Two years ago this week, the global capitalist economy entered uncharted territory. It started with a crisis in the credit markets – the so-called “credit crunch” – and within a year it had led to a precipitate collapse in economic output in all sectors.
The collapse of inter-bank lending in August 2007 was bad enough to prompt senior, respected commentators to declare that “the system” – they only meant the unregulated system of institutions trading in credit-derived financial products – was broken beyond repair. These contagious sentiments expressed a mounting worldwide panic exemplified by the queues of customers outside Northern Rock in the middle of the following month.
Most of the attention then as now is focussed on the financial system. Attempts to prevent the financial crisis turning into a complete meltdown produced the second transformation in the role of the capitalist state since the 1970s.
The first transformation became known as globalisation. The irresistible need of capital for expansion resulted in transnational corporations dictating policy to national governments both directly and via global agencies like the International Monetary Fund and from 1995 the World Trade Organisation.
Lobbyists for corporate interests demanded that regulation and control on the movement of capital be eliminated for all practical purposes, accompanied by an assault on workers’ income and conditions. Civil war conditions were launched against British miners in 1984. The benchmark for wages was set by the transfer of much manufacturing to China where the rate was reduced to as little as a dollar a day. Profits soared.
A series of worsening crises from the mid-nineties onwards gave warning that the years of credit-led growth were reaching their limits and that overproduction was unsustainable. As we said in A House of Cards – from fantasy finance to global crash (free download) published in November 2007: “Then on 9 August 2007, the long period of corporate-driven globalisation of the world economy came to an abrupt end. That Thursday, major banks suddenly refused to lend to each other and a ‘credit crunch’ hardened the arteries of the global financial system.”
Losses from the financial crisis alone are colossal. Bank write-downs and losses currently total more than $1,500bn. The IMF has predicted losses across the financial services industry could eventually total $4,000bn, or nearly one-third the annual value of US production.
The effects on the real economy are more devastating. As the scale of the worsening crisis unfolds, millions more families are being driven from their repossessed homes, reclaimed by their owners, the banks and other mortgage lenders. Industry after industry is emulating the collapse of car-making worldwide because consumption has shrunk. Today will show that unemployment in the UK has soared to record levels, with young people making up more than a third of those without work.
This dramatic decline in the fortunes of capital changed the role of states once again, obliging them – those that aren’t yet bankrupt - and their central banks to launch a series of attempted rescue packages and the large-scale printing of money. The new bursts of credit designed to enable production to continue will have to repaid by as yet unborn generations of taxpayers, but the best that has been achieved is a temporary slowdown in the rate of deterioration.
The true cost of engineering a return to growth involves the elimination of not just failed banks, but huge swathes of no-longer, profitable credit-dependent factories, farms and software houses. Workers facing the consequences will find the cost too great to bear. The system – the capitalist system of production – is broken and the cost of fixing it would be counted not just in closed factories, but in the elimination of rights, of human lives and an inhospitable planet.
This is the moment to prepare the ground for a revolutionary transformation to a society where property is held in common and goods and services are produced to satisfy needs not profits, according to priorities determined through a new democratic process.