A recent article in the Wall Street Journal (WSJ),1 the business newspaper of the large US corporations, argues that the glut of capital and labour throughout the global economy represents a major challenge to policy makers. The global economy, it said, ‘is awash as never before with commodities like oil, cotton and iron ore, but also with capital and labour’ – an oversupply which is creating serious difficulties for policy makers attempting to boost economic demand. As a result, we are experiencing ‘a low-growth, low-inflation, low-[interest] rate environment’ which could take a decade for the global economy to surmount.
The overproduction of commodities drives prices down and threatens deflation. The glut of capital and savings forces down interest rates undermining the effectiveness of monetary policy and the surplus labour depresses wages. Public indebtedness in the major capitalist economies has limited the capacity and willingness of governments to fuel growth through public expenditure. Central banks supplying economies with as much liquidity as possible through monetary [quantitative] easing2 have not returned these economies anywhere close to previous growth paths. DAVID YAFFE reports.
The WSJ article reports that in mid-April crude-oil inventories in the US rose to 489 million barrels, an all-time high since records began in 1982. Throughout the world around 110 million bales of cotton are estimated to be lying idle in textile mills or state warehouses, a record high since data began being published in 1973. Huge surpluses exist in many finished-goods markets. In February inventories of manufactured durable goods in the US rose to $413bn, the highest level since 1992 when data was made available. In China, car dealers are holding their highest stocks of unsold cars for two-and-a-half years. The slowdown of the Chinese economy and sluggish demand from the major capitalist economies reinforces this oversupply. This has inevitably had an impact on prices, with the broad measure of global commodity prices, the S&P GSCI, plunging 34% over the last 12 months, leaving prices at 2009 levels.
This has occurred despite rapidly growing debt levels in the world’s major economies following the financial crisis of 2008. Government, business and consumer debt in the US has climbed to $25 trillion from $17 trillion in 2008, a rise from 167% of GDP in 2008 to 181%. In Europe, debt levels rose over the same period from 180% to 204% of GDP, and in China they soared from 134% to 241% of GDP.3
With few major capitalist governments being prepared to increase public spending to stimulate demand, central banks have had to fill in the gap through various forms of monetary easing. The US Federal Reserve and the Bank of England have both expanded their balance sheets to around 25% of GDP from about 6% in 2008. The European Central Bank’s (ECB) balance sheet has risen to 23% from 14% of GDP and the Bank of Japan’s to nearly 66% from 22% over the same period. Normally, this would be sufficient to get economies growing again. But as the WSJ article argues, these are not normal times. A glut in savings and limited opportunities for profitable investment, a development that has been called ‘secular stagnation’, have severely diminished the potential for economic growth.
Globalisation in retreat?
In an article in The Observer (24 May 2015) Heather Stewart raised the question ‘is globalisation dead?’. She argued that globalisation ‘was meant to be the unstoppable economic force bringing prosperity to the rich and poor alike, but that was before the financial crisis ripped up the rule book’. It was, of course, nothing of the sort. The 2008-09 financial crisis was in fact a consequence of neo-liberal globalisation. FRFI has consistently argued over many years that capitalism suffers from long-term structural contradictions that threaten its destruction.
‘Far from being something dynamic and new, the frenetic international expansion of capital underlying neo-liberal globalisation is the product of the overproduction of capital in the heartlands of capitalism. Globalisation is a sign of economic decay and increasing instability in a world of obscene and growing inequality. It is a return to those unstable features of capitalism, which characterised imperialism before the First (Imperialist) World War, producing those dramatic shocks to the international economy, which led to the Russian revolution.’4
As Heather Stewart said, for the last four years international trade flows have increased more slowly than global GDP – an outcome unprecedented in post-war history. The 13-year-old Doha round of multinational trade talks, designed to tighten the grip of the dominant imperialist powers over underdeveloped countries, is still at an impasse. Global trade deals such as TTIP, the proposed transatlantic trade deal between the EU and US, are meeting widespread opposition for giving multinational companies vast new powers over public services, undermining rights at work, environmental protection and food safety standards. Protectionism is on the rise. Crisis-hit global banks are pulling back from what they see as risky cross-border lending, undermining international financial stability. Flows of speculative capital, searching for rapid and high returns, are creating asset bubbles in different parts of the global economy that quickly turn to bust as global investors pull out their money to speculate elsewhere. Capital controls, which were imposed by Cyprus after its bailout to prevent money flooding abroad, are now on the agenda of other threatened countries. Multinational corporations are holding back from productive investment as geopolitical tensions increase throughout the world. The international movement of labour is being restricted with curbs on immigration becoming more widespread.
The promise of a new surge in global capitalist growth driven by the so-called emerging economies is unravelling. From Brazil to China, Russia to South Korea and elsewhere such economies, having taken on vast amounts of debt over recent years, are experiencing their largest capital outflows since the financial crisis. The IMF has reported that the total foreign currency reserves held by emerging markets in 2014, a key indicator of capital flows, suffered their first annual decline since records began in 1995. Data on 15 leading emerging countries show that net capital outflows in the second half of 2014 reached $392.4bn. If a further net outflow is registered in the first quarter of this year, this will bring the total loss from emerging markets close to the $545.9bn in net capital outflows seen over three quarters during the 2008-09 financial crisis. Without steady capital inflows, emerging market countries have less money to pay their debts, finance their deficits and spend on infrastructure and corporate expansion. Growth of GDP in emerging markets is expected to fall this year to 4% in 2015 from 4.5% in 2014 (Financial Times 2 April 2015).
