Current crisis of overproduction: worse than the 1929 crash
Unprecedented
crisis
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. [1]
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.
Car industry
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]
NOTE
[1.] Synchronicity: the simultaneous occurrence
of events with no discernible causal connection