduced real wages) and other attacks. But they could not hold out for long against organised capitalist offensive with direct state support. This will stand out from the following diagram
We can see strikes build up from late 1960s (when the ‘golden age’, also known as the period of post-war compromise, was coming to an end) to mid or late 1970s and then go down a cliff from 1980s. Symbolic of this long downturn were a couple of strike struggles in the two countries from which neoliberalism started its world campaign.
These were the US Air Traffic Controllers’ strike and the UK miners’ strike – recognised as defining moments in the post-1970s American and British workers’ movements. Both ended in defeat and emboldened the Reagan and Thatcher governments to go ahead with their conservative economic programmes, which included wider and largely successful attacks on the rights and pay raises achieved by the working class over the past decades. Having inflicted demoralising defeats on the class enemy, capital upheld Reaganomics and Thatcherism – the first versions of neoliberalism – as the new global model of growth.
The Professional Air Traffic Controllers Organization (PATCO) was a powerful union in the US. Their strength lay not in numbers but in the absolutely crucial position they held in running the entire network of air transport and communications. In the 1980 presidential election, this union along with the Teamsters and the Air NUM Strike, Britain, 1974 Line Pilots Association chose to back Republican Party candidate Ronald Reagan, who had endorsed the union and its struggle for better conditions during the election campaign, against Democratic President Jimmy Carter.
On August 3, 1981, the union declared a strike, seeking better working conditions, better pay and a 32-hour workweek. They reported sick to circumvent the federal law against strikes by government unions. President Reagan immediately declared the PATCO strike a “peril to national safety” and ordered them back to work under the terms of the Taft-Hartley Act of 1947. Simultaneously, replacements (with supervisors, staff personnel, some controllers transferred temporarily from other facilities including the military) and contingency plans were put in place.
Only 1,300 of the nearly 13,000 controllers returned to work. On August 5, Reagan fired the rest and banned them from federal service for life. Several strikers were jailed. The union was fined and eventually made bankrupt. In October 1981 it was decertified from its right to represent workers.
In the wake of the strike and mass firings, the authorities were faced with the task of hiring and training enough controllers to replace those that had been fired, a hard problem to fix as, at the time, it took three years in normal conditions to train a new controller. The government was initially able to have only 50% of flights available. It took closer to ten years before the overall staffing levels returned to normal.
Reagan’s tough handling of the strike even at the cost of much inconvenience to business and general public came in for profuse praise as well as sharp criticism then and later. Federal Reserve Chairman Alan Greenspan said in 2003: “The President invoked the law that striking government employees forfeit their jobs, an action that unsettled those who cynically believed no President would ever uphold that law. President Reagan prevailed, as you know, but far more importantly his action gave weight to the legal right of private employers, previously not fully exercised, to use their own discretion to both hire and discharge workers.” On the 30th anniversary of the historic crackdown, Michael Moore said that Reagan’s firing of the PATCO strikers was the beginning of “America’s downward slide”. He also blamed the AFL-CIO for telling their members to cross the PATCO picket lines. (30 Years Ago Today: The Day the Middle Class Died, by Michael Moore, Daily Koss, Fri Aug 05, 2011). The same year, Oxford University Press published Joseph McCartin’s book, “Collision Course: Ronald Reagan, The Air Traffic Controllers, and the Strike that Changed America”.
No less harsh was Margaret Thatcher, the “Iron Lady” of Great Britain, in dealing with the miners’ challenge.
On 6 March 1984, the National Coal Board announced that the agreement reached after the 1974 strike (which had played a major role in bringing down the Heath government) had become obsolete, and that in order to rationalise government subsidisation of industry they intended to close 20 coal mines. This meant twenty thousand jobs would be lost. Strikes started spontaneously in several threatened mines. On 12 March 1984, the National Union of Mineworkers (NUM) – one of the strongest unions in the country – declared a national strike and it took effect immediately.
A bit of background information should be in order here. A strike nearly occurred in 1981, when the government had a similar plan to close twenty-three pits, though the threat of a strike was then enough to force the government to back down. In fact, the government decided to avert a strike at that time because coal stocks were low, and a strike would have had a serious effect. Next year, it offered a 5.2 percent raise based partly on increased productivity. Union members accepted it, rejecting their leaders’ call for a strike authorisation. This clever move enabled the government to stockpile enough coal for the inevitable future showdown.
The government was thus in a position to take the strikers head on. On the day after the Orgreave picket of 29 May, which saw five thousand pickets clash violently with police, Thatcher said in a speech: “... what we have got is an attempt to substitute the rule of the mob for the rule of law, and it must not succeed.... The rule of law must prevail over the rule of the mob.”
