Understanding the present-day World Economic Crisis –
An Eco-Socialist Approach
By: Saral Sarkar
The current economic crisis that, roughly speaking, began in January 2008 and is, in July 2010, still going on, has shaken the world. Politicians, economists, and publicists are using superlatives to describe it, It has been described as the severest economic crisis since the Great Depression of the early 1930s. Seen superficially, similar, though not equally severe, crises have also taken place in the past few decades. There have been share market crashes, bank failures, crises in the finance market, credit crunches, strong recessions, state insolvencies etc. I have described them in my book Die Krisen des Kapitalismus (2010). But the scale, depth and spread of the current crisis has been so great, that all concerned got panic Many observers feared for the survival of capitalism. The question came up: is it only another crisis in capitalism, or is it the crisis of capitalism that Marxists, communists, socialists and other critics of capitalism have been waiting for since long. At least on one point all agree. Capitalism will never be the same again as it has been before the crisis, i.e. unbridled globalized neo-liberal capitalism will henceforth be bridled, more or less. That work has already begun.
I assume that the readers of this essay are well informed on the main facts and events of the crisis. Here I only intend to present a deeper and comprehensive understanding of the crisis and do not want to repeat in detail the currently available superficial analyses and speculations about the future perspective.
I. Superficial Explanations
Economists belonging to the various present-day schools of standard economic thought did not differ much in explaining the crisis. Their explanations, which I consider to be superficial, are surely also well known to my readers. Nevertheless, I present below the main elements of their explanations in order to show the contrast between them and my explanation.
(1) The main element in their
explanations is that the greater part of the huge number and amount of bad
debts that were the root cause and starting point of the crisis in the
(2) The Federal Reserve (the
central bank of the
(3) Bankers were greedy. Since a large part of their remuneration consisted of bonus payments, which depended on results, they were extra keen to take risks – both in lending business and in speculative transactions.
(4) There was too little regulation of the finance and banking industry, and also the globalization of the same had happened in an uncontrolled way. As a result of these two facts, a huge amount of highly risky, highly complicated and barely understandable securities were sold all over the world, mainly to banks
These elements do not refer
only to the situation in the
I find these explanations superficial and unconvincing. No doubt, they were facts when the crisis broke out, but they do not give a satisfactory answer to the questions why the crisis became so severe, so widespread and so long-drawn, and why it could not be overcome as easily as the previous similar crises: the stock market crash of 1987, the East Asian crisis of 1997–98 and the crisis of 2001–03 (for details see Sarkar 2010). They do not explain why the crisis is still persisting?, and why the outlook is still so gloomy.
Moreover, two of the facts are really banal. That bankers were greedy does not explain anything, because greed is an essential pillar of the capitalist economic system. All participants in this system are expected to be greedy, more or less. And deregulation of the finance industry is only an essential element of globalized neoliberal capitalism, which is in place since the 1980s.
The other two elements were
indeed somewhat unusual. Bankers have always given some credits that were a
little risky, and some of such credits have always had to be routinely written
off. But this time, the extent of the
subprime credits was so huge that business could not go on as usual when in the
The Federal Reserve's policy during the period in question was also unusual. Generally, the Fed (and, in the neoliberal capitalist regime, almost all central banks) starts tightening money supply as soon as the economy starts heating up, which can be manifested as an above-average inflation or the emergence of a bubble in the stock exchange or the housing market. The usual instrument for this purpose is to cause the market interest rates to rise, which it generally achieves by raising the prime interest rate. In the period in question, however, the Fed let the bubbles continue to grow by keeping its prime interest rate low.
Both the banks and the Fed have been criticized for pursuing these unusual policies, which, according to their critics, were the main causes of the severe crisis. But to blame the crisis only on them is unjustified, it is an obstacle to finding the true causes and understanding the true nature of the crisis
It has been reported that the ruling politicians, in fact, wanted a real estate boom. Greed is not a character trait of only bankers and speculators. Also ordinary people, especially ordinary Americans, want to become wealthy. That belongs to the so-called "American dream". And owning a house, as showy as possible, is an ordinary poor man's way of becoming wealthy – especially because it was said that house prices, unlike stock prices, can only go up. Politicians, naturally, wanted to promote the fulfillment of this dream. After all, from poor to middle class citizens made up the majority of the voters. Particularly the Democrats had a special interest in pursuing this policy, because they thought workers and other poor Americans belonged to the group of their (potential) voters. In 1997, the administration of the Democratic president Bill Clinton got a law passed which made profit from selling real estate exempt from taxation. This encouraged speculation..
