The bourgeois governments and the press highlight the recovery of the world economy for the third quarter of this year and sing praises to the “new normality” that allowed it. A deeper look, however, shows a different reality.
By Alejandro Iturbe – November 24, 2020
An analysis of the dynamics of the world economy so far in 2020 shows us three different moments that we will outline in each of the quarters already accounted for:
- In the first quarter, the world economy fell by nearly 1.2%, reflecting the slowdown and recessive dynamics it had already been experiencing since last year (the restrictive measures against the pandemic only began to be applied at the end of the period).
- In the second quarter, there was an average fall of about 10%, a figure whose magnitude was not seen since the 1929 crisis, with historic setbacks in many countries, including the imperialist powers. The restrictive measures against the pandemic impacted on the previous dynamics and generated a qualitative leap in the decline of world GDP.
- The third shows a halt in the fall and the beginning of a recovery in practically all countries. The international financial organizations predict that this recovery will be maintained in the fourth quarter and continue into 2021. This change in dynamics is essentially influenced by the lifting of the restrictions of the pandemic (the hypocritical and criminal policy of “the new normal”) and the reflection of the aid packages of the imperialist governments to the enterprises.
A net balance of decline
However, the recovery in the third quarter (and possibly in the fourth quarter) is not enough to compensate for the accumulated decline in the year and especially in the second quarter.
What will be the net balance on world GDP? to answer quickly: it will be profoundly negative. In this sense, let’s look at some calculations and forecasts.
- In its last report, the IMF forecasts a global fall of -4.4%, with greater setbacks in the majority of the imperialist countries. Of the big economies, only China will have a positive annual balance (estimated at 1.9%), while the US will fall by 4.5% .
- The OECD forecasts a slightly greater fall: -4.5% .
- The most pessimistic forecast is that of the World Bank (WB) with a fall of -5.2% .
This means that, in 2020, the worst setback in the world economy since the 1929 crisis would occur, much greater than the fall produced in 2008 (-1.7%).
But let’s go a little further. All of these bodies predict that this recovery will continue in 2021. The IMF forecasts 5.2% growth; the OECD 5% and the WB 3%. In other words, if we go back to the ups and downs of the numbers, the most optimistic forecast (IMF) at the end of 2021 would have barely recovered the level of world GDP in 2019. While in the most pessimistic forecast (WB) the balance would continue to be negative. All this, of course, if no new spokes on the wheel appear.
What kind of V?
The bourgeois economists term “rebound” the upward movement that begins after a fall that would have bottomed out. It is also often spoken of as a U or a V because of the form these oscillations take in a sequential chart.
In this case, in the most optimistic of forecasts (IMF) we would see a symmetrical V (recovery similar to the fall) with a net balance of 0. If we take the World Bank’s figures, it gives us an asymmetrical form: the recovery does not equate to the fall and the height of the right arm is shorter than the left. In that case, some speak in a similar way to the square root symbol, others of “Nike swoosh” (because of that brand’s logo).
Economic forecasts always have a hypothetical character due to the number of factors inherent to the economy and external factors that affect them. With that in mind, it seems to us that the most likely dynamic is that of a square-root, partial recovery, which then tends to slow down. We will try to substantiate this.
The parameters of a Marxist analysis
Marxism analyzes the present situation and the possible dynamics of the capitalist economy with criteria different from that of bourgeois economists. It considers that the motor of that economy is the search for profit or, what is the same, the accumulation of new capital.
This capitalist profit is based on surplus value; that is, on the new value created in production by the labor force and not paid by wages. Marx thus defines a rate of profit which, considered socially, results from dividing the total capital gain extracted in a given period by the total capital invested.
For various reasons, which Marx himself analyzes in The Capital, at a given point in a complete economic cycle, the rate of profit has a tendency to fall. This decline will also end up being reflected in a decrease in the volume of capitalist investments, thus generating the downward phase of an economic cycle, which Marx calls cyclical crises.
Marx then makes two important considerations. The first is that these crises are absolutely normal (and in this sense inevitable) part of the process of capital accumulation. The second is that crises themselves provide the conditions for overcoming them.
