Economic Crash Ahead!

 

Will the coming meltdown of China mean the end of global capitalism? Let’s have a brief look at this question. It’s pretty common knowledge that the so-called Global Financial Crisis (GFC) was not some isolated crisis but a symptom of something fundamentally wrong with the global capitalist economy. In fact, if it were not for China’s rapid growth the GFC would have turned into a long recession. Now China is finally slowing down but who can say by how much? It is still a long way from a meltdown but it opens the door to a slump or a crash in the near future. The big question today is whether or not the global economy can recover from another big crash.

Economists on the Marxist Left, Neo-Classical Right and Keynesian Centre can all see a slump ahead but they disagree on the causes and the solutions. The Neo-classicals blame state interference preventing the market self-correcting by means of depression. “Socialism for the Rich” (QE, or printing money) after the GFC only postponed the inevitable deflation and depression ahead. Keynesians complain that the QE trillions went to Wall St instead of Main Street whereas policies like Sanders and Corbyn’s plans for “peoples’ QE” would avert another depression. Marxists argue that QE cannot stop a depression but for different reasons than the Neo-classicals. The Neo-classicals want to unleash a depression to smack working class wages down to slave levels, and eliminate the ‘social wage’ while Marxists argue that workers should refuse to pay for the capitalist crisis, rise up and overthrow the rotten system that only survives at the expense of the lives of working people.

To put this debate in perspective we need to take a deeper look at the history of capitalism. Crises are not new. Capitalism has a history of regular crises punctuating long upturns and downturns. They are akin to the economy breathing in and out. As the economy expands it reaches a point where it cannot grow without depressions that cut costs and increase productivity. Each depression cleared the road for a new expansion. Thus the crises of the 19th century fuelled a process of national capitalism which drove industrial revolution ahead.

But by the turn of the 20th century national markets became fetters on growth and the more advanced economies began to colonise the backward countries to extract their wealth. By exporting capital to the colonies the ‘imperialist’ countries took advantage of cheap labour and raw materials. Crises were now less like regular breathing and more like the gasps of a dying animal. The downturns were driven by monopolies backed by powerful nation states to wage trade wars and World Wars to defeat and plunder their rivals and fuel an upturn.

Capitalism in the 20th century as a global system was no longer progressive. Instead of developing the economy by increasing labour productivity it was destroying wealth in depressions and wars. The capitalists were no longer entrepreneurs but parasites living off monopoly profits that were squandered on wars and speculation. The world economy virtually stagnated between 1914 and 1945. Far from Keynesian economics stimulating a post-war boom, the boom was possible only as the result of such massive destruction of the wealth by depressions and wars. Despite the price paid for the post-war boom it didn’t last long and crisis set in again in the 1960s.

While capitalism staggered from crises to wars in the 20th century the Soviet Union and then China demonstrated that there was an another way of organising society where economic development did not need to destroy wealth. They proved that by getting rid of the capitalists and planning the economy they could grow much more rapidly than capitalism. The superiority of planning over the market forced world capital to impose economic quarantines and a Cold War that ultimately forced Russia and China to return to the global capitalist market.

Here the story gets more interesting. The return of Russia and China to the capitalist world economy did not rescue it by opening up Eurasia to Western plunder. It proved that even the dreaded ‘communist’ regimes could retain their economic independence and resist Western domination. The ‘communist’ elite could convert itself into a new capitalist class and manage the switch to the market without becoming re-colonised by foreign powers. The result is that since 2000 both Russia and China have become rising imperialist powers that are now the main rivals to the US imperialist bloc.

The joke on the Neo-classicals is that the former ‘communist’ states have proven they are able to switch to state monopoly capitalism and apply a centralised Keynesian economics to moderate the anarchic effects of the global market. This is not good enough for the ideologues who preach ‘more-market’. They demand an end to corruption, regulation of markets, currency manipulation, off-book debts, fake statistics, cyber war, one-party dictatorship, etc., knowing that this would subordinate Chinese state monopoly capitalism to US state monopoly capitalism.

Meanwhile the Keynesians are seething with envy because this state monopoly regime is what they want in the US and EU to end financial speculation and invest capital into the real economy. As Michael Roberts argues, the end of the post-war boom has already taught us that a Corbyn-type ‘peoples QE’ or more correctly the ‘multiplier’, will not make capitalists switch from parasitic speculation to invest in production unless they are sure of making a profit. More money chasing fewer goods leads to “stagflation”. If more proof is wanted, Japan has stagnated for most of the post war period as a result of such policies.

