The current global crisis
is a manifestation of a fundamental problem in the process of the accumulation
of capital. The problem is the lack of surplus value production. This
contradiction has been concealed by
decades of accumulating debt. Burgeoning financialisation involving bull
runs since the 1980s have helped
disguise the long-term weakening of the
advanced capitalist economies. Economic performance in the United States, Western
Europe and Japan has deteriorated since about
1973. The years since the start of the current cycle, which originated in 2001, have been worst of all.
The declining economic
dynamism of the advanced capitalist world is rooted in a major sustained fall
in profitability, caused primarily by the secular over-accumulation of capital.
This problem goes back to the early 1970s. By 2000 in the United States, Japan
and Germany, the rate of profit of private industrial capital had yet to make a
comeback, rising no higher than that of
the 1970s. With reduced profitability, capitalists had smaller surplus value to
add to their labour processes. The perpetuation of reduced profitability since
the 1970s has led to a steady falloff in accelerated capital accumulation
across the advanced capitalist economies. The economic interventionism of the capitalist
state have obstructed the realisation of the conditions for the necessary radical
devalorisation of capital. Consequently economic downturn has not been precipitous
enough to bring about a full recovery involving a restoration of profitability.
The outcome is sustained stagnation.
To counter this persistent stagnation states,
led by the United States, have been forced to underwrite ever greater volumes
of debt through ever more varied and exotic financial forms. Initially, during
the 1970s and 1980s, states were obliged to incur ever larger public deficits
to sustain growth. But while provisionally keeping the economy relatively stable
these deficits also rendered it increasingly stagnant. They thereby promoted
the continued stagnation of capital by preventing capital proceeding through
its “natural” cycle involving sharp downturns. This interventionism obstructed
the return of accelerated capital accumulation. The state is now securing progressively
less growth for any given increase in borrowing.
States, in the early
1990s, sought to overcome the problem by
a budget balancing policy. Deficit reductions brought about by budget balancing
resulted in a significant fall in aggregate demand. Consequently during the
first half of the 1990s both Europe and Japan experienced devastating
recessions that turned out to be the worst of the post-war period. The U.S.
economy, itself, experienced the so-called jobless recovery.
Since the middle
1990s, the United States has been obliged to resort to more powerful and risky
forms of stimulus to counter the tendency to stagnation. This is why public
deficits were replaced with private deficits and asset inflation. In the great
stock market run-up of the 1990s wealth on paper, fictitious capital, massively
expanded. This development entailed a record-breaking borrowing increases.
Consequently a powerful expansion of financial capital and consumption was
sustained.
Government financial
policy together with the general neo-liberal agenda of the bourgeoisie led to
the historic equity price bubble of the years 1995-2000. Equity prices rose as
a response to the law of the tendency of the general rate of profit to fall. New
investment, free from significant
technical composition of capital increases, exacerbated the prevailing over-accumulation
of industrial capital. This was followed by the stock market crash and
recession of 2000-2001.This development depressed profitability in the
non-financial sector to its lowest level since 1980.
Greenspan countered
the new cyclical downturn with another round in the inflation of asset prices. By
reducing real short-term interest rates to zero for three years, he facilitated
an historically unprecedented explosion of household borrowing. This
contributed to and fed on rocketing house prices and household wealth. The
world housing bubble between 2000 and 2005 was one of the biggest of all time.
It made possible a steady rise in consumer spending and residential investment
which together drove the expansion.
Bush’s budget deficits
together with record household deficits succeeded in obscuring the weakness of the underlying economic
recovery by creating the appearance of sustained economic prosperity. The rise
in debt-fuelled consumer demand as well as super-cheap credit superficially and
provisionally revived the American economy. It also led to a new surge in
imports and the increase of the balance of payments deficit to record levels.
Simultaneously,
instead of increasing investment, productiveness and employment to increase
surplus value, individual capitals sought to exploit the hyper-low cost of
borrowing to improve their own and their shareholders’ position by way of
financial manipulation — paying off their debts, paying out dividends, and
buying their own stocks to drive up their value. This financialisation created
a fictitious prosperity The same sort of things had been happening throughout
the world economy — in Europe and Japan. In the United States and across the
advanced capitalist world since 2000, the contradiction has been as follows:
The slowest growth in the “real economy” since the 1970s and the greatest
expansion of the fictitious economy in U.S. history.