The impact of the strike was nowhere near as hard-hitting as previous strikes such as those of the early 1970s. With most homes equipped with oil or gas central heating and the railways long since converted to diesel and electricity. The problem of potential power-shortages as a result of a coal strike had been recognised by the Thatcher government which insisted that Britain’s coal-fired power stations create their own stockpiles of coal which would keep them running throughout any industrial action. This strategy turned out to be incredibly successful during the miner’s strike, as the power stations were able to maintain power supplies even through the winter of 1984.
The strike ended on 3 March 1985, nearly a year after it had begun. In order to save the union, the NUM voted, by a tiny margin, to return to work without a new agreement with management.
The 1980s thus marked the onset of neoliberal offensive by pushing its class antagonist into the defensive. Globalisation became the magic word and when the victory sign “TINA” (There Is No Alternative) was flashed in a post-Soviet scenario, many if not most people willy-nilly accepted it.
But it was not a permanent defeat; it could not be. Latin America, the first prey of Western neoliberalism in the Third World, saw the first series of sustained and effective rebellions against the menace at the turn of the millennium: the Indian uprising in Ecuador that ousted the neoliberal president; the insurrectionary waves in Argentina that sent successive presidents packing and developed into a revolutionary crisis in 2001-2002; the popular uprising in Venezuela in April 2002 to bring Hugo Chavez back to the presidency after he was ousted in a military coup; the gas war in Bolivia in 2003 which saw the neoliberal president being ousted; and so on.
Compared to the sporadic outbursts we see in our country, these popular movements were much more sustained (not under communist leadership though) and brought to power forces which opposed US hegemony and the neoliberal programme to different degrees. These governments instituted democratic political reforms and partly restored public control over natural resources (Venezuela from 1999, Bolivia in 2006, Ecuador in 2007). Even Kirchner in Argentina had to implement, under popular pressure, certain progressive measures. Some of these countries – most notably Venezuela, Bolivia and Ecuador – have advanced much further with staggering but persistent experimentations of building some sort of proto-socialist society.
The World Social Forum (January 2001) also emerged from Latin American soil and spread to the rest of the world with the anti-TINA slogan “Another World is Possible”. This was accompanied by massive mobilisations against the WTO, the World Bank, IMF and the G-8 in Seattle, Washington, Prague and Genoa respectively between 1999 and 2001.
These struggles gradually flattened out mainly because they lacked a sense of what was to be done next, and also because they came more and more under control of dubious Western NGOs. The WSF in particular, despite its promising initiation, ended up as a safety valve for letting out some steam of grievances. Having said this, we must affirm that the movements did help heighten popular consciousness and activism. On this grounding there developed the next, present round of confrontations with the neoliberal imperialist order.
AS on past occasions, the current crisis has been accompanied – or should we say complemented – by powerful mass movements everywhere against job loss, wage freeze, food crisis, price rise, subsidy withdrawal, corporate capture of natural resources as a means of legalised loot, and so on. Let us briefly examine some of the more important dimensions of these political fallouts of the economic crisis.
The occupy movement announced the return of agitational politics in the US in the hands of a new generation, and in a changed context, drawing inspiration from the then recent outbursts in Spain, UK and other countries and the concurrent Arab Spring. The strong and clear battle cry “99% against the 1%” reverberated through America and beyond for the better part of 2011, the international year of street protests. It featured a rich variety of issues and forms of struggle. Oakland (USA) for example distinguished itself by organising highly successful dock strikes and blockades – actually it based the movement on concrete demands of the local dockworkers rather than on the general “99%” slogan.
But why target just “1% “? Does the rest belong entirely to the working and middle classes? No, the “99%” does include many rich people. But to pinpoint the “1%” at the top of the economic pyramid is to concentrate fire on those who actually command both the economy and the politics of the United States: those who own controlling stakes in largest corporations and often double up as influential senators, highest campaign contributors, advisers to the President, and so on. As the recently deceased progressive American writer Gore Vidal said in a BBC interview back in July 2002, “One percent owns everything – like the CEOs who now seem to be queuing up to go to gaol! Under them there is a further twenty percent who support the Empire. These are the lawyers, the journalists, politicians and bankers and so on. The one percent hires the twenty percent.”
