Mark Lehner
During the election campaign and in the pro-Merkel and Christian Democratic Union climate that it created, one would have thought that, for Germany, “everything’s going fine”; the severe turbulence in the financial markets, the economic crash of 2009, the euro crisis, all that is now behind us.
When GDP in the euro-zone in Q2 2013 grew by some 0.3 per cent, for the first time since Q4, 2011, this was celebrated as if it were a major boom and a softening of the euro crisis was declared. The Autumn survey of economic forecasters was also optimistic, characterising the German economy as now, “at the beginning of an upswing ” (Frankfurter Allgemeine, October 13). Whichever serious economic newspaper one looked at, in Germany, the USA or Britain, the experts all agreed with each other on the economic outlook for 2014.
Of course, these “economic forecasts” also have a political purpose, their optimism helps to relieve “stress” in the markets and encourages acceptance of crisis policy. Thus, the 2012 projection for 2013 put growth in German GDP at about 1 per cent, which was then gradually reduced to today’s 0.4 per cent although, of course, only after the general election. When one looks at the bald figures for economic growth since the severe global economic downturn of 2009, the pattern for the global economy is quite clear: 2010 +5 per cent, 2011 +3.8 per cent, 2012 +3.1 per cent and now +2.8 per cent in 2013. For the German economy, the trend is not much better: 4 per cent, 3.3 per cent, 0.7 per cent, 0.4 per cent. Of course, one cannot simply extrapolate from this purely mathematically, but it does suggest that there needs to be strong evidence to justify a prediction of a reversal in this negative trend in the coming year.
One possible argument would be that a cyclical recovery after 4-5 years is normal. The problem is that the world economy has not shown any stable economic development since 2009. Instead, dramatic upturns (early 2010 to mid-2011, the first half of 2012) have followed equally dramatic downturns (second half of 2011, second half of 2012). This is commonly called the “volatility” of the current investment cycle and it leads to increasingly short-term economic planning in companies. This, in turn, carries great risks regarding the predictability of returns and repayment of loans. In this respect, the current “booms” are anything but sustainable and do not promote really forward-looking investment activities.
Even the German economy has not shown a different picture this year: after negative figures for the fourth quarter of 2012, the year began with a general panic amid fears that the EU recession had spread to Germany, then growth in the domestic economy produced positive figures: Q1 +0.1 per cent, Q2 +0.7 percent only for the second half to come crashing down again, lowering the average for the year to just 0.4 per cent.
Are there any real signs now that 2014 will be any different? At the level of the global economy, there are five decisive issues.
The rise of the “tiger states”
Economic development in the “emerging markets” (principally China, India, Brazil, Mexico and Turkey) in 2013 has deteriorated significantly. China’s growth model is reaching its limits as a result of internal contradictions (dynamic industrial centres alongside an ever bigger bureaucratic state sector, internal factional struggles, the shadow banking system that reflects a financial system ill-attuned to the needs of the industrial sector) which could lead to declines in growth rates and turbulence in the banking sector as in the first half of 2013.
Because of serious internal conflict, a crisis of its currency and plummeting growth rates, India is turning from boom to crisis. Brazil’s growth rate collapsed in 2013 and large volumes of capital have been withdrawn. Many of those who based their plans on the expectation of continued growth were caught completely unprepared when faced with the problem of debt, with the well-known social and political consequences that were seen in the protest movement in July.
This means that these regions, which were the basis of a global recovery in 2013, are no longer available as the locomotives of the world economy. Although many analysts are again talking up the prospects for 2014, they are likely to significantly underestimate the problems in China and India.
The policy of the Federal Reserve
The “FED’s” policy of pumping large quantities of cheap dollars into the market through low interest rates and buying back government bonds and other securities from the banks, “quantitative easing”, QE, was essential for the whole “recovery phase”.
