The Bank of England predicts two years of recession as global economies hit a downward trend. For workers, it means economic hardship, job cuts, unemployment, plummeting spending on key services and falling pay.
Two consecutive drops in the quarterly figures for Gross Domestic Product—the value of goods and services—is officially known as a recession. In a recession, instead of growth the economy shrinks. Despite all the energy and hard work of ordinary people, the amount of goods and services produced goes down.
The system that claims to be the way to expansion goes into reverse. Recession can be triggered by an economic shock such as the pandemic, or by companies taking on debts they can’t repay. That causes bankruptcies. It can also be set off by capitalists scrapping over scarce raw materials and cheap labour, with some of them going under.
The Bank of England has deliberately worsened the latest British recession. When it recently raised interest rates, it knew this would make borrowing more expensive, pushing up the cost of mortgages, rents, credit cards and loans. It will also mean firms closing.
Its actions added to the disruption that followed the pandemic. War in Ukraine and Western sanctions on Russia also hit food and energy prices.
Long depressive phases, like the one experienced now, force capitalists to increasingly rely on external sources of finance such as credit. As these forms of capital grow and soar ahead of profits, investors begin to panic. They demand their debts are settled, pushing other firms under.
As the crisis grows, companies raise prices, fuelling inflation. But inflation only postpones the crisis. And “stagflation”—a combination of both rising prices and a stagnant or falling economy—grows. But for all the specific triggers there is also something more fundamental at play.
Karl Marx wrote of the tendency of the rate of profit to fall. Competition within capitalism means firms spend more on technology and machines in an effort to do over their rivals. They can make a commodity more cheaply, they hope. And sometimes that works for a period and they seize more profits.
But when other capitalists also introduce the new technology, the long-term result can be a fall in the rate of profit. That’s because, as capitalists mechanise, they reduce the role of living labour—workers—in production.
It’s the exploitation of workers that is the source of profit. Technology and tools have to be put to use by workers. As this develops, profits as a whole might go up, but profits compared to the amount that has to be spent to produce them—the rate of profit—goes down.
Marx also talks about counter-tendencies, mechanisms in the system that can kickstart the rate of profit. If these didn’t exist then the system would have collapsed a long time ago.
Examples include the increased exploitation of workers, or the purchase of cheaper inputs from other countries. The falling rate of profit spurs imperialism.
Another is the clear out of bankrupt firms and other companies grabbing their resources and markets. But state and central bank interventions have created a growth that relies on credit expansion. A consequence is that so-called “zombie companies” are kept alive beyond their usual lifespan.
These firms have been kept alive by cheap credit—until now. So the bust now can be traced back to the boom that followed the last crisis.
Capitalism can always revive if workers are made to pay the price. It’s crucial to fight the effects of both inflation and recession.
In 2021 there were strikes within Israel