In this document, we propose to approach elements to evaluate the panorama of the world capitalist economy as a whole, not as a sum of parts, but trying to identify the central dominant tendencies in a descriptive way in some sections, conceptually in others and with contributions of topics that we consider interesting for the debate in the membership of our national organizations. Of course the pre-congress debates will surely enrich, correct and expand what we are going to develop in this presentation. This is not, therefore, a document that addresses the situation in all countries and continents, nor does it have that purpose: its goal is to function as a trigger for collective debate on this particular plane of capitalist society. On the other hand, as revolutionary socialists, our approach is from the political economy that is crossed by the class struggle, by the intervention of political and trade union leaderships. This provides the framework to what this document poses, as well as to other contributions to this pre-Congress of the ISL, which function as dialectical complements.
Having stated the above, we propose taking up the following axes:
- An analysis of the current state of the world capitalist economy, taking as a reference point the definitions and hypotheses discussed and approved by the 1st World Congress of the ISL, based on which we can draw prognostic coordinates.
- The 2022 performance. The year closes with a setback of the world economy and growth rates below the very moderate projections of the imperialist bourgeoisie’s own organizations and intellectual think tanks. The post-pandemic “rebound” effect of 2021 showed its ephemeral nature.
- The war in Ukraine. It leads previous tendencies to a slowdown due to the fall in direct investment and a new leap in speculation. The increase in interest rates as a means of cooling the economy sets the stage for a new global recession in 2023.
- A weak link to follow as a crisis catalyst is the weight of debts, the increase in the cost of credit as a result of the increase in interest rates and the risk of insolvency and default on the part of several countries and corporations. In addition to its orientation towards social austerity, a leap in inequality and consolidated structural poverty.
- The expansion of fictitious capital and speculation: cryptocurrencies as a capitalist illusion.
- The consensus in the economic forecasts of those in charge: technical language fails to cover up the recessionary hypothesis of all international organizations and private consulting firms.
- The explanation that the spiral is not of prices and wages, but of profits and prices. Once again, towards a Marxist explanation of the inflationary spiral.
- Elements to address inter-imperialist tensions and the Chinese economy: a historical parallelism with another stage of dispute for hegemony and some elements of the current situation of the Asian giant.
- Debates in the field of economics: automation, remote work, artificial intelligence and the false models of virtuous capitalism. The cases of Japan and the Nordic countries.
- Our synthesis of a UN Report that confirms our thesis on “historical involution” or development of “destructive forces” of capitalism in this era.
- Our emergency program and transitional bridge.
- Conclusions and summary.
The 2008 crisis as a turning point and the pandemic as a trend amplifier
At the 1st ISL Congress we discussed the state of the world economy. At that time, 2021, our strongest statement was that the capitalist economy had never recovered from the 2008 crisis, and that taken as a whole the pandemic arrived in conditions marked by a decade of world depression, with a weak recovery in imperialist economic epicenters such as the US, China and Southeast Asia, but with stagnation in Europe and the peripheral economies. Therefore, the COVID pandemic deepened these trends to explosive limits.
What we put forward over a year ago in that document that we presented during the pre-congress period was supported by abundant empirical information and had as its central political objective to combat the thesis that COVID had interrupted a virtuous and expansive cycle of capitalism.
Showing that the world economy never in the period 2009-2019 recovered its pre-2008 rate of profitability, and that reality reinforced the tendency for speculative capital to grow as it did not find sufficient niches of valorization in the sphere of production.
All previous reports from multilateral agencies and private consulting firms anticipated a period of decline for the economy during the pre-pandemic period. The IMF and the World Bank said that the outlook was uncertain and the indicators were bad. Both institutions of the imperialist superstructure encouraged austerity for 2020-2021 downward throughout 2019 (IMF and WB documents).
Private consulting firms, starting with JP Morgan, told their clients -banks, corporations- that the panorama was of “concerning synchronized deceleration.” That is to say: they advised a withdrawal, not taking risks, and suggested a conservative orientation for investments because the general deterioration of the situation appeared “global” and not localized in a region (JP Morgan documents).
The vicious circle of the world economy consisted of a low rate of productive investment resulting from the fall in the general rate of profit, and a dominant speculative behavior in capital, which prepared the conditions for a new recessive collapse.
This is how world capitalism entered the pandemic, which in turn, of course, along with the lockdowns of 2020, which practically interrupted world trade and paralyzed supply chains, ended up causing the sharpest fall in world GDP in the entire history of capitalism.
Then came 2021, with a rebound effect (which we will analyze in a separate chapter) and 2022, which is coming to an end, which we will also review. But, the main point that we were interested in recovering from the debate of a year ago in our 1st Congress is the definition of the structural limits that gravitate in the world capitalist economy and that no conjuncture managed to revert in almost the last 15 years: fall of the rate of profit, low rate of productive investment, speculative expansion and accumulative contradictions that prepare new crises.
From this point of reference we will analyze the capitalist economy towards the next period.
2021-2022: “rebound” effect and slowdown.
The year 2022 ends with a slowdown in growth almost ¼ below that of 2021 in real terms. All projections indicated a growth of no less than 4 % worldwide, and barely exceeded 2% in the main capitalist economies and a little more, but always below 3 % in the so-called emerging economies.
Therefore, as a whole, the world economy after the pandemic and a 2021 of relative growth, has clearly slowed down again. All consensus forecasts missed and the economy declined.
Actually, 2021 expressed a classic “rebound” from the accumulated consumer spending of 2020 from a global policy of the bourgeoisies to intervene in the economy with COVID cash subsidies and huge injections of credit money by central banks. It was deployed as a guideline in the crisis and in this situation acted as a kind of ephemeral fuel that impacted growth rates in 2021. However, by mid-2022, central banks began to raise interest rates, which resulted in a drastic increase in loans for consumers and companies. It went from a policy of issuance and monetary expansion to more abrupt austerity in response to inflation in prices of goods, raw materials and services on a global scale.
At this point, we would like to pause to explain the reasons for the inflationary jump as a global phenomenon and the orientation of central banks that “cool” the economy by raising interest rates to capture circulating capital and encourage its withdrawal from the productive cycle (with the social and political consequences of such a measure), essentially to keep the increase in the cost of living from stimulating the class struggle. That is the bottom line from the bourgeois point of view.
However, on a world scale, the ideological factories of capital promote the false ideology that the wage demands of the working class is the factor that stimulates inflation. Even Keynesianism and monetarism, also provide their version of an “exogenous cause,” external to the functioning of the capitalist economy,being the “exception” of the war in Ukraine:
- Distributive disputes, tension over income, is one of the fallacies.
- Excessive demand (and, therefore, limited supply, which pushes up prices), the followers of Keynes explain.
- Excessively cheap money (and thus easy credit, which encourages consumption “above real possibilities,” ergo: credit must be “tightened,” making it more expensive), say the most right-wing liberals.
- The war in Ukraine, which alters prices in an “objective” way and independently of the conscious intervention of the monopolistic price-makers.
- These are some of the labels with which they present the politically motivated interpretation of the causes of inflation. However, a Marxist analysis reveals other structural factors and presents the situation in a different way. In the following chapter, we present our explanatory model.
It never rains but it pours: endemic causes of inflation and the Ukrainian war as a catalyst.
The main premise of bourgeois political economy is that the market model tends to equilibrium more or less permanently, until it is shaken by an external “shock”, which disturbs it. Thus, the analyses, explanations and measures proposed by the professional economists of the system aim to make the dynamic return to equilibrium with the adequate austerity policies. They even try, as far as possible, to anticipate future external “shocks.” That is to say, in the bourgeois conception of the economy, there is no room for the existence of problems inherent to the market system: all alterations are exogenous.
We put forward the above as a framework to a thesis repeated extensively by the mouthpieces of the bourgeoisie who dominate the mass media, explaining that “the war in Ukraine was the determining factor that explains the interruption of an economic cycle of recovery and an unprecedented inflationary phenomenon.” We are faced with a half-truth, that is, with a bourgeois ideological fallacy, once again.
As before COVID was used as an “exogenous” or external cause to validate the thesis of a “virtuous cycle interrupted by an unforeseen factor,” and we have already substantiated the falsity of that vision, now the same happens with the “Ukrainian factor.”
Therefore, we need to elaborate on this issue, to place it correctly in our analysis, and thus make it a solid reference point for the ISL’s political struggle of ideas.
