In our last issue [1] we challenged the assertions of the major capitalist agencies like the IMF, OECD and various financial commentators who work for the major investment banks about the rosy scenario they painted for the growth of the international economy. They assured us that in 2015 recovery from the 2008 meltdown of the speculative bubble was already well underway. They are a lot less sure today.

2016 has opened with plunging stock markets (in China the sell-off was so great they have twice had to suspend trading), falling oil prices and declining manufacturing output in a number of the world’s leading economies. In fact global industrial production slowed to its lowest rate since 2009. The so-called BRICs, which were supposed to be the emerging markets into which to invest, are either not growing as fast or are in deep trouble. This is particularly the case for Brazil and Russia where government revenues have tumbled. In Brazil it has led to a political crisis as the welfare spending of the Workers Party government has unravelled and the government is mired in a corruption scandal over the state oil company. In Russia falling oil and gas prices have created so many problems that even Putin could not hide the facts. He told the German magazine Bild,

“We are witnessing a decrease in gross domestic production by 3.8 percent, in industrial production by 3.3 percent and an increase in inflation, which has reached 12.7 percent.” [2]

As for the US, the investment bank Goldman Sachs informed us at the end of 2015 that

“this year’s growth disappointment is the thirteenth so far in the sixteen years since 2000. The cumulative impact of these forecast misses has been a 3.3pp (percentage points) downside miss on the level of real GDP since 2011 and a 14.9pp downside miss since 2000.” And as for 2016:

“Both our own long-run potential growth estimate and the FOMC’s (the US Fed) are below consensus at 1.75% and 2%, respectively, and we suspect consensus estimates could fall further if growth continues to disappoint.” [3]

And nowhere has the weakness of all the predictions for growth been highlighted more than in the impact of the turmoil on the Chinese stock markets since the New Year. The Chinese stock market is virtually a closed shop to foreign investors and it plays little real role in the economy (it’s mainly a gambling outlet for the Chinese middle class). So why have investors in the West responded by pulling their own money out of the major stock markets? The reason is that there is no confidence in any of the predictions for growth and certainly not for Chinese growth on which the world economy has relied for so long. The attempts by Beijing to keep up profit and growth rates by promoting a building boom in response to the global recession have only created another speculative bubble. This has undermined the reputation China had for being a sure bet. The announcement of the floating of the renminbi was also intended to revive Chinese exports through a competitive devaluation but this has turned into a massive slide in its value and now the Chinese state is using up its massive sovereign wealth fund at a rate which will exhaust it in a few years.

The final straw is that whilst the Chinese government still talks of growth rates upward of 7% no-one really believes them any longer. For instance Nevsky Capital, a hedge fund for emerging markets, has just shut up shop and closed its fund. The fund’s founder and boss, Martin Taylor, wrote an open letter to explain his decision explaining that he did not trust any of the figures of the governments of these “emerging markets” – and certainly not China’s of which he said

“An ever growing share of the most important data they produce is simply not credible”.

In fact many investment firms are now making their own estimates of the real growth of China as somewhere closer to 2.4%. [4]

As we noted in our last issue, the real problem is that all the solutions that they have tried from quantitative easing to negative interest rates have only added to the burden of debt in an attempt to bail out the financial sector. They have done nothing for the “real economy”. This is because these policies only deal with the symptoms and not the real cause of the crisis which is located in the law of the tendency of the rate of profit to fall. This operates continually but may be partially arrested by many counter-tendencies but in the end the constant increase in the domination of dead labour (constant capital) over living labour which creates new wealth in the form of surplus value (or unpaid labour) means that the system periodically arrives at a point where opportunities for profitable investment are so few that there is a general slowdown in the placement of new capital investment.

Capitalism arrived at this point in the 1970s when the rate of profit was so low that it brought to an end the post-war boom. Capitalists have had two strategies to try to overcome this. The first one is usually described as Keynesian which involved greater state direction of the economy and state spending to create a virtuous circle in which the economy then grew on the back of state investment in such things as infrastructure. Wage rises were conceded but only through the mechanism of deficit financing (printing money). However this led to inflation and unbalanced budgets and when it failed to quell the class struggle the capitalists turned to Plan B. Monetarism or neo-liberalism was adopted in the 1980s and 1990s throughout the world (starting in the Anglo-Saxon countries). It brought in privatisation of key industries, the abandonment of any attempt to defend a basic manufacturing industry and deregulation of international finance. This led not only to globalisation and the shift of investment to places like China but also to an increasing financialisation (or debt fuelled expansion) of the capitalist economy. By the late 1990s it had been enthusiastically adopted by the entire capitalist political spectrum and it led directly to the speculative bubble which burst in 2007-8. The massive expansion of this fictitious capital in the period up to the crash seemed at times to defy economic logic. What surprised us was not that the crash came but the fact that it took so long to arrive. But the crash hasn’t led to a wholesale devaluation of productive capital and certainly not on the scale required to restart profitable accumulation. Instead state intervention has simply issued bonds or bought existing bonds with government created money and taken on the debts of the financial institutions in order to save the skins of the entire capitalist class.