In the third quarter of 2014, the largest non-financial multinational corporations in the world had amassed some $3.5 trillion in cash reserves, up from $1.8 trillion in 2005. US companies had about half these cash balances, with Japan, France, the UK and Germany holding 13%, 7%, 6% and 5% respectively. This cash is not being used for investment because of concerns over the global economic outlook, but for share buy-backs and dividend payments bolstering the returns to company shareholders. In the case of US companies, some 64% of the more than $1.7 trillion cash is held abroad to avoid a tax bill on profits made in other countries. Shareholders in the largest US companies received nearly $904bn in 2014, with $350bn in dividends and $553bn in share buy-backs. Dividends have risen 14% annually over the last four years and buy-backs of shares have helped push a rising bull market into its seventh year. Cheap borrowing by large corporations reinforces these developments and has unleashed a mergers and acquisition boom in the first few months of this year, with global deals off to the fastest start since 2007.
Stagnant productivity growth underpins this crisis of global capitalism. Labour productivity growth in the major capitalist countries has fallen from around 2% a year in the last part of the 20th century to well under 1% now. New data from the Conference Board think-tank show that average labour productivity growth in the major capitalist economies slowed to 0.6% in 2014 from 0.8% in 2013, following a weakening in the US, Japan and Europe. Productivity growth in the US is at a near standstill. In the UK labour productivity has not improved for eight years, breaking a trend of around 2% annual growth going back over a century. Productivity growth in the UK, measured by output per hour worked, fell by 0.2% in the fourth quarter of 2014. The global slowdown in productivity growth pre-dated the financial crisis. In Europe and Japan it started in the 1990s and in the US in 2005 (Financial Times 26 May 2015). This is a structural crisis of capitalism5 and reinforces lower growth, lower public revenues and wages. This is the essence of imperialist globalisation – stagnant, unstable and predatory capitalism.
Criminality on a massive scale
It is unsurprising that in this crisis-ridden period of low growth, low productivity and deficiency of investment, multinational corporations and international banks organise and manoeuvre to ensure ever greater shares of the profits produced worldwide are captured by their owners and shareholders, no matter what the consequences. Profits are assigned to offshore tax havens to keep taxes low or not to pay taxes on their profits at all, corporations manipulate and rig markets to ensure ever greater rewards, and underdeveloped nations are ruthlessly looted and plundered of their wealth. Speculation is rife as hedge funds gamble and bet on the movement of markets. A minority rakes in billions while the vast majority of humanity is increasingly being impoverished. The financial crisis only exacerbated these trends.
The international banks precipitated the financial crisis. But little changed for the financial institutions that survived the crisis and they continued much as before. Huge profits continue to be made and top bankers continue to be paid obscenely high salaries and bonuses. And still they cheat, collude and manipulate markets. On 20 June six global banks together were fined a total of £5.6bn for rigging the $5.3 trillion a-day foreign exchange market between December 2007 and January 2013. Citigroup, JPMorgan Chase, Barclays and RBS, self-described as ‘The Cartel’, agreed to plead guilty before the US Department of Justice. These four banks together with two other banks, UBS and Bank of America, also settled directly with the Federal Reserve and Barclays with several other regulators. The FBI said their activities involved criminality ‘on a massive scale’. The shares of the four banks actually rose after the fines in relief that they were not much larger. Remarkably all this came after an even larger number of banks had been fined some $9bn for rigging the London Interbank lending rate – Libor. Reuters estimates that $235bn of fines have been imposed on 20 banks in the past seven years for market rigging, sanctions busting, and mis-selling mortgage bonds in the run-up to the financial crisis.
Traders were involved in a global criminal conspiracy to defraud their clients. They were said to have colluded in secret online chat rooms to time the buying and selling of huge amounts of foreign currency. One Barclays trader wrote in a chatroom in November 2010: ‘if you ain’t cheatin, you ain’t trying’ (The Independent 27 May 2015). This could be the mantra of a capitalist system that has long outlived its historical mission.
1. Josh Zumbrun and Carolyn Cui ‘Glut of Capital and Labour Challenge Policy Makers’ Wall Street Journal 24 April 2015.
2. By buying specified financial assets from commercial banks and other private institutions to increase liquidity.
3. These figures from the Wall Street Journal article were based on calculations by Megan Greene, chief economist of John Hancock Asset Management. They differ from, but essentially reinforce, those reported in David Yaffe ‘Red warning lights for the global economy: class war to intensify in Britain’ in FRFI 242 December 2014/January 2015 at http://tinyurl.com/qx2kwrr on our website.
4. See David Yaffe ‘The world economy – facing war and recession’ in FRFI 171 Feb/March 2003. For earlier articles on globalisation see ‘Globalisation – a redivision of the world by imperialism’ in FRFI 131 June/July 1996 and ‘The politics and economics of globalisation’ in FRFI 137 June/July 1997. All are on our website.
5. Marx discussed the importance of a rising productivity of labour for capital in the Grundrisse, when he said: ‘The greater the surplus-value appropriated by capital because of the augmented productivity ... or the smaller the already established fraction of the working-day which provides an equivalent for the workers so much the smaller is the increase in surplus-value which capital can obtain from an increase in productivity. Surplus-value increases, but in ever diminishing proportion to productivity.’ For this and a detailed discussion of the impact of the rising productivity of labour on capital accumulation see David Yaffe ‘The Marxian theory of crisis capital and the state’ at www.marxists.org/subject/economy/authors/yaffed/1972/mtccs/index.htm
Fight Racism! Fight Imperialism! 245 June/July 2015