But also the Republicans wanted a real estate boom. President George W. Bush (2001–08) said he wanted every American to become a house owner. Politicians in general, therefore, applied pressure on the banks, directly or indirectly, to give housing credits to the poor.
It would however be wrong, if
one concluded from these facts that only narrow electoral considerations of
self-interested politicians led to the massive expansion of subprime housing
loans. It also made macro-economic sense. We have to remember that both in the
early nineties and in the early years of the new century, the
II. Why Did the Housing Bubble Burst?
It is too simplistic to say any bubble will burst sooner or later. It is
necessary to differentiate between a housing bubble and a stock exchange bubble,
which too burst in
It was said that in the first seven days after the stock exchange crash, wealth amounting to 2.5 trillion dollar was lost, and since the stock exchange peak of one year earlier, stock owners lost 8.4 trillion dollar (Wall Street Journal, 10.10.2008). But what does that actually mean? One says in such cases, the wealth vanished into thin air. But in reality, nothing concrete vanished, no house, no car. What vanished into thin air were only some numbers on paper, some zeros after a digit. The 8.4 trillion dollar were only fictitious wealth. A year before the stock prices peaked, the same stocks were valued much lower. Only speculation had driven the market value of the stocks upward. After the crash, what was in any case fictitious wealth ceased to exist.
The real value of a stock ultimately depends on how much demand in the market there is for the product(s) of the company in question. In case the company has to be wound up for lack of sufficient demand for its product(s), the price of its stocks can fall to zero. Houses are however very concrete things with eminent use value. Generally, there is no dearth of demand for them because almost all over the world population is growing and people are desiring better housing (only particular houses may not find any taker).
In our concrete case, the
subprime mortgage crisis in the
When the crisis in the housing market caused a contagion in the stock market, and the tumbling stock prices in turn reduced, through the negative wealth effect, the borrowing capacity and purchasing power of millions of stock holders, the total effect of this downward development worsened the recession in the real economy, which, according to American economists, had already begun in December 2007. Like houses, cars, inter alia, are concrete things with eminent use value. It is not as if Americans suddenly lost the desire to own and drive big cars produced by General Motors etc. It was simply the case that many people lost the ability to pay the high price of such cars, and rising petrol prices increased the cost of driving them . They simply could not afford such cars any more.
III. The Deeper Causes of the Crisis
We then have to understand the changed circumstances under which the ordinary people who had bought houses on credit could no longer service their debts.
1. Limits to Growth
Despite several similarities, the present economic crisis differs from
the previous ones in one very important respect. The present crisis developed
and is continuing against a fundamentally different kind of background. Whereas the crises of the past were addressed
by the powers that be with a consciousness occupied by the belief that
limitless economic growth is possible – I call it the growth paradigm –, the
present crisis has broken out in an intellectual atmosphere and against the
background of a public discussion in which even the leading politicians of the
world and government leaders are greatly worried about the ecological balance
of our planet and the dwindling resource basis of industrial societies. Of
course, the authors of the first report to the Club of Rome, Limits to Growth, had forecast the coming
of such a situation already in 1972. But humanity could ignore this warning for
a long time. Now, however, many political leaders seem to have woken up. Thus, Al
Gore, the former vice-president of the
The planet is in peril not only because of global warming. The ecological balance of the earth is being undermined since long, e.g. through progressive deforestation, especially through the progressive destruction of the rain forests, through progressive decline of biodiversity, through increasing environmental pollution of various kinds.
The contraction of the resource base of industrial societies is most clearly manifested in the fact that oil extraction has, according to most experts, peaked or even crossed the peak. That is why the price of crude oil, by far the most important resource of modern industrial societies, had been rising continuously in the few years before the present crisis broke out. In July 2008, it reached over $140 per barrel. Also the price of other important resources – the energy resources coal, gas and uranium as well as industrial metals like copper, zinc, iron and steel, tantalum etc. – rose sharply. Even the prices of foodstuffs, for hundreds of millions of people all over the world the main source of energy for recreating their labor power, rose exorbitantly. After the recession began and deepened, the prices of these resources fell again, but they never reached the low level in which they were, say, in 2000. Today, in July 2010, despite the fact that the recovery from the recession is very slow, crude oil price is fluctuating around $80.
