Origins and Perspectives of the Current Economic Crisis
Eduardo Almeida Neto
Member of the National Leadership of the United Socialist Worker’s Party (Brazil) and editor of Opinião Socialista
The international economic crisis has returned to the headlines. Stocks are falling all over the world. Events that were once considered nearly impossible are occurring at a very fast pace: the lowering of the titles of the U.S. Treasury, speculative attacks on Italian and Spanish currency, the risk of financial collapse in imperialist countries.
Today, there exists a sharpening of the economic crisis that has been ongoing since the end of 2007. And the historic dimensions of this crisis can once again be felt by the severity of current events.
Origins of the current situation
It all began at the end of 2008, with overproduction and reduction of the profit rates of big business, a classic crisis of capitalist economies. Later, this translated into a rapid decline in industrial production, brutally intensified by a massive financial crisis. The parasitic character of capitalism manifested itself in an enormous growth in speculative capital and an unprecedented acquiring of debt among families, businesses and countries. The most known sign of the crisis was the failure of the Lehman Brothers bank in September 2008. But this was the beginning of something much deeper than a financial crisis: the most severe capitalist economic crisis since 1929 had begun.
This crisis, in addition to its economic causes, can be explained within the context of class struggle. The imperialist offensive of the Bush administration, to go back to the prime of neoliberalism that was the 1990s, was failing. The invasion of Iraq came to a stalemate because of the resistance of its people, the FTAA initiative in Latin America was unsuccessful, and European workers started fighting back. This made the return to higher profit rates difficult and provoked the crisis.
The beginning of the crisis justified the fear of a new global depression. There was a free fall in industrial production in the imperialist countries close to the levels of 1929. The global financial system was clearly at risk of collapsing, with big imperialist banks on the brink of failure.
Dishing out funds
However, a massive unprecedented operation of the imperialist governments shifted the landscape: the countries gave nearly $25 trillion to big companies and banks threatened by the crisis. This number is just an estimate because, in reality, no one knows the true dimensions of the bailouts. Recently, the Government Accountability Office discovered that the U.S. Treasury gave $16 trillion to corporations in secret loans. This is no small matter; that is more than the total PIB of the U.S. being secretly given to corporations. There was no crisis in response and not a single arrest. It is likely that the total amount of the bailouts comes out to $40 or 50 trillion, nearing the total global PIB ($63 trillion).
The actions of the imperialist governments prevented a new depression. A new small recovery of the global economy began, which marked the second phase of the crisis. But the problem of overproduction was not resolved. Neither was any capital burned (the failure of businesses), which is inevitable and necessary in the normal course of capitalist crises. The different governments’ historic injections of capital saved the big businesses but worsened other existing problems. To be precise, a new and massive problem was intensified: the record acquiring of debt that was necessary to finance the corporate donations. Or, seen from a different angle, a new and massive global financial bubble was created.
The federal debt of the U.S. government went from $9.2 trillion in 2007 to $14.5 trillion in 2011, which is 100% of the country’s PIB. Debt is also a problem in European countries, accounting for 63% of the PIB in Spain, 76.5% in England, 81.7% in France, 93% in Portugal, 114% in Ireland, 120% in Italy, and 152% in Greece. This is the bubble that is currently bursting.
According to bourgeois economists, the crisis had ended in 2010. We stated that the recuperation was just a phase in a long wave of depression of the capitalist economic system. Some do not accept the existence of these long waves. But regardless of what one calls it, the reality is that we are before a long period of capitalist decadence that will stretch for 10 to 15 years, with short periods of recovery and larger crises. In order to come out of this period, capital will have to defeat the workers’ struggles and impose a new degree of exploration, in order to return to a profit rate that makes it possible to open a new phase of growth.
Attacks on the workers
The later evolution of the economy proved the continuity of the crisis. Starting with Greece and Ireland and rapidly expanding to Portugal, Spain, and Italy, the European countries had to deal with the massive public debt that they were buried in. Since the debt became impayable, the same banks that benefited from public money in 2008 and 2009 demanded that governments apply brutal austerity measures to guarantee payment of the debt. In order words, it was time for the workers to pay for, through cuts in social services, retirement, and salaries, the money that the banks received for free.