There are two basic mechanisms for that overcoming. The first is the increase in the extraction of surplus value or, what is the same, the increase in the mass of total surplus value. This is achieved by reducing the real value of wages and increasing productivity.
The second is the burning of capital, through company closures, mergers and acquisitions by the strongest. In this way a process will take place that Marx calls the centralization of capital (reducing the number of bourgeois who control it).
Once the equilibrium of a satisfactory rate of profit has been restored, the dynamics of investment is resumed and thus a new upward phase of the economy begins. That is, a new cycle.
What happens now?
That is, for Marxism it is necessary to observe the situation of the rate of profit and the level of investment in order to formulate both the diagnosis of the present moment and to formulate hypotheses of the dynamics.
If we analyze the following table prepared by the British Marxist economist Michael Roberts, we see that, from the end of 2018, a decline in the rate of profit begins (which was reflected throughout 2019 to end with a recessive dynamic) and that this fall becomes much more abrupt and pronounced in 2020 . That is, any recovery of the rate of profit to “satisfactory levels” must start from that pit into which it has fallen.
Let us now look at the subject of investments, through an example. In the third quarter of this year, the U.S. economy grew by 7.4% over the previous quarter . An analysis of the data, provided by the quarterly reports of the BEA (Bureau of Economic Analysis), shows that this growth was due to the accumulation of small increases in various items (personal consumption expenditures and private investments, among them.) .
However, in the item “private investments” it informs us that “This increase mainly reflects an increase in retail trade (led by motor vehicle distributors). In other words, it is a growth that occurs through the use of what is called “idle capacity” (unused productive potential in industries that reached historical records in 2020) and in the movement of accumulated stock, not in new investments. A similar picture is found in the economies of the Euro Zone and Japan.
With a rate of profit that fell far below and with very poor or non-existent levels of new investment, this recovery then begins with a very weak base and momentum. The bourgeoisie aspires, at best, to recover previous levels, but even this goal seems difficult to achieve.
The upsurge of the pandemic
We have said that the impressive decline in the world economy in the second quarter of this year was the result of the impact of the restrictive measures adopted against the Covid-19 pandemic that exacerbated the already existing decline. We have also said that this beginning of recovery is essentially due to the lifting of the restrictions and the criminal policy of the “new normal” promoted by the bourgeoisies (without having defeated the pandemic) to recover their levels of profit, even at the cost of millions of infected and many, many deaths among the working class.
But this policy is returning as a boomerang with a resurgence of the pandemic, which is returning to the critical levels (or even greater) of the previous months, in many countries that seemed to be containing it (Europe) or that never contained it ( United States). Within this framework, without abandoning the criminal impulse towards the “new normal”, many governments are forced to adopt in a convulsive way a return to partial restriction measures, as we are seeing in Europe or in several states of the United States.
There is even a possibility that they may have to tighten up these measures, at least until effective vaccines are widely available, something that, in the best of cases, will last all of 2021.
Therefore, the return to restrictive measures and the sensation of health insecurity that remains (and its political and economic reflection) are an obstacle to the recovery that the bourgeoisies want and crave so much. It is an important factor to consider, whose estimation cannot yet be predicted.
The brutal fall in the standard of living of the masses
If in every crisis, the bourgeoisie attacks the standard of living of the workers and the masses to increase the amount of surplus value extracted; in this particular crisis this attack has acquired brutal characteristics: mass layoffs and suspensions, lowering wages, eliminating conquests, increasing labor precariousness, etc. The increasing numbers of unemployment, poverty, misery and hunger in all countries (even in imperialist powers) are impressive. To this we must add the suffering and risks caused by the pandemic.
But even with the brutality of that attack, capitalism obtains at least for now a recovery of the rate of profit. It needs not only to consolidate the dispossession it has made but to advance
even further. In other words, this partial recovery of the economy will not represent a parallel improvement in the level of the masses but, on the contrary, a continuation of the attacks by the bourgeoisies and their governments. The IMF report itself warns that “the pandemic will reverse the progress made since the 1990s in reducing poverty and increasing inequality”.
The contradictions of the burning of capital
We have seen that the second path used by the bourgeoisie is the burning of capital. This process is taking place with the closure of many small and medium companies in the world, and also with “the pruning” carried out by the giants through the closure of plants and sectors, and the reduction of others. An example of this is the restructuring of the German metallurgical conglomerate Thyssenkrupp .