Also the environmental services provided by nature for us are important resources for any kind of society: its ability to absorb a certain amount of man-made pollution, its ability to regenerate the fertility of arable land, the health services provided by clean air and water etc. The costs of maintaining such resources in an industrial society have also increased along with the costs of extracting important resources like the ones mentioned above
The rising costs of extracting or conserving these resources mean that less and less of them are available to most people. Only those fortunate few, whose real incomes are rising or are not falling despite these circumstances, can consume the same amount of these resources as before. Nobody can know exactly how much of these resources are being consumed by particular persons. But if one says that a person has lost his job or is working only part-time, if one says that a person's real income is going down, then it is tantamount to saying that this person is getting less and less resources, which include the labor power and services of other people (e.g. that of a doctor or railway workers).
This exactly is happening today
in most parts of the world. Even in
It should not, therefore,
surprise anybody that in 2007, in the
Trade-unionists and all kinds of leftists may blame the current misery of the working people on brutal capitalist exploitation, on the weakness of the working class, on speculators without any conscience, on greedy bankers, on globalization that has caused the relocation of many production units in cheap-wage countries etc. Of course, at first sight, all these explanations are partly correct. But on closer look one cannot but realize that when, on the whole, there are less and less resources to distribute because it is getting more and more difficult to extract them from nature (think of oil exploration at the west coast of Greenland!), then, even in a better capitalist world with a strong working class, at best a fairer distribution could be achieved, not more prosperity for all. It is now necessary to think in totally new terms; a paradigm shift is necessary, a shift from the former growth paradigm to what I call the limits-to-growth paradigm.
We can further explain the matter in the following way: Workers in the broadest sense produce goods and services by using resources (including energy resources), tools, and machines, which are also produced by using resources. If due to diminishing availability of affordable resources a growing number of workers lose their job or are forced to work only part-time, then they are producing no goods and services or less of them than before. Now, since most goods and services are, in the ultimate analysis, paid for by (exchanged with) goods and services, it is unavoidable that these workers can get less goods and services from other people.
We know that today, because of a higher level of automation and rationalization, less (or less full-time) workers are necessary to produce a given quantity of goods and services from a given quantity of resources than, say, twenty years ago. It is possible to employ more part-time workers for the same amount of production. That would ensure a fairer distribution of the required quantity of paid labor among those who can and want to work. But the capitalist system of production may constitute an obstacle to this idea.
2. Illusion of Growing Prosperity – False Indicator GDP
In his article referred to above, Krugman (2006) speaks of a "disconnect" between wage stagnation, even fall in real wages, on the one hand, and satisfactory national economic growth on the other. The term "disconnect" seems to suggest that it is inexplicable, or that the trade unions are too week to take advantage of the national economic growth. I, in contrast, have said above that the limits to growth have been reached. This is certainly confusing. So let me try to clarify the matter.
Just as it is possible that real wages are falling while nominal wages are rising, so it is also possible that real national income is falling while real GDP is growing. Real GDP is generally understood as a measure of a nation's prosperity. But, strictly speaking, it neither measures a nation's real income, nor does it indicate a nation's level of prosperity. What it measures is only the real value (i.e. value after correcting the distortion caused by inflation) of all, and all kinds of, goods and services produced in a country in one year. Of course, goods and services produced but not exchanged through the market – for instance, the services of a housewife given to her family – are not included in GDP because they are not sold for a price. But they can be included, if one wishes to do so. Statisticians could impute some reasonable value to them, estimate the total, and add it to the official GDP. Then the same GDP will be expressed through a higher figure. That's all. But that is not the point here.
