Historic showdown builds in Europe

Two of surely the most delusional people on the planet strolled down the red carpet in Berlin last night, talking about growth and keeping Greece among the eurozone countries. No chance on the first, and close to zero on the second.

Francois Hollande, the newly-elected French president, took more notice of the lightning strike on his plane from Paris to meet Germany’s chancellor Merkel than the real state of the economy.

Greece is close to financial collapse, with people taking their euros out of the country, leading to fears of a run on the country’s banks. With fresh elections due in June, the country is without a government after electoral deadlock.

Even if Greece had a government, there is no way the European Union/International Monetary Fund would meet demands, expressed by voters, for a renegotiation of the draconian bail-out terms. So much for “democracy”.

Europe is in trouble – serious trouble, with the debt contagion claiming Greece, Spain, Italy and Portugal to name just some of the victims in recession. There are serious doubts whether the euro could survive a Greek exit from the single currency, as seems likely now.

But what about the so-called emerging countries? In China, looked to by many as the saviour of the capitalist economy,  a measure of money supply and a leading indicator of economic growth six months ahead has  contracted since November. They are shrinking faster that at any time during the 2008-2009 global meltdown, and faster than in Spain right now

State investment in railways has fallen 44%, with an accelerating decline over recent months. Highway construction has dropped 2.7%. "The data shows extreme weakness in the Chinese economy," said Alistair Thornton from IHS Global Insight in Beijing. Yes indeed it does: eight of the ten largest shipbuilders in the country have not received a single new order this year. "A wave of closures in the shipbuilding industry has yet to begin. A hurricane is approaching," said one official. 

Housing sales slumped 25% in the first quarter, and this has fed into a drastic fall in new building, which employs 10% of the Chinese work-force directly, and a further 20% indirectly. Land sales provide 70% of tax revenue to local authorities and 30% to the central government. Or at least they did.

Ambrose Evans-Pritchard, international business editor of the Telegraph, isn’t known for understatement, but his stark collection of data should make everybody’s eyes widen in alarm. “Something odd is now happening,” he says. “The People's Bank said new loans fell from $160bn (£99.5bn) in March to $108bn in April. Non-conventional lending seized up altogether. Types of credit including ‘trust lending’ fell by 96pc, and ‘bankers' acceptance bills’ by 90pc. This is astonishing data,” says Ambrose, and you have to agree.

India? Its industrial output fell 3.5% in March. Brazil’s growth has slowed too, with car sales down 15%  and industrial production contracting in March. The bad loans of its banks have reached 10.3%, higher than after Lehman crashed, taking the global financial system down with it.

Evans-Pritchard and his co-thinkers including Willem Buiter, and Ebrahim Rahbari of Citigroup, still call for miracles in the shape of a new globally co-ordinated collective effort by central banks to pump more fountains of cash into the financial system in the faint hope of staving off a world slump. 

Merkel holds the ring in Europe right now, and she’s got no intention of returning to Weimar-style inflation. So it’s austerity and “restructuring” all round, whatever Hollande may have promised the French people who elected him.

The Communist Manifesto was published in 1848, the last time there was a Europe-wide revolt against the old order. With Merkel’s party losing heavily in weekend elections, a new showdown is building between the working people of Europe and a political class that is helpless, hopeless and committed to a capitalist economy and financial system beyond repair. In their manifesto, Marx and Engels wrote, the “proletarians have nothing to lose but their chains. They have a world to win”. That remains the case today.

Gerry Gold

Economics editor 

The 'nether world' of capitalism

The propaganda that accompanies the cutting, slashing and burning of government spending is all about “securing the fragile recovery”. It is used in every country from Iceland, Greece, Ireland, Spain, to the US and Britain - to justify what in effect adds up to crashing the economy.

But don’t get the idea that anything else can be done within the capitalist framework. After decades of credit-led expansion the logic of capital now demands its opposite – ruthless contraction. It turns public pronouncements into lies, and politics inside out. Ireland’s government won’t be the last to find itself in trouble.

