History is speeding up

Crisis of capitalism is far from over

by Alex Callinicos

Leon Trotsky paints a brilliant portrait of the last tsar, Nicholas II, in his great History of the Russian Revolution. He treats Nicholas’s weakness, malice, and stupidity as symptoms of a decaying regime.

We could say the same about the really pathetic antics of the US and European ruling classes over the past few weeks.

This Tuesday marked exactly four years since the global financial and economic crisis first hit. The huge falls on world stock markets more than anything else show that this crisis is very far from over.

The stock market meltdown has been compared to the financial crash after the Lehman Brothers bank went bust on 15 September 2008. In fact, these are different stages of the same process.

The crisis began with the near collapse of the US and European banks. The leading capitalist states stepped in during the winter of 2008-9 to rescue the banks and to stimulate the world economy with extra spending.

This allowed a relatively rapid recovery from the slump.

But it is now clear that in the two historic centres of advanced capitalism—the US and the European Union—this recovery is not self-sustaining. More than anything else this is because ordinary households are loaded down with debts that they are trying to pay off.

So they are spending less, reducing demand for goods and services. Consumer spending is depressed on both sides of the Atlantic and the US housing market is in an even worse state than it was during the Great Depression of the 1930s.

There are exceptions. Germany, for example, has been able to grow thanks to the exports it sends to China. China in turn has been booming because of the huge stimulus measures the government took in 2008-9.

But now even this growth engine seems to be running out of steam. According to the economist Nouriel Roubini, “it might simply be mission impossible” to prevent “another severe recession”.

The obvious solution would be for the state to step in again. But this is much more difficult now. This is partly because a lot of ammunition has already been used up. In 2008-9 interest rates were pushed down to near zero, where they mostly remain.

But more fundamentally the main Western ruling classes have decided that the main problem isn’t economic stagnation but the extra borrowing that they undertook to prevent collapse last time.

Holiday

So we have had the march of austerity from Britain and the eurozone across the Atlantic.

The significance of the deal between Barack Obama and his Republican opponents in Congress was that he now agrees with the Tea Party that the main priority is to reduce the US budget deficit. This comes at the price of slashing social programmes.

I’ve come across attempts to prove that this is some subtle plan to save US capitalism. This is nonsense.

Only believers in the voodoo economics that dominates the Republican and Tory right could imagine that cutting public spending will rescue economies suffering from a shortage of effective demand.

What we see on both sides of the Atlantic is political paralysis. The US and European ruling classes are too preoccupied with their own parochial squabbles to develop coherent strategies.

This has left the financial markets to make the running. Financial analysts Standard & Poor have deprived the US of its triple A credit ranking. The crisis of confidence in the eurozone has spread from the periphery to bigger economies like Italy and Spain.

Meanwhile, the leaders of the eurozone have gone on holiday. All this is happening when the uneven recovery from the slump was already reinforcing the shift in the distribution of economic power eastwards.

You would imagine that this would stimulate the main centres of Western capitalism to up their game—but you would be wrong.

No wonder the Chinese news agency Xinhua feels confident enough to demand that the US lives “within its means” and the issuing of dollars be placed under “international supervision”.

I had expected the collapse of US hegemony to take decades, but history is speeding up.

-