Defensive and Compensatory Costs
When one wants to think of real income, prosperity, wealth, wellbeing or welfare of a nation, and not just of the formal GDP, one has to examine the nature of the goods and services produced. A large part of them do not add anything to the income or wealth of a nation, in contrast to those of an individual or individual firm. For instance, the work of a soldier, who is getting paid although there is no war, the work of thousands of people who are producing weapons, the work of doctors who are treating patients, the work of those who are rescuing flood victims – such elements of the GDP are, for the nation (in contrast to the individuals involved, i.e. the soldiers, doctors, rescue workers etc.) actually expenditures, not incomes or additional wealth. They are costs. They are called "defensive costs" by economists who do not want to be victims of an illusion.
When a house that has been destroyed by a flood is replaced by a newly built one, then that is no addition to the national wealth. Only the loss has now been compensated for. The energy, materials and labor involved in this process are really costs. The same has to be said of all repairs. They are called "compensatory costs". All defensive and compensatory costs are included in the GDP. The 32 billion dollar, that are estimated to be the cost of repairing the pollution-damages caused by BP's oil spill in the Gulf of Mexico, will also be added to America's and Britain's GDP in 2010. The GDP thus loses some of its value as an indicator of prosperity.
In our context, the damages
caused by ecological degradation are more relevant, because they happen mostly
as a consequence of the same process that is supposed to be generating
prosperity, i.e. industrial production. In
The huge damages that have
been caused in
But costs arising from single events or in one particular year are not so important for our inquiry. More important is the trend. In 1971, K. William Kapp, the first scholar to study this phenomenon, thought that it is necessary to enlarge the concept by adding to it the costs of damages inflicted by industrial production on the social environment: costs arising from occupational diseases, death, damage to health, physical and psychological suffering etc. due to bad work conditions, all of which, like ecological damages, can also be irreversible. Kapp came to the conclusion that "in spite of the problems that … render estimating social costs difficult, it is justified to say that the dangers to environment and the costs arising to society from that show, both in absolute and relative terms, a rising trend parallel to growth in production and consumption" (Kapp 1979: XIII: retranslated).
(2006) wrote in his article that in the
Let me finish this section
with a statement of the government of
IV. Obsolete Profound Crisis Theories –
Marxist, Keynesian, Schumpeterian
If the readers realize that my argumentation presented above gives a deeper explanation for the present-day crisis and for the fact that the world economy is having great difficulty in coming out of it, then they must also realize that all the other crisis theories that were formerly regarded as profound, namely those of Marx, Keynes and Schumpeter, are now no longer relevant, however illuminating they might have been in the past. Those theories were indeed profound, although in parts wrong. But they were all conceived within what I have called the growth paradigm. As long as this paradigm was seen as an axiom, a self-evident truth, these theories were valuable. But today the growth paradigm has become only a very dubious belief, just as the Ptolemaic geocentric paradigm of astronomy became obsolete after Copernicus convincingly presented his heliocentric theory of planetary movements.
The earliest of these profound theories, those of Marx and his followers, were propagated with strong conviction by generations of socialists, communists and trade- unionists. Yet, even before anybody spoke of the limits to growth, many doubts were raised about the validity of the Marxist crisis theories – not only by establishment theorists, but also by a few Marxists, Paul Sweezy, for example (see Sweezy 1942).
The more important among the Marxist crisis theories consists of two interconnected statements: (1) that economic crises regularly plague capitalism because the average rate of profit has a tendency to fall and (2) that this is caused by the rising tendency of the organic composition of capital. Marx and the Marxists thought that all new value is created by labor (variable capital) only, and that machines and raw materials (constant capital) do not create any new value. In this short essay it is not possible to go into the details of the complex arguments (for which see Sarkar 2010, chapter 1 & 10). Suffice it to say that this thought led to the failure to realize the importance of availability of easily accessible, and hence cheap, natural resources, especially energy resources, for the creation of wealth.
Both Marx and Engels could observe the ecological devastations caused by the industrial mode of production. But in a famous passage in Capital, Vol.1, Marx, attributed this to "capitalist production", which saps "the original sources of all wealth – the soil and the labourer" (Marx 1954: 506f.;emphasis added). One could conclude from this that once capitalism is overcome, the problem would be solved. Faith in the immense power of scientific and technological development caused one to generally think that all material problems could be solved sooner or later. That is why also Marx and Engels were not overly worried. Engels, who even spoke of the "revenge" of nature, also wrote:
"… after the mighty advances made by the natural sciences in the present century, we are more than ever in a position to realize and hence to control even the more remote natural consequences of at least our day-to-day production activities." (Marx & Engels 1976, Vol. 3: 74f.)