Anyway, what is the present state of the great social movement? Events like families occupying schools in Oakland to prevent their closure, Occupiers across the country working to prevent evictions and foreclosures, are often reported in the independent (non-main-stream) media. On 17 September, as part of a three-day (15-17) action programme, protesters converged near the New York Stock Exchange to celebrate the first anniversary, marking the day they began camping out in Zuccotti Park. Marches and rallies were organized in several other cities around the world to commemorate the day. People joined concerts. Lectures were delivered. But there is no denying that the very broad movement has fragmented into several mini-movements, with some preoccupied with ecology, some with pressing local problems and so on, rarely coordinating among themselves.
What went wrong? One-sided emphasis on political open-endedness, horizontalism in organisation and decision-making by consensus contributed to the initial successes of the movement but prevented it from gaining the sharper political focus and strike power necessary for going over to the new, post-crackdown stage. In the absence of democratically formulated common goals and a unifying centre, the enormous amount of social energy that was mobilised under the “Occupy” banner remained in the nebulous state for far too long, failed to solidify and, with the inevitability of a natural law, got dispersed in a political vacuum.
But energy is never destroyed, it cannot be. It can undergo endless transformations and get condensed into solid mass when certain conditions are present. At the moment part of the occupy energy is working at local levels as indicated earlier; a part goes into higher political actions like protests against NATO and G8 summits; and probably the major part has been inducted into the Obama presidential campaign under the guise of warding off the threat of a more anti-people Republican takeover. However, since the basic source of the movement of 99% – the crisis of neoliberal order making life intolerably harder for the average American – is only going to get worse, it is reasonable to expect that sooner or later the movement will rediscover itself in a new situation in a new format. A lively discussion is going on about what is to done now (see box).
The occupy movement was a spark that did not find the objective and subjective condition to immediately start a prairie fire. But, with all its historical limitations, it’s continuing, even spreading. Many in the movement are proud to see the Jal Satyagraha in Khandwa district in MP district of India and protests against the Koodankulam Nuclear Power Plant in TN as part of their struggle; why shouldn’t we?
By Cynthia Alvarez
17 September, 2012 Countercurrents.org
All human organizations must solve this problem: balancing collective authority against assigned authority in leadership. Without leadership and written rules, Occupy cannot take the initiative or go on the attack. The fallacious, impractical, unrealistic elements of Occupy philosophy ensure it will never become a viable Progressive fighting force. Only by rejecting these constraints in favor of organization that facilitates winning will Progressives be able to build a serious engine of societal reform. Serious Occupiers who want to re-form society should move to better-organized Progressive groups. I will subscribe to Occupy networks and might attend Occupy direct actions. But mainly I’ll be looking for other progressive groups who could actually do something. The Green Party, for example, has inspiring leaders and a constructive plan for a “Green New Deal.” Perhaps it’s time to (finally) create a national Progressive Party - an umbrella party for all Progressives that articulates a general Progressive platform and provides the leverage to move national policy.
Capital seeks to wriggle out of the crisis and bolster its position and profits by different means affecting different cross sections of people, pushing the latter on to desperate resistance struggles. Right from the days of the PATCO struggle and the UK coal workers’ strike, the neoliberal state as the agency of capital has been trying to snatch the rights and wage levels gained by the working class through more than a century of bitter struggle at the cost of much blood and sweat. Naturally workers are fighting back everywhere against these “flexible labour policies” and “labour market reforms”. In our country we have witnessed national industrial actions as well as powerful struggles of industrial workers in the Gurgaon-Manesar belt, in Coimbatore and Sriperumbudur in Tamil Nadu and dozens of other places; of construction workers and other sections of casual unorganised workers including growing contingents of women workers; of bank and government employees and so on.
On top of a series of militant movements throughout the world, miners’ strikes in Spain in early 2012 and in South Africa in August – the latter resulting in the death of some 34 workers – won widest popular support at home and abroad. In China, TNCs have long been accustomed to carrying on super exploitation of the super disciplined workforce thanks to the absence of an independent trade union movement, but in recent years workers have started asserting themselves. The massive clash between workers and security guards at a Foxconn plant in September was one of many instances.
Severe cutbacks on education budgets as part of the austerity overdrive and further opening up of the education industry to private profiteers have emerged as major fighting issues before the global academic community including students, teachers (recently in Chicago for example) and others. From UK in 2010-11 through Chile, France and some other countries and this year in Canada students have placed themselves firmly at the forefront of a spreading youth rebellion. The Canadian students have earned widespread support linking their tuition protests to other popular struggles against higher fees for health care, the firing of public sector employees, the closure of factories, new restrictions on union organizing, etc.