On the one hand, the first thing to say is that the growth of inflation and the “spiral” of prices did not begin with the Russian invasion of Ukraine in February 2022. To illustrate this statement, it suffices to state the following:
- In 2021, starting with the United States, the Consumer Price Index (CPI), increased by 6.2 % compared to 2020 and was in fact the fastest increase since 1990.
- In the Eurozone, inflation was recorded at around 4.1%, the highest in 13 years. Germany recorded an increase of 4.5%, the highest since August 1993.
- Meanwhile, in England, inflation was 4.2%, the highest since Thatcher.
- Also in 2021, the UN Food and Agriculture Organization noted that world food prices were “at their highest levels in more than a decade.”
Of course: we did not mention the cases of Argentina, Venezuela and other Latin American countries. Or examples from South Asia, which have been experiencing high inflation phenomena since before the pandemic. We mentioned cases of capitalist powerhouses, which had not experienced imbalances in this area for decades. And all of this happened before the Russian invasion of Ukraine.
Therefore, in any case, what happened with the war in Ukraine is that it amplified and exacerbated the previous structural tendencies of the capitalist economy of price increases and inflation with stagnation. In this sense, logically, the war and its international impact generalizes a phenomenon that impacts the income of the working class and the mass movement, and is at the base of the incentives that drive the process of class struggle, of the irruption of organized labor movement with historic strikes in central capitalist countries and of the detonators of revolts and rebellions.
However, pointing this out is not equivalent to assigning all the causal weight of inflation to the war, since what is important for a Marxist analysis is to unmask the deeper phenomena that lie beneath superficial appearances in order to elaborate systemic, structural and revolutionary answers on the programmatic level.
Moreover, we should point out one more element, strongly present in Latin America for sure, as well as in countries with high inflation sustained for years, before the pandemic and the war: the crisis of political regimes, the bourgeois distrust in the capacity of medium-term stabilization by unstable capitalist governments that reinforces the parasitic and speculative behavior of the price makers that raise prices to assure themselves a conjunctural preventive profitability.
Having said all the above, we could summarize the root causes of inflation which, when combined with the war in Ukraine, unleash a global spiral with far-reaching social and political consequences:
- The low productivity of the weakest economies is a factor.
- The blockages of the global supply chain by COVID, was another.
- The crisis of political regimes that encourages the “preventive” raising of prices due to bourgeois mistrust in their governments.
- Concurrently, the energy crisis, driven by the Russian invasion of Ukraine, completes the picture.
It is neither “excessive demand,” as the Keynesians argued, nor too much “cheap money,” as the monetarists argue, nor “the distributive drive,” speaking of structural factors, nor exclusively the war.
In fact, since COVID, the workers’ share of income and real wages has been falling sharply even as unemployment falls. This is the opposite of the Keynesian theory of inflation, which, for example, correlates wages and unemployment: lower wages reduce unemployment, higher wages multiply unemployment. This is the so-called “Phillips Curve” as the “iron law of wages,” which is still at the basis of the false interpretations of Keynesians and neo-Keynesians, and Marx buried in the 19th century.
We talked about the rigorous statistics of the last 3 years, but if we also analyze the period of the 2008 crisis until now, we find that the increase in inflation has nothing to do with an overheated labor market, but by localized profit margins of large corporations and bottlenecks in the supply chain, product of the capitalists’ low rate of investment. This means that monopolies and oligopolies increased prices due to their market power, and did not reinvest in infrastructure expansion or the incorporation of labor force. Therefore, no matter how much central banks raise interest rates to “cool” class struggle, they are more likely to cause a lasting stagnation in investment and consumption, thus provoking a sharp, recessionary downturn.
Accurately characterizing the real multi-causal origin of inflation is key to defining each policy. In the case of bourgeois economists, it is a matter of justifying analyses of their anti-worker and anti-popular lines.
For example: if the cause is “excessive demand” for goods and services, the economy must be “cooled” by raising interest rates and encouraging bank savings. Or rather the business of financial capital.
If it is “cheap money,” according to the law of supply and demand and the invisible hand of the market that regulates everything, it is necessary to “harden” the supply of credit, increase its price, in order to remove money from the market and “cool” it as well.
If the problem, then, is wages, they must be frozen as a policy.
In short: with these diagnoses, in all cases, the capitalist solution is to reduce the income of the working class and the popular sectors.
If, as we explained above, the problems had other origins (productivity, COVID and concurrently, war), the program that could be used as a way out has another set of measures:
- Productive state investment, instead of the speculative investment of financial capital.
- Abolishing the patents of vaccines and expropriating private laboratories to produce vaccines and immunize massively.
- Put an end to the war, starting with the withdrawal of Russian troops.
In other words, our emergency measures, partial and supported by mobilization, would have a clearly anti-capitalist and transitional orientation.
The proof that corroborates how incorrect bourgeois theories of inflation are is that central banks have been powerless to stop inflation, except by destroying incomes, raising the costs of debt and thus intensifying the probability of a total collapse in the major economies in 2023. The management of the crisis in the hands of those who generated it, the capitalists, leads to a precipice.
The explosive cocktail of debts and the prospect of stagflation as a phenomenon
The General Director of the World Trade Organization stated a few months ago that “a global recession is to be expected, not only in a few countries.” This hypothesis had symptomatic expressions in central capitalist countries throughout 2022 and has relevant data to take into account:
- The financial market in the United Kingdom creaked and the Bank of England had to massively intervene in the bond market to calm the situation down. The devaluation of the pound depreciated the bonds of that country, since the government measure to cut taxes to corporations and large fortunes, in order to reactivate the depressed British economy, is translated into public debt (to finance these subsidies to large capitalists). This plummeted the price of the British currency to historic levels.
- The rise of the dollar, which impacts on all world currencies, is another element to take into account: the yen is at 24-year lows, the euro is touching 20-year lows and the sterling pound is on the verge of parity with the dollar, further aggravating the weight of its imports, especially at a time of high gas, oil and food prices.
- The yuan, despite China’s trade surplus, is under strong depreciation pressure against the US currency, repositioning uncertainty around capital flight, at a time when rising concerns about debt and state support for zombie companies is a risk factor in China and the rest of Asia.
- The artificially appreciated dollar is even impacting the profits of US companies with significant overseas operations.
At the same time, the recipe of the world’s central banks, raising their rates, has as an immediate derivative cost of borrowing for consumers and businesses, which will possibly end up bankrupting the weakest companies and at the same time, reduce demand and consumption.
Therefore, it is most likely that, with such guidance, inflation will not be liquidated and a recession will be leveraged across the board. That means that the major economies could enter a period of stagflation, not seen since the late 1970s, when inflation rates remained high, and at the same time, production stagnated.
If we take these general features of the situation beyond 2023, which undoubtedly appears uncertain for the world economy, the context has characteristics of an “end of cycle,” in the sense that the world situation appears worse for the world bourgeoisie then at the end of the 1970s with the end of the post-war boom, since now it is not only the semicolonial countries that have huge debts (personal, public and corporate), but it affects the main economies of world capitalism.
To have a notion of the importance of debt on the scale of the world-economy, let us look at some figures:
- In 1970, global debt amounted to 100% of world GDP. In 2020 it was 250%, an increase in real terms of 2.5 times in fifty years.
- Its amount – $230 trillion – is divided into three components: 24% of the total for households (i.e. 55% of world GDP); 36% for non-financial corporations (i.e. 83% of world GDP); 40% for public debt (i.e. 92% of world GDP).
- Several of the so-called emerging economies are facing a major credit crisis, with debt defaults occurring in Sri Lanka, Zambia, Ghana and other countries such as Egypt, and we know that even in Pakistan the risk of insolvency is high. In Latin America, the presence of the IMF as an interfering auditor in the economic plans of the countries crystallizes as a de facto situation. Argentina is an example of this neo-colonial subjugation.
- But it should also be noted that global debt has lost much of its quality in recent years. The severity of this qualitative deterioration in global debt weighs on the fragility of the financial sector: the more debt increases, and the more borrowers – some of whom are overexposed – become indebted, the more likely and severe future crises will be.
In short: the return of inflation sharply increases financial vulnerabilities. If, as in those years, central banks decide to raise rates sharply, a much larger debt crisis than then, limited to peripheral countries, could be triggered. For example, the euro zone could be particularly vulnerable.
For the time being, rate hikes are currently limited compared to the monetary tightening of the late 1970s: between 1979 and 1981, the Federal Reserve (Fed) raised its interest rates by 9 percentage points. But central banks, which are now betting on a sustained rise in prices, could tighten monetary policy sharply.
It is therefore very much a real possibility that the next recession will feature an acute stagflationary debt crisis. As a percentage of global GDP, private and public debt levels are much higher today than in the past.
