Current crisis of overproduction: worse than the 1929 crash
The world capitalist system is in the midst of a deep recession, threatening to turn into an unprecedented slump, compared with which the 1929 depression, which lasted more than 10 years, would look almost mild.
All around us is the spectacle of saturated markets, rising unemployment, plunging stock markets, collapsing giants of finance capital, real estate prices in free fall, cascading corporate bankruptcies, freezing credit, shrinking world economy, contracting world trade, and ever-increasing misery and destitution heaped upon scores of millions of workers across the globe.
Whatever its appearance, it is, at bottom, a veritable crisis of overproduction. At times like this, one is forcefully reminded of the following never-to-be-forgotten words of Engels:
“Commerce is at a standstill, the markets are glutted, products accumulate, as multitudinous as they are unsaleable, hard cash disappears, credit vanishes, factories are closed, the mass of workers are in want of the means of subsistence because they have produced too much of the means of subsistence, bankruptcy follows upon bankruptcy, execution upon execution” (Socialism: Utopian and Scientific, 1876).
Written 133 years ago, the above observation of Engels’ has a remarkable topical ring to it; it is as though Engels were writing about the present crisis. The Marxian analysis, encapsulated in succinct form in the preceding words of Engels, alone presents us with the key to an understanding of this crisis, as well as the way out. Bourgeois economic science has little to offer in the way of an explanation of, let alone a solution to, this crisis – not because bourgeois economists are unintelligent but cause of their narrow outlook, hemmed in as it is by their faith in the eternity of the capitalist system of production, supplemented by the imperialist loot, a portion of which stuffs their wallets by way of bribery, a continuing incentive against recognition of the obvious reality. Even when brutal reality brings them close to grasping the underlying cause of the crisis, they shy away from it, often ending up by confusing symptoms and their causes, appearances and reality. One has to indulge in archaeological exercises, as it were, to dig and drag the truth out into the light of day.
As in 1876, so now, Engels’ concise and clear words contain the secret to an understanding of this, as indeed of every past and future, capitalist crisis: “… The workers are in want of the means of subsistence because they have produced too much of the means of subsistence” (our emphasis), i.e., these devastating crises are caused by overproduction.
The crisis that presently confronts us is of truly Gargantuan proportions. Prominent monopoly capitalists, as well as the ideologues of finance capital, openly admit to the ferocity, depth and scale of the present crisis. The economy has “fallen off a cliff”, says Warren Buffet, the multi-billionaire investor. Bourgeois analysts and commentators routinely and variously characterise this crisis as the word’s deepest economic downturn since the Great Depression, a once-in-a-century tsunami, a natural disaster. There is no doubting that the world capitalist economy has stumbled, as it was bound to, over the edge of the ravine with great speed and alarming global synchronicity. 
Faith in market shaken
The unfolding crisis has turned upside down all the bourgeois economic dogmas and shaken the faith of even a section of the capitalists and their ideologues in the ability of the market to work miracles. When, over a year ago, Joseph Ackerman, the Chief Executive Officer of Deutsche Bank, said that he no longer believed in “the market’s self-regulating power”, everyone in the world of high finance and industry was startled. Now such assertions are commonplace.
The former chief of the Federal Reserve, Alan Greenspan, a proponent of financial innovation and deregulation, and who played such a crucial role in the creation of the most recent bubble, has confessed that the financial system was flawed. Jack Welch, the former CEO of General Electric, has described the shareholder value movement, which especially characterised Anglo-American finance capital, as “the dumbest idea in the world”. Lawrence Summers, former US Treasury Secretary, and now heading the Obama economic team, says: “The view that the market economy is inherently self-stabilising, always, has been dealt a fatal blow.” No one batted an eyelid when, at the recently-held G20 Summit, Gordon Brown, Britain’s Prime Minister, declared the gathering a requiem for laisser-faire capitalism. The destructive force of this crisis has well and truly rubbished the market fundamentalism of the Davos man, which only recently bestrode the world like a colossus.
State intervention, only yesterday scoffed at, has been restored to respectability. “Paulson [Bush’s Treasury Secretary] is the champion nationaliser of all times. He managed more nationalisation than any man on the planet”, so said Fred Bergsten, director of the Peterson Institute for International Economics. Mr Bergsten ‘forgot’ to add that Paulson’s nationalisation was merely the nationalisation of the debt and losses of finance capital for the sole purpose of saving this historically outmoded system at the cost of billions of US taxpayer dollars.