Financial capital, the hegemonic section of capital, made the countries pay out massive sums of money to avoid the collapse of big business, like insurers of corporate capital. The unprecedented fiscal crisis in Europe and the U.S. is the result of all this. There are already states on the brink of bankruptcy, like Greece, Ireland, and Portugal. Before this fact, the same banks that were bailed out are demanding the adoption of austerity plans principally aimed at the continuity of debt payments, or rather, money going to the banks, themselves.
This is the origin of the recent European austerity plans. This also explains the recent agreement between Obama and the Republicans.
Class struggle in the picture
The debt crises of the European governments mark a third phase of the crisis. In this phase, a development of class struggle that had not appeared prior is occurring. The movement of the masses has begun to enter the picture, leading to a growing polarization of the class struggle.
Under way is a true social war of the European bourgeoisie to do away with the social welfare state, the promotion of a brutal regression in the standard of living of the proletariat. The placement of the costs of the current crisis onto the shoulders of the workers is not the only thing in play. A new level of exploration of the proletariat is being announced, moving the standard of living of European workers closer to that of workers in semi-colonial countries. If the bourgeoisie is successful in imposing one austerity plan, later will come others and they will become increasingly more severe.
This is already being clearly expressed in the situation of youth in imperialist countries, who with each day, are seeing more and more the unlikelihood that they will be able to maintain a standard of living equal to that of their parents. Employment among youth reaches 20-25% in many countries, and is a whopping 40% in Spain. It is not a coincidence that youth have played a role in the vanguard of the mobilizations in Greece, Portugal, and Spain.
The crisis of the European Union
The crisis is reaching the entirety of the Eurozone. The EU is not just a free trade agreement since it includes a monetary union. It unites unequals, brutally widening this inequality in favor of countries with more developed industry like Germany and France. The weaker countries are seeing their businesses disappear and they cannot resort to monetary protection measures (like the devaluation of currency) since they are prisoners of the euro.
There already existed a process of regression in countries that had imperialist status and were marching in the direction of becoming semi-colonial as part of the European Union. This regression can now move forward more quickly in countries like Greece and Portugal. It is not a coincidence that members of the Central Bank of Europe refer to the Greek agreement, asserting that that country has to give up its sovereignty.
On the other hand, the entirety of the financial system is being affected. This is not merely a crisis of individual countries. The Greek crisis directly affects German and French banks, involved in the financing of the state. The Spanish and Italian crises are huge, in themselves, given the size of their economies.
The level of attacks is leading to growing social and political polarization, and the destabilization of many European countries, though still on an uneven scale. In the most advanced countries, the governments of Berlusconi, Sarkozy and Papandreu are in crisis. Besides the rise in workers’ struggles and those of the youth, one can also note important division within the bourgeoisie. Within capitalist governments, there does not exist a common vision for how to deal with the crisis, and more and more, crises are developing in the bourgeoisie of each country. The European continent is unstable.
The outcome of the economic crisis is in play in the class struggle. If big capital is victorious, the European proletariat will come to have the same standard of living as Latin Americans, and the lifestyle of Latin Americans will move closer to that of the Chinese, etc. Countries that were imperialist before will become semi-colonial. If the workers defeat some of these plans, we will once again see situations of revolutionary crises in Europe, as was May 68 in France and the Portuguese revolution.
The intensification of the crisis is increasing the likelihood of a new global recession
Stocks fell last week due to fear of a new global recession. In many countries, the fall undermined the growth of the last year, returning these countries to the peaks of 2009.
