A few points on the crisis posted by Richard Seymour

I just wanted to outline some arguments gleaned from today's 'mini-Marxism' event. The gathering, featuring István Mészáros, Tony Benn, Moazzam Begg (who consistently impresses one with his erudition, wit and gravity) and a bunch of others, was an attempt to provide socialist answers to the current economic crisis.

1) The economic crisis expands the spectrum of political possibilities. A year ago, or even a few months ago, only the far left spoke of nationalising the banks. Now, Mervyn King - the governor of the Bank of England and free market ideologue - is suggesting that it may be necessary to do so. For years now, official neoliberal ideology has resisted intervention to defend jobs on the grounds that the state cannot afford such intervention. Now, it is a perfectly orthodox view that the state should intervene to defend jobs. Moreover, since the ruling class is in such flux (an ideological confusion reflected in the opinion pieces of the FT and The Economist), the greatest likelihood is of even more surprising developments in the future. The expansion of the financial sector and its current role in capital accumulation means that the credit crunch has a way of detonating unacknowledged and unseen charges. It does not simply affect 'speculative capital' - all capital is speculative, and those investors in the service or manufacturing industries who have borrowed heavily based on the strength of the financial sector are now severely exposed. As a result, we are seeing big job losses in consumer outlets like Woolworths, in service providers like Cable and Wireless, and in manufacturing sites such Tetley in Leeds, or GlaxoSmithKline in Durham.

2) The range of probabilities is somewhere between a crisis on a par with the 1970s (stats released yesterday show US unemployment rising at the fastest rate since 1974, with over half a million jobs lost in a month) or one equal to that of the 1930s. This means hard times for the advanced capitalist societies, but catastrophic times for everyone else. This occurred to me this morning while reading about the horrifying collapse of Zimbabwe's basic institutions of health and welfare and the dreadful poverty that people have been forced into. The dishonest attempt to reduce this to Zimbabwe's corrupt and authoritarian government (Gordon Brown appears to be calling for 'humanitarian intervention') both obscures any real understanding of how Mugabe has remained in power (Mamdani has performed a useful evisceration of liberal moralising on the topic), and neglects the most crucial point, namely the neoliberalism to which Mugabe and Zanu-PF committed themselves very early on. And of course, global economic trends can intersect with domestic political crises in much more deadly ways, as in Rwanda.

3) Partly as a corollary of the previous point, tensions between powerful states are likely to increase, and protectionism of an old-fashioned kind is once more on the agenda. The struggle between the US and Russia over control of energy supplies in Central Asia have recently been complemented by a new Sino-American contest over the devaluation of the yuan. China's rulers want to increase their exports since the American export market has shrank so catastrophically, causing the loss of thousands of factories in the Pearl River delta alone. Henry Paulson has consistently urged the Chinese to let the yuan continue rising against the dollar in order to help stimulate US exports, and the Chinese elite was prepared to go along with this for a couple of years. Not no more. This would seem, in the short term, to indicate a trade war. American capital has so far profited immensely from the surplus value produced by the expanding Chinese working class. This helped fund deficit spending and war, while providing a temporary illusion of abundance for many Americans. But it is no longer in the interests of the Chinese ruling class to just let that take place. And to add to this, there is the prospect of a confrontation between India and Pakistan, with the US implicitly backing India. Whoever carried out the slaughter in Mumbai, the beneficiaries have been those significant constituencies in both countries that favour war. South Ossetia showed that the largely illusory unipolar era was decisively finished. Kashmir may come to represent another lesson: that the era of proxy wars is far from finished. Within the EU bloc, there are now arguments between Germany, and France and the UK, with the former accused of beggar-thy-neighbour policies, refusing to take serious measures to address the crisis while relying on stimulatory policies elsewhere in Europe to support German exports. The whole world system becomes more chaotic and dangerous as a result of this crisis.

