28.11.2013

Capital’s labour of Sisyphus

What next after the failure of plan A? There is little prospect of real growth, argues Hillel Ticktin

What stage are we at in the downturn? In fact I prefer to call it a depression, although generally people talk about downturns. And those who take a look at the reality but are afraid of using the word ‘depression’ call it the ‘great recession’. It clearly does not make any difference what exact term you use, but certain people - particularly orthodox economists, governments and the bourgeoisie in general - do not want to call it a depression. Which is a good reason why we should use that term.

So let us look at how far we are into this depression and what the chances are that it will be negated or brought to an end.

The first point I would like to make is that we have to understand the depression in terms of a complex expression of the often hidden and sometimes open forms of the class struggle. Its contestants are not always conscious of their role or of the reasons for their actions. At the present time class-consciousness and the consciousness of the movement of history are often buried deep in the minds of humanity. And, while discussing this, one has to discuss the strategy of the ruling class.

As I have just said, the question of consciousness is actually complex. Nonetheless we are not in the same situation as the 19th century, when the actions of the capitalist class were taken largely unconsciously. Today the bourgeoisie is much more conscious of itself as a class - partly because it has been overthrown at one point in history, and partly because, as others have observed, it is no longer small or medium-sized businesses that are in charge. It is big business, the large so-called monopolies. Large firms play the crucial role in our society and consequently it is not difficult for those in control to coordinate strategy. It has been estimated that only 101 large firms control a large part of the product of the world economy. So obviously it is not difficult for there to be some sort of coordinated strategy. But in actual fact there is none.

Secondly, having said that there is no coordinated strategy, I would nonetheless say that there is some kind of muddled policy (if you can call it that) which is being implemented. And it is useful to discuss what it is, how far it has been successful and what is likely to happen to it.

And the third thing it is important to discuss is whether it is indeed possible to have a temporary, albeit muddled, solution that succeeds in bringing an end to the depression, at least temporarily. Therefore the question obviously is, can the present downturn be brought to an end, can we return to the period after 1945? Or, for that matter, even to the peculiar situation that lasted from 1979 until this present downturn?

Is there a recovery, as is proclaimed in Britain? It is impossible to read the newspapers or listen to the BBC without being assailed with statistics that apparently show that the downturn is coming to an end and there is indeed a recovery. So let us just look at the situation a little more closely: firstly Europe, especially the euro zone; then the ‘third world’; then Great Britain; and finally the most important in terms of the world economy, the United States.

Europe

Europe is rather a sad scene, as expressed by the bodies which oversee it. The general agreement is that there is a recovery, but a very slow one. The term ‘recovery’ here only refers to what is called a recession, defined as negative growth over two quarters. But the question is much deeper than that.

A depression or a long-term downturn implies stagnation which lasts for a long period, and within which there will be upturns and downturns. Well clearly if there were a downturn of -0.1%, or -1%, followed by an upturn of 0.1% or 1%, that would not represent much change. Furthermore, unemployment remains high and there is only a minor increase in the number of people who are working. But it is still far higher than previous periods after 1945 - though it has not reached the kind of figures that were seen in the US or Germany during the depression of the 1930s.

It is claimed that Europe is no longer in recession and that there is a very slow recovery. So slow in fact that the European Central Bank had to cut its interest rate from 0.5% to 0.25%. A bank which has to do that is in desperate straits - or rather it believes the economy is in desperate straits. So it is clear that one cannot talk of a recovery except in the distorted sense used by orthodox economics in terms of GDP going up by 0.1%, 0.2% or whatever.

Of course, commentators have not been slow to say that there has not been much of a recovery. In the Financial Times Wolfgang Münchau has been banging on about the non-recovery, or the great difficulties that the euro zone has faced and that it continues to face. In his column on Monday November 18 Münchau concluded that the only possible solution was for the ECB to engage in quantitative easing. In other words, buying the bonds of its various constituent countries - something that the German government has refused to accept. So it does not seem likely that will happen either.

We can say then that the future of Europe remains an open question; that it is not clear that the euro zone will survive - if it does, it will not be a pretty sight. The position in Greece is dire. That of Spain, Italy, Portugal only marginally better. It is clear that there is a bitter class struggle occurring in these countries. The fact that the working class has not succeeded in defeating the attacks on it is evident, but it will not be possible to continue over long periods of time in maintaining such an extreme policy.

Third world

The third world was at one point regarded as having the potential to bring the entire planet out of the depression. The so-called Brics - Brazil, Russia, India, China and South Africa - were the countries of the future. This is no longer regarded as credible. The growth rates of these countries have gone right down - most clearly in the case of Brazil, where there have been mass demonstrations. In China there are also thousands of protests - apparently 100,000- 150,000 per year. China’s growth rate has gone down by a few percentage points - officially from 10% to 7.5%. What the real statistics are is another question, but the essential point is that the government has had to admit that the growth rate is declining.