Subsequently, the European and Japanese central banks turned to QE as well. Through this policy, the balance sheets of banks were restored and enough liquidity was provided to reverse the very restrained lending by the banks after 2008. Until the end of 2012, much of the huge wealth that had been rescued went into “safe assets” such as the corporate bonds of highly profitable industry but, since the beginning of 2013, it has flowed towards the hitherto stagnant stock markets, creating an apparently unstoppable bull market in shares. This also reflects an increased flow of capital that had been invested in the “emerging markets”, for example, as bonds, back into the imperialist centres. Especially with the increased liquidity in Japan, much Japanese investment capital has flowed into the US and Europe. Behind all this is also a great fear; the end of QE and its impact on financial markets.
Since the FED’s balance sheet has now expanded to about $4 trillion, nearly a third of US GDP, the monetary policy risks, such as inflation and debt, will become ever less sustainable. For a long time, therefore, there has been talk of an exit strategy but even the slightest hint of a move in this direction immediately leads to panic reactions on the stock exchanges and a prompt reversal. The main argument of the FED is to say that capacity utilisation of invested capital in the US is still far below pre-crisis levels, as indicated, for example, by continuing high unemployment rates. This has been the justification for economic and monetary policy measures for several years now, as if this low utilisation was just a feature of a cyclical weakness to be offset by an increase in money supply.
In reality, it is an expression of accumulated excess capacity (in the sense of capital valorisation) across a whole range of economic sectors such as automotive, energy and services, which has been obscured by bloated financial markets.
The real effect of central bank policy is actually a further expansion of the credit system, which absorbs this excess capacity, in other words, a repeat of problem that led to the 2006-08 financial crisis. From the point of view of capital, the alternatives now are either to head into a renewed crisis, which could then hardly be dealt with by the same means as in 2009, or a real reduction in excess capacity. That would entail a massive destruction of capital in the form of company closures, job cuts, welfare cuts and attacks on the living standards of working class, in short, what neo-liberal theory would describe as “letting the crisis do its job”.
Despite that, a central index of the US economy can be taken as representative of the world economy; capacity utilisation has stagnated at an average of 75 percent since 2010 ( http://www.markt-daten.de/research/indikatoren/ind.- production.htm ). This is the clearest expression of the problem of the crisis of over-accumulation. In “normal times”, a utilisation rate of 80 per cent is regarded as a symptom of crisis, which is then resolved by the destruction of productive capital. In this respect, the average decline in the growth of industrial production, job and capital investment indicators in recent years is no surprise.
The Arab world
Developments in the Arab world are also important for the global economy, after all, the mass of oil and gas deposits lie in this region. The weakening of US hegemony worldwide, and in this region in particular, the emergence of new regional powers, Qatar and Kuwait as well as the Saudis, but, above all, the Arab Spring, have stirred up the entire region. The new political regimes in Libya and Egypt, the protracted civil war in Syria, and a range of political risks, have kept the price of oil, in contrast to most other strategic raw materials such as copper, iron, nickel, etc, at a high level, generally above $100 per barrel.
Any further deterioration in the situation, such as an intervention in Syria, would immediately raise the price of oil to levels that are deemed critical for the global economy. The flip side of this situation is the concentration of the United States on developing its domestic oil industry, with environmentally questionable projects such as fracking or extraction from tar sands. A large part of the weak recovery of the US economy is based on such projects, which are highly speculative and ecologically shortsighted. Without question, the solution to the problems of energy supply in the future will not only be a question of speculation and economic cycles, but of survival, of war and peace.
The US
Since 2009, the solution to the crisis in the imperialist centres by means of bank bailouts and stimulus programmes has cost a lot of money and heavily burdened state budgets. Given the maintenance of neoliberal tax policy in most countries, this has led to “automatic” budget cuts and constant social attacks. Above all, in the US, the budget deficit and the political inability to solve it on the revenue side, has become a permanent crisis of the political system.
The system of “checks and balances”, the distribution of power between the legislative and executive, an electoral system that guarantees a strong position in Congress for a conservative minority, all this has paralysed the crisis management of the remaining superpower in recent years. Ultimately, this is an expression of extreme divisions within the ruling class in the United States. The decline of US industry, the growing debt to the rest of the world, the rise of new powers, particularly China, declining hegemony in key regions such as the Middle East and Europe, all this is seen by a part of the U.S. bourgeoisie as a result of weak political leadership. To that must be added the social decline of the white lower “middle class”, mostly former labour aristocracy, which has turned to the right and chauvinistic answers.