Wouter Bos, Dutch finance minister and leader of the Labour Party, says that the present crisis has killed the myth of “happy globalisation” and called for the “visible fist” of the government to supplement the “invisible hand” of the market in order to maintain support for the open markets and free trade.
Continuation of earlier crises
The present industrial, commercial and banking crisis is actually a continuation, only much more virulent in its intensity, of the crisis of overproduction which appeared in the middle of 1997 in the form of a currency collapse in the far east, beginning with Thailand and spreading like wildfire to Indonesia, Malaysia, the Philippines and South Korea before jumping continents a year later to overwhelm Russia, and through it the US and Europe, in the process wreaking havoc, causing big business failures, throwing millions of workers out of their jobs, and helping to sharpen inter-imperialist contradictions.
For a while, as the economies in the Far East suffered under the devastating blows of a thorough and deep recession, and Russian capitalism came close to collapse, strangely the US and European imperialist countries managed to stay out of harm’s way. As a matter of fact, despite an unprecedentedly high US trade deficit, the stock markets of the US and Europe soared ahead. This, however, was only an apparent paradox – not a real one. At the time we wrote this by way of an explanation of this apparent paradox:
“As Marx explained long ago, the fever of speculation is only a measure of the shortage of outlets for productive investment: the depressed state of industry is reflected by an expansion of speculative loans and speculative driving up of share prices. The crisis of overproduction is a reflection of the over-accumulation of capital which, unable to find profitable opportunities for productive investment, seeks a way out in stock market and other speculative activity in an endeavour to make a profit. The tendency for the mass of surplus value to increase at a slower rate, as Marx showed, than the total capital employed is expressed in the tendency of the rate of profit to fall, which only goes to show that production for profit is an inadequate basis for the constant development of society’s material conditions of existence” (‘Indonesia – a harbinger of revolutionary upheavals’, Lalkar, July/August 1998, reproduced in Harpal Brar, Imperialism – the eve of the social revolution of the proletariat, London, 2007).
The demand for the products of industry fell in one sector after another owing to overproduction (too much capacity as the bourgeois commentators express it, fearing like the plague the correct Marxist terminology). This shrinkage of demand, combined with the crisis in the Far East, which had temporarily ceased to be a profitable avenue of investment, resulted in the flight of $109 bn of capital from the five affected Far Eastern countries to the centres of imperialism. All these massive sums, and more, were pumped into the US and European stock markets, which rose 52% between the start of 1997 and the middle of 1998. Since the buoyancy of the stock market bore little relation to the productive base, which continued to limp far behind, it was only a question of time before this speculative bubble burst, with all the inevitable horrendous effects on the economy – from manufacturing to financial institutions.
By the end of August 1998, following the Russian default, and in response to it, events moved with bewildering speed, with the world stock markets taking a pasting. Shares in London experienced their biggest fall since the crash of 1987. On Friday 28 August 1998 the FTSE 100 stood 1,000 points below its all-time high of 6,179 reached only a few weeks earlier. On October 2, it closed at 4,750 – 23% below its peak of 17 July.
The Dow fell dramatically from its peak of 9,337 on 17 July to 7,286 by the end of August – approximately 20% below its mid-July peak, losing all the gains it had made since the beginning of 1998.
The Nikkei average fell to a 12-year low. Some European equity markets suffered falls of 20% from their July peaks.
On 23 September 1998, Long-Term Capital Management (LTCM), one of the largest hedge funds in the US, with a total market exposure of $200 bn, went bust, forcing the Federal Reserve to arrange its rescue, for its failure would have meant a meltdown of the financial system in the US and beyond.
The plunging stock markets, in the wake of the Russian default, and the near-collapse of LTCM, obliged Philip Coggan of the Financial Times to describe their fall out in these colourful military terms:
“The market is feeling as battered as wartime Berlin at the hands of the Red Army. At times this week, it has seemed as if the entire Red Army had been marching on the stock market” (‘Red Army sings the blues’, Financial Times, 3-4 October 1998).
The entire global capitalist economy was peering into the abyss. To prevent a plunge into the abyss, the US Treasury, in cooperation with the Federal Reserve, co-ordinated an international response of cuts in interest rates aimed at sustaining artificially high equity prices, and thus keep US growth and the world capitalist economy afloat – temporarily at least. The Fed’s three interest rate cuts in quick succession, followed by similar cuts by central banks in 22 countries, served as a stimulus to arrest, and then to reverse, the slide in equities in the US, across Europe and other parts of the globe. On 16 March 1999, the Dow broke through the 10,000 barrier, with the Footsie also clocking up significant, and equally unsustainable, rises.
