The extraordinary waves of panic that have swept through global financial markets in the past few weeks have filled ordinary working people around the world with a mixture of anger, bewilderment, and fear. It has become evident to everyone that the existing capitalist economic system isn’t working, and that we face a major historical turning point. What isn’t clear is what the consequences will be and what can be done.
2. The financial crash of September-October 2008 has confirmed that the world is facing a major economic crisis. The development of this crisis has been channelled through the neoliberal economic policy regime that was set in place in the late 1970s and the early 1980s, in particular with the deregulation of financial markets and their greater power to engage in large-scale speculation across state borders. Nevertheless, the real causes of the credit crunch lie in the long-term crisis of profitability with which global capitalism has been struggling since the end of the 1960s. The recovery in the rate of profit during the late 1980s and early 1990s thanks to capital restructuring and a sharp increase in the rate of exploitation was only partial. Since the late 1990s, the US Federal Reserve Board has sought to prevent a major economic crisis by flooding the American and world economy with cheap credit. Workers whose real wages have stagnated or shrunk in most of the major economies have been encouraged to borrow in order to maintain demand for goods and services. It was the explosion of the resulting speculative bubble, centred on the housing market, that detonated the onset of the credit crunch in August 2007.
3. Unlike the earlier financial crashes of the neoliberal era – Mexico 1994, East and Southeast Asia 1997, Russia 1998, Argentina 2001 – the present one originated in the very heart of the capitalist system, in the United States. It is spreading to affect the entire world economy. European banks were major customers for the mortgages repackaged as complex financial derivatives that have now gone toxic. The big exporting economies – Germany, Japan, China – are being sucked into the crisis as the markets for their goods shrink. A world recession on the scale of those in the mid-1970s and early 1980s is now in prospect.
4. The crisis is being exacerbated by a sharp increase in the rate of inflation, especially for energy and basic consumer goods. This is a consequence of the boom in the world economy, driven by the credit bubble, in the mid-2000s, reinforced by the activities of speculative investors in the oil and other commodity markets. Higher inflation is forcing down living standards globally, and, in the global South, threatening the very survival of many poor people.
5. The response of the leading capitalist states – and in particular of the US – has been to seek to shore up the financial system with large-scale state intervention, including the nationalization or government-organized rescues of major banks and other financial institutions. These policies have blown an enormous hole in the neoliberal ideology of the free market. But the aim of these interventions has not been to protect the jobs, living standards, and homes of ordinary working people. They are intended to preserve the capitalist system and to protect the chiefs of the big banks that survive the process of mergers and reorganization from the consequences of their speculative gambles. Socialists, trade unionists, and anti-globalization activists should demand instead the nationalization without compensation of the banks in order to turn them into instruments for meeting the needs of working people and the poor.
6. Our rulers plainly intend instead to force the burden of the crisis onto the backs of working people and the poor. This is clear from the warnings of the European Central Bank and the Bank of England against the ‘secondary effects’ of inflation. They are telling trade unionists not to seek wage increases that compensate them for the rise in the cost of living. This is reinforced by other policies – for example, in Britain, by a two per cent limit on public sector pay. Yet no one claims that wage increases have been responsible for the surge in inflation – indeed in many countries pay was squeezed well before price rises speeded up. Partly thanks to the downward pressure on wages, corporations enjoyed sharply increased profits in the mid-2000s. These profits can now be used to pay for the wage increases needed to protect living standards. If the bosses react by pushing up prices, the answer lies in placing the economy under public and democratic control. The workers’ movement needs also to challenge institutions such as, in Europe, the Single European Act, the European Central Bank, and the Growth and Stability Pact. Their function is to hard-wire into the European Union the very neoliberal policies that have been rejected in successive referendums in France, the Netherlands, and southern Ireland and that are barriers to defending jobs, living standards, and homes in the current economic crisis.
7. Another dimension to the economic crisis is the effect that it is having in exacerbating the conflicts among the world’s ruling classes. This is evident internally, in the political chaos in Washington and in the disagreements within the European Union on how to deal with the crisis. But it also operates at the global level as well. In August 2008 the Russian-Georgian war highlighted how the attempt by the US to entrench its global hegemony by expanding NATO deep into Eurasia threatened to rekindle the kind of inter-imperialist rivalries that dominated world politics in the 20th century. Even if the efforts of the American state to rescue the banking system are successful, the result will be hugely to increase US government debt. This will make American capitalism even more dependent than it already is on the readiness of the rulers of the high-exporting economies of East Asia and of the Gulf oil sheikhdoms to continue lending them money. As the experience of the 20th century showed, greater economic interdependence – today above all between the US and China – can, rather than reduce geopolitical tensions, actually feed them. The US war drive that began after 11 September 2001 is likely to continue whoever wins the presidential election, and hence it remains imperative to continue to build a global movement against it.
8. The relationship between economic crisis and the class struggle is complex and mediated by the political context in which they interact. Moreover, the precise combination of job losses and higher prices in a given country is likely to have a major impact on whether workers are likely to respond with aggressive resistance or demoralized acquiescence. But we can be sure that the coming period will see big social and political movements all over the world provoked by the crisis and its consequences. The duty of revolutionary socialists is, as ever, to throw themselves into these movements, and to help make them as united, militant, and powerful as possible. But, whatever the circumstances, we have to insist on the fact that what we are confronting is not simply the crisis of neoliberalism as an ideology and as a policy regime, but of the capitalist mode of production itself. The huge suffering and instability that the present crisis will generate are consequence of the logic of capital. We need to put in its place a different social logic, a socialist logic, based on democratic and collective control of the economy and on genuine planning, in which workers and consumers participate in directing production to meet their needs. This means that revolutionary socialists need to put their efforts into building their own organizations, and also into developing a broader radical left that can begin to present a credible and principled alternative to capitalism.