What is this ‘root cause’ behind the China slowdown? How best to explain this? For Michael Roberts neither the Neo-Classical or Keynesian approach can explain the rise and fall of China. “The Marxist model of rising productivity through investment and innovation to replace labour and the accompanying contradiction with the dominant law of value in the world economy provides the best explanation of where China has come from and where it is going.” (Roberts, China: A Weird Beast).

On the Marxist model, China’s real GDP depends on production of value by its working class. But this is subject to exploiting labour sufficiently to make a profit. When workers resist, profits fall, production slows down or stagnates, and excess money that leaves production enters speculation in existing commodities causing price inflation and money devaluation. So while crises begin with falling profits they usually blow up when asset bubbles burst.

Rather than printing money that leads to stagflation, the capitalist solution to the crisis must be depression –the devaluing of existing capital, machines, raw materials and wages, to the point where investment in production is profitable again. But depression comes up against the resistance of the workers that produce the raw materials in China’s trading partners including NZ, as well as Chinese workers producing finished products. The more-market solution is a declaration of open class war inside China and in all its trading partners. The Marxist response is to say “bring it on” to workers in all these countries. The workers united will never be defeated!

Meanwhile, the growing antagonism between Russia/China bloc and the US bloc sparked by trade and finance sanctions on Russia has escalated the rivalry between the blocs and ramped up economic and military confrontations. Russia may spark the crash by defaulting on its debt to its Western creditors before a China meltdown can happen. The proxy wars in Ukraine and Syria may blow up into regional wars. Whatever the timing of such events, there is nothing that can prevent the China slowdown becoming a meltdown sooner or later. Whenever it happens a new global crash will pose the question: is this the last crash before human extinction?

See more at: http://thedailyblog.co.nz/2015/10/23/guest-blog-comrade-dave-brownz-economic-crash-ahead/#sthash.3HvOnOcK.dpuf

Capitalism on FIRE

Jane Kelsey’s new book The Fire Economy: New Zealand's Reckoning is all about ‘neo-liberalism’ and almost nothing about capitalism. It’s the same theme that Kelsey introduced in her 1995 book The New Zealand Experiment: A World Model for Structural Adjustment that blamed the deregulation of the Fourth Labour Government on the ‘neo-liberal revolution’ which replaced Keynesian ‘intervention’ with the rule of the market.

Neo-liberalism gave rise to ‘financialization’ as the FIRE economy (Finance, Insurance and Real Estate) became separated from society and the ‘real’ economy. Today neo-liberalism and the FIRE economy is ‘embedded’ and difficult to remove. Yet the GFC exposed neoliberalism as bankrupt and open to challenge. Neoliberalism having replaced the ‘epoch’ of Keynesian intervention in the 1970s is today facing a challenge to its existence. Kelsey outlines how the unique brand of neoliberalism in NZ can be politically contested and ‘disembedded’ to re-regulate the market to make it serve a more equal society.

Against Kelsey, we argue that capitalism is the problem not neo-liberalism. Neo-liberalism is a symptom of capitalism facing a terminal crisis having long ago reached the limits of its historic role in advancing human progress. For the last 100 years or capitalism has gone into decline and is threatening to destroy not only the social basis of human freedom but also the extinction of the human among many other species. We cannot put out the FIRE economy without replacing capitalism with a new society that serves the needs of humanity and nature.

The Neo-liberal counter-revolution

First, we argue that neo-liberalism, like Keynesianism before it, is a symptom of capitalism in crisis. These are not sequential ‘epochs’. They are attempts to resolve the fundamental crisis of capital caused by the contradiction between private property and social production that manifests itself as a crisis of falling profits, or the law of the tendency of the rate of profit to fall (LTRPF). See Michael Roberts defence of the LTRPF against David Harvey.

The LTRPF causes a shift of surplus capital from production to speculation. But such crises cannot be resolved until sufficient surplus capital is destroyed to restore profitable investment in production. Kelsey recognises that there was a shift in capital investment from industry to finance since the 1970s but offers a Keynesian explanation for this.

