The international agents of the dominant imperialist powers are eager to declare an end to the Great Recession precipitated by the financial crisis of 2008. They desperately want to announce the success of the austerity programmes imposed on millions of working class people throughout the world. Reality will not conform. Their policies have not only failed, but are being challenged ideologically and politically as mounting opposition starts to confront the centres of capitalist power. David Yaffe reports.
In mid-January Christine Lagarde, the ubiquitous managing director of the IMF, warned that cheaper oil prices and a resurgent US economy are unlikely to be sufficient to pull the global economy out of a pattern that is ‘too low, too brittle and too lopsided’. They are not a cure for the deep-seated weaknesses elsewhere. ‘Too many countries are still weighed down by the legacies of the financial crisis, including high debt and high unemployment.’ Too many companies and households, she said, are cutting back on investment and consumption because they are concerned about low growth in the future. Clutching at straws, she lavished praise on the British economy as one of the few countries driving forward global economic growth.
As a result of the problems of the eurozone and Japan, the World Bank has revised down its global growth forecasts for 2014 and 2015 to 2.6% in 2014, down 0.2 percentage points, and to 3.0% in 2015, down 0.4 percentage points from its predictions in June 2014. It warned that the eurozone risks sliding into permanent stagnation and urged the European Central Bank (ECB) to embark on a money-creation programme to boost growth.
A chronic economic and political crisis?
Martin Wolf, the chief economist of the Financial Times, underlines this ominous outlook in an article ‘Chronic economic and political ills defy easy cure’.1 He lists six characteristics of what he calls the ‘new normal’ in the world today.
- First is deficient demand, a global condition that existed before the 2007-2009 global crisis and which is, if anything, getting worse. The fall in oil prices, he argues, will offer some relief, but only temporarily. While demand is strengthening in the US and UK after years of aggressive monetary policy, he says, the eurozone is in a dangerously depressed condition and Japan is still to escape its deflation trap.
- Second is stagnant productivity. The growth of labour productivity in the dominant capitalist economies has fallen from close to 2% a year in the last part of the 20th century to well below 1% now. This exacerbates deficient demand.
- Third is fragile finance, even more so than before the financial crisis. The banking system is more concentrated than before and the leverage (ratio of assets to equity) of many large global banks at about 25 to 1 makes them increasingly vulnerable to adverse economic and political developments.
- Fourth is unstable politics, with the deteriorating economic performance and rising inequality in the developed capitalist economies ‘generating substantial political stresses’, including growing hostility to ‘political and business elites’ and ‘supranational political projects’. Such tensions, he says, are particularly threatening in the eurozone. The economic downturn will affect ‘politically fragile emerging countries’, as commodity prices decline, indebtedness grows and cheap capital flows end.
- Fifth is what he calls tense geopolitics, with the rapid changes in relative economic power internationally – he highlights the rise of China and the relative decline of Europe and the US. He points to the friction between China and Japan and between Russia and what he calls ‘the west’.
- Sixth is challenge overload. These stressed political systems confront large domestic and international challenges. Among these are preserving the ‘open world economy’, peace, the global commons. Managing climate change, he says, is the hardest.
Wolf is concerned to preserve the capitalist system. That is why he must tell us in his article that these conditions are chronic, not critical and while they cannot be cured quickly or easily, they can be managed. He avoids the political spin of many of the political class when he says that ‘we cannot afford to ignore these difficulties. On the contrary, we must work harder to reduce them.’ As we have argued in previous articles he has, not surprisingly given his political and class outlook, failed to understand that the structural crisis of the capitalist system is grounded in an overaccumulation of capital in the heartlands of capitalism. Inter-imperialist rivalry, class conflict and class struggle are not part of his vocabulary. He has to reject a theoretical understanding of capitalism grounded in the writings and political practice of Marx and Lenin. At best he has retreated in past articles into Keynesianism to resolve his ‘demand deficiency’ by calling for what he sees as a glut of savings to be utilised to finance a surge in public spending. This is wishful thinking.2
Britain’s debt-fuelled recovery
As previous issues of FRFI have shown, Britain’s sham recovery has been driven by debt-fuelled consumer spending and inflated house prices. Claims of ‘rebalancing’ the British economy, away from consumption towards exports and investment, have no substance. It has been a ‘recovery’ for the ruling class elite, accompanied by stagnant productivity, falling wages and insecure jobs. Inequality and poverty are rising as savage welfare cuts shatter the lives of millions of working people.
With the General Election less than 100 days away, every new statistical release from the Office of National Statistics is used by the two dominant ruling class, pro-austerity parties, Tory and Labour, as part of the battle to win over the electorate. The overall picture is ignored. Latest growth figures for the last quarter of 2014 show GDP growing by 0.5%, lower than the third-quarter growth of 0.7% and below that expected by City analysts. This growth was driven by the services sector which grew by 0.8% over the fourth quarter, while output decreased by 1.8% in construction and by 0.1% in industrial production. This gave an annual growth rate of 2.6% in 2014. In the third quarter of 2014 (latest figures) Britain’s current account deficit reached a record level of £27bn or 6% of GDP. The trade deficit was £31.9bn, with exports falling £1.2bn and imports rising £0.6bn. The evidence points to a slowdown of growth in an unbalanced economy. Yet the Tory Chancellor, George Osborne, chose to announce that recovery was ‘on track’ and ‘Britain has had the fastest growth rate in the world in 2014.’