The economic trajectory of country after country, region after region confirms that the slide from recession to depression. The Organisation for Economic Co-operation and Development last week cut its forecast of UK economic growth in 2011 from 2.5% to 1.7%. The Institute of Directors is forecasting UK growth of 1.2% next year. In real terms, these figures represent a decline in activity.

The eurozone, having pumped billions of euros into recovery measures, achieved relatively strong second-quarter growth of 1% to the surprise of the markets. But the “recovery” was short-lived. Despite the export of capital goods from Germany to China, growth slowed to 0.4% in the third quarter. Euro zone unemployment rose to 10.1% in September and it is forecast to go higher next year. In the United States, another round of “quantitative easing” – aka printing money – is under way in an increasingly desperate bid to boost economic activity.

The World Bank predicts that China’s growth will slow in 2011 from attempts to constrain the country’s uncontrollable credit boom. Lending by its vast, unregulated underground financial market is sending the prices of staple foods soaring and triggering social unrest. The average price of 18 staple vegetables is 62% higher than a year ago.

Inflation is eating away at incomes not only in China. Commodity speculators have driven up the price of food worldwide, while transport and energy prices in Britain are set to soar. The inexorable fall in consumer spending power – VAT is going up to 20% in January – can only deepen the contraction.

Desperate times lead to panic measures, as the so-called rescue plan for Ireland’s bankrupt banks shows. Ireland, however, is only an extreme example of the rotten core of the global financial system, which has been on state life support since 2008. All the talk of the dangers of “contagion” and the threat to the euro itself indicates that another crisis-point has been reached.

We are not the first to analyse the destructive side of capitalism. In 1848, Marx and Engels wrote in their Communist Manifesto: “Modern bourgeois society, with its relations of production, of exchange and of property, a society that has conjured up such gigantic means of production and of exchange, is like the sorcerer who is no longer able to control the powers of the nether world whom he has called up by his spells … In these crises, a great part not only of the existing products, but also of the previously created productive forces, are periodically destroyed."

No amount of counter-propaganda against spending cuts can halt the inexorable contraction of the global economy. Avoiding the consequences means that the system must be replaced as a matter of urgency. Today’s general strike in Portugal against budget cuts and student actions in Britain against soaring tuition fees are only flashes of the struggles ahead. Going beyond resistance to putting an end to capitalism is the real challenge.

Gerry Gold
Economics editor

It's capitalism, stupid!

In the ominously quiet moments as the world awaits the next body blow in the struggle between the ill-matched but inseparable financial and economic systems, some of those on the sidelines look for an explanation that goes beyond greed.

They’re hoping to find something that might help to avoid a re-occurrence of the catastrophic series of implosions that mark the passing of the shadowy speculative organisations populating the world of fantasy finance. Or at least, they hope to provide an early warning of the sudden collapse of demand that wrecked the profits of corporations overproducing beyond the capacity of the market and the planet.

If this all seems a bit late in the day, this is because they were caught up in the hysteria of never-ending growth promised by regulators, politicians and financiers.

The Bank of England, which sat back entranced as a series of speculative bubbles grew in size, has published a talk given last month by Andrew G Haldane, its executive director responsible for financial stability. With a job title like that you’d be forgiven for thinking he’d be well ahead of the game – but, alas, he wasn’t and he still isn’t.

In a paper entitled “Rethinking the Financial Network”, and clearly written before the global threat of a H1N1 flu pandemic gripped the media, Haldane compares the panic effect of the 2002 Severe Acute Respiratory Syndrome (SARS) outbreak in China to the collapse into bankruptcy of Lehman brothers on September 15, 2008 and its catastrophic impact on global markets.

