Deepening of the Capitalist Economic Crisis

Oct 15, 2020

This is a text of orientation of Lutte Ouvrière, adopted at its national congress.

The crisis of the capitalist economy has worsened sharply this year. The coronavirus pandemic was an amplifying factor, but not its fundamental cause. However, the alignment between and interaction of the economic crisis and the health crisis have allowed many bourgeois economists to blur the lines between what comes from the forced interruption of economic activity and what comes from the functioning of the capitalist economy in crisis.

The specific features of the worsening of the economic situation are nonetheless part of the general evolution of the global capitalist economy in the epoch of its now long-term crisis. The first manifestations of this crisis were the 1971 monetary crisis and subsequent collapse of the Bretton Woods international monetary system, the sharp drop in manufacturing in the early 1970s and the first oil crisis in 1973.

The last half-century has been marked by a succession of collapses, mostly financial ones, followed by recoveries. Beyond these fluctuations, the capitalist economy is marked by the stagnation or even the decline in manufacturing investments, leading to the persistence of mass unemployment everywhere. However, neither booms nor busts have stopped huge fortunes from being concentrated in even fewer hands.

In the era of imperialism, the accumulation of capital on an international scale takes the form of financial capital, more and more abandoning the form of industrial capital (factories, mining, transport networks etc.) in favor of financial transactions. The big bourgeoisie, which own the multinational companies, permanently hold huge financial surpluses in their hands. Because investment in production isn’t as profitable for them, they favor financial investments. The result is a growing financialization of the world economy, with a multitude of consequences, both for the functioning of the global economy and for the management of each individual company.

Nonetheless, the reproduction and the accumulation of capital are both ensured by the production of surplus value, its realization in the marketplace and its capitalization. Capitalist relations themselves are constantly reproduced by this process that renews production cycles and transforms money into capital, that is, into social power.

The predominance of financial interests over productive interests does not change the overall surplus value. It simply gives financial operations the advantage in how the overall surplus value is to be distributed—that is, who will get how much. Growing financialization actually undermines the capitalist economy and aggravates its contradictions, even while concealing some of them.

In response to every financial shock that has threatened to lead to what their economists call a “systemic crisis,” the imperialist states have injected massive amounts of money and credit into the economy, while working to facilitate the movements of financial capital. The result, as the economy has gone from one crisis to the next, has been an extremely rapid growth of international liquidities, credit and debt. The extravagant amount of accumulated capital and the ease with which huge sums can move in search of advantageous investments make economic life unstable, feverish, and permanently on the point of complete blockage.

The billions poured into the financial circuits over the last weeks have only inflated the volume of erratic money. The holders of capital have no more reason than before to invest in production. Calls from governments to encourage them to use the sums distributed by the state to revive investments can do nothing against this basic law of capitalism: one produces only what one can sell at a profit. The popular expression “You can lead a horse to water but you can’t make it drink” may sound like a cliché but it describes perfectly the reluctance of capitalists to invest in products or services that are useful to society.

This finance-oriented economy has many gimmicks to replace the absence of manufacturing investments with operations of myriads of securities. But these in no way attenuate the contradiction between the dynamics of capitalist production and the limits of its market, i.e., of consumption that can reimburse investment. The market is expanding far too slowly for the needs of capitalist production. Money given by states to companies doesn’t expand markets. And neither does rising unemployment: it does the opposite, it restricts them.

“Stimulus Package”—this is the neat title that governments in every country have given for the money they poured into the economy (100 billion Euros in France, 130 billion in Germany, and four trillion in the U.S.). This was “historic,” according to Le Monde (September 8, 2020). The paper added, “In only a few weeks, with unprecedented speed and determination, Germany freed itself from taboos which had formed the heart of its economic policy for years.... On June 3, just one month after the start of the first measures for coming out of lockdown, Berlin adopted a monumental recovery plan of 130 billion euros.... The budget voted in June provides for the issuing of new debts, bringing the total debt for the year 2020 to 218.5 billion euros, an unprecedented figure.”