The trick worked for a while because of a remarkable coincidence of events, namely, the recession in the world’s then-largest creditor nation, Japan, and 5 other Asian economies, on the one hand, and the exuberant expansion in the largest debtor nation, the US, on the other hand, which served to complement each other perfectly, thus temporarily preventing world capitalism from stepping over the precipice. In other circumstances US expansion would have been inflationary enough to undermine the dollar and a flight of capital from the US – with all the disastrous consequences resulting from such a flight. Instead, investment flowed into the US, which strengthened the dollar. The strengthened dollar, in turn, enabled the US to play the dual role of an engine of global growth and an importer of last resort for the world economy. US consumers, buoyed by cascading paper wealth, were able to indulge in a spending binge without bothering to save since foreigners were willing to step in with the necessary capital for US investment.
Strong capital inflows helped finance a stock market and corporate investment boom, enabling US households to spend in excess of their income, and the US economy to grow despite a growing trade deficit. While unprecedentedly high stock market valuations became the driving force behind the spending binge in the US, the latter in turn, temporarily to be sure, drove equity prices up further still. The moral hazard factor – the belief that the Federal Reserve was putting a safety net under the market following the 0.75% cut in interest rates in 1998, that it will not allow the stock market correction to go so far as to push the US economy into recession, that it will come to the market’s rescue by opening the monetary sluice gates – helped to sustain high valuations on Wall Street.
The actions of the Fed resulted, as they were bound to, in exacerbating the huge imbalances in the US economy – an unsustainable asset price bubble, hand in hand with an unsustainable current account deficit. By March 1999, the ratio of the US stock market value to GDP had reached 150%.
Since the US stock market is so crucial to the growth of the global economy, furnishing the confidence and collateral for American consumers’ borrowing and spending, it means that the US equities cannot stand still. They have to be on a rising trajectory if the US economy is not to come to a grinding halt – and with it the capitalist economies all over the world. But reason suggests that equities over time cannot rise at a rate faster than that of the nominal Gross National Product, for the price of shares is based on dividends, which depend on profits; and profits cannot indefinitely increase their share of the economy.
The truth, however, is that the world capitalist economy has for decades been suffering incurably from a crisis of overproduction. No amount of tinkering with interest rates or any other fine tuning of the economy by the central banks can get rid of the inherent problem of capitalism. Even bourgeois economists from time to time come pretty close to accepting this truth. Thus in February 1999, a whole year before the crazy boom set in motion by the interest rate cuts of 1998 came to a rude halt, Andrew Smith wrote in The Times: “The world has too much industrial capacity, a situation worsened by Asia’s crisis, and it will take years of savage rationalisation [i.e., recession] to bring capacity into line with demand” (‘Deflation is a debt trap’, The Times, 14 February 1999).
Logically, if there is a mismatch between demand and capacity, that is, if there is far less demand than capacity, there are only two ways out of the situation: first, reduce capacity and bring on an immediate recession; second, increase demand through the implementation of Keynesian measures, which in turn create even bigger problems, preparing the way for a far more devastating crash and crisis of overproduction. Within the bounds of capitalism there is no cure for the crises of overproduction, which are merely an expression of the contradiction between social productive forces and private appropriation (see below).
Bursting of dotcom bubble
Wheels began to come off with the bursting of the dotcom bubble, with the Nasdaq plunging from its peak of more than 5,000 in the spring of 2000 to 2,332 on 20 December and 1,725 by 12 April 2001. Only a few months prior to the Nasdaq’s downward plunge, the global equity markets were on Cloud Nine, fully convinced that the US economy was set to grow at an ever-increasing rate, hand-in-hand with low inflation and low unemployment, thanks to the technological miracle. But, as Mr Philip Coggan, with the benefit of hindsight, was ruefully to remark, “there’s a problem with living on Cloud Nine: it is a long way down if you fall off” (‘A long way to fall’, Financial Times, 2 January 2001).
The Fed’s interest rate cuts had, not unexpectedly, failed to solve the problem, for consumers continued to be heavily indebted as companies grappled with unsold inventories; with a quarter of US production capacity lying idle, companies embarked on a programme of aggressive job cuts. Global industrial production fell at an annual rate of 6% in the first half of 2001. Overproduction overwhelmed one sector after another. From telecoms to chemicals and engineering, from services to manufacturing, the news was dismal. Faced with this harsh economic reality, the Economist of 23 August 2001 was obliged to admit the arrival of the first economic recession of the new century with the words: “Welcome to the first global recession of the 21st century” (‘A global game of dominoes’).
