The fear and panic stalking the world’s stock markets is the surest expression that a global economic recession is under way with the potential to become a catastrophic, full-scale slump. What shape this will take is impossible to predict, but it would clearly involve the destruction of capital and assets on an unprecedented scale throughout the global capitalist economy.
The developing crisis also has dramatic political implications because it is self-evident that actions at state or even multi-national levels have small to non-existent impact on the underlying problems. These revolve around the classic capitalist tendency to over-produce which, on this occasion, is accompanied by vastly inflated financial assets whose foundations resemble a house of cards.
In Britain, for example, New Labour is so desperate to prevent the Northern Rock bank from collapsing that it is essentially giving it away as a present to political friend and entrepreneur, Sir Richard Branson. Taxpayers are being tied into the deal to the tune of £50 billion with absolutely no guarantee of getting their money back. All this to try and prop up a relatively minor bank. There are absolutely no prospects of this operation being repeated on a wider basis as bigger banks run up the insolvency flag. Government finances are already in a parlous state, with a record borrowing deficit of nearly £8 billion in December alone.
So when the world’s economic and political elite meet in Davos tomorrow for their annual conference, they will have plenty to think about. Instead of congratulating themselves for being masters of the universe, they confront a global economy that is unravelling before their eyes and which they can do little about. For example, a Credit Suisse research note says: ““What we are seeing now has the hallmarks of both a financial shock and the beginning of a [US] recession, or at least of growth grinding to a halt.”
Despite the dramatic falls in share prices, many believe there may be worse to come. “We believe the trough is not reached yet,” said Teun Draaisma, European equity strategist at Morgan Stanley. Justin Urquhart-Stewart, of Seven Investment Management, warned: "There is a very good chance of a retail-led recession and, although the market will recover, trying to judge when it turns is like trying to catch a falling knife.” Even the usually optimistic International Monetary Fund described the global economic situation as "serious".
Economic crisis always results in social and political changes too, usually for the worse if corporate and financial power has the say. For working people it will mean cuts in living standards, unemployment and a loss of public services. Politically, the danger is of a turn towards even more authoritarian, anti-democratic rule accompanied by nationalist and racist rhetoric as the old ways of rule prove ineffectual.
In the 1930s, following the 1929 Wall Street crash, the slump created the conditions for the rise of Nazi Germany and led inexorably towards World War II. The horrific destruction of lives and productive capacity became the basis for the subsequent post-war economic revival. Humanity cannot afford to allow a similar process to work itself out. The economic recession cannot be prevented but the road to slump and political reaction can be averted by popular mass action. This will involve a thorough-going revolutionary process to extend democracy in new ways. It requires a strategic plan to remove economic and financial power from the Davos-style elites and the transfer of political rule into the hands of ordinary people. To paraphrase Margaret Thatcher and Tony Blair – there is no alternative.
AWTW communications editor