Even more significant was the radical change in Germany’s attitude vis-à-vis the 750 billion euro stimulus package agreed upon by the heads of state of the European Union. More surprising than the astronomical sum of this package (a cocktail of grants and credits) is the fact that, for the first time, Germany, the EU’s main imperialist power didn’t veto a mutually shared loan that will have to be mutually paid back. The representatives of the German bourgeoisie have agreed to finance, at least partially, the debt not only of the imperialist countries of Europe which are more indebted than Germany, but also of the poorer countries of Eastern Europe. The leaders of Poland and Hungary may have presented this—the EU’s guarantee for their borrowing on the capital market—as a victory. But the biggest beneficiaries of the subsidies and loans from the EU are companies owned by German or French capital (Audi, Mercedes, Peugeot, Renault, Volkswagen, etc.) and, incidentally, Japanese ones.

The United States of Trump—arch-enemy of statism and champion of laissez-faire American capitalism—behaved just like other states. In March, the U.S. state announced a “historic economic stimulus package”—the “CARES” Act, amounting to 2.2 trillion dollars, only to add nearly another half trillion dollars to that in April, not counting the support advanced by the Federal Reserve to the financial markets. Within a few months, with additional outgo added, the total stimulus package in 2020 came to 4 trillion dollars, compared to the 1.5 trillion dollar bailout advanced over two years in 2008—09.

These facts bluntly illustrate the role of statism: to rescue private capital, “whatever the cost” (to use Macron’s expression). This comes after years of talk about the virtues of the markets, the need for a balanced budget, the harmful nature of public debt and other nonsense which served as justification for the austerity policies which all governments imposed on their peoples. It is in the name of such policies that the bankers of the imperialist world powers strangled Greece and its laboring classes.

A complete round-turn in the speeches of all the imperialist countries’ leaders. From now on, the central banks of all the imperialist countries, like the U.S. Federal Reserve and the European Central Bank, are keeping their counters wide open for the banking system and the largest companies. Interest rates are hovering around zero or even dropping below. Budget deficits are soaring but even the usually vociferous advocates of budget orthodoxy aren’t objecting.

What marks the current interventions by the imperialist States is their strictly financial nature. The State isn’t increasing public investments to make up for the lack of private investment. In France, there’s no comparison between current public investments and those made by the government following World War II to help the capitalist economy recover from the destruction caused by the war. There is nothing comparable in the current U.S. investments to the public works projects of Roosevelt’s New Deal, as modest as those were in the construction of housing and the bringing of electricity into rural areas. There are no public works projects underway in Germany either where old roads are falling apart—most of the highways date back to Hitler’s time—and where some bridges had to be closed for fear that they might collapse.

France’s hospitals were completely unprepared to handle the coronavirus epidemic despite the warning given by the first wave. The lack of hospital beds, medical equipment and, above all, trained healthcare professionals, is a clear indication that the healthcare sector alone would provide a vast field for useful state investment.

The vague debate among political representatives of the bourgeoisie as to whether there should be any conditions attached to the subsidies and loans granted to capitalist businesses is a significant one. The money granted to businesses, whether subsidies or loans, is basically lost. The business—i.e., the owners and major shareholders—gets the money, whether it be given to pay for salary cost or company debt, without the slightest obligation to invest in production or to keep from laying off workers or closing down factories. They can do whatever they want with the money they receive. Not only does the state come to the rescue of private capital, it also accepts in advance—that is to say, encourages—the capitalists to put this gift money into financial transactions.

So, if the stimulus packages stimulate anything at all, it will be speculation!

Even before the promised sums were distributed, speculation was already on the rise. The financial markets don’t need all this money at all. Zero interest rates or even negative interest rates are already enough.