So far as the resource problem is concerned, in Marx's days, and also until a few decades ago, a shortage of important natural resources was no serious topic of discussion. Nobody even thought of such a possibility. So Marx and his followers had no reason whatsoever to question the growth paradigm.
We, who are today observing the massive oil spills in the Gulf of Mexico and the Yellow Sea near Dalian, and the ravages of droughts, forest fires, and deluge-like floods in America, Russia, China and Pakistan, all caused by global warming, and those who have experienced the catastrophic blow-out of the nuclear power plant in Chernobyl and the pesticides plant in Bhopal, can only shake our head in disbelief when we read the sentences of Engels quoted above. But Marx and Engels lived in the 19th century. We cannot criticize them for not knowing things we know today. However, we cannot forgive those Marxists, communists and socialists of our times who have not understood yet that there are limits to growth and that there are limits to the power of science and technology (for the latter point see Sarkar 1999, Ch. 4 & Sarkar 2010, Ch. 10).
Another failure of Marx, Engels and their followers was their refusal to accept the basic truth of the assertions of Malthus on the population question. Marx considered Malthus's essay to be a "libel on the human race". Engels wrote that "economic laws are … [only] historic laws which arise and disappear". Engels and Lenin declared that the limitless advance of science and technology nullified the law of diminishing returns, on which one part of Malthus's theory was based. (This summary of the views of Marx, Engels and Lenin is based on quotations contained in Meek 1971). That population growth and falling or stagnating per capita resource availability, the most important of which is food and water availability, are contributing to all aspects of the present-day crisis of mankind have today become obvious. If the peoples of the world have to spend more of their income on food and water – that is again the case in August 2010 – , then no wonder that demand for other, less important goods cannot rise, and then also the present economic crisis cannot end.
Another Marxist theory of crisis in capitalism is the underconsumption theory, which can also be seen as an overproduction theory. Keynes's crisis theory is similar to this. He too sees the cause of recession, depression and, more importantly, secular stagnation essentially in deficient aggregate demand. According to Keynes, the more people in industrial societies become richer, the smaller is the proportion of their income they spend on consumption, which consequently discourages investment by entrepreneurs. His witty phrase "paradox of thrift" is a call on the state and the people of rich industrialized societies to consume more and save less. They can make debts and consume more and pay off the debts later from future income that is then expected to rise. Unfortunately, Keynesians of today still adhere to this policy recommendation. But how can more income be generated in future if resources are declining and becoming ever costlier?
Today, Keynes's theory as well
as the Marxist underconsumption (or overproduction)
theory must be rejected on two grounds. Firstly, they are not convincing as an
explanation of the present crisis. It is, since long, simply not true that the
people in the rich industrialized countries are consuming too little and saving
too much. In the
Secondly, standard Keynesians
as well as standard Marxists have not realized even today that it is the high
consumption level of the peoples of the rich countries that is the main cause
of global warming and other ecological degradations and damages. Fortunately
for mankind, if it is not already too late, the resource crunch and the
resulting long stagnation in the world economy will mitigate the ecological
crisis a little. We have experienced it already. When, in the first half of the
1990s, industrial production almost totally broke down in the former
Schumpeter had accepted economic crises and depressions as an integral part of the process of economic development. Unlike Keynes, he did not recommend any policy for preventing economic crises. On the contrary, he even thought they had a positive function, namely that of "creative destruction", without which economic development and growth of prosperity would not be possible. Present-day Schumpeterians, therefore, see in the current crisis a great opportunity. They hope that the "destructions" would start off a wave of creativity, a wave of innovations pioneered by visionary and dynamic "entrepreneurs", as Schumpeter had defined them. And that, they hope, would be the beginning of a new "long wave", the first phase of which would be one of high growth rates and rising prosperity.
