Has capitalism reached the end of the line?

Mike Macnair spoke to the November 12 CPGB aggregate on the Marxist understanding of the crisis. This is an edited version of his speech

The ‘euro zone crisis’ - in reality merely an effect of the 2008 financial crash - has now brought down two more governments, in Greece and Italy: politicians replaced by direct government by bankers. The global financial structure teeters on the edge of the abyss. One result is deep pressure on the structure of the European Union. Towards full federalism? Towards a pure free-trade zone? Or towards a ‘two-tier Europe’?

Meanwhile, there is a real fear that the crisis will trigger not just the fall of governments, but ‘revolutionary crisis’, or the entry of the masses on the political stage. This fear is reflected by determination to block any flashpoints that might be the spark which lights the prairie fire. The most recent symptoms are the police action against the ‘Occupy’ camps in New York and Portland and the soon-expected action against that in London; and the government’s more or less desperate attempts to minimise the November 30 strike action by offering limited concessions, combined with threats: the ‘carrot and stick’ approach.

But what is missing is any real alternative to the staggering system.


In Greece, a ‘government of national unity’ headed by a technocrat, former central banker Lucas Papademos, has been formed, and a similar process is unfolding now in Italy under another EU technocrat, ‘Super’ Mario Monte. As the Financial Times pointed out on November 12, events in Greece and Italy appear to represent a stark choice between (a) government run by central bankers essentially appointed by France and Germany and (b) political democracy.

The choice is not quite as sharp as the FT presents it though; in reality both Pasok and New Democracy want Greece to stay in the euro and plan to implement the austerity proposals. The referendum proposal of outgoing Greek PM Georgios Papandreou was in essence a way to put New Democracy, Greece’s centre-right party, on the back foot, and had the desired effect, albeit at the cost of Papandreou’s job. The response of the French and German governments and world money markets to the referendum proposal pressured New Democracy into entering coalition talks. Before, ND had hoped to repeat the stunt pulled off by Fine Gael in Ireland - running a fraudulent election campaign against austerity, only to implement the same cuts if elected.

The problem is that the political regime of bourgeois parliamentarism provides too much opportunity for what academic economists call ‘free-riding’, and this has to be overcome in a way which does not let the masses into the political process. A referendum would have been a carefully controlled choice between two alternatives, with the media framing the whole debate. But there was some risk with the Fine Gael-type tactic that New Democracy wanted to pursue, of an election returning not a government of the right, but an increased vote for the Greek Communist Party (KKE), which would be rather problematic for the European Central Bank.

That would probably not be a step forward for the Greek working class. The KKE is committed to a policy of economic autarky; pulling out of the euro zone and rebuilding the national economy, which would either lead to total collapse or a rapid return to the cuts policy of Papandreou.

But this too leads nowhere. The latest unemployment figures from Greece were just below 20% at the peak of the tourist season, meaning this winter a rise to 30% is likely, comparable to US unemployment during the depths of the 1930s slump. Even the FT (again, November 12) concludes that it is very unlikely the latest bailout package will have the desired effect.


In Italy a national unity government is in the process of being formed, but the political regime has suffered the same problem of ‘free-riding’ among bourgeois politicians, in this case within the governing coalition headed by Berlusconi. While the Lombard League, the northern nationalists who want to split Italy up, played hardball in negotiations over cuts, the other parties of the right who represent Italy’s south are more accurately described as clientelist bosses than ideological politicians; austerity threatens the patronage they provide to their client chains and to organised criminals.

The economic situation in Italy is slightly different to Greece, as Italy has not yet had a big downswing in the real economy, though financial speculators have downgraded Italian debt. If the cuts demanded by the EU are implemented, such a downswing is inevitable, but for now Greece is in a much worse situation.

In Italy there is no equivalent of the KKE and the threat from the left is currently minimal; the Italian Communist Party has morphed into a version of the US Democratic Party, and become deeply involved in managing capitalism. Rifondazione Comunista, which was not long ago a significant force, imploded over Italian participation in the Iraq war as well as the participation of Rifondazione in a Blairite-style government. The right wing of Rifondazione have gone off in its own direction. Another fragment is in coalition with the Italian equivalent of the New Communist Party: ie, a small Stalinist sect. Two smallish factions emerged from the left, the Partito Comunista di Lavoratori (Communist Workers Party) and the Mandelites of Sinistra Critica (Critical Left). Neither is as large as Britain’s Socialist Workers Party. Hence in terms of influence in society the Italian left has gone in a short space of time from being massively stronger than that in Britain, to being arguably even weaker.