“The FIRE economy is a metaphor for the fundamental shift in global capitalism since the 1970s. Finance has replaced industry as the driver of wealth creation in affluent countries –a transformation known as financialization. Neoliberal ideology rules and institutions acted first as the midwife and then as the guardian of this economic order...Why did people, companies and institutions with spare capital become increasingly reluctant to invest or re-invest in manufacturing which was plagued by low profits, delay and risks?”

What accounted for such “poor returns on productive investment” leading to ‘financialisation’? Kelsey opts for the Keynesian ‘underconsumptionist’ explanation of the late Bruce Jesson, and the US ‘Marxists’ John Bellamy Foster and Fred Magdoff. They argue that low wages lead to falling demand and a move of capital away from production to finance. Keynesians claim that capitalist crises are caused by wages being too low depressing consumption and resulting in the overproduction of goods and hence a falling rate of profit on capital invested. Keynes answer to falling profits was to use the state to create employment, boost wages and consumption and thus encourage capitalists to invest in production.

Marxists proved that the underlying cause of crises was not low (or high) wages but a fall in surplus value relative to capital invested. That is, capitalists could not exploit workers hard enough to get a satisfactory profit on their investment. The only way that such a crisis could be resolved for the capitalists was by the massive destruction of old plant and machinery and the driving down of workers living standards by depression and war. This allowed the modernisation of plant and machinery combined with low wages to drive up the rate of exploitation and hence the rate of profit and accumulation of capital.

Marxists proved that in NZ, like the rest of the world, low wages were not the cause but an effect of the Great Depression of the 1930s. Keynesian intervention before, during and after WW2, did not result in the post-war boom, nor could it prevent its collapse in the 1970s. What made the post war boom possible was the depression and war which destroyed old technology and replaced it with new, and defeated the international proletariat driving down its wages and conditions. And Marxists proved that the post war boom ran out of steam not as a result of falling wages but falling profits. Profits fell because the production of surplus value (the rate of exploitation) could not keep pace with total capital expenditure.

The crisis leads to depression and war

The only solution to a structural crisis of falling profits is to destroy or devalue surplus capital (both constant and variable) sufficient to increase the rate of exploitation. These are collectively called ‘counter-tendencies’ to the LTRPF. Historically they mean a pattern of activity by which surplus profits in the imperialist countries are exported to colonies and semi-colonies to realise super-profits by exploiting cheap raw materials and labor power first by means of trade and then by establishing capitalist production. To reap the full potential of such super-profits all national barriers to the free movement of commodities and capital have to be broken down. During the Great Depression and WW2 many colonies and semi-colonies began to adopt economic nationalist barriers to free trade and capital flows in an attempt to ‘protect’ their economies from the dominance of imperialist super-exploitation.

This is what neo-liberalism is – the de-industrialisation of old technology in the imperialist countries and the breaking down of national barriers to the shift of production to semi-colonies to exploit cheap raw materials and labour power. The countries of the indebted ‘South’ and ‘East’ had their assets stripped and workers living standards destroyed – just like Greece today. This process also included the SU and China as they opened up to capitalism.

In NZ this is what happened when the Fourth Labour Government replaced Muldoon in 1984. Muldoon had attempted to resist IMF ‘structural adjustment’ imposing conditions on managing the national economy. He did this by trying to substitute for imports such as oil and control the flow of capital, but the IMF pulled the plug and threatened to foreclose on NZs debt. The Labour Government got the message and began to follow the dictates of the IMF to open the economy to force it to compete on the global market. This was not an ‘experiment’ as Kelsey continues to call it, nor was it a ‘revolution’. Like all capitalist attempted solutions to crises of overproduction, it was a counter-revolutionary attack on a sovereign nation’s ability to manage its economy through capital controls, import substitution and the nationalisation of key assets.

Yet on a global scale the forced ‘recolonisation’ of capitalist production in the ‘South-East’ was insufficient to soak up the trillions of surplus capital which continued to ramp up speculation in existing commodities and assets to new heights. This is what underlies ‘financialization’ – it is not a structural change in capitalism away from industry, but the failure of depression and war to create the conditions for a return to profitable production in industry.

