The End of Growth?: The Capitalist Economy and Ecological Crisis

By Conor Payne and Chris Stewart

Republished from Socialist Alternative.

Many ecologists, activists and academics argue that an obsession with economic growth is the cause of our current ecological crisis and a commitment to “degrowing” the economy is the solution.

Too often, however, this discussion lacks a sufficient class or anti-capitalist content and workers are blamed for our supposedly destructive “consumption patterns”. Instead, socialists should be clear that the cause of the climate crisis is the capitalist system and its incessant drive to accumulate profits, and that the only way to solve the crisis is to struggle for a socialist world where human need, including a sustainable relation to nature, comes before private greed.

Capitalism’s “boom and bust” cycle

Under capitalism, the driving force of the economy is the pursuit of profit. The competition between companies and even different capitalist powers for markets and resources means that this drive for profit is relentless and expansive. Therefore, capitalism also involves a continuous quest for economic growth.

At the same time, these companies will seek to “externalize” the cost of their activities, to leave them to be paid by someone else. The capitalist firm doesn’t care on what basis it grows; whether its products are useful or cause harm, or if its activities are environmentally sustainable.

Capitalism is a system of contradictions. The capitalists get their profits by exploiting workers, as well as the resources extracted from nature in the labor process. The constant need to accumulate more profits means capitalism extracts more and more resources in increasingly destructive ways, ultimately leading to the depletion of soils, minerals, forests, the life in our oceans etc — which undermines the system’s own sources of wealth.

Capitalism is increasingly coming up against the ecological barrier to its unrestrained development, as seen in mounting natural disasters, the recent shutdown of the power system in Texas, and a global pandemic, all at least partly attributable to humanity’s increasing incursions into nature.

As well as this, capitalism is a system that primarily organizes investment through the chaos of the stock market, where investment is motivated only by the pursuit of profit. Today, capitalists increasingly choose to speculate with their wealth through complex financial products that have little relation to actual value in society – what Marx termed “fictitious capital”. This is because they can make more short-term profits here than they can through actual productive investment.

At the same time, the desire of the capitalists to drive down the share of wealth that goes to the working class means that workers collectively are not able to buy all the goods the capitalists put to market. This is one way that capitalist growth eventually comes up against its limits and throws the system into crisis and recession. We are now experiencing this process of crisis in Ireland and internationally for the second time in just over a decade.

When growth has been rooted in productive investment, it has often led also to increases in working class living standards, although workers’ gains are usually dwarfed by those of corporations and the rich. Periods of economic growth, for example in the decades following World War 2, were also sometimes used by capitalist governments to grant social reforms in the interests of working people, such as pensions, public health and education services, welfare protections etc. This was done not out of any innate kindness but as a mechanism to stave off potential revolutionary challenges to the system from the working class.

However, in the preceding decades of neo-liberal capitalism, the basis for growth has been precisely the reduction of the share of wealth going to the working class. Capitalism has suppressed wages, gutted public services, eroded economic security. Inequality has exploded as the gains of economic growth congealed at the top. At the same time, the capitalists have promoted more and more consumption fueled in significant measure by debt. This means that today capitalist economic growth often means little real gain for working class people.

The recovery from the great recession of ’08 was largely a joyless one. This was illustrated graphically here in Ireland in the 2020 election when the establishment did not benefit from any “feel good” factor whatsoever — in fact suffering a historic defeat. This was despite nominally impressive growth rates in the preceding years. The recovery did not alter the reality of low pay, precarity and housing distress. In Britain, the Office of National Statistics found that, despite a decade of “growth”, real wages only recovered to the level of 2008 at the end of 2019 — just in time for the next crisis! At the same time, the numbers on zero hours contracts were the highest on record, at just under a million workers.1

Meanwhile, the mounting burden of ecological breakdown will not be shared equally; as those with wealth move to insulate themselves from the consequences of the economic system they have profited from. As unprecedentedly low temperatures drove catastrophic power outages in Texas, working-class, poor and minority neighborhoods bore the brunt of the power cuts while empty skyscrapers lit up the city skyline.

Karl Marx said that under capitalism: “Accumulation of wealth at one pole is, therefore, at the same time accumulation of misery, agony of toil slavery, ignorance, brutality, mental degradation, at the opposite pole.”2 This sums up the capitalist economy today. At the same time, of course, workers are still liable to pay the price when the system goes into recession. The reality is that at no stage in its cycle of boom and bust, does the capitalist economy operate in the interests of the working class.

An economy for need, not greed

While economic growth undoubtedly drives carbon emissions and all forms of environmental destruction, contraction on a capitalist basis does not deliver an equivalent let up in environmental intensity. According to one study, examining 150 countries over the period of 1960-2008, a 1% increase in GDP meant on average a 0.73% increase in carbon emissions, while a 1% decline in GDP meant only a 0.4% decrease in carbon emissions.3 This is because the environmentally inefficient goods and infrastructure created during a boom generally continue in use during a downturn. Less consumption in itself can never deliver the necessary reduction in carbon emissions. Instead we need a fundamental change in how we produce.

This means that without a planned transition to a sustainable means of life the tendency will be for ever increasing emissions. So the debate about growth and degrowth is useless unless linked to the need to bring an end to the chaos of the capitalist market.

The purpose of the capitalist economy is to deliver increased profit for the bosses. The purpose of the economy under socialism would be to fulfill human need in a sustainable way. This means taking the key sectors of the economy out of the hands of big business and bringing them into public ownership, under democratic control. This means we can reorganize the energy industry, transport, agribusiness and production overall on a planned basis, in the interests of both people and the planet.

Socialists want a better life for the vast majority on this earth. We know many, even in the richer countries, are in poverty or barely keeping their heads above water, do not have access to decent housing or healthcare, or have no economic security for the future. We believe this to be completely unjustifiable in a world of incredible abundance. For this reason, we reject attacks on working-class living standards, even those that are introduced with an environmental veneer, e.g. water charges, or carbon taxes.

