The economic crisis that swept the globe in 2008 provoked debate about whether individual states or trade blocs could insulate themselves from the international turmoil through “protectionist” economic measures.
Questions were raised about to what extent the “emerging economies” such as India and China could defend themselves from the economic storm.
But the debates didn’t stop there – the year ended with clear and bitter divisions among European leaders.
German chancellor Angela Merkel was at loggerheads with European Union (EU) head José Manuel Barroso over the way forward. Meanwhile both Gordon Brown and French president Nicolas Sarkozy were pushing a Europe-wide “fiscal stimulus” package to deal with the recession.
This is not the only spat among world rulers. US president-elect Barack Obama has linked “free trade” with job losses and proposed tax breaks for US companies investing at home.
Gordon Brown and Peter Mandelson have responded with finger-wagging warnings about the dangers of “protectionism”. Of course this is a bit rich – the whole EU is a gigantic “protected” economy.
The Common Agricultural Policy, for example, involves massive subsidies to European farmers that give them an advantage over producers in developing world.
At the same time, Western rulers have backed organisations such as the International Monetary Fund (IMF) and the World Bank – that use economic muscle to impose “open markets” and “free trade” on impoverished farmers in the Global South.
In reality the distinction between “free trade” and protectionism is false – the so-called “free market” has always involved states defending and promoting the capitalist firms based in their national economy.
The recent rows are a sign of the deepening rivalry between capitalists as the global crisis deepens.
When capitalism is booming and markets are expanding, most corporations have a chance to grow. In a crash, as assets plunge in value, sales collapse and profits are wiped out. Competition between capitalists then becomes much sharper.
Germany is the powerhouse of the EU, accounting for a fifth of the total output of all 27 member countries. Traditionally, therefore, it has also been the paymaster. But now, with the German economy plunging, it is unwilling to shell out subsidies to more profligate EU partners.
Germany’s industrial base is equal to that of Britain and France combined, and some 60 percent of German output is exported.
So Angela Merkel is refusing to take any “decisions that would endanger jobs or investments in Germany” – such as cutting carbon emissions.
In addition, banks play a less prominent role in the economy, and the level of savings is high and indebtedness low, so Germany is less exposed to the direct impact of the financial crash than Britain.
German leaders do not want to bail out British bankers.
The leaders of the capitalist states are like a feuding mafia. They are committed to shoring up the system and protecting the property and profits of the rich, and to achieve this they need coordinated global action.
But when things go wrong, they bicker over who is to blame, and squabble over shrinking spoils.
Take the row over exports from countries such as China and India, which now stand accused of running “savings glut” economies.
This group of emerging economies has been collectively chalking up an annual trade surplus of around half a trillion US dollars – giving them accumulated foreign currency reserves of more than $2.5 trillion.
Meanwhile, the US, Britain and several other developed economies have sunk deeply into deficit and debt.
The US in particular borrows and consumes far more than it produces. What drives this “financial imbalance” is the underlying weakness of the advanced capitalist economies.
Low profit rates have caused under-investment in productive industry and relatively slow rates of economic growth.
The system has been flooded with cheap loans in attempts to stave off the crisis.
One result is that the advanced economies import more than they export. Another is the inflation of house prices and other asset values.
A third is the stoking up of the speculative frenzy that culminated in the economic crisis towards the end of 2008.
While the US has increasingly attacked China’s economic strategy, there has been speculation among politicians, media commentators and economists that China – or indeed large parts of Asia as a block – can insulate itself from the wider economic crisis.
The idea that some parts of the world economy could “decouple” and survive the crisis by going it alone is nonsense. China and the US are completely interdependent.
China relies on the US for a market for its goods – in fact without the US market, China would be a net importer, not exporter. And China uses its accumulated dollar assets to lend money back to the US economy.
There is mounting tension nonetheless – with some US Democrats pressing for cuts in imports, and right wing economists arguing that the low exchange rates of export-driven economies like China are a form of “protectionism”.
They argue that the Chinese currency is priced too low, making imports from China too cheap – an example of “unfair competition”.
Arguments such as these will only escalate as the crisis worsens. None of them represents any sort of solution.
The history of capitalism contains dire warnings of the dangers of all forms of “protectionism” in a crisis.
Protectionist ideas are sometimes popular with workers facing redundancies. They seem to offer a simple explanation and solution. If workers are losing their jobs in British car-plants, surely the problem is the foreign cars on sale in local showrooms?
Stop imports, the argument goes, and you will save jobs.
The last big crisis – from the mid-1970s to the mid-1980s – saw a raft of new protectionist measures in Britain.
Around 13 percent of manufactured goods were subject to some sort of control in 1974. By 1982, the proportion had leapt to 30 percent. Many trade union leaders backed this policy.
They were wrong to do so. Protectionism neither raised output nor saved jobs. Unemployment in Britain rose from one million in 1975 to its post-war peak of more than three million in 1986.
In the Great Depression of the 1930s, the record was even worse. Between 1891 and 1925, world trade quadrupled. But after the Wall Street Crash of 1929, it collapsed as leaders across the world adopted increasingly protectionist policies.
By 1932, trade was down two-thirds compared with 1929. The result was a tidal wave of factory closures and job losses. British unemployment reached 20 percent. Germany had six million jobless. At the lowest depth of the downturn, almost one in three US workers was on the dole.
So protectionism can lead directly to deflation and unemployment.
We have seen the danger of pay cuts that purport to save jobs. Workers at construction equipment firm JCB voted for pay cuts and a four-day week on this basis last year.
Every deal such as this is a disaster. It means immediate pressure on other workers, both at home and abroad, also to accept pay cuts – a race to the bottom.
And every pay cut reduces demand, feeds deflation, deepens the downturn, and sends unemployment even higher. It contributes to a gigantic negative feedback mechanism dragging the economy downwards.
It also pits worker against worker, dividing them on national lines, encouraging those threatened with unemployment to line up with their own bosses instead of with fellow workers. That is why the Tories and the far right often back protectionist measures.
Protectionism is a surefire way to deepen the downturn – it threatens to corrode the class struggle with the acid of national division.
Socialists must reject outright any attempt by our rulers to build a “decoupled” siege economy at the expense of “foreigners”. What is especially worrying is that these splits in the global ruling class can encourage further instability, conflict and war.
Our solution to the crisis is a very different one. We want mass resistance from below to defend every job and oppose every pay cut.
That means defying the madhouse logic of capitalist crisis, and arguing for a different system altogether.
What the crisis demands is production for need not profit, and a combination of democratic control from below with effective coordination and planning.
Neil Faulkner is a historian based at Bristol University