The mutating crisis of global capitalism

By DAVID McNALLY

I’M GOING to start with what might seem like an overly cute formulation. I’ll try to justify it, and if I don’t, then you can throw various objects at me. But the formulation is: The crisis is over, the crisis continues. I say that because most the commentary we get about the crisis—which began in the summer of 2007 and then really erupted big time in the fall of 2008—focuses on a particular phase of the crisis and says, “Oh, that’s over, therefore the crisis is over.” 

My argument to you, hence the title here, is that this is a mutating crisis. This is a crisis whose weak link keeps shifting, and as a result, we need to see it in all its dynamism—the way in which it keeps mutating and generating new kinds of illnesses within the system, so while it looks like the last one has been cured, in fact, all they’ve done is move the damage somewhere else. 

That’s really the essence of what I’m going to be developing for you—and hence the term for the book I’ve got forthcoming on this topic: Global Slump. I deliberately didn’t say a single crisis, because in fact we’re talking about a long-term slump within the system, which is a series of crises taking different forms. 

I say the crisis is over and the crisis continues because for the moment, the banking and financial crisis of 2008–09 has been averted. The freefall was stopped, and the collapse of investment banks and meltdown of financial institutions around the world has been halted for now. I say for now, because there are a lot of unknowns down the road, starting with Europe’s banks, and maybe I’ll get a chance to say a bit more about that. But I want to remind you for a moment about the severity of that crisis and then talk about how it has shifted in form. 

The severity of the financial crisis
You know that you’ve been living through a very profound crisis in the system when a whole series of different cultural markers emerge that indicate this. Some of you may know that about a quarter million jobs were lost in the financial services industry, predominantly on Wall Street, in the course of 2008 as banks collapsed. A number of gallows-humor jokes started to make the rounds in the investment community in New York City, and I’ll share with you my favorite, from fall 2008: How do you start a small business? Buy a big one and wait. When that kind of joke is making the rounds through the investment banking community, you know things are bad. Another example of the gallows humor: How do you define an optimist? An investment banker who irons three shirts on Sunday night. 

Those are some of the markers. The more serious ones: In March 2009, the Financial Times, arguably the most important English language financial newspaper in the world, started a series called “The Future of Capitalism”—as if this was now an issue. Let me just quote you a couple passages from the editors of the Financial Times as they launched this series: “The credit crunch has destroyed faith in the free market ideology that has dominated Western economic thinking for a decade, but what can and should replace it?” The next day, they wrote, “The world of the past three decades is gone.” (By the way, I think they’re right about that, and I’m going to speak to that as I proceed.) And then they proceeded to quote a Merrill Lynch banker, who said, “Our world is broken, and I honestly don’t know what is going to replace it.” 

That gives you a sense of how within the mainstream, the most serious financial analysts understood the gravity and the profundity of what was happening, and that there was a seismic shift—as if the tectonic plates of global capitalism were shifting, and they didn’t know where we were going to be when that shifting stops. 

But perhaps the one thing that sums up the ruling-class panic best was the spoof front page of the Economist from September 2008, after the Lehman Brothers bank collapse. The Economist had a two-word front page: “Oh Fuck!” This was the largest corporate bankruptcy in world history. You thought Enron was big when it went under, owing about $60 billion. Lehman Brothers went under owing about $635 billion to its creditors around the world. 

So that’s the context, and what it generated was the most massive coordinated central bank intervention into the so-called free market system in the history of global capitalism. We don’t know the exact amounts, but the conservative estimate for the size of the bailout packages that comes from the Bank of England is around $14 trillion. That’s around the annual output of the American economy. 

Once you then factor in the additional $1 trillion they decided to throw in for good measure a number of weeks ago in Europe, and you start factoring in the stimulus packages and so on, we’re probably in the area of a $20 trillion intervention to bail out and stabilize the system. This was the scale of the ruling-class panic and, as I say, it produced something unprecedented in the history of the system. Never before had world central banks coordinated an intervention like this and on this scale. 