On September 2, 2020, the headline of the French financial newspaper Les Échos read, “‘It’s the ‘Roaring Twenties’ just before the 1929 stock market crash again for Wall Street.” Major corporations and the big bourgeoisie are by far the main actors in the financial markets. Even the speculators who aren’t in the big leagues are generally part of the more or less wealthy upper middle class. Very few are wage-earners, even the most highly paid ones.

When speculation involves shares on the stock market, it is by nature directly related to production or more precisely to the companies that manufacture goods. But anticipatory speculation is what pushed the stock market capitalization of Elon Musk’s Tesla car manufacturing company beyond that of Volkswagen, Toyota, GM and Ford. Tesla has made and sold less than 400,000 vehicles whereas VW sold 28 times as many, Toyota 26 times, GM 21 times, Ford 13 times. But the simple fact that Tesla makes electric cars makes it seem to be a guarantee of future developments. As a result, its shares are a hot commodity and its share price increased by 950% in just a few months!

It’s the same deal, and for the same reasons, for giant high-tech companies. Apple’s stock market shares have doubled in less than six months. Its market capitalization has reached two trillion dollars or roughly the equivalent of the GDP of Italy, a country of over 60 million people!

Stock market speculation on high-tech shares currently brings in the most money the fastest. Such shares appeal to major financial corporations but also to middle-class suckers. The drastic fluctuations and turbulent ups and downs of stock market prices bear witness to the fact that they are among the riskiest ventures. Millions can technically be gained in just one day but they can also be lost overnight.

Those who come out on top in the big financial casino are those who are rich and powerful enough to make it through the highs and lows. The gambler who bets on all the horses has more chance of winning than the one who bets on just one.

But the major asset managers and traders that gamble both their fortunes and those of the bourgeoisie on the stock market also need to invest their money in values that will be more stable in the long term. There are very powerful financial institutions, BlackRock for example, that specialize in this kind of financial transactions.

One of the best providers of a stable return is the public debt, ever since the very beginning of capitalism or even since the first kings began to rule. In the unstable world of finance, government bonds appear the most secure. The future European loan—with its mutualized debt—will to some extent reduce the differences between loans issued by Germany and those issued by Italy, Spain and, still worse, Greece. The money being poured into the economy and the obligation of States to pay it back once the coronavirus crisis is over, thus will provide considerable amounts of “raw material” for the “financial industry” to speculate on.

Long before the pandemic and the resulting slowdown in production and trade, the least closed-minded of the bourgeoisie warned about the dangers to capitalism represented by too much liquidity and the overly chaotic movement of capital—which are both causes and consequences of the financialization of the capitalist economy. The economist Patrick Artus wrote in his book, The Folly of Central Banks: Why the Second Crisis Will Be Worse, published in 2016, “We are entering the era of permanent financial crisis, up until a still more destructive storm hits, which triggers a new world crisis that wreaks havoc and causes bloodshed around the globe.” But neither he nor anybody else can control the evolution of the capitalist economy.

The threatened collapse of the banking system in 2008 was a serious warning. Back then, the political leaders of imperialist countries and the stars of the financial world took turns promising stricter regulations, reorganization of the system, the setting up of supervisory bodies. The result ten years later is that global debt—including government and household debt as well as that of non-financial companies—has practically doubled according to the September 14, 2018 issue of the French financial newspaper, Le Monde Économie.

Another article published on September 14-15, 2018 in the financial paper Les Échos specified, “Worldwide public and private debt, which represented 61% of GDP in 2001 and 116% in 2007 increased to 225% in 2018, according to IMF figures.” The same article went on to starkly comment, “Central banks are struggling to get back to a more normal monetary policy.”

The State and state intervention have played a major role in capitalist development throughout its history. Statism accompanied, even preceded, the development of industrial capitalism. There isn’t enough space here to go over the decisive role it played in the early stages of modern capitalism both in England, the birthplace of industrial capitalism, and France. Let’s simply recall the role the State played in the development of transportation in England through the digging of canals, the building of roads and railroads and of course shipbuilding, which gave Great Britain primacy on the seas.