Worldwide corporate land and resource grab have brought agriculturists (from big farmers through middle and small peasants to agrarian labourers) and indigenous communities into intense collision course with capital and its state. Struggles against various agro-business companies like Pepsi and Monsanto as well as multinational retail chains like Wal-Mart are also growing.
Our survey of struggles against capital in crisis would remain unpardonably incomplete if we did not mention Latin America. Because it is here that long and hard struggles on the streets have culminated in the emergence of popular governments in a number of countries which try and follow heterodox anti-neoliberal economic policies to the extent possible in a hostile US-dominated world economic environment. In Venezuela for example, as James Petras points out, “Despite crime and official inefficiencies and corruption, the Chavez era has been a period extremely favorable for the lower class and sectors of business, commerce and finance. This year – 2012 – is no exception. According to the UN, Venezuela’s growth rate (5%) exceeds that of Argentina (2%), Brazil (1.5%) and Mexico (4%). Private consumption has been the main driver of growth thanks to the growth of labor markets, increased credit and public investment.” (Venezuelan Elections: a Choice and Not an Echo, Oct 4, 2012)
The impressive progress countries like Venezuela, Bolivia, Ecuador have made and the difficult challenges they face are too vast a subject to be covered here, but certainly they are a great source of inspiration for all who are struggling to break the bondage of capital and move toward a saner society.
Behind periodic crises – we learned in our brief dialogue with Marx – lurks a complex interplay of myriad forces, the most important being “the epidemic of overproduction” or overaccumulation of capital going hand in hand with increasingly skewed distribution of income and wealth.
Marx developed a perfectly dialectical approach to crises. On one hand, they constitute capitalism’s inbuilt mechanism for spontaneously and ruthlessly eliminating excess or over-accumulated capital, ‘so that the cycle would run its course anew’ (Capital). On the other hand, they achieve this in a manner that ‘paves the way for more extensive and more destructive crises, and diminishes the means whereby crises are prevented’ (Communist Manifesto) and leads finally to the ‘violent overthrow’ of the rule of capital (Grundrisse). It is from this approach that we have tried to comprehend the crisis of neoliberalism.
The central message emanating from the financial catastrophe and its aftermath is that global capitalism’s strategic response to the crisis of 1970s has failed. That was a three-pronged strategy comprising deregulation or market fundamentalism, globalisation and financialisation. Since these were the three pillars on which post-1970s capitalism stood – and, in a certain sense, and in certain parts of the world, flourished – the extensive damage they have suffered have left the whole imposing edifice tottering. This is why there is no end to aftershocks like the European Sovereign Debt Crisis. This is why, full five years after the onset of the crisis, the world economy is still in the doldrums.
But even a systemic crisis like the present one does not necessarily mean that the system is going to collapse anytime soon. However, if past experience is any guide, some sort of restructuring is likely to be in the offing, the basic content and direction (pro- or anti-labour) of which will depend mainly on the outcome of the class battles – defensive and offensive, extra-parliamentary and parliamentary – now raging across the globe. Shall we see a repeat performance of the masses in US and Europe forcing respectively the New Deal and the welfare state policies on their ruling elites? Will the non-financial interests among the bourgeoisie, in league with their farsighted organic intellectuals, assert whatever relative independence they still enjoy to try and put in place regulatory policies and reforms that could salvage some of the lost legitimacy of capitalism? Or will the financial oligarchies succeed in dishing out cosmetic changes in policy that actually consolidate their own hegemonic positions and megaprofits?
No, we must not just wait and see.
As we write these lines, the people of India are up in arms against a booster dose of neoliberal ‘reforms’ administered by Dr. Manmohan Singh and his masters. So are the masses across the world. On 26 September, upwards of 200,000 demonstrators took to the streets of Athens, as part of a general strike. “People, fight, they’re drinking your blood,” protesters chanted as they banged drums. Police clashed with protesters hurling petrol bombs and bottles. The same day, a € 11.5 billion ($14.87 billion) package of spending cuts was announced as demanded by the country’s international lenders. Almost simultaneously, thousands besieged the parliament in Madrid and more than half a million people marched in cities across Portugal to protest against cuts in social security.
All of us must join the fight with all our might, for a rollback of the neoliberal policy regime and progressive reform now and ultimately for a radical transformation of this irrational, oppressive, inhuman social order.
According to its latest report, between April and July 2012 the IMF sharply revised downwards its growth projections for all categories of countries. For example, it cut the growth prospect for UK to 0.2 percent (down from 0.8 percent) this year and to 1.4 percent (down from2.0 percent) in 2013. It shaved the growth forecast for the crisis-hit euro zone to 0.7 percent in 2013, while maintaining its projection of a 0.3 percent contraction this year.
