The new millennium was heralded in November 1999 by giant demonstrations outside the meeting of the World Trade Organisation in Seattle, which dramatised protests against the super-exploitation imposed on workers in the first and third worlds by neoliberal globalisation. In the eight years since then the real character of neoliberalism – of ultra-mobile capital, outsourcing, privatisation and vastly increasing inequality – has become very clear.
As the present economic crisis broke the UN announced that the number of people undernourished in the world had crossed the one billion mark. Two billion people – one third of the world’s population – live on no more than a few dollars a day. A similar number have no access to proper sanitation or clean water. These figures in themselves would be enough to proclaim a huge crisis of human civilisation.
But on top of that we have had since the start of the new century rampant imperialist militarism in Iraq and Afghanistan, responsible for hundreds of thousands of deaths and of course a tremendous worsening of the ecological crisis – so much so that many experts believe that within a few decades global warming will inflict huge damage on numerous countries. As things stand oit seems that average world temperatures will rise by between 2% and 4% in the next 50 years. The 2006 Stern report pointed out that world temperatures on course to rise by two to three degrees in 50 years, rainfall could be catastrophically reduced in some of the world’s poorest countries, while others grapple with floods from melting glaciers. The result could be the largest migration of refugees in history. As Francois Chesnais points out in his article in this volume, the climate crisis will combine with the crisis of capital.
Now, to add insult to injury in the world’s woes comes the credit crunch itself the precursor of a giant economic slump, not just inevitable but actually underway. It is thus very timely the Socialist Resistance books should now be publishing this volume that attempts to only to describe the present crisis, but to understand its causes and debate socialist solutions.
Causes of the crisis
In the mainstream media and among right-wing politicians the truth of this slump is simply not being discussed. Thus the irresponsible lending of bankers is blamed and bankers pilloried – as was Lehman Brothers boss Richard Fuld in front of a Congressional sub-committee in October 2008. It seems that Fuld himself is likely to be prosecuted by US authorities.
Otherwise, the cause is put down irresponsible consumption by a whole generation who have, allegedly, been partying and living comfortable well-pensioned lives for decades and who must now pay the price for their fecklessness – and indeed pass that price on to generations to come.
Of course the banks lent recklessly. But the elephant in the room is never addressed – the fact that the present slump was deeply embedded in the DNA of neoliberal globalisation at birth and is an inevitable consequence of central features of the neoliberal ‘regime of accumulation’. How so?
The basic facts of the matter are blindingly simple to comprehend, unlike the thousands of column inches of mumbo-jumbo on the crisis that appear in the mainstream press. Neoliberal globalisation has an inbuilt tendency towards deflation (an accentuation of basic features of the capitalist system). As explained by Sean Thompson in his article in this volume, this has been caused by historic defeats of the international workers movement, financialisation and above all international outsourcing and relocation to sites of cheap labour. This has undermined union bargaining power, held down wage levels and repressed workers’ purchasing power – contrary to numerous myths and often appearances.
So the only way to ensure continuous economic growth and ever-greater capital accumulation was to pump endless credit into the system in the form of historically high levels of household and company debt. It is the enormous mountain of debt that has underpinned the lifestyles of the comfortable middle classes and indeed regularly employed workers.
The scale of this debt mountain is stupendous. In 1997 the debt held by individuals in the UK was £570 billion. Ten years later it was £1,511.7 billion, an increase of 165%. In the same period personal debt in the United States grew from £5,547.1 billion to $14, 375 billion. In the UK personal sector had increased from 102% of personal income to 173% of personal income; in the US the figure went from 93% to 139%. These are staggering figures.
The worsening of the underlying relative decline in workers purchasing power has especially been the case since privatisation of the public utilities. Gas, electricity and water (together with oil) have become cash cows for multinational corporations and the banks who lend them money, hoovering up vast swathes of the disposable income of workers and the middle class. This together with high prices generally (especially in the UK) meant that even apparently affluent families have been unable to save money; their only real assets have been their houses, themselves financed by colossal borrowing; the collapse of the housing market is now doing away with even the illusion of affluence for millions.
That such huge levels of debt could be tolerated and its fragility not immediately obvious has been due to the enormous inflation of the value of assets, mainly housing. The millions borrowing on credit cards or directly from banks borrowed (whether they realised it or not) against the guarantee of their house or apartment. There is growing evidence that this housing bubble was welcomed or even actively sponsored by governments, not least in the US and UK, precisely because of the ‘wealth effect’ that it created. But that wealth effect has now been shattered by the realisation that much of that debt is irrecoverable and that many of the banks’ loans (put down in their balance sheets as ‘assets’) are worthless.
