The current downturn has been compared to the great depression. Peter Manson spoke to Hillel Ticktin, editor of the journal Critique, about the prospects for the left and what can be expected from the G20:
How do you see the current situation? Will the measures taken by Obama and Brown have the desired effect?
No. Not many people believe they will. Obviously it depends on the United States much more than Britain. The problem with the measures taken – the $800 billion stimulus, etc – is that, although this sounds enormous, it is not enough. The second problem is that it is not a financial crisis any more – there is an underlying structural crisis of capitalism, which the ruling class is not prepared to face.
It is true that there is a widespread attitude, including in the US, that in some sense capitalism itself is failing. Now obviously they do not really believe that capitalism has collapsed, but the ruling class and the economic operators are extremely worried and they do realise that it is more than a technical/financial failure.
They need to put much more money in to halt the downturn, but part of the problem they have is that the Republicans are against it – they voted practically 100% in Congress against Bush’s stimulus package, with just a few Democrats joining them in the lower house.
Why is this the case? The Republicans wanted more funds to be provided through tax cuts and less to measures that would actually stimulate the economy – resources for the individual states and for infrastructure, for example. In a way the Republicans are reflecting a more general fear among the capitalist class – if too much money is spent, inflation will result.
But it is not as simple as that. It is pretty obvious that despite the huge sums of money injected, deflationary forces are dominant – we actually have deflation in Britain as well. One has to ask, then, whether there will be an upturn. The International Monetary Fund is actually expressing a consensus when it predicts a weak recovery. Nobody expects a rapid, genuine upturn. So why will there then be inflation? There will continue to be mass unemployment.
The second point is that, although in both Britain and the US huge amounts of money are going into the economy through quantitative easing, or ‘printing money’, a very large amount has left the economy. In the case of Britain, half of all credit that was formerly supplied has been withdrawn. This far exceeds what is being pumped in. For example, the Royal Bank of Scotland, which was technically bankrupt, had something like $1.2 trillion in outstanding derivatives. So we are talking about some multiple of that, compared to around £150 billion put in by the government.
It is quite clear that Britain cannot afford much more. Because the sums that banks may be forced to pay out are very great, it is no exaggeration to say that Britain as a country may be bankrupted. That is one of the reasons why money is flowing out of the country and the balance of payments has deteriorated.
There has been a whole debate, by the way, over whether Britain will end up going the same way as Iceland. It is my view that this will not happen – not because it cannot happen, but because the United States will not permit it. For the US ruling class it would be too dangerous politically and economically. Presumably it has already been agreed that the US will help Britain if necessary.
Anyway, at the moment inflation is just not on the cards – unless, of course, Britain did go completely under, in which case the pound would fall dramatically, with the result that imports would become extremely expensive. Assuming that does not happen, it is a question of deflation rather than inflation.
That is why the fears of the Republicans and Conservatives about future inflation are simply wrong in technical terms. Once there is an upturn, there is nothing to stop the government withdrawing money from the economy – that is what it has already said it will do and what is incorporated in its budget plans. There is no reason why the Bank of England cannot do what it is now doing in reverse. Inflation is not quite so real as the Republicans and Conservatives seem to assume, so the question is, why are they so worried about it?
Assuming you are discounting the possibility that they are plain stupid.
You are right – there is that possibility! They do not understand what is going on. But what lies behind it is the fear that the working class will be strengthened by reflationary policies.
I can understand that bourgeois economists may fear that. But do Republican and Conservative opponents of current policies really think in those terms?
I agree with the implication of what you are saying. The ‘ordinary’ politician does not understand things in that way, but a number of others do. For example, longstanding members of the Senate who have played an important role in government over a considerable time are closely interrelated with the ruling class itself. Such people do think more long-term.
It is perfectly true that there is a level of irrationality within the capitalist class and politicians may not understand what the code words actually mean – ‘inflation’ is a code for increased working class power. Although there is the possibility of going the same way as Germany in 1923, that is rather unlikely. Annual 5% inflation of the type we have been used to poses no danger to anybody, although some politicians seem to think it does.