Now Italy too has a leader installed from Brussels. Some have characterised this transition from a bourgeois-democratic regime to a technocratic government as Bonapartist, but it is more accurate to say that these governments are direct representatives of the creditors, as if the Bank of England were to appoint the UK government on the basis that parliament could not agree to its proposals. In the Weekly Worker, Toby Abse has described Berlusconi as a Bonaparte, but we must be wary of throwing around such terms loosely (‘Bye bye, euro too?’, November 10). Berlusconi’s coalition government was closer to those which ruled Italy under the monarchy prior to World War I, in that it relied on extensive clientage chains and regional groupings to maintain its hold on power.

Suspicion regarding unpayable sovereign debts has now moved to Austria and Hungary; there has been no real political impact yet, but it is increasingly clear that these countries will need bailing out too if a default is to be avoided. Commentators are talking far more openly about the collapse of the euro altogether, or the reduction of the euro zone to France, Germany and the Benelux countries - or even without France.

There is considerable uncertainty about what a Greek collapse or disorderly exit from the euro would entail. Could it be the equivalent of the collapse of Lehman Brothers, freezing world financial markets, wrecking the banks and causing a desperate race for solutions? It is not clear where the money would come from in such a case. In the banking phase of the crisis, states borrowed heavily from the financial markets to bail out the banks. Now those financial markets lending to states are freezing up, bringing the banks to a standstill in the process. There is no clear solution to this crisis within the framework of the charter of the United Nations: ie, the existing system of state sovereignties.

The current situation in Europe is like a game of ‘pass the parcel’, only one in which the ‘winner’ finds out it contains a ticking bomb. Suppose that Greece exits the euro and defaults; because this has been seen as likely for several months, the value of Greek government debt has been adjusted accordingly, and in itself this may not be that disruptive. But there is still a mass of bank loans hanging over the heads of Greek businesses and people, and whether these are repaid in euros or drachmas is important. If Greece exits the common currency but repays its debts in euros, then, exchange rates aside, this will have zero positive effect on the Greek economy. Not only would everyone still go bust, but this would happen quicker, because contracts written in euros would still need to be paid in euros, rapidly driving the cost of rent, mortgages and so on above the average wage, as has occurred in Hungary with mortgages made out in the Swiss franc.

The alternative, of making contracts repayable in drachmas, also appears likely to trigger meltdown. If we hypothesise that one drachma would be worth about 20% of one euro, this would amount to an immediate 80% default on private debt owed by Greek citizens. The result would be the same problem of private debt as in Ireland, but on a more general scale and without any possibility of the state bailing its banks and companies out.

As things stand, it is difficult to see a way out, and even mainstream economic commentators are depicting the capitalist class as apparently suicidal. The problem, however, is not the mood of the capitalists, but the institutional arrangements they set up post-1945, allowing the growth of offshore tax havens, and in the 1970s, discarding exchange controls. Hence many of the instruments which would otherwise be available for managing the crisis no longer exist.

For example, Carmen Reinhart, co-author of the celebrated book on financial crises, This time is different (Princeton 2009), is quoted as arguing that ‘monetisation’ of the debts is possible.[1] That is, central banks should print more money and raise inflation, which will erode the value of the debts. Among Marxists, Arthur Bough has suggested similarly that the capitalists could solve the problem by monetising debts. But Reinhart recognises that for monetising the debts to work there has to be ‘financial repression’, forcing banks and savers to hold state debt at rates of interest below inflation.[2]

In the 1970s this policy was attempted without the instruments of financial repression - particularly exchange controls - in place. Even the much less developed offshore financial operations of that time meant that the result was ‘stagflation’: inflation without economic growth. Today, reinstating these instruments requires the demolition of the offshore financial system. And this, in turn, means both repudiating General Agreement on Tariffs and Trade/World Trade Organisation treaties, and systematically violating the sovereignty of the ‘offshore’ states - which implies the overthrow of the UN charter. So this crisis poses some very big issues for the capitalist class.

John Authers in the Financial Times of November 12 saw a ray of hope in growth figures suggesting China might have a ‘soft landing’; if inflation remains low, the Chinese government will be able to invest heavily in the economy. This would stimulate growth more widely (as, in fact, Chinese stimulus did after the ‘credit crunch’). How it would work would be that China would buy masses of raw materials, so mining companies, steelmakers, etc, would buy new machinery, and what follows is an export-led revival of Germany, Japan and the US, based on their machine tools industries. The risk Authers sees is the scale of the property bubble in China, which makes the 2005-07 bubble in the US pale in comparison. The consensus view of economists in 2007-08 was also that the US economy was heading for a ‘soft landing’; what happened, of course, was the crash.


The more likely option at present is disorderly defaults and a new banking crisis more severe than 2008-09, which will be unavoidable before either any hypothetical Chinese stimulus kicks in or any clear course of action can be agreed by states sufficient to resolve the sovereign debt crisis. This is reflected in an extraordinary feature of the present situation: the US and Britain (or more exactly, the US’s political agents in Britain, like Cameron, Osborne and Blair) are pressing for the euro zone to turn itself into a centralised state.

