Luke Cooper
The last quarter of 2008 saw a sharp contraction in economic output for the world’s major economies. It signals that the process of destroying excess capital is well underway, writes Luke Cooper.
The synchronised world recession has begun, with the last quarter of 2008 seeing a sharp contraction in global economic output. The global banking insolvency crisis is compounding the downturn in industrial production as businesses face shrinking markets while also being starved of the credit needed to keep them operating – a process we have called a “vicious circle-like contagion” and the IMF calls a “pernicious negative feedback loop”.
The last quarter of 2008 showed there was a global slump in industrial production. A raft of recent figures was released that reveal the scale of the problem unfolding before us. IMF figures for global industrial production and exports published in January expose a dramatic falling off. World exports fell by 26 per cent in October and by an astonishing 42.6 per cent in November. Industrial output contracted by 8.9 per cent in October, then a further 13.1 per cent in November.
Every one of the world’s major economies has been hit. In the US, revised fourth quarter GDP figures showed a contraction of 6.8 per cent, meaning that overall in 2008 the economy grew by just 1.1 per cent – a far worse showing than the expected 3.8 per cent. US exports – which had been boosting the economy earlier in the year as the declining dollar made them cheaper – took a pounding in the last quarter too, falling by some 23.6 per cent (the sharpest fall since 1970). US consumer spending – that accounts for some two thirds of US GDP – also fell by 4.3 per cent (the biggest fall since 1980).
Even worse news was recorded in the export dependent economies of Japan and Germany. In Japan industrial output fell by 10 per cent in January – the biggest fall since records began half a century ago. While exports collapsed by 45.7 per cent compared to a year ago. In Germany fourth quarter GDP plunged by 2.1 per cent – the fastest decline since 1987 with exports down 7.3 per cent. Other Eurozone economies were hit too, with French and Italian GDP down 1.2 per cent and 1.8 per cent for the fourth quarter.
Anyone hoping that there would be better news from the “emerging markets” was sorely disappointed. A sharp slowdown is underway in the Indian economy, with growth dropping off to 5.3 per cent GDP for the last quarter – down from 8.9 per cent in the same period a year earlier. While in China, where GDP figures are historically – in the words of Albert Edwards of Société Générale – “appallingly manipulated”, the official figures showed that growth slumped to 6.8 per cent in the last quarter. But perhaps more telling is the collapse of Japanese exports to China, which has now fallen at a 35 per cent year-on-year rate – suggesting the downturn in China is far worse than the official figures maintain. As Edwards concluded: “I would eat my hat if the Chinese economy was doing anything other than contracting right now.”
We can see that a major recession in every sector of the global economy is now underway and signals the beginning of a real slump in industrial production. A group of economists at the World Economic Forum recently calculated that some 40 per cent of global wealth (e.g. share values, credit assets, real estate values, etc) had been destroyed since the crisis began in 2007. This process is what Marxists call the devaluation of capital, when excess capital, which cannot realise sufficient surplus value (profits) in production, is destroyed. This is a necessary process for capital to go through as it aims to create conditions permitting a new period of expansion and profitability (the boom after the slump, or the business cycle as it is known).
The massive fiscal stimulus packages cannot stop this process but they can change the form the crisis takes. By mobilising historic levels of credit – through underwriting bank lending, expanding public debt and resorting to “quantitative easing” (printing money) – the packages will disrupt the endogenous process of capital destruction but they will not ameliorate the crisis. While making the slump shallower than it would otherwise be, it will only succeed in prolonging the crisis and storing up further economic contradictions by augmenting the problem of over-accumulation.
The struggle for socialism
Why is this analysis important? Because socialists need to prepare the working class for the attacks by the bosses that have now begun: as working people are made to the pay for the crisis of the bosses’ system.
Initially, this will come through massive redundancies. We can already see that job losses and unemployment are escalating across the world. A report by the International Labour Organisation predicted that global unemployment would rise to 210 million – up from 190 million at the end of 2007. The same report said: “The number of working poor living on less than US$1 a day could rise by some 40 million – and those at US$2 a day by more than 100 million”. Others are even less optimistic – Oxfam warned that one in six of the global population could face a hunger crisis.
A moment’s thought about these staggering facts is surely all that it takes to realise we need to get rid of this whole rotten system and make way for an alternative. Socialist ideas can gain a hearing from millions in these conditions. When confronted with a world tragedy this immense, socialism goes from being a “nice idea” to an essential struggle for survival. Socialists need to a strategy that starts with the resistance – with the fight to defend every job and organise the unemployed – and outlines the steps to working class power. Our goal is to end the anarchy of the market and the cruel regime of profits, and build a world of equality where everyone can benefit.
For an in depth looking on the latest stage of the capitalist crisis see Now for the re-ordering of the world?’