Stock markets have been in turmoil for the past two weeks, reflecting concerns about a new global slowdown.
Last weekend’s Financial Times contained a feature on “Japanisation”. This is the potential for the world economy to follow the path of Japan in the 1990s, when a collapsing property bubble, huge banking debt and a stock market crash dragged the country into two decades of stagnation.
The current panic focuses on two key pillars of capitalism—the US and the eurozone. In both areas high levels of state spending provided the stimulus required to drag them out of the depths of crisis in 2008. This involved replacing private sector debts with public sector debt.
But over the past year there has been a turn towards “austerity” across most major economies. In some cases, notably Britain and the US, politics plays a major role. The Tories in Britain and the Republican right in the US are using the crisis to try to reduce and redirect state spending in the interests of capitalists.
In other cases, such as the weaker eurozone economies of Portugal, Ireland and Greece, governments were forced to turn to the European Union, the International Monetary Fund and the European Central Bank (ECB) for bailouts. They had austerity imposed in return—with disastrous consequences.
The pattern of indebtedness, rising borrowing costs and growing demands for austerity is now spreading to far bigger economies such as Spain and Italy. The ECB has started making “emergency” purchases of these countries’ bonds—replicating the action it took in the run-up to the Greek bailout.
On both sides of the Atlantic there is a desperate search for new ways to patch things up. So in the eurozone there has been a proposal to produce “eurobonds”—debt issued across the entire currency zone rather than by individual governments.
But this was sharply rejected by Germany’s chancellor Angela Merkel as it would mean pooling German debt together with that of states such as Greece, increasing German borrowing costs.
In the US, Ben Bernanke, chair of the Federal Reserve, is under intense pressure to do something to calm markets. But there is no consensus at all as to what that something might be.
Just as in Japan in the 1990s, political incoherence is making the crisis worse. In the case of the world economy our rulers face the added difficulty that they represent capitalists with different national bases and hence sharply divergent interests.
The one thing that could ease the pressure on markets and the politicians—rapid economic growth—seems further off than ever. The latest figures show new claims for unemployment benefits rising in the US.
Estimates for growth across the eurozone have been cut as it emerged that the German economy had grown just 0.1 percent between April and June and French growth stopped altogether.
As one director of financial firm Charles Schwab put it, “If we had a strong economy, we could probably shrug off some of these Europe concerns. But the numbers are just showing complete stagnation—we’ve levelled off, and there doesn’t seem to be continual improvement.”
This dismal outlook reflects the scale of the problems that emerged in 2007–8. US-based Marxist Anwar Shaikh has produced figures showing that the rate of profit in the non-financial sector of the US economy declined pretty steadily from 1947 through to the early 1980s. After that time it stabilised, but only due to a colossal increase in exploitation of workers. Similar patterns emerged in other major economies.
There is little sign that the upheaval of the past four years has been able to restore profitability to the levels required to sustain rapid growth.
That means there will be more chaos and demands that we accept more pain to rescue the system. Socialists must demand different kinds of solutions—those that increase the confidence of workers to fight back.
Such struggles create the potential for a stronger anti-capitalist left that can challenge the foundations of a system that is increasingly out of control.
Joseph Choonara is the author of Unravelling Capitalism: A Guide to Marxist Political Economy, available from Bookmarks, the socialist bookshop: www.bookmarksbookshop.co.uk