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Another Crisis of Capitalism

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11-24-08, 9:31 am

Unfolding globally today is another capitalist "crisis of overproduction" and a corresponding crisis of unmet human needs, even for food and water. Earlier crises (1907, 1929) led to terrible suffering, political breakdowns and war, but also opened the path for the Russian, Chinese (1917, 1949) and other socialist revolutions.

Today, without labor unity and action, humanity itself faces a terrifying death amidst war and social and environmental destruction. Capitalism's failure will accelerate the damage already done to the social and environmental foundations of human existence, and further spread the nightmare that millions are facing in the Congo, Haiti, Palestine, India and the Russian Federation – and in significant pockets of poverty in most capitalist countries, the US included.

The crisis is certain to escalate Wall Street and big capital's efforts to further cheapen labor and plunder weaker countries. The capitalists will make every attempt to divide workers, to provoke nationalist reactions and racism among workers and their organizations everywhere, and to oppose internationalist class-based responses. This attempt to provoke nationalism as opposed to internationalism will be extend worldwide (even to China), with the most dangerous focus of reaction being "white American" nationalism, a tendency already evident in supremacist and anti-immigrant groups.

Global labor unity, organization, class-consciousness, and coordinated action can turn this latest failure of the old system into victories for a new system, and holds extraordinary potential for human liberation from capitalism.

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For any economy to avoid crisis, an approximate balance must be maintained between production and demand by both producers and consumers. A similar, approximate balance must be maintained between the countless factors necessary for modern production. Otherwise, significant waste and economic losses result. (Note that only approximate balances are ever achievable even under communism, due to inevitable changes in technology, the environment and consumer tastes.)

Rosa Luxemburg correctly identified imbalances between production and demand as the underlying causes of capitalism's periodic crises. These crises are best labeled "crises of disproportionality" rather than "crises of overproduction." But Luxemburg only pointed to imbalances between production and workers' incomes. The Soviet economists Nikolai Bukharin and Evgeny Preobrazhensky correctly added the income and demand of producers (enterprises and their owners) to that of workers, and introduced the general contradictions of commodity production into the equation of disproportionality and crises.

Contrary to bourgeois propaganda (which unfortunately has penetrated the labor movement), the capitalists do not control a capitalist economy. If they did, they would avoid periodic crises, such as today's, which slash their profits and can endanger their rule. A capitalist economy is regulated by the laws of commodity production and exchange, independent of the capitalists' wishes. This was one of Marx's basic contributions to our understanding of capitalist political economy and its periodic crises.

The only element of control capitalists hold lies in the redistribution of pain caused by crises and environmental destruction. The IMF, WTO, NAFTA, etc., are among the global institutions used for redistributing pain, backed by the US military, NATO, the FBI and the CIA. As such all pretense at democracy or national sovereignty quickly disappear.

China and the Global Economy

After a socialist revolution countries can gain a degree of control over their economy, through planning, greater participation and input from below, and the constant re-allocation of the surplus (rather than the private appropriation of profit), in order to achieve an approximate balance in the economy. For these reasons, socialist economies are not subject to the intensity and depth of the economic cycles that plague capitalist economies. Wars and other political crises, along with mismanagement, however, can lead to economic downturns in economies formed by socialist revolutions, or even collapse.

With capitalism still a significant mode of production worldwide, control over the economy after a socialist revolution is limited, in part because of the domestic legacies of capitalism (poverty, small-scale production), and in part because of capitalism's inherent instability.

Today, the growth of economies formed by workers' revolutions, particularly China, tends to introduce some stability into the world economy. China's potential stabilizing role is why I am still reluctant to call the present crisis a "general crisis" of disproportionality, although it could rapidly turn into one if the dollar collapses, bringing down world trade with it, or if China falls to counterrevolution, as with the USSR and eleven other states under similar pressures in the 1980s. Although counterrevolution is by no means inevitable, both domestic and international measures are necessary to avoid it. Cuba survived such attempts in the 1980s – thanks in large part to internal strengths, but it is once again coming under immense pressure.

To understand this point more fully, contrast China to Mexico, one of the United States' largest trading partners. Per capita, Mexico's trade with the US is far higher than China's. US exports to Mexico by the end of 2008 were about double total US exports to China, according to US government data. So why isn't Mexico significant as a stabilizing force on the US economy (and indirectly, the world)?

The fundamental difference between China and Mexico is that the former is a product of socialist revolution and so has some control over its economy, while Mexico's socialist revolution is still ahead of it. Capitalism's "control" in Mexico is only over distribution of pain in a crisis it cannot control.

