CRISIS WITHIN GROWTH:
NATIONAL LIMITS AND SHOCKS TO GLOBAL REVIVAL
by David Hemson
In 1930 the economist Keynes made a prophetic call: his grandchildren would work 15 hours a week. He saw capitalism as heading harmoniously towards superabundance, in which toil ceased in a leisure society. In the aftermath of depressions, great recessions, stagnation and austerity, it is clear that capitalism is increasingly driven by wars, crises, inequality and destruction of the planet. Those struggling with poverty wages are desperate for additional hours of work today, “overtime” leads to a lengthening working week to pay for housing, food and warmth. Leisure for the majority now takes the form of unemployment, searching for work, child minding, or short holidays.
While production has grown many times over since the 1930s, comparable gains in greater leisure and rising income that Keynes thought would accompany this have not followed. Capitalism has disappointed one of its most loyal advocates: a paid 15-hour week with a living wage today is currently unimaginable for working people. And yet it is possible if working people rise to achieve it by overcoming the capitalist system.
What future for working people arises out of capitalism today?
Can capitalism have sustained growth?
Over 19 months of the Great Recession (2007–2012) in the United States alone, trillions of dollars of wealth vanished into thin air, 8 million jobs were destroyed and tens of thousands robbed of their homes. More than half of US adults lost a job or saw a cut in pay or hours.
The US Fed and the central banks of other major capitalist countries intervened. Interest rates were cut and quantitative credit easing through purchases of government bonds. Governments injected capital in key firms (“recapitalization”) and even the nationalization of banks (otherwise fiercely opposed) was resorted to.
In secret, the Fed saved Morgan Stanley, Goldman Sachs, Citigroup, and Bank of America by promising billions on phone calls. Morgan Stanley was even granted more than a $100 billion in one day! While the government’s $700 billion Troubled Asset Relief Program (TARP) received the greatest scrutiny, the Fed’s emergency lending programs were much bigger at $1.2 trillion, extended to investment banks, foreign firms, and non-financial firms, went largely unnoticed.
This “unconventional policy response” in 2008, involving the wholesale bankrolling of the billionaires which caused the housing and other bubbles and triggered the crash, was justified in saving the USA from a depression akin to the one in the 1930s, or worse. It was termed QE
There was one intervention which was not made. As an alternative to Quantitative Easing (QE) when interest rates are near zero and the economy remains in recession: central banks could have made payments directly to individuals, the working people who most needed it. Governments and central banks have refused to provide such a stimulus with grants to working people to stimulate demand. The very idea has been derided as “helicopter money”!
Instead credit and cash flowed to bankers, not to devastated working people. Awash with cash, the financial houses decided how it should be used. Little flowed into productive investment; instead Wall Street was the main beneficiary.
This has been a totally unprecedented intervention by the state on a coordinated international scale. Through the use of the enormous financial powers of central banks, capitalism has been pulled back from the abyss of depression. The Central Banks now have a $4.5 trillion balance sheet and manage the asset prices of the key capitalist powers. By increasing the supply of cash through QE while simultaneously buying up government and corporate bonds, they have decreased the supply of financial assets and spurred on asset prices.
Can there be sustained growth and a better life (eventually)?
Can capitalism make the longest post-war expansion, avoid a recession and revive a growth path into the future which will provide the elements of decent work and a better life?
The prospect for a better life for working people in advanced countries hangs in the balance: either long drawn-out faltering growth or recession. Although synchronized growth between Asia, the US and the EU is accelerating from the slowest post-recession recovery ever, this is a most uncertain recovery with many lingering features of recession.
Despite this more favourable outlook for capitalism, the aftershocks of the Great Recession still reverberate around the world and shake the foundations of world capitalism. Interest rates are at historically low levels; for the first time since the 1960s the yield (or interest) on the US 10-year treasuries are below 4%, and staying there for some time. This should be a powerful accelerator of investment, but it has failed to spur productive investment.
The central banks are trying to maintain a Goldilocks economy of growth: not too hot nor too cold — without too much inflation or a lapse into deflation. In so doing they have fueled record levels on the stock exchanges.