The vast majority of the world’s population is responsible for very little in terms of carbon emissions. A recent UN report shows that globally the top 1% of earners are responsible for a yearly per capita average of 74 tons of C02 per year. Meanwhile for the bottom 50% of earners the figure is 0.7 tons.4 In much of the world a socialist system would need to increase production on a sustainable basis and redistribute wealth. Even in the wealthier capitalist countries many sectors that are not prioritized for capitalist investment would need to be expanded under a socialist system, not reduced — healthcare, housing, renewable energy for a start.

A world of waste

At the same time, capitalist production involves enormous waste. We should not underestimate the extent of this:

• 690 million people around the world went hungry in 2019, with the UN Food and Agriculture Organisation projecting that the impact of the pandemic could add a further 132 million people to that number.5 Yet, during the pandemic, the closure of restaurants and other disruptions cause the widespread dumping of perfectly good produce. Even in “normal” times, while the world already produces enough food to feed everyone, a minimum of one third of this food is lost or wasted. Many things cause this but the status of food as a commodity to be sold for profit is at the centre of the problem. Agribusiness leaves food to rot in the fields to keep prices high, supermarkets throw out edible food they don’t think they can sell, good food is even discarded because its size or shape makes it “unmarketable”.6

• In 2020, approximately $569 billion was spent on advertising, projected to grow to $612 billion this year.7 You can add to this, the resources spent on sales promotion, public relations, “direct marketing” and other forms of corporate self-promotion. The vast bulk of this money is wasted, spent not to inform us but to convince us to buy as much as possible or to buy one identical brand of a product over another, often preying on our anxieties and insecurities in order to create false needs in our minds that can be “solved” through consumption.

• Because capitalism doesn’t produce for need but for profit, advertising and marketing become bound up with the process of production itself. The packaging industry is now the third largest on earth and much packaging is not mainly functional but a form of product promotion. Packaging costs amount to somewhere between 10% and 40% of total product cost.8

• Planned obsolescence means that products are consciously not built to be durable and must be frequently replaced by consumers. This includes fast fashion made from low quality material and electronics with batteries that can’t be replaced, contributing to 500 million tonnes of E-waste in 2019.9

• There are a plethora of other industries and products of no use to working-class people: from the armaments industry producing weapons of death, to luxury goods like private jets — an industry which has benefitted from a raft of new, wealthy customers seeking to avoid commercial flights during the pandemic. As a result of yet another capitalist speculative bubble, the cryptocurrency Bitcoin now consumes more energy than all of Argentina, a country of 45 million people.

• Competition between firms means that research and development efforts are often duplicated.

As we can see, the mountains of waste produced under capitalism are not a product mainly of the demands of consumers, but instead serve the needs of capitalist profiteering. The structure of capitalist society itself also partly conditions our consumer needs. Those who don’t live near reliable public transport “need” to buy cars, people on low incomes will “choose” to buy fast fashion etc.

To create more and more products that aren’t needed or will be sent rapidly to landfill, or to generate more and more artificial demand is all “growth” in capitalist terms, but it isn’t human progress. A democratic, planned economy could do “more with less” as part of a planned ecological transition — retooling useless or destructive industries, eliminating duplication, overproduction and planned obsolescence, focusing on fulfilling needs not generating artificial wants and transforming agriculture, transport and energy production on a sustainable basis. In such a system whole industries, communities and cities would be planned democratically and on a completely different basis, putting an end to capitalist overproduction and waste and allowing for a more rational allocation of resources.

Sustainable future means socialist planning

Some argue that a simple transition to renewable energy will solve the ecological problems we face. This transition is both necessary and possible, but won’t be done under capitalism that will extract every source of fossil fuels down to the last, so long as there is profit to be made from them.

But even if this were achieved, we would still face a range of looming ecological catastrophes. The fact is that capitalism is already exceeding a number of planetary boundaries for safeguarding a safe environment for human civilization on earth.

These include species extinction, soil degradation and deforestation, to name only a few. Their common source is the increasing scale and intensity of humanity’s incursions into nature, which are now undermining the basis of our own existence on the planet.

Nor will technological changes alone solve the problem of a sustainable relationship with nature. Under capitalism, the opposite is the case: while technological changes result in the more efficient use of energy, this then creates the basis for further expansion and so paradoxically technological development often results in a net increase in the amount of energy used.10

While technology may alter to some degree what the limits are, we have to accept the reality that “you can’t have infinite growth on a finite planet”. Capitalism means an increasingly destructive and frantic search for resources that can be extracted and land which can be developed, with the benefits of this activity more and more concentrated in the hands of the few.

Socialist planning can ensure the rational development of the quality of our lives without increasing environmental intensity. Only on this basis can we restructure our society around need, not profit, creating countless socially necessary jobs in pursuit of building a sustainable system.

Socialists stand for massive investment in low carbon jobs and sustainable infrastructure, as well as the introduction of a four-day work-week with no loss of pay. This would not only solve the problem of permanent unemployment under capitalism by distributing work to all those who need it, but would also free workers up to participate in political and economic decision-making, and would achieve a better balance between work, our social lives and leisure.

This will still pose complex questions about how products, industries and practices can be maintained, but these are best resolved on the basis of democratic discussion in a society founded on equality and solidarity.

