The hopes of the bourgeois economists are based on the rapid rate of growth in places like China and Brazil. But in the first place, this growth does not compensate for the shrinkage of the US market, and secondly, there is no guarantee that this growth will continue in 2011. At first sight these hopes seem to be well grounded. From Shenzhen to São Paulo the economies have been soaring ahead. Spare capacity has been used up and foreign capital is pouring in. But this rapid growth is limited by consumption. And consumption in Europe and the USA is not growing but shrinking.
The younger and more robust capitalist economies of the “emerging” countries have a number of advantages: bigger and more youthful populations and a huge reserve of cheap labour in the countryside. They have had the advantage of higher productivity and (at least initially) a higher rate of profit, and consequently the additional benefit of a huge influx of foreign capital. The law of combined and uneven development has allowed them, on the basis of this huge investment boom, to construct factories utilising the most advanced machinery and technology imported from more advanced countries.
However, this progress must sooner or later come up against the inherent contradictions of capitalism. In every capitalist boom in history there is an inherent tendency to overshoot the market, to produce too much for the market to sustain. The immense productive power that is built up to extract more and more surplus value from the workers goes beyond the restricted power of consumption of society. The result is a crisis of overproduction.
The limits of the capitalist boom in the USA and Europe were reached in 2008 (in Japan a decade earlier). The moment will be reached when the same contradictions make themselves felt in China and the other “emerging” economies. Profitability in China, as one could expect, is falling back to more normal levels. A new generation of younger workers is no longer prepared to accept the Dickensian conditions of work that the first generation, straight from the villages, was prepared to swallow. There has been a marked increase in worker protests.
In order to offset the slump of 2009, governments have loosened monetary discipline. This policy can lift growth in the immediate term but in the longer term it is unsustainable because it leads to inflation. Worries about asset bubbles have been replaced by a fear of overheating. China is not the only example of this. Brazilian inflation has surged above 5% and imports in November were 44% higher than the previous year. In order to stop prices accelerating, the “emerging economies” will need to raise interest rates, as China is already doing.
To some extent countries like China can offset declining demand in export markets by increased domestic consumption. But the domestic market too has definite limits and sooner or later these must be reached. The serious economists are expressing concern about the “overheating” of the Chinese economy. On Christmas day, the People’s Bank of China raised key interest rates, the second such move in less than three months. The amount of money banks keep in reserve has also been restricted to try to reduce bank lending levels.
This was the latest in a series of actions taken by China’s central bank to try to combat rising prices. The problem is that this can cause growth to slow sharply. The latest data showed that China's economy grew at an annual pace of 9.6% in the three months to the end of September from 11.9% in the first quarter of this year. If they do not take measures now, there will be higher inflation, necessitating an even bigger tightening at a later date. Either way, the period of rapid growth will come to an end, causing shock waves throughout the world economy.
Will the contradictions lead to war?
It is increasingly clear that the world economy is fragmented into three segments: the big “emerging” markets (China, India, Brazil), the euro area and the USA. It is also increasingly clear that they are moving in different directions. This divergence is increasing the chances for friction and opening up new contradictions. What happens in one part of the global economy has immediate repercussions for the rest. The central contradiction is simply stated. Every country wants to export. But in order to export, somebody has to import! We are entering into a period of growing protectionism and tensions between the main capitalist nations.
The tendency towards protectionism is clear in the USA, where loud voices are raised in Congress demanding restrictions on Chinese imports. This is very dangerous ground. Protectionism would provoke retaliation from America’s rivals and threaten to unravel the fragile edifice of world trade. Globalization would be thrown into reverse, with catastrophic consequences for the world economy.
The divergence between the three major components of the world economy poses serious risks to the entire edifice of globalization. Europe and America are obsessed with internal problems and have adopted contradictory strategies for dealing with them. They are in fact moving in different directions. On the one hand, America is following a loose monetary policy, allowing the deficit to rise alarmingly. On the other side of the Atlantic, there are concerns about sovereign defaults in the euro zone.
The budget cutting austerity plans of Europe poses a grave danger to the future of the euro, which unsettles the markets. But then, America’s tactic of eat, drink and be merry, and to hell with the deficit is hardly sustainable, either. These worries are reflected in a steady flow of capital to the “emerging economies” like China, which are awash with cash in sharp contrast to the debt-ridden West. This is what makes their central banks reluctant to raise interest rates and dampen down inflation. The Economist warned: “A more divided world economy could make 2011 a year of damaging shocks.”
It is clear that the global crisis of capitalism will mean a sharpening of tensions between Europe and the USA, between the USA, China and Japan and between Russia and the USA. In the past such tensions would have led to a world war. In the 1930s it was not the Keynesian policies of Roosevelt’s New Deal that solved the crisis. It was the outbreak of the Second World War that eliminated the mass unemployment of the 1930s through massive arms spending and the wholesale destruction of the means of production during the war. This has raised the question in some people’s minds of a new world war. However, the situation now is entirely different to that of 1939.
The collapse of the USSR and the colossal power of US imperialism mean that a world war is ruled out. With an annual arms expenditure of more than $700 billion, no power on earth can stand against the USA. On the other hand, there can be no question of either the USA or any other country invading China to turn it into a colony, as happened before the Second World War.
A world war is therefore ruled out. But there will be constant “small” wars, like the wars in Iraq, Afghanistan and Somalia. The conflict between Russia and the USA can lead to wars like the war in Georgia. In Africa the undeclared war in Somalia continues on its bloody path to further chaos, while Côte d’Ivoire teeters on the brink of a new civil war. The instability in Asia was underlined by the armed conflict between North and South Korea. US forces have participated in the South’s latest military exercises. A new war can break out in Yemen at any time. There is no lack of explosive material on a world scale.
The recent revelations of WikiLeaks have raised at least partially the thick curtain of lies that conceal the ugly reality of bourgeois diplomacy. Diplomacy is the continuation of war by other means. But the increase in diplomatic tensions is a reflection of the general instability, as is the uncontrollable spread of terrorism. They are a symptom of the underlying crisis. To bemoan these phenomena, as sentimental pacifists do, is as pointless as it would be for a doctor to take out a handkerchief and weep at the symptoms of a disease. What is required is not tears but a precise diagnosis and an effective prescription.
The symptoms we see on a world scale are merely an expression of the underlying cause, which is the contradiction between the colossal potential of the productive forces and the narrow limitations of private property and the nation state. The capitalists cannot find a way out of the crisis by taking the road of war as they did in 1914 and 1939. Therefore, all the contradictions will be expressed internally, through a growth of the intensification of the class struggle.