They also appear to be worried about the budget deficit increasing above 40% of GDP. This does not make any sense. There is no reason why the deficit should not be at around 60%-70%. That is the current level in Germany today.
If the downturn continues, as it will for some time, and the upturn is relatively weak, then in some sense we are in the territory of the great depression. In that case they will be worried that the government might be forced to the left and the working class might begin to act.
It could be said that the turn to Keynesianism is itself a move to the left.
Yes, that is true. Only a year ago Keynesianism was despised in the US as a kind of crypto-leftism.
If the underlying problem is the overproduction of capital, how can a lasting upturn be achieved without the destruction of capital?
I do not think it can. The fundamental contradictions of capitalism are all operating. There is no obvious way of bringing the current situation to an end. There is a huge amount of surplus capital, and this is being blamed on China and other countries. But that is absurd: the amount of surplus held by China is something like $2 trillion, which is a fraction of the surplus capital within the system as a whole.
Much of the surplus ended up in derivatives. The only solution is for surplus capital to be wiped out – and with it a section of the capitalist class. But to a certain extent excess capital is extinguished, otherwise there would not be capitalism, and this is happening now. To the extent it happens the downturn will be limited and come to an end, which is likely to occur within the next two to three years.
But can there be a return to a vibrant capitalism? The answer is no. The real question is not so much ‘Why has this happened?’, but ‘Why didn’t it happen before?’ A Marxist cannot simply argue that capitalism will come to an end when the majority are persuaded it must be overthrown. We are opposed to capitalism because it is inferior to socialism – it is inconsistent even in its own terms. It is structurally incapable of continuing to develop the forces of production to the extent that they can be developed. Capitalism’s internal contradictions make it malfunction, which is what has actually been happening.
Why was it able to do so well after the war? The answer has everything to do with the cold war and Stalinism. But once the cold war was over, it turned to finance capital, which for a time worked. Finance capital was associated with what is called neoliberalism, but that has now blown up. The cold war and Stalinism have come to an end; finance capital has come to an end. So one has to ask, what is the alternative strategy? It is very hard to see it.
What is more, they know they have no alternative strategy. Obviously there are ideological statements that can be made and piecemeal measures taken. And at the present time the working class is demoralised, so they are not in dire straits. But over the middle to long term capitalism is in considerable trouble.
Is it possible theoretically for capitalism to enter a new boom?
I cannot see it. We do not live under a system of spontaneous capitalist development. Governments have been playing a crucial role for a century now and the capitalist class wants and depends on government intervention. In fact they would prefer for the economy to expand at a fairly low rate of growth, which is what happened after 1995. They fear the possibility of inflation.
So a boom is technically possible, but very unlikely. If expansion were to be accelerated, it would lead to increased power for the working class, directly or indirectly. The capitalist class will not go there unless they are forced to. It would be better from their point of view to continue with a steady, safe capitalism than to have no capitalism at all.
Would it be reasonable to say that capitalism’s secular decline is now dominant compared to its cyclical tendencies?
It is more complicated than that. What we are actually talking about is a period from World War II until March 2000, in which the downturns were in fact quite weak. They were largely defined by governments raising interest rates and taking fiscal measures – deliberately reducing growth in order to control the working class.
Those cycles were relatively weak, even if it did not always look quite like that. What is happening now is entirely different. It is very similar to the great depression. The only reason it will not become another great depression is that governments will intervene to prevent it, which they did not do last time.
Is it possible or desirable for the US to offload the downturn onto other countries?
I am not certain about that thesis at all. It depends what one is actually saying. It is obviously true that the industrial downturn is experienced much more strongly in China than in the United States. You would expect that, because the US has exported a good deal of its industry to China – it has to a degree externalised its working class.
The effect of the downturn on countries that are not industrialising through American capital is not the same. In third world countries the effect can be far worse, but that is to a considerable degree because the standard of living is very low in the first place. Their exports are hit and their rate of exchange declines – that will be the case in South Africa, for example.
