A debate is heating up in the ruling class over whether or not an economic recovery is coming. Workers should be aware of two important points: first, the global picture of the capitalist crisis points in very drastic directions; and second, whatever recovery the bosses are talking about is a recovery for the profit makers and not the workers.
Those grasping at hope are basing themselves on Wells Fargo’s new profit reports, U.S. trade figures, housing sales, industrial production and other indicators that have mildly improved over the past several weeks.
However, a new study entitled “A Tale of Two Depressions” undermines the various optimistic scenarios put forward and points in the opposite direction. It compares the current decline in industrial production, the fall in world trade and the collapse of the stock markets with what occurred during the Great Depression. The comparison is on a global basis, not just for the United States. While the Depression of the 1930s was also a global crisis, the world capitalist economy has become much larger and far more interdependent in the age of globalization.
The study was prepared by Barry Eichengreen, professor of economics and political science at the University of California, Berkeley, and Kevin H. O’Rourke, professor of economics at Trinity College, Dublin. Both work with the Center for Economic and Policy Research, and the study was written in answer to New York Times columnist Paul Krugman, who is characterizing the present crisis as a recession.
1930s and today
The study tracks the measures of world industrial output, world trade and global stock markets for nine months beginning in June 1929. It takes June 1929 as the starting point because that is when world capitalist production reached its peak and started to decline.
The study then tracks the same three indicators for nine months in the present period, beginning in April 2008 when world industrial production also peaked.
It shows that industrial production is declining at least as rapidly as it did during the earlier depression, world trade is falling even more rapidly, and global stock markets are showing the same rate of decline.
The stock markets are much less reliable indicators because they can fluctuate over the short term based on speculation. But the fundamentals of capitalist production and world trade are the basis of the capitalist global economy and the profit system.
Production is the key
A decline in industrial production means a decline in capitalist exploitation of the workers and the production of profits, on which the entire system runs. Exporting by the big imperialist countries-like the U.S., Germany, Japan and France-is an attempt on the part of each country to overcome its own internal crisis of overproduction. When world trade falls, it is a sign that overproduction has become global.
The authors hold out hope that all the money the government is pouring into the economy and the banks will keep the crisis from reaching Great Depression levels. They do not, however, chart the fall in employment or discuss the conditions of the working class.
Louis Uchitelle, writing in the April 7 New York Times, cites figures from the Bureau of Labor Statistics to show that “More than 24 million men and women, or 15.6 percent of the labor force, are either hunting for work or working fewer hours than they would like to work, or are too discouraged to seek work.”
Actually, because the Clinton administration ruled that any worker “discouraged” from looking for work for more than a year should no longer be counted, this figure is really closer to 30 million.
While it is hard to compare today’s statistics with those from the Great Depression era, Uchitelle showed that the number of unemployed or underemployed workers has grown by 10 million in the past year. In 1930, official unemployment was 8.9 percent. It rose sharply to 25 percent by 1933.
This is clearly the result of capitalist overproduction. Manufacturers are using only 68 percent of U.S. industrial capacity, the lowest level since records were first kept in 1948. So far, according to Uchitelle, there is a shortfall of $1 trillion in sales that would be required to get production back to capacity.
To do that would take years, “even if the nation’s employers stopped shedding more than 600,000 jobs a month, as they have done since December, and began hiring robustly,” writes Uchitelle. Instead, all projections are for unemployment to continue rising in the future.
Meanwhile, states are cutting budgets for vital services across the country. Tent cities are springing up from Olympia, Wash., to Sacramento and Fresno, Calif., to Nashville, Tenn., to St. Petersburg, Fla. The rate of home foreclosures is increasing. Millions of workers are lining up at job fairs to learn how to fill out resumes and take interviews, but there are no jobs.
In short, while some investors may be profiting, there has been no recovery for the masses, and none is in sight.
In a sign of the deep decline of U.S. capitalism, the Treasury Department is demanding that General Motors and Chrysler shrink their industrial base. GM has been told to go from 17 assembly plants down to 12 or even fewer-a decline of 33 percent. It means more lost jobs, but not only at GM. It means shrinkage and unemployment in steel, rubber, glass, plastic, computer chips, fabric, small businesses that survive on orders from the assembly plants, closing of dealerships and so forth.
This kind of contraction is also going on in the housing industry, where millions of units sit unsold, and in the retail industry, where chain stores are closing. Layoffs are continuing in the high-tech sector and other industries central to U.S. capitalism.
At best, the capitalist economists may find some daylight of profitability for the bosses and bankers, but none can find a way out of mass unemployment, even with a recovery.
Uchitelle showed that overproduction lingered until the end of the Depression years, citing Robert Gordon, an economist at Northwestern University. “The Roosevelt economy also languished well below full capacity, Mr. Gordon said, until the summer of 1940 when France fell to Hitler’s armies. From then until the attack on Pearl Harbor, 18 months later, a galvanized administration more than doubled federal outlays-soon accounting for $1 of every $4 spent in the country-and the United States entered the war with its economy operating at almost full capacity.”
In other words, U.S. capitalism, after 10 years of depression, could only restore production and employment by preparing for and eventually going to war. The profit system had hit a wall. It was dragging society and the workers and the oppressed down to an existence of permanent mass unemployment and poverty.
This is what present-day capitalism has to offer the working class as the current global crisis deepens. Waiting for the system to recover and put an end to the suffering of the people is a pipedream.
The only way out of this crisis is through creating broad unity of the workers and the communities that are being hammered by the bosses and bankers in order to mobilize a class-wide fightback.
Published by Workers World