4) The argument (from Polly Toynbee, Ken Livingstone, et al) that 'New Labour is Dead', while appealing, is also misleading. The projected cuts in public spending following this curt stimulus are far more substantial than anything achieved by the Thatcher government. New Labour is banking on a quick resolution of the crisis and a recovery sufficient to fund such a huge contraction in public spending on pain of raising the national debt to incomprehensible levels. Economists speak of a V-shaped recession, in which the economy bounces back rapidly; a U-shaped recession in which the economy rebounds more slowly and with more difficulty; and an L-shaped recession, in which the economy stagnates for years on end. Few are betting on 'V' right now, and this means that either a New Labour or Tory government will subject the public sector to intense pressure to shed jobs, cut wages and reduce services.

5) Socialists must be flexible in their responses to this crisis. In the interests of maximum unity, one strategy is to find a minimum programme and try to interest a broad coalition in supporting it. However, the difficulty is that the crisis will impact in an uneven and unpredictable way. The traditional bases of the Left might not be the most militant sectors of society, for example. They may even be comparatively conservative, particularly if they are won over by the argument that it is time to defend the Labour Party. And such a minimal programme may end up lagging behind the needs of situations as they arise. Resistance is not necessarily going to flare up most along traditional trade union lines, or even as a direct response to economic crisis (it may be mediated in various ways). Flexibility is therefore essential.

That's enough montage. I'll get back to you in the morning.

Labels: 'globalisation', capitalism, economy, global economy, istvan meszaros, moazzam begg, neoliberalism, socialism, US imperialism, us working class

How bad can it be? posted by Richard Seymour

According to Soros, it's the worst financial crisis since World War II. Michael Metz of Oppenheimer Funds says it's "the worst post-war recession" so far. Despite the Fed's sharp rate cut, it looks like "the most serious recession since World War II". The Bank of America's Quarter 4 profit was 95% down on last year, and Wachovia - the fourth largest bank in the US - lost 98% of its profits. The US stock exchange and the FTSE fluctuated wildly today in reaction to the interest rate cut, but such sharp movements almost always happens before a big crash. China is taking a huge knock from the US decline, and Asian stocks were particularly badly hit yesterday. The current problems could be the tip of the proverbial iceberg and, to stretch the metaphor a bit further, the global economy is looking increasingly like the Titanic.

Well, who really knows what could happen? On the one hand, the experts always panic when the economy shows signs of tanking, and the global economy has so far survived. On the other, the reason they panic is that the fundamentals are not sound, and the next recession could always be The Big One. These are the profit rate trends for a selection of the most powerful economies:



This is the root of the problem. Without the return on investment, there is little impetus to invest. As Robert Brenner points out in The Economics of Global Turbulence, the steps taken to curtail wage growth and reduce labour costs are rational from an individual company's perspective, but the aggregate result is a massively reduced utilisation of existing capital and a decreasing willingess to invest. Investment barely rose above its 2000 level even during the recovery, which is acknowledged to have been weak. But the problem expresses itself in this way, because the decline takes place in a context in which manufacturing is already weakened. As Ha-Joon Chang points out, to demote manufacturing in the hope of growth through the services industries can be a bigger mistake than relying on the extraction of raw materials since productivity levels in the services sector are generally very low, and those that have potentially high productivity growth (banking and IT) have manufacturers as their main clients. But it would be wrong to see this as simply a mistake. The financialization of the US economy and the abolition of international restraints on capital flows was a political project. It has made it possible for the US ruling class to restore its power domestically, by breaking up labour and reorganising property forms; and it has enabled it to daringly re-assert its global hegemony on the basis of a realisation made by Wilson's government as it entered World War I - the global scale of US interests does not require direct territorial rule. Rather, the US can extract surplus value from the world as long as advantageous market relations are in place. This state of affairs demands the constant threat and use of force. Capital deterritorializes and reterritorializes very rapidly, so it falls to whoever would rule to guarantee an orderly and pliable system of nation-states based on the most sophisticated information available. The rapid re-organisation of Eastern Europe, the Balkans and the Central Asian states after the collapse of the Soviet Union is a dramatic case in point. It didn't usually require force on the part of the United States, just bribery, threats, cajoling, the steady supply of 'expertise' under the direction of Jeffrey Sachs, and so on. But some recalcitrant cases did require a bit of bludgeoning, and it was necessary to expand the system of bases. At any rate, with the decisive transformation after the Volcker recession, US companies were able to intensify their rate of extraction from the rest of the world, and the IMF and World Bank have always been on hand to assist that project.

