The Crisis Is Not Over, Despite Rhetoric of ‘Green Shoots’

Just a few months ago the dominant media message was that the global economy was in deep trouble. In the US, Mr. Obama and his team came to power warning that the worst of the crisis was yet to come, that things would get worse before they would get any better.  Then they quickly changed their tune. In March when by all measures the economy was still in free fall -in the first quarter economic output declined by 6.1%, the second biggest drop recorded in the last 26 years, after the 6.3% of the fourth quarter of 2008 - Obama and the Fed chief  Bernanke took the lead in a White house campaign aimed to espouse the alleged "good" prospects of the American economy. They even went as far as to say that they could detect early signs of recovery.

In a television interview in March Mr. Bernanke said that the "green shoots" of economic revival were already evident and predicted the end of the recession by the close of 2009. In April,  Obama declared in a speech at Georgetown University that "there is no doubt that times are still tough. By no means are we out of the woods just yet. But from where we stand, for the very first time, we are beginning to see glimmers of hope." 

With not much to brag about, the White House's overly rosy picture of the economy was met with widespread skepticism and  ridicule among economic "experts".  And this was not difficult when layoffs were running around 600 000 a month at the time, and General Motors - once the world's largest automaker and iconic symbol of American manufacturing power - and Chrysler were headed towards bankruptcy protection.

That was then.  Now, after two years of depressing economic news as the so-called Great Recession  unfolded, a new consensus seems to be forming among politicians and economists around the world that the worst of the economic crisis is over. There is even an increasing talk of "recovery" and a growing excitement about the so-called "green shoots" appearing all over  the economic landscape. The OECD chief economist, Jorgen Elmeskov, goes as far as to declare "we clearly have a recovery at hand that seems to have materialized a little earlier than we expected."  On the bases of  Bernanke's "green economic shoots sprouting everywhere" the G-20 meeting in London in early September gave itself  a main task the assessment  of the "global recovery". Thus the consensus holds that capitalism has managed to dodge the bullet,  that the great men in charge of the system have managed to pull the global economy from the brink of the abyss.

Is the Great Recession really over?

It depends on how one sees reality: through the bourgeois economists' view of the recession, or the Marxist analyses of the crisis.

Economists across the world are producing tons of figures to back up their new found optimism. According to this view the tsunami that swept across the global financial service industry is a thing of the past, and credit, the life-blood of the system, is once again starting to flow. Even the credit market has started to thaw and the speculators are coming back in force: the once battered stock markets are everywhere rising - in the US and Europe they are up 50% and 30% respectively from their lows at the beginning of the year. In fact, from March 9th to September 9th,  the US stock market just completed its best six month period  since 1932. Furthermore we are being told that China, the third biggest economy in the world, has avoided the worst of the recession and is posed to grow a healthy 8% this year.

There is in fact so much excitement about the supposed improved economic landscape that the least we can say is that capitalism's acolytes are passing "the half-empty/half-full glass" test with such high marks for optimism  that it borders on delusional. How else can one explain the bourgeois media's rejoicing over the OECD's downward  revision of its forecast for economic contraction in 2009 across the industrialized Group of Seven countries from -4.1% to -3.7%?  Is 0.4 percent expected less contraction something to celebrate? Is it really meaningful?

That the media finds solace in the OECD latest forecast of "slightly improved outlooks for Japan (-5.6% vs. -6.8% earlier) and the European Union economies (-3.9% vs. -4.8%) and an unchanged overall projection for the U.S. at -2.8%" only testifies to the whole bourgeois class's congenital myopia or, at best, its need to mystify reality.

The relentless crisis of capitalism

There is plenty of cold water to throw over this excitement and you don't need to be a Marxist revolutionary to put in doubt the whole fairy tale about "green shoots" sprouting all over the global economy. We will return to this question later, but for now let us here restate what we think is the reality of today's capitalist crisis.

Bourgeois propaganda offers a well diversified menu of explanations for the present capitalist economic troubles.  They range from blaming individuals - speculators and greedy financiers -and government policies - neoliberalism and deregulation - to the fatalistic "business cycle" of the economy. The common thread of these explanations is the view that capitalism's present economic difficulties are more or less just a temporary setback in an otherwise healthy and eternal system. 

