Last month the global ruling class – the bankers, political leaders, the CEOs of top multinationals and their acolytes – met for the World Economic Forum at the luxurious Swiss ski resort in Davos.
At the same event last year, in the aftermath of the crisis, they were like rabbits caught in the headlights. But this year they found reasons to be cheerful – publicly at least. The global economy has not nose-dived into another recession – in fact some parts of it appear to be booming. The bankers have breathed a sigh of relief as they remain unscathed by regulations; large bonuses are back on the agenda and profits are up.
Barclays have felt confident enough to stick two fingers up by giving Bob Diamond a £9 million bonus. As Guardian economics editor Larry Elliot put it, “From the boardroom life is sweet.” However, according to Martin Wolf, a leading commentator at the Financial Times, in private the confidence of the global ruling classes was much more shaky.
As socialists our analysis does not differ very much from that of the global ruling class in terms of what the global economy looks like. The recovery is highly uneven. Broadly the global economy is recovering at three speeds; “emerging markets”, Latin America and China are growing at between 6 and 10 percent a year, the US is racking up 3 percent of jobless growth and the eurozone (apart from Germany) is dragging its heels with 2 percent.
It is Germany’s role as an export hub that has kept other European economies afloat – a relationship that is replicated between the US and China. The global economy is structurally imbalanced, with huge trade surpluses in China mirrored by massive trade deficits in the US. Inside the eurozone, Germany’s export surplus is mirrored by deficits in the so-called peripheral economies of Spain, Portugal, Ireland and Greece. Overall the whole global economy looks fragile as every government tries to impose swingeing cuts. This has precipitated all kinds of tensions among the global ruling classes.
In May 2010 the sovereign debt crisis in Greece triggered a crisis in the whole of the eurozone. Massive sums of money were pumped into the system by the European Central Bank and the IMF to prevent an implosion of the region. On the surface, things seem to be relatively calm. But Greece and Ireland have massive accumulated debts, while Portugal may need a bailout.
German chancellor Angela Merkel has suggested a “competitiveness pact”, which means synchronising public debt limits, tax rates and pension ages and giving up linking wages to increases in inflation. As the Financial Times observed, “Berlin is treating the defence of the euro as a fundamental national interest – even at the cost of a bailout of some of the feckless partners.” A broken eurozone would threaten Germany’s economic interests – exports to its neighbours still dwarf exports to China.
There are also arguments among the US ruling class. The economy has grown at 3 percent – but that is the only good news. The increase in jobs is a mere 1 percent above the level of employment in the depths of the recession. There is a rise in poverty and home repossessions.
The US government has had a two-pronged approach. It has printed money (quantitative easing) which has driven down the value of the dollar and heightened tensions with China. It has also indirectly fed into the protests and revolutions in North Africa as this money has fuelled speculation on food and driven up prices. The Obama administration is walking a tightrope. The Republican Party and some sections of the ruling class want to try to cut the gargantuan US debt. But Obama wants to lift the ceiling on debt by $14 trillion, saying that it is non-negotiable and fearing that any cuts would deal a catastrophic blow to the global economy.
Despite double digit growth that other governments salivate at, China is not without its internal contradictions. The massive bailout of the economy in 2008 (four times larger than that of the US) has rebooted double digit growth but also produced a surge of inflation and property prices. The strikes of last summer show that China’s rulers cannot rely on a passive and acquiescent working class.
There are all sorts of contradictory tensions and pressures. Brazil’s ability to export commodities to China has kept its economy afloat during the crisis. But China is also a source of cheap imports, because the Brazilian currency has risen by 40 percent against the dollar in the last two years. So in another twist the US is courting Brazil to gang up with it against “China’s overvalued currency”.
There is a general nervousness about the scale of austerity, and whether this could tip parts of the global economy back into recession. In Britain we are seeing the resurfacing of “stagflation” – with a contraction in demand (blamed on the bad weather) combined with rising prices.
While our view of the world economy may be the same as that of the global ruling class our solutions could hardly be more different. They have consistently tried to shift the burden onto working class people in the form of an unprecedented assault on welfare. We look to Egypt for inspiration as their revolution demonstrated the power of workers. That sort of anger needs to be turned on ruling classes everywhere as we are asked to pay for their crisis.