In October 2001, US manufacturing output was 7% below its peak in June 2000. Production in the 30 richest countries belonging to the OECD grew by a mere 1%, compared with 4.2% in 2000 – notwithstanding interest rate cuts by the Federal Reserve from 6.5% to 1.75% in less than 12 months.
In the US, in October 2001 alone, businesses slashed payrolls by 415,000 – the largest one-month drop in 20 years. In the two months of October-November 2001, the increase in the number of unemployed in the US totalled 800,000, taking the increase for the year 2001 as a whole to 2.2 million, the biggest annual increase in the jobless up to that time. The picture in Europe and Japan was similarly bleak. Thus, the three principal centres of monopoly capitalism found themselves in synchronised recession.
On 22 July 2002, the Dow Jones fell 3% to 7,785 – a level 33% below its January 2000 peak. The FTSE went down as low as 3,600 before closing at 4,051 on 5 October 2001. European stock markets too experienced sharp falls.
Climb out of recession
Since the Second World War, the recession that set in in the aftermath of the bursting of the dotcom bubble was the longest. After three years of destruction of the productive forces and products alike, the world capitalist economy began its temporary climb out of the recession. One of the factors that helped recovery was the state of the housing market, which remained buoyant throughout this period. And this for the reason that, while business investment collapsed and equities plunged, investors shifted to the property sector, thus engineering a housing market bubble. The rapidly rising housing prices enabled consumers in the US to transfer their equity-extracting tactics to the housing market and merrily carry on spending. A crash in the property market, which was certain to arrive, as it did in the summer of 2007, was bound (as it already has), while burying house owners and other investors in real estate under a mountain of debt, to leave many a financial institution badly burnt. A collapse of the property market was only too likely to trigger a banking crisis of systemic proportions – and it has.
Besides, the three years of recession, as always, became the occasion for further concentration of capital, for further intensification of the exploitation of the working class, through savage rationalisation, increased productivity, cuts in healthcare and pension provision, reduction in wages and lengthening of working hours. Thus it was that, according to official data, the profits of US companies rose from 7% in 2001 to 12.2% at the start of 2006 – climbing 123% over the same period. During that period, the share of national income going to the workers declined from 58.6% to 56.2%. Such a state of affairs, while affording temporary relief to capitalism, is not sustainable for profits cannot indefinitely increase their share of the economy.
The continuing impoverishment of the masses, notwithstanding the real estate bubble, was bound to undermine consumer spending and economic growth, thus bringing to a grinding halt the post-2002 recovery and precipitate yet another recession, only more horrendous, for, the “… last cause of real crises always remains the poverty and restricted consumption of the masses as compared to the tendency of capitalist production to develop the productive forces as if only the absolute power of consumption of the entire society would be their limit” (Karl Marx, Capital Volume III, p. 484).
In the middle of March 2007, Harpal Brar published a collection of essays entitled: Imperialism – the eve of the social revolution of the proletariat. In the preface to that collection, while alluding to the recovery following three years of recession, he wrote: “One does not have to be a prophet to be able to foretell the inevitable and fairly sharp crash that is bound to follow this short period of industrial and commercial prosperity and stock market buoyancy, for the very means which capitalism uses to overcome the barriers inherent to it ‘… again place these barriers in its way and on a more formidable scale’ (K Marx, Capital Vol III p.250). The bourgeoisie gets over these crises through ‘enforced destruction of a mass of productive forces’, … on the one hand, and ‘by the conquest of new markets, and by the more thorough exploitation of the old ones’, on the other – that is by ‘…paving the way for more extensive and more destructive crises, and by diminishing the means whereby crises are prevented’ (K Marx and F Engels, The Communist Manifesto, p.38)”.
He also mentioned in the same preface that the stock market was beginning its downward spiral due, inter alia, to concerns over growing problems in the sub-prime mortgage sector (loans to uncreditworthy persons), unprecedented levels of debt and the likelihood of the US housing market crashing. Between 2000 and 2005, US house prices rose by 60%. Many other countries, including the UK, experienced even higher house price inflation. “The end of the US property boom”, continued Harpal Brar, “which is inevitable, will force US households to tighten their belts, start building up their savings, and thereby put an end to the US’s role as the world’s buyer of last resort”.