In France, where the industrial revolution began later than that of Great Britain, we can’t ignore Colbert’s statism which, even under the absolute monarchy, paved the way for private capital and for the emergence of both the textile and steel industries. The blast furnaces in Le Creusot in central eastern France, even if they were built with private capital, benefitted from financial aid from King Louis XVI’s government, helping the de Wendel family make its fortune.

The construction of railroads, financed by the State in a fragmented Germany, played a major role in the political unification of the country but it also launched the development of German capitalism in heavy industry.

The State also played a predominant role in the industrialization of Japan during the Meiji era.

When the State intervened in favor of the rising bourgeois class, it played a progressive role in the evolution of society. It participated in the development of capitalism, which was substituting itself for what survived of the feudal economy. But statism lost its progressive character with the emergence of imperialism, the “senile age of capitalism,” that of global competition among capitalists and everything which derived from it: putting the state in the service of militarism, conquest of colonies, using arms budgets and international loans to impose the penetration of capital in countries with little or no development. Today, the role played by statism has become reactionary in every aspect of its intervention.

More than a century ago, noting that “imperialism is an immense accumulation of money capital in a small number of countries,” Lenin stressed the “parasitic nature and the decay of capitalism” in its imperialist stage. The money capital accumulated in countries becoming imperialist could no longer be profitably employed inside these countries. Hence the tendency of these countries to export capital instead of goods, one of the essential characteristics of the economy in the imperialist era.

The exportation of capital brought about imperialist relations between countries, that is to say, the subordination to the imperialist powers of nations maintained in backwardness. A share of the exported capital nonetheless ended up being transformed into productive capital.

Analyzing the capitalist economy in her book The Accumulation of Capital, Rosa Luxemburg insisted on the role played by militarism, the construction of railways and international loans, as outlets for money capital.

Concerning international loans, she wrote, “They are instrumental in transforming money capital into productive capital ... for instance in the construction of railroads and the supply of armaments; they are used to pour out the capital accumulated by the old capitalist countries into the new capitalist countries.” However, this role for international loans has been reduced or even abandoned, except for financing the arms needed by the dictators of the poorer countries.

Today, the international indebtedness of the poor countries—that is, the loans granted by financial institutions in the imperialist countries—serve to keep the poor countries in a financial stranglehold without it having any benefit on production or transport in those countries.

The increasing financialization of the economy heightens the parasitic nature of imperialism while maintaining the subordinate position of dominated countries. International loans now leave hardly any trace in the productive economy.

The loans granted to Czarist Russia, when it was still an underdeveloped country, made the construction of railways possible. The money capital exported at the time by French, English and German capital owners also allowed the creation of huge plants like the Putilov Works, which became one of the strongholds of the Russian proletariat and a leading force for the seizure of power in 1917.

Already at that time, one of the basic functions of international loans was to finance the purchase of armaments that the privileged class needed to maintain its domination over its own people. Today, this function has become almost their only one.

These so-called economic recovery packages, what exactly will they recover? They’ll launch new financial operations and, therefore, speculation, that’s for sure! But how and when this will bring about a financial catastrophe—only the future will tell.

The current aggravation of the crisis has already deeply affected certain economic activities. In so doing, it has benefitted others.

The periods of crisis are a time of war to the death, fundamentally between the big bourgeoisie and the proletariat, but also among capitalists. Even when production resumes, it will be marked by the transfer of huge amounts of capital, by upheavals in the relationships of force among big capitalist groups. That’s how the capitalist system regulates itself: through all-out competition, the disappearance of companies and the concentration of production.

Our problem is not to guess who will be the winner of the deadly confrontations exacerbated by the crisis but to struggle for a fighting program to safeguard the working class.

Since the beginning of the year, more and more working people have visibly sunk into poverty. And they will continue to do so until the depression hits the bottom. When and how will this happen? We obviously can’t know.

