Paltry Returns on Capital and an Enormous Debt Pile Are Bringing the World Economy to its Knees

The following piece is a slightly condensed translation of the Italian original, published in the January edition of Battaglia Comunista, journal of the ICT’s founding section in Italy.

Submitted by Internationali… on January 29, 2021

On top of the economic disruption and health service shortcomings that have been put in the spotlight, the pandemic crisis has intimately linked two factors deliberately kept separate by the capitalist press and the mainstream political world. The first is that this crisis has dramatically added to the previous one (2008), creating disasters on a scale not seen since the Second World War. In so doing it has exposed the fraudulent claim of all those who disingenuously declared the end of the first crisis, when all the economic indices said the opposite, when the heart of the matter is the economic collapse of a decaying capitalism.

The pandemic crisis has done nothing but aggravate the already precarious health of world capitalism. It highlights capital’s increasing difficulty of finding productive investments; of obtaining a rate of return (‘valorisation’ in Marxist terms) to merit their investment outlay. Despite the enormous mass of capital injected by Central Banks (Q.E.), this has largely resulted in a precipitous flight of the same capital from productive investments in favour of speculation. Meanwhile, state debts have increased to unsustainable levels.

The cause of all this is the slow, but unstoppable, fall in the average rate of profit as a result of the increased organic composition of capital, i.e. a progressive rise in the cost of machinery and equipment (constant capital) in relation to the cost of labour power (variable capital). This general increase in the ratio between constant and variable capital makes it increasingly difficult for businesses to realise enough profit to ‘merit’ further capital investment. This, in turn, only encourages the flight of capital from real production towards speculation, exacerbating the dysfunction of the entire system of production. These massive crises are erroneously termed ‘financial’ because they explode on the financial market but in reality they are structural crises stemming from the diminished profitability of investment in production. An ever-increasing mass of capital is being pushed into financial speculation until it bursts like poisoned soap bubbles over the already critical productive base that created them. At that point, states (governments) are forced to intervene to try to restore the entire capitalist machine to working order so it can continue extorting surplus value from an increasingly exhausted, and relatively smaller, working class in relation to the development of the productive forces. Thus, the Central Banks are borrowing up to their necks in order to inject liquidity into the financial system, buying government bonds, saving those credit institutions that are ‘too big to fail’. The upshot is that while the roof of the capitalist building may be repaired, the foundations are simply left to rot since they are excluded from any attempt at ‘restructuring’ for all the reasons mentioned.

Debt and … More Debt

Here we will consider only one of these these issues: the question of overall debt as the consequence of a sick economic system which, despite a thousand prescriptions for curing the crisis, is unable to deal with any of its underlying contradictions.

We start with Europe by taking the German situation, as the most advanced capitalism of the old continent. According to the consultancy firm McKinsey, the economic measures taken by Germany in the first three quarters of 2020 were the most significant in Europe. Roughly speaking, they equate to 33% of current GDP, while the previous measures adopted to counter the 2008 crisis amounted to "only" 3.5% of the previous decade's GDP. In Macron's France they accounted for ten times the 1.46% of GDP spent in 2008. Similar figures were also reached in the UK. The same phenomenon was recorded, with due quantitative differences, in all the other major countries. For example, in Japan, similar anti-crisis measures amounted to 22% of GDP. Across the Atlantic, expenses incurred by the United States equalled 14% of GDP, compared to 4.9% in the previous crisis. When previous debts are also taken into account this means the United States has the world’s highest debt total.

According to IMF statistics, the overall cost of the pandemic crisis will be no less than $12 trillion. (That’s without a third wave which would bring an even more alarming economic and financial burden.) Even the first case (that of the second lockdown), means a figure equal to 12% of world GDP, which, according to the Wall Street Journal, amounts to lifting the combined public debt of all these states by a further astronomical 100% of global GDP. Furthermore, it might also be noted that in the first quarter of 2020 alone total debt — i.e. that of households, businesses and governments — had already gone beyond previous warning levels, reaching 331% of world GDP. The combined debt of the major industrialised countries went up from 380% to 392% of world GDP starting from the first quarter of 2020. Meanwhile the debt of the so-called emerging economies, which the previous year had reached 220% of their GDP, went up to 230% in a few months of the pandemic. Even though China appears to be the first to have emerged from the crisis, with a very small increase in GDP, its total debt was around 335%, again in the first quarter of 2020.

Before the two crises the Fed had just under $1 trillion of assets. After the 2008 crisis this had turned into a deficit of over $1 trillion, which reached $5 trillion by the second quarter of 2020. As for the old continent, things are no better. The negative balance sheet of the ECB has gone from one €1 trillion in 2008 to the current €7 trillion and everything suggests that the figure will increase rapidly.

The unavoidable conclusion is that the devastating consequences of the rate of profit crisis, aggravated by the pandemic crisis, have forced the first and second-tier capitalist states to borrow beyond belief, to the brink of collapse. And all this is hitting the social fabric with the force of an uncontrollable tsunami. All sectors of production are paying for this, from large companies to the tertiary sector, from medium-sized enterprises to the hotel sector, from small enterprises to catering. The terror for capitalists, large or small, is that a third phase of the pandemic crisis would shake the entire capitalist system to its very foundations. So great is the fear that the political leaders of Europe and the USA, as well as other highly industrialised countries, have rushed to follow Merkel’s call for workers to continue working to save the dying capitalist carcass without demanding wage increases or damaging contracts for businesses.

Working Class ... Keep on Paying or Find Their Own Solution?

So, even if it’s not explicitly stated, it’s clear that workers are being told to continue working even in the worst safety conditions and to make further sacrifices, even the ultimate one of dying from Covid. After all, dying for capital in a pandemic is a sacrifice that the god of profit always takes into due consideration, but without reciprocating in any way. Indeed this is only what is due to him as the only and immanent purpose of this decadent society.

So it’s no great insight for us to say that the world of work will always be expected to pay for this debacle through increasingly intense exploitation. Now, however, there is the real and serious prospect of the working class suffering a "herd economic infection" the likes of which have not been seen in recent history.

Such a prospect must be fought against with all the strength we can muster, starting by refusing to trade the need to work for "safety" at work. A larger share of ECB loans (assuming that the Italian bourgeoisie is capable of putting themselves in a position to receive them) must go to supporting workers (e.g. postponement of redundancies and blocking of layoffs), putting workers’ needs before the needs of capitalist production. Let’s not forget, however, that under the capitalist regime any demand by the working and producing class, even the most legitimate, will not be considered seriously if it impedes the running of the system. So, the capitalist system itself must naturally become the target of our struggles. In other words, it means the resumption of the class-wide struggle against capital. This requires a fighting force which has the strength to push aside demands for radical reforms (Wealth Tax, A Job For Everyone, Work Less for the Same Wage, Make the Bosses Pay for the Crisis, etc.) which create illusions about the possibility of worthwhile reforms from capitalism or, even worse, its gradual conquest from within, illusions that would lead the proletariat to yet another defeat without the slightest hint of the need to dismantle this system from the bottom up.

The overarching demand today has to be for a revolutionary social alternative to capitalism. This is the essential condition for starting to build that new society where, free from the laws of capital, it will be possible to produce for social need and to redistribute socially produced wealth to meet society and individual needs. All the rest belongs to the smoky galaxy of powerless idealisms, politically damaging for those who propose them, demoralising for the workers who take them up, and fatal for the resumption of the class struggle.