They particularly address the twofold problem with fossil fuels serving as the main energy basis of industrial economies: the problem of their exhaustion (peak oil, rising prices) and the problem of CO2 emissions as the main cause of global warming. They believe that soon, thanks to further research and development as well as to initiatives of dynamic entrepreneurs, renewable sources of energy – solar, wind, biomass, geothermal etc.– would rapidly replace the conventional sources. There is already much talk about the coming green industrial revolution.
In our concrete case of the current crisis, when, about a year ago, the three great US car companies, particularly General Motors, were in danger of going bankrupt, Schumpeterians with their credo of creative destruction advised the US government to let them go bankrupt. A German publicist, Thomas Steinfeld, wrote:
"Schumpeter helped us realize that crises belong to capitalism just like wheels belong to a car. … In the past, hundreds of great companies have perished, often with very bad consequences for their employees. But then, till now, again and again, new companies have taken their place. Then why should now a few companies get an existence guaranty? And why particularly these ones, and why now?
At the end of his article, referring to the greatest worry of the car industry, namely the supply and price of oil, Steinfeld wrote:
"Whole sectors of the economy will now have to reinvent themselves. Politicians should not hinder them in that process. … capitalism does not need any particular resource. It needs just resources. Maybe it would not even need oil, but would be ready, without any problem, to switch over, with the money earned in oil business, to alternative energies if only the profit is satisfactory. In this complete indifference of capitalism towards the materials entrepreneurs deal in lies a lot of hope." (Steinfeld 2008)
I shall come back to this point further below.
V. The Current Keynesian Dilemma
The way the governments of the major industrialized countries reacted to
the current crisis was typically Keynesian. It was not only that the central
banks poured money into the finance sector to provide urgently needed liquidity
to the banks and other financial companies, which had also been the case after
the stock exchange crash of 1987. This time the state too became directly
involved. It put hundreds of billions of dollar and euro at the disposal of companies,
which were in danger of going bankrupt, and also allocated billions for
spending (in the USA 790 billion dollar) in order to stimulate the economy and
thus avert a catastrophic recession. In some cases, the state, in effect, also
temporarily took over some large corporations which stood on the brink of
bankruptcy: e.g. Fannie Mae, Freddie Mac, the AIG and General Motors in the
This has been usual practice
even in earlier decades, albeit at a smaller scale. This time, however, there
are two new and big problems: Firstly, the immensity of the amounts of money
thus provided raised fears of unacceptably high inflation, because much of the
money was newly created by the central banks (in old jargon, printed). And
secondly, this came at the top of already existing mountains of public debt. In
May 2010, to give only a few examples, the ratio of total public debt to GDP stood
A state can go bankrupt, although
it cannot be wound up easily like a company, especially if a large part of its
debts is owed to foreigners and if simultaneously its economy is in a bad shape.
This has happened many times in history, even in recent history. In the case of
All this means that states can
no longer spend their way out of a recession. They must cut spending in order
not to go bankrupt. But if they cut spending in a recession, they deepen it.
This intractable dilemma has led to a controversy between the policy makers of the USA, who want to pursue the Keynesian policy of increasing public spending for some more time, i.e. until a convincing recovery has started, and those of the EU, led by Germany, who are afraid of the other, long-term consequences of growing public debt in the member countries. They are especially worried about loss of investors' confidence. The Europeans have now decided to pursue a policy of reducing budget deficits. Keynesian economists are, so to speak, campaigning against this conservative austerity policy of the EU. Paul Krugman, for instance, wrote recently: "We are now, I fear, in the early stages of a third depression. It will probably look more like the Long Depression [of 1873–1896] than the much more severe Great Depression [of the 1930s]. But the cost – to the world economy and, above all, to the millions of lives blighted by the absence of jobs – will nonetheless be immense" (Krugman 2010). David Leonhardt wrote: "The world's rich countries are now conducting a dangerous experiment. They are repeating an economic policy out of the 1930s – starting to cut spending and raise taxes before a recovery is assured … " (Leonhardt 2010). Another critic commented: if now many states simultaneously dig holes in their budget, they will dig themselves together into a deeper hole.
