By Michael Roberts
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Interview – Global economy on the edge

This article is over 2 years, 2 months old
Socialist Review spoke to Marxist economist Michael Roberts about mounting debt, the long recession, and the future prospects for capitalism in the wake of the coronavirus pandemic
Issue 458

Companies and states have taken on a massive amount of debt. What are the implications of this?

Even before the pandemic global levels debt levels were at post-war highs. This was not just public sector debt built up after bailing out the banks and other sectors during the great recession of 2008-09.

It included a huge build up of corporate debt as companies in the advanced economies borrowed at very low interest rates made possible by central banks.

They hoarded it, paid out extra dividends or bought back their own shares in order to boost share prices. And companies in emerging economies also increased their debt levels as they borrowed hugely in dollars at low rates of interest in order to invest or more often to speculate in property and other unproductive sectors.

Now with the pandemic, both public and corporate sector debt will rocket. Central banks are offering firms loans in order to get through the lockdowns. But although some of this credit is in the form of grants that do not have to be paid back, and most loans have a ‘grace period’ before repayment begins, many companies are set to see minimal recoveries in sales and profits.

It is very likely that thousands of companies will eventually default on these loans, thus pushing some banks into danger.

The situation will be even worse in emerging economies, where Capital has been flowing out at record levels and debt repayments will mostly be in dollars when the local currency has collapsed. So sales and profits in dollar terms will be very low. Many emerging economies depend on world trade in commodities such as oil, minerals and food, and prices for these have plummeted.

Whenever capitalist economies cannot sustain profitability they are vulnerable to collapse, and the finance sector with them. A debt crisis can be avoided only if economies return quickly to while governments and central banks go on pumping yet more credit money into the banks and corporations in bailouts and so on. If growth and profits do not return quickly there is every likelihood of a new financial crisis

Many people are talking about an end of the dominance of the United States on world affairs and global markets. Do you agree?

The United States remains the hegemonic power in the world, and the leading imperialist power. But it has been losing ground relatively in manufacturing, technology and trade. Only its dominance in finance and military might keep it at the top. But they remain powerful factors.

While the US may have lost trade and manufacturing shares, global trade and capital flows are still conducted in mainly (two-thirds) in dollars. So the US currency is still the international reserve currency, thus keeping it at the top.

The big issue in the first half of this century is whether any rising power can rival or overtake the US. The only candidate is China. But while it is now the world’sbiggest economy and the leading manufacturing nation, and is expanding its technological and investment influence globally, the country is still in no position yet to threaten US hegemony.

That is why the US leaders now look to strangle China before it does. This is a major recipe for major conflict (cold of hot?) in the next decade.

How will this looming crisis compare with previous crises?

In economic terms, the Covid-19 crisis pushes even the great recession into the back seat. Global GDP is likely to fall by 10 percent over the next two years or so, with many emerging economies falling into deep depression, let alone the weaker advanced economies. Globalisation and trade was already reversing before the pandemic as a result of the long depression since 2009, but that will now accelerate into nationalist interests, reducing further gains for the capitalist economies.

The scarring of the major capitalist economies suggests a new decade of low growth, productivity, investment, real incomes for most workers and this time higher unemployment

What does Covid-19 and this crisis tell us about capitalism as a system?

The long depression since 2009 and now this pandemic slump demonstrate that capitalism is finding it increasingly difficult to recover from each slump.

The reason is that profitability of capital has been falling as a long-term tendency, and now in most leading capitalist economies is at an all-time low. This sounds odd when you hear about the huge profits of the likes of Apple, Google, Netflix, Facebook and so on, but they are the exception. On average, a vast swathe of companies is struggling to stay above water, and now this slump will take many of them out.

Capitalism is proving unable to deliver on better jobs, incomes and living conditions. Inequality of income and wealth has not seen worse since the beginning of industrial capitalism.

There are still three billion people in poverty globally, global warming is still accelerating towards disaster. Indeed, those becoming adults now are likely to experience the least improvement in their lives of any generation in the past 70 years.

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