World economic crisis - Australian AWL 2008 conference report

Submitted by riki on 17 September, 2008 - 11:00 Author: Martin Thomas and others

Martin: Since late 2006, stream of financial collapses. That's how the crisis has immediately presented itself. The peculiarity, compared to the norm of capitalist crises, is that it comes at a time when profits are generally high, average company debt low. Origins in consumer credit rather than in transactions between companies. Results so far: slowing growth, US recession. No collapses in trade and production yet, but we'll see.
All this combines with another, relatively independent factor: growth in oil and food pricesAlthough the US Federal Reserve's chief worry seems to have been of the USA falling into a deflationary slump, like in Japan in 1990s, the dominant feature has been price inflation.
I'm not confident I know the roots of the food and oil price rises. Speculation is often blamed, and may well be a factor, but the development seems too big and lasting for speculation alone to explain. Maybe the fundamental reason is basic supply and demand mechanisms with oil - it is a fact that exploration and development costs have risen, and returns from exploration have declined - then knock-on effects for food prices via fertiliser and transport costs, and the conversion of agricultural land to biofuels. If so, the basic upward trend of food and oil prices is unlikely to be stopped by general deflationary pressure. One result is that there are very different inflation rates for different people. Inflation is much worse for poor who spend lots on food.
3 theoretical questions
1. what light this sheds on last 25 years: turning point?
2. how deep will it go
3. specific impacts on working class households.
1 Financialisation of capitalism, e.g. in the USA now, one-third or more of all profit is financial companies. Globalisation. Increase in rate of surplus value from 1.5 to 3 (s/v) from 1980s to now in US. Have not seen such a rise before except in circumstances like Nazi Germany. There hasn’t been anywhere near the same rate of increase of rate of investment in production, but rather a very big increase in consumption by capitalist class and hangers on. Even in China and India: huge revenues not invested in productive capacity but US financial instruments.
Is this, as Brenner writes, a continuation of 'global turbulence' and sluggish performance by the capitalist economy? Many contributors argue we can’t measure the period since 1980 by comparison with the "Golden Age" of 1950-73, as if that forms a norm. In substance the period since about the mid 1980s has been one of immense expansion of capital, incorporation of new areas (USSR, China, India) into market capitalism. A striking feature, little noticed because it gives the appearance of having happened effortlessly and "naturally", has been that theinstitutions set up under US hegemony to regulate the US sphere of influence after World War 2 - IMF, World Bank, WTO, EU etc. - have not collapseed, but rather expanded relatively smoothly to encompass vast new areas. There has been immensely increased inequality, but that is still success in capitalist terms. Capital has found a new regime after breakdown of old regime of accumulation in 1970s.
So capital has been successful: but very prone to financial crises. Sometimes without much impact outside financial sphere: e.g. 1987 stock market collapse, US savings and loan, 1997 Asian crisis, dot.com crisis of 2001-2. Only the 1997 Asian crisis significantly fed into trade and production. Marx wrote that some financial crises don’t affect trade etc. There are some important new factors: financialisation, a financial sector which much larger and, in large parts of it, more distant from production. This crisis by far the biggest of the various financial crises so far. The current era is marked by independent central banks, floating exchange rates etc, securitisation of mortgages and vast numbers of other things, etc.
The end of this era predicted by many, including conservatives: an end to light regulation, effective renationalisation and reregulation of financial systems. I doubt it. No doubt will be reregulation and some nationalisation: e.g. of Northern Rock by the British government. I doubt that it is the end of the era. There has been a fundamental change in role of capitalist state: role is to sell national economy as site for capitalist production: need low taxes, lowish wages, while maintaining infrastructure, education etc. Different role to 50s and 60s when State created and sustained integrated set of industries. New system: very hard for any government to opt out. US probably has more room to manoeuvre. Even if the governments wanted to reregulate strongly, hard to do so: limits on that regulation. We do have "Socialism for Wall Street" - Socialise the losses, but privatise the gains - but I think autonomous finance will continue to burgeon.
Losses are pushed down the chain, thus millions of people in the USA lose their homes. But the main impact on most working-class people so far has been not the flow down from financial crisis, but that from oil/food price rises. Especially in poorer countries: people there are not just annoyed; they can’t afford to buy enough food. There has been some wider impact of credit crisis: harder to get consumer credit. Mortgage deals on lower security stopped. But so far a smaller effect. Nouriel Roubini, a US academic economist who predicted this crisis, predicts hundreds of banks will fail. In the US so far, the assumption that people will hang onto their houses as long as they can, and default on or give up almost anything else first, has proved not true. Thus "jingle mail" people who never expected to own a house anyway just shrug, put the house keys in the post, and go back to the trailer park. There is a serious risk of similar impacts in similar housing markets like UK, Spain, and Australia. So far there has been a much smaller impact.
In terms of productive companies going bust: that's further off at the moment. Mostly companies have been enjoying high profits and low debt. They have some reserve fat. But there are three possible qualifications to that general rule, which may prove very important.