The severe austerity measures
that have already been imposed on the Greek people have led to massive protest
demonstrations, violent riots and strikes that are further crippling the
The American policy makers
are, of course, hoping that the worst will soon be over, that a strong recovery
and then an upswing will set in. But this hope of the Americans is unfounded. In
the middle of 2009, the
It is now obvious that a
people cannot indefinitely go on living well by spending money they have not
earned. There is a limit to private borrowing. Similarly, a state cannot go on
stimulating the economy by borrowing and/or printing money. At some point, the
old public debts due for repayment cannot be repaid because would-be lenders
would not give new loans to a state the economy of which is stagnating or even
suffering from a recession. And if there is only modest and uncertain growth,
which is today, in July 2010, the case in several countries (there are a few
exceptions, e.g. China, India, Brazil etc.), the state cannot increase taxes
out of fear of stifling the growth, nor can it hope that the modest and
uncertain growth will generate enough tax revenue, so that new borrowing would
not be necessary. A modest growth, moreover, is not enough to create new jobs,
Early Keynesians had even hoped that growth brought about through implementation of their recommendations would generate so much tax revenue that also accumulated past debts could be paid off or at least reduced. But their recipes work only if real growth potential was earlier remaining unutilized. That is no longer the case today. They were (today's Keynesians still are) totally unaware of the limits to growth and the defensive and compensatory character of much of GDP growth. They did not face them in their days. Today, however, we can not only see these limits, but are also feeling the pinch. Of course, there have been some cases of prosperous and newly prospering countries that could in some years boast a balanced or even a surplus budget, but there is no case of accumulated public debts having been fully paid off.
There is, of course, a
difference between the
Let us now try a little intelligent speculation on the shape of things to come.
As I have argued above, in the
ultimate analysis, it is the limits to growth that are today preventing the
world economy from coming out of the present crisis. Since the objective limits
to growth cannot be overcome, it is most likely that the rich industrialized
countries would suffer from a long period of stagnation (anemic growth or no
Many among them, the optimists, are hoping that soon a new "green" industrial revolution will begin that will generate a strong economic growth, which will be sustainable – both ecologically and in respect of resources. If that hope materializes, then not only would the present crisis be over, but capitalism would also get a very sound basis for eternal growth. For then there would be no problem any more with energy supply and availability of other resources. After all, the sun will shine for a few billion years more and give us everyday, gratis, 15000 times as much energy as the world consumes today, a great part of which is claimed to be already economically usable. And with this much renewable energy available, nearly 100% recycling of all materials could be possible.
In two of my books (Sarkar 1999 & 2010) I have presented my arguments for
not sharing this hope. They cannot be repeated here, But three facts can be
mentioned that strongly indicate that the powers that be also cannot share this
hope: Firstly, nowhere is any great effort being made to recycle all waste
materials, except in very poor countries where labor is damn cheap, and except
in case of the very highly priced metals gold and silver. On
the contrary. For example China, not a rich country as a whole, is
making great efforts for several years now to build up in Africa and Australia a
solid source of all kinds of minerals. To use the title of a book that appeared
in 1975 in German, the planet is being plundered. Secondly, despite all the din about renewable energies, massive investments
are being made all over the world to build conventional power plants including dangerous
nuclear ones. And the search for oil and gas is being extended to deeper and
deeper ocean bottoms including at the North Pole. Thirdly, the giant oil
company BP, which for some time changed its name to "Beyond
Petroleum" in order to say that it is beginning the transition to
renewable energies, has now decided to bore for oil in the deep waters near the
Libyan coast instead of building solar power plants in the
This being the situation
today, there is little probability that Obama's big
talk of last year about the USA coming out of the crisis stronger than before will
come true. It is proving more and more to be empty talk. I have mentioned above
the job crisis in the
The situation of the welfare
state is equally bad, if not worse, in the other countries of
"Europeans have boasted about their social model, with its generous vacations and early retirements, its national health care systems and extensive welfare benefits, contrasting it with the comparative harshness of American capitalism". But now, he continues: for western Europe, "the lifestyle superpower, the assumptions and gains of a lifetime are suddenly in doubt. The deficit crisis … has also undermined the sustainability of the European standard of social welfare, built by left-leaning governments since the end of World War II (Erlanger 2010).
