‘Recovery’: once again the bourgeoisie administers the drug of credit

The British bourgeoisie have recently become more confident about declaring that there is an economic recovery underway – at long last – in Great Britain. Nonetheless, where more serious commentary is concerned, the sense of relief amongst bourgeois economists and commentators is still tempered with some reserve, even if it mainly concerns the length of time the recovery is taking. A Financial Times poll of economists at the beginning of the year gives a good sense of the current view of matters held by the bourgeoisie:

“After 3 grinding years of stagnation and almost seven after the financial crisis started, economists have finally regained their confidence that Britain’s economy is on the move.

A large majority believes the recovery will at least maintain its recent strength and households will begin to feel better off in 2014, as wages begin to grow faster than prices and unemployment continues to fall. Few think there are clouds on the horizon in 2014, although more worry about the longer term. …..” (Financial Times, 2/01/2014)

It should be noted that these expert commentators did not actually anticipate this much-praised upturn:

“Several quarters of strong growth have encouraged UK economists, largely caught out by the upturn’s strength, to become much more optimistic.” (ibid)

Well, quite! There is no reason, in other words, to suppose that these experts have somehow got the hang of where the economy is heading. Also we should note that the term ‘recovery’ is being used here in a specific and restricted sense. Seven years on from the start of the current financial crisis the economy is still well below the level prior to the crisis – 2 percentage points or so. In fact, therefore, there is no ‘recovery’ as yet, if recovery means (as it is often taken to mean) getting back to the level before the crash. If the present recovery, in the sense of a period of sustained growth, does indeed continue as the economists hope, then the economy might actually recover (in the sense of getting back to where it started) sometime before the next election. Some economists have actually noted that, in this respect, the performance of the economy is actually worse than during the Great Depression.

The global picture

It is necessary to see matters in a wider context. The British economy is not isolated from the rest of the world economy. The European economy, for example, was mired in recession for no less than 18 months and it is not really out of the woods yet:

“The [UK] was one of the few to beat expectations in the second half of 2013, when the recoveries in the euro area and Japan faltered.” (ibid)

It should be noted that it is only in the current period that Britain appears to be doing better than its rivals:

“Despite its strong performance over the past year, the UK economy has consistently lagged behind most rivals since the crash. Until last year it was among the worst performers of the Group of Seven economies.” (ibid)

It is also the case that China, India and Brazil – all members of the so-called BRIC group of countries – have been suffering severely recently at the economic level. In the case of Brazil this has had repercussions at the social level, showing the underlying instability that characterises all these countries. Indian growth has slowed significantly so that the rupee has weakened to the extent that it is causing serious worry to the Indian bourgeoisie. This is true even though the rate of growth looks very healthy compared with the advanced economies – this point also applies to China. China’s rate of growth is still over 7% (according to the official figures at least):

“‘From the overall situation we can predict that the future industrial growth rate will decline, the export growth rate may drop and economic growth is still under downward pressure,’ said Zhang Liqun, an economist, in a statement accompanying the release of [an official purchasing managers’ index].” (ibid)

The Chinese bourgeoisie is very conscious of the fact that the economic and social situation in China is very fragile, unlike most Western commentators who tend to be mesmerised by China’s growth rates. However, even these commentators have toned down their references to the glittering prospects offered by the process of ‘globalisation’. In general, all that the bourgeois commentators mean by talking about globalisation is that they are hoping that China (and India and Brazil) will grow with sufficient strength to make up for the lack of demand in the Western economies and supply a sufficiency of markets to keep them functioning. And we have arrived at a point where the prospects for that happening are clearly diminished very severely. This has been accepted by the bourgeoisie increasingly over the last months.

China responded to the global financial crisis with a rapid and very large extension of credit to keep its economy moving and now has to find a means of dealing with the overhang to keep its banking and shadow banking system intact, which sounds familiar[1].  China experiences the global crisis of capitalism just like any economy even if its growth rates are, for the present, still something for the developed economies to envy.

Similarly, in the case of Britain, the recovery that we have been discussing here seems, at least in part, to be the result of government interventions that have been made recently – notably its intervention in the housing market, which is widely credited with helping to restore consumer confidence. And consumer confidence is cited as a key factor in the recovery:

“Though many economists this year stick to that policy advice [to change the monetary policy remit to something more expansionary], they recognise that that they did not see the change of mood that persuaded households to spend, even with incomes still under pressure.” (ibid)

If this is the main factor that has caused the economists to be caught out, then that hardly suggests that this is a broad based, sustainable recovery such as the bourgeoisie are aiming for:

“Diane Coyle of Enlightenment Economics warned that the supply side of the economy was holding it back. ‘There are multiple and long-standing problems with the economy’s capacity to produce and export ….’”. (ibid) She cites skills gaps and lack of finance for growing companies, for example.

Undoubtedly, the steps that the government has taken to stimulate the housing market are the most striking ‘contribution’ it has made to this rather lop-sided recovery. Obviously, the government can pat itself on the back if it thinks this is a major component of the recovery, as many commentators do. The problem is that the bourgeoisie is in essence resorting to the same methods which got it into so much trouble in 2007. What the bourgeoisie mean by getting the housing market moving is that prices are rising as the conditions under which loans are given are eased – thus encouraging new buyers who have been locked out of the market. These easier conditions – which are government backed – exist alongside the bourgeoisie’s general policy of ‘easy money’ (quantitative easing and very low interest rates) that it has had in place since the financial crisis to sustain the economy. Just as the Chinese bourgeoisie are doing now, eventually the ruling class in Britain and elsewhere will have to pay a price for this in terms of restricting credit in order to avoid a new ‘debt crisis’.

In sum, the ruling class is trapped in a downward spiral because its financial machinations can’t overcome the basic contradictions of its system, which is perpetually driven to produce more than what Marx called the “restricted consumption of the masses” can absorb. This is not overproduction in relation to need, but overproduction in relation to demand backed by the ability to pay. The drug of easy credit may bring temporary relief to the patient but in the end the medicine only exacerbates the disease: giving the consumer money to pay for your own production is ultimately self-defeating unless it is accompanied by the possibility of opening up new markets, and this is severely limited in a world where capital already dominates almost every corner of human existence. 

Hardin, 10.1.14

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[1]. Federal Reserve Chair Ben Bernanke provided a definition of shadow banking in April 2012: “Shadow banking, as usually defined, comprises a diverse set of institutions and markets that, collectively, carry out traditional banking functions--but do so outside, or in ways only loosely linked to, the traditional system of regulated depository institutions. Examples of important components of the shadow banking system include securitisation vehicles, asset-backed commercial paper (ABCP) conduits, money market mutual funds, markets for repurchase agreements (repos), investment banks, and mortgage companies.” (https://www.federalreserve.gov/newsevents/speech/bernanke20120413a.htm)