Bourgeois commentators are today by and large admitting that the present economic crisis is the worst since the Great Crash of 1929 which left the world economy in tatters, a state from which it was only relieved (temporarily – as we now know only too well) by the wholesale destruction of the means of production and subsistence that took place in the carnage that was the second world war.
Notwithstanding the lessons of history, however, there are still some little birds cheeping around the smouldering ruins sweet little trills to the effect that there are green shoots emerging that are going to lead to a speedy recovery, seizing on the slightest hint of a silver lining they profess to see amidst the menacing black storm clouds, to forecast a sunny future.
In actual fact, the only silver lining is the silver lining their pockets as a reward for helping to persuade the masses to remain quiescent in the hope of better times to come. Incredibly, even the Financial Times ran a front page article on 12 May 2009 announcing that, according to the Organisation for Economic Co-operation and Development (OECD), the crisis had “bottomed out”, “with some large economies already being able to look forward to renewed growth”.
Ambrose Evans-Pritchard in the Daily Telegraph is much more realistic. He points out that in every crisis there are always periods of short-lived exceptions, just as in every boom there are still plenty of businesses which go to the wall, and plenty of areas where the masses of people are still starving. On 11 May, he commented as follows on the 40 percent rise in global bourses that has taken place since this March:
“Japan had four violent spikes during its Lost Decade (33 percent, 55 percent, 44 percent and 79 percent). Wall Street had seven during the Great Depression, lasting 40 days on average.” (‘Enjoy the rally while it lasts – but expect to take a sucker punch’)
And Ambrose Evans-Pritchard acerbically notes with regard to the bearers of glad tidings in relation to the current crisis: “The Economic Cycle Research Institute … says the US recession will be over by the summer, insisting that its leading indicators have never been wrong – except once, in the Great Depression. Quite.”
In the meantime, we are witnessing sharp falls in living standards for the working class and middle class alike that are set to continue into the months and years ahead – and this in an age when productive capacity has been rising exponentially, many times faster than population increase, as a result of which in any rational society everybody would be enjoying substantially rising living standards. Instead, however, products are being destroyed on a mass scale because they cannot profitably be distributed to the impoverished masses, and production lines are closed down because they are no longer profitable. Their workers are added to the dole queues and the average purchasing power of the masses falls still lower.
Production falls, profits fall, tax revenues fall, debt default rises and bankruptcy proliferates.
Let us see how the hard numbers throw ice cold water on the dreams of the crisis optimists, focusing especially on the figures for the UK, although the story is not much different elsewhere in the capitalist world.
On 1 May 2009, Sean Poulter in the Daily Mail reported:
“Record numbers of people are being declared bankrupt.
“A disturbing picture of ‘Broke Britain’ has emerged as personal bankruptcies soared to a record high and company failures leapt 56 percent.
“Some 19,062 people were declared bankrupt during the first three months of the year – 23.4 percent more than during the same period of 2008 …
“Experts expect the number of personal insolvencies to continue to increase during 2009, to reach a record 150,000 for the year, well up on the previous high of 107,000 in 2006 …”
The crisis will only be over under capitalism if people start spending more, so that the bulk of the world’s capitalists can sell off their inventory, recover the capital that is frozen into unsold commodities, make profits and recommence the process of production. But who is going to buy? Who is going to “put demand back into the economy”? Clearly not anyone in the growing ranks of the insolvent.
On 23 April 2009, Reuters reported that the International Monetary Fund (IMF) has had to cut its forecast for global ‘growth’ from the 0.5 percent predicted three months ago to -1.3 percent, representing a loss in output of between $3-4bn. Furthermore it said that unless stimulus measures were continued by governments round the world (ie, increased public expenditure and/or ‘quantitative easing’ – printing money) any recovery would be set back still further. (‘IMF cuts 2009 global growth forecast’)
The increased public spending, however, has to be financed by borrowing, leaving governments of the future saddled with large debts whose repayment will curtail spending for years to come – ie, will ultimately take demand out of the economy, as will the high taxes imposed on the population to raise the necessary money to service these large loans.
In the UK, “instead of an economic contraction of 1 percent this year forecast in the pre-Budget report, the Treasury now forecasts a decline of 3.5 percent; instead of public sector net borrowing of 8 percent of gross domestic product this financial year and 6.8 percent next year, falling to 2.9 percent in 2013-14, we now have 12.4 percent this year, followed by 11.9 percent next year and 5.5 percent in 2013-14; and instead of debt at 57 percent of GDP in 2013-14, we now have net debt of 79 percent.
“This is a horror story.” (‘A chancellor flying on a wing and a prayer’ by Martin Wolf, Financial Times, 23 April 2009)
Squeezed to pay all these debts, how is the government, and how are taxpayers, going to be in any position to ‘put demand back into the economy’?
Interestingly, although huge sums of money are being borrowed, there is to be a mighty reduction in public spending directed towards serving the needs of the working class.
According to Nicholas Timmins, “Against the 1.2 percent growth he planned in the pre-Budget report, the government is now expecting current expenditure to rise by only 0.7 percent. Out of that will have to come much higher bills for servicing government borrowing, much bigger bills than in recent years for the unemployed, whose numbers many economists expect to reach 3m.
