Socialist economist George Kerevan offers his latest perspectives on the global economic conjuncture.
2014 opens with global financial markets feeling the jitters over an expected orgy of state borrowing across the world. In the UK, private lenders are being asked to lend the government £206bn this year and £237bn next year – a record high. In these two years there are going to be more government bonds on offer to buy than there has been over the previous nine years combined. The betting is that the financial markets won’t fork out the cash without a hike in interest rates (known as the yield on government bonds).
In the US, the national debt hit a record high of $34 trillion on December 29. That’s $101,233 for every person in America. Much of the increase is accounted for by the rising cost of servicing the existing national debt. Net interest costs soared by 39 per cent in fiscal year 2023, compared to the previous year. Debt payments are nearly double what they were in 2020. Yet both Biden and Trump will borrow even more in 2024. As a result, late last year, the Fitch rating agency downgraded the quality of US government bonds.
It’s the same story across the globe. The EU’s debt costs are set to double this year due to high interest rates. The German government is struggling with a billion-euro budget crisis that risks stifling its vision for environmental and industrial transformation. And everywhere, the financial bourgeoisie are simultaneously shitting themselves with fear that governments can’t pay up while rubbing their hands with glee at the cash mountain they have coming to them. You could not find a more graphic illustration of the contradictions at the heart of capitalism.
Why this borrowing crisis? During the Covid emergency, bourgeois governments printed money to pay their bills and subsidise business enterprises forced to shut during the lockdowns, and to replace lost consumer spending. This was only ever a temporary expedient. Printing money led to the recent great inflation and a rise in interest rates designed to keep wages and spending down.
Bourgeois governments now face three problems:
First, they have to stop printing money or inflation will get even worse. So they have gone back to old-style borrowing from the financial system – big banks, investment funds (which suck in private wealth) and foreign governments parking their foreign currency earnings.
Second, rising interest rates in turn mean bigger debt bills and less money for governments to spend on public services, defence and subsidising the industrial bourgeoisie (known as the “green transition”). All this exacerbates political and class tensions.
Third, inflation has triggered mass industrial action across the globe. January has seen a new wav of strikes in Germany. And according to the independent China Labour Bulletin, there were at least 130 significant factory strikes in China last year – double the number for 2022.
All this suggests 2024 will be a problematic year for global capitalism. The World Bank has just published its own forecast suggesting that the global economy is on track for its worst half-decade of growth in 30 years. The Bank has revised downwards its forecast for world economic growth in 2024 to just 2.4 per cent in 2024 – down from 2.6 per cent last year. This marks the third year in a row where growth has been weaker than the previous 12 months. The Bank also says that global trade is deteriorating meaning that growth rates in developing, exporting countries are now a full fifth slower than in the previous decade – spreading the crisis into the rest of the world.
Impact on profits
The central dynamic of the capitalist system is profitability and the ability to realise profits. The travails of the financial system and the role of the state is germane to the degree it impacts on profitability. Data from the US shows that the growth in profits of US non-financial companies has slowed successively in each of the past two years, as production recovers from the pandemic. However, on top of this deceleration, US companies have seen their realised earnings and profit margins squeezed interest rate hikes lifted financing costs. Small and medium sized companies have been particularly affected, threatening to weaken supply chains again.
According to research by the US central bank, low interest rates and low tax rates explain 40 per cent of the real growth in US corporate profits between 1989 and 2019. But recently, borrowing costs for the top 500 US companies increased year-on-year by the largest amount in two decades.
Of course, these monetary movements help to mask real movements in surplus value being extracted from the labour force, and so hide the fall in the rate of profit. However, as interest rate costs rise, the underlying reality will be exposed. That is the likely prognosis for the rest of the decade.
Yet despite all this, 2023 ended with the US stock market just short of an all-time high. This is the result of three factors:
First, US consumer spending remains high, bolstering company cash flow and cash earnings. Consumer confidence is, in turn, underpinned by the ability of the American working class to win higher wages.
Second, US investors are convinced that interest rates will fall this year – a presidential election year.
Third, many are also looking to a Trump victory in November. Trump has promised more protection for American capital and lower taxes.
However, the conjunction of a booming stock market, interest rate volatility, international instability, and deepening class struggle seem to be a volatile and unsustainable mixture. US commentators are predicting stock prices will remain elevated but – as always – the stock market is a gamblers’ paradise not a reflection of real variables.
The sub-imperialisms redux
One feature of the present economic conjuncture is the rise in importance of the sub-imperialisms – China in particular but also regional players such as Turkey and Saudi Arabia, and Brazil.
The Chinese economy has begun to develop all the weaknesses that eventually derailed the drive by Japanese capitalism to overtake US imperialism at the end of the last century. Japan and then China used state intervention to generate high levels of capital investment (accumulation). However, while generating surplus value can be achieved through protected markets, cheap loans and labour coercion, that value still has to be extracted in the form of money capital for reinvestment (valorisation). As in Japan, China faces a valorisation crisis that is stalling future accumulation – manifested superficially as lower economic growth.
Chinese local accumulation was driven by two things: foreign investment by Western manufacturers, and local investment in construction and property. Western investment is drying up for political reasons. This has left China dependent on an excess of property investment. But now property valuations are falling and developers cannot pay back loans. China faces the same property slump and deflation that plagued Japan after the 1990s. Chinse planners have vowed to expand domestic consumption, but that strategy is too late, with ordinary consumers cutting back in the face of high interest rates. Economic weakness is propelling the Chinse state towards a more authoritarian stance. These trends will only become more pronounced.
Meanwhile, wars in Ukraine and Gaza have reinforced the political and economic autonomy of Turkey (well on its way to overtaking Russia by GDP), Saudi Arabia and Iran. The increasing reality that the industrial world is not on a swift transition from oil and gas has boosted Saudi finances, which are now being redeployed to invest in China. Turky is undergoing an industrial boom, exporting everything under the sun (including machine tools as well as drones) to Russia, despite Western sanctions. All this adds to the vortex of inter-imperialist competition that dominates this phase of capitalism. And imperialist competition has a bad habit of turning into imperialist wars.
The crying absence in 2024, despite the uptick in industrial and class struggles, is any meaningful regeneration of working class organisation at an international level. By this I mean more than episodic Western support for anti-colonial struggles. I mean direct organisational links between trades unions and workers in dispute, and greater cooperation between left-wing parties in the global North and South.
Neoliberalism completed the integration of the global market. That integration is under strain but is unlikely to disappear. What we require now is an integration and coordination of class struggle on a global basis.