At the same time that this ” natural ” burning is taking place, the governments and central banks are “injecting” enormous quantities into the markets to stop the crisis and try to reverse it. But only a smaller fraction of these “aid packages” generate new productive investments. Most of it remains in the hands of the banks and the financial sector.
In the 2007/2008 crisis, the banks used this “aid” to cover their deficits and avoid bankruptcy. This one represents for them a fabulous financial gain (which was a record in 2019) and the creation of strong reserves for future contingencies, in 2020, which disguise those profits for accounting purposes .
This is the exacerbation of a profound contradiction of modern capitalism: while the whole economy is regressing (not to mention the situation of the workers and the masses), the financial and speculative sector is winning more and more and is being strengthened by “reserves”. This is shown by the data we have given and also by the rise of the S&P 500 index on Wall Street.
This not only accentuates in a growing way the parasitic speculative character of imperialist capitalism, already analyzed by Lenin in his famous work on imperialism, but it means an obstacle to the recovery of the rate of profit because it accentuates the proportion of non-productive capital in the total volume of capital. That is, the proportion of capital that does not help to generate new surplus value but disputes (with advantages, as we have seen) its appropriation .
The downward curve
So far, we have analyzed some data and characteristics of the present crisis, and its possible outcomes. We find it interesting to review, even briefly, some of the more far-reaching processes that frame it.
An entire sector of Marxism considers that, in addition to the short cycles and their crises, studied by Marx in Capital, these are threaded together in long series of an ascending or descending character (or of stagnation) due to a combination of more complex factors (external and internal to the economy) than those analyzed by him.
In his writing The Curve of Capitalist Development, Leon Trotsky states that the capitalist cycles are not equal to each other, nor is their balance. If the recovery is greater than the fall (and this is reiterated) one can speak of an upward development curve. On the contrary, if it is less, the general curve will be downward. Finally, if both are equal, one can speak of a moment of stagnation . We have seen that, considered from this approach, the current recovery will very possibly be less than the fall (or, in the most optimistic forecasts, a hard-fought stagnation).
Along with this, it is necessary to consider that the crises are not the same in their depth and impact either. The crisis of 1929 for example (also preceded by a great “financial party” on the New York Stock Exchange) had a very deep impact and opened up a downward curve of cycles (known as the Great Depression) that would only be overcome after the end of World War II.
For our part, we believe that the 2007/2008 crisis has had an impact at least equal to that of 1929 and that it has also been the beginning of a long downward curve. An opinion that is also shared by Michael Roberts .
With good Marxist judgement, he shows that capitalist profitability today is too low (while the accumulated debts are too high). If we look again at the chart elaborated by him, we see, on the one hand, a long-term tendency towards a decrease in the rate of profit, since the golden years of the post-war economic boom.
On the other hand, beyond its ups and downs, as this trend has been accentuated since 2007/2008. He concludes then that this downward curve will continue until imperialist capitalism manages to re-establish satisfactory profitability. We share this point of view.
The fight between “old” and new “capital
Capitalism is characterized by a permanent dispute between different sectors of capital. A struggle that is exacerbated during periods of crisis. A very important aspect of this dispute is between “new” and “old” capital.
The “new capital” directs its investments to the development and incorporation of new technologies that increase productivity and accelerate the cycle of reproduction and accumulation. These new technologies, in various cases, generate restructuring in the productive processes, the emergence of new products and changes in consumption habits that reinforce the cycle. The “old capital” must compete in unfavorable conditions and is forced to restructure, reduce, and even disappear.
Let us look at two historical examples: the emergence of the automobile condemned the disappearance of the production of cars and wagons; the emergence of petrochemicals impacted the whole industry but especially reduced the natural fiber textile sector.
In the last decades, the most dynamic development took place in the combination of electronics and computing, giving rise to Informatics, and then its combination with communications, in what was called telematics. Simultaneously, it was expressed in the robotization of assembly processes and others.
It has not only generated deep restructuring in the methods of planning, production and administration but also changes in the products that are demanded and in spending habits. Portable personal computers, tablets and cell phones (non-existent two decades ago) are now mass commodities and online shopping is growing steadily.