But whether this is the same as exporting the downturn is another question. After all in the US and Britain we are talking about rising levels of unemployment and a downturn of considerable severity. If it is suggested that they can somehow continue to expand and not experience a downturn compared to third world countries, that is untrue.
In the case of Britain, because of the dominance of finance capital, which reached 40% of GDP, clearly the industrial downturn, while real, is of less importance. But in Germany the downturn in industry has been very substantial. It simply cannot export its goods. Volkswagen, the biggest car producer in Europe, is about to report a loss. The automobile industry is crucial and if a major car manufacturer goes down, then the economy is in very big trouble.
Do you think the G20 will be able to come up with a united response to the crisis?
Well, the finance ministers have just met and it is reported that they could not decide on anything. That is really a commentary on where they are – they are unable to come to any agreement.
There are three aspects worth looking at in relation to the G20. The United States and United Kingdom want the world economy to expand by around 2% of GDP in monetary terms. In other words, they want to pump in that additional amount of money. But the Europeans, led by the Germans and French, are resisting this.
It is a split within the capitalist class between, if you like, the Anglo-Saxons and the continentals. America and Britain are very much finance capital powers – one finance capital power really. But the French and Germans are not in that position and are not prepared to go along with it. They do not wish to be controlled by finance capital. In a sense it is an expression of their independence.
The second aspect goes back to what we were talking about earlier. France and Germany do have a powerful working class and they are afraid if the economy expands too fast workers will start to act.
But, on the other hand, they are seeing the destruction of their industries.
Yes, that is true. But it is not that they are taking no measures – the Germans have pumped in $500 billion. It is just that they do not want to go so far, even though 2% is not that much in fact.
No doubt they will draw up a statement about agreeing to expand, but the details are likely to be fudged. They will have to have some agreement, because there would be no point in Britain and America expanding while the rest of the world does not. However, it is an expression of the comparative decline of the United States that they can no longer force everything through.
The third question relates to the IMF. It seems certain that increased funding will be agreed, but some countries will be pushing for an increased say in the IMF, which is effectively controlled by the United States. The question is how far it can be reformed.
But the main reason they will agree to extra funding is because eastern Europe is going down the plughole very fast. The IMF has already bailed out Hungary, Latvia and Ukraine. But these bailouts are insufficient and the funds held by the IMF are trivial compared to what is required.The intention is to increase it to $750 trillion, which does not look that great in terms of the US, but for smaller countries like those in eastern Europe it is significant. And they will have to be bailed out for political reasons.
Of course, the countries of eastern Europe were formerly Stalinist and they have not all made it yet to classic capitalism. Consequently under current circumstances their economies are very susceptible and living standards will go down very rapidly. Russia itself is in a precarious position, in that it is much further away from classic capitalism than the rest of eastern Europe. There is a tendency to revert to increased state control. If oil prices remain low, which looks likely, the balance of payments will continue to decline. In any case debts on a private basis are over $200 billion – Russia originally had $400 billion in reserves. It will almost certainly be in deep trouble before too long. Russia’s economy is highly dependent on the export of raw materials and its industry has been targeted for asset-stripping. The result is that it is moving towards a really critical situation.
This is what is starting to happen and there is a big danger for the capitalist class that large sections of the population will turn against the market – if not today, then tomorrow.
Not that the words ‘socialism’ and ‘communism’ have much attraction for the mass of workers in those countries.
That is true. In fact a swing to the right – the far right – is probable. An example is Hungary, where the ex-Stalinist social democrats in the government are getting very low support in the opinion polls – as low as 15% – and are likely to be wiped out in the forthcoming elections. The rightwing opposition – associated with anti-semitism – is likely to win by a substantial majority.
The Hungarian case shows that at this stage the reaction to a failing capitalism will be a turn to the far right rather than the left. But that cannot provide a solution and will result in even worse conditions. So the result is, people will be forced to reconsider. Nobody would ever want a return to Stalinism, but there is a real socialist alternative. And there are genuine socialists around in eastern Europe.
We await the point where capitalism is seen in all its immorality, inefficiency and cruelty, and where socialism is regarded as the alternative – not just by workers in eastern Europe, but in all the world.