It was the failure to turn Russia and China into semi-colonies capable of soaking up these surplus trillions allowing these countries to harness their own cheap raw materials and labor power and emerge as new economic powerhouses. With the bursting of speculative bubbles in the West in 2007, the productive growth of the new imperialists in the East (with their BRICS attachments) temporarily prevented the GFC from becoming a massive global depression.

FIRE and the GFC

The FIRE economy therefore is living proof that capitalism failed to overcome the structural crisis of overproduction in the West that began in the 1970s. The return of capitalism to the former Soviet union, China and Indo China in the 1990s contained the Asian Crisis and DotCom collapse but dould not stave off the GFC in 2008. The GFC is the surface expression of the explosion of the speculative bubble that could not be resolved earlier by the ‘neo-liberal’ counter-tendencies to the TRPF. So the GFC was not the result of ‘deregulation’ as agued by the Keynesians. Kelsey relies heavily on Bellamy Foster and Magdoff. Let’s see what they have to say about the GFC and then look at Roberts critique of the Keynesians.

Bellamy Foster and Magdoff think that the stagnation of production is behind financial speculation. The stagnation is caused by falling consumption which leads to falling profits. They are wrong on what causes that initial stagnation. The authors draw on Baran and Sweezy and even claim to go back to Marx. However, anyone who followed Baran and Sweezy in the 1940s and 1950s knows that they junked Marx for Keynes. For them the crisis of falling profits resulted from monopoly finance capital squeezing wages and consumption.

Marx treated under-consumption (of commodities and capital) as due to a deeper cause of crises - the LTRPF. Michael Robert’s shows that the LTRPF caused the onset of crisis in the 1970s not lack of consumption. The Keynesian policy of inflating wages to boost consumption ended in stagflation as profits were squeezed out of existence. Because the Keynesian policy only addressed an effect of crisis it could not counteract the cause of crisis, the LTRPF.

It was the failure of neo-liberalism to cut costs sufficiently to restore the post-war boom level of profits is what led to ‘financialization’ – the speculation of surplus capital in existing assets, driving up their prices and creating asset bubbles. The expansion of credit fuelled consumption further until the speculative bubbles burst in the GFC.

Michael Roberts also shows how the QE (quantitative easing) since 2008 has led to hoarding and further speculative investment rather than the destruction of surplus capital and a return to pre-crisis capital accumulation. All this means that there is no way capital can spend its way out of its crisis. Sooner or later the $trillions of fictitious capital has to be devalued and destroyed until the conditions for the return to profits are restored. We are back at depression and war as the only solution for capital to temporarily resolve its crisis.

Reform and Revolution

It becomes clear that Kelsey’s solution to the FIRE economy does not go to the roots of the problem. Because she adopts the Keynesian view that crises can be overcome by a policy of redistribution and state regulation she expects that neo-liberalism and the FIRE economy can be re-regulated and ‘disembedded’. This raises the question as to how far the capitalist state can be reformed. Kelsey agrees that the capitalist state ultimately serves only capital. But neo-liberalism is a ‘paradigm’ or ‘model’ of capitalism that Kelsey thinks can be regulated out of existence without the need to overthrow capitalism. For that reason, and perhaps for deeper reasons, revolution is off the agenda. So let’s see how revolutionaries prove that reforms such as Kelsey advocates in Aotearoa/New Zealand can only be implemented by socialist revolution.

We need to explain the difference between the parliamentary ‘political contest’ and the revolutionary Transitional Program that advances immediate demands to empower the proletariat to go beyond reforms to overthrow capitalism. Parliament is the democratic facade of the capitalist state. Social democracy was born to contain the rise of militant labour movement that threatened to overthrow the state. Ever since, parliament and its laws, have been a leg-iron on militant labour. Social reforms have always taken second place to profits. When profits fall, social reforms are repealed.

Today global capitalism is facing a crisis over its future existence and can only survive by destroying all the past social gains won by working class struggle. There is no room for reform or bourgeois democracy. Capitalism must be destroyed or humanity will be destroyed. We can see evidence of this everywhere where moderate struggles are met with armed repression driving workers to militant resistance.

The road to revolution is mapped out by the Transitional Program that draws on the transitional method of Marx, Lenin and Trotsky. It starts with immediate demands for what workers need to live, such as jobs, a living wage, free housing, health and education etc. As these demands are met by state repression at every point workers illusions in a peaceful, parliamentary road are put to the test, proving that the struggle for these demands can only be won by the seizure of state power.

