Perspectives for the Class Struggle in Light of the Deepening Crisis in the Imperialist World Economy and Politics
Theses on Recent Major Developments in the World Situation and Perspectives Ahead (January 2015)
Document of the International Executive Committee of the Revolutionary Communist International Tendency, 11 January 2015
Note of the Editorial Board: The following document contains 11 figures and 2 tables. They can be
viewed in the pdf version of this document (see above).
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The following document gives an overview of the most important political developments in the world since April 2014 and offers an outlook for the coming year. It expands upon the analyses of the global political situation which the Revolutionary Communist International Tendency (RCIT) published in three documents during the past two years. [1]
1. The following issues will have a determining effect on world politics in the coming period:
i) The stagnation of the global capitalist economy and the looming next Great Recession in 2015;
ii) The aggravation of the inter-imperialist rivalry between the US, EU, and Japan on one hand and Russia and China (with the support of other BRICS) on the other;
iii) The new imperialist war drive – led by the US – in the Middle East against Islamists, the corresponding accelerated wave of racist attacks against Muslim migrants in the imperialist world, and the volatile process of the Arab Revolution.
2. To characterize the present world situation in few sentences, we would have to say that the crisis of capitalism is about to deepen qualitatively. Recently, Germany’s Foreign Minister Frank-Walter Steinmeier stated in horror in a speech before German capitalists: "Globalization is in recession!" [2] This appropriately summarizes the sentiment of the ruling class. Given the looming recession and the escalation of the inter-imperialist rivalry, the stability of the imperialist world order is in danger more than at any time since the end of World War II. As a result, the imperialist bourgeoisie is reacting mainly militaristically with an imperialist war-drive abroad and chauvinism and repression at home. While the masses have revolted against the ruling classes’ offensives again and again with waves of resistance and will continue to do so, until now they have suffered repeated defeats. The main reason for this is the glaring lack of revolutionary leadership. This is precisely the reason that the working class and the oppressed are exposed to the mis-leadership of reformists, left-liberals, as well as petty-bourgeois nationalists and Islamists. Hence, the main task is the formation of a revolutionary party, both nationally and internationally. The coming historical phase will witness more social and political explosions and, consequently, revolutionary and counter-revolutionary situations which will create a series of opportunities to overcome the crisis of working class leadership. The RCIT will dedicate its forces to prepare the vanguard sectors programmatically and organizationally for the upcoming struggles so that they can liberate themselves from the reformist chains.
I. A Stagnating World Economy Stumbles towards Another Great Recession
3. As the RCIT has pointed out in its past analyses, the capitalist world economy – and in particular its core sectors, the old imperialist countries in North America, Western Europe, and Japan – were never able to recover from the Great Recession of 2008/09. This is reflected in low rates of growth and several smaller recessions of important countries, a decline of business investment, stagnating wages, and growing rates of unemployment.
Stagnation Instead of Recovery
4. The Euro Zone already faced recession in 2013 when its economy shrank by –0.5% and experienced stagnation this year with a modest growth of only +0.8%. Japan has recently entered its fourth recession in six years. The US economy seems to be doing better: its growth in GDP was 2.2% in both 2013 and 2014 and this rate of growth is predicted to continue for the next two years. Leaving aside the unlikeliness of this prediction (see below), one has to see that the past growth was mainly the result of the exorbitant pumping of new money in the economy (the Federal Reserve’s so-called “Quantitative Easing”). The European Commission had to admit in its latest forecast: “In fact, the recovery from the recession in 2008-09 has been slower than any other recovery in the post-World War II period on both sides of the Atlantic.” [3]
5. This situation is leading to increasing nervousness by monopoly capitalists and their representatives. The Washington Post recently wrote about the Euro Zone: “With an unemployment rate of 11.5 percent, the euro zone is experiencing conditions that some economists say echo the Great Depression.” [4] British Prime Minister David Cameron warned that the world is functioning against “a dangerous backdrop of instability and uncertainty.” [5] The OECD in its latest Outlook implicitly acknowledges the persistent stagnation (global growth is still “stuck in low gear”) and hopes once more for a recovery next year – five years after the official end of the last recession!