Notes

1. Richard Partington, Feb 18, 2020 “Average Wages Top Pre-Financial Crisis Levels”, The Guardian, www.theguardian.com 

2. Karl Marx, Capital Volume 1, www.marxists.org

3. Richard York, Oct 7, 2012, “Asymmetric effects of economic growth and decline on CO2 emissions”, Nature Climate Change, www.nature.com

4. UN Environment Program “Emissions Gap Report 2020”, Dec 9, 2020 

5. UN Food and Agriculture Organisation, July 13, 2020, “As more go hungry and malnutrition persists, achieving Zero Hunger by 2030 in doubt, UN report warns”, www.fao.org

6. Andrew Smolski, Mar 29, 2017, “Capital’s Hunger in Abundance”, Jacobin, jacobinmag.com

7. Brad Adgate, Dec 14, 2020, “Ad Agency Forecast: Expect The Advertising Market To Rebound In 2021”, Forbes, www.forbes.com

8. John Bellamy Foster and Brett Clark, 2020, The Robbery of Nature: Capitalism and the Ecological Rift, Monthly Review Press, p. 364

9. John Harris, Apr 15, 2020, “Planned obsolescence: the outrage of our electronic waste mountain”, The Guardian, www.theguardian.com

10. Foster and Clark, 2020, p.352-3.

Economic and Social Crises Keep Deepening: 48 Points That Will Shape the Future

By Shawgi Tell

Not only have the policies of the rich at home and abroad not stopped economic and social decline, the rich are actually taking social irresponsibility to new levels and making things worse worldwide. They are unable and unwilling to solve serious problems plaguing humanity. Opening the path of progress to society is not on their agenda.

Connecting just a few dots in an intelligible way produces a clear picture of the destruction unfolding worldwide. It is no accident that more people are writing about a miserable dystopian future where people will have to develop new creative ways of defending the rights of all. The information below is especially timely given the cheap euphoria displayed recently by the short-sighted rich and their political and media representatives about the “solid” 850,000 jobs the U.S. economy “added” in June 2021.

1. Inflation is increasing rapidly at home and abroad and the dollar’s purchasing power is still falling.

2. Globally, supply chains affecting many sectors are not operating smoothly; many are worried about contrived and non-contrived disruptions lasting for months, even years.

3. Ransomware incidents and major cyberattacks are not diminishing.

4. Millions of U.S. workers are misclassified as contractors, which means that they do not have (generally weak) protections.

5.  Thousands of companies at home and abroad are “zombie companies”—i.e., they don’t make a profit after paying down their debts, they just live a dead life.

6. Student debt in the U.S. keeps soaring.

7. College tuition in the U.S. and elsewhere keeps climbing.

8. Marriage rates in the U.S. are at an all-time low.

9. Birthrates are declining globally.

10. The U.S. experiences a higher infant mortality rate and a higher prevalence of obesity compared with most OECD member countries.

11.  The number of Americans who have moved back in with family or friends over the past 18 months is extremely high.

12. Homelessness is high nationwide and increasing significantly in some major U.S. cities; crime is also up.

13. Various “reforms” in countless sectors in many countries are superficial, phony, and non-substantive.

14. Anxiety and depression remain widespread worldwide.

15. Anti-depressant use remains high.

16. Mass murders and killings have increased in recent years in the U.S.; so have social and civil unrest.

17. Everyone everywhere is skeptical of the mainstream media and struggling not to be confused, ambushed, and humiliated every hour.

18. Around the world hundreds of millions have joined the ranks of the poor over the past 18 months.

19. Globally, well over ten million business have disappeared permanently and thousands more will disappear in the next five years.

20.  Leading economic experts and officials have no real solutions for anything and people continually have low levels of trust in “experts” and government; the rich continue to operate with impunity.

21. There is more polarization, division, and anger in society.

22. Poverty and inequality keep growing worldwide; wealth concentration is staggering and unprecedented.

23. Digital addiction and attendant problems won’t stop increasing.

24. More U.S. college and university administrators, trustees, and leaders are abandoning the intellectual mission of colleges, restricting faculty voice, and turning college into Disney and fun.

25. Getting simple things done is taking longer and becoming more convoluted and frustrating, especially when dealing with retailers, companies, and various agencies.

26. Surveillance and police-state arrangements are multiplying rapidly and becoming more diverse and sophisticated at home and abroad.

27. The media blackout on thousands who continue to experience serious side effects from vaccines continues.

28. Newly-elected “progressive” politicians in the U.S. and elsewhere are proving to be as ineffective as the “old guard.”

29. Privatization and deregulation keep increasing and wreaking havoc worldwide.

30. Anglo-American imperialism thinks that constantly treating China and Russia as bogeymen will keep fooling the gullible and divert attention from deep problems in the Anglo-American world.

31. The unionization rate of American workers is at a historic low, which is bad for all workers in all sectors.

32. More than 130 million working Americans can live off their savings for six months or less before going broke.

33. Mergers and acquisitions continue apace in 2021, concentrating even more wealth in even fewer hands.

34. Central banks around the world keep printing phantom money while stock market bubbles grow larger.

35. The U.S labor force participation rate remains low.

36. The number of long-term unemployed (27 weeks or more) in the U.S. is still increasing.

37. Millions of Americans have started to lose their jobless benefits.

38. More than 40% of Black families and Latino families in the U.S. have no access to an employer-sponsored retirement plan.

39. Black and Latino Americans are experiencing the biggest decline in life expectancy in decades.

40. In recent years, overall job quality for Americans has deteriorated significantly.

41. At least thirty million Americans lack access to high-speed internet.

42. The U.S. opioid overdose crisis, which pharmaceutical companies were recently found guilty of sponsoring, persists.

43. In Africa, nearly 40% of employed youth are considered poor.

44. Around the world, nearly one out of ten people experience hunger and the number of undernourished people has grown by millions in recent years.

45. The official unemployment rate exceeds 10% in at least 12 countries in (Western and Eastern) Europe. Fourteen countries fall into this category for North and South America. The real numbers are higher.

46. More than 27% of youth in Central Asia and Southern Asia are not in employment, training, or education.

47. In the past five years more countries have experienced violent conflict, while violent crime across the world has also increased.