We must continue to present the program for the defense of the workers’ interests, based on Trotsky’s Transitional Program. We must persevere and popularize this program without becoming discouraged and without expecting an immediate reaction from the working class. Quite naturally, the working class’s first reaction to the blows dealt by the bourgeoisie may well take the form of increased distress or a “let’s wait-and-see” attitude. These feelings could generate false hopes concerning the capacity of this or that scheme to solve the economic crisis without changing the capitalist system. Or it could foster belief in a supreme savior.

Even during the last great crisis of the capitalist system, the Black Thursday crash of 1929, the first massive reactions of the working class didn’t come until years later. Let’s also remember that, if the intensified class struggles of the 1930s led to history-making mobilizations of working people (the June 1936 general strike in France, the Spanish workers’ uprising and the powerful sit-down strike wave in the United States), they also paved the way for the worst form of political regime ever invented by the bourgeoisie to maintain its domination, Nazism.

The working class waits to see what happens. This attitude is reinforced in imperialist countries, especially those with a strong tradition of state intervention, by the decisions taken by the bourgeoisie.

In France, the State sought and still seeks to preserve the existing social “shock absorbers” and added to them during this crisis coverage for partial payment of unemployment benefits for some of the working class.

In the U.S., as early as March, the State increased the amounts paid out for unemployment benefits and spread them out to a much wider part of the unemployed, adding to that certain rulings on housing and loans that held back the worst effects of the sudden collapse of the economy.

The measures taken by the government to deal with unemployment are certainly not a sign of generosity. The capitalists and their political representatives simply want to be in position to restart production if there is a recovery. Their interest is to keep on the payroll the workers they couldn’t do without—especially if the state foots the bill.

Everything indicates that the crisis will continue to worsen in the coming period. Companies that are already in virtual bankruptcy will close. Suppliers and subcontractors will be hit by a chain reaction. Short of an expanding market, companies will shut down or downsize their workforce—even those kept above water by the State.

Workers with a precarious status have already been fired. The next to be thrown out will be skilled and otherwise highly trained workers. They’ll be joined by others who still belong to the petty bourgeoisie but are about to lose what they’ve got and become proletarians.

Our propaganda and agitation are certainly limited. But we must defend our program and present a policy that corresponds to what is necessary in the current situation. In times of crisis, things change very fast. And this includes the relations between the different components of the petty bourgeoisie and the working class. If the class struggle is exacerbated, we will be driven to highlight many points from the Transitional Program beyond those concerning the preservation of jobs and wages.

At a time when the labor movement is absent from the political scene, at least from a class perspective, political battles are limited to options that aim, without exception, to perpetuate the capitalist system and the bourgeoisie’s domination. No matter how different these options may appear, no matter how violently they may be expressed tomorrow, they all contribute to poison the working class, to divide it according to choices that are favorable to the bourgeoisie, and to divert it away from class consciousness.

Defending a class policy cannot be limited to showcasing a combat agenda for future struggles. It consists of demonstrating the fallacious character of all policies inspired by the preservation of the capitalist order.

At this moment, it is necessary to oppose all withdrawals into nationalism, protectionism and national sovereignty, whether they are spread by reformists or by the far right. It’s not enough to point out their absurdity in a long-established globalized economy; it’s necessary to combat their reactionary character.

At best, national sovereignty is empty demagoguery: in a globalized economy, the imperialist bourgeoisie can achieve it only in limited and partial areas. And even within those limits, at the cost of an enormous waste of human labor.

In 1933, in a text devoted to capitalist statism defended at the time by both reformists and fascists, Trotsky wrote, “The present ‘planned economy’ must be viewed as a stage that is reactionary through and through: state capitalism strives to tear the economy away from the world wide division of labor, to adapt the productive forces to the Procrustean bed of the national state; to constrict production artificially in some branches and to create other branches just as artificially by means of enormous unprofitable expenditures. The economic policies of the present state—beginning with tariff walls upon the ancient Chinese pattern and ending with the episodes of forbidding the use of machinery under Hitler’s ‘planned economy’—attain only a form of unstable regulation at the cost of causing the national economy to decline, bringing chaos into world relations.”

