The Javits Center in New York is being prepared to receive COVID-19 patients. Photo: Steve Sanchez Photos / Shutterstock.com
The world has shifted under our feet. Not many weeks ago, the global economy seemed poised to continue puttering along in spite of mounting headwinds. Today, capitalism faces its most profound crisis since the Great Depression. The unfolding pandemic has revealed the weakness of our supply chains, the fragility of the financial system, and the staggering incompetence of our governments. Today’s capitalism will not be able to survive the momentous challenge that it faces over the coming years. What we need is rapid socialization and mass mobilization to overcome the crumbling infrastructure of global finance, keep the economy functioning, and seize a future worth fighting for.
In October 2019, I argued that mounting corporate debt, falling profits and increasing financial fragility threatened an economic implosion in the case of even a momentary downturn. If I had been told then what would have already unfolded by March 2020, I would have had difficulty believing it. At that time, I inferred that the next crisis would force central banks to pump gargantuan sums of cash into the teetering financial system, and that governments would be forced to bail out and nationalize corporations on an as-yet unseen scale. Some of this has already occurred, and the crisis is still in its earliest stages.
Our predictions about the next crisis were based on the assumption that it would unfold similarly to other financial crises, where falling profits would cause debt bubbles to implode, creating a cascading shock through the banking system. But now we face a more serious problem.
The pandemic has interrupted the basic production and distribution of goods and services. In essence, we face an “old school” supply shock — resulting from a catastrophe like war, disease or famine — layered on top of a hypermodern financial collapse. As such, the ordinary measures used to respond to a modern capitalist crisis — central bank easing, fiscal stimulus and so on — are completely insufficient to address the scale of the problem.
Offering cheap loans can only go so far if companies are not making any money at all; cutting checks to ordinary people will only do so much if there is nothing to buy. This realization has forced even the most stalwart capitalists to admit that “capitalism doesn’t work in an eighteen-month shutdown.”
The Crash This Time
The coronavirus pandemic collided with a global capitalist economy that appeared healthy only at the surface level. For years, growth rates have been lackluster in the developed world, profits have been falling or stagnant and productive investment has stalled. All of this had been papered over by cheap credit and speculative bubbles in virtually every asset known to man, with high-risk corporate debt, real estate and technology startup stocks only being the most well-known problem areas. States, too, loaded up on debt to support the failing private sector in aftermath of the 2008 crisis. Altogether, the ratio of global debt to economic output sits at its highest level by far since the Second World War.
The pandemic has thrown the equivalent of an involuntary general strike into this environment, cascading through the world’s economies at a remarkable speed. Businesses are forced to shutter, dramatically reducing their income. When factories upstream are closed, stores run out of inventory to sell; when stores downstream are closed, factories have no orders. When factories are not working, demand for the raw materials that developing economies produce craters. Multiply this dynamic throughout much of the global economy and you have masses of heavily indebted businesses with no cash flow that cannot pay their debts.
With businesses and landlords missing payments, banks have no cash coming in, while these very same debtors need even bigger credit lines to survive. As the demand for credit skyrockets while payments decline, the financial system freezes up, forcing struggling institutions to liquidate whatever they can for cash. As the crisis continues to develop, the same process will play out with states — businesses with no profits do not pay taxes, but government debt payments are still coming due.
Disruptions from the coronavirus will continue for months, if not longer. But even a smaller shock would likely have been enough to set off a new crisis. Global capitalism at the start of 2020 was a pile of kindling in search of a match; the virus provided a flamethrower. In response, the world’s central banks and most powerful governments have thrown trillions of dollars (read: millions of millions) behind flagging banks and failing firms.
While many commentators have argued that these interventions are intended to prop up stock markets and rescue economic activity, their primary purpose is much more modest: to prevent the total freezing of the global financial system by allowing institutions to convert paper assets into cash. Monetary policy and the standard tools of Keynesian stimulus can avert the absolute worst possible breakdown during a crisis, but not much more. Massive cash injections into the financial system and endemic bailouts were not sufficient to rescue us from recession in 2008, and they will not do the trick now.
What are we likely to see as the crisis continues to develop? First, developing countries will face debt defaults and currency crises as foreign capital flees and the demand for exports evaporates. Investors have pulled money out of developing markets at a record pace, while corporations in these countries have been hard pressed to turn local assets into US dollars. All of this puts massive pressure on the value of local currencies at a time when government revenues are falling sharply. The Lebanese debt crisis of the last few months provides an instructive example of what this will look like. Dozens of countries from Ecuador to Mozambique will be pushed to default as the downturn deepens.