48. Despite endless happy economic news in the mainstream media, economies around the world are far from recovering; many never recovered from the Great Recession of 2008 and mass vaccinations will not solve deep structural economic problems.

The list goes on and on. This is the tip of the iceberg. Numerous problems persist on all continents. The facts above do not paint a picture of a bright and promising future for humanity. Widespread destruction prevails in the obsolete neoliberal world.

But there are also openings and contradictions that people from all walks of life are being compelled to harness in order to advance the public interest and restrict the illegitimate control and authority of major owners of capital. The desire for real progress is palpable and growing; it emerges from the concrete conditions as they present themselves today. The international financial oligarchy cannot provide any solutions to the problems plaguing humanity today, they just have more catastrophes in store for everyone and are blocking the empowerment of the people. None of these serious problems can be solved, however, so long as the people remain marginalized and disempowered. A new direction, orientation, and public authority are urgently needed.

Humanity is entering a new and deeper crisis with qualitatively different and more dangerous features. Crisis is a turning point that contains both peril and opportunity. Crisis is not always just a negative thing; it means things cannot continue in the old way and something significant is going to have to eventually give. It usually takes a serious crisis or trauma to catalyze and propel much-needed change. In this way, crisis overcomes stagnation and complacency and sets the stage for something new. The negation of the negation operates with a greater vengeance in such defining moments, giving rise to a new synthesis, a new equilibrium, which gives rise to yet another dynamic which must assert itself sooner or later. The dialectic lives and cannot be extinguished. What comes next in the complicated here and now is unfolding consciously and spontaneously.

The pace and rate of change today is exhilarating and people’s desire to protect the social and natural environment is growing. The trial of strength between capital-centered forces and human-centered forces is bound to increase because conditions are demanding a new authority that affirms the rights of all. An alternative is necessary and possible. What this will look like is in the hands of the people themselves. Only they can be relied on to usher in a bright future for humanity free of privileged private interests wrecking the social and natural environment.

Shawgi Tell, PhD, is author of the book “Charter School Report Card.” His main research interests include charter schools, neoliberal education policy, privatization and political economy. He can be reached at stell5@naz.edu.

The Protracted Crisis of Capitalism

By Prabhat Patnaik

Republished from People’s Democracy.

THERE is a commonly-held view that the current crisis in capitalism, which has resulted in a massive output contraction and increase in unemployment, is because of the pandemic; and that once the pandemic gets over, things will go back to “normal”.

This view is entirely erroneous for two reasons. The first which has been often discussed in this column, has to do with the fact that even before the pandemic the world economy was slowing down. In fact ever since the financial crisis of 2008 following the collapse of the housing bubble, the real economy of the world had never fully recovered. Small recoveries were followed quickly by collapses; and the low unemployment rates in the United States that had prompted Donald Trump’s triumphalism, were to a very large extent explicable by the reduced work participation rate after 2008. In fact if we assume the same work participation rate in 2020(just before the pandemic), as had prevailed on the eve of the financial crisis, then the unemployment rate in the U.S. was as high as 8 per cent as compared to the less than 4 per cent mentioned in official figures.

This slowing down in turn has been a result of the operation of neoliberal capitalism which has massively increased the share of economic surplus in output, both within countries and also at the world level, by keeping the vector of real wage-rates unchanged, even as the vector of labour productivities has increased; and this increase in the share of surplus, or this shift from wages to surplus, has lowered the level of aggregate demand for consumption goods, and hence of overall aggregate demand, as workers spend more on consumption out of a unit of income than the surplus earners.

The pandemic has occurred in this context, so that even after it gets over, the world will still be stuck with the crisis of over-production which had already engulfed it well before the pandemic. To get out of this crisis it is necessary to use State expenditure, provided such expenditure is financed by either taxes on capitalists or by a fiscal deficit ; State expenditure financed by taxes on workers will not help, since workers consume the bulk of their incomes anyway, so that State demand only substitutes workers’ demand without adding to aggregate demand.

But neither fiscal deficits nor taxes on capitalists are liked by finance capital, so that State expenditure as an anti-crisis measure is ruled out. This means that, even after the pandemic is over,not only will the crisis continue, but it will do so without any counteracting measures, at least as long as neoliberal capitalism lasts. This crisis therefore marks a dead-end for neoliberal capitalism.

There is however a second reason why even after the pandemic gets over, capitalism will still remain engulfed in a crisis; and this has to do with the fact that even if the demand for consumer goods recovers to the level where it had been before the pandemic, investment goods production will still remain below what it had been, and this very fact will also ensure that even the consumer good output does not get back to the level where it had been before the pandemic. This is what happens when an economy receives a major shock, of the kind that the pandemic represents for the world economy.

An example will make the point clear. Suppose before the pandemic the economy was growing at 2 per cent per annum. Then capitalists, anticipating a 2 per cent rate of growth, would have been adding to their capital stock also at 2 per cent. If the capital stock was 500, output was 100, then investment would have been 10, and consumption would have been 90. Let the share of post-tax profits and post-tax wage-bill in total private post-tax incomes be 50:50; and let all wages and 75 per cent of profits be consumed. If government consumption (assuming a balanced budget for simplicity) happens to be 20, then this 90 of consumption would have been divided as 20 by government, 30 by capitalists and 40 by workers.

Now, suppose, for argument’s sake, that after the pandemic, consumption recovers to 90. All of it can be produced by the existing capital stock requiring no additional investment. Moreover, there is no reason why the capitalists should expect output to grow at 2 per cent next year; so they would not add 10 to capital stock as they had done before the pandemic. Let us assume that they add only 5 to capital stock, and wait to see what happens before deciding to add any further to capital stock.