But what they did in the course of this was simply push the problem out of the private banks and into the public sector. They socialized the debt—they made taxpayers take on the burden of all the toxic waste that the banks had been selling and holding onto. But in doing that, they raised huge questions about the long-term viability of government debt. So we’re now getting these so-called “sovereign debt crises,” which has been particularly profound in Europe, with Greece at the forefront. 

In other words, it isn’t the case that the crisis disappeared—it simply transmuted. It changed forms, and we’re looking at a different front. Every now and again, you get a serious mainstream description of what has happened that’s worth holding onto. I say description, because the theory is rubbish. All the mainstream theory is totally useless at making sense of anything that’s happening. But probably the best description in the mainstream comes from a book called This Time Is Different: Eight Centuries of Financial Folly, which makes fun of the idea that this crisis is different from the others. The coauthors Carmen Reinhart and Kenneth Rogoff write the following: 

The global financial crisis of the late 2000s, whether measured by the depth, breadth, and (potential) duration of the accompanying recession or by its profound effect on asset markets, stands as the most serious global financial crisis since the Great Depression. The crisis has been a transformative moment in global economic history whose ultimate resolution will likely reshape politics and economics for at least a generation. 

I think that’s exactly right. We are talking about an epochal shift, an absolute redefinition of a whole political period. I want to give you a few markers for the analysis I’m going to develop in the rest of my time, just so you’ve got some sense of where I’m coming from. 

Systemic crisis
My view is that this is the first global and systemic crisis of the neoliberal phase of capitalism. When I say it’s systemic, I mean that it’s not just a crisis in one sector. It’s not just a real estate or housing crisis. It’s not just a banking crisis. It is a systemic crisis. Capitalism is struggling to reproduce itself on an expanding scale, which is the essence of the system—it must do that or perish, and it’s struggling to do that as a system. 

The second underlying premise is that such crises are the result of prolonged periods of growth within the system. I want to emphasize that because there has been a tendency for many commentators on the left to say that this is just the latest phase in a forty-year crisis. I don’t believe this. I think all the evidence shows that the two big recessions—1974–75 and 1980–82, though in some countries, there was actually a third along the way—and the ruling-class offensive that they triggered did, in fact, shift the balance of class forces massively in favor of capital, so they were able to increase the rate of exploitation and launch a new wave of global accumulation, which ultimately became centered in East Asia, with China being the most important evidence of this. 

This shouldn’t be surprising. For those of us who take Marx seriously, the dynamism of capitalism—its very growth—produces profound crises. I don’t accept the idea that for forty or fifty years, the system had just been stagnating. Growth drove us into this crisis. 

The first sign of this crisis emerged in 1997, not surprisingly in east Asia, precisely where growth had been highest. You got the so-called Asian crisis, which was very profound and very deep. After that, there were a series of other crises: Russia, Argentina, Brazil, the collapse of one of the largest hedge funds in the United States, and so on, after which central banks led by the Federal Reserve in the United States massively stimulated the system, driving down interest rates. That produced a great asset bubble, concentrated first in the dot-com sector, and later in housing, and so on. And the bursting of one of these bubbles would be the trigger for the crisis that emerged in 2007. 

But triggers aren’t the same thing as the whole story. They influence the timing and the sector where a crisis emerges. It didn’t have to be real estate. It could have ultimately happened somewhere else. But that’s where the big bubble burst, and that’s where the underlying weaknesses within the system got exposed. As a result, we are—I agree with the commentators on this—in the second great contraction of modern capitalism. 

The crisis behind the headlines
Overall, these premises go against the grain of so many of the pundits on the business news channels and in mainstream newspapers, who are telling us that the crisis is over. So I just want to move through a few headlines from this moment and—if you’ll pardon me using the slightly post-modernist term—deconstruct them for you. I do that because I think we need to map where we are with this crisis, and then I want to talk about how the system is supposed to be able to get back on its feet right now. In other words if it’s true that the crisis is over, where is this resolution coming from? 

