Deeper than ever, the crisis leaves capitalism out of breath

20 June 2023 by Eric Toussaint

CADTM : Are we witnessing a crisis

This is a major crisis of the globalized capitalist system, the worst crisis since those of the years 1914-1945

Éric Toussaint : Yes. All the warning lights are flashing: there is a very significant economic slowdown (stagnation in the Eurozone in the last quarter of 2022-first quarter 2023) without any reduction in greenhouse gas emissions and other environmental damage; the drastic effects of the ecological crisis, especially as manifested by climate; a huge increase in public and private debt; high inflation Inflation The cumulated rise of prices as a whole (e.g. a rise in the price of petroleum, eventually leading to a rise in salaries, then to the rise of other prices, etc.). Inflation implies a fall in the value of money since, as time goes by, larger sums are required to purchase particular items. This is the reason why corporate-driven policies seek to keep inflation down. and loss of buying power for the working classes; rising job precarity; the explosion of inequality, with the colossal increase in private ownership and the revenues of the richest 1%; a falling Human Development Index in many countries, especially of life expectancy, the North included; harsher trade wars; a serious world food crisis; wars in Europe, in Sudan, in the Horn of Africa, in the Arabian Peninsula, in the East of the DRC, and more; a rise in authoritarian forms of government practice (ever harsher repression of protest, the sidelining of legal process, etc.); attacks on basic human rights such as the right to abortion; increasingly restrictive and lethal migration policies; electoral successes of the far right, and so on.

The only economic sector that has seen enormous progress in productivity is the military sector. This is a major crisis of the globalized capitalist system, the worst crisis since those of the years 1914-1945.

CADTM : At what phase of the crisis is the world economy now

Éric Toussaint : There is no sign yet of the end of the tunnel. Things are going to get worse: speculative bubbles may burst at any moment producing a sudden aggravation of the economic situation. There may be even more serious warlike incidents than the present ones. There is every reason to believe that climatic and environmental catastrophes will worsen. The health crises are not over, far from it. Governments and central banks are taking no measures calculated to give humanity a chance to come out of the crisis, quite the opposite. The concentration of strategic tools of production and finance in the hands of an ever-smaller number of large private share Share A unit of ownership interest in a corporation or financial asset, representing one part of the total capital stock. Its owner (a shareholder) is entitled to receive an equal distribution of any profits distributed (a dividend) and to attend shareholder meetings. -holders continues in the energy sector, extractive industries, the marketing of food and other raw materials, in the pharmaceutical sector, the banking sector, etc.

CADTM : What are the causes

Government and central bank Central Bank The establishment which in a given State is in charge of issuing bank notes and controlling the volume of currency and credit. In France, it is the Banque de France which assumes this role under the auspices of the European Central Bank (see ECB) while in the UK it is the Bank of England.

policies of injecting massive liquidities Liquidities The capital an economy or company has available at a given point in time. A lack of liquidities can force a company into liquidation and an economy into recession. and the rapid increase in debt have maintained or led to the emergence of new financial bubbles.

Éric Toussaint :Despite the enormous accumulation of wealth by the richest 1%, and despite the colossal gains of a series of large corporations particularly in the food and energy sectors, “Big Pharma”, the shipping industry and the arms industry, globally profit Profit The positive gain yielded from a company’s activity. Net profit is profit after tax. Distributable profit is the part of the net profit which can be distributed to the shareholders. rates are not high enough to enable Big Capital to launch a huge wave of productive investments.

One should never lose sight of the fact that Capital seeks to maximise its profits. When it cannot do so, it concentrates especially on speculation. This is one of the contradictions inherent in the capitalist system.