As two stories linked by Chabert indicate, the larger part of the cost can and will be passed on to the working class (in this case African American workers) unless there is substantial resistance. The Washington Post reported yesterday that "workers who lost a job in 2001 to 2003 took an average pay cut of 17 percent in their new jobs, more than double the average cut of those displaced in the late 1990s". Recessions destroy capital, and many of the world's richest people and companies are panicking. However, from the point of view of the broader capitalist class, that destruction can be brilliantly creative. It can create opportunities for highly profitable redeployment after the smoke clears, and for the further consolidation of class power as the labour market is successfully disciplined. If the crisis is very deep, it can be system-threatening, but only if there is a movement ready with an alternative. As things stand, the global Left and the working class do not meet this crisis in an optimal condition to ensure that it results even in social-democratic reform, much less fundamental social transformation. And there is always the far right waiting in the wings. How bad can it be? Very bad.

Labels: economy, global economy, recession, US imperialism

Or does it implode? Neoliberalism, empire, and the global crisis posted by Richard Seymour

There's an intriguing discussion on MRZine, between Sam Gindin and Robert Brenner, about the potential implosion of neoliberalism in the context of the brewing crisis of the global economy. Prefacing the discussion, Vivek Chibber remarks that socialists have been a bit too good at predicting global meltdown given the slightest sign of a problem. I have to say that this while this is true, it is also true of the business press (see The Economist's hysteria throughout the South-East Asian crisis, for example). Still, let's take the cue and re-examine our assumptions. Because the media are conveying doom and gloom doesn't mean that the economy is necessarily in big trouble. As Larry Elliot points out, this could indeed by the big one, the perfect, the global alluvion that changes all equations, but there are many analysts who, with some good grounds for saying so, maintain that there will be a technical recession but no more than that. Let's have a look at the UK stats. Unemployment doesn't seem to be rising - in fact it fell a little bit in the last quarter of the economic cycle to 1.64 million (on the ILO measurement). Indeed, year on year results show that employment grew faster than unemployment fell, suggesting a boost in many quarters of the economy from immigrant labour. As Stumbling and Mumbling suggests, consumer spending also looked reasonably healthy in November. Profit rates look very healthy:



One might at this point be inclined to think that Sam Gindin has half a point when he maintains that capitalism has never looked healthier or more dynamic, despite its cyclical slumps and increasingly frequent financial crises. There have been a few of those big stock market crises, and each one has led to a powerful rebound (usually involving a welfare package from the state). But that is only the UK, and those figures are misleading. Here's the catch - those profit figures exclude the financial sector and are based on the state of affairs before the crisis started to bite. Consumer spending is expected to slump in 2008 particularly as banks start reining in credit, and high street stores are already reporting a fall over the Christmas period. Insolvencies are expected to increase, and it is estimated that 9 million individuals in the UK are going to have difficulty repaying their existing debts. Everyone from Gordon Brown to the CBI, and the Financial Times survey of top economists, is sounding the alarm - and you can be damned sure it's a crisis for capital, because they aren't in the least worried about us.

Globally, the IMF expects a downturn, and this will surely be driven in the main by the US slide. The subprime crisis means that "millions of American households will lose their homes and as much as $164 billion due to foreclosures". The manufacturing sector has contracted even worse than in recent years, and a slump in demand means imports are falling, a fact that will hurt China which has until now been one of the major motors of global expansion. Global oil prices hit an unprecedented peak yesterday, due to low stocks - a fact which will result in higher inflation even while jobs and incomes disappear. The mere whiff of stagflation will tempt central bankers to raise interest rates ruthlessly to curb wage demands and consumption, but businesses are already hurting from deflationary policies. It doesn't do to second-guess the global economy. Capitalism is intelligible, but not so predictable that its short-term future yields to even the most subtle marxist analysis. Yet, while a big crisis may be averted once again, the structural imbalances continue to accrue. In particular, the neoliberal measures implemented to control wage demands and reduce the bargaining power of labour may enhance capitalist class power, but it doesn't do away with the problem of the long-term tendency of the rate of profit to fall. These are the US profit figures supplied in Dumenil and Levy:



