Economic crisis: a product of capitalism

This motion was passed unanimously at the recent CPGB-ML party congress

This congress recognises that the economic and financial crisis gripping the world is a classic crisis of overproduction of the kind that Marxism demonstrates is bound to affect the capitalist world periodically because of the contradiction inherent in capitalism between private ownership of the means of production, on the one hand, and the social nature of production on the other. The private owners of the means of production (ie, ‘capital’) deploy them only for the purpose of accumulating private wealth, while the social producers – the working class – are squeezed as much as possible in order to maximise the capitalists’ profits.

However, congress further recognises that, since it is overwhelmingly the working-class masses who constitute, either directly, or indirectly through government purchases on their behalf of services such as health care and education, the market for the products of the capitalist economy, their squeezed powers of consumption cannot keep pace with the permanent need of capital to expand its production (the unquenchable thirst for expansion being forced on capitalists by the phenomenon of the tendency of the rate of profit to fall, which the capitalists strive to neutralise by expansion). Hence the recurring crises of “overproduction”.

Congress affirms that it is not that more is being produced than people need – it is that more is being produced than people can afford to buy. The least competitive capitalists are wiped out, along with all their workers, who are thrown out of employment by the thousand, and then cause a general lowering of wages because there is an oversupply of workers in relation to the supply of jobs available. This in turn undermines the general market for the products of capitalism still further, and so on in a vicious downward spiral.

This congress notes that crises of overproduction appear as financial crises because the bankruptcies caused by producers being unable to sell their commodities in the quantities they had been banking on leaves these producers unable to pay their debts – most businesses being dependent on bank loans in normal times to ensure that their businesses run smoothly. To avert the economic chaos that would arise from bank failure, national governments step in to save their banks by pumping huge sums of taxpayer money into them. This, however, means that governments are forced to borrow more, pay more interest and, generally, pay increased rates of interest too as they become more of a credit risk.

Congress further notes that these huge borrowing costs have to be paid by taxpayers, which puts still more pressure on their purchasing power – aggravating the crisis rather than curing it. Therefore, in order to reduce borrowing costs, governments reduce their spending – ie, they introduce ‘austerity’ – with thousands of government employees being added as a result to the mounting numbers of unemployed, and a further twist being added to the downward spiral of the crisis. Precisely because it is no solution, even the Financial Times condemns austerity as counterproductive, leading to reduced GDP and therefore to a reduced income with which to pay all the problematic debts.

This congress recognises that the crisis of capitalism will within capitalism be resolved – and then only temporarily – when enough capital (machinery, unsaleable goods etc) has been destroyed to ensure that there is room for whatever is left to expand as it needs to. Since capitalism evolved into imperialism, which has divided the whole world into spheres of influence under the control of one or other imperialist power, economic crises have driven the various imperialist powers to world war (ie, the first and second world wars) as each of them sought to resolve its crisis at the expense of the others. These wars take place over and above the incessant wars conducted in every corner of the earth by the various imperialist powers, either directly or through local proxies, to maintain oppressed nations in subjection to the imperialist diktat.

This congress therefore affirms that the recurring crises of capitalism and its ever more destructive, inhuman and brutal wars, demonstrate that this last exploitative economic system has now by far outlived its usefulness and urgently needs to be discarded. The ruling bourgeoisies who benefit from this moribund system, and who fight tooth and nail to preserve it, stopping not even at world war, must be overthrown and the proletariat must establish socialism in order to put itself in a position to implement real solutions to the economic problems of the world.

This congress resolves that the party shall continue to do its best to spread an understanding of these economic facts throughout the working-class movement in order to help dispel the illusions in the viability of the capitalist system that have been engendered by social democracy.

Egypt: Economic crisis nearing tipping point

From the International Report delivered to the CPGB-ML’s central committee on 4 February

Relations between Egypt’s ruling military government and the US remain fraught, as the government has barred six US ‘human rights’ workers from leaving the country. To avoid arrest, at least three of them have taken refuge in Cairo’s US embassy, while the US threatens to withhold its $1.3bn annual military aid to Egypt unless the government stands down on its objection to so-called ‘pro-democracy’ groups from abroad operating in the country.

In the meantime, the severe economic difficulties that lay behind the Arab spring uprising have continued to worsen. Unemployment stands at at least 15 percent, (but much higher among the young), half as high again as it was when the uprising started. Tourism has declined 30 percent and construction work has come to a standstill.

To avoid a devaluation of the Egyptian pound that would send food prices spiralling upwards, the Egyptian government has been spending $2bn a month in a losing battle to prop it up. According to the New York Times, foreign currency reserves have, as a result, fallen to about $10bn, from about $36bn before the revolt. Clearly this is unsustainable. (See ‘Economic crisis adds dangers on Egypt’s new political path’ by David D Kirkpatrick and Mayy El Sheikh, 24 January 2012)

Nor is the government able to raise money from Egypt’s banks to finance its expenditure, even at an interest rate of 16 percent, because the banks are fearful that the state will be unable to repay them. Another drain on its resources are energy subsidies, which cost it $15bn a year (one-fifth of all government spending), but the government cannot afford to reduce the subsidy as to do so would infuriate the Egyptian population still further.

In the circumstances, the Egyptian government has had to go back cap in hand to the IMF to ask for a $3.2bn loan – after having refused an offer of aid of $3bn only last June because it would have excessively compromised Egyptian sovereignty. In the meantime, the Muslim Brotherhood, whose Freedom and Justice Party controls over half the seats in Egypt’s new parliament, has pronounced itself in favour of IMF borrowing, free markets and abolishing subsidies.

With regard to relations with the IMF, the New York Times pointed out that the Muslim Brotherhood’s position was a “stunning reversal after eight decades of denouncing western colonialism and Arab dependency”. The crisis is making many such organisations reveal their true colours, which can only advance the understanding of the masses.

Euro on the verge of collapse

From the International Report delivered to the CPGB-ML’s central committee on 3 December

There is a real threat that the euro is going to collapse as a currency. This is because everybody is trying to get rid of their euro holdings. The reason this is happening is that it has become clear that Greece is not going to avoid defaulting on its debt, with the general consensus being that its lenders are going to have to take a 50 percent ‘haircut’.

At the same time, Portugal’s debt has been reduced to junk status by credit rating agencies, and borrowing costs for Italy and Spain have soared above the affordability mark, with even German bonds suffering increased borrowing costs. Now France is under threat as it is likely to need to bail out its banks as a result of their losses on their Greek debts, etc.

Attempts to put together a firewall that will enable European countries to continue to borrow at affordable rates of interest are floundering, and the Germans are resisting attempts to have the European Central Bank step in to perform this service, because they make the largest contribution to this bank and don’t want to throw good money after bad and then find themselves in financial trouble.

There is some suggestion that Germany would be willing to be more accommodating if the European countries would agree to greater fiscal integration, which of course implies a surrender of sovereignty to the EU which in turn is very much dominated by Germany and France. They of course can be expected to use that control for their national benefit at the expense of other EU countries.

In the meantime, the elected leaders of Greece and Italy have both been forced to resign, to be replaced by unelected ‘technocrats’ with close links to Goldman Sachs (which in turn was intimately involved with the repackaging of subprime debts as high quality by camouflaging them in complex ‘derivatives’). The new head of the ECB is also a former Goldman Sachs man.

The UK and the US are said to be making contingency plans for the chaos that will certainly ensue if the euro does in fact collapse. More detail in this month’s issue of Proletarian.