This combination of indebtedness, rising credit costs and stagnation due to lack of investment and consumption, potentially appears on the horizon as an explosive risk for the capitalist economy in the coming years. We must add the policy of permanent social austerity, which adds fuel to the social climate of polarization throughout the world. Debt, in short, is one of the weak links of the world capitalist economy.
The rise and fall of cryptocurrencies: the distortion of speculative capital
The policy of increasing the price of credit, the rise in rates and the end of “liquid and cheap money,” had cryptocurrencies among its wounded.
In 2022, the fall in the theoretical value of cryptocurrencies was more than $ 2 trillion, marking a 70% plunge from its highest value, achieved -not coincidentally- in 2021, a crucial year of monetary expansion and financial liquidity.
The first thing to clarify is that speculation is inherent to capitalism, but it increases, like other financial activities, in times of economic uncertainty and crisis. That is: when profitability falls in the productive sectors and capital migrates to unproductive and financial sectors where the rate of profit is higher. This is the reason for the rise and apex of the cryptomarket.
What is happening now, with the collapse of this speculative niche, is what happens when investors begin to expect a drop in profits due to an upcoming slowdown in the real economy. However, in times of malaise, speculation grows and grows with the “irrationality” of capitalist logic. In Capital, Marx said that “in every stock scam, everyone knows that at some point the crash will come, but everyone expects it to fall on his neighbor’s head, after he himself has collected the rain of gold and taken it to safety.”
The financial engineering of Bitcoins are actually forms in which what Marx called fictitious capital manifests itself, i.e. financial assets such as bonds, stocks, property, credit and so-called derivatives of these.
Finance capital is always creative in finding ways to speculate and scam with expectations of future profits. Let’s review more or less recent examples:
- We had the dot.com boom when the stock prices of many Internet start-ups soared, only to collapse when the profits of these companies failed to materialize and the cost of borrowing to speculate increased. That was in 2000 and was followed by a mild recession in 2001.
- Then, there was the credit boom in housing prices, mortgages and mortgage packages with their derivatives that fueled the real estate and stock market fever that collapsed in 2008: the sub-prime crisis.
- After the crash of that year, there was a massive injection of money from central banks with low or zero interest rates and “quantitative easing” that led to a further rise in the stock and bond markets to record levels. The impact of the pandemic, then, led central banks to double down on “liquidity” to keep financial asset prices rising, while the “real economy” based on profitability and investment in productive assets stagnated. This is the turning point we now find ourselves in.
So far in the 21st century, circulation of accessible money has driven transitory illusions in various casinos of financial speculation. The low profitability of productive investment stimulates this addictive behavior… and chronic crisis.
Cryptocurrencies such as Bitcoin (its commercial name), emerged with the declared purpose of reducing transaction costs in Internet payments and completely eliminating the need for financial intermediaries, i.e. banks. The context was the 2008 crisis and the social hatred of banking in general and of state centralization. The ideology behind this innovation is to bypass the state, banking, centralization, taxation: a kind of ideology of commercial self-management. However, with the passage of time, and in the hands of the logic of capital, this objective is still far from being achieved and its evolution has been very different, that is to say, to digital currencies replacing the current official currencies as a cheap means of exchange.
Since its creation, the price of Bitcoin measured in dollars has experienced strong variations. Most recently, it flew into the stratosphere as cheap money and low inflation abounded. Thus, rather than as a medium of exchange, it operated as a financial asset and a value haven.
Thus, in the illusory world of financial investment, Bitcoin and other cryptocurrencies seem more attractive to currency speculators than even gold. Hence, its boom and the listing of companies in the sector in the US that went from $8 billion in 2018 to $68 billion in 2022.
One company, for example, Coinbase Global Inc., has more than 43 million users in more than 100 countries. But cryptocurrencies have a more dangerous “Achilles heel” than other speculation mechanisms: the value of Bitcoin is not backed by any government guarantee.
Debt bonds issued by a country, or securities or real estate investments such as Evergrande in China, are ultimately guaranteed by bourgeois states or banks that interve in emergency bailouts. “Cryptomania” has no such anchor.
In fact, Bitcoin, now in decline, is no closer to gaining credibility and planetary acceptance than when it started. Therefore, although cryptocurrencies have increasingly become part of speculative digital finance, since they have not been taken up by any bourgeois sector of big capital with clout, they circulate in the micro-periphery of speculative instruments.
Therefore, digital currencies as a cheap means of transaction, do not escape the general laws of fictitious capital and its limited existence on the plane of the “expectations” of profitability that are nonetheless always realized in the not fictitious, but real and concrete, terrain of production.
The bourgeoisie’s 2023 forecast: consensus regarding recession
It has been a long time since the main think tanks of the world economy had such a quasi-unanimous agreement on a forecast. And we are referring, in particular, to the recession in 2023, which is highly probable. Of course, there are analysts linked to the Biden administration who say that the U.S. economy, with its tight labor market, slowing inflation and strong dollar will avoid a downturn. Actually, rather than hypothesizing, they are making policy with their own expectations and needs.
Let’s look at the leading forecasters of the world economy, what they say regarding 2023:
- The IMF estimates that real global GDP growth will be only 2.7% in 2023. Officially, that is not a recession in 2023, although in its “papers” the agency says that “it will feel like one” (like a recession). It anticipates slowdowns in the US at 1%; the UK at 0.5% along with the Eurozone, while Germany will enter recession at -0.3%. The IMF says, verbatim: “Risks to the outlook remain unusually large.” And the IMF’s forecast is the most optimistic of the bourgeois world.
- For its part, the OECD estimates that global growth will decelerate to 2.2%. It says: “The world economy faces important challenges. Growth has lost momentum, high inflation has spread across countries and products and is proving persistent. Risks are skewed to the downside.” Blunt.
- UNCTAD, in its latest Trade and Development report, also projects that world economic growth will fall to 2.2% in 2023. It reads: “The global slowdown would leave real GDP still below its pre-pandemic trend, costing the world more than $17 trillion, about 20% of world income.
- In turn, the World Trade Organization (WTO) joins the other international agencies in forecasting a global recession. “World trade in goods is expected to slow sharply next year under the weight of high energy prices, rising interest rates, and war-related disruptions, raising the risk of a global recession,” according to the WTO. Its forecast for global economic growth in 2023 is 2.3% and the WTO warns of an even greater slowdown if central banks raise interest rates too much in their efforts to control high inflation.
- The US Peterson Institute, guru of the Washington Consensus forecasts a recession for the Eurozone, the US, the UK and Brazil next year, with world economic growth falling to a minimum of 1.8%.
- In turn, the Institute of International Finance (IIF), a research body funded by the world’s leading financial corporations, forecasts an even worse drop in global growth this year: “We forecast a global recession in 2023. Adjusted for base effects, probably around +0.3% next year (green), global growth will be only +1.3%. That is as weak as 2009, when overall growth was lower (+0.6%), but the carryover was -0.7% (yellow). Another “Great Recession.”
In short: the bourgeoisie itself agrees that there will be a downturn in 2023.
What can happen in the heart of imperialism: does the US avoid the recession predicted for the world-economy as a whole?
- By December 2022, business activity records point to the fastest pace of economic contraction since the pandemic in 2020.
- JP Morgan spokespersons report that the US global manufacturing output index fell in November 2022 “to a level rarely seen outside of recessions.” This anticipates a hard landing for manufacturing production in 2023.
What is the expected situation for the Eurozone?
- The European Central Bank (ECB), now says that the Eurozone economy is already in recession, with a pullback in output in the last quarter of 2022 and with the same dynamics for 2023. Although it clarifies that it expects the recession to be “relatively brief and shallow.” Regardless of the degree of economic downturn in 2023 and the technical debates about recession or not, the stark reality for the world’s masses, particularly wage earners, is one of loss of income and qualitative deterioration in living standards:
- The UK’s Financial Times, taking stock of 2022, published the following: “As we approach the end of the year, it is hard to argue that 2022 has been good for workers. Labor shortages have persisted and while wage growth has picked up in some countries such as the U.S. and U.K., pay has not kept pace with rising prices. As a result, global wages fell in real terms this year for the first time since comparable records began, according to the International Labor Organization. Labor’s share of global income has also declined, according to ILO estimates, as productivity growth outpaced wage growth by the largest margin since 1999. In the UK, a decade of stagnant wage growth before the pandemic will now be followed by the steepest fall in household living standards in six decades, according to official forecasts.”
- In the U.S., the average decline in real wages was just over 2 percent year-on-year in the third quarter of 2022.