Second, the Eurozone and its banks will suffer a new systemic crisis. As Jerome Roos has pointed out, it is a “cruel irony” that Italy, the country least able to weather an economic shock, has suffered the worst of the pandemic in Europe. Italian banks were already near the edge of failure in the high times of the bubble years. The so-called “doom loop” — the risk that a sell-off of Italian government debt will sink the Italian banks, further crashing the Italian economy — looms large. If the Italian banks fail, so too will their French creditors, leading to a wave of defaults through the European financial system.
Italy is only the first of many countries that will witness serious debt pressure over the coming years. Without a Europe-wide bailout, financed by issuing collective bonds and taking on the debt of struggling countries and their banks, the breakup of the European Union is a strong possibility.
Third, the massive corporate debt bubble centered in the US will start to unwind. After 2008, US corporations used cheap credit to inflate their own stock prices and fund mergers and acquisitions, while unprofitable firms were kept on life support. Now, the same corporations are burning cash, facing debt downgrades and are relying upon a credit market that is under severe strain. Without minimal income coming in, corporate defaults are only a matter of time, even if companies are able to borrow money to pay old debts in the short term. As this process plays out over the next couple of years, the eerily familiar mountain of collateralized loan obligations (CLOs) and other derivatives tied to high-risk debt will face a long-awaited reckoning. This, too, is a ticking time bomb for the global financial system.
In the preceding decades, global capitalism has responded to falling profits by blowing increasingly large bubbles whose inevitable implosions have had increasingly dire consequences for the working class. The developing crisis appears that it will be closer to the Great Depression of the 1930s than the Great Recession of 2008. Even in core countries with a significant capacity for government intervention, 20-30 percent unemployment is a serious possibility. Most developing countries will be even worse off.
But the depths of this unfolding catastrophe are not economically necessary. There is no shortage in human need, no shortage in our ability to produce goods, and no shortage in our creativity and cleverness as a species. We are simply shackled by a system that has finally outlived its usefulness. It is time to prepare for the transition to a new economic system and a fundamental change in our way of life.
The Only Way Out is Forward
The standard capitalist solution to the crisis would be relatively simple: let struggling firms and over-extended banks fail, slash wages and benefits through the pressure of mass unemployment, destroy accumulated wealth. When enough damage is done, there will be room for the survivors — ever more powerful and concentrated monopolies — to grow from the ashes. But politicians and bankers are aware that allowing the crisis to run its course would virtually guarantee the violent end of their reign.
For this reason, we will see states respond to the crisis in ways that are highly reminiscent of the 1930s. Monetary policy will be pushed to the brink, with vast sums of printed money used to flood the financial system with liquidity and buy up government debt. Central banks will buy corporate debt and stocks outright to prop up private wealth. States will be forced to bail out and nationalize failing companies on a scale not seen in generations. With no other coherent plan, governments will stir up racism and nationalism with manufactured crises to divert attention from their own failings. But even this new “Keynesian turn” will not be enough to restart capitalism’s engine — private, for-profit investment — without huge destruction of accumulated capital.
The true tragedy of the crisis is that its pain and dislocation are completely unnecessary. Capitalism’s problem is not that there is not enough to go around; it is that there is too much wealth for production to remain profitable. The fact that we can already produce seemingly limitless quantities of everything from steel to food means ruinous competition and a lack of investment opportunities for capitalists. Paradoxically, this creates working-class deprivation in a world of plenty. But the accumulated wealth of humanity does not need to be destroyed on mass to rescue the people as a whole; only private capital needs this. Instead, that wealth must be used to provide abundance for all and solve the climate crisis.
The socialist road out of the crisis is abundantly simple: The financial system must be socialized. Public investment must overtake private speculation as the driving force in the economy. Debt must be wiped off the ledgers. Wages must be hiked, working hours must be reduced, and robust social systems need to be built anew. We must strike a new balance between the hours we work, how much we consume, and the natural resources that are available to sustain a good life on this planet. Even these would merely be transitional steps toward a world where all social goods were produced and enjoyed in common.
The metastatic cancer that is the global financial system must be brought to heel. Banks, asset managers, and insurers should be socialized and consolidated, while central banks should be brought under direct popular control. This would deliver unprecedented resources to be used for the common good: trillions in cash and other assets, hundreds of thousands of homes and apartment buildings, and controlling stakes in the central firms in each economy. Toxic assets could be rationally written off without fear of sparking financial contagion and collapse.
Instead of begging private investors to create jobs, public wealth could be used to restart economic activity, invest in productivity and needed goods instead of financial speculation, and fund the transition to an ecologically-sustainable society. A socialized financial system would deliver management control to workers, allowing for a democratic transformation of the dynamics and culture of the workplace.