The IMF chopped its forecast for growth in emerging economies this year and the next: e.g., China 8.0 percent, (down from 8.2 percent forecast in April) and 8.5 percent next year (down from 8.8 percent). It also sharply revised down its growth projections for India to 6.1 percent this year from 6.9 percent, and chopped its 2013 forecast to 6.5 percent from 7.3 percent. Currencies like the Brazilian real and Indian rupee have depreciated by between 15 and 25 percent in less than a quarter, the IMF noted. “In emerging economies, policymakers should be ready to cope with trade declines and the high volatility of capital flows,” it said.
The IMF trimmed its US forecasts slightly but warned of the “fiscal cliff’’ (the scheduled expiration of Bush-era tax cuts and the $1.2 trillion in automatic spending reductions – which can knock the still-weak U.S. economy back into recession) facing the country. And as José Viñals, the head of the fund’s monetary and capital markets department, pointed out, “Uncertainties about the fiscal outlook in the United States present a particular latent risk to global financial stability”. Overall, the IMF cut the 2013 forecast for global economic growth to 3.9 percent from the 4.1 percent it projected in April (to view this in perspective, in 2010 the world economy expanded by 5.3 percent).
“Dystopia, the opposite of a utopia, describes a place where life is full of hardship and devoid of hope. Analysis of linkages across various global risks reveals a constellation of fiscal, demographic and societal risks signalling a dystopian future for much of humanity. The interplay among these risks could result in a world where a large youth population contends with chronic, high levels of unemployment, while concurrently, the largest population of retirees in history becomes dependent upon already heavily indebted governments. Both young and old could face an income gap, as well as a skills gap so wide as to threaten social and political stability. …
“Two dominant issues of concern emerged from the Arab Spring, the “Occupy” movements worldwide and recent similar incidents of civil discontent: the growing frustration among citizens with the political and economic establishment, and the rapid public mobilization enabled by greater technological connectivity. These trends are evolving differently across developed, emerging and least developed economies.
“In developed economies... the social contract that has in recent decades been taken for granted is in danger of being destroyed. Workers nearing retirement fear cutbacks in social entitlements they have grown up to expect, such as state pensions, pre-established retirement age and guaranteed access to quality healthcare. Meanwhile, young adults in this same group of economies realize that they are part of a compressed labour force that is expected to support a growing population of elderly citizens, while bearing the brunt of austerity measures required to offset growing national debts.
“In emerging economies, the context – and the challenge – is different. ... These nations’ ability to seize the opportunity is far from guaranteed, given sluggish global growth and reduced demand from developed economies. Rapid economic growth in emerging economies has fuelled an impatient expectation that a rising tide will lift all boats, but social contracts may not be forged quickly enough to rectify increasingly visible economic inequalities and social inequities.
“Failure to meet demands for civil and political rights could also have harmful consequences. ...”
From Global Risks 2012, “Insight Report” of World Economic Forum
More than 150 years ago, Karl Marx developed a perfectly dialectical approach to economic crises. On one hand, they constitute capitalism’s inbuilt mechanism for spontaneously and ruthlessly eliminating excess or over-accumulated capital, ‘so that the cycle would run its course anew’(Capital). On the other hand, they achieve this in a manner that ‘paves the way for more extensive and more destructive crises, and diminishes the means whereby crises are prevented’ (Communist Manifesto) and leads finally to the ‘violent overthrow’ of the rule of capital (Grundrisse).
Marx showed that capital’s frantic endeavour to overcome inherent constraints like mass poverty and inadequate demand leads to artificial credit-induced “forced expansion” or bubbles, which get deflated sooner rather than later. But this false prosperity built on debt always bounces back in the shape of sudden crisis – much like a rubber band getting stretched and snapping back – resulting in a recession/depression. Essentially, that is what has been happening with remorseless regularity, especially since the onset of the neoliberal policy regime. This booklet seeks to comprehend the current crisis of neoliberalism from this approach.
But who will bear the burden of the stubborn recession into which the financial catastrophe of 2008 metamorphosed? The common people? Or the big banks and corporate honchos – responsible for the breakdown yet bailed out by governments? An intense struggle to decide this all-important question is now going on across the world in multiple forms – intellectual debates, street battles and parliamentary struggles. While analysing the historical context and causes of the worldwide economic woes, the pamphlet in your hand also shades light on this live political dimension of the crisis scenario.
