“Goodbye and good riddance to all that,” declared the Financial Times, the big business mouthpiece, as it said farewell to 2008. Its despondency, along with all other capitalist soothsayers, is well merited given the economic meltdown which, it confessed, it had not foreseen.
By Peter Taaffe, Socialist Party
Yet Marxists, particularly the Socialist Party (SP) and the Committee for a Workers’ International (CWI), did foresee this situation.
We wrote in April: “The present world situation is characterised by the worst economic scenario for capitalism since the Great Depression of the 1930s. In turn, this has aggravated the already weakened position of the dominant world power, US imperialism. Together with the fall-out from the Iraq war, this has laid the basis for political convulsions and a fundamental change in geo-politics in the next period” [The consequences for workers’ struggles in Europe, CWI Thesis, March 2008].
At that time most capitalist economists completely discounted such a development. In fact at that stage Kevin Rudd and Wayne Swan were still telling us that the economy was “rock solid”!
The Socialist Party’s analysis is very different. We say capitalism is an anarchic system with the blind play of the productive forces which periodically plunges into crises with devastating consequences.
The past chief ‘pilot’ of world capitalism, Alan Greenspan, former chairman of the US Federal Reserve, now tells the US Congress that, because of this crisis, he was in a “state of shock to disbelief… I still do not fully understand why it happened.” Even Bernard Madoff, who was allowed to perpetrate the greatest financial fraud in history, an estimated $50 billion, claimed before he was found out that “in today’s regulatory environment, it is virtually impossible to violate the rules”!
It is not just one or two ‘bad apples’ but the capitalists as a whole who swindled the working class and poor in the free market, freebooting era of capitalism which has now come to a juddering end. During these 30 years of neo-liberalism, wages were held down in a ‘silent recession’ while profits were sky-high.
But while some sections of the ruling class have lost millions not everybody amongst the super-rich is affected. Scandalously, some of the authors of the present dire financial situation – the ‘masters of the universe’ – are still rewarded with obscene bonuses.
Goldman Sachs, for instance, will dole out $2.6 billion in bonuses despite a fourth quarter loss of almost the same amount! Meanwhile, the working class of the world will reap a terrible price for the economic mess created by capitalism.
The capitalists’ vogue phrase is that the economy, whole industries and even countries, as Iceland indicates, have gone or are about to go ‘over the cliff’. The crisis is not restricted to the ‘financial sector’ but has, as we predicted, spread to the so-called ‘real economy’ and now to virtually the entire world.
The so-called ’emerging’ markets in the neo-colonial world are likely to be ‘submerged’ under the economic wave emanating from the ‘rich’ world. The Economist Intelligence Unit forecast for 2009 predicted that no fewer than 29 countries would see their economies contract.
‘Deregulated’, unrestrained capitalism threatens ‘unrestrained’ slump and all the efforts of capitalist governments may not succeed in avoiding this catastrophe. They are desperately trying to shore up the system with state economic intervention in order to cushion the effects of the crisis and avoid a complete slump or depression.
Ben Bernanke, the chair of the US Federal Reserve – a student of the 1930s Depression – completely ruled out a repetition of that event in the US or the world today. But others such as Larry Elliott, economics editor of The Guardian, openly write of the prospect of a ‘slump’.
This fear has been reinforced by the rapid deterioration in the US economy and its repercussions worldwide. During November 2008, US unemployment increased by half a million, the biggest rise in job losses in a single month since 1974; if part-time workers seeking a job are included, the worst figures since 1940!
Two million more people are out of work than a year ago, two-thirds of who lost their jobs between September and November 2008; just three months! This underlines the speed and depth of this crisis. Even worse recent estimates allow for more than one million workers a month losing their jobs in the US until mid-2009, making an increase of four to seven million unemployed possible.
President-elect Obama – who now admits he “doesn’t know where to start when he gets up in the morning” – says that the US government will not be able to stop this economic catastrophe. All the ‘levers’ of economic control have so far failed to work. The financial system – the arteries of capitalism – remains frozen, particularly in the crucial ‘interbank lending’ sector.
The ‘re-capitalisation’ of the banks does not alter the banks’ reluctance to lend to big or even ‘small’ businesses because they correctly fear that they will not receive their money back. As one European bank executive remarked: “If GDP is shrinking, how can lending grow?”
Gross Domestic Product in the US economy shrank in the fourth quarter of 2008 by 4-5%, with a continued decline predicted throughout 2009. Capitalist economists themselves predict that there will be a real decline in the world economy this year for the first time since the 1930s.
A desperate situation requires emergency measures. Consequently, capitalist governments are reaching out for ‘Weapons of Mass Desperation’. Stimulus packages, bailouts and cutting interest rates are the order of the day. But the situation is so serious that even cutting interest rates to almost zero may not work.
