For the global economy, the only way is down.
Britain shows where
things are heading. A deepening
recession intensified by austerity has created a spiral of decline in public
finances. More brutal assaults on living standards are sure to follow.
Unusually low tax receipts from North Sea oil and gas production sent the
government’s finances further into the red in July. With manufacturers
reporting falling orders, it marked a further deterioration to add to nine
months of recession. The rapidly worsening crisis has turned public sector
finances from a £2.8 billion surplus in July last year to a deficit close to
The decline in tax income is a self-inflicted blow by the Coalition’s chancellor, George Osborne. It is the opposite to what he’d intended in last year’s budget when he fished for a £2 billion tax rise from producers. They responded by cutting production in the already aging fields.
This contradictory outcome neatly shows the limits of political power in the global recession. Despite the ritual claims that austerity is needed to cut the deficit and bring about a return to growth, the ConDems are forced to submit to the powerful forces of contraction which have been at work in the global capitalist economy since the 2007-8 crash.
has now joined the club where managing contraction is de facto policy. Spending cuts are as much about keeping borrowing
costs down as anything else (yesterday the government sold £1.35 billion of 17 year inflation-proof
bonds at effectively below zero interest). Naturally, austerity measures only
deepen a recession that engulfs every economy.
Europe's debt crisis
is the first factor to pull down exports, and the pace of decline is striking.
This is comparable to the post-Lehman situation," said Masayuki Kichikawa,
chief Japan economist at
Bank Of America Merrill Lynch in Tokyo.
largest trading partner, fell 11.9% from a year earlier, the biggest decline in
five months, due to lower shipments of semiconductors, electronics and car
parts. "We hoped domestic demand in China
would support Japan's
economy, but the story is different," said Kichikawa.
Reflecting the sharp decline in overall exports, the Ministry of Finance figures showed
Japan swung to a
larger-than-expected trade deficit of 517.4 billion yen ($6.5 billion).
a key part of the global technology supply chain, fell for a fifth straight
month in July. Orders for Taiwan's
exports, a predictor of demand, slumped 4.4%
in July over the previous year, far more than expected. And South Korea,
home to major carmakers, computer chip and flat-screen producers, recorded its
sharpest fall in exports in July in nearly three years.
The deepening slump in
is intensifying competition for declining markets in the region. It is adding
to the simmering tensions between Japan
and China over the disputed
Senkaku/Diaoyu islands and has provoked the biggest anti-Japan protests in
seven years in cities across China
in recent days.
Labourites like former chancellor Alistair Darling, backed by business and trade union leaders, are calling on Osborne to abandon austerity and “go for growth”. Wilfully or otherwise, they completely fail to grasp the systemic nature of the crisis.
There is a global surplus of productive capacity. In this context, contraction and not growth is the absolute tendency which neither Osborne’s austerity nor Obama’s spending programmes can overcome. The system of production for profit is the problem and no amount of tinkering will change that.