Some of these technologies are constantly being renewed. It is no coincidence that the center of the trade dispute between the U.S. and China is the control of the production and markets of 5G technology for cell phones and computers .
Today everyone is talking about FAANG, an acronym that brings together Facebook, Amazon, Apple, Netflix and Alphabet-Google, which were later joined by the companies Alibaba, Baidu, NVidia, Tesla and Twitter (all related to new technologies). The FAANG are the superstars of the S&P 500 and Nasdaq stock market indexes. Only four companies (Amazon, Alphabet and Facebook + Microsoft) accumulate a quarter of the capital represented in the S&P 500 .
Tesla’s case is very interesting. Founded in 2003, it has developed exponentially with the manufacture of electric motor cars and its current projects for the construction of two new plants in Texas (USA) and on the outskirts of Berlin (Germany), which will employ 5,000 workers each .
Precisely, the automobile industry is an interesting example of simultaneous and contradictory processes between new and old capital. While it is closing plants and shrinking in the sector of internal combustion engine vehicles, this sector is trying to reconvert and invest in the sector of
vehicles powered by electricity. The Reuters agency estimated that large companies have investment plans for 90 billion dollars for this development. However, in the electric vehicle sector this production still represents less than 1% of the total .
This dispute between old and new capital, that is, the dynamics of the ratio between them, is a very important factor in the more general dynamics of the development curve that we have seen. The FAANGs (and the new technology sector) are the ones with the highest profits and the fastest rate of capital accumulation. They thus help to make the whole process more dynamic. However, although they have had an impact on various aspects, they have not yet managed to become a locomotive that drives the whole, whose profitability, as we have seen, is “too low” due to the majority weight of “old” capital.
There is a process, to which we have already referred, which aggravates this picture of imperialist capitalism: the growing tendency of the proportion of speculative and parasitic capital (totally unproductive), whose dynamic of reproduction is also very rapid and which, by appropriating (“devouring” we would say) an important part of the mass of surplus value extracted in production, “pulls down” the rate of profit of the other sectors and prevents a rapid reversal of the direction of the curve.
The class struggle
We saved for last an essential factor in the dynamics of the whole process. The bourgeoisie’s brutal attacks on the workers and the masses are constantly lowering their standard of living (or what is the same, the fraction of the newly produced value they receive). But even so, the bourgeoisie is unable to recover a satisfactory rate of profit in these historical conditions and the attacks continue steadily.
But in that process they provoke such conditions of intolerability for the workers and the masses that they generate explosions and revolutionary processes in various countries, and their simultaneity. This was the situation we experienced last year, before the pandemic . These are struggles and processes that cause crises in governments and regimes (including in the US with the anti-racist rebellion) and even bring down some of them.
The impact of the Covid-19 pandemic opened an impasse in this dynamic that now seems to be resuming with the recent events in Peru and with numerous struggles, less powerful and widespread, in other countries. The bourgeoisies are trying to maneuver to slow down and dilute these processes, through tactics like elections. In other cases, they appeal directly to repression, as seems to be the case in Belarus.
The class struggle is a “spoke in the wheel” in the bourgeois need to recover its rate of profit. In its results (victories and defeats) a large part of the dynamics of the curve is at play. At the same time, there is the possibility of more generalized and profound struggles that will advance on the road to the destruction of this increasingly retrograde and inhumane capitalist-imperialist system
and its replacement by a much more rational and humane system, through the socialist revolution.
4] See especially chapter XIII of volume III of The Capital
5] The picture is taken from
https://www.nuevatribuna.es/articulo/global/notas-reflexiones-crisis-capitalista-2020-2021/20201 004101328179783.html. For a more general overview of Roberts’ analyses, see the interview published on this page at: https://litci.org/es/la-larga-depresion-entrevista-a-michel-roberts/
10] On this subject, we suggest seeing the book O sistema financeiro e a crise económica mundial by Alejandro Iturbe, Editora Sundermann, São Paulo, Brazil, 2009.
12] ROBERTS, Michael, The Great Depression Among other editions, see Topo Viejo, Buenos Aires, Argentina, 2017.
17] See, for example: https://litci.org/es/tiempos-de-rebelion/