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SAMANTHA and David Cameron (remember him?) have a sign in their country home which reads: “Calm down dear, it’s only a recession.”
For them, economic crisis is a joke — they’re insulated from the realities of austerity, which their party, and the capitalist interests that they represent, says is an inevitable and necessary requirement to regenerate the economy “in the interests of everyone.”
But the sad joke also hides an implicit acknowledgement that crises are endemic to the system that they champion.
The purpose of austerity is to cut the social wage, enhance profits and “rebalance” power relations in society in favour of the ruling class.
“Orthodox” economists believe in cycles. Indeed, most see them not only as inevitable but even desirable.
The “business cycle” is an acknowledged stock in trade of financiers and mainstream economists alike.
Arguments revolve around their occurrence (and why sometimes they appear to be synchronised across multiple market sectors) and their causes.
The supply for a particular commodity, from food to phones, falls below the aggregate demand, so prices — and profits — are inflated.
Other producers therefore flock to produce that commodity and at some point supply exceeds demand; prices and profits fall.
Firms move to other products, innovate to reduce costs, or they go bust. The cycle of underconsumption and overproduction continues.
According to orthodox theory, problems only occur when firms make errors of judgement in their profit expectations, leading to a downturn in investment.
When the downturn is extended across the whole economy, the first explanation — on the part of professional economists and media pundits alike — is to blame external causes: overregulation (“red tape”), labour militancy, “unreasonable” wage demands, restrictive practices or “natural” causes (bad harvests, resource depletion) and (more recently) unwarranted expectations of innovations (such as the dot-com “bubble”).
When a downturn becomes unusually acute and prolonged it gets labelled a “recession,” a crisis, and an appeal is made to “special” factors.
So in the Great Depression of the 1930s, liberal economists argued that its scale and protracted length were mainly attributable to the long-term effects of the first world war — high state expenditure, government debt, inflation and the stronger bargaining position of labour as a result of wartime full employment. These all (they argued) prevented a “normal” market equilibrium.
The solution was for the state to back out of the market, cut expenditure and allow the market to work “normally.”
It didn’t work, of course. The crisis played out differently in different countries (the development of capitalism had by that time meant that recessions were generalised across Europe) and rather different “explanations” were given in each.
For example, in Germany Hitler blamed the inter-war depression on reparations following the Versailles treaty, the loss of previously captive markets and sources of raw materials, and US financiers calling in their loans to the Weimar Republic following the collapse of the New York Stock Exchange in 1929. The “solution” led to fascism — and war.
The first major post-war recession of the early 1970s was blamed on the Arab oil embargo which quadrupled energy prices. In fact the downturn had already started before this.
The financial crash of 2007 was blamed on “irresponsible” lending by the banks. And as the current crisis deepens, Brexit is already being blamed. Brexit may — or may not — prove to be “disastrous” for the British economy. But it is not the cause of crisis.
In every “downturn” specific factors are important. But modern neoliberal economics has no satisfactory explanation for crises and their periodic recurrence. Keynesian economics simply attributes them to psychological factors — “business confidence” or the lack of it.
Marxists, in contrast, would emphasise the primary role of internal contradictions within the capitalist economy.
Individual firms invest and innovate to cut wage costs (as a proportion of total) and expand sales, but collectively such activity causes overproduction and a reduction in aggregate demand despite falling prices. Profits fall and the incentive to invest is reduced.
This process occurs unevenly across the economy and at the peak of the crisis disrupts exchange relationships between capitalists. Because the only way capitalists can get a “fair” share of the surplus is by selling their commodities, those that don’t innovate will get a disproportionately reduced share and have to cut or halt production when they are no longer able to cover costs.
Hence, booms, as capitalists compete to innovate and overproduce, will be followed by the periodic downturns in economic activity. These crises tend to reduce all prices back down to their actual value.
The law of value, Marx declared, “asserts itself like an overriding law of nature. The law of gravity thus asserts itself when a house falls about our ears.”
Crises also make it easier for the ruling class to reverse the gains that labour may have made during periods of growth and high demand.
Marx also distinguished between short-term and longer-term cycles. The latter in particular continue to be a focus for research, for example relating to geographical shifts in the location of raw materials, the development of new markets and the relationship between core “mature” capitalist economies and the so-called “developing” countries of the Third World.
Particularly important is the “bunching” of technologies — the industrial revolution of the late 18th century; steam power and railways in the 1830s; steel and heavy engineering in the late 19th century; electricity, oil and the automobile from the 1900s; telecommunications and IT from the 1970s. Each of these is related to major structural changes in capitalism.
Today, with the globalisation of production in a world dominated by finance capital, automation is being invoked as the “explanation” for the next big crisis.
In December last year the (left-leaning) Institute for Public Policy Research (IPPR) suggested that some 44 per cent of all British jobs, (involving almost 14 million workers) could be automated, “hollowing out” middle-income occupations in industry and the service sector.
In January another think tank, the right-wing Institute for Fiscal Studies (IFS), argued that the “rising minimum wage” will lead to jobs being lost in what it calls the most “routine” occupations — such as checkout operators — which can be most easily automated.
And yet another think tank, the Centre for Cities, predicted that a fifth of jobs in British cities were likely to be lost by 2030 with northern towns the worst hit, losing 40 per cent or more of their jobs though automation of relocation overseas.
The causes of, and responses to, crisis are a matter for analysis rather than doctrinal generalisation.
For example, Marx saw a falling rate of profit as central to the capitalist system, but one that could be offset by a variety of factors including: technical innovation, market expansion, colonial exploitation and the imposition of labour discipline (including an assault on pay, on the “social wage,” and on trade union and workers’ rights; privatisation, outsourcing and job insecurity).
It is clear that the first and last of these are key strategies of capital today.
The third in a series of four classes delivered by Professor Mary Davis on Trade Unions, Class and Power will be held at the Marx Memorial Library on February 27. See mstar.link/MMLcourses for details.
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