The present crisis
Within less than three months after the above lines were written, the present crisis of overproduction broke out with a virulence hitherto unknown, not even in the 1929 crash.
According to the latest analysis from the IMF (Global Economic Policies and Prospects, March 13-14, 2009), for the first time since the Second World War, world output is expected to shrink by between 0.5% and 1% this year, with the economies of advanced capitalist countries expected to contract by between 3% and 3.5%. This latest forecast by the IMF tears up its earlier forecasts, made only a few weeks previously, in January, and predicts a far more severe slump this year and next. No region or country in the world will emerge unscathed from this slump, says the IMF. The WTO forecasts a decline of 9% in the volume of world trade. This free fall will take place despite the enormous monetary and fiscal stimuli (see below) already put in place.
The Eurozone economy is forecast to contract by 4%, Germany by 5%, Japan by a huge 6.6%, Italy by 4.3%, France by 3.3%, and the British economy by 3.7%. The contraction of the British economy would be a well-deserved economic lesson for Britain’s former Chancellor of the Exchequer (now Prime Minister), Gordon Brown, who foolishly not so long ago boasted that he had eliminated boom and bust and ensured a continuously upward trajectory for the British economy.
The reality is much harsher than the fantasies of a Gordon Brown. Consequent upon the present recession, the financial crunch, the collapse or near-collapse of most of the major British banks, the seizing up of credit, and fast-declining GDP, the City of London faces the prospect of losing its status as a major financial centre, with devastating effects on the livelihoods of Londoners, for almost one-third of London’s 4.2 million jobs are supplied by finance and business services, with a mere 3.7% by manufacturing, excluding publishing.
Europe’s economy has been shrinking at a dizzying speed, losing 1.5% of production in the last quarter of 2008 alone (see the Financial Times of 11 March 2009). In the largest European economy, that of Germany, GDP fell by 2.1% (an annualised rate of over 8%) in the last quarter of 2008 – the worst quarterly result since German reunification in 1990. The first quarter of 2009 is expected to witness an even faster decline. This January’s industrial orders were 37.9% lower than a year before, with overseas orders down by 42.5%. German exports in January were 20.7% below those of January 2008 and 4.4% below those in December 2008. Industrial output tumbled by 7% in the last two months of 2008.
French industrial production was down 13.8% year-on-year in January. The UK reported a 5.6% fall in industrial production in the three months to the end of January 2009, compared with a 4.6% decline in the three months to December 2008. Manufacturing output fell, between a peak in October 2007 to December 2008, by 10% in the US and the UK, 13% in Germany, nearly 15% in France, 17% in Italy, and 23% in Japan. Here is a graphic description of this fall:
According to an IMF report, disclosed on 4 April 2009, in central and east Europe (including Turkey), GDP will plunge 2.5 per cent, against 4.25 per cent growth forecast last autumn.
This region must roll over $413 billion (€306 billion, and £279 billion) in maturing external debt this year and finance $84 billion in current account deficit. As a result the region’s financing gap could be $123 billion in 2009 and $63 billion next year – $186 billion altogether.
The Japanese economy declined more than 3% in the fourth quarter of last year and is forecast to decline 6.6% this year – the highest for any of the imperialist countries. In January, Japan suffered a 10% month-to-month drop in industrial production, with a sharp rise in unemployment to 4.4% of the labour force. Japan’s stock market tumbled to a 26-year low on 9 March in response to a record current account deficit of $1.75bn in January – the first such deficit since 1996. Falling corporate earnings, unprecedented in their ferocity, are clearly indicative of the vulnerability of Japan’s high value-added manufacturing sector to an external demand shock, said Mr Peter Tasker at Dresdner Kleinwort. He added: “It seems so unfair. Those who partied hardest should get the worst hangovers. Japan stayed in its boom sipping mineral water. Yet it is now suffering from a humdinger of a headache”. (‘Something must work’, Ralph Atkins, David Pilling and Krishna Guha, Financial Times, 7 February 2009). Japanese exports fell a horrifying 35% in December 2008 as compared to a year earlier, as demand for cars, electronics and precision equipment crumbled across the world.
What is true of Japan is equally true of much of Asia. The non-involvement of most Asian banks in the subprime mortgage fiasco has not done much to protect Asia’s economies from a severe downturn, transmitted by trade to a collapse in industrial production and consumer demand. The IMF has halved its 2009 forecast for Asian GDP growth to 2.7% from the 4.9% it was estimating barely two months ago.