Apart from the big companies that make extraordinary profits by taking advantage of crises such as pandemics, energy shortages, and wars, the majority of companies are confronted with falling profits and falling productivity, despite aggravated conditions of exploitation of the work-force and increased job insecurity.
There is also a problem regarding the supply side of goods: confinement measures during the Coronavirus pandemic of 2020-2021 (up to and including 2022 for China) led to breakdown in the supply lines. The semi-conductor sector, with production concentrated in a small number of countries, has run into production problems and has trouble in meeting demand. This phenomenon is accentuated by the trade and technology war between the United States and China. We are seeing a phase where Washington is becoming more aggressive in trying to limit China’s economic and commercial expansion.
In the real-estate sector, supply is outstripping demand. There was a new phase of over-investment in building construction relative to solvent demand. This was the case in the United States, Great Britain and China. It has been particularly obvious for commercial buildings (offices and commercial premises). A speculative bubble Speculative bubble An economic, financial or speculative bubble is formed when the level of trading-prices on a market (financial assets market, currency-exchange market, property market, raw materials market, etc.) settles well above the intrinsic (or fundamental) financial value of the goods or assets being exchanged. In such a situation, prices diverge from the usual economic valuation under the influence of buyers’ beliefs. developed between 2018 and 2022, triggering a new mortgage Mortgage A loan made against property collateral. There are two sorts of mortgages:
1) the most common form where the property that the loan is used to purchase is used as the collateral;
2) a broader use of property to guarantee any loan: it is sufficient that the borrower possesses and engages the property as collateral.
Government and central bank policies of injecting massive liquidities and the rapid increase in debt have maintained or led to the emergence of new financial bubbles. This is evidenced in stock-market Stock-exchange
The market place where securities (stocks, bonds and shares), previously issued on the primary financial market, are bought and sold. The stock-market, thus composed of dealers in second-hand transferable securities, is also known as the secondary market.
capitalization, the debt bond market Bond market A market where medium-term and long-term capital is lent/borrowed in the form of bonds. Bonds are creditor stakes issued by companies or States. , in the housing sector of several countries, in the markets for raw materials and in cryptocurrencies. The 180 degree turn in policy since 2022, passing from Quantitave Easing (QE) to Quantitave Tightening (QT), has triggered great financial insecurity. In short, the decision by governments and central banks to raise interest rates Interest rates When A lends money to B, B repays the amount lent by A (the capital) as well as a supplementary sum known as interest, so that A has an interest in agreeing to this financial operation. The interest is determined by the interest rate, which may be high or low. To take a very simple example: if A borrows 100 million dollars for 10 years at a fixed interest rate of 5%, the first year he will repay a tenth of the capital initially borrowed (10 million dollars) plus 5% of the capital owed, i.e. 5 million dollars, that is a total of 15 million dollars. In the second year, he will again repay 10% of the capital borrowed, but the 5% now only applies to the remaining 90 million dollars still due, i.e. 4.5 million dollars, or a total of 14.5 million dollars. And so on, until the tenth year when he will repay the last 10 million dollars, plus 5% of that remaining 10 million dollars, i.e. 0.5 million dollars, giving a total of 10.5 million dollars. Over 10 years, the total amount repaid will come to 127.5 million dollars. The repayment of the capital is not usually made in equal instalments. In the initial years, the repayment concerns mainly the interest, and the proportion of capital repaid increases over the years. In this case, if repayments are stopped, the capital still due is higher…

The nominal interest rate is the rate at which the loan is contracted. The real interest rate is the nominal rate reduced by the rate of inflation.
to fight inflation is leading to stagnation, perhaps even a recession, and to further financial crises, without managing to reduce inflation in any significant way. Indeed, the financial crisis that has already led to the bankruptcy of several cryptocurrency firms in 2022 and of four major banks in the United States and Europe in March 2023 could well resurface causing further banks to collapse or serious financial accidents in other areas such as the stock-markets, the property sector especially commercial property, the bond Bond A bond is a stake in a debt issued by a company or governmental body. The holder of the bond, the creditor, is entitled to interest and reimbursement of the principal. If the company is listed, the holder can also sell the bond on a stock-exchange. sector and so on.

For more on this topic, please read : Does the US Federal Deposit Insurance Corporation have enough resources to deal with a major banking crisis? And what about Europe?

CADTM : Is there a new debt crisis in the South?