In the case of China there has to be a high growth rate in order to deal with the movement of labour from the countryside, even though it is strictly controlled. That is a long discussion that we cannot get into here, but what is clear is that China is not about take over the world economically and that it has to find a way in which it can maintain a high growth rate.

As for India, it is still unable to feed its own population and it is not doing much better than China. There may be a growing middle class, but the fact remains that its growth rate has also come down. The so-called ‘great stimulus’ set off by the ‘bonfire of regulations’ in the 1990s has not worked its charm.

If we look at Brazil, its government claims to be leftwing, of course, and it has made a series of concessions to the demonstrators. However, there is no obvious way in which it will be able to raise its growth rate or come up with enough to quell the protests.

The last of the Brics, South Africa, has reached the point where the discontent of the population can no longer be contained. In 2012, 34 platinum miners were shot dead by police in Marikana, and there have been strikes all over the country. The strikes are for a better standard of living - even a standard of living that will allow people to survive. In South Africa life expectancy is still below 50 and has been in the 40s for some time.

So if we look at the third world the situation in general is desperate. The only thing that can be said, as with everywhere else in the world, is that the rich are getting richer and the poor are getting poorer, and that there is a substantial, expanding middle class.

Britain

The position in Britain has not fundamentally changed. The government, in order to be re-elected, has to explain its failure to eradicate the fiscal deficit by 2015. That has now been postponed until 2020 and in effect the period of the cuts has been extended. It has also introduced various measures that act as a stimulus, most noticeably in construction.

So it is not surprising that the recession should have come to an end. The growth rate is not very high at the moment at 1.5%, and the prediction is that next year it will be 2% or a little more. But again nothing much has changed. This is just a reflection of the retreat of government policy, of plan A, which it claims still to be implementing, but which has in fact collapsed into an unacknowledged plan B.

But the fundamental question for Britain has to be how far it will deal with its export deficit. How far it will be able to redevelop manufacturing industry. In fact it has got nowhere. The government is trumpeting the fact that its production of luxury cars has increased, but that is as far as it goes. If there is any genuine downturn in the near future, then Britain is in serious trouble - even the demand for luxury cars will go down.

USA

The point then is that everywhere in the world we see that there is very little change. And the crucial country is, of course, the United States. There, again, the level of unemployment has not fallen very much. The Federal Reserve has had to reassure investors that the US will not stop its quantitative easing of $85 billion each month.

A spokesperson for JP Morgan has said that US potential GDP growth is half what it used to be and referred to the “great stagnation”. He went on to say: “The long-run growth potential of the US economy continues to slide lower, by our estimate to around 1.75%. If realised this would be the lowest of the post-World War II era.”¹

The Council on Foreign Affairs made the same general point: “The economic expansion following the 2008 recession has been the weakest of the post-World War II era”.²

The candidate to replace Ben Bernanke as Federal Reserve chairman, Janet Yellen, said: “The objective of our policy is to broadly benefit all Americans, especially those who are seeing harm come to them and their families from high unemployment, in a recovery that’s taking a long time and has been frankly disappointing.”³

One does not have to go any further in understanding where the US is. Growth rates are positive, but, after all, it has an expanding population coming into the labour market. So it does actually require - to remain static, as it were - growth of between 1% and 2%, which is more or less where it is.

However, the situation would appear to be worse - JP Morgan economist Michael Feroli, commenting on the fact that potential GDP growth in the US was only half of what it used to be, goes into the detail of why that is the case. He argues that it is partly a question of population, but also states that innovation is much more limited and is likely to be so over time - and this is particularly true of information technology.⁴

The fundamental reason for this is something I have referred to often: the fact that the profits of big business are not being reinvested. If there is no investment in research and development, or in IT innovation, then there will not be growth, nor very much in the way of rising productivity.

The point then is that the lack of real growth is not just a short-term phenomenon. It is likely to be a problem in the long term too .

This is an edited version of a podcast available on the Critique website: www.critiquejournal.net/audio/current-stage-crisis-2013/1_The-failure-of-plan-a.mp3.

Notes

1. www.aei-ideas.org/2013/08/the-great-stagnation-jp-morgan-declares-us-potential-gdp-growth-just-half-of-what-it-used-to-be.

2. www.cfr.org/united-states/quarterly-update-us-economic-recovery-historical-context/p25774.

3. www.thefiscaltimes.com/Articles/2013/11/14/ Yellen-Shows-She-s-Ready-Take-Bernanke-s- Baton.

4. www.businessinsider.com/is-us-potential-gdp-in-structural-decline-2013-11.