System error: Capitalism’s crisis and the alternative

The economic crisis is getting worse and heading our way. Solidarity looks at the roots of the crisis in the capitalist system and the socialist alternative

It’s been five years since the global economic crisis erupted in 2007. Yet even the World Bank acknowledges that the world economy, far from recovering, “has entered a dangerous phase”.

Unemployment and government austerity programs have imposed immense hardship on working class people around the globe. A third of Greek people now live in poverty. The minimum wage has been slashed by 22 per cent, and massive cuts to public spending have been implemented. The latest cuts to healthcare alone amount to €2 billion, and 40 per cent of hospitals have been closed down.

Greece is just the starkest example of what is becoming a global phenomenon—what the IMF has labelled a “1930s moment”. In the US, two million people were evicted from their homes last year alone. The White House has announced US $487 billion worth of cuts over the next decade in an attempt to deal with its alarming levels of government debt.

While ordinary people suffer, governments have acted to protect the profits of the big banks. The last Greek bailout alone transferred another €20 billion to the banks. A whopping US $16 trillion was given to the financial sector in the US.

Even in Australia, where so far we have been relatively protected from the crisis, there was zero growth in jobs for 2011—for the first time since the 1992 recession. With China’s growth forecasts continuing to fall, the chance of recession in Australia is real.

World leaders have tried to blame current events in Europe on the excessive lifestyles of the Greek (and now Italian, Spanish, Portuguese, Irish, English, Latvian and even French) people, saying this has led to an inflated public sector riddled with debt. In March as she called for fiscal rigour, German chancellor Angela Merkel deplored a culture of “living beyond its means”.

Many commentators have rightly pointed out that Greek workers work the longest hours in the EU, and much of the debt came from bank bailouts in 2008.

The cry from those resisting the economic crisis from Tahrir Square, to the strikes in Greece, from the Indignados in Spain, or from Occupy in New York is “How is this happening?” We live in a world of abundance where a decent standard of living for all could be easily realised.

The response to the crisis reflects the class inequality at the heart of capitalism. Control of production is concentrated in a few powerful hands. In 2008 the sales of the world’s biggest 2000 companies equalled around half of total world output. As Karl Marx pointed out in the 19th century the system on the one hand has vastly increased the amount of wealth humans could produce. But it also systematically denies the majority—those workers who actually produce the vast array of goods and services—control over and access to the benefits of this wealth.

A system of crisis

The other central feature that Marx observed about capitalism was its anarchic nature—one that rendered it a system of crisis.

Under capitalism, neither production nor the allocation of resources are determined according to the needs of society. Instead decisions about where to invest are determined by where the largest profit can be made. This leads to wildly irrational decisions. The world is faced with imminent disaster caused by climate change. However, rather than address the chronic shortage of renewable energy, investment is directed towards expanding the coal industry, building new uranium mines and drilling for coal seam gas—all of which are more profitable.

Also fundamental to the system is the process of competition between the different capitalists that control the economy—Holden versus Ford and other car manufacturers, Microsoft versus other software companies like Apple and Google.

Competition forces capitalists to accumulate profits in order to re-invest in new and more sophisticated technologies to maintain their product sales and slice of the market. This means they are under pressure to constantly increase profits and their capacity for investment as an end in itself. As Karl Marx put it, they are forced into, “Accumulation for the sake of accumulation, production for production’s sake!”

Marx wasn’t the first to observe what mainstream economists now label the “business cycle”, the economic slumps or recessions that take place every few years. But he was the first to explain them in terms of the inner workings of capitalism.

In a crisis smaller companies go bust, unable to sell their products, while larger firms refuse to invest, unsure they will be able to sell what they produce. Rising unemployment reduces the amount that workers can spend, further deepening the recession. Even goods that are desperately needed pile up unused, with people unable to afford them.

Most crises do not go on forever. Those in power are very good at cutting wages to lower their costs and boost profits, to eventually allow a rebound in investment. This response allowed capitalism to drag itself out of the deep recession of the 1970s, while ordinary people saw their living standards drop due to Thatcher or Reagan-style neo-liberal policies.