In his analysis of the financial system, Haldane draws on the theory of complex, adaptive systems, learning, he says from ecology, epidemiology, biology and engineering. This muddle-headed, eclectic approach is not new. People, among them Andrew Lo, director of the Massachusetts Institute of Technology’s Laboratory for Financial Engineering, have been using it for years to justify and explain the operation of free, in the sense of unregulated, stock and other financial markets.

The Green New Deal from the New Economics Foundation and “Prosperity without Growth” from the Sustainability Commission, both use it to argue for intervention. Coincidentally, Lo popped up yesterday in a Financial Times interview misusing Darwin’s theory of evolution and comparing the current crisis to the impact of a meteorite on the dinosaurs.

Haldane says that the evolution of a complex network of increasingly similar financial institutions meant that “sharp discontinuities in the financial system were an accident waiting to happen. The present crisis is the materialisation of that accident.” His prescription is better information, better regulation, and restructuring “to reduce the financial network’s dimensionality and complexity”.

In attempting to borrow from other sciences, Haldane, the NEF, Lo and the others essentially acknowledge that classical economic theories, whether of the free-market or interventionist schools, are dead in the water. But in ascribing the source of the current problems to increased complexity and external accident they completely miss the point about the nature of an overarching, objective, contradictory social system known to humanity as capitalism.

Crisis is an intrinsic part of the capitalist system of social relations and manifested itself long before the appearance of the complexity that Haldane and others describe. As far back as 1848, Marx and Engels in their Communist Manifesto already observed how bourgeois society “is like the sorcerer who is no longer able to control the powers of the nether world whom he has called up by his spells” and how the history of capitalism, then comparatively young, was one of “the revolt of modern productive forces against modern conditions of production” and how “commercial crises that by their periodical return put the existence of the entire bourgeois society on its trial, each time more threateningly”.

In other words, the problem is not at all that complex: it’s capitalism, stupid!

Gerry Gold
Economics editor

In praise of Charles Darwin

The imminent 200th anniversary of the birth of Charles Darwin, whose theory of evolution at a stroke revolutionised the way we see nature and our place in it, is not simply a moment for the celebration of scientific investigation. It also provides an opportunity to show how historical change takes place, both in nature and society.

Darwin’s great contribution was to analyse evidence he collected over a 20-year period about the abundant variety and difference in birds, flora and fauna and mammals. He collected fossils which showed that the earth was extremely old. This is the basis of his famous theory of the evolution of species, which he published in November 1859.

While he couldn’t provide all the proof at the time, the strength of his evidence was adequate to show that the creation of life on earth was not down to the invisible hand of God but that nature as a whole evolved in a self-related, self-moving fashion. This process of natural selection over millions of years of geological time led to new, more complex species as well as the disappearance of those that couldn’t adapt to the environment around them.

Darwin's ideas on the inheritance of traits was verified independently by Gregor Mendel's work on pea plants in far-away Moravia in the 1860s, although his work did not become well known until the 20th century. For the record, Darwin did not coin or use the phrase the "survival of the fittest" - the reactionary sociologist Herbert Spencer did.

Since Darwin’s time, further scientific developments have verified his theory of evolution. Carbon dating, based on the work of Marie Curie, can now reveal the precise age of fossils while the appearance of similar species on different continents is explained by geologists who can show that the earth was once a single big land mass, while the discovery of DNA in the early 1950s enables us to understand the transmission of inherited characteristics in humans as well as in other animals and parts of nature. Discoveries since Darwin in palaeontology reveal that Cambrian "explosion" - the seemingly sudden appearance of complex animals around 530 million years ago, was an example of "punctuated evolution" and not proof of creationism.

There were, of course, not one but two great revolutions in thinking in the mid-19th century. Karl Marx and Frederick Engels published their Communist Manifesto in 1847. This for the first time set out the evolution of society as a product of the class struggle. They showed how the contradictions within the system of production over time became untenable and gave way through revolution to another system, dominated by a new class. From this, they drew the conclusion that the working class, if it followed Communist leadership, was in a position put an end to capitalism.