Once seemingly impregnable economies have been brought to their knees. Singapore’s economy is expected to shrink by 9% this year, South Korea’s by 3%. This is a revised figure after the release of statistics showing that in the first quarter of 2009, Singapore’s trade-dependent economy contracted by 11.5%, forcing the government to cut its GDP forecast from -6% to -9%. This is a sharp deterioration in Singapore’s economy since the last quarter of 2008, during which its economy contracted by 4.2%. The country’s manufacturing, which accounts for a quarter of its GDP, was worst affected, suffering a decline of 29% from a year ago because of a steep fall in the export of electronics, pharmaceuticals and chemicals (see John Burton, Financial Times, 15 April 2009, ‘Singapore suffers 11% contraction’).
India, whose economy grew by 9% last year, is estimated by the IMF to grow this year only 4.3%. Even China, with a phenomenal rate of growth over the last 3 decades, and which grew by 13% last year, is forecast by the IMF to grow a mere 6.3%. The IMF estimates Asia’s growth this year to be just 2.7% – a fraction of the 9% attained in 2007. The reason for this decline is the increased trade integration of Asia and its heavy reliance on external demand. At the time of the previous crisis in the late 1990s, exports accounted for 37% of developing Asia’s output; today they account for 47%. The ratio of China’s exports to its GDP rose from 38% at the beginning of 2002 to 67% in 2007. Thus, since the last crisis, Asia has swapped its dependence on external financing for dependence on external demand, 60% of which comes from the rich imperialist countries of America and Europe. As the latter themselves are in the grip of deep and enduring crisis, they are buying far less from Asia – and thus are exporting economic contraction via trade.
The global economy is experiencing a dramatic shrinkage and causing world trade flows to evaporate at an even faster rate than the shrinkage in global output. As a result, the hardest-hit are the export powerhouses of Asia. Exports from Japan, Taiwan and the Philippines are barely above half the levels they were at a year ago. China’s exports fell by a fifth over the last year, its imports by even more. In February this year, China’s exports tumbled by more than a quarter, as it took the full impact of a collapse in global demand for manufactured goods. Weakness in consumer demand all over the world, especially in Europe and America, has fed through the Asian supply chain and is now having its full impact on China. As for Chinese imports, after dropping 43% in January, they fell another 24% in February.
In addition to problems on the export front, poor countries of Asia and elsewhere are being hit by a decline in revenues from tourism and a fall in the demand for labour in the Gulf region and elsewhere, resulting in a decrease in the remittances sent by workers abroad to their home countries, causing considerable hardship to millions of families.
Every sector of the economy – from automobiles to aircraft, electronics to consumer durables, footwear to clothing – in the centres of imperialism as well as in the non-imperialist countries – has become, to a larger or lesser degree, the victim of this crisis of overproduction. We shall illustrate this crisis by reference to the car industry, which is such an important component of the world capitalist economy. Faced with worsening unemployment and remuneration, car owners everywhere are replacing their vehicles far less frequently. In the US, the average age of trade-ins soared to 75 months at the end of 2008, from 62 months in the final quarter of 2006.
Since October 2008, US car sales have been lower than the annual scrappage rate of 12.4 million vehicles, that is, the number of cars on the roads in the world’s largest car market is declining. “Frugalism is the new cool” in the US. Before the credit crunch, in a normal year 16-17 million new cars were sold, with some expecting the number of new units sold to reach 20 million over the next few years. Now, however, sales are running at an annual rate of little more than 10 million – the lowest number since 1982 when the US had a smaller population.
Globally, car production declined to 66.2 million units in 2008, from 68.9 million in 2007. It will fall further in 2009 to 59.3 million – a reduction of nearly 10 million units in a matter of two years. This cannot fail to have a depressing effect on the manufacturers and workers alike in the car industry, with wide-ranging ramifications in other sectors of the economy which by innumerable threads are linked with, and dependent on, the car industry. And just the same conditions are staring in the face every other industry (see John Reed and Bernard Simon, ‘The thrill has gone’, Financial Times, 3 February 2009).
It is clear that industrial production and merchandise exports are in free fall. The reality could be worse than the forecasts made by the IMF and other bodies, considering the rate at which the figures regarding the deterioration in global output have had to be downgraded.