The overall share of economic output going to profit has increased in most advanced capitalist countries. That means that the capitalist class partially overcame its crises by transferring the costs to us, so that our relative or absolute income has declined - average wages being lower in the US today than in 1970. This brings us back to Sam Gindin's argument. Notably, he and Leo Panitch have argued that the neoliberal solution to capitalist crisis has decisively reinvigorated capitalism under an American hegemony that is now unchallenged. The US empire, they maintain, is rather like the British 'Free Trade Empire' of the 19th Century, with its emphasis on informal relations of domination as opposed to the costly and burdensome colonial relations. The main difference is that while Britain could not successfully rope the emerging capitalist powers such as Germany and France into its hegemony, the US has successfully neutralised all serious competitors. Wherever its influence is felt, it bankrolls and enforces a blueprint of property rights. (Perry Anderson would seem to agree with the analysis of Panitch and Gindin, since in his jottings on the conjuncture, he maintains that the current global order more closely resembles the Concert of Europe after 1815 than the world in the first half of the twentieth century.)

The problems with this argument are various. In the first instance, it makes no sense for Sam Gindin to say, as he does, that the capitalist class doesn't need a healthy rate of return. The sole basis for future health and wealth is the current income from previous investments. The successful reproduction of the system depends on it. Secondly, the comparison with the British Empire of the 19th Century fails on several counts. The 'Free Trade Empire' is a myth. In the first half of the 19th Century, the UK acquired among other territories Singapore, Hong Kong and Burma. It also expanded its Canadian and Australian possessions. In 1838, its Indian subordinates were placed in charge of Aden. In 1857, well before the Scramble for Africa, Britain assumed direct rule of India, and even the occupation of Egypt in 1882 preceded (and perhaps precipitated) the era of 'formal' or 'late' imperialism. In short, the British Empire in the 19th Century was a mixed affair, with flexible arrangements for rule (albeit organised along racial lines), depending on the circumstances. That is a flexibility that the US lacks, precisely due to the success of anticolonial struggles. It cannot hold down long-term large-scale troop commitments, and the costs of the current overreach are staggering. Usually, a quick success pays for itself many times over, but the US has not had a quick success in either Iraq or Afghanistan. It is true that the US enjoys unprecedented hegemony despite a small cluster of states that do not specifically seek a breach, but don't wholly accept American tutelage either: Russia, Iran and Venezuela in different ways fit into this category. And even in those states, there are substantial segments of the elite that would very much like to adopt the neoliberal programme and get under the star-spangled marquee. In this respect, the only real counterpower to the empire is that constituency identified by the New York Times in the build-up to the Iraq war: world public opinion. Only popular constituencies can be relied upon to challenge the regnant property paradigm, and that requires a lasting reconstitution of left-wing political culture and labour organisation: a process that is germinally underway in the advanced capitalist countries. However, it is not true that American capitalism in securing that hegemony has overcome its internal imbalances. On the contrary, the financialisation of the empire has made it more unstable, and has internationalised its weaknesses to an unprecedented degree. Further, even close allies may be reluctant to help out with the bills or the head count when it comes to risky imperial adventures. And states are increasingly demonstrating the ability to assert their own interests and form regional alliances against US domination, whether in Latin America or between China and South Asian partners. Finally, Gindin and Panitch underestimate the ad interim nature of the neoliberal transformations and overstate its coherence. While it now has the character of a fully developed growth formula, in real time it has often been a post hoc response to crisis rather than a carefully elaborated solution to it.