Two things will happen in such a case. First, in the capital goods sector, output will be only half of what it had been before the pandemic; likewise capacity utilisation in the capital goods sector will be only half of what it had been before the pandemic. Second, even the consumption demand of 90 cannot be sustained. Assuming the same ratios as above, an investment of 5, which must equal private savings, will generate a total consumption demand of only 55 (given by 20 of government+15 of capitalists out of total post-tax profits of 20 + 20 of workers). Total output will be only 60, equalling consumption of 55 and investment of 5.

The 90 of consumption therefore, which we assumed the world economy to reach, for argument’s sake, will not even materialise. The consumption goods sector’s capacity utilisation will be 61 per cent of what it had been before the pandemic (55 divided by 90). This will be higher than the ratio of capacity utilisation in the investment goods sector compared to what it had been before the pandemic (in fact it will now be only 50 per cent of what it had been earlier).

Any severe external shock to the capitalist system has this effect, namely that investment recovers only after a long time; and precisely for that reason even the recovery of consumption, though less delayed than the recovery of investment, also takes a fairly long time.

In other words, even if there had been no crisis of over-production engulfing world capitalism before the pandemic, the sheer external shock represented by the pandemic would have kept the system mired in crisis for quite a long time. The existence of an over-production crisis predating the pandemic only makes matters worse.

This is exactly what had happened in the U.S. in the recovery from the Great Depression of the 1930s. The consumption goods sector had recovered relatively faster than the investment goods sector, as a result of Roosevelt’s New Deal which had enlarged government spending. The recovery of the investment goods sector occurred only when there was an increase in armament expenditure in preparation for the war, which is why it is said that the recovery from the Great Depression was made possible by the war.

But the New Deal had meant larger government spending which is why at least the consumption goods sector had recovered somewhat, even before the war. Globalised finance capital today does not even allow larger government spending within any economy, either by taxing capitalists or by enlarging the fiscal deficit, the only two ways that such spending can increase aggregate demand. Therefore even the depression in the consumption goods sector will last much longer that in the 1930s, so that, altogether, world capitalism will remain sunk in a protracted crisis for a very long time.

In an economy like India where the government obeys the dictates of finance capital quite slavishly, the prospects of recovery are even bleaker. None of the measures adopted by the government to revive the economy addresses the issue of demand, because the government does not understand that the crisis is because of insufficient aggregate demand. In fact, the government measures are such that they will only aggravate the deficiency of aggregate demand, thereby worsening the crisis rather than alleviating it. As the crisis gets aggravated, however, the government will resort even more strongly to repression against the working people, and intensify even further its communal agenda.

Capitalism Needs Another Bailout. It's Time to Let It Sink.

By J. E. Karla

There’s an old saying that leftists have predicted seven of the last three economic downturns. We know that capitalism is doomed to crisis, but we are often disconnected from how that crisis actually comes to pass. Now that we face a looming depression that’s surprised nearly everyone, it’s a great time to try thinking about production a little like a businessperson. It actually yields some pretty communist results.

The trick to thinking this way is pretty simple: businesses exist to make money, and the finer points of Marxist political economy notwithstanding, they make money by bringing in more revenues than expenses. These expenses can be broken down into the costs of goods and services, costs of revenue, operating costs, taxes and interest.

The costs of goods and services were the very things Marx focused on in his critiques of political economy – the costs of raw materials supplied by nature and the human labor-power used to transform them. This is the source of all value, and even capitalists understand that the surplus here pays for everything else. That’s why “gross profit,” total sales minus these costs, is their primary measure of profit. Even service businesses – airline, hotels, lawyers, etc. – have to make their money from gross profits generated by a commodity manufacturer somewhere else in the system.

With production gutted right now, this surplus isn’t getting generated, and that’s why the entire system is in big trouble. Demand-side problems caused by everybody isolating are bad enough, but Marxists know it’s the production side that runs the whole thing. On a micro level it’s true that their costs of goods and services aren’t being accrued right now, but debts on materials already purchased and perishable materials rotting in warehouses threaten to sink enterprises, nonetheless. Add in their other costs, and their options without a bailout are to dig into savings, sell off assets, or go bankrupt – an option with cascading consequences throughout the supply chain.

These other costs include “costs of revenue,” including salaries for managers, payments on long-term purchase agreements for raw materials, and – crucially – all of the income for service businesses. They also include operating expenses such as the costs of making sales and the overhead for the business. If businesses are renting space, paying mortgages on idle facilities, on the hook for service contracts or supply arrangements, having to ship mostly empty trucks, or still getting utility bills without the sales to cover them they either have to default and go bankrupt, or get outside help. As for taxes and interest, the government is going to want their money sooner or later, and not paying the bank now means the debtor can’t borrow after the pandemic, when credit will be more necessary than ever.

The system as a whole definitely does not have the reserves to cover all of these costs for very long, and they can’t sell assets for enough money to cover them either. They’re still trying, of course, which is why pretty much all asset prices dropped in recent weeks. Capitalists have been trying to get whatever they can to pay as many bills as possible, and their slide has only been halted by the promise of incoming bailout funds.

So, the only alternatives the businesspeople of the world can see are either a global decimation of production with no real prospect of restarting in the foreseeable future – an economic depression – or bailouts. The word “bailout” refers to the process of rescuing a sinking ship by dumping water from a leak overboard, a process that only works if you can collect and dump water at a faster rate than the ship takes on.

Central banks and governments are – as a result – furiously printing money in the hopes that it will be enough to keep the system afloat. At the same time they are also hoping that the consequences of uncharted economic policy won’t make things worse in ways they haven’t anticipated. Will it work? Nobody knows, but it’s a good time for one of our customary predictions of doom.

A much surer alternative would be to simply use state power to suspend contractual obligations, debts, rents, utility charges, and taxes – plugging the hole instead of bailing out the ship. They could then provide a universal basic income and guarantee delivery of necessary services without payment. They could compel the continued delivery of vital goods through government order and compensate all the necessary workers at a level commensurate to the benefit they are providing to society. They could further streamline things by eliminating unnecessary marketing and management positions.