6. As always the working class is bearing the brunt of the capitalists’ inability to revive their doomed profit-driven economy. Despite the so-called recovery, unemployment in Europe is higher today than it was during the recession. Officially, things are better in the US where the unemployment rate has fallen from 10% in October 2009 and to a current 6.3%. But this ostensible improvement is largely due to the fact that many workers have resigned and aren’t applying anymore for jobs (at least outside of the grey sector). This becomes evident if one examines the Labor Force Participation Rate, i.e., the share of people who are employed. This figure was 66% before the start of the recession in December 2007, but has fallen since then. In May 2014 it was at 62.8%, i.e., even lower than the rate during the recession. (See figure 1) Even an economist from the conservative Heritage Foundation has to admit: “Unemployment has fallen because fewer Americans are looking for work, not because more Americans are finding jobs.” [6]
7. But irrespective of the capitalists’ fanatic drive to let the workers pay for the crisis, their economy is sucked in decay. As a result, the old imperialist economies were in a worse state in 2014 than they had been in 2007, i.e., before the beginning of the Great Recession. This is reflected at various levels. Capitalist production is much lower than the levels prior to 2008. After a brief rebound of +8% in the first year after the recession (2010), industrial production has grown only by 3.5% (2011) and then respectively stagnated during 2012 and 2013 at +0.9% and +0.5%. [7]
8. The capitalist decline is also reflected in the low level of capacity utilization in the manufacturing sector in the largest of the old imperialist powers, the G7 countries. [8] This rate is currently about 66%, reflecting that about 1/3 of productive capacity is not being used by the capitalists because they don’t expect sufficiently high profit rates from its utilization. As one can see in figure 2, the current level – at the peak of recovery – is 6–7% below the level of 2007. This is a glaring example of the reactionary and parasitic character of imperialist capitalism in which billions of people simultaneously live in misery, hunger, and poverty! Only the expropriation of the capitalists and a socialist planned economy around the world can ensure that the productive forces are used in the interest of humanity and not a greedy, miniscule minority of super-rich!
Depressed Capital Accumulation
9. Production is stagnating because capital accumulation is decelerating. In other words, the capitalists invest less and less because they have low profit expectations. According to a recently published study, in the first three quarters of 2013, investment by non-financial G7 corporations amounted to 11.4% of GDP, compared with 12.7% in 2008. This means that business investment (i.e., investment in machinery, equipment, means of transport, and building structures) in 2013 – a year of so-called recovery – was weaker than during the recession year of 2008! [9] As we have already pointed out in past publications, this reflects a long-term trend of declining capital accumulation. [10] This is particularly obvious if we examine the decline of net investment (i.e., the investment for expanding the purchase of machinery, while gross investment also includes the investment for replacing worn machinery). As we can see in figure 3 both gross and net investment – calculated as a share of GDP – have declined tremendously in the past 25 years in the G7 economies, and net investment has been oscillating between 0% and 1% since 2008!
10. The Chinese economy is not in recession and – compared with the old imperialist states – has experienced rapid growth. However, even China’s rate of growth has decelerated and is expected to continue to do so (2013: 7.7%, 2014: 7.3%, 2015: 7.1%, and 2016: 6.9%). [11] China’s rapid capitalist growth during the last quarter of a century in light of the stagnation of the old imperialist countries is an important material basis which helped it become transformed into an emerging imperialist country instead of being a semi-colony dependent on the US, EU, and Japan. [12]
11. While India has seen growth in the last years (2013: +4.7%, 2014: +5.4%), other BRICS countries experienced stagnation in 2014; for example Russia rate of growth was +0.7% and Brazil’s was +0.3%. Russia, in fact, has just entered a recession due to its business cycle compounded by Western sanctions. [13]
The “Unsustainable Debt-driven Growth Model”
12. In fact, the greatest achievement of the economic policy of the imperialist ruling classes during the past six years has been their ability to avoid a complete breakdown. How was this achieved? Basically, by a massive accumulation of debt. As one can observe in the latest data, reproduced in tables 1 and 2 as well as in figures 4, 5, and 6, total debt – i.e., the accumulated debt of households, corporations, and governments – has increased substantially in nearly all imperialist and advanced semi-colonial countries around the world (the only exception is India). Despite all proclamations about cutting debt, all the larger economies are more indebted today than they were before the last recession, as well as before 2000. Total debt (excluding the financial sector) of the US is at 252% of GDP in 2014 (23% higher than in 2007); at 398% of GDP in Japan (70% higher); at 272% in the Euro Area (43% higher); and at 274% in UK (36% higher).
13. However, it is not only the old imperialist states but also the so-called emerging economies – i.e., China, the BRICS and other countries from the South – which have substantially increased their indebtedness. Naturally, not all have increased their debt to the same degree and some countries have done so only slightly. But the general tendency is crystal clear. In China total debt is already at 229% of the GDP (76% higher than in 2007) and in Hong Kong, which of course is part of China but which is calculated separately in bourgeois statistics, the numbers are even bigger 292% (105% higher). In its latest report, the OECD commented: “Debt levels remain high by historical standards. Household and government debt levels are high in many advanced economies, despite post-crisis private-sector deleveraging in the United States. In many emerging economies, debt levels have increased rapidly since the crisis, fuelled by capital inflows. In China, there has been a significant build-up in credit, with still-rapid growth in lending by non-bank entities to the nonfinancial private sector. ” [14]
14. In other words, the limited growth, or the avoidance of total collapse, of the past few years has been bought by increasing debt and hence increasing the future burden. As is well-known, the last recession of 2008/09 was triggered by massive speculation and the huge debts. However, as we have demonstrated, the level of debt since that recession has not been reduced but rather has increased! A collapse during the last few years has been avoided only at the cost of an even worse crash yet to come.