Let me give you a few headlines. This one appeared a few weeks ago, from Thomson-Reuters: “U.S. corporate profits up 206 percent in the fourth quarter of 2009.” True. This is a factually correct statement. But what doesn’t it tell us? It doesn’t tell us that if we remove financial enterprises—banks, hedge funds, and so on—profits are only up 18 percent, not 206 percent. And by the way, when you’re a bank hovering on the verge of bankruptcy last year, being up 206 percent is not so astronomical. 

The reality is that profits today are still below the peak of the last expansion, by a very considerable margin. There has not been, despite the attacks on the working class—the concessions that the United Auto Workers gave up, the big wage cuts that have come in one sector after another, the leaning of production throughout the course of this crisis, and so on—a recovery of profits to their post-crisis level. 

Here is a headline that I love, only because I reside in Canada: “U.S. auto sales outpace Canada’s.” Now this was considered big news because Canadian capitalism was not hit as hard by this crisis as capitalism has been in other parts of the world. But now, U.S. auto sales were going more quickly than Canada’s. This really was boom-time stuff. 

Okay, let’s deconstruct. It was a true statement about April this year. But what they didn’t tell us is that this great burst in U.S. auto sales took them to an annual level of about 11.5 million. Pre-crisis? 16–17 million was the annual average. In other words, automobile sales in the U.S. economy are about 5 million below their pre-crisis level. It’s true that the corporations have wrung out sufficient concessions from the unions that they’re profitable again, but there’s not auto-induced boom coming in the U.S. or anywhere else. 

Here’s another one of my favorites: “U.S. new home sales make huge jump.” True, by the way. They did in April. But they were still 70 percent lower than July 2005. Seven million households in the United States are behind on their mortgage payments. Freddie Mac had to ask for an additional $10.5 billion in March to cover further real estate losses. 

The number of people behind on their payments is rising at the moment—it’s around 10 percent. And by the way, nearly 40 percent of the people who are delinquent are so-called prime borrowers, not subprime. These are people who qualified for high-end mortgages. That’s what massive job loss does. Mortgage applications for new homes plunged 40 percent this spring in the United States, and new home and apartment construction fell by 10 percent in May. In other words, the housing and real estate sector has not touched bottom yet. 

And then, of course, the one that I think you’ll know and appreciate the irony of: “U.S. economy adds 290,000 jobs in April.” Again true. Of course, the unemployment rate rose with that announcement because 800,000 people who hadn’t looked for jobs the previous month said, “There’s jobs out there,” and reentered the job market. And then new job losses claims jumped again.

To give you some perspective of what this means for the U.S. economy: Simply to restore the jobs lost in this recession would require 8.5 million or more, and those that would be required by ordinary population growth is another 2.5 million. To get those 11 million or so jobs would require job creation of 400,000 new jobs per month for three years in the U.S.—just to get back to where they were. Never mind all the people underemployed and so on. Don’t hold your breath on those 400,000 a month for three years. 

Here are a couple of facts that aren’t being widely reported. The U.S. money supply is contracting at the moment. This is terribly bad news for capitalism because what it tells you is that the amount of business borrowing is falling, which means that investment is falling. It tells you the amount of consumer borrowing is going down. The money supply ultimately reflects the growth, or lack thereof, of overall transactions happening in the economy—business spending, consumer spending, and so on. When the money supply is going down, that’s a recessionary indicator—even possibly a deflationary one, and I might get a chance to say a few words about that in a moment. 

Another fact, this one about world shipping. Some of you will have heard about an obscure thing called the Baltic Dry Index. What it does is track the amount of stuff being shipped around the world—shipping on huge vessels is still the principle means of moving commodities around the world, whether it’s steel or coffee. The Baltic Dry Index has fallen every day for the last three weeks—not good for the system. But this isn’t making front-page headlines. 

Finally, a report came out from the Organization for Economic Cooperation and Development (OECD)—essentially the thirty largest Western economies. The OECD released a report last month warning of a “lost generation,” with youth unemployment in those thirty countries officially at 19 percent. That’s the official rate, and of course, as we know, it’s much, much higher in many countries. For example, the official unemployment rate in Spain is 20 percent right now, with youth unemployment in the high thirties. 