- In Europe, Germany and Spain saw even larger declines of 4 and 5 percent.
- Taking the Eurozone as a whole, real wages have fallen by 8 percent since the end of the pandemic in 2020.
- In Germany, real incomes have plummeted by 5.7% in the last year, the biggest loss in real wages since statistics began.
Why then, are the major economies falling back into a new depression, such a short time since the COVID crash?
There are two crucial factors at work in this process: falling profits and rising debt servicing from the appreciation of the dollar and rising interest rates. These two elements are strangling economic activity in the current situation.
The situation of the Russian economy for 2023-2024 deserves a separate paragraph. First, let us state where this country comes from economically:
- After the Fall of the Berlin Wall and until at least the year 2000 when Putin ascended to power, by the hand of Yeltsin and with the help of Western imperialism, a good part of the state’s capital was privatized and progress was made in a dismantling of important social rights, with peaks of hyper-inflationary economic crises in between.
- Putin was lucky and had an advantage during his first two terms as president (2000-2004 and 2004-2008), and the Russian economy prospered on the basis of international oil and other commodity prices, with an average GDP growth of between 5 and 6% during those years. The new elite of former bureaucrats and Western capitalist partners benefited from this period.
- The “lost” decade was the stage after the great crisis of 2008-9 with a falling investment rate, capital flight – including those of billionaire Putin himself, to tax havens – and a decline in GDP at a rate of 1-2 % per annum.
- After the Euro Maidan in 2014, Putin deployed a nationalist-Pan-Russian line towards Ukraine, the Donbas and Crimea, and with the Winter Olympics of that period also financed by the related oligarchy, partly diverted attention and social discontent, in addition to the reinforcement of a harsh repressive regime in the country against any protest.
- The imperialist adventure of invading Ukraine, a priori, is hitting the Russian economy hard, and there are conjunctural forecasts of a fall of 6 or 7% of the GDP by 2023 and even projections of a hypothetical recovery to pre-war levels only by 2030. The mass exodus of young professionals and the discontent resulting from the recession in which, technically, after three consecutive quarters of decline, the Russian economy is in, sets the pace of the situation in that country.
Of course, with the “blitzkrieg victory” over Ukraine already ruled out, the horizon for Putin and Russia is highly uncertain. There is no positive economic projection from any of the sources we were able to consult.
Regional perspectives for 2023: the World Bank’s detailed report
Possibly the most detailed dossier on the situation and hypotheses of the rhythms of the global economy is the one prepared every year by the World Bank, with hundreds of technical staff dedicated to the task. Beyond the language, with all its ideological imprint and its logical class bias, by studying it in depth, we can extract useful information and data for our revolutionary activity. The Report is destined to “specialists,” to “consultancies,” banks and corporations, therefore, it is intended to provide advice for the bourgeoisie itself.
From the point of view of the regions and countries, the disaggregated projections of the latest report of the World Bank, show the following:
- For Latin America and Central America, an overall drop in activity of 1.3% and a modest rebound above 2% in 2024 is foreseen. The report acknowledges stagnation resulting from the increase in interest rates and also anticipates that the reduction in external demand from the US and China will impact exports of countries totally dependent on them, as well as the fall in international prices of most commodities. Additionally, rate hikes by the FED increased the risk for dollar denominated debt in the region, with special emphasis on countries such as Argentina. A fall in the rate of direct private investment is projected, essentially due to the “political-institutional instability” in the region: Brazil, Argentina, Peru, as particularly weak links according to this imperialist organization.
- For South Asia as a region, the WB anticipates that growth will slow to just over 5% in 2023 and then pick up a little in 2024. This entire region was hard hit, first by the pandemic and inequality in access to vaccination, then by the war in Ukraine and the jump in energy and food prices. Wheat provides almost 20% of the total calories consumed in the area, which is home to 1/3 of the world’s poor. Therefore, structural poverty and a jump in structural poverty due to food insecurity is a serious factor. Also, the recent catastrophic floods in Pakistan show the weight of climate change in the region and the impact on infrastructure remains a crucial element to take into account. With the exception of India, which manages to sustain growth levels above population growth, the rest of the region’s countries have downward projections, and indebtedness is a potentially explosive risk. Recently, the crisis in Sri Lanka led to the non-payment of its debt and the riots are impacting regionally on economic instability and uncertainty.
- Eastern Europe and Central Asia, on the other hand, are projected to fall in 2023 and achieve a meager 2% growth in 2024, with regions that have been completely torn apart by war. Inflation rates are the highest in 20 years, the increase in energy and food prices is dominant, as well as the weight of international credits due to the increase in interest rates. The whole region lives economically in tune with the war and, therefore, its perspective is associated with the dynamic of the war. NATO, however, has just resolved to freeze an important debt of some 20 billion dollars of Ukraine, as part of its line of support to the bourgeois government of that country. However, the economic-social collapse falling on the shoulders of the Ukrainian masses is enormous and an isolated measure does not change that reality. The contraction of the Ukrainian economy was more than 40% in 2022 and will continue to fall in 2023. There is destruction of productive capacity, damage to agricultural land and reduction of labor supply, as, according to estimates, more than 14 million people have been displaced. According to recent World Bank estimates, recovery and reconstruction needs in the social, productive and infrastructure sectors amount to at least USD 349 billion, or more than 1.5 times the size of Ukraine’s pre-war economy in 2021.
- The Middle East and North Africa are also projected to fall in 2023 and 2024: 3% and 2.7% respectively. Although the region benefited from rising oil and gas prices in 2021, spilling over into 2022, the fall in international prices of these commodities, as well as the global effects of lower demand for goods and services, are expected to negatively impact a region heavily burdened by poverty, inequality, high unemployment rates (especially in the youth) and in some cases, a halving of mass income levels over the last decade (Syria, Egypt and Lebanon, for example). The outlook is downward in economic growth due to consolidating inflation and high, and also expensive, indebtedness.
- Finally, the Sub-Saharan Africa region is also expected to see a drop in economic activity in 2023 and 2024 with rates slightly above 3%. The main economies in this region, for example, South Africa, have been in the process of decline since before the pandemic. Seventy percent of the countries in the region are affected by the fall in international metal export prices (their key source of income) and the combination with the increase in food prices (of which they are net importers), and the blockages in energy supply, make the World Bank forecast a negative horizon for this sub-continent. The climatic factor and weak infrastructure, added to the process of class struggle and political crises, project a fall in the rate of direct capitalist investment.
The spiral is not of prices over wages: It’s capitalist profit, stupid.
This is an important debate, since it tends to be naturalized as part of the construction of common sense installed by capital’s ideological factories, the idea that “wage pressure makes prices spiral upwards.” In particular, this is a thesis of Keynesian orthodoxy, which today enjoys certain influence in the field of economic ideas. Yet empirically demonstrable reality is different. In fact, this debate is nothing new and Marx already settled it in the 19th century.
Specifically, wages are not stimulating price increases, since, in fact, bourgeois profitability is the component that has increased the most of the 3 factors that make up the value of commodities (constant capital, wages and profit) since the pandemic. However, what is remarkable is a fact that the economists of the system ignore: the whole of 2022 showed a fall in general productivity, with rising prices of inputs and an increase in unitary labor costs. This “combo” affects profitability margins. And the circle feeds back into itself with less productive investment, to the extent that profits fall. Thus, overall production also falls. This is the crux of the matter, not “wage pressure.”
If we focus on the particular case of the US, the main capitalist economy in the world, we see that in 2022 productivity fell as it had not done since 1982. Therefore, although annual inflation ended up being more than 10% and wage growth barely 3%, as the cost of production per unit increased (due to the low rate of productive re-investment), corporate profitability fell. The post-pandemic profit bonanza is over. This is the first gravitating factor of the scissors we described above as catalysts of economic depression.
The other variable is the increase in the cost of credit. Many corporations are burdened with debt and are heading towards solvency difficulties as banks have tightened liquidity: no more cheap money. At the 1st ISL Congress, in the resolution on the world economy, we discussed the burden of the so-called “zombie companies” that are unable to make the numbers work to cover the cost of their debt service. At that time, the data showed that this type of companies, artificially sustained by refinancing and state subsidies, accounted for nearly 20% of the world economy. To them, we must add a significant number of companies that took loans in 2021 to invest in financial assets, and today, with the increase in rates, they cannot pay back their loans. This potential risk of corporate debt defaults exists.
In short: falling productivity, a declining rate of profit and a jump in debt costs, prepare the conditions for a 2023 of recessive stagnation and consolidated inflation.