As these struggles develop workers become fully conscious that to live, even to survive as a species in the face of global warming, capitalism must die. The problem is no longer seen as neoliberalism or the FIRE economy; capitalism is on fire, threatening to destroy humanity and nature. The fire can only be put out by an international socialist revolution.

NACTs Zero Sum Budget

Auckland Mayday March against welfare cuts May 1, 2012

NACTs 2012 budget keeps the country heading down the Rip, Shit and Bust road to destruction. The capitalists who rule Aotearoa want to rip out all our resources, shit on the lives of working people, and drive the country bust. Who has the best program to counter the NACTs bosses’ zero sum crisis budge? Labour and Green reformists, Mana radicals or Marxist revolutionaries? Let’s see the bosses’ budget for what it really is, an exercise in spin to cover up making workers pay for the capitalist crisis. Labour and the Greens have got no answers except Keynesian pipedreams and austerity ‘lite’. Mana is staking out a left Social Democratic position with income transfers to the poor. But the cause of the crisis is capitalist exploitation and there can be no effective rolling back of capitalist austerity except as a by-product of the building of a mass workers movement for socialist revolution.

NACT’s zero-sum budget

NACTs spin budget is zero-sum. It presents its austerity measures as ‘fiscal responsibility’ in balancing the budget by 2014 in the middle of a global crisis. Having run up a deficit of NZ$11 billion by bailing out the private sector it has transferred the cost of paying this deficit onto the taxpayer. In reality it is the working class that pays all taxes because the working class produces the wealth. So the real purpose of the zero-sum budget is to cut wages to boost profits. It boosts profits by forcing austerity on workers. Austerity is the bosses’ solution to their crisis as it cuts wages and social spending as a drain on bosses’ profits. It tries to make workers pay for the crisis by cutting capital’s costs at all costs. It restores profits by cutting taxes to rich, while increasing taxes to low paid workers like paper boys and girls; cutting social spending such as education from ECE to tertiary, ACC, welfare benefits, health and housing. This budget adds a new list of cuts in the NACTs austerity regime. A new round of austerity will hit when assets are privatised and power charges, education fees, health, ACC etc rise, and attacks on union rights and beneficiaries weakens unions and drives down wages.

Labour’s ‘Budget’

Of course capitalists argue that they are entitled to their profits, and to influence policy to restore them. They justify this as necessary for growth in the economy and the creation of rising incomes and living standards. Labour (social democratic) reformists agree with the capitalists that profits are earned rather than expropriated by capitalists. Capitalism is not inherently exploitative but there are some bad bosses (today the villains are usually Bankers) who ruthlessly exploit workers. They think that the cause of the crisis in not any inherent flaw in the economic system, but the wrong policies that create inequality and falling incomes for the poor. Labour accuses the NACTs as deliberately pushing austerity policies to enrich the already rich and worsening the gap between rich and poor.

The typical response of Social Democracy around the world is to replace austerity with ‘growth’. Keynesian solutions to the crisis are pushed. Keynes was a bourgeois economist who recognised that when profits fall the capitalists stop investing causing a slump. Keynes’ solution was to take over from the capitalists and use the state to borrow and spend on creating jobs and boosting incomes so that rising demand would trigger capitalists reinvesting in production. Roosevelt’s administration in the US and Labour Governments in NZ both applied Keynesian economics overcoming the worst effects of the Great Depression of the 1930s. In NZ the reformist left is pushing these solutions. Problem is inequality which can be fixed by state intervention.

The budget then, rather than cutting back on expenditure, should borrow to boost working class incomes to stimulate demand and hence capital investment in supply to meet the rising demand. This should be part of a wider policy of state regulation, ownership and economic planning to eliminate the profiteering of the capitalists. . See the big debates over austerity vs. growth on Michael Roberts Blog.

Green's ‘Budget’

The Green leader Russel Norman says that the Greens would “share austerity more fairly”.
They would tax the rich and capital gains, and redirect expenditure away from unproductive motorways, subsides to polluters etc and into a R&D and education for a smart green economy. This is a form of Green Keynesianism spending to boost clean, green, consumption.