The outlook is bright, governments assure citizens in developed economies, as growth is increasing and jobs generated. In the US some 18 million jobs have been created since 2010; this has made up for the 8 million lost during the downward plunge 2007-2008.
Research, however, has shown that the new jobs are nowhere equivalent to those which were lost never to return in steelyards, factories and shops. Nearly all of the 10 million (net) jobs created between 2005 and 2015 were in “alternative work” such as independent contractors, freelancers and contract company workers in temporary or unsteady work.
The conventional full-time job is disappearing, and replaced by cheap labour. The evidence is found not only in labour surveys but also in the lag in wage increases; temporary workers can’t insist on increases.
The argument from governments is that these issues will be resolved with patience. Sustained growth will return and eventually result in job shortages and improved conditions.
Inflation: a warning sign
There are other warning signs. Low inflation has continued into the recovery and expresses low expectations of growth or new recessions over the next 10 year period. Such levels are associated with deflation and stagnation, not with recovery.
The US Federal Reserve argues that inflation is about to take off; low joblessness (for gig economy “jobs”) will lead on to eventual wage inflation. These bankers, the “commanders of capitalism” have been wrong time and again. Over the past 32 quarters, the Fed has predicted that inflation will over-ride the 2% target. It has made this argument over the past five years and has been wrong 32 times.
Inflation has lagged below the Fed’s and the EU bank 2% target for most of the past five years. The vast extension of credit to the banks and corporations should have led to enormously expanded demand, sharply rising growth rates and…inflation.
Low inflation has been argued to have resulted from new technologies which widen market knowledge and drive down prices. The evidence from Japan, however, is that this is tied to low expectations about the future characteristic of an ageing population, not the vigour of youthful capitalism.
Yet despite turning the Thatcherite doctrine on its head, currencies have not crashed and only a whimper of inflation has been created. For the first time since the ’30s, the problem with inflation is not that it’s running high but that it’s historically low. In past decades this would be a cause for celebration; in an economy of slow growth this sounds alarms of growth faltering.
The “worrying” low level of inflation implies higher levels of unemployment than is being reported, poorer quality jobs and lower wage increases than being officially recorded. This poses the question again and again of economic growth slipping back into recession or sliding into depression.
Asset bubbles: another warning sign
So despite the optimism and despite its forecasts, the Fed very cautiously retreats from Quantitative Easing even though it’s wanting to taper off further extensions of credit. Although headlines are given by all developed market central banks to reducing its balance sheet, the G4 balance sheets are still growing by more than $1 trillion per year on an annualized pace. Stock markets reflect this flow: the strength of asset prices in the face of fundamental challenges serves as an enduring reminder of the importance of this positive QE flow.
The very interventions which saved capitalism are now proving combustible material threatening recovery. Financial markets have stabilized since 2008, and this has made the banks flush with resources. One of the greatest concerns for capitalist strategists is that the bloated assets of central banks are overhanging and threatening to fall in on economies.
These advances have not been invested in new production but in existing financial markets leading to asset bubbles, particularly in the bond market but also in property, stocks and bitcoin, all of which threaten to burst, vaporizing value and precipitating a new crisis. The explosive rise and fall of companies with new technologies is somewhat like the period prior to the 2000 tech crash. A downturn in the stock exchanges is historically long overdue; a study of the historical data by Goldman Sachs concludes that the likelihood of a bear market in the next 24 months currently stands at about 88%.
Having experienced a devastating recession, bankers are thinking ahead and trying to avoid the next. The Central Banks now face a dilemma: how to “unbundle” this credit to the banks without igniting sharp increases in interest rates which will shut off growth? There are threats from all sides; the currency crashes in emerging markets (particularly in Argentine, Turkey, South Africa and Brazil) raise fresh concern about “liquidity” i.e. their ability to repay debts.
Can recession be avoided?