At most a much smaller bailout might be needed to pay for ramping up operations after the pandemic has passed. In return, the government could claim an equity stake in all of these enterprises, using their ownership to serve the public interest.

Some caveats aside, the name for such a system is socialism, and the businesspeople of the capitalist class would rather endure a depression or kill millions of people than tolerate even a limited experience of socialism. Even the plausibility of such an arrangement – virtually every element of that description has been officially proposed or adopted somewhere in the last few weeks – terrifies them, because it makes it clear how close a socialist society really is. We could, conceivably, have it tomorrow.

The biggest caveat, of course, is that the existing bourgeois state will never do this. And smashing it while building a new one makes the task much harder. But the state’s legitimacy is eroding more and more every day, and a protracted depression is sure to swell the ranks of the proletariat, creating the very solution to our primary problem. Even if they pull off the bailout, they’ll only leave the system as a whole less prepared for the next crisis.

That's why the same business guys so enamored of up-by-the-bootstraps tales of rugged settler individualism are so desperate for government checks right now. We may have called more shots than we’ve made, but that’s only because we have always known one thing they are just now learning: capitalists are trapped on the high seas of crisis, surrounded by a world ready to throw them overboard, soon.

Capitalism, COVID-19, and Crisis: A Class Analysis

(Photo Credit: Mark Lennihan, Associated Press)

By Ikemba X

The Capitalist/Imperialist Class

In the past week, the global economy experienced its worst week since 2008 (following a series of “Worst Weeks”, it keeps getting worse), and the economic crisis is sure to deteriorate as time marches on. Three years of growth in the market have evaporated, unemployment has seen a spike, multiple industrial sectors have slowed to a crawl or stopped moving altogether, and the trillion-dollar injection into the market by the Federal Reserve did almost nothing to stop the free fall (other than transfer toxic assets to the public). If the recession hasn’t already hit us, we’re in for a catastrophe when the bills are due. The following is a brief outline on how we got here, and how much worse it's going to be this time around.

The modern capitalist economy simply cannot function without large amounts of fiat currency in the form of government-backed loans. As the bourgeoisie continues its song and dance of improving the means of production, increasing production of commodities, and better perfecting the division of labor, the price of operating such vast and complex industrial armies and machines is simply too much. In order to compensate for this massive cost, the bourgeoisie in the global core have forged an alliance between industrial and finance capital, exporting ever increasing amounts of production overseas, so that cheaper labor can be exploited. At home, the use of credit, loans, and ownership of companies into shares have allowed capitalists to continue their operations, though the market has grown more unstable than ever before. The financial crisis in 2008 drove capitalism to the brink of collapse, and it was caused specifically by inherent contradictions in the system. The rate of profit has continued to fall, production has become more expensive and commodities are produced in greater volumes for lower prices. Any panic in the market has a ripple effect, and the harsh truth is that a large majority of the world’s “wealth” is artificial, mere symbols in a computer program that rely solely on blind faith. If the bourgeoisie becomes scared enough to taking out its money and halting production, the whole rotten structure collapses. If not for the action taken by the Feds over the past few decades, including multiple bouts of quantitative easing under Obama, the global market may very well have imploded long ago. It took almost a decade for the economy to mostly recover from the 2008 crisis, for the working class a recovery never really came, and some of its effects are still felt in more isolated sectors of the economy today. 

Leading up to the COVID-19 scare, there was an already existing crisis in imperialism and capitalist production. Notably, the Trade War between China and the United States has had negative effects on the rival imperialist powers, who were willing to threaten economic crises while jockeying for hegemony in the world market. The global energy sector was also entering a crisis, with Russia and the OPEC countries at an impasse on restricting oil production, which had the effect of flooding the market with oil. The overproduction of commodities in this critical sector of the economy was causing problems for the bourgeoisie in the United States, who have responded by seizing oil fields in Syria and beating the war drums, threatening Iran with invasion. Meanwhile, European nations are experiencing a contraction of unified dominance as Brexit causes a fracture in European imperialism, and a potential crisis in the UK with the looming threat of a No-Deal Brexit. This would have significant ripple effects on the global market, as the UK is one of the largest economies in the world. 

It is important to remember that this crisis was caused purely through the anarchy of capitalist production. Once the capitalists were bailed out following 2008, imperialist plunder continued and the bourgeoisie recovered, leaving the proletariat to fend for themselves and foot the bill. This time around, production really has stopped, and the effects on the capitalist economy will be disastrous. The Chinese economy today makes up 16% of global Gross World Product, is the second largest economy in the world, and has the largest pool of cheap labor, as well as being a rising imperialist power, offering predatory loans to African countries. Due to the COVID-19 pandemic, factories responsible for 70% of China’s exports have simply ceased to operate or have cut production massively, and travel to and from the country has been shut down completely. Several other countries have shut down massive sectors of their economy such as the airlines, and Italy has shut down its country altogether. Therefore, this latest crisis isn't caused by capitalists being unable to pay for their ventures, but rather there simply is no movement of capital, and no production of commodities. With this monumental economic halt/slowdown, we are staring in the face of a crisis the likes of which we have not seen in almost a century. The COVID-19 is sending the capitalist system into a freefall, and as always, the bourgeoisie and their governments will do everything in their power to make sure the workers absorb the brunt of this fall.

The Proletarian Situation

The situation in the United States is dire for the proletariat. For starters, there is a debt crisis, $14 trillion consisting mostly of mortgages, car loans, student loans, and credit cards. Deepening wealth inequality has accelerated the fall of real wages, and today (even before the arrival of COVID-19) most proletarians are in dire straits. Half of Americans make $30 thousand a year or less, and 70% of Americans live paycheck to paycheck and cannot afford a $400 crisis. Real unemployment was sitting at about 5% and has now spiked to almost 20%, and underemployment or those who have given up on finding jobs represent a forgotten sector that the US government is fine keeping in the dark. With the COVID-19 scare, layoffs are rising at an unprecedented rate, and those who aren't being fired are having their hours cut. In a country where health insurance is tied to employment, a pandemic which causes a spike in unemployment is probably the worst-case scenario for a proletarian.