The Greens are also against selling state assets having shown that they contribute more in ongoing dividends than in a one off sale. But like the Labour Party they will not commit to buying these assets back. While some think that the Greens are now the real opposition without Labour swinging right under David Shearer, and would keep a future Labour government honest, there are those who think that the Greens could work with Labour under David Cunliffe’s leadership because he stands for ‘Real Labour’.

But however they may rant on that we need throw out the NACTs and replace it with a smart, green Keynesian politics, the reality is that capitalist crisis cannot be solved by ‘growth’. Crisis requires austerity which means depression. This means destroying the value of surplus capital and of workers’ wages until the capitalists are assured that the capital invested in production can once more return good profits.

Mana’s ‘class war’ Budget

Mana is the only radical party in Aotearoa because it is driven by Tinorangatiratanga, or Maori self-determination, and by the socialist left. Radicals know that the state cannot oversee a fair distribution of income, since it is controlled by the capitalist elite that exploits labour by underpaying the true value of the wage. This is usually referred to as unequal exchange as labour is not paid its equal value in the market.

Thus the parliamentary budget is only fiddling with wealth already stolen from the producers. So further fiscal fiddling by the left cannot equalise the burden of austerity. The solution is for the majority working class to realise its potential power and get the true market value of labour. Some radicals want to take over the existing capitalist state to enforce this balance of power by similar means as the reformists. Others think the working class can take power in society and render the state superfluous. On balance Mana is a left reformist party willing to work inside parliament. Matt McCarten’s column in the NZ Herald, “Derisory Budget wages war on the poor”, sums up the Mana left Social Democratic politics.

Mana wants to get elected to represent Maori, and all other workers, and as its leader Hone Harawira said in his budget speech, “Tax the rich and free the poor”!

Workers’ revolutionary ‘Budget’

Marxists take a very different approach to the budget.  The capitalist economy is based on the production of value by the working class and the extraction of surplus value by the capitalist class. The state serves the capitalist class by defending the right of capitalists to the exploitation of labour as private property. That is, the state oversees the exploitation of the working class on behalf of capitalists’ profits. The income and expenditure of the state is therefore the consequence of the production of value and its distribution via incomes and via state incomes policy among the different ‘revenue’ classes to reproduce those classes.

The Marxist explanation of capitalist crisis is that is it caused by falling profits due to the inability of the capitalists to extract enough surplus value. This is the Tendency for the Rate of Profit to Fall. Bosses whose profits are falling stop investment, growth stagnates, and to restore the rate of profit the mass of capital has to be devalued as well as the value of wages until such time as the amount of surplus extracted represents a profit over total capital invested. The devaluation of the wages to restore profits is the essence of ‘austerity’.

The state plays a key role in creating the conditions for the return to profitability. It introduce social and economic policies to increase the rate of exploitation (increasing the share of profits) by making workers work harder for less pay. Here we see a whole box of NACT austerity policies to attack living standards, workers rights, union rights, and attacks on beneficiaries and the sick and injured to drive them to work – workfare – and so on to make workers produce more value and cut the share of value going to wages.

But that increased share of value does not go towards restoring profits if it is taxed to pay for state expenditure that does not produce bigger profits i.e. is a net drain on profits. So to restore profits the NACTs on behalf of the capitalist class want cut back on state spending by massive cuts in jobs and the social wage (the part of the wage made up state transfers – benefits, pensions, Kiwisaver, health, education WFF etc)

The budget ‘deficit’ therefore is an excess of state spending over state income that is a net drain on profits. The ‘balancing’ of the budget means reducing the state functions to only those that cannot be done more cheaply by the market. So we see the wholesale privatisation of state production, distribution and exchange (energy, airlines, banks etc) and services (health, housing, education, prisons etc). The capitalists kill two birds with one stone. First, state spending reduces the net drain on profits, and second, privatised state activities become directly profitable as the accumulation of capital (stocks, shares, interest etc).

Our conclusion is that ‘austerity’ is not merely a policy option like ‘growth’. The NACTs austerity policies are necessary for the capitalists’ survival, and they will not give up power or wealth without a fight. Thus liberal reforms are useless. Power has to be taken. It cannot be taken by peaceful means on the streets or other institutions. Radical reforms will come up against insuperable state power unless they take the form of a working class insurrection. Power has to be seized and the capitalist state power replaced by workers state power. For working class and the planet to survive the capitalist system must die. 


From Class Struggle No 100 May-June 2012