Éric Toussaint : A new debt crisis is affecting a whole series of countries of the South for example, in Asia (Sri Lanka, Pakistan, Bangladesh), in Sub-Saharan Africa (Ghana, Zambia), in North Africa (Tunisia, Egypt), in the Near East (Lebanon), in Latin America (Argentina), in the Caribbean (Puerto Rico, Cuba), and more. Some of those countries have suspended payments, or did so previously, as in the case of Sri Lanka. Further suspensions of payments are likely.
Generally speaking, this crisis is triggered by a succession of external shocks which have a serious impact on the economies of the South. These external shocks result from actions and events in the North:

  1. There was the Coronavirus pandemic that started in the North (China, Europe, North America) before spreading to the South. The effects of the pandemic on debt are clear: increased public indebtedness to fund the fight against the pandemic and a reduction of resources in hard currencies required to ensure repayment of external debt. The latter was largely due to the abrupt fall in tourism from 2020 until 2022 as some economies have become highly dependent on tourism, for example Sri Lanka and Cuba.
  2. The war caused by Russia’s invasion of Ukraine had significant effects. Cereal and fertilizers rocketed prices whereas a whole series of countries of the South had become net importers of cereals and chemical fertilizers under pressure from organizations like the World Bank World Bank
    The World Bank was founded as part of the new international monetary system set up at Bretton Woods in 1944. Its capital is provided by member states’ contributions and loans on the international money markets. It financed public and private projects in Third World and East European countries.

    It consists of several closely associated institutions, among which :

    1. The International Bank for Reconstruction and Development (IBRD, 189 members in 2017), which provides loans in productive sectors such as farming or energy ;

    2. The International Development Association (IDA, 159 members in 1997), which provides less advanced countries with long-term loans (35-40 years) at very low interest (1%) ;

    3. The International Finance Corporation (IFC), which provides both loan and equity finance for business ventures in developing countries.

    As Third World Debt gets worse, the World Bank (along with the IMF) tends to adopt a macro-economic perspective. For instance, it enforces adjustment policies that are intended to balance heavily indebted countries’ payments. The World Bank advises those countries that have to undergo the IMF’s therapy on such matters as how to reduce budget deficits, round up savings, enduce foreign investors to settle within their borders, or free prices and exchange rates.

    , the IMF IMF
    International Monetary Fund
    Along with the World Bank, the IMF was founded on the day the Bretton Woods Agreements were signed. Its first mission was to support the new system of standard exchange rates.

    When the Bretton Wood fixed rates system came to an end in 1971, the main function of the IMF became that of being both policeman and fireman for global capital: it acts as policeman when it enforces its Structural Adjustment Policies and as fireman when it steps in to help out governments in risk of defaulting on debt repayments.

    As for the World Bank, a weighted voting system operates: depending on the amount paid as contribution by each member state. 85% of the votes is required to modify the IMF Charter (which means that the USA with 17,68% % of the votes has a de facto veto on any change).

    The institution is dominated by five countries: the United States (16,74%), Japan (6,23%), Germany (5,81%), France (4,29%) and the UK (4,29%).
    The other 183 member countries are divided into groups led by one country. The most important one (6,57% of the votes) is led by Belgium. The least important group of countries (1,55% of the votes) is led by Gabon and brings together African countries.
    and governments of the North to concentrate on other types of agricultural production, such as tropical fruits, coffee, tea, cotton and transgenic soya for cattle-fodder. This huge increase in the price of imported cereals and fertilizers led to a shortage of financial resources and thus to problems repaying debt and the unsustainable accumulation of fresh debts to be able to carry on importing. The war in Ukraine has also caused an increase in the fuel prices; yet a large number of countries of the South import fuel. For countries like Egypt, Sri Lanka and Tunisia which import both cereals and fuel the debt situation has become unsustainable.
  3. The third major external shock comes from the effects of climate change and the environmental crisis. This is particularly true for Pakistan which fell victim to catastrophic floods in 2022.
  4. The fourth major external shock has been the cost of rescheduling debt, caused by the unilateral decision of the Federal Reserve FED
    Federal Reserve
    Officially, Federal Reserve System, is the United States’ central bank created in 1913 by the ’Federal Reserve Act’, also called the ’Owen-Glass Act’, after a series of banking crises, particularly the ’Bank Panic’ of 1907.