The COVID-19 scare has also affected the mentality of the working class, who have begun panic buying commodities. This almost immediately resulted in a shortage of goods, which has ripped away the veil which hid the scarcity that does exist in capitalism, just like any other system. Lean manufacturing, or Just-in-Time manufacturing, provided us all with the hallucination that there was always an abundance of products for us to buy. However, after being put under pressure, the lie has been exposed for what it really is. In a nutshell, the transportation system has been developed enough that capitalists can rely on the nomadic lifestyle of proletarians in that industry. There is no large-scale storage of goods, but rather far-away sites that remain available whenever products are needed. Such a system is incredibly volatile, and any disruption in the distribution chain can cause an immediate and drastic shortage. We saw a glimpse of this with the aftermath of Hurricane Maria, when the natural disaster destroyed the colony of Puerto Rico. The result was that there was a global shortage of IV bags, since Puerto Rico was the hub of production for these goods. Now, imagine a crisis like this, but in multiple industries on every level of the production process, and not just based on production itself being shut down, but also on the transportation industry being paralyzed (like what we’ve seen with the decline in airline traffic and mass layoffs of truckers). China produces most of the world’s steel and, as stated before, their industrial production has been slashed in 70% of factories. And that is just one country. Globally, we are already seeing crippling shortages of medical supplies, most notably in Italy, the United States, and Iran, which has been the hardest hit of the three due to imperialist sanctions.

There has also been a growing trend of social distancing and self-isolation as a result of the pandemic. The cultural effects of this have the potential to negatively impact us all. Sowing fear and distrust of each other, the COVID-19 scare threatens to further divide us, further alienate us, and further fuel xenophobic and racist tendencies among white proletarians, as indicated by the recent uptick in racially-motivated attacks against proletarians of East Asian descent. This directly plays into some of the most reactionary and chauvinistic ideas in the US, expressed clearly by the Bourgeois slogan “China Lied, People Died” and scapegoating, such as labeling COVID-19 as the “Chinese Virus.”

In December of last year, the service sector accounted for 97% of new hires according to the Labor department. Additionally, the US economy relies heavily on consumer spending, and while the rush on grocery stores and online shopping may offset this in the short term, less and less people will be able to sustain this spending as incomes dry up in the coming months. Couple this development with the above-mentioned fact that most workers live paycheck to paycheck, and we see a crisis in consumption of commodities, one of the basic causes of capitalist crisis.

In short, the situation looks bad for the proletariat. Congress can’t even pass basic measures, and the clock is ticking. There have been discussions in Congress about a potential UBI bill, but if this crisis continues for several months, one-time checks will not be enough to stop the bleeding. Successive monthly checks may stop the bleeding in the interim, but the ripples effects of mass unemployment are sure to carry well into 2021, if not multiple years beyond. In other words, we’re going to see a crisis the likes of which the world has never seen before.

What Can We Do?

There have been some policies proposed by Social-Democratic elements of the Democratic Party in response to the COVID-19 pandemic. The measures proposed are attempts to treat the symptoms, and not cure the problem. Things like Medicare for All and nationalization of the healthcare system, as well as nationalizing any industries which seek government bailouts, do not get rid of the underlying economic problems which lead to the crisis we are faced with today. Medicare for All in theory protects us all from the virus, but we have seen clearly that the capitalist system of production and distribution has utterly failed the Italians, who have been hit by a chronic lack of medical supplies for their patients. In other words, what good will universal healthcare be if the medical industry itself cannot handle the demand. Currently, the for-profit system in the US offers less than 1 million hospital beds, in a nation of 330 million people. Additionally, our aim should not be to simply treat the sick. We must have a centrally-planned economy, with systems in place that prepare large storages of medical supplies we need for when viruses like this are unleashed on the world. We need an economic system that does not collapse after one month of a fraction of its production being cut. 

Activists should be cautious moving forward in their political work. The most important thing we can implement right now is Serve-the-People survival programs, specifically in terms of food and medical supplies. In doing our work, make sure to have hand sanitizer, gloves, and masks on hand for use and distribution. We should also not allow social distancing and hygiene practices to be spurred on by panic, and use them with clear heads, knowing full well that we are protecting the lives of others through these actions, not just ourselves.

The large-scale demonstrations are coming. No society can have mass unemployment and shortages of basic materials without intensifying the class struggle as a result. We must be prepared to go among the masses where they organize, and organize our own demonstrations, building strong links with the people. Go to the masses, learn from them, and educate them. Most of all, stay safe. Use the time given to us in this crisis to study theory from revolutionary teachers such as Marx, Lenin, and Mao. Do not hesitate, and do not be afraid of study. Study the conditions of the people. I strongly recommend we all crack open Lenin’s “What Is To Be Done” again, in preparation for the coming months.

Capitalism's Overproduction Problem: A Primer

By Prabhat Patnaik

Republished from Monthly Review.

It is in the nature of capitalism to have “over-production crises”, i.e., crises arising from “over-production” relative to demand. “Over-production” does not mean that more and more goods keep getting produced relative to demand, so that unsold stocks keep piling up. This may happen only for a brief period in the beginning; but as stocks pile up, production gets curtailed, causing recession and greater unemployment.

“Over-production”, in short, is ex ante, in the sense that if production were to occur at full capacity use (or at some desired level of capacity utilisation), then the amount produced could not be sold because of a shortage of demand. But it manifests itself in reality in terms of recession and greater unemployment.