Crisis reveals contradictions of capitalism
Like every preceding crisis of overproduction, the current crisis is a damning indictment of capitalism, bringing society as it does “face to face with the absurd contradiction that producers have nothing to consume, because consumers are wanting” (Engels, Anti-Dühring, p.391). Even the realisation, no matter how vague, of this truth does not prevent the lucratively-rewarded analysts and commentators who write in the economic pages of prestigious organs of finance capital from asserting, in the face of massive contrary evidence, that capitalism with all its faults, is better than any alternative.
Nothing could be further from the truth. Today, as has been the case for over a century, capitalism alone is responsible for so much misery, starvation and downright degradation, for it alone prevents the means of production functioning unless they have first been converted into capital, into the means of exploiting human labour power. In capitalist society, production does not take place unless the capitalist owners of the means of production and subsistence can make a profit, which in turn can only come about if they are successful in selling the commodities they produce. Why, herein lies the rub. Capitalism, having at its disposal the modern means of production, is able to expand production in a manner which “laughs at all resistance”. However, such resistance is offered by the market. The methods employed by capital (unlimited development of the productive forces of society) for its preservation and self-expansion – the sole raison d’être of production under capitalism – which drive towards unlimited expansion of production, continually come in conflict with the narrow limits within which this self-expansion, resting on the expropriation and pauperisation of the labouring masses, takes place and can alone take place. Capitalism forces the consumption of the masses to the levels of starvation, and thus destroys the market for the commodities it produces. This conflict between the methods and purpose of capitalist production finds its expression in periodic capitalist crises which “…are always but momentary and forcible solutions of existing contradictions. They are violent eruptions which for a short time restore the disturbed equilibrium” (Marx, Capital Vol III, p.249).
In the words of Engels, “The enormous expansive force of modern industry appears to us now as a necessity for expansion, both qualitative and quantitative, that laughs at all resistance. Such resistance is offered by consumption, by sales, by the markets for the products of modern industry. But the capacity for extension, extensive and intensive, of markets, is primarily governed by quite different laws that work much less energetically. The extension of the markets cannot keep pace with the extension of production. The collision becomes inevitable, and as this cannot produce any real solution so long as it does not break in pieces the capitalist mode of production, the collisions become periodic” (Engels, Anti-Dühring, p.381).
“As a matter of fact”, continues Engels, “since 1825, when the first general crisis broke out, the whole industrial and commercial world, production and exchange among all civilised peoples and their more or less barbaric hangers-on, are thrown out of joint every ten years…” During these crises, commerce comes to a grinding halt, the markets are saturated, a multitude of products accumulates, credit and cash vanish, factories are closed, bankruptcies follow in quick succession, the mass of workers are bereft of the means of subsistence – because they have produced too much of the means of subsistence.
There was a time when humanity starved because it did not possess in sufficient quantity the means of subsistence. Under the conditions of the capitalist system of production, the mass of workers starve because they have produced too much of the means of subsistence. We have reached a stage of development at which the capitalist system is an anachronism – an absurd obscenity. And yet we are daily told by the hirelings of capitalism that there is no better alternative to this system, that capitalism is the final destination of humanity, and that Marxism is a failed system. No, the truth is that compared with the absurdity of capitalist economics, voodoo magic and a belief in virgin birth represent the highest achievements of scientific thought. The truth is that, as someone remarked a few years ago, bourgeois economics is no more than a modern form of alchemy, with the practitioners of its black arts being nothing more than highly-paid witch doctors.
“The stagnation” produced by these periodically recurring breakdowns “lasts for years” during which time “productive forces and products are wasted and destroyed wholesale until the accumulated mass of commodities finally filters off, more or less depreciated in value, until production and exchange gradually begin to move again. Little by little the pace quickens. It becomes a trot. The industrial trot breaks into a canter, the canter in turn grows into the headlong gallop of a perfect steeplechase of industry, commercial credit and speculation, which finally, after break-neck leaps, ends where it began – in the ditch of crisis. And so over and over again” (ibid. p.382).
Continues Engels: “In these crises, the contradiction between socialised production and capitalist appropriation ends in a violent explosion. The circulation of commodities is, for the time being, stopped. Money, the means of circulation, becomes a hindrance to circulation. All the laws of production and circulation of commodities are turned upside down. The economic collision has reached its apogee. The mode of production is in rebellion against the mode of exchange, the productive forces are in rebellion against the mode of production which they have outgrown” (ibid).