For Marxism capitalism's economic crises have always been a product of capitalism itself,   a manifestation of the contradictions of this system as a social mode of production. This violent disruption of production and distribution have been a feature of capitalism since it became the dominant mode of  production, first in Europe in the early 19th century, and from then on throughout the whole world.

In the Communist Manifesto in 1848, Marx and Engels would give this description of the crises which is remarkably fitting today.

"For many a decade past the history of industry and commerce is but the history of the revolt of modern productive forces against modern conditions of production, against the property relations that are the conditions for the existence of the bourgeoisie and of its rule It is enough to mention the commercial crises that by their periodical return put on its trial, each time more threateningly, the existence of the entire bourgeois society In these crises a great part not only of the existing products, but also of the previously created productive forces, are periodically destroyed. In these crises there breaks out an epidemic that, in all earlier epochs, would have seemed an absurdity-the epidemic of over-production. Society suddenly finds itself put back into a state of momentary barbarism; it appears as if a famine, a universal war of devastation had cut off the supply of every means of subsistence; industry and commerce seem to be destroyed; and why? Because there is too much civilization, too much means of subsistence, too much industry, too much commerce".

In hindsight we know that the founders of Marxism were wrong to think that the crises of the early 19th century that they were witnessing were already manifestations of capitalism's historical decline. In fact despite the economic and social disruption that they caused, capitalism would come out of these crises poised to continue its historical march conquering for its relations of production one region of the globe after the other. The mechanisms used by the bourgeoisie to get over the crisis -"enforced destruction of a mass of productive forces"... "the conquest of new markets and the more thorough exploitation of the old ones" - still provided the system with the impetus needed for a new level of accumulation.

It is not until the 20th century and the world crisis known as the Great Depression that for the first time this phenomenon took place in the context of capitalism's decadence, the new epoch that revolutionaries identified as commencing with the imperialist inferno of WWI. In this sense the catastrophic proportions of that crisis, which still makes the bourgeoisie shiver in awe, was due in the last instance to the fact that capitalist relations of production had become an obstacle to the progressive development of society. This new historical context, the decadence of capitalism, made the mechanisms used by the bourgeoisie  to overcome the crises  in the previous period at worst useless or at best exceedingly less effective - for capitalism as a whole there were no new markets to conquer.

Thus, threatened by forces that where menacing to break apart its whole social order, the bourgeoisie took refuge behind the State as a last guarantor of the continue survival of bourgeoisie society. State capitalism became the mode of life of every nation to best manage the national economy in crisis, to keep society together, and to defend its imperialist interest in the world arena. However, as is well known, state capitalism policies did not manage to get the world over the crisis of 1929, instead they sunk humanity into WW II, a new carnage far more devastating than the first Great War.

After the respite afforded by the period of reconstruction, world capitalism's crisis once again came to the fore at the end of the Sixties and early Seventies and has persisted for almost four decades like a terminal cancer eating slowly away the life of bourgeois society.  Moving between state capitalist policies that have engineered economic booms, each one weaker than the preceding, and busts, always worst than the last in the cycle, this crisis has never gone away.

It is only in this context of  chronic crisis that we can understand the so-called current Great Recession. From our perspective this event is not  an isolated incident of the life of capitalism, but a  moment in the course of a crisis of the system that has taken on catastrophic proportions.

 Towards  new convulsions

 As we said before is really not difficult to take the air out of the economic "recovery" balloon. As anybody that has been paying attention to the present unfolding slump knows, the current semblance of economic improving environment (Bernanke's "green shoots") is the product of an onslaught of state initiatives the world over aimed at keeping the national and global economy from falling into total collapse. This decisive intervention from governments of all political credos in the economy has fueled a lot of talk about the return of state capitalism. This is of course misleading; state capitalism is not returning because it never went away. In fact in essence there is not even much of a change in bourgeoisie economic policies geared at managing the crisis. The irony is that at the center of these policies is once again the abuse of the credit/debt mechanism, which by creating an artificial demand has helped to keep the system alive for decades, but which  has at the same time also fueled the monstrous speculative bubbles, a virtual casino economy, that has contributed so much to the weakening of the financial system and the violence of the disturbances of the world economy in the bust swing of the cycles.

