17.03.2022

Third great depression

Not only are economic contradictions at play. There is the ecological crisis and, of course, war. Michael Roberts says that only socialism can save humanity

One of my basic theses about modern capitalism is that since 2008 the major capitalist economies have been in what I call a ‘long depression’.

In my 2016 book of the same name,¹ I distinguish between what economists call recessions or slumps in production, investment and employment, on the one hand, and depressions, on the other. Under the capitalist mode of production (ie, production for profit appropriated from human labour (power) by a small group of owners of the means of production) there have been regular and recurring slumps every eight-to-10 years since the early 19th century. After each slump, capitalist production revives and expands for several years, before slipping back into a new slump.

However, depressions are different. Instead of coming out of a slump, capitalist economies stay depressed, with lower output, investment and employment growth than before, for a longish period.

There have been three such depressions in capitalism: the first was in the late 19th century in the US and Europe, lasting more or less from about 1873 to 1897, depending on the country. During that long depression, there were short periods of upswing, but also a succession of slumps. Overall, output and investment growth remained much weaker than in the previous expansion period of 1850-73.

The second depression was the so-called ‘great depression’, lasting from 1929 to 1941 - up to World War II - mainly in the US and Europe, but also in Asia and South America. The third depression began after the global financial crash of 2007‑08 and the ensuing great recession of 2008‑09. This depression (as defined) lasted for a decade up to 2019, until it seemed that the major economies were not only growing much more slowly than before 2007, but were heading into an outright slump.

Then the Covid pandemic slump happened and the world economy suffered a severe contraction.² And now, just as the major economies were staggering out of the pandemic, the world has been hit again by the Russia-Ukraine conflict and its ramifications for economic growth, trade, inflation and the environment.³

The contradictions in the capitalist mode of production have intensified in the 21st century. Now there are three components. There is the economic: the global financial crash of unprecedented proportions in 2007-08, followed by the great recession of the 2008-09 (the biggest economic slump since the 1930s).

Then there is the environmental, with the Covid pandemic. Capitalism’s rapacious drive for profit, resulting in uncontrolled urbanisation, energy and mineral exploitation, along with industrial farming, eventually led to the release of dangerous pathogens previously locked into animals in remote regions for thousands of years.⁴ These pathogens have now escaped from farm animals and (possibly) laboratories into humans, with devastating results. And don’t forget the impending global warming nightmare descending on the poor and vulnerable globally.

Third, there is the geopolitical contradiction amid the struggle for profit among capitalists in this depressed economic period. Competition has intensified between the imperialist powers (G7-plus) and some economies which have resisted the bidding of the imperialist bloc, like Russia and China. So, in the 21st century - from Iraq to Afghanistan and on to Yemen and Ukraine - geopolitical conflicts are increasingly being conducted through war. And the big battle between the US and China/Taiwan is coming closer.

The long depression of the 21st century may have begun in 2009, but the economic forces that caused it were underway as early as 1997. It was then that the average rate of profit on capital in the major capitalist economies began to fall and, despite some small bursts of recovery (mainly driven by economic slumps and huge credit injections), the profitability of capital remains near an all-time low.

In capitalism, profit drives investment; which means that falling and low profitability has led to slow growth in productive investment. Instead, capitalist institutions have increasingly speculated in financial assets in the fantasy world of stock and bond markets and cryptocurrencies.⁵ And the imperialist bloc increasingly looks to compensate for weaknesses in the ‘global north’ by further exploiting the ‘global south’.⁶

So far, there is little sign that capitalism can get out of this long depression, even if the current Ukraine disaster is resolved. Ending the depression would require a cleansing of the economic system, through a slump which would liquidate the zombie companies that reduce profitability and productivity growth and increase debt burdens.

Also, it seems that recalcitrant economic powers like Russia and China must be tamed or crushed if the major capitalist economies are to have a new lease of life. That is a frightening prospect. The only hope of escape from the impact of the long depression and more wars is the coming to power of democratic socialist governments based on working people, which can sponsor a real ‘united nations’ in order to end economic crises, reverse environmental disasters for the planet and achieve a peaceful development of human society.

Michael Roberts blogs at thenextrecession.wordpress.com