The turn is extraordinary because the policy coming out of this source since the end of the cold war has been that a European state is unnecessary and undesirable and what is desirable is a large free-trade area in which states compete to offer better tax and regulatory environments for business.

Cameron and Osborne at least retain an element of this policy. What they seek is to force Germany to go down the road of a centralised state in the euro zone, while retaining the system of free-market competition between states provided by the Maastricht and other treaties for the larger EU, and if anything reducing the central regulatory powers of the EU institutions. This ‘two-speed Europe’ would give Britain what it has always sought from Europe: a free-trade area without Britain being bound by any common regulatory rules.

Even so, a euro zone state would be in the highest degree unlikely to accept such a solution. This unwillingness is reflected in EU commission president José Manuel Barroso’s recent insistence that the single-market regime could not survive a euro zone break-up. It is also reflected in the episodic spats between Britain and other EU countries over the EU’s utterly marginal token ‘Tobin tax’ proposals - according to Osborne, ‘a bullet aimed at London’s heart’ - and other proposals for banking regulation, which would shut the City out of euro zone business. So pressing for further euro zone integration is a high-risk policy for London.

It cannot be a policy the US has adopted with any enthusiasm either. It is bound to lead to considerable political ‘turbulence’, to say the least, and if it succeeded would end in making the world more ‘multipolar’ after a period in which the US has had no real potential rivals.

The explanation is the sheer severity of the risk to the global banking system (referred to by Paul Mason in the November 11 Guardian debate cited above). A euro zone state in which (in essence) the state debts of the zone countries became state debts of the euro zone as a whole offers a chance of avoiding a disorderly series of defaults and meltdown of the international banking system.

The problem is that the real alternative within capitalism to a meltdown of the international banking system is a wind-down of the same system to allow ‘financial repression’. And the US and UK as states have heavy interests in maintaining this system. It is a mechanism through which global surplus value, channelled through offshore financial operations, is skimmed by London and New York. In the case of the US, the mechanism allows the US to run continuous and enormous budget deficits on the basis that the dollar is the global reserve currency and the US is the global super-cop, so that investment in the US and US funds is relatively safe, even if it is not that profitable. For the UK the problem is more acute.


Last week yields on British government bonds fell to ultra-low levels. That is, Britain is seen as a safer place to keep ‘floating’ money than almost the entire rest of Europe. However, this is plainly driven by fear elsewhere - with France recently downgraded, and Germany on the hook for euro debts - rather than confidence in prospects of growth for the UK economy. In fact George Osborne and David Cameron have spent much of the last week talking the economy down.

This was partly political manoeuvring prior to the November 30 strikes, and an attempt to move the agenda away from stories about greedy bankers and shift it back to the election-winning narrative of 2010: ‘We’re all in it together’ and warnings against becoming another Greece or Italy. At the same time, the Tories are concerned about a disorderly break-up of the euro zone, which would be a disaster for the UK, in spite of what the Eurosceptics may say. There is a massive risk to the financial markets which have become the core of Britain’s relative prosperity over the last 30 years - this is quite genuine, in spite of the marked rise in inequality.

One aspect of public hostility to bankers and City salaries is that people do not understand where the money is actually coming from. As far as its material flows of trade go, the UK is in permanent deficit. Particularly in terms of food, in which Britain imports 40% of all food consumed here.

The deficit in material trade is made up for by the ‘invisible earnings’ of the financial sector. London’s position as a tax haven, and centre of a world network of tax havens, has provided the basis for the relative prosperity just mentioned. The effect is that the City of London skims financial flows from throughout the globe, taking a slice of the profits of capital from pretty much every country in the world, including China, which has large foreign direct investment flows into tax havens run out of London. Needless to say, these small states are not being covered in factories; the money is reinvested in its country of origin, but in this way avoids liability to tax in China.

The state then skims from the City, with income tax rates of 50% on City salaries. The highest earning 1% pay just under a quarter of the total UK income tax take; for another way of looking at it, the financial sector has been claimed to produce £66 billion in total tax - around 15% of the total tax take. Given the UK’s permanent deficit in visible balance of trade, the existence of the NHS and other state services are dependent on this skimming from the City for transactions which may have nothing to do with Britain, as with the example above. If, hypothetically, the City of London’s financial operations were to be shut down tomorrow, the cuts currently being made by the coalition government would look like peanuts.


There is mass resentment of what is going on; but not, as yet, mass willingness to take action about it; or any idea of an alternative (except among the nationalist right).