While each crisis has its own character and each recovery has its own peculiarities, booms and slumps are integral to the capitalist system. It has its own dynamism moving from rapid expansion to sharp contractions; each phase dependent on the other. As Marx set out in 1847, “production is inevitably compelled to pass in continuous succession through the vicissitudes of prosperity, depression, crises, stagnation, renewed prosperity, and so on”. In the recent cycle, the feverish extension of subprime mortgages led to a nationwide banking emergency, precipitating a banking crisis, collapse and then an uncertain period of stagnation which is still unresolved.
The very integration of markets and finance internationally in the previous period now provides the mountain scree blocking advance after the fall.
Since 1945 there have been 11 recessions, on average every seven years or so. Uninterrupted growth to 2027 would mark a record 18-year economic expansion, nearly twice the length of the longest post-war boom so far, which ran from March 1991 through March 2001.
So is recession on the way? Such a prolonged uninterrupted upturn would be unusual. It is also very unlikely. Currently this is the slowest recovery from any recession; a full recovery is anticipated only by 2020. Deep scars are evident in mass unemployment in depressed regions and in stagnation in investment and slow growth. In such a recovery it is possible a recession may appear, as indicated by the data on recessions; at fairly regular intervals business commentators remind readers that these are inevitable.
Trump’s attempt to kick-start higher growth
The mammoth destruction of capital and jobs during the Great Recession resulted from the decline in the rate of profit and an incapacity for markets to absorb the overproduction of the period. Although this has been a slow recovery from the most devastating recession of the post-war period, economic growth is rising. There are promises that the upward turn will continue and accelerate into the future.
The ruling class in the developed world is grappling with the problem of low growth and declining rates of profit: it is trying to break with declining profits accentuated by an ageing population and feeble demand. It is searching for strategies to reach back to the glorious past of 5-8% growth rates and achieve massive profits across all sectors and regions.
Its inability to spread growth prospects evenly across countries and regions, in particular to poor regions, has precipitated additional problems to recovery: the exploitation of popular hostility to international trade, as shown in Brexit, the rise of Trump, rising national antagonisms and threats of trade wars. All these factors of instability lead on to declining world trade.
The capitalist strategy, particularly in Japan and the US, is to use supply side methods to kick-start higher growth. According to this ideology, lowering taxes and regulation to the rich and their companies lowers the cost of goods and services and leads on to increased employment. Past examples show, however, that while this strategy may initially lead to somewhat higher growth, the resulting fiscal and trade deficit balloon and make for uncertain job creation. The greatest probability is short-term growth followed by acute recession and mass unemployment.
The Trump “strategy” involves a massive transfer of funds to the rich, if possible without killing effective demand. This decidedly trickle-down approach with tax cuts has never worked before, but is being tried again.
The tax cut for the rich in part expresses the frustration of US capitalists with the slow growth of the recovery and the decline in US power: Trump promises to increase growth to 4% and to force other trading nations to comply with the rules he imposes. He points to the preliminary estimates of a rising pace of annualized growth in recent quarters to show what is possible.
This precipitous leap into tax cuts is an attempt to speed up the staggeringly drawn-out recovery, and thrusts the US into dangerous territory by blowing a hole in the budget now and into the future.
Economists argue that it will add substantially to the existing huge fiscal deficit. It will also lead to a trade and capital deficit after a short-term “sugar-high” upsurge in growth. The US government will have to fill the gap in the budget by issuing bonds at yields higher than Europe or Asia. This will lead to an inflow of foreign capital. New stock exchange highs are also probable, but these inflated asset prices will eventually crash.
As Marx explains, the capitalists can only solve their crises “by paving the way for more extensive and more destructive crises, and by diminishing the means whereby crises are prevented.”
The slow (although rising) growth points to weaknesses which were re-introduced by the Recession itself: political crises and uncertainty, rising protectionism, declining world trade and brutal austerity which has weakened the demand which would consolidated growth.