But as capitalism advances, it carries the baggage of previous crises, deepening and extending the effects of each slump. One example is the mass expansion of the finance industry over the last 30 years. On the one hand, finance provided both an outlet for profitable investment and way to boost consumption levels through mortgage and credit card debt.

But on the other hand, this investment was in unsustainable bubbles—like housing in the US—and it meant that household consumption was financed by staggering levels of debt. When the bubbles inevitably burst, the whole economy was crippled—Woolworths (UK) and General Motors were affected just as much as finance firms Lehman Brothers, AIG and Citibank.

A socialist alternative

But if the current political turmoil has demonstrated anything, it is the absolute inability of apologists for capitalism to offer a viable solution to the crisis.

The initial response to the crisis was large-scale government spending on Keynesian-inspired stimulus, that saw trillions poured into the bailout of the financial sector. But without seizing the wealth of the bankers and the wealthy 1 per cent of society, there is a limit to the use of stimulus to revive the economy. The scale of stimulus spending by governments globally has not been enough to enable the economy to recover, and the resulting problems of government debt and deficits have seen governments resort to austerity.

But austerity has only deepened the crisis. As Greece plummets towards default there is a growing awareness that slashing spending is not leading to recovery.

There is an alternative to the current devastation—rejecting capitalism’s logic of profits and competition to build a socialist society. The enormous wealth in society, currently in the hands of a tiny minority, could be taken over and put to work providing for social needs. Greece has seen factories and hospitals close, because the country’s wealth is being put into repaying the bankers and maintaining their profits. It could be used to run the hospitals, and pay nurses and doctors.

This would require putting the economy under the democratic control of everyone in society.
Our current “democracy” is really a façade—limited to voting once every few years between an unappealing choice of candidates. But socialism would require democracy over all aspects of productive life, based on the active participation of as many people as possible. Each workplace, community, school or university would be democratically controlled. People would meet and debate what to produce and how to distribute society’s wealth.

Elected representatives from different workplace sectors and communities—actually accountable and recallable to those who voted for them—would meet centrally to plan major decisions such as the allocation of global resources and energy, transport and environmental policies. Thus socialism would entail a radical extension of participatory democracy—control , as the American Marxist Hal Draper put it, “from below”—over all economic processes.

The resistance to the economic crisis has shown glimpses of a society run in this way. In Egypt, the overthrow of the 30-year long dictatorial regime of Hosni Mubarak has been followed by escalating industrial activity against the “mini-Mubaraks” that run the factories. One hospital in Cairo has been taken over and run based on the democratic participation of doctors, nurses and cleaners.

In Greece austerity has been met with waves of general strikes and protests. And, like in Egypt, stories are emerging of workers’ actually taking control of their workplaces. At a popular daily newspaper workers have set up a new paper they run themselves after the bosses refused to pay them and moved to shut the business down. At the general hospital in Kilkis, workers occupied “to defend free public healthcare”, kicked out their bosses and have begun making all decisions by a general assembly.

Other high points in struggle over the past 150 years have shown how these glimpses of workers’ control can be extended. In Paris in 1871, Spain 1936-37, Hungary 1956, France 1968, Chile 1972-3, Portugal 1974-5, Iran 1978-9 or Poland 1980-81, workers took over their factories, communities began to be run by neighbourhood councils, and, in the case of Spain, even the army or “militias” fell under democratic control. But the most significant example is provided by Russia—not the dictatorship that Stalin created in a devastating counter-revolution—but the workers’ and soldiers’ councils that actually took power for a few short years after October 1917.

Capitalism has given us the productive capacity to give everyone a decent standard of living—if the world’s resources were planned and distributed fairly. Millions would not starve while food is thrown out, and solar and wind technology would not be put on the backburner as corporations and governments pour money into fossil fuels and gas.

Through connecting the dispersed workplace struggles and social movements into a movement capable of challenging class, the market and the state, we can begin to create a society for the 99 per cent.


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