The Occupy movement has become global in reach, but not mass in scale. Though modelled on the Arab spring and events in Egypt, it has not become a mass movement of the sort which threatens to overthrow governments. In Britain it has been, temporarily, the focus of widespread public hostility to bankers and City salaries, which extends even to the House of Lords. Lord Gavron has put forward (for the second time of asking) a bill making it a legal requirement for decisions of company remuneration committees to be voted on in a binding vote by a meeting of shareholders before implementation, and to be balloted on (without binding effect) by all employees; companies would also be required to publish the ratio of earning between the highest paid employee and the lowest paid 10%. The bill has been ignored by the media, and has little hope of being made law; but it is indicative of how widespread such sentiment is.

In the Occupy movement this hostility has been expressed in the idea of the ‘99% against the 1%’, which makes for a nice slogan, even if it is largely politically meaningless: as James Turley pointed out in this paper, it is not so easy to turn the ‘99%’ into a political force (‘A global act of refusal’, October 20).

Governments are well aware that the policy of austerity - dumping the speculative losses of 2008-09 on the working class - is creating a high risk of smashing the political legitimacy of the states affected. They are therefore ultra-sensitive about preventing any spark which might light the prairie fire of working class resistance and create real political instability.

The original New York camp has now joined Portland in being closed by the police on obviously fake ‘health and safety’ grounds; attempts in several places to set up camps have been blocked; and strong signals have been given that London will go in the next few days.

In a different way, we saw the same agenda on display in the heavy-handed policing of recent demonstrations by students and by electricians.

An opposite symptom of the same phenomenon is that the coalition government has felt the need to make defensive manoeuvres - ie, concessions - in the run-up to the November 30 strikes. This has included Francis Maude’s insulting offer that if workers go on strike for only 15 minutes, they will still be paid and will have ‘made their point’, which reeks just a bit of desperation.

In the US the trade unions have begun to wake from their slumber, giving support to the movement started by Occupy Wall Street. The Republican governor of Ohio recently put forward a proposal outlawing strikes and collective bargaining in the public sector, slashing pensions amongst other attacks. The proposal went to a state ballot and was roundly defeated after a big trade union mobilisation to turn the vote out. So far these are localised, small-scale acts of resistance, far from a mass strike movement or street movement, but they are encouraging signs nonetheless.


The growing crisis of capitalism, and most sharply the Occupy movement itself, pose the question of what the alternative is. So far, all we have heard from the representatives of that movement is silence, or the non-alternative of various utopias. For example, green utopias, of a retreat to localism and petty production, which would, if actually carried out, require cutting the world’s population by 75%. Or Keynesian utopias - while it is not impossible for capitalism to take a Keynesian turn, this would require the destruction of the offshore system; which in turn requires the overthrow of the United Nations charter and present system of state sovereignties that offshore is built around.

A third utopia, as favoured by Greece’s KKE and the Communist Party of Britain, is economic autarky, supposedly emulating China and the other ‘socialist countries’ of Cuba, Venezuela et al. Hardly models of democratic planning or proletarian internationalism. Worthy of note is the comment by Jin Lee Kun, supervisory board chairman of the China Investment Corporation, a sovereign wealth fund managing over $400 billion worth of assets. Jin told Al-Jazeera that the crisis of European economies is “purely because of the accumulated troubles of the worn-out welfare society ... the labour laws induce sloth and indolence rather than hard work”.[3] Thanks, comrade! Meanwhile, Raul Castro wants to adopt China as a model for his own country; a ‘capitalism with Cuban characteristics’ is already in the works.

What is the job of communists in this situation? On the one hand, we must participate as much as we can in mass movements like the strikes on November 30. We should be supporting the movements which exist around these issues in our localities; around cuts, taxation, workers’ rights and so on. Equally we must help in the task of rebuilding the labour movement at the most elementary level, of trade unions, shop stewards’ committees and so on.

But fundamentally there are no answers to this crisis being offered either from the side of capital or the left - which can only offer the false alternatives of national autarky, a green utopia or a return to Keynesianism (which would necessitate the forceful overthrow of the US, and hence a rapid turn to militarism).

The most important thing communists can contribute, and our most fundamental responsibility, is to put forward a Marxist understanding of situation we are in and spread basic Marxist political ideas as the only real long-term alternative to a capitalism which, even if it avoids meltdown this time round, will only stagger to another financial crisis as long as the world order created in 1945 remains in place.

To get out of the diabolical cycle of repeated crises and deepening inequality, the working class needs to take over the process of making the fundamental decisions about investment and economic activities. It needs political democracy for any such decision-making to be possible. It needs to act at least on a European scale: no nation-state on its own is in a position to ‘buck the markets’, even when these markets are in deep trouble, and nationalist autarky policies would collapse in European countries even more quickly than they have in the ‘third world’.

We are as of now a long way from the real possibility of the working class taking over. But at the end of the day this is the only real way out; and we need, while participating in the mass movement, to patiently explain why crises like the present, not the aberrant stability of 1950-70, are the normal outcome of capitalism; and to take every opportunity to promote the Marxist strategic orientation of the working class taking over.