China: inter-imperialist dispute, short-term approach to its economy and open hypotheses.
China is an important topic of debate for any analysis of the world economy and politics in the 21st century. The inter-imperialist dispute with the USA is one of the predominant factors in current capitalist geopolitics.
In this chapter of our contribution to the economic debate of the 2nd Congress of the ISL, we want to address some issues, openly, in the interest of enriching the pre-congress exchange:
- Explaining the origin of the inter-imperialist tensions between the US and China, as poles of a contest for world hegemony, and using a historical parallelism to better illustrate our current point of view.
- We will address aspects of the current economy of this giant of 1400 million inhabitants (940 million wage earners) both in the “photograph” of its current situation and with some coordinates to leave open questions on the agenda.
It may be useful to draw a historical parallel between the current dispute for hegemony and another one that took place when Lenin analyzed it in his book on imperialism. Specifically, between the end of the 19th century and the beginning of the 20th century, the dominant imperialism, England, began a decline that ended up being capitalized by the US, crystallized as the new dominant power after World War II. However, there was an earlier stage or period, between the first great global capitalist crisis in 1873 and the First World War and the October Revolution, which has more points of contact with the phase we are facing today.
In a way, the comparison is pertinent insofar as, like England at that time, the US, with its dominance weakened, questioned and threatened, still continues to be an economically, politically and militarily hegemonic power. And like the USA and Germany at the end of the 19th and beginning of the 20th century, today’s China has been experiencing a sustained strengthening, above all economically, but with contradictions and limits that are still not sufficient to surpass the USA or even have a chance of surpassing it.
Of course, the type of imperialist capitalism at this stage of its development, already in the 21st century, is different in part to that analyzed by Lenin, due to the leap in the capitalist integration of the so-called global value chains and the process of delocalization in production, which impacts on the working class as a subject. But, apart from the new features, there are two elements that can be compared:
- On the one hand, the great crisis (1873) marked a turning point for English dominance, similar to the end of the post-war boom for the US and the leap in quality that reinforces that dynamic with the great crisis of 2008-9. In a way, the undisputed hegemony is now in debate and dialectically, competitors are in dispute: for the first case, the USA and Germany, for the present one, China.
- In the interregnum 1873-1914/17, a period of disorder, contradictions and crises began to be resolved with the First World War and the revolutions of the new epoch, and in the case of hegemony, with the Second World War. These last decades, of recurring crises, have a powerful resemblance of “chaotic transition” with that period: an imperialism, weakened but not quite dead, and another, which does not quite emerge and crystallize.
Germany, as a contender, fell by the wayside in the First War and in the Second War it tried again, with Nazism as its regime, and finally, that new war crystallized the triumph of the allies under the command of the USA as a consolidated hegemonic power.
At present, the contest is for markets and the capture of commodities at low cost, and it is the race for cutting-edge technological development in the digital and artificial intelligence branches, where the Yankee bourgeoisie leads (the Huawei episode anticipated this a short time ago). Faced with this threat, the foreign policy of the White House changed from containment with Clinton and even Obama, to a more open dispute, which includes a war of positions and rearmament of NATO and its allies. China’s economic strategy is no longer limited to exporting cheap goods based on the super-exploitation of its massive available and militarily regimented labor force, but competes in the field of innovation, where the U.S. bourgeoisie makes the difference on a world scale – just as in the dominance of financial capital with its banks and the dollar as the world reference currency.
So far, then, the parallels as an approach to better understand one of the key geopolitical issues of our time.
On the other hand, the economic analysts of the pro-Yankee bourgeoisie have insisted on predicting China’s debacle for years, arguing that the investment rates made by the Chinese State are unsustainable over time, that the aging population is a limiting factor and that consumption is below the optimum to succeed as a classic capitalist economy. All this reasoning ends up proposing a way out: the need for a total privatization of what is left of the state in China and a global opening to transnational capital. At another pole, self-interested apologists for the Chinese bureaucracy defend a “socialism with special characteristics,” ignoring all the contradictions and tensions in the Chinese society including the state censorship, repression, unforeseen inequality and class antagonisms.
Actually, the panorama presents more nuances and contradictions, and far from unilateral and anti-scientific approaches, we consider it necessary to approach the rather hybrid and not chemically pure picture of China, using the instrument of the Law of Unequal and Combined Development, formulated by Trotsky.
- China evidently starts from an “original accumulation” inherited from the revolutionary process of 1949, the agrarian reform and the expropriation of the bourgeoisie, which expanded its productive forces for more than 20 years in a qualitative way: while in the rest of the capitalist world, the economic boom of the second post-war period was declining, the Chinese economy entered the 70s with that previous accumulation in its material base.
- From that time onwards, there was a spasmodic zigzagging commanded by the CP bureaucracy that went from the economic liberalization of the 80s, privatizations until Tiananmen, to a period of reinforcement of state intervention and massive proletarianization of peasants, to the turn until the crisis of 2008-9 to the large-scale export of goods and services with comparative advantages based on the exploitation of a cheap and militarily regimented labor force.
- During the recessionary crisis of 2009, and the impact of the pandemic that followed, the distortions of private capital in the country became evident in China: only state intervention in company rescue operations, and direct investment in public works, mitigated the debacle that other economies of the western capitalist world did suffer.
- In the last 15 years, the Chinese bureaucracy encouraged the massive spread of unproductive and speculative investments by the capitalist sector of the economy. In the drive to build enough houses and infrastructure for the rapidly growing urban population, the central and local governments left the job to private developers. Instead of building houses for renting, they opted for the “free market” solution of private builders building for selling. The weight of the speculative real estate sector explains highly explosive crises such as Evergrande, which was on the verge of a 300 billion dollar default in 2021 and was only avoided by a state bailout. Nearly 20% of China’s GDP is represented by the real estate sector, which, in turn, over-indebted by speculation, is home to no less than 25% of zombie companies in its field. This data is key in two ways:
- It expresses the vulnerability of a pillar of the Asian giant’s economy.
- It shows the artificial leveraging of Chinese growth.
- The weakest link in the Chinese economy does not seem to lie in its financial system, since, in this sector, the bureaucracy controls the decisive levers: the central bank, the four large state-owned commercial banks, which are the largest banks in the world, and the so-called “bad banks,” which absorb bad loans, large asset managers and most of the largest companies. The government can order the big four banks to exchange non-performing loans for equity stakes and forget about them. At this point, primitive accumulation and China’s huge reserves give it transitional oxygen.
However, it is clear that the current problems in the real estate sector are a sign that the Chinese economy is increasingly influenced by the chaos and vagaries of the profit-driven sector. As in the capitalist economies of the West, the profitability of China’s capitalist sector has been falling and this element introduces all the contradictions of the Law of Value as in any classical capitalist economy.
However, China’s growth has slowed and it requires 8% per year just to absorb its demographic evolution, which is not little. Therefore, the retreat towards the domestic market after the 2008 crisis, which generated contradictions with the transnationals in the country and the Chinese bourgeoisie itself (since in order to promote the consumption of part of what was previously exported, wages had to be increased), is being attempted to be resolved with an imperialist expansion in competition with the US, which the Silk Road project clearly reveals. China’s imperialist orientation in the economic field operates as compensation for the profitability of the protectionist turn it took to respond first to the 2008 crisis and then to the paralysis of trade in the pandemic. Moreover, it clearly aims to compete with the U.S. bourgeoisie in the field of finance. Thus, the Road, signed by 140 countries, implies investments in the form of loans that build financial-credit dependence relations with China. This economically offensive reinforces frictions, tensions and disputes with the US:
- The White House’s policy is no longer one of “containment” of China, but of direct blockade in sectors and branches where the US is hegemonic and the Chinese bureaucracy intends to penetrate: finance and digital technology.
- For now, the Chinese bureaucracy does not respond with equivalent measures against foreign corporations in its territory. But, the enclosure being imposed on it by the US bourgeoisie is growing and the horizon is uncertain.
Finally, the participation of state enterprises in the Chinese economy continues to be very important, and in key sectors, central. However, the presence of private capital has not stopped growing in the last fifteen years. This is the source of the main contradictions that cross the imperialist power in question.
Obviously, the campists that defend China overlook this element. At the same time, we cannot deny that it was the state’s presence investing directly, both in 2009 and in the pandemic, that prevented a collapse as occurred in other countries of the western capitalist world. The desperation to not stop producing, on the one hand, and at the same time, to prevent the virus from spreading, gave rise to protests and mobilizations, which pushed back the CP government and may have been comparable or even superior to Tiananmen.