And nothing they have done since has either dealt with the crisis of profitability or altered the continued search for a speculative fast buck. Nowhere is this better illustrated than the rocky ride of global commodities like oil, copper etc. They too seemed to defy logic until the middle of 2014 as their prices soared yet no-one appeared to be using them. This was largely due to the fact that China was stockpiling raw materials and the speculators (i.e. financial hedge funds etc) were selling the line that this was now the only place where profits could really be made. What they did not say was that most of this was debt fuelled. When everyone noticed that oil reserves were building up and stockpiles of metals were not being used the prices began to fall. They are now in freefall because

The downturn is exacerbated by increased financialisation, which converted commodities into tradeable equivalents. Cash flows from future sales were monetised to raise large amounts of debt to finance expansion. The collateral value of commodities secured expansion in borrowing and trading. Derivatives allowed new participants, other than consumers and producers, to invest in and trade commodity price expectations. [5]

The same author then informs us that between 2004 and 2014 (and mainly after 2008) “emerging market corporate debt increased from $4tn to $18tn and most of this debt “especially in China, Russia, Brazil, Mexico and Chile” is related to commodities. And it is the fact that they need the cash to pay their debts that they keep on producing even when it is unprofitable. The same need to finance debt drives them to cut costs so, as was entirely predictable, there is a meltdown in employment in these industries. The layoffs in the oil industry from shale to conventional production is having a big impact in the US but the commodity price fallout is world wide, as the recent job losses in the oil industry in Aberdeen and in the cuts in steel production across the UK from Redcar to Port Talbot illustrate.

There are still some who say that despite all the problems things are improving. Janet Yellen, the head of the Fed made noises about “a sustainable recovery” in November when she finally announced a quarter per cent rise in US interest rates on the back of some dodgy employment and consumer spending data. After delaying the rise for over a year not to have raised interest rates in November would have been to admit the US and global economy was still sick. However it is even sicker now since the measly rise has added dramatically to the debt repayment problems of those same emerging markets which are already in trouble.

There also some who think we can go back to Keynesianism (some pretend it is “socialism”). These are the likes of Larry Summers (a repentant monetarist), Joseph Stiglitz (a repentant World Banker) or the British Labour Party under Jeremy Corbyn. They blame the crisis on increasing inequality. Fuelled by the likes of Piketty’s Capital [6] they argue that spending on infrastructure, taxing corporations more and increasing consumption will solve the problem and bring back “growth”. This really is “back to the future stuff” and misses the point. Growing inequality is a consequence of the crisis not its cause. The real question that has to be solved is the issue of profitability and as we have to keep pointing out this can only mean a devaluation of capital. At the moment the only devaluation going on is via the cuts in our wages and living standards. But increasing absolute exploitation has a “natural” limit. And long before that limit is reached it has social consequences whether in the direct form of the struggles of wage workers against deepening exploitation or indirectly in terms of the blind rage of the unemployed and dispossessed who are as likely to line up behind reactionary causes (neo-fascism, racist groupings, salafism) as they are behind the working class as a whole and the struggle for a better world. Added to that the real elephant in the room for capitalism is that it really needs a wholesale devaluation of constant capital via the actual destruction of capital values. This need produced the two world wars of the Twentieth Century and in the longer term this poses the question of yet another global war.

This is not on the immediate agenda yet (the rulers of the planet still think they can escape this slump) but 2015 will go down in history as the year when the problems caused by the crisis of an increasingly stagnant economic system all started to run together. There is a causal chain which runs from the global financial meltdown in 2007-8, through the Arab Spring of 2011 to the Syrian Civil War. But it does not end there as the space that opened for Salafist jihadis after the US-led coalition’s demolition of the Baathist regime in Iraq is also linked to the “refugee crisis” and of course the IS/Daesh bombing campaigns from Baghdad to Belgium. The consequences of all these events and many others are still being worked out as the global economy staggers into 2016. We can expect things to get a whole lot worse before they get better but if they are going to get better it can only be through the world working class rejecting what they are imposing on us and what they are preparing for our future.

This defines the tasks of revolutionaries today. This is to provide the analysis of where capitalism is taking us, to take part in every struggle against increased exploitation and oppression, to increase the scope and confidence of the working class in its own ability to take on the system, to help to unify struggle and point to their common features and in the final analysis to contribute to the creation of world working class political party which is capable of coordinating our fight on a global scale.

Editorial, Revolutionary Perspectives 07

Footnotes

[1] Fabio Damen “On the Supposed International Economic Recovery” in Revolutionary Perspectives _06_. It can also be found on our website.

[2] See upi.com

[3] Quoted in “Predictions for 2016” Michael Roberts in thenextrecession.wordpress.com

[4] See John Authers “A frail global economy caught in China’s tumble” Financial Times 9 January 2016

[5] Satyajit Das “Financialisation has made the commodities sector more vulnerable” Financial Times 30 December 2015. For the origins of the oil price fall see our article leftcom.org

[6] For our review of this see “Piketty, Marx and Capitalism’s Dynamics” in Revolutionary Perspectives _06_ (or see our website)