Debt, which has accumulated far quicker than actual income, must be wiped out one way or another. The irrational, capitalist strategy is to kick the can down the road until default becomes inevitable. The rational response is for a socialized system to gradually write off debts in a managed process, eliminating the danger of financial death spirals. Individuals and families need relief from all kinds of debt from mortgages to medical bills; firms need to deleverage so they can invest productively; peripheral economies need their debts to international creditors forgiven.
The needs of working people must be the center of the new economic model. Wages must be increased to ensure a comfortable standard of living in each local context. Robust public systems must guarantee free, high-quality healthcare, education, housing, childcare, disability payments and retirement pensions. The workweek should be reduced significantly to share the available work and eliminate unemployment. The aim of investment should not be endless growth for its own sake, but increasing productivity and efficiency to eliminate burdensome work and to strike an appropriate ecological balance.
These recommendations need to be tailored to the local and national context where they are implemented. Given the global nature of today’s supply chains and our shared environmental predicament, no one country can go it alone over the long term. We should anticipate a global effort, with new countries and regions joining an alternative system-in-construction as political circumstances allow. But, for these considerations to even be on the table, we need an effective strategy to organize the unorganized and prepare ourselves for the battles to come.
Preparing for the Struggle
These are difficult times. Fear is a natural response to the uncertainty that all of us face, as we worry about our futures and about our loved ones. But, at a certain point, fear must be replaced by a plan of action. We are entering a world whose conditions will make radical systemic change a real possibility. Indeed, radical change is a necessity; it is merely a question of on whose terms a new system will be built. In order to seize political momentum, we need a strategy for mass organizing, gaining strategic leverage and building the power to topple the decaying order.
In the immediate term, we need to use all means at our disposal to organize responses to the ongoing pandemic and economic crisis. Radical organizers have formed volunteer brigades and mutual aid groups to take care of their neighbors, organized wildcat strikes to shut down production or win hazard pay, and pushed for rent freezes and rent strikes where such freezes are absent.
Each of these struggles addresses a pressing need, builds ties with new working-class leaders and creates a sense of solidarity and hope. Any reason to form an organized group with our friends, neighbors and coworkers, however, is a good one. We have already seen in the past decade how football ultras and other organized groups can contribute to the struggle when a social movement arises. This an “all hands on deck” moment. Every radical who feasibly can must be involved in some kind of work building ties with their wider community.
In the medium term, the word for the left is “federation.” We need to draw our brigades, mutual aid groups and so on into increasingly wider networks for collaboration and coordination. Our objective is to build a network that can mobilize as much of the wider working class as possible over the coming months. We must also focus on building ties with strategically located groups — such as workers in vital logistics nodes like warehouses, trucking, railways, ports and airports.
Likewise, organized leftist and radical groups need to shelve petty, ego-driven disputes. There is no reason to have multiple organizations with nearly identical platforms working across purposes in the same cities and countries. If outright mergers are neither possible nor desirable, groups at least need to develop the infrastructure for communication, coordination, and collective decision-making with one another.
The aim is to develop sufficient organization to exercise veto power over the capitalist economy. France, Lebanon and Chile have already shown how widespread social strikes can bring business as usual to a complete halt. What was missing, in each case, was the capacity to move from refusal to the construction of a new system. We need to have the seeds of collective decision-making in place, we need to know how to operate logistical systems on our terms, and we need to be able to defend our gains and undermine the unity of our foes.
The coming months of quarantine present an opportunity to map out the local situation, get in contact with our friends and make careful plans for the inevitable contests before us.
It is perfectly fine to fight for intermediate steps on the road to socialization — we are struggling to get by each month and we need to win every concession possible. Rent and mortgage freezes, debt forgiveness, wage support and unemployment benefits each give us breathing room to survive long enough to enjoy the future we are fighting for. But we must always keep in mind that a new class compromise is not sustainable given already-struggling capitalist profitability. A durable victory is only possible when capitalism’s strength has been broken by placing economic and political control in the hands of the oppressed, permanently.
The final struggle between the working class and its oppressors is knocking at our doorstep. This process will take years, and the old order will deploy all the tools of repression that it has accumulated over the preceding decades. But we have vision, necessity, and hope on our side. If we can communicate the simple promises of solidarity and freedom to our people, and if we can organize with the newly-radicalized, we really will have a world to win.
The horizon is closing in for the ruling class, but ours has only begun to open up. We must turn the old lie on its head. Capitalism has reached the end of its rope.
There is no alternative to the socialist future.
Source URL — https://roarmag.org/essays/the-future-will-be-socialist-or-will-not-be-at-all/