There is no doubt that China has been under a repressive Stalinist bureaucracy full of economic privilege in its social nature since the 1949 Revolution. After 1978, parts of the bureaucracy have also become bourgeois. However, unlike the USSR, the Chinese bureaucracy has maintained strong control over the economy through massive state enterprises, state banks and planning, even after Deng Xiaoping’s so-called reform and opening process. Two sectors (capitalist/private and state/public) coexist in the Chinese economy, resulting in a highly contradictory state capitalist composition. The CP bureaucracy, for the sake of its own existence and privileges and social/political stability, has been forced to reverse many of the market reforms in the past and a similar phenomenon seems to be occurring under Xi Jinping in recent years. The evolution of events in this giant country in the coming years will depend in part on the contradictions between internal factions within the bureaucracy, with one faction demanding deepening market reforms and strengthening the bourgeois sectors that hold private ownership of enterprises, while the other wants tighter state control and more public ownership. It should be noted that the 2008 crisis was an ideological and political setback for the faction of the Chinese bureaucracy that wanted a complete restoration of capitalism through large-scale privatizations and the total abandonment of economic planning. Any new crisis of global capitalism may force the Chinese bureaucracy to strengthen the elements of planning and state ownership in the economy. But more than that, and cold data of economic statistics, it will depend on the class struggle in the world and the awakening or not of the very powerful Chinese working class.
Post-pandemic debates 1: automation-digitization, artificial intelligence and once again “the end of the working class”.
During the pandemic (though it is a process that comes from before COVID), forced confinement and remote work revived the recurrent (and ideologically interesting) debate about factory work, automation, artificial intelligence and once again, the future of the working class.
There are theorists investigating the impact of the digitalization of labor, and its extension after the pandemic, who tend to relativize Marx’s theory of value and the exploitation of labor, claiming that it is no longer relevant to the nature of class relations and oppression at work in post-COVID societies.
For example, and of course! Michael Hardt and Toni Negri (the same guys who “decreed” from Paris the end of imperialism after the fall of the Berlin Wall), now argue that exploitation in the new landscape of capitalism lies in numerous “non-factory” spheres of social life; for example, on social networking websites. Obviously, the impact of the global integration of value chains and offshoring on the working class as a subject, in terms of fragmentation and objective weakening, in the sense of a certain “deconcentration” of production across borders, cannot be denied -and we need to deepen our analysis of it. But, the widows of Stalinism, the preachers of “if can’t be done,” isolate phenomena like this, to generalize a prognosis of skepticism regarding the historical tasks of the workers’ movement. That is what we question, as a thesis, without denying the changes that take place and recognizing the need to calibrate them more thoroughly in our analysis.
Actually, the exploitation of labor for the appropriation of surplus value remains at the core of class relations even in the world of digital labor, that is, in labor that is processed and managed primarily through digital platforms where, at least in theory, there is often no need for workers to be together in a permanent physical space to perform particular work tasks.
Rather, digital and remote work, in the post-COVID world, continues the intensification, through digital means, of productive and unproductive work processes. Working hours become “elastic” and the demarcation between work and rest time is blurred. Thus, in general, employees work longer hours and complete more tasks during those hours, which results in greater exploitation. In fact, a demand that arose in this context was the right to “disconnection,” to avoid a kind of full time subjugation through home office tasks.
Actually, digitalization, as well as industrial robotization, in the hands of capitalism, reinforces labor exploitation and replaces people with machines, increasing unemployment. But in this case, the problem is not “artificial intelligence,” but the private ownership of it as a means of production at the service of profit maximization.
One more element, regarding the end “of the working class.” What bourgeois economists do not do, is frame the analysis of labor automation and digitalization in the context of some of the most precious scientific tools of analysis developed in Capital. Their class limitation in doing so is logical. But every technological advance applied to production under capitalism, the growing investment in this technique to the detriment of investment in labor force, does nothing but increase the productivity of some branches more equipped with this cutting edge technology, but displacing labor force, with a proven consequence: the reduction of the volume of value created, since creating new value, or surplus value, is an attribute only of the labor force, not of the machines. This phenomenon called “increase of the organic composition” of capital, encourages the most important tendential law under capitalism, which is the fall of the global rate of profit.
So, neither does digitalization eliminate exploitation; nor does the working class disappear, nor is the law of value that operates over and over again overcome. Therefore, as revolutionary socialists, we are fanatical promoters of the development of science and research applied to the increase of labor productivity, but not to accumulate private profit, but to alleviate the collective burden of socially necessary work, within the framework of a democratic planning of use values, that society, without capitalism, requires. But this is the subject of another point of our contribution.
Post-pandemic debates 2: The miracle of “modernized and social capitalism” in Japan and the (lost) paradises of Nordic social democracy.
The chronic, recurrent economic crisis of capitalism affects its credibility, its authority as a “model” of social organization. That is why, through its multiple mechanisms of ideological action, with its opinion makers and constructors of common sense, it tries in these stages of uncertainty to install “references” or “models” always within the framework of the logic of capital. And beyond those who polarize between the USA and China, as different bourgeois fractions allied to one or the other imperialism, Japan and the Nordic countries appear as alternatives and examples of capitalist reaffirmation.
Japan, on the one hand, as a reference of reconstruction based on innovation, initiative and national unity after the Second World War, and the Nordic countries as a reference of moderate socialism or capitalism with possible and “realistic” social content. Let’s see, at what point both “alternative models” are economically in this post-crisis of 2009 and post-pandemic stage:
- Japan, now governed by the banker Kishida, is going through an impasse of significant stagnation in all its economic parameters. The new Prime Minister promised a “new, updated Japan” with “social and anti-neoliberal content”. That is to say, questioning the 3 pillars of the previous project: fiscal austerity, pension and labor reform.
- However, all the numbers in 2022 ended up being negative. The record numbers of Covid-19 cases led the government to introduce quasi-state of emergency measures, which together with the increase in inflation caused a fall in private consumption and investment. Manufacturing production and exports fell, due to the global contraction caused by the war and supply chain blockades.
- The OECD documents that Japan’s GDP per capita remains almost 20% lower than that of the other G7 capitalist powers; income inequality remains higher than in most advanced economies; and pollution and greenhouse gas emissions remain disastrous.
- Some advocates of the “modernized Japanese model” cite the country’s low inflation as evidence of its greater strength relative to the global phenomenon. However, this low inflation rate is due first and foremost to the fact that the Japanese economy has been stagnating, on the verge of a full recession for several years now. So investment and consumer demand is weak.
- For 25 years, wages in Japan have been stagnating in the face of rising and concentrated rates of profitability. To achieve this goal, the Japanese bourgeoisie has intensified the rates of exploitation and extended the working day. Moreover, although unemployment is low due to the massive reduction of the working age population, which is shrinking by about 550,000 people per year, it is compensated in the labor market by a strong feminization of labor, but women employees work in areas with lower and more unequal wages than men. This keeps wage pressure declining and profits high.
In short: there is labor shortage, over-exploitation, and don’t forget that Japan coined the concept of karoshi (death by overwork) 50 years ago after a series of employee tragedies. However, even so, productivity continues to fall in this capitalist powerhouse.
Therefore, rather than an “updated model of capitalism”, we are facing a power that is clearly in decline due to its economic and structural parameters.
So, is Nordic “social” capitalism an alternative? Let’s take a look at the picture.
The first thing, to be clear, is that much of what is said about the social democratic model of the Nordic Welfare State has been dismantled over the last 40 years. The electoral processes of recent years in Denmark, Sweden and Norway, with reversals and defeats of the coalitions hegemonized by social democracy in favor of the emergence of reactionary, anti-immigrant, anti-rights forces in general and with a very neoliberal content, crystallize the disillusionment with a right-wing center-left and administrator of austerity plans since at least the end of the 1980s and 1990s. It is not lightning in a clear sky. As in the case of Japan’s “flagship model of innovation and progress,” the false ideology of Nordic capitalist and social democratic welfare is another sham, based on misinformation and intentional manipulation.
There is abundant documentation that proves, for Sweden, for example, the passage from the post-war model until the 80’s based on public policies of Keynesian content, to a gradual and then accelerated dismantling of that model in favor of financial capital, hegemonized by no more than a dozen family clans that appropriated capital through the privatizations of state enterprises and shifted went from paying high taxes to receiving huge subsidies to ensure average profitability rates that consolidated a very important leap in social inequality.
In Denmark and Norway, the reality was similar. Income inequality and the concentration of personal wealth in a handful of 1% of local capitalists transformed and associated with multinationals, was growing since the 80s of the last century with a qualitative leap after the crisis of 2008-9.