Some critics of the recovery credo are predicting that there will be in the coming years a double dip economic recession following the present stabilization. We can't say for sure what will happen in the near future, but what is sure is that the measures that today the bourgeoisie has taken to save its system are creating conditions for even more violent convulsions in the future.  This applies first of all to the US economy that has been at the center of the current storm.

 The monstrous amount of debt that the state has taken on in order to keep the national economy afloat can't but in the end backfire by destabilizing even more the global economy and the international financial system. Besides, it is never wise to count the chickens before they hatch; currently there is plenty of data that contradicts the early recovery tale. For instance:

§          the financial industry apparent stabilization is full of qualifications. In general the whole industry is only working thanks to the trillions of dollars pumped into it by the state through direct "bail outs" and the cheapening of credit. The big commercial banks Citigroup and Bank of America and the insurer AIG are only standing because the government took huge stakes in them.  The good bill of health for many of this financial institutions is based on a very convenient accounting trick: they have been allowed to erase from their liabilities the famous "toxic assets", which have wreaked havoc throughout the financial system the moment of the speculative bubble collapse. The reality is that many banks are still sitting on mountains of debt that will never be repaid.

§          the housing market problems that played such a huge role in the current economic bust are far from over. The wave of home foreclosures that  plagued this sector for the last 3 years according to many projections is expected to get a new boost from two sources: on the one hand  unemployed workers unable to keep up with their mortgage payments will fall into default;  and on the other  millions of home owners  will default on their higher monthly payments as their "interest only" mortgages reset to a normal amortization (interest plus principal) in the coming years. In turn these foreclosures will continue to sustain the vicious cycle of oversupply of houses and downward prices that has been driven the housing construction slump and the instability of the financial system.

§          the commercial real estate collapse is far from having run its course and most predictions expect things to get worse in this sector in the coming year. And with the air going out of this highly speculative industry that sustained the construction craze for office buildings, hotels, malls, etc., the banks that underwrote  it will be once again counting their loses and in need of more "bail- outs".

§          the relentless growth in unemployment. In September the US official unemployment rate edged to 9.8 percent, the highest in 26 years and the clearest sign that the crisis is far from over. The unemployment situation is even worse if the long term unemployed who have stopped looking for jobs (what the bourgeoisie calls "discouraged workers")  and  workers working part-time because they can't find nothing better (what the bourgeoisie calls "non-voluntary part time workers"), are accounted for. In total adding these categories, according to official figures of the US Labor Department, 17% of the work force would be  unemployed. This amounts to the astonishing figure of around 25 million workers affected by unemployment. Furthermore according to every expectation the unemployment rate will pass the double digit mark by the end of the year and despite all the official talk of recovery, nobody is expecting the employment situation to improve anytime soon. At best, so called "full employment" (defined as 6 percent unemployment level) is predicted to return by 2013 or 2014. As one indicator of how much capitalism has declined in the course of the last four decades, it should be noted that in the 1970's, full employment was defined as 4 percent unemployment.
 

Only the working class has a solution to the crisis

The bourgeoisie can talk all it wants about "recovery", but the hard reality is that  it has no real solution to capitalism's economic crisis. This is the main lesson of decades of bourgeois gimmicks to manage its system's decay. Today we seem to have entered a new moment in the economic breakdown of the system in which state capitalism's policies to keep the economy afloat seem to have lost their past relative effectiveness, foretelling a future of social instability and growing misery for the working class and other impoverished sectors of the population around the world.

For revolutionaries the only solution to the crisis is to once for all  get rid of capitalist relations of production.  This can only be done by the collective and conscious struggle of the international working class. This social revolution can only be the result of a long struggle through which the working class can build the political force to finally send capitalism to the dustbin of history and build instead a real human community. Today this struggle implies the resistance to submit to the logic of capitalism's crisis (layoffs, wage cuts, benefit cuts, worsening working conditions, etc.) and taking it to its ultimate political conclusion, the confrontation with the state and the overthrow of capitalism. There is no other way out.

Eduardo Smith 10/11/09