Socialist Worker

The deep roots of the neoliberal crisis

by Alex Callinicos
Issue No. 2664

Donald Trump is running for re-election using aggressive racism

Donald Trump is running for re-election using aggressive racism (Pic: The White House)


The crisis of the neoliberal order accelerates by the week. Donald Trump is running for re-election on a mixture of aggressive racism and branding the Democratic Party as dominated by the “Red Army” of the “Squad” of four progressive Congresswomen.

Ursula von der Leyen, the candidate of the neoliberal centre for president of the European Commission, only scraped through with the support of the Five Star movement in Italy and right wing parties in central and eastern Europe.

Neoliberal globalisation still has its defenders. Martin Wolf, the Financial Times newspaper’s chief commentator, wrote an apology for what he called “sane globalism” last week. But he identifies the problem as essentially political, represented by the usual suspects—Trump and Brexit.

But the crisis of globalisation has much deeper roots, which stem from the financial crash of 2007-8 and the Great Recession that followed. Various indicators have suggested this economic upheaval ushered in what The Economist magazine called a few months ago “slowbalisation”.

One of the main signs has been the slowdown in the growth of international trade. At the apogee of neoliberal globalisation international trade grew twice as fast as global national income. This reflected the expansion of global supply chains or, more academically, “global value chains” (GVCs) that have been transforming production into a transnationally integrated process.

The change since the crash was discussed in a very interesting piece, also in the Financial Times last week, by Wolf’s colleague Gillian Tett.

She wrote, “At the start of the previous decade, global trade was growing at almost 8 percent a year, twice the pace of growth in gross domestic product. This year, however, the World Trade Organisation expects trade to rise by a mere 2.6 percent—the same as projected global GDP growth.”


Tett pointed out that this is widely blamed on Trump’s protectionism, in particular his trade war with China. But she cited a study by Hyun Song Shin, chief economist of the Bank for International Settlements, that contradicts this.

Shin showed that “between 2000 and 2008 there was a frenzy of activity in global supply chains. Indeed gross exports relative to GDP exploded by a cumulative 16 percent, due to intense supply chain activity between China and the West.” Moreover “while gross exports recovered in 2009, they have never returned to anything like the pre-2007 figure”. Shin’s explanation highlights the role of finance in the development of the global supply chains.

He said, “Companies need hefty amounts of working capital to run their supply chains, and about two-thirds of this typically comes from their own resources, with the other third coming from bank and non-bank finance.

“During the pre-2007 credit boom it was easy for companies to find working capital and trade finance.

“But, since then, the crisis banks have reined this in. This is partly because post-crisis regulations have made it more costly for Western banks to supply such funding, but also because banks’ resources have been hit by the debilitating impact of ultra-low interest rates.”

This is a fascinating insight into how the financial system—in particular banks and shadow banks in the US and Europe—didn’t simply spin its own speculative bubbles but drew production and trade into them.

As Tett put it, “The research suggests that the pre-2007 credit bubble not only created a house price boom, but also helped create a trade and GVC bubble, too.”

And she concluded, “Insofar as this bubble has now burst, it seems unrealistic to expect that the world will recreate that global trade surge anytime soon—even if, by some miracle, the US and China suddenly end the trade war.”

Another way of putting it would be to say that the global economic and financial crisis of 2007-8 and after broke neoliberal globalisation. The political upsets of the past few years represent the playing out of the underlying economic contradictions.

This means that it’s important to mobilise against the racism of Trump and his Mini-Mes such as Boris Johnson. But we need also to develop an economic alternative to neoliberalism, and indeed to capitalism itself.

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