None of this guarantees that the kind of agency that is capable of providing an alternative to neoliberalism will emerge, and the fact is that neoliberalism is fully capable of integrating some orthodox Keynesian solutions (renationalising Northern Rock for a while, cutting interest rates etc) while coming back even stronger for it. But there is a reason why the anticapitalist movement has been subsumed into the urgent antiwar response to the 'war on terror', and why the antiwar movement contains an implicit, radical critique of neoliberalism. It is precisely that the success of neoliberalism cannot be understood without an understanding of the successful wielding of imperial power on behalf of the American capitalist class - a point David Harvey and, recently, Naomi Klein have been at pains to make. Whether it takes the IMF or the USAF, America will get the job done. The 'war on terror' has taken this doctrine to its most grotesque extremes in Iraq. The Iowa caucus results suggest that the next battle for the executive may be between a hawkish neoconservative Republican and a hawkish neoliberal Democrat. Huckabee wants to stay the course with some minor alterations; Obama wants to gradually turn Iraq over to America's allies, focus the military on Afghanistan and Pakistan, canvas the pro-American wing of the Iranian elite, and return to Clinton-style neoliberalism. These are choices with real consequences, but they are choices within the very narrow spectrum permitted by America's political elite, and they both seek different ways of conserving the existing order. This underlines the importance of building an independent radical force capable of challenging that consensus in the US both in and beyond presidential elections. The Democrats have already proven how craven they are in office since the 2006 mid-terms, so nothing is to be gained by allowing them to believe they are automatically entitled to the anti-Bush vote. Resistance movements in countries under direct attack, as well as those under American-funded lockdown such as Egypt, can undermine the empire but not without radical movements in the imperial countries that aren't afraid to raise the social cost and aren't prepared to be coopted by the pro-war parties.

Labels: capitalism, disaster politics, global economy, neoliberalism, recession

Strange affliction posted by Richard Seymour

There's some weird malady going about, called a credit crunch, an exogenous threat to the system, caused by fuck-knows-what. You can be sure it has no structural roots, no history to speak of, no precedents, nothing to tell us about the underlying biology of the global system, the way it survives, and the way it dies. On the contrary, it seems entirely random, striking with ungovernable intensity here, suddenly reappearing half way around the world, radiating through the south, then the north. Virologists have their theories, but no one is listening. Crucial vectors have been sealed off and declared safe, only to come under its pall again. Brutal culls are enforced - employees are suspected to be the source of the disease - but to no avail. Tony Robbins offers the power of positive thinking, but he is no match for the needed phagocytes. Soon, boys and girls, ladies and germs, the Pentagon may have its own theory about the origins of the horror. And then, biowarfare units will be despatched to Tehran, or Damascus, or whatever God-forsaken hole of evil-doers is infecting our water supply with this menace. Don't you remember liquid terror on the planes? It is global decadence, courtesy of a local bearer of the Al Qaeda franchise. With unyielding eschatological certainty, with the spark of divine revelation, no less, the White House spokesman will hold terrorism responsible.

Labels: capitalism, global economy, recession, unholy terror

Recession peers over the horizon posted by Richard Seymour

The mortgage market collapses, as US housing enters its worst recession in sixteen years. Two-thirds of Americans believe a recession has already begun. Investors are persuaded that a recession is on the way. This year has seen repeated fluctuations on the stock market, sharp falls followed by a temporary recovery, indicating how nervous the planet's owners are. As last year's post about The Great 2007 Recession pointed out, it was the housing market's strength that bailed out the American economy during the 2001-2 recession, so its current weakness exacerbates the already existing structural imbalances in the economy. US workers experienced the first (very slight) real-terms wage growth for six years over a few months until February this year, but these have since contracted. As the New York Times points out:

Wage growth in the current economic recovery has been unusually weak. The real average wage for rank-and-file workers actually fell from the start of 2002 to late 2006, despite solid economic growth. As job growth picked up, wages surged in the second half of last year before falling back this year.

The recent moves to increase the minimum wage have predictably made little impact on this, since the raise is gradual and small, and affects only 1.25m workers. What's more, for a full time worker on the new rate of $5.85 an hour, as this report points out, there will still be huge problems meeting bills. American capital is obviously anxious to see how far it can go, since at some point there's the prospect of a massive wage-free work-force, as in Mexico, but the reports in the business press do indicate some concern that it aggravates the economy's weakness to have a population that can't pay for the stuff they sell, especially since the record debt levels are no longer sustainable due to the collapse of the housing market. So, what are they going to do about it? Oh, probably demand another tax cut, hope for rising unemployment to further discipline the workforce, hire retainers and repo men, and ride out the storm.

Labels: america, capitalism, global economy, recession