World economy in crisis and they don't know what to do about it

It's not getting better

I am not an economist in the sense that I understand all the intricate and complex details of how the capitalist economy works or that I do it for a living.  However, I have been introduced to Marx’s economic analysis of how the system functions (or doesn’t function) and it has given me a solid and unshakeable understanding of the general processes at work which convinces me that we have to change the way society, and the production of social needs is structured.  Marx’s economic analysis is correct because it is confirmed by objective reality---the truth is concrete as someone once said.

Reading the serious journals of capitalism, those journals in whose pages the capitalist class discusses how best to govern society in their interests, we get a real understanding of the level of crisis they are facing at the moment.  They have no clear answer to the potential catastrophe they see on the horizon.  “We are in a red zone”, Pascal Lamy told the Wall Street Journal in the run up to the IMF’s annual meeting in Washington DC this weekend. The chance of a “double dip” or another global recession as the global economy is already very shaky has them extremely worried.

The representatives of global capitalism are generally extremely cautious about the public statements they make on the state of the economy as it can have serious and immediate repercussions in the financial markets but the situation is dire.  Mohamed El-Erian, is a well known and respected bourgeois economist who is chief executive of the world’s largest bond investment fund and he pulls no punches, "It's like an orchestra with two sides,” he told a group of economists last week, “….each playing different music and looking to the conductor—and there is no conductor,"  He is referring to Friday’s meeting of the G20, representatives of the 20 industrialized and developing nations which the WSJ describes as the “Board of Directors” of the global economy being able to reach common ground or “produce anything concrete.”

It’s interesting that Marx long ago explained that, “The executive of the modern state is but a committee for managing the common affairs of the whole bourgeoisie.” *  Marx was talking about the government of a nation state. These representatives at the G20 represent an attempt to give global governance from a global “executive committee” to a world economy divided in to separate nation states with conflicting interests.  At this point in the crisis, soothing words and platitudes don’t make it, “At this stage, mere words are not palliative for the uncertainty, loss of confidence and near sense of panic we are seeing in the financial markets.” Says Eswar Prasad, a former IMF official.

One thing that becomes painfully evident as the present situation continues is the level of integration of the world market compared to the past.  Workers paying attention to these developments cannot avoid drawing the conclusion that there is no national solution to the global crisis and that by workers and our organizations supporting the idea that we can retreat behind national borders with protectionist measures and trade barriers we are sealing our own doom.  Protectionism and capitalist globalization (so called free trade) are capitalists solution to a capitalist problem and they are aware themselves of its protectionism’s catastrophic consequences though they will revert to it when the market forces them to. Global solidarity and unity in action of all workers must be our independent alternative as opposed to “defending” our own national bosses and protecting them from global competition which is not only a disaster but pits us against other workers making international action and solidarity much more difficult to organize.

So the representatives of the various capitalist economies, the advanced industrial nations and what they call the “emerging” nations and the BRICS (Brazil, Russia, India and China) are meeting in an attempt to reach some agreement on how to proceed.  There are concerns over another Greek default and perhaps defaults in Spain and/or Italy.  The debt ridden US is struggling both politically and economically to get out of the morass it is in and is exposed to European debt, and to compound it all, China’s economy, the engine of world growth, is slowing.

Meanwhile, here in the US, Mitt Romney, the leading Republican candidate for president is interviewed in Business Week Sept 19^th and his plan for getting the US out of the mess its in is just as bad. Romney gives the standard Republican line.  What’s needed is not a stimulus but “fundamental reform” that stimulates innovation, risk, investment and hiring.  In answer to a question about the role of government Romney replies that the it’s role is to create, “..the conditions which allow the private market and individuals to pursue their dreams and therefore our economy.”  Newmont Mining CEO Richard O’Brien made the same points with regards to Obama’s new jobs plan, “What CEO’s really need to hear”, he tells Business Week, “…is that we’re not just looking at one-time job creation but an environment into which longer-term job creation is a real possibility.”

Obama’s job creation plan is pretty business friendly Business Week claims as it is designed to “awaken the nation’s (capitalists) animal spirits so businesses invest”, Half of it is tax cuts including payroll tax cuts of $65 billion.  But it is not business friendly enough as the CEO’s and their political front men would like. 

These comments again confirm Marx’s analysis of the role of the state in class society, it’s role as an arbiter between the classes and defender of the system of exploitation and the class that governs that system.  So what they want the government to do is create a more long-term and permanent environment for profit making (state intervention is great when it aides the private sector.)  In all their discussion they never mention that capitalists invest in production to make money or profit---the word profit is absent.  We have to “coax” them or create a climate for them to invest so that we have a job is always the slant.  This is to tie us to them, propaganda aimed at convincing us that only private individuals, the private sector can create jobs. They can’t say that they won’t invest because there’s not profit in now can they? We would start thinking more about how much profit and more importantly where it actually comes from. They ignore that it has been the public sector that has increased wages, created work for people.

In the Business Week interview, Charlie Rose points out to Romney that “corporate America is sitting on a lot of cash” and asks Romney why they are not spending this cash, investing it in “entrepreneurial efforts that would create jobs”, Romney tells the truth, “Businesses don’t build inventory (invest in production) because they have cash” he responds adding that “Businesses hire because they have customers demanding services and products.”

Again, the reason business actually invests in production is in order to make profit but this is nowhere to be found in Romney’s explanations. He aims to solve the housing crisis by ensuring US workers earn “better wages and salaries so they can afford to buy houses” and the way to do that is by “growing our economy and creating the conditions that lead businesses and entrepreneurs’ to invest.”  But they do not invest because they have customers demanding services.  They invest to make profit, to expand their capital.  People are hungry all over the world including in the US but they won’t invest in getting food to them if it isn’t profitable for them to do so.  So people having needs is not why capitalists set the forces of production that they own and control in motion, it is secondary and in fact private ownership of social production is a major cause of capitalist crisis.

So let us as simple working folk think about this.  The political representatives of the capitalist class in both their parties want to create more favorable conditions for making profit through investment in production as, unlike speculation, it puts people to work and reduces the potential for social unrest and a questioning of the legitimacy of the system that will arise at some point.  What favorable conditions are these?  Well, lower taxes, lower wages, more productivity (speed ups) reduced public expenditure, toothless Unions, basically the elimination of conditions and concessions from their state that the power of the worker class has won from them over time; in other words, expanding the influence of the very same conditions that caused the present economic crisis.  They do not invest in China to raise the wages of workers there, they do so to exploit their circumstances and make more profit than they can here in the US so lower wages, longer working lives, fewer rights and benefits are the wave of the future for them.

Chilean students fight austerity measures

There are obviously pressures and restraints on the their ability to carry out such a program even with the complete capitulation of the heads of organized Labor to their plans, as they are afraid of the response from the worker classes; they read history and are well aware of the dangers of going too far.  This causes some division and differences between them on how quickly to proceed or how deep to cut.  But these differences are superficial at this point anyway and cut they must.

We should not underestimate the level of crisis or the depth of the public’s concern about it despite attempts by the media to keep our minds off it.  They are deathly afraid the situation might get out of hand----Wisconsin scared them a lot but, with the Labor leaders’ assistance and one of their two parties, they crossed that bridge---for now.  As one of their economists told Business week, “persuading people that the only thing they have to fear is fear” is what will save get the economy back on track; in other words, the public’s confidence in capitalism to produce the goods.

Capitalism won’t produce the goods if there’s no money in it---that’s an objective reality they can’t overcome.

* Karl Marx, Manifesto of the Communist Party