“That will leave far less money … for public services, whether hospitals, schools, the police, social care or other council-run services.
“The cut in capital expenditure will have particularly severe implications for transport, housing and other capital intensive departments …” (‘Fierce public spending squeeze ahead’, Financial Times, 23 April 2009)
Of course, less expenditure on services to the public actually translates as fewer government-funded jobs and lower wages for those who are still in work. Will that put ‘more demand into the economy’? Hardly.
Government income is also falling because (a) the unemployed do not pay tax; (b) no tax is received from businesses that have closed down, and (c) less tax is received from businesses whose profits are reduced and from individuals whose incomes are reduced.
The Office for National Statistics published unemployment figures for the UK on 22 April 2009. It tells us that “the unemployment rate was 6.7 percent for the three months to February 2009, up 0.6 percent over the previous quarter and up 1.5 over the year. The number of unemployed people increased by 177,000 over the quarter and 486,000 over the year to reach 2.10 million …”
And further: “The redundancies level for the three months to February 2009 was 270,000, up 45,000 over the quarter and 162,000 over the year. This is the highest figure since comparable records began in 1995.”
Steve Doughty in the Daily Mail has noted that there “were nearly a quarter of a million more unemployed at the end of March than at Christmas.” And “At the same time earnings fell for the first time since statistics began being collected in 1991.” (‘2.2 million, jobless total rockets as 244,000 are thrown out of work since Christmas’, 13 May 2009)
Angela Monaghan in the Daily Telegraph noted that “the ITEM Club*i predicts that a total of around 900,000 jobs will be lost this year and a further 500,000 next year”. (‘UK economy slumped by 1.9 percent in first three months of 2009 as recession deepens’, 24 April 2009)
The IMF predicts that “unemployment in the UK is set to rise to 9.2 percent by the end of next year”.
How is it exactly that all these unemployed are to ‘put demand back into the economy’?
The upbeat tone of the OECD pep talk reported by the Financial Times (see above) is certainly not reflected in the numbers that have been rolling out of the economists’ statistical packages. These in fact show the British economy shrinking at the fastest pace for 30 years during the first quarter of this year. GDP fell by 1.9 percent, “far more than the 1.5 percent expected by the economists, and a sharper decline than the 1.6 percent fall in the final quarter of 2008 when Britain officially entered recession.”
“Manufacturing was the worst hit area of the economy, slumping 6.2 percent – the most since records began 61 years ago …**ii
“Economists said the extent of the contraction dealt a blow to the Chancellor’s Budget prediction that the economy will shrink by a total of 3.5 percent this year, putting it out of reach …
“The think-tank Centre for Economics and Business Research is now predicting a 4.5 percent fall in GDP this year, which would be the most since the economy shrank by 5.1 percent in 1931.” (Ibid)
This shrinkage in production necessarily means a shrinkage in (a) wages, (b) profits and (c) government income, and cannot but lead to reduced spending – indeed, to massively reduced spending. So how exactly is demand supposed to get back into the economy?
The world situation
Although we are focusing here on the situation in Britain, the crisis is affecting every country in the world similarly, if not worse. A cameo of the world situation is given by the figures for volumes of cargo, which indicate the extent to which sales have fallen internationally for want of purchasers:
“Container volumes in Shanghai fell 17 percent in January, 22 percent in February and 9 percent in March. Rail freight volumes in the US were down 32 percent in April on a year earlier.” (Ambrose Pritchard-Evans, op cit)
Apparently, the US hedge fund, Hayman Advisers, is betting that there will be a major wave of state bankruptcies, the biggest since 1934. The eurozone is especially vulnerable because (inter alia) its banks have only written down a fifth of their likely losses (whereas the US has written down a half) and they need to raise $375bn to make good!
Even this estimate may be excessively optimistic. Germany’s BaFa regulator says German banks alone have $1.1 trillion’s worth of toxic assets on their books!
On 26 April 2009, Ambrose Evans-Pritchard wrote: “The world is running out of capital. We cannot take it for granted that the global bond markets will prove deep enough to fund the $6tr or so needed for the Obama fiscal package, US-European bank bail-outs and ballooning deficits almost everywhere.” (‘The capital well is running dry and some economies will wither’, Daily Telegraph)
In the good old days, “China, Russia, emerging Asia, and petro-powers were accumulating $1.3tr a year in reserves, recycling this wealth back into US Treasuries and agency debt, or European bonds.
“The tap has been turned off. These countries have become net sellers. The oil crash has forced both Russia and Venezuela to slash reserves by a third. China let slip last week that it would use more of its $40bn monthly surplus to shore up growth at home and invest in harder assets – perhaps mining companies …
“So where is the $6tr going to come from this year and beyond?”
Mr Evans-Pritchard concludes:
“Who knows what revolution may come from this crisis if it ever reaches [sovereign] defaults. My hunch is that it would expose Europe’s deep fatigue – brutally so – reducing the Old World to a backwater. Whether US hegemony remains intact is an open question …”
If even the most loyal spokespersons of the bourgeoisie, and if bourgeois media such as the Daily Telegraph, are able to recognise that the bourgeois system has had it, the time is now more than ripe for the proletariat – presently suffering in every country of the capitalist world – to fulfil its historic destiny and to make revolution.