Will the coming meltdown of China mean the end of global capitalism? Let’s have a brief look at this question. The links at the end point to further reading for those with an interest in the subject.
It’s pretty common knowledge that the so-called Global Financial Crisis (GFC) was not some isolated crisis but a symptom of something fundamentally wrong with the global capitalist economy. In fact, if it were not for China’s rapid growth the GFC would have turned into a long recession. Now China is finally slowing down but who can say by how much? It is still a long way from a meltdown but it opens the door to a slump or a crash in the near future. The big question today is whether or not the global economy can recover from another big crash.
Economists on the Marxist Left, Neo-Classical Right and Keynesian Centre can all see a slump ahead but they disagree on the causes and the solutions. The Neo-classicals blame state interference preventing the market self-correcting by means of depression. “Socialism for the Rich” (QE, or printing money) after the GFC only postponed the inevitable deflation and depression ahead. Keynesians complain that the QE trillions went to Wall St instead of Main Street whereas policies like Sanders and Corbyn’s plans for “peoples’ QE” would avert another depression. Marxists argue that QE cannot stop a depression but for different reasons than the Neo-classicals. The Neo-classicals want to unleash a depression to smack working class wages down to slave levels, and eliminate the ‘social wage’ while Marxists argue that workers should refuse to pay for the capitalist crisis, rise up and overthrow the rotten system that only survives at the expense of the lives of working people.
To put this debate in perspective we need to take a deeper look at the history of capitalism. Crises are not new. Capitalism has a history of regular crises punctuating long upturns and downturns. They are akin to the economy breathing in and out. As the economy expands it reaches a point where it cannot grow without depressions that cut costs and increase productivity. Each depression cleared the road for a new expansion. Thus the crises of the 19th century fuelled a process of national capitalism which drove industrial revolution ahead. But by the turn of the 20th century national markets became fetters on growth and the more advanced economies began to colonise the backward countries to extract their wealth. By exporting capital to the colonies the ‘imperialist’ countries took advantage of cheap labour and raw materials. Crises were now less like regular breathing and more like the gasps of a dying animal. The downturns were driven by monopolies backed by powerful nation states to wage trade wars and World Wars to defeat and plunder their rivals and fuel an upturn.
Capitalism in the 20th century as a global system was no longer progressive. Instead of developing the economy by increasing labour productivity it was destroying wealth in depressions and wars. The capitalists were no longer entrepreneurs but parasites living off monopoly profits that were squandered on wars and speculation. The world economy virtually stagnated between 1914 and 1945. Far from Keynesian economics stimulating a post-war boom, the boom was possible only as the result of such massive destruction of the wealth by depressions and wars. Despite the price paid for the post-war boom it didn’t last long and crisis set in again in the 1960s.
While capitalism staggered from crises to wars in the 20th century the Soviet Union and then China demonstrated that there was an another way of organising society where economic development did not need to destroy wealth. They proved that by getting rid of the capitalists and planning the economy they could grow much more rapidly than capitalism. The superiority of planning over the market forced world capital to impose economic quarantines and a Cold War that ultimately forced Russia and China to return to the global capitalist market.
Here the story gets more interesting. The return of Russia and China to the capitalist world economy did not rescue it by opening up Eurasia to Western plunder. It proved that even the dreaded ‘communist’ regimes could retain their economic independence and resist Western domination. The ‘communist’ elite could convert itself into a new capitalist class and manage the switch to the market without becoming re-colonised by foreign powers. The result is that since 2000 both Russia and China have become rising imperialist powers that are now the main rivals to the US imperialist bloc.
The joke on the Neo-classicals is that the former ‘communist’ states have proven they are able to switch to state monopoly capitalism and apply a centralised Keynesian economics to moderate the anarchic effects of the global market. This is not good enough for the ideologues who preach ‘more-market’. They demand an end to corruption, regulation of markets, currency manipulation, off-book debts, fake statistics, cyber war, one-party dictatorship, etc., knowing that this would subordinate Chinese state monopoly capitalism to US state monopoly capitalism.
Meanwhile the Keynesians are seething with envy because this state monopoly regime is what they want in the US and EU to end financial speculation and invest capital into the real economy. As Michael Roberts argues, the end of the post-war boom has already taught us that a Corbyn-type ‘peoples QE’ or more correctly the ‘multiplier’, will not make capitalists switch from parasitic speculation to invest in production unless they are sure of making a profit. More money chasing fewer goods leads to “stagflation”. If more proof is wanted, Japan has stagnated for most of the post war period as a result of such policies.
What is this ‘root cause’ behind the China slowdown? How best to explain this? For Michael Roberts neither the Neo-Classical or Keynesian approach can explain the rise and fall of China. “The Marxist model of rising productivity through investment and innovation to replace labour and the accompanying contradiction with the dominant law of value in the world economy provides the best explanation of where China has come from and where it is going.” (Roberts, China: A Weird Beast).
On the Marxist model, China’s real GDP depends on production of value by its working class. But this is subject to exploiting labour sufficiently to make a profit. When workers resist, profits fall, production slows down or stagnates, and excess money that leaves production enters speculation in existing commodities causing price inflation and money devaluation. So while crises begin with falling profits they usually blow up when asset bubbles burst.
Rather than printing money that leads to stagflation, the capitalist solution to the crisis must be depression –the devaluing of existing capital, machines, raw materials and wages, to the point where investment in production is profitable again. But depression comes up against the resistance of the workers that produce the raw materials in China’s trading partners including NZ, as well as Chinese workers producing finished products. The more-market solution is a declaration of open class war inside China and in all its trading partners. The Marxist response is to say “bring it on” to workers in all these countries. The workers united will never be defeated!
Meanwhile, the growing antagonism between Russia/China bloc and the US bloc sparked by trade and finance sanctions on Russia has escalated the rivalry between the blocs and ramped up economic and military confrontations. Russia may spark the crash by defaulting on its debt to its Western creditors before a China meltdown can happen. The proxy wars in Ukraine and Syria may blow up into regional wars. Whatever the timing of such events, there is nothing that can prevent the China slowdown becoming a meltdown sooner or later. Whenever it happens a new global crash will pose the question: is this the last crash before human extinction?
Comrade Dave Brownz is a NZ socialist blogger asking hard questions of global capitalism.