No engine of recovery
The other thing we need to ask is: If the world economy is in even the early stages of a sustained recovery, where is the engine? Where is the economy being driven forward? You can look historically and see that certain geographic areas drove the world economy during certain phases.

So let’s look for the engine. Europe? Ha! Good luck. Greece will contract about by 4 percent this year, Spain is contracting, and so is Ireland and Portugal. Even with Germany exporting like crazy, there will be Europe-wide growth of maybe 1.2 percent, and much of Europe will remain in recession. 

Japan? There’s even a bigger laugh. Japan hasn’t been able to get out of the grip of deflation, and deflation is a huge problem, because once prices start to fall regularly, that’s disastrous news for manufacturers, but it also means postponed buying. If I’m going to buy a car, and I know that if I wait five months, it’s going to be 8 percent cheaper, I keep postponing the purchase. That’s what deflation does. It drives down the overall economy, and Japan is still there. 

China, of course, has been the chief scenario for economists, because its growth rates are very, very high. In some regards, these growth rates will stay high, although I believe they’ve peaked for the time being. But there are huge structural problems. About 30 percent of China’s industrial capacity is unused right now. That’s another way of saying that capitalism confronts an overaccumulation crisis. China has built so much productive capacity it can’t profitably use that the incentive to keep investing in the means of production drops, and drops dramatically. 

Now it is true that China had a huge stimulus program—relative to the size of its economy, it was much, much bigger than the size of the Obama stimulus program for the United States. It was used to build a huge amount of new capacity. 

Let me give you some examples. Fixed investment in factories and railways accounted for 95 percent of China’s growth last year. This is unprecedented—nothing like this ever happened in the history of capitalism, where the building of new factories and railway lines is driving everything. And by the way, these are classic signs of an overaccumulation mania. You build housing developments that sit empty, you build rail lines where one train runs every day. 

But if you want a really good picture of it, look at the steel industry. Going into this crisis, China had, according to all the commentators, an excess capacity in the industry to produce between 100 and 150 million tons of steel per year. Last year, China built capacity to produce 58 million tons of steel more each year. That means it now has an excess capacity of around 200 million tons. Put differently, China has surplus capacity to produce steel greater than all the steel-producing capacity of all the countries of Europe combined. 

That can’t continue. You can’t keep doing that. And the Chinese ruling class knows it. They are trying to squeeze off the bubble that started to explode in housing. They’re trying to reign in credit markets right now, but they’re trying to do it without producing a crash. 

Moreover, consider the pattern of China’s growth—it’s export-driven. If you’re driving into other people’s markets, you’re not creating any basis for anybody else to boom. So structurally, China’s growth is based on overaccumulation that’s not sustainable, and the export-driven pattern means it can’t bring the world economy forward. 

Age of austerity
Finally, the United States. The best description I have heard comes from an economist who I won’t name for the moment because he’s a real shithead. But he did nail this one when he said, “What the United States is experiencing is a statistical recovery and a human recession.” That’s precisely what’s happened. A few statistical indicators have moved up, but for the vast majority of working class people, the recession continues. 

If you add in the nearly 10 million who are involuntarily underemployed—they’re taking part-time work because they can’t find full-time work—you’ve got about 27 million people unemployed or underemployed in the U.S. economy right now. That translates into an unemployment rate of over 17 percent, and for Black and Latino workers, it’s an unemployment rate of around 25 percent. 

According to the Economist, one out of every six U.S. workers has taken a wage cut in this recession, and amazingly, four out of every ten African Americans has experienced unemployment during this crisis. Looking at food stamps, an additional 37 million people went onto food stamps in the U.S. in 2009, and 40 percent of those recipients are working for a wage. They’re not unemployed—they’re simply the working poor who can’t make ends meet. 

As for the next statistic I’m going to give you, this one was so overwhelming that I had to double check check it to be sure. Half of all U.S. children will now depend on food stamps at some point during their childhood, and the figure runs at 90 percent for African American kids. Imagine that—in the heartland of global capitalism. 

