The Crash is coming – get prepared

August 18, 2007

Soon, fellow insurgents, you will experience delays on the Central Line as stockbrokers finish themselves with gymnastic flips into an oncoming train. For, a spectre is haunting capital. According to Robert Wade’s exceptionally timely New Left Review article, the recent weaknesses in the global system led the Bank for International Settlements to declare that the world was vulnerable to “another 1930s slump”. The main reasons for the structural precarity are: (i) the exorbitant levels of global debt, with hedge funds currently valued at $1.5 trillion, making a ‘great unwind’ probable; (ii) a liquidity boom which has increased financial instability; (iii) the imbalances in the US economy, with a middle class squeezed by declining house prices and the drop in real wages, and its relative global decline leading it to seek less multilateral ways to expand its hegemony; (iv) the entry of rising capitalisms to the global club, with competition increasingly taking the form of neo-imperialism, particularly over energy access (Wade includes Russia’s recent moves over energy in Central Asia in this category), thus raising the prospect of instability in the geopolitical system. The implications of a crash, in other words, are that economic autarky will be accompanied by increasingly militarised drives to facilitate the export of capital as well as access to energy resources. Aside from that, the condition of the labour movement is not optimal, and its ability to resist the inevitable attempts to make the working class pay for a recession with pay cuts and degraded conditions is weak. Not that it couldn’t be done, not that a populist or anticapitalist challenge couldn’t be renewed, but we’d have to re-learn some old lessons extremely fucking quickly.

Interestingly, the response of both libertarians and Keynesians is to blame the rentier class in different ways. Larry Elliott rightly points out that this is no mere wobble, but a sign of deep crisis. The flashpoints of the 1998 crisis were in the developing markets such as Singapore and Thailand (which Blair had hallelujahed unto the heavens before their sudden collapse), whereas today the flashpoints are in the most advanced capitalist economies. And while that proved to be a liquidity crisis, this may prove to be insolvency crisis as larger numbers of households find that they have literally nothing to sustain them. Yet, his argument seems to be that it is the privileging of unproductive financial capitalism over useful manufacturing that is exposing us to such danger, and so he calls for tighter regulation. If the growing profile of finance since the 1970s has produced more global instability, it doesn’t mean that this is where the root of the problem lies. Had it not been for the contraction of profitable opportunities in the US economy, the investment banks would not have been tempted by these evidently risky investments in ‘subprime’ debt. And had it not been for the fact that the recovery of profitability in the US and to a lesser extent in Western Europe was based on the ruthless suppression of labour’s bargaining power, thus keeping wages either in relative or absolute decline, then there would it would not have been necessary to stimulate spending with cheap credit. If the domestic markets were not so weak, American corporations wouldn’t be relying on a peak in overseas profits to see them through.

The long-term tendency of the rate of profit to fall is the underlying factor that needs to be highlighted. The declining profitability of manufacturing in the US, Japan and Europe is what has led to the growing reliance on the service economy. Take a look at the UK’s profit rates in the respective sectors:

And have a look at long-term manufacturing profit-rates in the advanced capitalist economies:

The US economy, like the UK’s, has been losing manufacturing jobs rapidly for years. It has relied, due to the weakness of domestic markets, on overseas investments largely in the financial sector for its massive recent profit rates. According to the Economist Intelligence Unit, “more than 40% of revenue of companies included in the S&P500 index now comes from operations outside the US”. The results, compounded by a weak dollar, have been staggering until lately: for instance, Microsoft reported a 32% jump in revenue and a 65% surge in earnings earlier this year. To put it another way, the US is exporting capital like crazy. Yet, a contraction in returns on investment has been expected for some time precisely because of weakened domestic demand and a reduction in productivity growth. Tightening credit conditions were expected to compound this and make fewer assets available for reinvestment, thus making a recession increasingly probable. In other words, it isn’t simply the antics of a clutch of lenders seeking risky profit that has been driving this crisis, and it will take more than a reining in of investors to solve the problem.

Short of a generalised labour insurgency, the likely means to accomplish this will be an attack on wages and conditions. Gordon Brown’s attempted pay cuts for public sector workers is certainly part of the means of handling this without making any curtailments on the privileges of investors or their profits, which is one reason why the fightback by posties is so important. It’s also probable that New Labour will ratchet up attacks on immigrants and asylum seekers as a way out of its inevitable difficulties. The US government’s way out, which Brown is very likely to support, will presumably be to aggressively push to broaden its global hegemony so as to ensure greater market access, either militarily or through subversion. And if there is to be any kind of germinal radicalism or militancy, the US is busily expanding its forms of domestic repression. The recent perverse court finding on the Padilla case, and the Democratic support for warrantless wiretapping of phone calls, strengthens this trend. It means that American citizens can be spied on, and if deemed potentially dangerous, declared illegal combatants, accused of crimes on no evidence, and locked away for years on military brigs without access to lawyers and be tortured. The US government’s domestic repression has usually been colour-coded, of course: reds and blacks were the typical public targets of statist aggression, as state police and national intelligence agencies assaulted the labour movement, peace movements, the left, the civil rights movement and so on. These days, the black working class is disciplined through the mass prison system. The US government spots a big threat from radicalised and undocumented migrant workers, whose risky activities have really been in the vanguard of the struggle to improve conditions nationally. So, naturally, they’re trying to pass a repressive Immigration Act that will enable them to fine undocumented workers $5,000 – a sum none could afford to pay, and which would surely be used selectively to target deemed troublemakers.

So, it’s all uphill from here, eh? See you in the deluge.


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