Mexico has suffered at least three devastating crises over the past 30 years, major damage to its basic industrial capacity. Real wages today are significantly lower than they were 30 years ago, in part due to sharp currency devaluations. A big part of Mexico's imports are for processing and re-export to the US, adding to problems with "overproduction" and "overcapacity," i.e. disproportionality. It may be about to suffer even more than it has in recent decades. Already, Mexico's currency has depreciated sharply in recent weeks, effectively cutting wages and the standard of living.

By contrast, China has now gone over 40 years without a downturn, and 30 years averaging 9.8 percent annual growth; real hourly workers' wages have been rising at least nine percent a year for over a decade. The net effect is that China's economic activity as a whole tends toward stability while Mexico's (and other capitalist countries) tends to cyclical crisis and instability.

For all of the talk about China's exports (which are smaller than Germany's, even though China's population is fifteen times larger), China's imports are intended primarily to serve domestic needs. Directly or indirectly, China has accounted for some 30 percent of the growth in the world economy in recent years, possibly more. China's purchases from Japan, Thailand, Indonesia, South Korea, etc. not only have helped keep those economies from freezing up, e.g. in the face of the crisis of 1997, but have also allowed them to continue purchasing from the US – and to service their massive debts, which can be traced back (sometimes indirectly) to Wall Street.

While China's economic strength has so far resisted the global downturn, it hasn't been free of problems and vulnerabilities. This is attributable to the fact that China still exists within a world capitalist system on which it depends for investment, resources and trade. Growth of China's industrial production has slowed from a rate of 20 percent at the end of 2007 and 14 percent this past summer to eight percent currently. Further decline of the dollar and instability in currencies will affect China's ability to sustain internal investment. To offset this, China is considering abandoning the dollar as a major currency reserve.

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The stabilizing tendency of China's economic power indicates the relative strength of the working class. The key question now is how this strength will be used. Will it strengthen workers' power, or attempt to maintain an unsustainable status quo? One positive sign of the direction China is going can be found in the different responses to the global crisis by the US and Chinese governments. While the Bush administration poured $700 billion into propping up banks, China has pledged almost $600 billion for affordable housing and necessary infrastructure.

Relative economic stability in China, then, is no accident or inexplicable phenomenon. It is the result of careful economic and social planning, based on a socialist revolution and aimed above all at providing for the needs of the mass of working people, rather than the profits of capitalists.

The Root Cause of the Current Crisis

As the crisis of capitalism unfolds, hundreds of millions around the world, and tens of millions in the US, face unemployment, layoffs, pay cuts, homelessness, debt servitude, war and hunger.

But in the midst of all this want, an estimated 34 percent of the US's massive industrial capacity sat idle this September. Along with demand, capacity use is falling rapidly in Europe, Canada and Japan. Industrial and agricultural capacity has already been stunted or destroyed across much of Africa and wide swaths of Mexico, Latin America and south Asia, accompanied by deepening poverty and misery.

According to the US Census Bureau's latest "Total Housing Inventory,"over 14 million homes and apartments are now vacant year-round in the US, up from 7.4 million in 1985. This vacant housing is enough to shelter over 40 million people, including millions of our impoverished, indebted youth now crowded in with parents or roommates, or living on the streets. In the meantime, who is paying the rent or mortgage on all that vacant housing? Inevitably massive financial losses and the decay and destruction of housing stock will follow such high vacancy rates.

When considerable industrial manufacturing investments sit idle, huge losses develop. Industrial investments depreciate in value daily, while fixed costs (such as rent, utilities, and maintenance) mount. In 2000, at the peak of the 1990s US boom, fully 29 percent of US industrial capacity sat unused. The associated losses should have sunk the economy. Yet US GDP rose smartly, thanks primarily to rapid growth in China's purchases from the capitalist world, and secondarily to intensified corporate plunder of the rest of the world, plunder facilitated by NAFTA, the WTO, etc.

By the end of 2001, with that year's "short, mild" recession officially over, unused US industrial capacity had jumped to 36 percent. The US (and world capitalist) economy should have fallen into all-out crisis. Yet US GDP rose again, as corporate America's plunder escalated and China's purchases continued to accelerate.