Many governments around the world are also now supporting bank nationalisations as an emergency measure. But their support for nationalisation today is for the same reasons that they supported neo-liberalism yesterday; to rescue not just the bankers but the capitalist system itself.
These are seen as ‘temporary’ measures until the banks are renovated and handed back to the capitalists after being ‘rescued’ by the taxpayers, the working and middle classes. Most governments still frown upon anything but an ‘arm’s length’ relationship with the nationalised banks and completely rule out ‘popular control’ or workers’ control, which the Socialist Party demands.
But so dire is the situation that Keynesianism, the idea of deficit financing and Roosevelt’s ‘New Deal’ in the 1930s are invoked. All the previous economic ‘principles’ have gone out of the window, with government deficits now the order of the day.
US ruling class panic
Obama already admits there will be a $1 trillion US government deficit in 2009, 9-10% of GDP. Such is the panic of the US ruling class that $7 trillion has been earmarked – not all of it yet spent – to shore up their system. This amounts to almost half the US GDP.
Yet despite these measures, it is not at all guaranteed that capitalism will prevent its descent into a depression and/or a deflationary trap, as was the case in Japan in the 1990s. Roosevelt’s New Deal in the 1930s US, while it introduced some reforms, did not fundamentally end the US depression.
The US was on the verge of another devastating crisis in the late 1930s but was saved from it by the onset of war. It was massive government intervention during the Second World War rather than the New Deal that temporarily saved capitalism. An economic crisis of capitalism – particularly as serious as this one promises to be – is like a war in the ‘slaughtering’ of capital, including the lives and conditions of the working class, before the seeds of a new upswing are created.
There are no ‘final crises’ of capitalism, as Lenin pointed out. The system will always find a way out if the working class and the poor fail to seize the opportunity to effect socialist change in society. This is the decisive question facing the working class if a new, prolonged era of suffering for the majority is to be avoided.
This crisis has already had a profound effect in reshaping the outlook of the working class. Iceland was the world’s sixth richest country and, allegedly, the ‘happiest’ six months ago. Plunged into an economic abyss, it gives a picture of what a 1929-type situation would represent: one third of the population wants to leave the country and bankers are booed wherever they go.
One Icelandic worker told the Financial Times: “For the first time in my life I have sympathy with the Bolsheviks; with the French revolutionaries who put up the guillotine.”
The plight of Greece is a warning to all workers. In place of the celebrations of the Athens Olympics in 2004, the city’s streets, and those of the rest of Greece, are filled with protesters. A massive number of educated unemployed youth in Greece co-exist with impoverished workers, many of whom at 40 and 50 years old are on poverty-stricken â‚¬700 a month wages. Similar processes are taking place in many more advanced countries.
The most devastating consequence of this downturn will be the dramatic rise in unemployment. We demand a job for a living income with the right to proper training. The process of substituting high-paid industrial jobs with low-paid employment and part-time work in place of full-time employment must be rejected.
Nationalisation and planning
We stand for socialist planning, which has become more crucial now in the teeth of this crisis. Capitalism ‘reallocates’ resources through the forcible eviction of workers from industries which are no longer ‘profitable’ and, in the present situation, only some will be gradually absorbed into the growth sectors of capitalist production.
However, under a planned economy, as Marx argued, this change would assume mainly an ‘administrative’ shift of workers and production without the horrors of mass unemployment characterised by capitalism.
Marx pointed out that the capitalists plan to the last detail in individual factories. A planned economy is, in essence, this example taken onto a national and international scale with the added vital factor of democratic workers’ control and management. This, however, is only possible through the establishment of a socialist planned economy.
The world has entered a decisive period of change. The Socialist Party will be to the fore in all the battles that loom in the next period. Many workers, shocked by the scale and speed of this crisis, may be reluctant to go into battle on pay, for instance. But a decisive struggle for jobs is now posed, above all to save young people from a return to the 1930s. Crucial in this development is the idea of a new mass workers’ party.
We are against do-nothing fatalism, which sees no alternative beyond the framework of this discredited system. We call for companies to open their books to the inspection of trade unions, particularly rank-and-file organisations in the factories like shop stewards committees.
We stand for nationalisation of the finance and other major industries, not ‘compensation’ to the discredited bosses in the form of ‘state aid’. We support a programme of alternative, useful production. We must take the case for socialism to wider and wider layers of the working class. From a world viewpoint, capitalism has made a mess. It maintains unacceptable poverty, perpetuates endless wars and plunges millions into even greater misery. 2009 year can open a new chapter where socialism will come roaring back onto the agenda.