Marx was impressed by Darwin’s theory because it indicated to him that society and the natural world underwent movement and change in broadly similar ways, although they were not and could not be identical. In 1873, Marx send an inscribed copy of the second edition of Capital to Darwin, who replied: “I thank you for the honour which you have done me by sending me your great work on Capital; & I heartily wish that I was more worthy to receive it, by understanding more of the deep and important subject of political Economy. Though our studies have been so different, I believe that we both earnestly desire the extension of Knowledge, & that this is in the long run sure to add to the happiness of Mankind.”

Darwin’s work is above all a refutation of scepticism about the possibility of knowledge. Marx’s contribution, in a similarly scientific way, shows the processes of change in society and the periodic interruption of apparently linear evolution through crisis, shock and revolution. We owe these great thinkers plenty at a moment in world history where an evolutionary leap is required.

Paul Feldman
AWTW communications editor

Too much 'civilisation'

Nothing sums up the insanity of the capitalist system more than unemployment. Just think about it. People want to work; the means of production like offices, shops, factories, plant and equipment all exist; yet all of a sudden, workers are thrown on the dole.

People desperately need affordable housing, for example. Yet tens of thousands of building workers have lost their jobs this year, developments have been abandoned and stockpiles of bricks are growing. And so does homelessness. The causes are not difficult to establish and lie right at the heart of capitalism.

Developers and house builders can’t make a profit because house prices have soared beyond many people’s reach and sales have slumped; the banking system has seized up so there are no mortgages in any case; and levels of personal debt weigh like millstones on the population’s necks. So, no profit equals no building work equals unemployment.

While the bankers are bailed out to the tune of £37 billion – with taxpayers’ commitments possibly rising to £3 trillion – the people who actually do the work and create real wealth as opposed to fantasy finance, are discarded without as so much as a by your leave. No bail-out for them!

Long quotes from 19th century philosopher-revolutionaries can be a bit dry and seem remote from 21st century global capitalism. But when you read what Marx and Engels had to say in 1848 in the Communist Manifesto, you are struck by how fresh their summary of capitalist crisis is:

Modern bourgeois society, with its relations of production, of exchange and of property, a society that has conjured up such gigantic means of production and of exchange, is like the sorcerer who is no longer able to control the powers of the nether world whom he has called up by his spells. For many a decade past the history of industry and commerce is but the history of the revolt of modern productive forces against modern conditions of production, against the property relations that are the conditions for the existence of the bourgeois and of its rule.

It is enough to mention the commercial crises that by their periodical return put the existence of the entire bourgeois society on its trial, each time more threateningly. In these crises, a great part not only of the existing products, but also of the previously created productive forces, are periodically destroyed. In these crises, there breaks out an epidemic that, in all earlier epochs, would have seemed an absurdity — the epidemic of overproduction. Society suddenly finds itself put back into a state of momentary barbarism; it appears as if a famine, a universal war of devastation, had cut off the supply of every means of subsistence; industry and commerce seem to be destroyed; and why?

Because there is too much civilisation, too much means of subsistence, too much industry, too much commerce. The productive forces at the disposal of society no longer tend to further the development of the conditions of bourgeois property; on the contrary, they have become too powerful for these conditions, by which they are fettered, and so soon as they overcome these fetters, they bring disorder into the whole of bourgeois society, endanger the existence of bourgeois property. The conditions of bourgeois society are too narrow to comprise the wealth created by them.

Brilliant! The productive forces are too powerful for the system of private ownership of the means of production. So they must be and are destroyed, jobs included. This what bringing “stability” back to the banking system actually means in practice. The case for reorganising society on co-operative, not-for-profit lines has never been stronger. That would give us the control over resources to keep people in work and meet basic needs like housing. Creating the means to turn the old order upside down is the immediate challenge.

Paul Feldman
AWTW communications editor