Neoliberal globalisation has been a system of smoke and mirrors where the basic instability and unsustainability of the whole system has been covered up by the credit bubble. Now the bubble has burst, the consequences will be terrible for countless millions.
Debt-fuelled growth boosts inequality
This turn of events really undermines the arguments of those who like ex-British Prime Minister John Major who says “we’re all middle class now” or indeed people on the left who regard the whole of the working class in the North as a privileged layer on a world scale. When American workers are losing their jobs at a rate of half a million a month – in a country with a very limited welfare system – the realities of wealth and power in Western capitalism are about to be demonstrated with some force.
But the debt-fuelled engines of globalised neoliberalism did enable a certain level of consumption and comfort for most Western workers, that is for sure. Nonetheless it has been a system deepening inequality for at least two decades as the share of wages and salaries in national economies has everywhere stagnated or declined and as the wealthy became fabulously wealthy and went into conspicuous consumption overdrive.
A section of the working class not in regular employment – especially, but not only, single mothers in part-time jobs and older industrial workers whose companies have closed and who will never work again – has been pushed out of any substantial share in consumption. These are the millions living in what the British call ‘sink estates’, housing projects with huge levels of unemployment, poverty, drug abuse and crime.
Even for the regularly employed workers the last two decades have not been a period of unalloyed hedonism. The brake on the share of wages in the national economy has meant that the idyll of the 1950s – the nuclear family with just one wage earner – has largely disappeared. In most families, especially those with children, a second job has been essential to maintain living standards.
Work has become longer and harder everywhere, as ‘flexibility’ and the target-driven regimes imposed from the teachings of the American human resource departments have worsened the experience of work and made many jobs virtually undoable, at least to the standards expected by employers. One small but topical example is the demand of the British Post Office that postal delivery workers maintain a regular four mph walking rate, literally impossible with heavy sacks, hills to climb, stairs to go up in apartment blocks and biting dogs to be evaded. If imposed it will result in postal workers delivering mail in their own time, which is really what happens in countless jobs – a reduction in the proportion of paid time for workers who take work home and who stay late. In the slump this will only get worse.
The consequence of the decline in the share of GDPs going to wages and salaries has of course been a tremendous over-accumulation of capital, especially in the financial sector. But much of this is now revealed as worthless, fictitious capital, and is being daily destroyed in the stock markets and by asset write-downs as this introduction is written.
The essence of neoliberal globalisation has been therefore a cheap labour regime. Contrary to those who thought that technological advance would produce a ‘leisure’ economy, modern capitalism is a structure for producing an ever greater number of commodities through the incorporation into international capital circuits of ever greater number of labourers on a world scale. The crazed demand for ever greater profits from multinational corporations and finance capital – which like a vast protection racket demands its cut from every sphere of economic activity – has spawned a huge increase in the production of commodities, industrial goods as well as services. That’s why China and other Asian countries have supplied huge amounts of cheap labour; indeed China really is the workshop of the world.
But this huge mountain of commodities is utterly irrational and unsustainable. Modern capitalism creates an avalanche of new ‘needs’ and new commodities and is ransacking the earth’s resources to produce them. Out of the crisis, as described by John Bellamy Foster in his article here, the left has to articulate an alternative which breaks with the imperative towards ever greater numbers of commodities, and focuses instead on human need.
Consequences of the Slump
The consequences of the present crisis are difficult to predict in detail precisely because the duration of the slump cannot be foretold. But virtually every commentator from left and right agrees that this will last a long time. It is difficult to see how a new long wave of economic growth in capitalism can be generated. Billionaire former financial speculator George Soros says the crisis is the end of 60 years of capitalist expansion. If he is right, then capitalism faces a huge task of going through the slump and generating new engines of growth.
Some consequences are very easy for foresee however, and they are of frightening proportions. First, obviously, unemployment will mushroom putting huge strains on welfare systems, and in countries without substantial unemployment insurance, it will lead to immiseration with huge numbers losing their houses and a sharp rise in homelessness. We are about to see the return of the soup kitchen in advanced countries for the first time in 70 years.
Second government spending will be savagely hit with inevitable cutbacks across the board and big redundancies among public sector workers, especially in those countries like Britain where state finances have been mortgaged in the tens of billions of dollars spend to refloat the banks.
Pensions will be hit, with some pension funds just collapsing and many more losing some of their value. Many people are going to have a much poorer old age than they imagined – especially as most workers in their 50s now may unemployed will never work again.