15. The more astute representatives among the ruling class are aware that this policy of buying time by accumulating debts is unsustainable and doomed to eventually explode. Even the Deputy General Manager of the Bank for International Settlements – the “central bank of the central banks” – characterizes the functioning of the world economy as a “debt-driven growth model” and calls it an “unsustainable growth model” [15]
The Tendency of the Rate of Profit to Fall – The Fundamental Cause of the Crisis
16. What is the fundamental cause behind depressed capital accumulation and the consequent crisis-ridden business cycle? As several Marxist economists have repeatedly pointed out, and as we too have described in a number of our RCIT publications, the fundamental cause for the stagnation and decay of the capitalist world economy is the tendency of the rate of profit to fall. Basically, as Marx elaborated in Capital Vol. III, this means that in the long run the share of surplus value becomes smaller relative to all of the capital invested in production (in machinery, raw materials, etc., as well as wages as wages paid to workers). Therefore, the surplus value which can potentially be used for the reproduction of capital on an extended level becomes less and less. This inevitably leads to disruptions and crises, and as we have witnessed since the early 1970s, and in particular since the beginning of the historic period of the capitalist crisis of 2008. In figure 7, we show the declining rate of capital accumulation in the US economy starting in mid-1970s. In figure 8, we can observe that the dynamic of the rate of accumulation is closely related to the dynamic of falling profits.
17. This means, first, that the long-term decline of the rate of profit has led to a similar trend in capital accumulation. Second, it means that the development of the rate of profit in the business cycle, i.e., the ups and downs of the economy, usually during of periods of 7-10 years, precedes the corresponding dynamic of capital accumulation. Or, in other words, a decline in the rate of profit is usually a harbinger of an upcoming decline of capital accumulation and, hence, a new recession.
18. Instead of reinvesting profits in production, unattractive as it is because of the decreasing rate of profit, capitalists use their surplus value to speculate and to pay shareholders’ dividends, thereby keeping the value of their stock high. Given low interest rates, capitalists can easily enough borrow cheap money to achieve these financial goals. Even bourgeois economists have recognized this development: “The recent weakness in G7 investment is particularly surprising given ultra-easy monetary policy conditions, with interest rates across the major currency areas standing at historical lows. As a result, borrowing costs – as measured by bank retail lending rates and corporate bond yields – have declined markedly. At the same time, corporations’ external borrowing needs have declined as internal funds have grown in the years after the Crisis. Operating corporate cash flow, or saving, rose in most G7 countries, notably in the US, Japan and Germany. For example, the saving rate of US non-financial corporations surged to 21% of gross value added, compared to the pre-Crisis level of around 16%. While G7 corporate saving has declined more recently, this to some extent reflects dividend payouts and share buybacks. Even so, net lending as a share of GDP remains positive, as during the period 2002–2005, which was also characterised by low investment spending and high cash accumulation.” [16]
19. This underlines once more the unproductive, indeed parasitic nature, of capitalism. “While companies have taken advantage of the low interest rate environment by issuing bonds, the proceeds were mainly used for share buybacks (and not capital expenditure), which has contributed to the recent stock market rally. In turn, investors have been lured to the stock market by strong capital gains and also increased dividend payouts, at a time when returns on other assets such as bond yields are very low.” [17]
2015 – The Next Great Recession?
20. As we have already stated, the European and the Japanese economies are already in dire straits. So is Russia. China’s situation is better, but its decreasing rate of growth and its increasing debt, combined with the general backward nature of the overall economy (reflected in a low level of productivity), are an indication that the great eastern power is not strong enough to pull the world economy out of its crisis. The US seems to be in a more robust state. But the Marxist economist, Michael Roberts, has pointed out that the US corporate profits are already declining: “But corporate profits as a whole have virtually stopped rising, up only 0.4% year-on-year in Q3’2014, while after-tax profits are contracting and have been throughout the year.” [18] As a result he predicts that in 2015 or so, the world’s biggest economy – which constitutes the last hope to extract the world economy from the crisis – will probably enter yet another Great Recession: “In the graph below, I have lagged investment growth (blue line) by one year against profit growth (red line). It shows that when profits turn down and eventually go negative, one year later or so, business investment collapses and when profits expand, investment follows within a year. Currently with profits not growing, investment will follow by mid-2015, this suggests. And with investment closely correlated with GDP growth, the risk of recession in one year or so looks high. The world economy would then be in reverse gear.” [19] (See for this also figure 9)
21. The OECD predicts a recovery for 2015, but only under one condition: that the imperialist states undertake massive “growth-supportive measures”, i.e., state-capitalist intervention in the economy by increasing public debt.