1 private equity, (where rich people buy a property with larger debt, restructure, sell off at high profit quickly)
2 China: much more rapid inflation, which government doesn’t want to stop through deflationary measures before Olympics for fear of strikes and street protests. Could be big impacts on jobs.
3 decline of US dollar. So far it has been controlled. Means higher foreign debt, but makes US exports more competitive and reduces trade deficit. But the sovereign funds of China etc have lost huge amounts of money as the dollar has declined. For the moment prepared to do it because US$ safer in long term, and already have a lot in US$ so a lot to lose if it plunges. But if things reach a tipping point, the US$ could collapse with huge impacts. In my view that is unlikely to happen because US still enormous power and others want to keep it afloat.
Main political conclusion: prices: sliding scale; social provision of housing; expropriation of big financial institutions.
Janet: sliding scale without productive investment can feed inflationary cycle?
Greg: often on left people underestimate significance of events in India and China: changing the rules of capitalism. China has already created the biggest working class on the planet. Qualitative decrease in the power of US and other major economies. Private consumer as motor for US economy: was always going to be a problem. Sub-prime as way to keep consumption growing. Now end of road: US consumers will have to de leverage. US prolonged period of decline. Neocon project for new US century seriously deluded. US will become first amongst equals, unable to impose its will. One factor driving up food prices: increase in living standards in China and India: increased meat consumption. Peak oil: too many catastrophists, but production of oil is all downhill form here. Price of oil now driven by cost of producing the marginal barrels: deep water oil, e.g. Gulf of Mexico. No huge new oil fields to discover. Future of increasingly constrained energy production: need for sustainable energy. But no way capitalism can get there before the house of cards collapses.
China has recently embarked, cautiously as an imperialist power to obtain raw materials. Will draw it into collision with the interests of a vastly weakened US. China: 6 months after every economic crisis, you get a political crisis. Major economic slowdown will produce political uprising.
Martin: on Janet. Not sure that it is true that sliding scale without special provision for productive investment would run up against rigid supply constraints. With oil there is a constraint on production. But sliding scale of wages could preserve or increase consumption by working-class households by pushing down consumption by rich households. There is no absolute shortage of food and capitalism could increase food production.
Jalal: 1 global changes economically and socially. Do these changes have a special impact on the so called third world? 2 Collapse of Stalinism: do you mean the collapse of the economic and social system created in the Soviet Union?
Riki: war risks significant in short term oil prices. Houses: subprime past peak defaults, but moving into Alt-a (like oz low docs) and then next year into prime. Change in world order: hard to see that US is not going to decline as economic and political power over next 50 years. Excess surplus value: lots of room for shift to non-polluting production, although hard to imagine capitalism doing it.
Lynn: Think mortgage crisis has not reached its peak. US government bail outs: will they be affected. Could create demand for nationalisation. Oz banks do have US exposure. TWU official on truck blockades: owner drivers: trying to negotiate absorption of fuel costs by shippers.
Martin: Jalal: special impact in third world. 1 in poorer countries much larger proportion of income on food and less choices. 2 Over recent decades, the proportion of population that buys food on market has increased enormously. Much less subsistence agriculture. Urbanisation. Poor countries now import much food, e.g. Iraq. And export luxury foods and manufacturing. Collapse of distinctive social and economic system that you had in the USSR and virtually full integration into world market.
Jalal: so you don’t consider it state capitalism
Martin: yes I do, but it operated very differently and was relatively walled off. Fundamentally don’t agree with Greg on the US being in decline. Don’t know about next 50 years, but for the next decade or so the US is still world’s hegemonic power. Qualification: self confidence and clout substantially weakened by fiasco in Iraq: hubris of sections of US ruling class. Economic as well as diplomatic and political blow. Agree entirely about importance of China. What happens in China is the most important question. Growing very rapidly but unbalanced and without experienced regulation, unlike US. Potential for economic disruption and social explosion. Inflation due to link to US dollar. China the great unknown.
But hegemony of US still substantial. Gap of China and India to US still enormous. Economically, militarily, politically. Not as simple as catching up in some industries. Decline of Britain relatively simple: outcompeted by other countries in same industries. Different now: growth of US capital in India and China. In some ways the growth of capital in India and China also strengthens the USA. One way to conceptualise: think of position of London within UK or NY in USA: never industrial centres, but always hegemonic because they contain the command centres of capital. E.g. Nike: relation with subcontractors.
Yes: mortgage crisis is rumbling on. Big unknown is similar collapses elsewhere. Transport costs: have been claims for increases in mileage costs. Don’t want to encourage private transport: Paris employers supply a Carte Orange for public transport.

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