Trotsky’s affirmation stemmed from his Marxist view of the world.

The dying throes of the capitalist world are taking far longer than Marx and several generations of Marxist revolutionaries imagined.

The forms of social organization are not modeled on the human organism. All the aspects of capitalism itself—the globalization of the economy and of ideas, the growing absurdity of private property and national frontiers compared to its technological and cultural advances—show to what extent society is pregnant with a form of collectivist organization on the international level. But the bourgeoisie’s reign will end only when it has been overthrown.

As early as 1845, Marx said in substance, “It’s not a question of understanding the world, it’s a question of changing it.” The only sense or use in following the death throes of capitalism step by step is to prepare the revolutionary overthrow of the existing social order.

The bourgeoisie may be powerful and its political power firmly established but the deep forces that affect the economy and society are considerably more powerful. As in Marx’s day, and to an even greater extent today, all economic trends are moving toward a growing socialization of the economy itself.

Unless there is a catastrophe of such massive proportions that it threatens the very existence of the human race, the bourgeoisie cannot rewind history, it can only slow it down and delay its course.

A century after Marx produced his analyses, all the tendencies that he recognized in society and on which he based his socialist convictions show themselves today even more strongly than they did in his day. It was because he made such in-depth analyses that his socialism is scientific and not utopian like that of his predecessors. His socialism is scientific in the sense that it stems not from a utopian dream but from the analysis of capitalist society and its internal dynamics.

The evolution that Marx anticipated in his writings has become fact. The economy is far more socialized than it was then. In Marx’s time capitalism had developed only in a dozen or so western European countries and in North America. Now it has conquered the whole world.

The socialization of production covers the globe.

From the extraction of raw materials through transport to the finished product being sold, hundreds, even thousands of workers on the planet are involved. Production links workers from all over the globe by making them interdependent. Most of them are not aware of this and don’t even know in which country the previous stage of production was carried out.

Globalization and the interdependency of human beings has reached a level without comparison to that of Marx’s time. Even the most powerful dictators who serve big capital cannot change that.

Today’s demagogues—who are not all extreme-right extremists—brandish “national sovereignty” as a goal. The Nazi regime pushed it as far as possible in Germany. Hitler’s policy of conquering to extend borders which led to the Second World War, was already a demonstration of the absurd futility of this approach. Once Nazism was defeated, capitalist Germany was reconstructed by reintegrating into the international division of labor, becoming in it Europe’s greatest exporting power.

Globalization isn’t just economic, but also cultural and human, be it only thanks to all the inventions of modern technology, to the internet and all the things which derive from it.

All the tendencies that ensure the profound evolution of society have been developed by the bourgeoisie under capitalism and are trapped in the stranglehold of private profit. There is a contradiction between the dynamics of society and its capitalist organization and this is working against humanity. Controlled atomic energy could as easily be used to provide the electricity that Africa needs as it was used in Hiroshima. Instant communication is put at the service of automated financial speculation.

All this gives to humanity the technical and social means to control its fate—a reality that Marx could only dream of. It was still a dream more than half a century later, in Lenin’s time. When he voiced his succinct opinion that socialism was the power of the Soviets plus the electrification of the whole country, the electrification of Russia was still a goal that the Soviet government had to achieve.

A century later, this goal still hasn’t been achieved in many regions of the underdeveloped areas of the planet. But, in the meantime, human beings have walked on the moon and the exploration of space has begun.

The economic and social conditions exist. It is up to the proletariat to play its historical role. The only way that the collectivist tendencies of capitalist dynamics can be realized is through the revolutionary overthrow of the power of the bourgeoisie—the expropriation of the last of the ruling classes in humanity’s history—and through the human collective taking charge of its own destiny.

To use Marx’s expression: “Well grubbed, old mole!”