Just as the stock
market bubble of the 1990s eventually burst, the housing bubble eventually
deflated. As a consequence, the house-driven expansion during the cyclical
upturn moved into reverse. Just as the positive wealth effect of the housing
bubble drove the economy forward, the negative effect of the housing crash drove
it backward. With the value of their household residences declining and
household borrowing collapsing households
were forced to consume less. The sub-prime crisis arose as a direct extension
of the housing bubble. Because of the ensuing enormity of the banks’ losses
credit froze up at the very moment of the slide into recession.
It is clear from the
above argument that it does not necessarily follow, as held by much of the
Irish Left, that stimulus provided by the capitalist state to the domestic
economy is not a prescription for providing a way out of recession. Indeed the
argument above teaches the lesson that “artificial stimulus” can constitute a
factor that sustains or encourages recession. Most of the Irish Left, including
the less passive trade union UNITE, focus its efforts on campaigning for a
solution within the framework of capitalism through the medium of the
capitalist state which they misidentify as an eternal nanny state. They thereby
sustain the illusion that capitalism is potentially a system that can serve the
interests of the working class. If this utopianism of the Left were true then
there would be no need for communist society.
The Euro crisis is a general a product
of the conditions that contributed to the Great Recession.
After the crash of 2008 the contradictions
of the Euro grew increasingly visible. Consequently the market increasingly discovered
its shortcomings. This manifested itself in the growing economic and financial
problems of the so called peripheral states within the Euro zone. States such as
Greece, Portugal and Ireland. These economies were running growing budget
deficits. This meant that they were compelled to increasingly borrow on the
financial markets. But because of the worsening economic conditions under which
they were forced to do this, together with other factors, the interest rates at
which borrowing was possible for them became increasingly usurious. No longer
were they really in a position to borrow on the bond market. This meant they
were left with merely two options: a bailout from the EU or default. In this
way the economic crisis for these states became a growing problem for the EU
itself culminating in a collapse of the Euro and its banking system.
One thing needs to be made clear. The Irish
economy did not collapse because of irresponsibility regulation, banking and unscrupulous
bankers. Pinning the blame on the aforementioned is a form of populism that distracts
the attention of the working class from the real problem –the contradictory limits
of capitalism. It is because the generation of surplus value within the reproduction
process was the central problem facing the Irish economy that the bubble was created
involving vast amounts of debt. To compensate for the absence of economic growth
based on profitable industrial production bubble conditions were created that inevitable
burst.
The banks of the core Euro zone were
bloated and sitting on mountains of toxic debt collected from its periphery and
elsewhere (the United States included). Consequently the core was vulnerable to
collapse too. Because the core members were not prepared to let their banks
collapse they imposed draconian conditions on the states that received
financial help from them. This forms part of an attempt to protect its banks by
rescuing funds from the periphery that was owed to the core of the European
banking system. But the real aim of the markets was not merely to force the
peripheral states into default. The underlying aim was to collapse of the Euro
itself thereby bringing about the reconfiguration of the European capitalist
system.
Ultimately the source of the Euro crisis
is not, as some argue, its flawed architecture, rampant financialisation nor
the Great Recession itself. Nor was the Euro crisis itself due to reckless
spending by both the public and private sectors of Greece, Portugal and
Ireland.
These latter factors and the Euro crisis are the result of the
failure of the valorisation process to produce surplus value on a scale
sufficient to provide accelerated accumulation of capital. Because of this
failure capitalism has been compelled to conduct itself in a way that has led
to massive financialisation involving copious credit culminating in financial
crisis, crash and economic recession. Debt is not indefinitely sustainable when
there obtains abject failure by the system to produce surplus value (profit) on
a sufficiently large scale. As I have indicated before, the failure of capitalism
to bring about an adequate restoration of profit during the 1974/75 crisis marked
a turning point that resulted in the sustained stagnation of capital. The 74/75
dip was not sufficiently deep to overcome the crisis of capitalism.
Consequently even if the ECB was to currently dish out mountains of Euro the
problem would only partially sort itself out in the short term. In the long
term it would lead to a much more acute problem.
Public nor private debt is not the
problem. Public/private debt is a product of the problem of profitability.
Because of the lack of profitability debt has ballooned thereby reinforcing the
problem.
For capitalism to economically recover a
very deep depression involving massive reductions in the value of wages and social
welfare spending is a necessity. The only other (authentic) option is communist
revolution.