Young people will be hit in myriad ways. As recently pointed out by Jenni Russell (Guardian 13 December 2008) the economic return of a university education – at least in Britain but probably in many other advanced countries – is now in question. It has been calculated that the overall economic gain for many in less prestigious universities in the UK could be as little as £20,000 over a lifetime – easily offset by the three years not working and not saving for a private pension, as many will now be forced to do. But many young people are just not going to find jobs, whether they went to university or not. Youth unemployment is going to skyrocket.
As poverty increases in the advanced countries, all the social problems associated with it – violence, crime, drug abuse and other anti-social behaviour – is going to sharply increase. If you want to see a model for it, go to some of the pit villages where the coal mines were closed down by Thatcher’s Tory government in the 1980s – places like Grimethorpe, Hemsworth and South Kirby. These villages have never recovered, they are drab and poor; crime and drug abuse is rampant, and large numbers of young people just leave. The problem is that you can’t leave a whole economy, except to emigrate. And then, where would you go to avoid a worldwide slump? There may seem to be some better options, but nowhere is safe from the monster at the door.
Even for many of those in work the future is going to become much more difficult; many low-paid workers are going to have to find a second or even a third job to make ends meet. Work regimes will become tougher in many firms when employers know there are thousands of unemployed out there willing to take jobs with lower pay and worse conditions.
If the crisis now seems most acute in Britain and the USA and other advanced countries, its effects on the third world are going to be tremendous. In the first place economic growth in China and India will slow down rapidly with hundreds of thousands losing their jobs. Debts levels in many third world countries are likely to rise, and Western governments will become even less committed to helping the poorer countries though international aid.
Many in the United States may be breathing a sigh of relief because of the election of Barrack Obama as president, which will do wonders for America’s international image, but really the credit crunch and the slump, which started in the US after all, is going to be a hard knock against that country’s dominant international position. As explained in the article by Francois Sabado, the period since the turn of the century has been a disaster for American capitalism; first the catastrophe in Iraq and of the Bush government in general, and now an economic collapse that has completely undermined neoliberalism’s ‘Washington Consensus’.
The New American Century that the likes of Bush, Cheney, Wolfowitz and Rumsfeld thought they were creating is turning out to be anything but. Of course the United States remains the world’s largest economy and easily most powerful country militarily. But its dominance is now visibly declining in a way that seemed improbable seven or eight years ago. Certainly the economic crisis – like its predecessors – will rearrange the international division of labour and with it the world political pecking order, but in ways that cannot yet be exactly foretold.
Ideological and political consequences: repoliticisation
The economic crisis combined with looming ecological disaster is the biggest ideological blow to capitalism since World War 2. Marx’s theory of crisis has been utterly confirmed, especially the notion of the trend towards the over-accumulation of capital and thus towards a secular decline in the rate of profit.
Francis Fukuyama’s notion of the ‘end of history’ looks plain stupid now, and as Neil Clark points out in his recent article Socialism’s Comeback (New Statesman 4 December), the same author’s prediction of the end of socialism looks a bit stupid too. Not only in Latin America but in many places in Europe the left appears to be on the up. But so far this is mainly small shoots, relatively small parties with some electoral purchase, although in Germany and the Netherlands left-wing parties (the Left Party and the Socialist Party respectively) are especially significant. Nor should we ignore thee spectacular emergence of the New Anti-Capitalist Party in France which has enormous potential to challenge the right-wing ‘Socialist’ party from the left.
The worker and student upsurge that broke out in Greece in December 2008 is a harbinger of things to come. It is absolutely impossible to have the degree of economic crisis now on the agenda, with such terrible social consequences, without enormous outbreaks of social discontent. This creates enormous opportunities for the left, but to really capitalise politically it is necessary to create the broadest unity of socialist and anti-capitalist forces that can stop the political fruits of economic slump falling into the hands of the right and even the ultra-right.
In the process of reinforcing the strength of the workers movement, and the political and ecological left, a giant battle of ideas is now opening up. A glance at the Blogosphere shows how this is true. Economic crisis is leading to a significant repoliticisation as normally apathetic and non-political people are forced to stare the crisis in the face. Many young people who never bothered with politics can now be brought into the ambit of the left and brought to see that the mindless celebrity culture of commodity society is empty and devoid of human values.
The ideologues of capitalism are on the defensive. But the Marxist explanation of the crisis has to be hammered home. Who caused this crisis? Why did it occur? What is it in capitalism that leads to the globalisation of poverty while a tiny elite become mega-wealthy? And what are possible alternatives? This book is a signal contribution to making those arguments.
The global justice movement greeted the new millennium by chanting “another world is possible”. Fortunately this is true. But only if we fight for it.