The return of the old obstacles
The rise of international antagonisms, promoted by Trump but also evidenced in Brexit and national strategies, reflects how capitalism is now falling back on to national markets and an aggressive assertion of national interests. Yet it was the US corporate world, Trump’s generation, which set the international trade rules. The growth in world trade in the past period from the 1950s onwards had represented the partial overcoming of national barriers and the development of the productive forces in “capital’s boundless thirst for self-expansion”. The forces of production, particularly the application of science and technology in communications, energy, transport and other sectors, had grown apace in a world scale.
It was capitalism’s great progressive task to create the world market, but now the destruction of traditional sectors such as iron and steel and engineering and the crushing displacement of workers could lead to this being reversed. The colossal obstacles of the national state and private ownership which hinder the further development of society are now being restored. Capitalist fractions which exploit the anger of workers act to reintroduce national barriers, resist trade agreements and attack immigrants, by arguing for Brexit and asserting aggressive defense of national interests.
A contradiction now runs through the recovery: a return to tariffs and national barriers will limit the possibility of a strong recovery, cause greater uneveness and increase the prospect for recession.
The aggressive reassertion of the national state (against foreign interests and international trade) and private ownership (through privatization and outsourcing) is an attempt, particularly among declining capitalist nations, to hold on to past gains in the face of the challenge coming particularly from China. This is a setback to the integration of the world economy, which had seen the productive forces partially and temporarily outgrowing the nation state in a rapidly growing world market, and overcoming the contradictions of private ownership with state intervention to avoid market failures in the post-war period.
Science and new technologies
But endless expansion and boundless accumulation, involving the overcoming of national barriers, is the unique dynamic of capitalism, which is about the infinite expansion of capital and its transformation into personal wealth and money.
The forces of production in modern society, the applications of science and technology, drive beyond national boundaries and private ownership: the massive accelerators used in particle physics as colliders (e.g. such as the world’s largest and most powerful particle accelerator CERN); quantum computing; Artificial Intelligence (AI); international co-operation in the space programme. All this research reaches across national boundaries assemblilng the talents of sharp minds and resources. Technological innovation has developed on an unparalleled scale in some sectors, e.g. renewable engergy, driverless cars, the possibility of returning sight to the blind in a combination of digital and biotech initiatives; the guidance of drugs to exact cells through nanotech; renewable energy, potentially reducing climate change and decimating oil giants beyond their recovery.
The installation of large-scale wind turbines, the improving efficiency of photo-voltaic cells, the significantly more efficient large batteries… all carry the promise of new technology stopping and reversing global warming and securing a future for mankind or adaptations which would allow life to continue.
The possibilities of social communication have been vastly advanced via the Internet, broadband, fibre optics, the worldwide web, laptops and cellphones, and email. Open-source software widens access and opens the possibility for ordinary people of coding new programmes. Quantum computers have the prospect for unprecedented processing and applications; the development of Artificial Intelligence accompanied by Reinforcement Learning could develop genuine evidence-based decisions,enormously assist in diagnosing health problems, and other boundless possibilities.
Much of this could be applied in the present: Germany and other countries have had the national grid running on renewables for periods approaching two weeks or longer. There are tremendous possibilities for humanity with ever cheapening energy sources, but capitalism limits these possibilities, e.g. through a chaotic solar panel sector, inadequate financing, poor housing strategies, and the fossil fuel sector fighting a deadly battle for survival.
Capitalist hostility to state intervention weighs heavily against the adoption of strategic innovations, even though these would preserve or possibly revive sectors in a landscape of stagnation. New technologies to develop human potential and preserve the planet raise the human spirit in exciting peoples’ expectations about the future and about how the world could be changed.
Under capitalism, however, technology is widely used against working people. “Disruptive technologies” is not a trendy phrase but a deadly reality. Capitalism appropriates, owns and patents new technologies. The original strategy of the Google founders was the open association of computer geeks and experts to provide free access to information and knowledge. What could have been an associative co-operative has now become a conglomerate with a galaxy of billionaires. Private appropriation of technology has conquered a generous public spirit.
The destruction of existing products and processes and new technologies, the conquest of new markets and the more thorough exploitation of old ones, removes the barriers to the further development of the forces of production, but only to pave the way for more extensive and more destructive crises.
