CS spoke to Hillel Ticktin, editor of Critique, about the ‘credit crunch’ and what it tells us about the dynamics of capitalism today
You have described the latest capitalist downturn as a “turning point” for capitalism as a whole, which is in some ways similar to 1929. Can you expand on this?
In fact, one can read statements saying similar things almost every day in the financial columns of the serious papers. It is neither leftwing nor ‘far out’ to say that the present downturn has significant features that require one to return to 1929 for comparison. The reason is that the ‘credit crunch’ is far more extensive and deeper than any other banking/credit crisis since 1929. It is still to be resolved and is expected to get worse.
The very fact that the two US housing banks holding over half of all mortgages in the US – Fanny Mae and Freddie Mac – have been bailed out by the government shows the extent of the crisis. The two institutions, which began life under Roosevelt’s ‘new deal’ in the 1930s, came with an implicit government guarantee, which has had to be implemented.
It is also clear that the present downturn will be with us for some years. The International Monetary Fund speaks of a weak upturn at the end of 2009, while others, like Alan Sugar, talk of a four-year downturn. One can compare this with the 1989-92 downturn or with the 70s, but levels of unemployment are much higher than in the 70s, the decline in house prices is likely to go further than in the 90s and consumer debt is greater than in previous periods in the UK.
The reality is that if the Bank of England and the Federal Reserve Bank had not acted in time, there would have been a domino affect causing such panic that 2007-08 would have replaced 1929 as a byword for the failure of capitalism. In the real economy we know that sales of cars in the USA are down by a quarter on last year and possibly by a third from the all-time high. General Motors and Ford are in such severe trouble that bankruptcy is possible. Twenty-five airlines have folded.
What is behind the crisis?
During the earlier crises, the cold war – not to mention numerous ‘hot wars’ – acted as a form of regulation over the economy. It supported consumer demand in the economy, it provided orders for machinery and it raised the rate of profit. The ideology of anti-communism that accompanied this was highly effective in inducing people to support their governments in spending money on arms, wars and warfare in general. People accepted taxes and lower incomes in order to ‘save mankind’.
But, now the cold war is over, and the accompanying ideology has gone too. Whereas in the earlier period there was no problem with over-investment – there was even full employment until the 1970s – the downturn in March 2000 was clearly induced by lack of opportunity to invest. State expenditure in the military sector fell from around eight percent of the gross domestic product in 1986 to around three percent in 1997. At the same time, budget deficits were regarded with extreme disfavour.
In the second place, because of the rising working class militancy that went along with full employment, the ruling class switched from a policy of industrial growth to finance capital. The result has been a massive polarisation in income, with the rich getting richer and the poor poorer. The share of profits in total value added in the US is the highest since the war, with wages consequently the lowest. Credit held the situation for a time, but it was inevitable that there would be a crash. Once more, the re-introduction of finance capital – with the accompanying income polarisation in income – is very similar to the post-World War I political-economic situation.
We find ourselves in a turning point because the cold war is over and the use of war as a means of containing the contradictions of capitalism has reached its limit, as shown in the case of Iraq. People do not want to join the army and they do not want to pay for war. Also, the strategy of finance capital and its associated policies, usually referred to as neoliberalism, has reached its limit. A polarised society with the middle class being wiped out is necessarily unstable.
But surely we are not about to enter an economic disaster akin to 1929?
No, we are not, because of government intervention – what we may call limited Keynesianism. However, the nature of political intervention is less predictable than the working out of the ‘crisis’ and we cannot rule out a government failure of nerve, resulting in aspects of economic failure.
There are powerful forces opposing government regulation and intervention. However, in 1929 governments simply blamed high wages, raised interest rates and generally intensified the crisis. Today we have had nationalisations and massive funding of banks. It is obvious that failure to relieve home dispossession, declining wages and mass unemployment can lead to a break in the existing political structure, so governments will try to avoid the worst of the downturn.
There are some on the left, however, who argue that this current crisis will be nothing more than a blip. What do you think of this opinion?
It is absurd. In fact, if we look at the position outside of China, we see that Japan has been in a recession or low growth since 1989, and that most of the third world remains with very high levels of unemployment. The growth rate in the first world since 1987 has also been lower than in the most immediate post-war period. Real wages in the USA have effectively been stagnant since 1973 for three-quarters of the population.
What about the role of China? It has seen almost unprecedented levels of growth and expansion recently – can it act as some sort of buffer or shock absorber for the crisis we are currently seeing? Could it potentially challenge the US’s status as the global hegemonic state?
The Iraq war played a considerable role in expanding the world economy. The expansion went beyond what the US government expected and led to the IMF losing its dominant role. It also meant that the US and Europe could buy increasing levels of imports from China. That period has ended and manufacturing production in China has turned down. Chinese wages remain low, but have increased partly because of shortage of skilled labour and partly because of labour militancy. The 80,000 demonstrations, strikes, etc in China in 2007 indicate that China is not stable, as you might expect in the case of a police state.