Simultaneously and dialectically, the share of workers’ wages in national wealth fell by more than 50% in the same period.
It is true that, comparatively speaking, the small Nordic economies usually fare better than most of the Eurozone. Thus, for example, average real GDP growth was slightly higher than the EU average and the impact of the fall in COVID has been smaller.
However, neither Denmark, nor Sweden or Norway, have escaped the inflationary escalation as interest rates rise, and with this scenario, social unrest and disillusion are multiplying. The political contradiction is that the debacle of the center-left and its trade union base in the white-collar bureaucracies, opens political space for the growth of emerging right-wingers.
Independently of this synchronic view, or “photograph” of the situation in that region of the world today, the downward projection of the average profitability of the companies of Nordic origin anticipate, in the framework of capital, austerity policies that will surely encourage the process of class struggle and open opportunities for the left in the next period. In any case, in that terrain and in the capacity of the revolutionary socialists to intervene and strengthen their organizations, the general economic equation of these countries falsely presented as “incontestable proof of virtuous and successful capitalism” will end up being resolved.
Beyond false ideologies and common sense: an overview of the bourgeois orientation in this period
Throughout this report, we have been presenting partial aspects of the general picture of the economy in the last two years and coordinates that contribute to the projection of what is to come, as the most probable hypothesis. At this point, our purpose is to outline the precise orientation of the bourgeoisie today, in its dominant or hegemonic fractions, beyond tensions and disputes.
Actually, as in every crisis, and possibly this one that affects the capitalist economy since 2008-9 is the third most important one in the history of the system (after the depression of 1873-1895 and the “Crash” of 1930), there are symptoms of confusion, improvisation and disorientation in the ruling class (as well as a dispute for hegemony and inter-imperialist frictions). For this reason, we identify a program of “emergency” of a certain bourgeois short-sightedness, which bets on gaining time without ceasing to pose and apply its platform of economic-social counter-revolution against the masses, their living conditions and the ecosystems (this will be a subject that we will deal with in depth in another contribution) wherever it can .
In the immediate term, the general orientation is reduced to the following:
- First, to “cool” the economy by raising interest rates, tightening monetary liquidity. In this way, they intend to temper inflation and discourage the process of class struggle. It chooses this path knowing that the recessive consequences will bring with them unemployment and more poverty. The bourgeoisie prefers this to the deepening of social conflict and polarization. Our hypothesis is that inflation is due to structural factors other than wage demands and, therefore, what is most likely is a near horizon of inflation + stagnation. In other words: global stagflation.
- Secondly, the global line, especially in the semi-colonies, is austerity to pay debts, preparing a new cycle of “shock therapy” with so-called structural reforms. The economic fragility in the so-called emerging countries, and even in the big powers, is such, and the weight of indebtedness is so great, that the risk of insolvency due to the political and social impossibility of implementing the necessary austerity, appears as one of the most explosive links of the coming period.
This series of emergency measures, as a response to the immediacy of the crisis, connects with the strategic aspiration of a platform aimed at counteracting the global fall of the rate of profit in the world economy as a whole:
- Labor reform agenda, to bury the workers’ rights that are still preserved.
- Tax reform, with a heavier burden on the middle sectors and the working class, and exemptions/subsidies for the big bourgeoisie.
- Pension reform.
- Strengthening the ecocidal productive matrix to obtain primary inputs at lower cost (with the aggravating factor of the war in Ukraine, which reinforces the use of fossil fuels and the consequent worsening of global climate change).
- More imperialist pressures, deepened by the US-China dispute, which acts as a pincer on many countries: IMF and US corporations, on the one hand; Silk Road, and expansion of Chinese capital on the other.
Finally, beyond intellectual fashions and attempts to bury him, Marx returns again and again to help clarify the picture: capitalism overcomes its crises by reinforcing the exploitation of labor and nature. In its hands, the prodigious technological advances are a source of crisis, because they serve to maximize private profit and displace workers from production, causing the overall rate of profit to fall.
And there is no robotization, automation, artificial intelligence or internet of things, that replaces the working class that, like Marx, retains its relevance, and gains volume rather than retreat: according to the ILO there are 3.5 billion workers in the world and never has the volume of the working class been so great in quantitaty. Therefore, its strategic position in the economy remains decisive and, therefore, the way out of the circle of capitalist crisis is for the bourgeoisie to recover rate of profitability based on increasing the levels of exploitation of the labor force as never before, to obtain more commodities and cheap raw materials, and all this is possible only by suppressing labor rights, imposing precarity and causing more environmental catastrophes. All their spokespersons and ideological factories are dedicated to explaining that it is necessary to “make the rigid labor laws of the countries more flexible and modernized,” to alleviate the tax burden on businessmen to encourage investment and at the same time, to extend the retirement age, since the pension systems are otherwise “unsustainable.” Complementarily, foreign debts on peripheral countries add an additional factor of economic plundering and political conditioning in the sense of the agenda explained above.
For this reason, beyond the inter-imperialist disputes, there is a program that unifies the world bourgeoisie and has the masses of the world as its variable of adjustment. That authentic counter-revolutionary war plan is the real “factory” of social and political polarization, of class struggle, rebellions, emerging right-wingers and opportunities for revolutionaries.
“Anguish”, civilizational crisis and destructive forces.
As we were about to finish shaping this contribution to the pre-congress debate of the ISL, we read the latest UN Human Development Report (HDR) covering the years 2021-2022. It seemed to us so revealing of statements that we have been making for a long time, that we are going to mention it because this kind of “confession of part” of an imperialist organization never ceases to surprise us.
According to the HDR (which has been prepared since 1990 and measures people’s quality of life using various parameters), the world population’s perception of the future is more pessimistic than in any other stretch of modern history since at least the First World War.
Somehow, unwittingly, the Report encompasses a survey of the entire imperialist epoch as we revolutionary Marxists, following Lenin, periodize it.
The Report surveys linguistic features and trends present in the last 125 years of human history and finds a “sharp increase in expressions reflecting cognitive distortions associated with depression and other forms of mental distress.” More specifically: in the last 20 years (2002 to date) popular language reflects “extremely negative perceptions of the world and its future.” Current levels of distress are unprecedented and surpass those of the 1930s Crisis and the two world wars!
On closer inspection, the Report’s retrenchment coincides with virtually the entire post-crisis period of 2008-9, even a bit earlier.
It is not so much the psychologistic inflection of the Report that matters, but the revealing nature of the state of mind of the masses in the world in their relation to the capitalist system and their life prospects, in our own analysis.
That the depth of the pessimistic perception about the future of the world in today’s terms, more than during the two world wars, expresses the dimension of the civilizational crisis of the capitalist project for human beings and all of nature.
And no wonder, since there were capitalist crises before. But, the current combination of multiple crises is singular:
- Economic depression; where real incomes stagnate or even fall.
- Poverty increasing along with growing inequality
- A more parasitic than ever behavior pattern of capital that does not invest productively, but speculates with a short-term view.
- The environmental disaster that now plagues the world.
- Instead of global international cooperation, economic, political and military tensions and disputes are intensifying.
The bureaucrat in charge of the presentation of the UN Report in question, highlighted the following: “We live in uncertain times. The Covid-19 pandemic, now in its third year, continues to generate new variants. The war in Ukraine resonates around the world and causes immense human suffering, including a cost-of-living crisis. Climate and ecological disasters threaten the world on a daily basis.”
And then he went on to say, “Layers of uncertainty are accumulating and interacting to disrupt our lives in unprecedented ways. People have faced disease, war and environmental disruption before. But the confluence of destabilizing planetary pressures with growing inequalities, radical social transformations to alleviate those pressures, and widespread polarization present new, complex and interacting sources of uncertainty for the world and everyone in it. People around the world now tell us they feel increasingly insecure. Is it any wonder, then, that many nations are creaking under the strain of polarization, political extremism and demagoguery, all supercharged by social media, artificial intelligence and other powerful technologies?”
The punch line, from the official in his presentation is stunning, “In a surprising situation, we find that the global Human Development Index value has declined for two years in a row in the wake of the Covid-19 pandemic.”
It is estimated that at least 20 million “unnecessary lives” were lost to the COVID pandemic, mostly in low- and middle-income countries. The aftermath remains and is even worsening. Billions of people now face the greatest cost-of-living crisis in a generation. They are already grappling with food insecurity, due in large part to inequalities in wealth and power that determine food entitlements. Global supply chain blockages continue, contributing to rising inflation in all countries at rates not seen in decades.