During these crises, the “…whole mechanism of the capitalist mode of production breaks down under the pressure of the productive forces, its own creations. It is no longer able to turn this mass of means of production into capital … Means of production, means of subsistence, available labourers, all the elements of production and general wealth, are present in abundance. But ‘abundance becomes a source of distress and want’ (Fourier), because it is the very thing that prevents the transformation of the means of production and subsistence into capital. For in capitalistic society the means of production can only function when they have undergone a preliminary transformation into capital, into the means of exploiting human labour-power. The necessity of this transformation into capital of the means of production and subsistence stands like a ghost between these and the workers. It alone prevents the coming together of the material and personal levers of production; it alone forbids the means of production to function, the workers to work and live” (ibid. pp.382-383).
Unemployment and misery
The recession has wreaked havoc on the working people all over the world. With millions of jobs already lost, unemployment is set to rise inexorably as the recession bites deeper still. In 2008, the figure of global unemployment stood at 190 million. According to the ILO (International Labour Organisation), more than 50 million would join the ranks of these Lazarus layers.
In the EU, 17.5 million people are presently unemployed – 1.6 million more than a year ago. On 30 March, Angel Gurría, the head of the Organisation for Economic Cooperation and Development (OECD), stated that one in ten workers in the advanced economies will be without a job next year (2010) “practically with no exceptions”, warning that the number of the unemployed in the 30 rich OECD countries would swell “by about 25 million people, by far the largest and most rapid increase in OECD unemployment in the postwar period”. This, he said, would happen as the OECD expected advanced economies to shrink by 4.3 per cent in 2009 – with little or no growth expected in 2010. This forecast is far worse that the IMF’s most recent (January 2009) estimate of a 3-3.5 percent contraction for 2009 (see Financial Times, ‘Forecast of 25 million rise in unemployment’, 31 March 2009).
In the US more than 4 million people have lost their jobs in the past 12 months, nearly half of these in the last 3 months. In February, the US private sector shed 697,000 jobs. This was the third consecutive month in which more than 600,000 jobs have been slashed – a sequence last recorded in 1939. The construction industry has cut more than 1 million jobs since January 2007, as construction work shrank at an accelerated pace following the collapse in the housing market. During this recession, the rate of unemployment has nearly doubled from 4.4 percent to 8.5 per cent in February this year, the highest since 1992. The manufacturing sector has experienced three years of consecutive monthly declines in employment, losing 219,000 jobs this February alone. The number of workers out of work now officially stands at 13.2 million.
In addition, the number of part-time workers in the US has risen nearly 80 per cent over the last 12 months, to 8.6 million in February – the highest since records began to be kept over half a century ago. If those forced to work part-time, along with those who have given up actively searching for work but still wanting a job (2.1 million) are included, the real unemployment rate stands at 14.8 per cent. In Germany, the largest European economy, unemployment rose from 7.6 per cent last September to 8.1 per cent in March this year.
In Britain, the number of people out of work stands at 2.1 million, with unemployment expected to be at 3 million by the end of this year. Presently unemployment stands at 6.7 per cent of the workforce. 177,000 British workers lost their jobs in the three months to the end of February 2009. Young people are especially hit by unemployment, with people under the age of 25 accounting for almost 40 per cent of the total unemployed, with an unemployment rate of 15.1 per cent in the 18 to 24 age group, which is more than twice that in the population generally. The swelling of this reserve army of labour is, not unexpectedly, accompanied by a dramatic downward impact on the wages of the working people, as workers have been compelled to worry about retaining their jobs rather than boosting their wages. As the recession becomes longer and deeper, this downward movement of wages will assume the proportions of a slump.
In India, more than half a million jobs were lost in the Indian export sectors in the final quarter of 2008, with many more job losses expected this year. In China, a huge 20 million of the 130 million rural migrant workers have lost their jobs and returned to their home towns and villages – representing a 15.3 per cent unemployment rate among migrant workers. This is in addition to the 8.86 million officially unemployed, accounting for 4.2 per cent of the urban workforce – the highest unemployment rate for at least a decade.
The above figures tell us of hopes destroyed and lives blighted across the world and are a damning indictment of capitalism and the market economy.
Just as an opera is not over till the fat lady sings, likewise a capitalist recession does not end before a big banking failure. The present crisis is remarkable for the fact that it is accompanied by the near collapse of the entire banking system in the US, Britain, and a number of other countries. It is to this financial meltdown, and its ramification, that we shall return in the next issue of Lalkar.
[to be concluded]
[1.] Synchronicity: the simultaneous occurrence of events with no discernible causal connection