The “Tea Party” movement is not simply an irrational movement of fundamentalist Christians and nationalists. It is financed by several billionaires and has a media empire and a large political-social network. Via the primaries, it could dominate the entire Republican party, including the more moderate elements orientated towards the oil and financial sectors.
In contrast, the Democrats represent those portions of the bourgeoisie who want to modernise the US for her new role in the world and to get her fit for “global competition” with China and Europe. The two concepts are incompatible, usually offer no room for compromise, and are leading the US to the brink of insolvency. This is already threatening the world economy and may be the trigger for a major crisis like 2009. In any case, the paralysis of the US political system as a whole is a politically and economically important factor for the development of the world economy, because it makes effective and coordinated global crisis management more difficult.
Europe
The European crisis is far from over. At root, it was also caused by systematic over-accumulation at the same time as an expansion of finance capital, which led to an EU-wide banking crisis and a severe industrial recession in 2009. In addition to that, the still nationally based banking systems, in conjunction with the room for manoeuvre on fiscal and monetary policy of member countries, led to very different forms of national financial crisis. The weaker EU capitals were not able to manage their own banking crisis and, in the wake of the “rescue packages”, that is, the rescue of the assets of large investors, lost much of their sovereignty in relation to domestic and industrial policy. Even if the decisive powers in the EU, especially Germany, were able to extend their dominance of the economic policy of the EU significantly, the European banking system, including the German, is still far too weak and fragmented as compared to its US and Japanese competitors and, therefore, much more vulnerable to any new wave of financial market shocks.
Any such problem would immediately exacerbate the budget problems in Greece, Spain, Italy and Portugal and impair their ability to pay, with the now well-known risks to the budgets of all EU countries. German capital, in particular, has so far benefited enormously from the EU crisis through the elimination of competitors, lower labour costs by “near-sourcing”, cheap buyouts, extremely cheap refinancing of its own debt and favourable exchange rates for exports. Nonetheless, the risks of an EU crisis jeopardise any prospect of rebuilding the EU as “the most globally competitive economy”, as envisaged in the Lisbon Agenda.
These risks, which at the moment are only expressed in fears of inflation or irritation at low interest rates on safer forms of investment, have also resulted in Germany in the emergence of a faction within the bourgeoisie which is ever more clearly opposed to the ruling faction that still sees the modernisation of the EU as the central instrument for German capital’s global competition ambitions. This expresses itself, above all, in the rise of the AFD. Thus, even in Germany we see the growth of the centrifugal forces that are much more apparent in other EU countries and that increasingly threaten to tear apart the EU and euro project. Therefore, the EU-Capital Federation is neither economically nor politically prepared for the coming downturn. Indeed, on the contrary, it would act as an amplifier of each new wave of crisis.
Conclusion
Overall, therefore, German economic development over the past year cannot serve as a basis for the optimism of the “Economists”. The problems in the “emerging markets” and the US led to a sharp deceleration of the German economic locomotive, the export industry. This is revealed by the figures for their imports of German goods up to August, which posted a decline of about 1 per cent, in August itself there was a drop of 5.8 percent (see destasis.de ). The recovery in Japan is also unhelpful because it is primarily a competitor on the world markets.
Thus, the German economy was driven particularly by strong expansion of consumption as a result of slight rise in wages and a massive reduction in the savings rate, whether by the spending of savings or increasing debt. Since neither export prospects, the investment rate nor order books provide any favourable indicators for the coming period, it is questionable how far domestic consumption can continue to provide such ” bridging”. On the contrary, given the five major risk areas examined above, the collapse of this “wobbly bridge” and a return to the downward trend, is possible at any time.
It may be that in 2014 there will again be a brief pseudo-recovery for one or two quarters. Generally, however, the situation for the stability of the world economy is more dangerous. The working class must urgently prepare for a heavier crisis and be ready for international defence against the following massive threat to their livelihoods. Either the working class learns that this system needs to be replaced in its entirety by a socialist alternative, or they will be faced with hardships that were previously difficult to imagine and the loss of many gains, won over many years.
This article has been translated from the original German, which can be found at www.arbeitermacht.de