We will not dwell on references to the socio-environmental dynamics of the planet since, for that, we will write a separate contribution to the 2nd ISL Congress. However, it is striking that, in terms of climate, the UN Report reminds us that the last few years have seen more record temperatures, fires and storms around the world. It speaks of a “code red for humanity” on climate.
With economic depression and ecological disaster comes uncertainty, insecurity and political polarization. A huge mass is frustrated and alienated. Dissatisfaction with capitalism has never been so deep. Armed conflicts are also on the rise. For the first time in history, more than 100 million people are forced to move, most of them within their own countries.
One more shattering element to bring us to the final section of this document: for the first time since the origin of capitalism, life expectancy is declining.
Life expectancy is one of the measures of human development. In hunter-gatherer societies, on average, about 70% of children lived to the age of 15. The average medieval life expectancy for a peasant was only 35 years at birth, but was closer to 50 years on average for those over the age of 15. Finally, with the later development of capitalism life expectancy reached 75-80 years. If we accept that life expectancy is a good measure of human development, the latest data are revealing about capitalism in the 21st century.
Life expectancy fell in the U.S. in 2021 to its lowest level since 1996, the second year of a historic decline. And the phenomenon is not unique to that country: it is consolidating as a global trend after COVID.
One more fact: the gap between Black African countries and the main capitalist powers in terms of life expectancy has widened from 18 to 22 years (53-54 years in the former, 75-76 years in the latter).
When we speak of stagnation and regression of the productive forces and even of the development of “destructive” forces due to a historically exhausted matrix of systemic organization, we are referring specifically to powerful and chilling data such as the above.
Of course, this contribution we are making is about world economics. But we want to introduce it to show the concretely anti-human nature of capitalism in this historical epoch.
The political critique of the economy of the current system, in the end, develops the material bases of this “anguish” and “dissatisfaction” of the masses as an acute symptom of the civilizational crisis or “polycrisis” as it was defined, of all places, in the Davos Forum 2023.
Have the crisis be paid by the capitalists. Democratic planning, against bourgeois anarchy.
It is a key task, at this stage, given the weight of the economic crisis in general and the gravitation in the political debate in the vanguard of the alternative exits, to thoroughly arm the cadres and militants of our organizations, with a set of programmatic axes in matters of economy that may allow us to fight for our socialist and revolutionary positions. Thus, to contest in the vanguard to win the best elements to our parties and groups, and to agitate correct slogans towards the masses in a perspective of polarization that will tend to amplify the social audience for our ideas. To give our transitional, anti-capitalist and socialist answers, explaining our alternative economic approach for an independent solution of the workers and the poor masses to the systemic crisis, is one of the most important activities, to win activists of political level and to improve our structures of cadres. In this sense, we present a conceptual enumeration of programmatic axes:
- Against the world phenomenon of inflation, in the first place, a general wage increase, equivalent to the real cost of living and adjusted every three months automatically according to the evolution of prices.
- Against the speculative raises of the price makers with monopolistic market power, establish maximum prices of obligatory application, patrimonial and penal sanctions for the big owners and expropriation of enterprises in the last instance, with nationalization and mixed control of workers and consumers.
- In defense of the social right to work, occupation of any company that closes or lays off workers. Workers’ control, opening of accounting books. Abolition of commercial secrecy. Expropriation and nationalization without compensation, under workers’ management.
- To guarantee full employment, distribution of working hours, reduction of working hours without affecting wages.
- Suspension of the payment of foreign debts. With these resources, finance public works and infrastructure plans, especially affordable housing, to reactivate the economy and guarantee the social right to housing.
- Comprehensive tax reform: elimination of all taxes on popular consumption and permanent and progressive taxation of large corporate fortunes (companies, banks, seed farms) and individuals.
- Nationalization of private banks and the financial system, big industry and services, as well as foreign trade under workers’ control, as a measure to hold a key lever in the administration of credit, production and the import-export circuit for the benefit of the social majority.
- In defense of the solidarity pension system, of retirement and pensions, not as a “subsidy for old age,” but as deferred salary, equivalent to a mobile 82% of the best salary of active workers of the same activity.
- To guarantee public services as social rights, nationalization of all privatized companies of energy, transport, telecommunications, running water and others, without compensation, under social control of workers and users.
- Qualitative increase of the state budget in education and health, based on the capture of resources from the above-mentioned sources (suspension of debts, tax on the rich) and elimination of economic subsidies to churches and private medicine.
- In favor of scientific research and technological innovation in charge of the state, and its massive incorporation to the productive process, not to replace workers, but to alleviate the general and collective burden of socially necessary work.
- To oppose the capitalist anarchy of production, democratic planning with direct intervention of the working class in the whole circuit of the economy, including distribution and general commercialization with regional and international projection.
- For a matrix of production and consumption, strategically adapted to the conditions of the ecosystems, for a harmonious relationship, sustainable in time and consciously discussed by the mass movement.
Conclusions: chronic crisis, economic disorder and opportunities.
Throughout the document, we described partial aspects of the world economic panorama, focusing on issues, providing information that we consider useful for the ISL membership and tools for the ideological struggle against the dominant common sense that the world bourgeoisie tries to sustain. In short, our central statements are:
- The world economy has not recovered from the crisis of 2008-9. The global rate of profit never reached the levels prior to that breaking point. This factor prevails as the decisive cause of all the dynamics of the economy for almost a decade and a half.
- The pandemic first and the war in Ukraine later, are not the cause of the world capitalist crisis: they are symptoms of the civilizational crisis (the pandemic, due to the irrationally predatory production matrix and the war, as part of the inter-imperialist disputes for world hegemony). At the same time, one and the other amplified all the previous contradictions, adding “fuel to the fire”.
- The snap-shot of the world economy shows that it experienced a “rebound” recovery in 2021 and in 2022 there was a global setback. The years 2023 and 2024 appear on the horizon as years of probable world recession, with a particularly conflictive characteristic in political-social terms: stagflation.
- The weight of corporate, private and public debts is one of the most fragile links in the world economy. Over-indebtedness, the expansion of fictitious capital and speculation over productive investment are a vicious circle that feeds back into itself and prepares conditions for more crises.
- The world bourgeoisie deploys a war plan against the masses, their standard of living and rights, and against nature. Its reactionary and decadent character leads humanity to a civilizational involution typical of revolutionary epochs.
- At the same time, it emerges from our investigation and analysis that, in the current world conjuncture, the counter-strike measures of the imperialist bourgeoisie, as for example the raising of rates to cool down the economy, are the result so far of not being able to apply the structural counter-reforms that were resisted in an unequal but permanent way by the mass movement: the labor-previsional-fiscal reform agenda. It is evident that the reactionary progress of the capitalists in this direction is partial and not to the extent of what they need for a global stabilization based on a recovery of the global rate of profit.
- The only realistic and practical program to get out of the complete crisis is reorganizing the whole of the economic rules of property, production, consumption and circulation. We revolutionary socialists have it and it is the primary task of the ISL to assimilate it, enrich it and spread it consistently.
Finally, revolutionary socialists understand the economy as “concentrated politics,” as Lenin defined it. That is why, ultimately, it will be the class struggle that will determine the dialectics of economic events in whose development the ISL through its national sections will have the opportunity to test hypotheses, policy and orientation in order to grow and strengthen.
 The Phillips curve is a graphical representation showing the relationship between unemployment and inflation. It states that an increase in unemployment reduces inflation and vice versa, a decrease in unemployment is associated with higher inflation.
 “Britain’s almost Lehman moment,” Financial Times, 09/29/2022.
 “A global recession looms,” Les Echos, 9/28/2022.
 Marx, Capital, Volume II.
 Organization for Cooperation and Development: imperialist organization created as part of the entire imperialist superstructure after World War II. It acts as a bourgeois “advisor” in economic matters.
 This is the acronym for the UN Conference on Trade and Development: the same as the OECD but related to international capitalist trade.
 This is the name given to the program of 10 neoliberal measures recommended by a US bourgeois economist in 1989 to be applied in all the semicolonial countries of the world.
 The theory of wage pressure existed before Keynes. In the framework of debates in the First International, the neo-Ricardian trade unionist Thomas Weston argued that workers could not press for wages above the cost of subsistence because it would only lead to employers raising prices and, therefore, it was counterproductive. Marx responded that wage increases normally repair previous expropriations, i.e., price increases that previously affected incomes. In his book “Value, Price and Profit”, he develops this in depth.
 Michael Roberts, Three Development Models for China (2015).