This human recession shows no signs of abating, and it can’t possibly be the basis for any expansion. What we’re dealing with, in other words, is, as I said, a protracted global slump that is changing forms—the front of the crisis shifts—but in which all the classic neoliberal tactics of attacking the working class are being intensified. 

But they have much greater difficulty selling this in terms of a free-market ideology when they’re going through such massive state interventions. We’ve got a kind of hybrid neoliberalism, with elements of Keynesian stimulus when they think things are really falling apart, and with massive attacks on the working class and all of the class and racial dynamics of neoliberalism coming to the fore once again. 

You’ve got huge waves of accumulation by dispossession happening in the Global South—just massive land grabs, whether it’s for the land itself for agribusiness, or for water resources, or for the mineral and fossil fuel deposits below these lands, and so on. If you look across Africa, China, India, Mexico, Central America and the whole of South America, there’s just a wave of primitive accumulation by dispossession happening. I believe we’ll see this accelerate over the crisis. 

So there’s that big wave in the Global South, and we’ve got structural adjustment big time in the North. Greece is being structurally adjusted right now. The kinds of things that happened across the neoliberal period to Mexico, Argentina, Poland, and weaker countries are now the new normal in the Global North. 

And the logic becomes: Either get structurally adjusted because of the level of government debt, or do your own pre-emptive structural adjustment before the IMF arrives. That’s what Germany is doing, and that’s what Britain is trying to do. They’re trying to jump ahead of the IMF and slash massively. 

Let me just give you a few examples. Latvia has fired one-third of all teachers and over 20 percent of all public employees, slashed wages for the remaining public-sector workers by 25 percent, and chopped pensions by 70 percent. That’s their structural adjustment, aided and abetted by the IMF. 

Ireland has slashed public-sector workers’ wages by 22 percent. Germany has just drawn up a program of $100 billion dollar in cuts. Something along the same scale—probably larger—is being planned for Britain. Russia is planning to cut 20 percent of all state employees. And in Greece 22 percent cuts in public-sector wages, a 55 percent slash in pensions, and so on.

This is what’s meant by the age of austerity. This is the way in which the working class the world over is going to be forced to pay for the huge bailout of the global banking system. 

The Institute for Fiscal Studies in Britain put out a report saying that by 2017, the average British family will be $4,500 poorer by way of wage cuts and cuts to the social services on which they’ve historically depended. 

At the same time that report came out, the Sunday Times did their list of richest people in Britain, which said: “The rich have come through the recession with flying colors. The rest of the country is going to have to face spending cuts. But it has little effect on the rich, because they don’t use public services.” The class dynamics could not be clearer. 

I’m not going to tell you the details about the cuts that are happening in places like California, Ohio, Minnesota, and Arizona, because you know these stories much better than me. But I do want to say that one of the things you see system-wide in this crisis are attacks on migrant workers moving to the forefront. The sessions on Arizona at this conference speak to that, but you’re seeing it around the world—attempts to criminalize and deport migrant workers, and moves to so-called guest worker programs. 

Can we strike that term from the list? These workers aren’t guests when you super-exploit them, house them in barracks, overwork them, arrest them, and deport them at will, especially if they’re starting to organize unions. They’re not guest workers. These are temporary contracts—basically, a bonded labor system—and they’re moving toward the most temporary and most precarious forms of employment for migrant workers across the board. 

In Canada, where I come from, four times as many people came in last year under the temporary foreign worker program than came in as permanent residents. This is the trend—to push the precariousness and vulnerability of migrant workers. That’s why I believe the defense of migrant workers has become the cutting edge of truly anti-racist working-class politics in this period. 

Building resistance
I’ve only got a brief time to speak to the questions of resistance, but I want to really emphasize two things. 

First, the working class has fought back heroically throughout this crisis, but the scale of its resistance and organization have nowhere been equal to the scale of the assaults. That’s our contradiction. 