The fear is justified. The deceleration of the global economy already existed before the intensification of the current crisis. In Europe, the first trimester of 2011 brought important growth in Germany (1.5%) and France (1%), with stagnation in England (0.5%), Spain (0.3%), Italy (0.1%) and recession in Portugal (-0.7%) and Greece (-4.5%). In the U.S., the first semester of 2011, as previously mentioned, brought deceleration, with a growth rate of just 0.9% of the PIB. Japan was already experiencing retraction since the last trimester of 2010 (-1.1%), worsened by the tsunami in the first trimester of 2011 (-3.7%).
The effects of the austerity plans are going to be added to this process of deceleration. The possibility of a new global recession is in the horizon. The U.S. debt crisis could turn out to be a sign, similar to the failure of Lehman Brothers in 2008, of a turn in the direction of a new recession.
There exists remarkable unevenness in the global economy. China continues growing strongly at a rate of 9.7% in the first trimester and 9.5% in the second. This does not constitute a mystery but the continued willingness of imperialism to produce for the entire world in that country with low wages and a repressive dictatorship. China is not an ascending imperialist country; it is the headquarters of the multinationals that are deciding to maintain investments there. This is going to continue as long as it is possible to continue the exports to the world economy and in particular, to the imperialist countries. During the 2008-2009 recession, after a small decline, the Chinese economy continued to grow. We must observe how the situation evolves if there is a new global recession.
A new landscape
In the event that there is a new recession, the political situation will not be the same as in 2008. A polarization of the class struggle exists now that did not exist back then. This includes the ascension of mass movements in many European countries as well as the Arab revolutions. On the other hand, there exists a larger degree of division in the dominant bourgeoisies. The imperialist order is being struck by the political crisis in the United States and the weakening of Obama, in addition to crises in many of the main European governments.
The economic crisis will have dynamics that are completely interlinked with the political situation. If the European proletariat is able to defeat any of the imperialist austerity plans, or if the American proletariat enters the picture, we will see the economic crisis deepen.
Cards that have already been played
On the other hand, big capital is exhausting its ability to pull rabbits out of the hat to escape the crisis. The great card of injection of public funds has already been played. An important part of the current crisis is the instability of the financial system due to the debt crises of the different countries and the lowering of the U.S.’s credit rating. The big financial bubble created by the policies initiated to deal with the crisis are turning into the fuel of the current crisis. We cannot underestimate the ability of the bourgeoisie to come up with initiatives that can postpone the crisis. But a part of its arsenal has already been used and these weapons are now turning against the bourgeoisie.
The economic crisis brings the necessity of socialism back into debate. The global economy is shaking once again. The parasitic character of financial capital is appearing with its true face. Once again, misery is being spread across the world in order to preserve the huge profits of big corporations, the extravagant luxury of a minority of corporate bigwigs.
It is possible to live in a world free of crises. Crises are not natural phenomena like floods or tsunamis. They are the periodic result of the rule of big business over society. We must do away with private ownership of banks, industry, and big commerce so that we can plan our economy in accordance with the needs of the population. This is the social istproposal, more relevant now than ever before.
And how does Brazil fit into all of this?
The Brazilian economy continues to grow and should close this year with a growth rate of more than 4 to 4.5% of the PIB. Even if there is a new recession, the speed at which it arrives to Brazil will be slowed by the evolution of the Chinese economy. If the Chinese economy continues to grow, so will that of Brazil.
In other words, if the multinationals decide to continue investing in China and Brazil, the Brazilian economy will continue to grow. This is the case up to today. The first semester of this year brought with it a record level of foreign investment in Brazil, with a total of $32.4 billion.
However, these dynamics are not guaranteed. Speculative capital, for example, fled from Brazil at an accelerated rate last week, making the Brazilian stock market plummet, amounting to the second largest fall around the world.
In this uncertain landscape, Dilma’s administration has already indicated its chosen path, with stimulus for the big companies and an increase in the interest rate. The Brazilian bourgeoisie is preparing for the crisis by assuming a harder line in the salary bargaining processes.
The movement of the working class, in the beginning stage of the wage campaigns of the second semester, should mirror the struggles of the European workers. We will face harder struggles due to the crisis that is near. But it is possible to fight; it is possible to win.