There is no way that China is challenging the US. Its development is largely a result of foreign investment and exports to the west. We should rather regard it as a partial dependency of the west than a great power. Its levels of productivity in the state sector are low. Although higher than in the state sector, even the productivity levels of the private foreign sector are not especially high. In the end, a society run from above, without any control from below and without basic civil rights has limits to its productivity levels.
You talk of capitalism in decline. Can you explain what you mean by this?
Capitalism will not end tomorrow and it will not end until the majority of society wants socialism. Its fundamental law is that of the law of value or, in non-Marxist terms, the basis of the market. I argue that the law of value is in decline.
At one level that is obvious, because governments play an indispensable role in maintaining the economy and society, whether in needs-based sectors like health and education, or in regulating the economy. Competition is limited, meaning that commodities do not exchange at value, or what we could call real cost. Classical capitalism needs a large number of competitors, not just a few, who without any formal agreement can so obviously rig prices.
In reality, there are many crucial products that have only one producer. The result is that prices become arbitrary and profits managed. This leads to companies themselves being organised or ‘planned’ on a wide scale and consequently the rise of management and managers. While productivity rises, it is well below its potential. In other words, a second definition of the decline of capitalism lies in the difference between what could be produced and what is produced – potential surplus product is far in excess of the actual surplus.
If we look at the decline of the sun, when it has exhausted its supply of hydrogen, it will expand vastly. So too capitalism can continue to grow, with higher productivity, but with a growing gap between what mankind could do to raise its standard of living and to fulfil its potential and what it is doing.
Your analysis places a lot of weight on the parasitic role of finance capital. What is finance capital and how did it develop and become so economically dominant?
Finance capital is capital that subordinates productive capital to itself, so making the economy function on a short-termist and unproductive basis. Being only interested in ‘money making money’, it increases investment in circulation rather than production – spending huge levels of resources on advertising, marketing, banking and finance capital itself.
In the 19th century it was accompanied by the conquest of third world countries, in which the taxpayers paid the armies to subordinate the population to foreign rule and serve as low-paid workers. As immediate returns are everything, finance capital in the present period has resorted to a series of forms of ‘creative accounting’ to effectively falsify companies’ real returns. This allows share prices to rise and so permit a quick profit.
At the present time, the operations of private equity in buying up companies, partly using borrowed money – which then fire workers, lower wages and strip the company of its assets – have come to the fore. This may be regarded as finance capital’s cannibalistic turn. Above all, finance capital is abstract capital – capital which can operate everywhere and anywhere, without a location. This is in contrast to productive capital, which must have a location. Finance capital can, therefore, invest anywhere. As long as it makes a greater profit than it would otherwise, it can shift what it invests from one point to another and back again.
Some leading revolutionaries in the 20th century mistook the decline and death agony of the British empire for the decline of capitalism as a whole. Do you see capitalism as a whole in decline, or merely the economic decline of the US?
Capitalism as a whole. The US is the dominant capitalist power. It is the finance capitalist power controlling the global economy. When we speak of globalisation, it is the globalisation of finance capital of which we are speaking, as most industrial companies remain wedded to national headquarters. It has no successor, as the UK had when the USA displaced it.
Today capitalism is highly integrated and the USA remains at its head. Even in industrial terms, the fact is that there is no foreign competitor for Intel, nor indeed for Microsoft. US pharmaceutical firms, arms manufacturers, etc have foreign competitors, but the US dominates.
What are, in your opinion, the pressing tasks for the workers’ movement in such an environment?
In my view we need an adequate theory to understand history and our particular circumstances. Our theory is currently very limited due to the nature of Stalinism, which is the direct opposite of Marxism. It effectively threw Marxism back many decades. In the second place, we need to have a party, which can lead the working class, in order to help build it as a class.
Given the awful nature of the left as it stands, if one can call it left at all, that looks difficult, but it is not impossible. Capitalism is not stable, but it was stabilised in the last 80 years by Stalinism and its heritage. So we have to get across the message that the present downturn is not an accident and that there is an alternative. The majority of the population and possibly 99% of the world would prefer a socialist society, if it is properly explained, but no one wants a repeat of the Soviet Union or any of the other Stalinist countries. The result is that workers and peasants have become resigned to the world as it is – through a despairing acceptance. They do not like it, they want to change it, but they do not see how it is possible, without getting something worse.
We have to show that an alternative is possible, with real, not formal, control from below and that people will see the new society in a reasonable period of time, not in some indefinite future. That involves having a party or parties which are themselves as democratic as possible, with people who are respected for their dedication and honesty, which can help develop theory, organisation and education to assist the movement of the working class for a truly human society – socialism.