Shifts within capitalism
Following a protracted crisis, capitalism has been restructuring in the recovery. There are decisive shifts taking place. For example, new sectors are emerging (an unprecedented growth of information technology) and old sectors (e.g. cars and trucks) transforming by adopting battery power. Manufacturing and the key points of economic growth are shifting from the OECD to China and south Asia. Technological revolutions, including robotic automation, are demolishing the past battalions of the industrial working class, and internet sales are recreating or weakening other sectors such as brick-and-mortar retail and service sectors. Conglomerates such as Apple, Amazon and Google are monopolizing information technology and becoming the richest and most powerful corporates on earth.
The US fossil fuel sector with its loud political fraction is under threat, and Trump’s aggressive advocacy will not stop its eventual remorseless decline. There are huge possibilities with renewable energy: the grid service cost in South Australia have been reduced by 90% through the installation of Tesla’s giant battery illustrates the possibilities. The renewable energy revolution is, however, restrained by the profit system, by capricious turns in solar companies and by the built-in subsidies to fossil fuel. Determined state intervention is needed to realize the immense possibilities of this emerging technology.Changes in world relations: China and the OECD
Capitalism cannot break free from a regime of shocks and crises; currently these are associated with sharp turns and sudden changes. A period of relatively cooperative relations between capitalist powers is being replaced by the aggressive assertion of national rights and the threat of trade wars, as Trump attempts to break up trading groups such as the EU which threaten US dominance. Among the G20, there is a sense of social and political chaos in the United States, with a rapid turnover in personnel and capricious policies.
Trump has set out a national security strategy which envisions confrontation particularly with China as a revisionist rising power seeking to change the global status quo to the detriment of America’s interests. In identifying the former semi-colony (and Russia) as a rival power and current threat, he was acknowledging that world power relations have changed against the United States.
It is hard to exaggerate the disequilibrium introduced by Chinese advance. A journalist describes this as “quite clearly the phenomenon of our lifetime, the extent of which exhausts the parade of superlatives. China has gone from nowhere to rivalry with the US or supremacy on every domain”.
China’s advance, which has taken place on the basis of a planned economy with state and capitalist sectors, can be set against the relative decline of the OECD and new productive forces in science and technology.
The contrast with the US is stark. US infrastructure is outdated, without the prospect of the state undertaking the colossal expenditure necessary, for example,to develop high-speed rail; instead there are deadly accidents on the existing infrastructure. Chinese exports have boomed, increasing far faster than GDP growth; these have been growing steadily over the past decade, except in 2009 when financial crisis and global economic downturn slowed down global trade. In addition to having the greatest population (1.37 billion people), China has also become the largest manufacturing economy and the largest exporter in the world. In October 2016 China’s foreign exchange reserves totaled US$3.12 trillion, the lowest total since 2011, but remained higher than the foreign exchange reserves of any other nation.
Compared to the striking economic advance of China, the EU and US appear disadvantaged. These existing groupings are trapped in wars and military expenditure which are evidence of their relative decline in power. This advance will be consolidated in the next period, with scientific advances and applications in new products and the world marketing of high-value Chinese branded products.
Renewable energy technologies are becoming a main sector of the economy and provide for exports. China has been the world’s biggest solar market since 2013, and surpassed Germany as the country with the most installed photovoltaic power capacity in 2015. The forecast for additional solar power capacity has been raised to 55 gigawatts from 40 gigawatts for 2018, doubling the estimate of additional capacity in the year.
More than 92,000 wind turbines had been built across China by early 2017, and they are generating 145 gigawatts, which is nearly double the capacity of wind farms in the US. The government is adding wind turbines at a rate of more than one per hour.
The companies engaged in renewable technologies struggled over the last 5-7 years, but they have now gained considerable experience in international markets and will have the advantage of cheaper efficient and tested equipment as major developing countries shift towards renewables.
The “Time of the Markets”: an offensive against working people
Following the monstrous destruction of jobs in the Great Recession, regaining similar quality jobs is long, slow and partial. Under capitalism decent employment can not be achieved.
