There seems to be no let up in the economic crisis. How did we get into this mess?
A number of economists and economic historians are describing this as the first Great Depression of the 21st century—comparing it to the Great Depressions at the end of the 19th century and in the 1930s.
I think they are right to see this as a very profound crisis: not just a normal turn in the “business cycle”, but a much deeper, more protracted crisis.
It’s been coming for a long time. Since the end of the 1960s, capitalism, crucially in the advanced core of the system, has been suffering from a chronic crisis of profitability.
What we call neoliberalism, the drive to the market, was a way of trying to restore profits by squeezing workers as hard as possible.
But it only partially restored profitability. We can see this very clearly in the US—the centre of the system.
The people who manage the world economy—the central bankers—have come increasingly to rely on encouraging the development of financial bubbles.
This started in the late 1980s, but has been particularly pronounced since the late 1990s.
These bubbles of speculation, by making some people feel richer, would lead them to borrow more, spend more and in that way keep the economy going.
The great bubble that developed in the US housing market in the middle of the last decade was the culmination of that process. It sucked in more and more sections of the global financial system—in the US and Europe—feeding the borrowing and speculation.
That meant when the bubble burst, as it did in 2006-7, it precipitated this general global crisis.
How far is this a general crisis—going beyond the bankers and financial system?
It’s a much more general crisis. In 2009 the world economy shrunk for the first time since the Second World War. The long-term causes go down to the very basis of capitalism as a system of unplanned investment and crisis.
The financial system has come in recent decades to play a more and more important role as the driver of the system, because of the long-term difficulties it has had.
The crisis was precipitated by financial speculation and the way the bankers carried on in order to make their big bonuses. But they’re just part of the problem, not the core of it.
For all the talk about regulation, has anything really been done?
The bankers make an enormous noise about the restrictions that have been imposed upon them.
The most serious ones are the so‑called Basel agreements, which are essentially an attempt to restrict the amount of borrowing they can do.
But if you look closely at what’s happened in the US and Britain—the main centres of the global financial system—there have been very few restrictions on the banks.
The banks are very powerful politically, very good at lobbying, and they’ve essentially pressured the governments largely to leave them alone.
So there are now signs that the same kinds of speculative practices that developed during the bubble are re-establishing themselves.
The surviving banks are bigger and stronger—and sufficiently confident to start handing round massive bonuses again.
Bob Diamond, the head of Barclays bank, said recently the time had come for the banks to stop apologising. That seems quite confident.
The government says the only solution to the crisis is the cuts programme. Labour says the cuts are too fast, but agrees they need to happen. What do you think?
Lots of serious economists and economic historians say the growth of debt that’s taken place in the last few years, in historical terms, is not that serious.
It’s important to understand why government debt has increased—it’s because of the crisis, not just the bailouts.
The crisis means the government gets less in tax revenues and has to spend more on unemployment benefit.
So when the Tories and the Lib Dems talk about the deficit, they’re talking about the cost of the crisis. This is a class battle about who’s going to pay for the crisis.
The bankers are politically strong enough to protect themselves from paying the cost of the crisis. The austerity drive is about making working people carry the burden.
Interestingly, Bank of England governor Meryvn King has said that it’s not the fault of ordinary people and public sector workers that there is this big budget deficit. But he says nevertheless austerity is necessary.
But there’s no economic necessity for it—in fact it’s economically dangerous.
The head of the OECD—the global club of rich nations—appeared with chancellor George Osborne last week saying how good the government’s economic policies are. But the OECD recently produced a report which forecast very slow growth for Britain this year and next.
The risk is, if you whack people very hard with the kind of measures that are being introduced—squeezing the public sector, forcing down wages—the effect could be to push the economy back into recession.
Where austerity measures have already been implemented, like Greece and Ireland, that’s already happened.
The Labour position—austerity, yes, but not as ferocious as the Tories—reflects that despite Ed Miliband’s election as leader, Labour is still caught up in the ideology of neoliberalism. So the alternative they offer is extremely feeble.
Are the government and the ruling class confident over austerity?
I don’t see big divisions inside the ruling class. I think big business were fed up with New Labour by the end of the Gordon Brown government.
They’d accepted all the goodies in terms of tax cuts that Labour had given them, but they wanted more and so welcomed the coalition.
There are a lot of doubts about austerity, but no real alternative to it being canvassed inside the ruling class.
The coalition is coming to its big test. The student protests before Christmas were a big blow to them. It exposed faultlines within the coalition, particularly the queasiness among many Lib Dems.
As the cuts start to bite, the calculation that Cameron and Osborne have made is that the trade union leaders are too weak, too cowardly, to mount effective resistance. That gamble is going to be put to the test.
Resistance across Europe has been uneven. It’s been high in Greece.
In Ireland, in terms of strikes and on the streets, things have happened, but it’s electorally where there’s been an impact. The demolition of Fianna Fail, which has dominated politics since the 1930s, is a big defeat for them.
What’s the alternative to cuts—where would the money come from?
We shouldn’t be intimidated by this argument. For example, interest rates are low, so it’s actually very cheap for governments to borrow money.
More generally, what we need is a series of measures that address the roots of the crisis.
That would involve properly nationalising the banks, instead of using large amounts of public money to prop them up while they remain unaccountable.
It would mean turning them into public utilities to organise the kind of investment that is needed.
One obvious area of investment would be to address the climate crisis.
The earthquake in Japan wasn’t caused by global warming, but we know global warming will produce more disasters on this scale. Fukushima shows the dangers of relying on nuclear power [see page 6].
The campaign to create a million climate jobs, supported by a number of unions, is a way of carrying out the work that is needed to reduce emissions while creating jobs.
The whole welfare system needs to be reorganised to stop the misery of reduced, conditional benefits.
Other measures should be taken to combat unemployment.
That’s the kind of programme that would begin to subordinate the economy to the logic of social need, not profit.
Can capitalism recover and deliver for the majority of people?
The great Russian revolutionary Lenin said there’s never a really hopeless situation for capitalism as long as workers allow it to survive.
Sooner or later the system can recover from any crisis. It would be difficult for it to return to the pattern of the recent past, as the financial system has been seriously weakened.
While the slump continues, it’s important to see that it’s uneven. One section of the system, the historical core in North America and most of Europe, is still quite depressed.
But if we look at China and the economies associated with it, which include Germany and Brazil, they are growing quite quickly.
This reflects the way in which the Chinese state threw everything into preventing a protracted economic slump.
The fact that this bit of the system is growing is a further destabilising factor, however.
It produces tensions between the US as the dominant capitalist power, and China—increasingly seen as the major challenger. That makes it harder to manage capitalism.
But even if they do find a way of muddling through, what produced the crisis was the logic of capitalism and the system—a system that is driven by blind competition in pursuit of profit.
That system will continue to produce crises and continue to try to solve them at the expense of working people and the poor.
So the only real guarantee of escaping crises like this one is to get rid of capitalism altogether.
Further reading
Alex Callinicos is the author of:
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