    FED – decentralized central bank :
    of the United States, the European Central Bank ECB
    European Central Bank
    The European Central Bank is a European institution based in Frankfurt, founded in 1998, to which the countries of the Eurozone have transferred their monetary powers. Its official role is to ensure price stability by combating inflation within that Zone. Its three decision-making organs (the Executive Board, the Governing Council and the General Council) are composed of governors of the central banks of the member states and/or recognized specialists. According to its statutes, it is politically ‘independent’ but it is directly influenced by the world of finance.
    and the Bank of England to massively increase interest Interest An amount paid in remuneration of an investment or received by a lender. Interest is calculated on the amount of the capital invested or borrowed, the duration of the operation and the rate that has been set. rates. Countries of the South that were borrowing at annual interest rates of 3 to 6% are now confronted with rates for fresh loans climbing to between 9 and 15%. This too is unsustainable.

CADTM : They say that the IMF has changed. Is that so?

Éric Toussaint : The IMF’s policies have not changed, any more than those of the World Bank. They are as pernicious as ever. And because many countries in the South have once more been obliged to resort to IMF loans, they have to apply even more stringently antipopular neoliberal policies.

In this context, it is important to give full collaborative support to the CADTM’s call for a counter-summit in Marrakesh from 12 to 15 October 2023 on the occasion of the IMF’s and the World Bank’s Annual General Assembly.

The call : Call for a global counter-summit of social movements to the IMF-WB Annual Meetings to be held in Marrakech from 9 to 15 October 2023

CADTM: Why do you say that this is the worst crisis since 1945?

The ecological crisis is the product of two centuries of capitalist production as the dominant system

Éric Toussaint: Since 1945, there has never been a crisis on such a scale and with so many facets as the current crisis. The ecological crisis and its climate dimension are on a scale never seen before. The ecological crisis is the product of two centuries of capitalist production as the dominant system. In the space of two centuries, this mode of production has profoundly affected and degraded life on the planet, and we have now reached a critical point. We can add to this the health crisis from which we are just emerging and which could rebound. This health crisis has caused more than 7 million deaths. Its scale is also linked to the capitalist system itself. Let’s add that, compared with 1945, the nuclear arsenal has proliferated, and the level of international tensions could lead to a holocaust. From other points of view, the capitalist crisis is indeed the most serious since 1945, particularly in terms of economic collapse. The trend towards more authoritarian and violent forms of government is affecting all continents to varying degrees. The global rise of extreme right-wing forces is the strongest since 1945. Repeated violations of human rights are on the rise, particularly with regard to migration and the right to asylum. Faced with these facts, we must not give up; we must redouble our efforts to bring about a genuine self-emancipating revolution.

Translated by Vicki Briault.

Eric Toussaint

is a historian and political scientist who completed his Ph.D. at the universities of Paris VIII and Liège, is the spokesperson of the CADTM International, and sits on the Scientific Council of ATTAC France.
He is the author of Greece 2015: there was an alternative. London: Resistance Books / IIRE / CADTM, 2020 , Debt System (Haymarket books, Chicago, 2019), Bankocracy (2015); The Life and Crimes of an Exemplary Man (2014); Glance in the Rear View Mirror. Neoliberal Ideology From its Origins to the Present, Haymarket books, Chicago, 2012, etc.
See his bibliography:
He co-authored World debt figures 2015 with Pierre Gottiniaux, Daniel Munevar and Antonio Sanabria (2015); and with Damien Millet Debt, the IMF, and the World Bank: Sixty Questions, Sixty Answers, Monthly Review Books, New York, 2010. He was the scientific coordinator of the Greek Truth Commission on Public Debt from April 2015 to November 2015.

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