This is not an ephemeral phenomenon. As to the future, Erlanger
concludes: "The deficit crisis in
There is also
one good news, for the Germans. In the last one year,
Up to now I have concentrated
my attention mainly on the rich industrialized countries. The picture is the
opposite in some newly industrialized countries:
The social costs of the of prosperity of the middle class of
It is now time to come back to the question whether this is just another crisis in capitalism or the crisis
of capitalism. Already in October
The manifestations of class
conflict mentioned above – including those in
It is beyond the scope of this essay to present the views of the eco-socialists (other than me) and eco-Marxists. There are, moreover, different degrees of ecological radicalness among them.. But I think it is necessary to briefly say why I consider the term "eco-Marxism" inappropriate for the contents of eco-socialism. The term "socialism" is very much open and amenable to the revisions necessary today. In contrast, "eco-Marxism" is, and logically has to be, connected with Marx's thoughts as laid down in his texts written in the 19th century. That can hinder our theoretical and practical work. Marx's works are, after all, no holy scripture!
I am aware that prominent Marxologists, e.g. John Bellamy Foster, have taken pains to prove that it is "possible to interpret Marx in a different way, one that conceived ecology as central to his thinking, …" (Foster 2000: vi, emphasis added). After painstaking study, Foster even "came to the conclusion that Marx's world-view was deeply, and indeed systematically, ecological (in all positive senses in which that term is used today), … " (ibid: viii).
Whereas it takes a lot of painstaking study and interpreting to come to the conclusions that Foster has come to, there are many clear words of Marx himself that show that Marx's conception of emancipation of humanity was "Promethean" or "productivist". For example, the following famous words:
" The development of the productive forces of social labour is capital's historic mission and justification. For that very reason, it unwittingly creates the material conditions for a higher form of production." (Marx 1981: 368)
Obviously referring to such words of Marx, Ted Benton concludes that Marx's vision of capitalism as "preparing the conditions for future human emancipation" shares "the blindness to natural limits already present in … the spontaneous ideology of 19th century industrialism" (quoted in Burkett 1999: 148). He interprets Marx as follows:
"Modern industrial production … is a precondition for the future communist society. The 'historical task' of capitalism is precisely to transcend the conditional and limited character of earlier forms of interaction with nature. … Elsewhere there is a recognition that some element of 'struggle' with nature for the necessaries of life is inevitable, the content of emancipation being given in the reduction to a minimum of the time taken up in this struggle. Either way, the possibility of human emancipation is premissed upon the potential for the transformative, productive powers of associated human beings to transcend apparent natural limits, and to widen the field of play for human intentionality." (quoted in: ibid.)
Burkett, who wants to defend Marx against such criticism, argues "that Marx's belief in the historical progressivity of capitalism is not based on an anthropocentric preference [of Marx] for material wealth over nature" (ibid: 149).
Be that as it may, it is not our duty to defend Marx, nor is it necessary to criticize him for not having said things in the 19th century that it is our duty to say today. It is our duty to make a convincing synthesis of socialism and the ecological insights that science has achieved. And that is possible, as follows:
Under capitalism, but also under the Soviet model of socialism, development of the productive forces has gone so far that the latter have become destructive, for nature as well as for humans. Therefore, generally speaking, not only must this development be stopped, but also, again generally speaking, the world economy must be brought down to a level that is truly ecologically, and in respect of resources, sustainable. In other words, world economic production must contract. But such a contraction is not compatible with capitalism with its growth compulsion. That is why it must be organized through a planned economy with socialized means of production. Moreover, this would definitely entail sacrifices in material standard of living. In any society, it would be rejected by the majority of the people of the lower strata, who constitute the majority of the population. In an egalitarian society – that is the defining characteristic of a socialist society – the necessary sacrifices would also be distributed equally and would, hence, be more likely to be accepted by the majority. That is why our vision should be eco-socialism, with or without Marx.
As stated above, we have seen that in Greece and Spain the majority of the demonstrators against the recent austerity measures of the government have realized that they must accept cuts in their standard of living, but they are demanding that the necessary sacrifices be distributed fairly, that also the rich must sacrifice part of their income and profit and thus bear their share of the burden. The present world economic crisis is thus preparing the ground for the vision of an eco-socialist society. Our duty is to utilize this situation.
* After closing the text and
sending it off to the editor, I received the information (CNN, 28.08.2010) that
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Written in July–August 2010. Manuscript closed on 28.08.2010.