It is a mistake to believe that such crises are only cyclical in nature, i.e., that they get automatically reversed after a certain period of time. On the contrary, the Great Depression of the 1930s, which was a classic over-production crisis, lasted nearly a decade and was finally overcome because of the war, or, to be precise, because of military expenditure in preparation for the Second World War.

Since 2008, there has again been an over-production crisis that has persisted with varying intensity right until now. There is, thus, no question of an over-production crisis under capitalism automatically disappearing. But what was striking about the erstwhile socialist economies of the Soviet Union and Eastern Europe is that they were free from over-production crises. The question is why?

Over-production crises under capitalism arise because of two main reasons. One, investment decisions under capitalism depend upon the expected growth of demand, for which the current growth of demand is taken as a clue: if demand slows down then investment gets restrained. Two, whenever investment gets restrained, so does consumption and hence total income (this is called the “multiplier” effect of investment).

Both these factors were eliminated under socialism. Investment was undertaken according to a plan and not the dictates of profitability; hence, there was no question of investment being curtailed when the growth of demand slowed down for any reason. This is not to say that there were no fluctuations in the level of investment. These fluctuations, however, arose not in response to profit expectations, but for entirely exogenous reasons, of which, two in particular were important.

One was agricultural output fluctuations. In years when the agricultural output went down for weather-related, or some other, reasons, investment was cut, in order to prevent excessive upward pressures on food prices; correspondingly when agricultural output revived, so did investment. These investment fluctuations, however, had nothing to do with any calculations of profitability on investment; they were unavoidable even in a planned economy.

The second reason was the operation of “echo effects”. Suppose, for instance, that a whole lot of new investment had been installed in a bunched manner at a certain date, say the beginning of the planning period. These pieces of equipment would become due for retirement again in a bunched manner around the same time some years later, which would, therefore, push up the investment plan, and hence the real gross investment around that time, so that both net investment and replacement needs are accommodated. The investment figure, therefore, would not show a steady growth but would exhibit fluctuations. But these fluctuations again had nothing to do with any calculations of profitability; they arose because of past investment history.

But even when such investment fluctuations occurred, socialist economies ensured that they did not lead to fluctuations in consumption and income, i.e., those economies snapped the multiplier relationship that necessarily characterises capitalism. This is because all firms in the economy were asked to produce to their capacity, and, if demand was low because of investment being curtailed, then they were asked to lower their prices until whatever they produced got sold.

At these “market-clearing” prices, some firms would make losses, while others would still make profits; but this would not matter since both the profit-making and the loss-making firms belonged to the State, which could, therefore, cross-subsidise the loss-making ones from the profits of the profit-making ones. And taking both groups of firms together, there would always be positive net profits as long as investment was positive (even if lower than would have been otherwise).

This was a remarkable break from what happens under capitalism, and provides a clue to why output and employment fall in a crisis there. Under capitalism, a firm does not produce when prices do not cover costs; and when demand is low, prices do not fall, because they are “administered” through collusion among the oligopolistic firms. Instead, output, and hence employment, fall in order to equate supply with demand, and to eliminate stocks which might have got built up briefly.

The matter can be looked at somewhat differently. A fall in price, with money wages and employment given, which is what happened under socialism, meant a rise in the share of wages in total output; income distribution in short shifted in favour of the workers. Since workers more or less consume their entire wages, such a shift in income distribution in favour of the workers raised the share of consumption in total output. Thus, socialist economies never experienced over-production crises because even when investment fell for some reason, output was kept unchanged and the share of consumption rose to compensate for the fall in investment (through a rise in the workers’ share in output).

This, however, can never happen under capitalism because capitalists would never voluntarily agree to a lowering of their share in output and a corresponding increase in workers’ share, even in a situation of inadequate aggregate demand. This is why capitalism experiences over-production crises: income distribution here is a matter of intense class-struggle where there is no question of capitalists agreeing to lower their own share and correspondingly raise workers’ share for the sake of overcoming a situation of over-production.

The “multiplier” that operates under capitalism, whereby a reduction in investment causes a reduction in consumption and hence total output, occurs because of income distribution not being adjustable. The “multiplier”, in other words, is predicated upon the relative shares among capitalists and workers being given.

In fact, under capitalism, far from the workers’ share rising to offset the problem of insufficient demand, the tendency in periods of crisis is the exact opposite, namely, to cut wages and raise the share of profits, which, in a situation of reduced investment that brought about the crisis in the first place, actually compounds the crisis. A 10% fall in investment in such a situation does not just bring about a 10% fall in output, as the “multiplier” analysis would suggest, but a more than 10% fall in output, say a 15% fall, because an additional squeeze on consumption through a fall in workers’ share (via the wage cut) is further superimposed upon the reduction in investment.

The fact that the relative share of the workers is not allowed to increase in order to offset the tendency towards over-production, which is a basic characteristic of capitalism, also shows its supreme irrationality as a system. It shows that the system would rather have larger unutilised capacity and unemployment, i.e., a sheer waste of productive resources for lack of demand, than produce as before by avoiding this waste through giving more to the workers. From its point of view, wasted resources are preferable to using these resources to improve workers’ consumption. True, not being a planned system, it does not make such calculations consciously; but that is what its immanent tendencies amount to. Socialism avoids any waste or slack, such as is caused by a crisis, by raising the consumption of workers appropriately to avert it.

As the collapse of the Soviet Union recedes further into history, people increasingly forget that a system had existed there, which, notwithstanding its many limitations and defects, had nonetheless been free of unemployment, of over-production crises and of the irrationality of capitalism.

Prabhat Patnaik is Professor Emeritus at the Centre for Economic Studies and Planning, Jawaharlal Nehru University, New Delhi. His books include Accumulation and Stability Under Capitalism (1997), The Value of Money (2009), and Re-envisioning Socialism (2011).