At the end of 2002, unused capacity climbed some more, to 37 percent. Yet US GDP grew faster – along with financial speculation and plunder. At the end of 2003, 36 percent of capacity still remained unused. In fact, the US has not been able to bring unused capacity below 30 percent since 2000; as mentioned earlier, an estimated 34 percent of practical US capacity was idle as of September, 2008. (Note: Every month, the Federal Reserve publishes an alternate measure of US industrial capacity utilization; the latest estimates 76.4 percent utilization, or 23.6 percent unused, in September 2008. I sometimes call this a "propaganda estimate," similar to a measure the Commerce Department once used called "preferred capacity," that took into account factory managers' concerns about labor costs or labor actions. The comprehensive survey by the Census Bureau, called "A Survey of Plant Capacity," is a more realistic estimate of practical US industrial capacity. It is issued only once a year, with a 12-month delay in publication. I expect it will show around 66 percent of US industrial capacity was used in the fourth quarter of 2008, i.e. 34 percent went unused. Unused capacity may be even higher depending on developments in November and December of 2008.)

Overcapacity (or disproportionality) is at the root of the huge losses felt in today's global crisis. The flip side of too much unused capacity is that capitalists have "too much money," i.e. capital they cannot invest profitably in production. If this trend continues capitalists will choke the world in inedible paper money.

Surplus capital drives capitalists to speculation and plunder. Today's rampant speculation, whether in housing, foods, oil, metals, "derivatives" or currency (the last perhaps the most destabilizing), are a clear indication of the profound disproportionalities across the capitalist world. Crazed speculation threatens the entire world economy and all human society. In addition to collapsing markets, and harm on the world's working class, the crisis has led to the accelerated destruction of the material basis – natural resources – for sustainable development.

Capitalist measures to overcome losses, such as the trillion-dollar bailouts by the US and European central banks, may temporarily strengthen the hand of the world's wealthiest families, but they only set the stage for even greater crises and misery.

Debt Crisis in Historical Perspective

Debt has consistently played a role in crises of the capitalist systems, as well as in the subsequent wars and revolutions. Debt burdens under capitalism and pre-capitlaist exploiting systems are expressions of the weight of the past bearing down on the present (and future).

For instance, in the 1600s, massive debt burdens impelled the British monarchy into wars of plunder abroad and a war against its own people at home. But this set the stage for the rise of Cromwell and the victory of British capitalism. By the 1780s, a similar debt crisis impelled the French monarchy into wars of plunder abroad and intensified exploitation at home, likewise setting the stage for the victory of the French revolution and the overthrow of feudalism in 1789. By the 1860s, French capitalism's own mounting contradictions again took the form of a debt crisis, the waging of wars of plunder abroad, and intensified oppression at home, which led, in turn, to the victory of the first workers' revolution, the Paris Commune of 1871.

The crisis of 1929 quickly pushed the Japanese state into a debt crisis; its aggression in China in August 1931 was an extraordinarily brutal war of plunder, accompanied by ruthless oppression at home. This ultimately opened the path for the victory of the Chinese Revolution in October 1949, along with partial victories in Vietnam in August 1945 and in Korea three years later, both countries also invaded by Japan.

Without question, the so-called rescues of banks today are leading both the US and Europe into a profound debt crisis without producing the sought for stability or economic recovery needed.

Even deeply anti-communist historians of the Russian Revolution, such as Gary Hamburg, admits that the growing insecurity of life under capitalism was a major factor in the 1917 Bolshevik rise to power. (Of course, the disciplined movement led by the communists built the necessary broad alliances against the Czar and other forces of reaction, carrying the day.)

Insecurity of life under capitalism is a profoundly revolutionary force among the oppressed. On the other hand, among the exploiting classes, rising insecurity drives them incredible acts of cruelty and greed. The murderous role of the "desperation of greed" needs to be carefully defined in the current crisis; if it is not linked to crisis of overproduction, greed assumes the false meaning that capitalists would like to attach to it, i.e., that it is just "human nature." In reality, human "nature" is fundamentally cooperative.

In the present global economic crisis of capitalism, the meaning of insecurity of life has greatly deepened: Will there be air we can breathe? Will there be food and water that will not poison us, our children and grandchildren? Such existential insecurity immensely weakens capitalism's hand, and with leadership will impel masses into action against capitalist plunder and destruction of the environment.

In recent years, China's political leadership has committed itself to what it calls "scientific development," which ties social, economic and environmental sustainability. Capitalism, on the other hand, is incapable of halting its destruction of the environment, the material source of economic sustainability. In fact, capitalism is compelled by its deepening contradictions to accelerate the process of destruction. This, in turn, threatens China's own goals of scientific development, because all economic and environmental factors are ultimately global.

The overwhelming majority of the world's population has the same interest in scientific development as China and other states formed by socialist revolutions. Rarely has the unity of the workers of the world been more urgent. The crisis we are facing demands the international unity of communist and workers' parties and trade unions worldwide. Global working-class unity is essential to lead humanity out of the present crisis and forward to liberation and environmental sustainability.

--Wadi'h Halabi is a contributing editor of Political Affairs.

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