Not a normal recession but a fundamental slump

[Speech at the Melbourne launch of the pamphlet Meltdown! A Socialist View of the Capitalist Crisis (Resistance Books: Sydney, 2009); March 19, 2009]

Our pamphlet tries to briefly sketch for the reader some the main features of the current economic crisis and its main social and political consequences.

The first point to grasp is that this is a not a normal recession of the kind which characterises the capitalist business cycle — that is, it is not one of the periodic downturns which inevitably follow a boom period.

Rather, it is a fundamental slump. It is clear that the current crisis is the biggest crisis of the world capitalist system since the Great Depression of 1929-33. In fact, there are reasons for believing that it may well turn out to be much more serious.

Several articles in the Age recently have acknowledged in passing that the 1930s depression was only really overcome by World War II with its mass call-up into the armed forces and the conversion of the economy to all-out military production.

In the United States, 1933 was the worst year, with unemployment of almost 25%. While there was some revival of the economy in 1934 and after, unemployment in 1939 was still over 17%. Only the onset of the war changed this situation.

This raises several questions: How can the current crisis be overcome? Indeed, can it be overcome at all? Or, if it is "overcome" in official terms, where will that leave the mass of working people in terms of jobs, income levels, housing, and social services?

Scope of the crisis

A few examples will suffice to indicate the scope of the present crisis:

1. Economic activity is slowing sharply around the world. In the US, in the last quarter of 2008 the economy contracted at an annual rate of 6%; in Britain it might shrink by 4% in 2009. And in Japan industrial output fell by a whopping 27% in the November-February period!

2. In the US and Britain, the major banks are technically insolvent, i.e., their debts are not covered by their assets, most of the value of which has evaporated or has been revealed to be fictitious — the notorious "toxic assets". In both countries the government has taken large or majority stakes in the main banks, thereby effectively nationalising them. Of course, in the US in particular this has all sorts of ideological consequences and the government has been at pains to deny that this happened and has shied away from exercising any real control.

3. Tiny Iceland is in meltdown. Its three big banks were taken over by the government after they went belly up with external debts eight times greater than the country's entire GDP. The government resigned after stormy demonstrations. The economy has sharply contracted, inflation is rising, unemployment is rising and living standards will fall sharply (wages, pensions, etc.).

4. The small Baltic republic of Latvia has suffered a similar collapse. Other East European countries are also at risk — and not them alone.

5. In the United States — the centre of the storm and the heartland of world capitalism — industrial giants like GM and Ford are on the verge of bankruptcy.

Unemployment is in the US rising sharply. Officially it is 8.1% (12.5 million people) but if you add in part-time workers who want full-time work the figure is 14.8%. And if the government was still calculating the unemployment rate using the same criteria and methods that were used before the Clinton administration changed them, the "official" unemployment rate today would be just over 19%. This is nudging up towards the levels of the 1930s depression. In any case, such a level of joblessness is a sharp indictment of the capitalist system.

Homelessness is growing as people can't afford rents and as people default on their mortgages. Tent settlements are sprouting on the outskirts of towns and cities across the country. At the same time, under various categories there are some 19 million vacant homes (out of 131 million dwellings) — enough to house at least 60-80 million people!!!

According to the US financial information agency Bloomberg, the US government has so far committed $11.6 trillion to bail out the bosses. By way of comparison the entire US GDP is about $14 trillion. But none of this money is being spent to keep people in their homes or get the homeless off the streets and into houses — let alone to provide jobs for the millions of unemployed.

What caused the crisis?

There is always a contradiction in capitalism between the limited purchasing power of the masses and the need of the capitalists to sell the unending river of commodities they produce — much of which is necessary but also a large part of which is unsustainable consumerist crap ("stuff"). Studies have shown that 70-80% of the economy depends on such consumer spending. But in the United States, the real wages of the working class have essentially been stagnant since the early 1970s, if not actually going backwards.

1. In this context, consumer spending was maintained, and the growth of the economy assured, by several means. Family incomes have been held up by people working longer hours and having both partners working. More and more goods were purchased on credit. Consumer debt was increased by the massive expansion of the credit card system.

2. It was further massively increased with new mortgage schemes. The banks popularised the notorious "sub-prime mortgages" where low income and struggling consumers were duped into signing up for home loans they couldn't really afford. When the low-interest honeymoon period ended, there were large-scale defaults. This is what eventually brought down the financial house of cards the banks had built.

3. The other major factor has been government spending. For decades the United States has run enormous budget deficits which have led to an ever-growing national debt. Ultimately, these deficits have been necessary to prop up the economy in a situation where the consumer spending of workers was inadequate. A major part of these deficits has been the mind-boggling sums squandered on US imperialism’s military machine and its endless wars.