Typical of Britain’s parasitic economy is the house price boom. It has added £563bn to the value of properties in London during the past five years. Nearly half of the UK’s housing wealth, £2.5 trillion out of a total £5.8 trillion, is now concentrated in the South East. Landlords have made £177bn profit from capital growth alone over the last five years with the growing demand for rental property in the UK, as high prices and low housebuilding have made it very difficult for working people to buy their own houses. The total value of privately rented housing in Britain grew by 57% since the financial crisis, rising above £1 trillion for the first time. In the 2013-14 financial year, £9.3bn was paid out of government expenditure to private landlords to subsidise tenants’ rent, more than one third of the total spent on housing benefit that year (Financial Times 10/11 and 12 January).
Senior City bankers were paid an average of £1.3m in 2013. This is worth nearly 50 times the average UK salary. Meanwhile recent research by the Joseph Rowntree Foundation found that nearly 4 out of 10 households with children in Britain, or 8.1 million people, live below an income level seen by the public as the minimum needed to participate in society. An overall picture which undoubtedly must have impressed the IMF’s Christine Lagarde.
Deepening conflict in the eurozone
In the second week of December 2014 there was again a poor take-up of cheap four-year loans from the ECB to encourage banks to lend to small and medium size businesses. In addition, non-financial European companies were holding €1.06 trillion cash on their balance sheets at the end of June. Corporate cash balances have increased by about 40% since the 2008-09 financial crisis. Annual inflation in the eurozone was -0.2% in December 2014, the lowest rate recorded since September 2009, down from 0.3% in November. Negative rates of inflation were experienced in 16 member states of the eurozone. The pressure on Mario Draghi, President of the ECB, to introduce full-scale quantitative easing (QE) (buying specified amounts of financial assets from commercial banks and other private institutions to increase liquidity) was compelling if a prolonged period of deflation and stagnation was to be avoided. Such a policy is strongly opposed by the President of the Bundesbank Jens Weidmann and the German Chancellor Angela Merkel.
On 22 December 2014 the ECB went into action and launched a €60bn-a-month bond-buying programme from March 2015 until September 2016, a €1.1 trillion stimulus package for eurozone economies that was far larger than investors had expected. It is intended that the extra liquidity will be lent to businesses and households rather than ending up on the banks’ balance sheets. The ECB wants also to push down the value of the euro to improve the competitiveness of eurozone exporters.
There was fierce opposition to QE from Germany, where political and business elites believe that the measures could reduce the pressure on eurozone countries to ‘reform’ their economies. They were particularly concerned about Greece defaulting or restructuring its debt. Germany is Greece’s biggest creditor due to its share of the bailout loans given to the country by EU institutions. Tough meetings took place between Draghi and Merkel in the run up to the announcement of the programme. Draghi was forced to make concessions and it was agreed that national central banks of eurozone countries would assume 80% of the losses from any default or restructuring of their national debts. Only 20% of the asset purchase programme will be subject to risk sharing, breaking with the eurozone practice of pooling responsibility for losses in previous bond-buying schemes. This is clearly a setback for the planned banking union in the eurozone in its present form. Greece would be unable to participate in the QE programme until June 2015 at the earliest. Further conflicts are inevitable with Merkel determined not to lose control of the EU’s future direction (Financial Times 23 and 24/25 January 2015).
On 25 January the radical left-wing Syriza party claimed a momentous victory in the Greek election on a programme that calls for an end to austerity and demands extensive debt relief in a comprehensive restructuring of Greek debt (see pages 1 and 6). Divisions have sharpened within the European ruling class on how to deal with this dramatic challenge. In an unusually outspoken intervention in Dublin on 28 January, Mark Carney, Governor of the Bank of England, felt it necessary to question the eurozone’s hardline austerity, and called for the transfers of tax revenues from the stronger member states to the weaker ones. One thing, however, is clear. If Syriza is to conduct a consistent fight against austerity it will have to battle against Angela Merkel and those other European leaders determined to create out of the present EU a strong European imperialist power. This victory of Syriza will give confidence to millions under the yoke of austerity that a fightback is possible. In that battle to end austerity, millions more will learn that this fight cannot be separated from the fight to build an alternative to capitalism and so reignite the struggle for socialism.
1. The World 2015, a Financial Times supplement, 21 January 2015. Quotes in this section are from his article.
2. For a more in depth discussion of Wolf’s position on the global crisis see David Yaffe ‘Global economic recovery falters’ in FRFI 236 December 2013/January 2014 at http://tinyurl.com/mzbdt27 on our website. For more discussion of features of the global crisis see David Yaffe ‘Red warning lights for global economy: class war to intensify in Britain’ in FRFI 242 December 2014/January 2015 at http://tinyurl.com/qx2kwrr on our website.
Fight Racism! Fight Imperialism! 243 February/March 2015