Desperate times have warped the sense of what is possible. Sections of US workers are living a fragile existence compared to a generation ago. “Death from despair” is a new public health category in certificates reflecting the desperate deaths of workers from opiods and alcoholism with no hope in the future. Although change is indeed possible, the confidence of working people has yet to be regained. During the Recession, many full-time jobs in some sectors were lost forever. During the recovery, new sectors of degraded work have replaced the millions of decent jobs which were destroyed.
This is the Time of the Market, in which capitalism exercises its drive to dispossess, exploit, and discipline work-seekers and exact the highest quality of work from us. Workers are pitted one against another in a race that mutually threatens their future.
New technologies are threating employment rather than creating productive lives, decent income and genuine leisure. Driverless trucks, for instance, threaten the livelihood of four million US workers who are without offering redundancy pay, appropriate re-training, or new alternative jobs.
Zero-hour contracts which free the employer from guaranteeing minimum working hours, short term contracts which lapse after a project is completed, home-based work and multifold forms of casual work; all these are without benefits and replace stable work. This is work in the gig economy, in which a worker is hired to undertake a single project or task, an environment in which temporary positions are the norm.
In a “gig economy”, Uber drivers, home helps, IT technicians, part-time teachers, contract researchers… all work in conditions which are spiraling downwards in zero hour contracts, part time work, and irregular employment. These are the workers who ever noticed the upturn, and whatever the economists say continue to live in the stress of recession.
These conditions bear heavily on working women, who have to accept work in low-wage sectors to ensure family survival. There has been a “feminization of work”, the incorporation particularly of young women in conditions of ultra-exploitation: in healthcare, teaching, child care and development, academia, retail, research consultancies: all low wage sectors with predominantly insecure contracts.
While the retraining of “redundant” workers is proposed, the pace of change is such that where courses have been provided older workers have not benefited. In depressed communities, wages are low and training often ineffective, with a mismatch between the kinds of retraining and available jobs. In the US, all non-college men are now earning less than they did 40 years ago. Even with retraining, workers don’t get the wages they previously earned.
Organize for decent work and women’s rights
Despite slow growth which limits, to an extent, the industrial combativity of workers there are technological, economic, financial and political shifts taking place which will have far-reaching implications for our political work.
Capitalism is characterised by growing inequality and stagnant wages; real wages have not increased in the US since the 1970s and job security has vanished. For working people, conditions are spiraling downwards with zero-hour contracts, part time work, and irregular employment.
Deregulation of labour conditions has advanced, making working conditions less secure and strengthening the position of employers. Younger workers eager to find work are particularly vulnerable.
There are two planes at which workers can organize. Firstly, although the trade unions are in poor shape, there is the prospect of workers’ solidarity and support in the struggle against degrading conditions. New forms of industrial organization are needed to absorb workers in “alternative” or irregular employment. These are the most vulnerable workers and will be a powerful factor in winning over large sections of the working class to socialist policies.
Political action is the second plane. Democracy is deeply conflicted between the promise of control and change and the reality of individual powerlessness. The modern republic, it has been said, attempted to impose political equality on the very economic inequality it has no way of alleviating. This is a relatively recent problem, because the rise of modern capitalism coincided with the rise of modern democracies, making wealth inequality inconsistent with political equality. This is a structural weakness in capitalism which is vulnerable to a mobilized working class with a clear political programme.
Collective action at the industrial and political plane is needed at the national and international level.
No privilege for privilege: tax the corporates to meet social needs;
Public ownership with democratic workers control of strategic sectors of the economy – water, energy, banks, big corporations;
Implement a radical program of renewable energy to entirely replace the fossil fuel sector;
Public investment to stimulate entirely new technologies on a cooperative basis among nations;
Trade with fair exchange; for international workers’ solidarity and fair trade;
Unite for a national minimum wage based on the needs of a household;
A decent wage for a full working week with successive reduction to 30 hour week; end zero-contracts, casual and irregular work;
Full rights for women workers; gender equality in wages, end sexual harassment at work and elsewhere!