Remember, in the very early days of the crisis, mass protests in the street brought down a government in Iceland. There was the December 2008 uprising in Athens. Think about the wave of factory occupations, whether it was here in Chicago at Republic Windows & Doors, or the auto plants in southern Ontario where I come from, or the factory occupations in Ireland and Britain. In France, it was the boss-nappings—occupations aren’t good enough? Fine, we seize the bosses! 

We’ve had a wave of resistance that’s inspiring and important, but it has not generally been equal to the task. We need, though, to point to some of the examples that frankly haven’t received sufficient attention, including even from the left. I’m thinking particularly of the general strikes in Guadalupe and Martinique. These were really massive and hugely important struggles—interconnected with the resistance in France by the way, feeding the struggles in the streets. France served as the launching pad for the struggles in these protectorates—that’s essentially what they are, neo-colonies of France. 

To give you a sense of it, in Guadalupe, the general strike went on for forty-four days, and the coalition that lead it, named Stand Up Against Exploitation, brought together forty-nine social movement organizations, trade unions, feminist groups, student activist organizations, and so on into a mass movement that at one point had 15 percent of the population in the streets, building barricades and fighting the police. 

The demands were scaled to the lowest paid. The strike won 40 percent increases for the lowest-paid workers, and the strikers were happy to settle for 6 percent for the best paid. To win a 200-euro-a-month increase for those making minimum wages—that was an absolutely glorious example of working-class insurgency. In Martinique, the working class got into the act at the same time, held out for thirty-eight days and got a fairly similar settlement. 

We also have a really important resistance happening in Greece at the moment that could serve as a point of departure for much wider waves of resistance across Europe. We don’t know whether or when this will happen, because we also know that the organized forces of anti-capitalist working-class politics are much feebler and less organized than we would like. 

But we do see the seeds of resistance. For example, in the absolutely beautiful movements of migrant workers—think of the strikes and building occupations in France last winter, for example, by migrant workers or the May Day demonstrations that you in the United States have recently been through. 

It’s not yet a transformative moment for the left. That’s the complexity—the seeds of resistance are there, but we haven’t moved into a sustained rising wave of resistance and struggle. So we need also to remind ourselves of what I said at the outset—this is a long-term crisis. As the two bourgeois commentators I quoted said, it’s going to shape politics for a generation. 

So we need to be trying to combine both the sense of urgency and the need to act and build resistance now, but not with a sense of panic. We have to have that degree of durable patience to our work—knowing that we’re in a struggle we have to keep moving forward, but a struggle for a period of years. We have to be building with that perspective. We need to be building larger, non-sectarian, anti-capitalist working-class movements if that’s going to be sustainable.

I’m going to finish with two quotes from some of the more exciting examples of resistance that we’ve seen. 

We shouldn’t underestimate the significance of the wave of strikes happening in China right now. One of the activists, a twenty-year-old young woman who came out publicly as a representative of the workers at one of these Honda plants, and dared to say in an interview: “Our strike is just one step. It is all about all of the workers of China standing up against capital, and moving to build an independent labor movement.” 

That’s the attitude that is percolating through these strikes in China right now. One phrase that encapsulated it beautifully came from the striking workers at KOK International, which is based in Taiwan. The workers wrote a petition with this closing sentence: “Power lies in unity, and hope lies in defiance.” That’s the spirit that we see running across this resistance. 

I’m going to finish with one of the leaders of the mass strikes in Guadalupe, who said, “When a people arises, when it develops awareness, when it is convinced of the rightness of its actions, there is nothing that can stop it. The people sweep aside all obstacles placed in their path like a whirlwind cleaning out all the dirt in a country.” 

Now, we have a lot of work to do before we can go around making claims like that. But this idea that we need to be building resistance on the ground today with the idea of generating a transformative moment for the anti-capitalist left is, I think, the only perspective that fits when you understand that we’re looking at a war against the working class that is being launched from above, and when you understand the scale of resistance that is necessary. 

People are resisting, but they’re doing so in a context in which the socialist and revolutionary left is very weak and needs to rebuild. But this is the task of a generation, and I think these kinds of meetings like we’re having right now are all about the process of trying to rebuild that fighting anti-capitalist left.