Any other country doing this would have long ago suffered national bankruptcy. But ever since the end of World War II the US has been the capitalist world superpower, qualitatively superior to its capitalist rivals, both economically and militarily. At the 1944 Bretton Woods conference, it virtually decreed to the rest of the capitalist world that the US dollar would be the world reserve currency — as good as gold (of which the US had the biggest stocks anyway). The US was the world's largest creditor. It financed its deficits by selling Treasury bonds (i.e., government IOUs) to the rest of the world.

Today, huge amounts of these bonds are held by China, Japan and the Middle East oil countries. They will only continue buying them if they consider the US is viable proposition. And unlike in 1944, the US is now the world's biggest debtor country.

Some capitalist leaders are calling for a new Bretton Woods conference. But everything has changed since then. In 1944 the US imposed its diktat. Today, such an agreement would have to be negotiated and given the lack of unity between the major players this is very unlikely. So the future in this regard is unclear.

Can the capitalist class get out of it?

Can the capitalist class get out of the crisis? Will the capitalist system collapse?

The bourgeoisie can always get out of any crisis in the sense that the capitalist system will always survive, the biggest capitalists will survive.

There will be no automatic collapse once a certain point is reached. According to folklore, a vampire can only be killed by driving a silver stake through its heart at the crossroads at midnight. Similarly the capitalist system must be overthrown by the struggle of the people. Otherwise it will continue, though at tremendous cost to the human race. And bearing in mind the crisis of global warming, we can even foresee the end of human existence on our planet if capitalism is not replaced by socialism.

What does the crisis mean for the working class and poor?

One way or the other, the enormous sums being thrown at the crisis will be paid for by the working class.

1. There will be long-term, high unemployment, especially for young people. This will fuel all sorts of alienation and social breakdown (crime, violence, drugs, etc).

2. There will be massive attacks on the working class and the poor. Jobs, welfare, pensions, healthcare will all face savage attacks.

3. Home evictions could rise significantly, even in Australia. Low interest rates have given a much-needed breather to many mortgage-stressed families here but a large rise in joblessness could make the situation start to resemble that in the US. Homelessness will most likely rise significantly.

4. And however bad the situation is in countries like Australia, it will be massively worse in the Third World.

The impact on politics will be profound

The impact of the crisis on the class struggle and politics will be profound. Everyone should understand that we are entering into a new period. The outlook of the working-class masses will be severely shaken up.

The combination of the economic crisis and climate change is dealing a massive blow to bourgeois ideology and all the happy consumerist crap about the market.

Last month's unprecedented heatwave and bushfire crisis — the hundreds of deaths and the fact that the fires seemed on the verge of breaking into the suburbs proper of Melbourne — really shook a lot of people. Imagine when all that is combined with large-scale unemployment, economic distress and insecurity. The government's do-nothing policies, its business-profits-before-everything orientation, and its general blather won’t go down very well.

The old party system will break down as more and more people look elsewhere for solutions. The left will have its chance but it will be a battle with the right for influence as racist, xenophobic, and nationalist nostrums are put forward to head off the developing radicalisation of the masses and channel the discontent back into safe pathways which do not challenge the capitalist system.

Framework and program for the struggle

As is already the case today, the struggle will be waged around all issues and on all levels.

The question of nationalisation is unavoidable. As we have seen in regards to the banks in the US and Britain, the bosses and their politicians have their own peculiar version of nationalisation — don’t mention the dreaded N word, have ownership but don't take control, and restore any enterprise to financial health with the aim of handing it back later. Our concept of nationalisation is totally different. It involves running any state-owned enterprises as pubic utilities under worker and community control to help build a better life for all.

Our overarching position is to fight for the people to take control of the economy. The "commanding heights" of the economy must be in public hands. This means large-scale nationalisation — of the financial sector, the factories and mines, the transport system and so on.

With all the main levers of economic activity in the hands of society we would have the material basis for creating a decent existence for all and to go all out to make our contribution to combating climate change and dealing with the inescapable consequences. We are fighting for a government based on the working people to replace the present Lib-Lab capitalist regime.

We have a world to fight for

The final article in the pamphlet deals with the Great Depression of the early 1930s. It seeks to remind us what happened in capitalism's last big slump, especially in regards to the Communist Party. In conditions of acute crisis and widespread social distress, a small party — although severely hobbled by its Stalinist allegiance with an extremely sectarian ultraleft line but nonetheless militant and dynamic — gained considerable influence in the Australian working class.

It won't be exactly the same this time around but the left will have its chance. We should realise this, brace ourselves and resolve to fight harder than ever to make sure humanity has a future.