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The Great Crash of 2011

Global capitalism is on the precipice of another great crash, which will create social unrest in country after country. We’re not making that up. That’s what the International Labour Organisation, a UN body, is saying. That’s what the OECD, an international economics body, is telling us. That’s what Mervyn King, governor of the Bank of England, meant when he said that the world is facing its “most serious financial crisis at least since the 1930s, if not ever”.

When the Sunday Telegraph says that “politicians and economists are out of options” and “that governments and central banks are powerless before events”, clearly the crisis has its own unstoppable momentum. Attempts to fix the eurozone debt crisis have floundered. When the Greek and Italian governments did not move fast enough, the financial markets ousted them and replaced elected politicians with Goldman Sachs bankers.

At the heart of the crisis is the capitalist system of production for profit. It produced global corporations which flooded the world with goods and services that could only be bought with credit, whilst half the world starved and the planet's eco-system was stretched to its limit.

More powerful than governments, corporations turned democracy into another commodity – and promptly bought it.

An analysis of the relationships between 43,000 transnational corporations has identified a small group of companies with power over the global economy. Complex systems theorists in Zurich studied all 43,060 TNCs and the share ownerships linking them and revealed a core of 1,318 companies with interlocking ownerships. They represented 20% of global operating revenues while the 1,318 also own the majority of the world’s manufacturing firms, representing a further 60% of global revenues. Much of the tangled web of ownership tracked back to a “super-entity” of 147 even more tightly-knit companies that controlled 40% of the total wealth in the network. The top 20 included Barclays Bank, JPMorgan Chase & Co, and the Goldman Sachs Group.

The 2008 crash broke the unsustainable credit system and sent the economy into recession. Three years of trying to save it has failed. Production is shrinking, unemployment is increasing, real incomes are rapidly falling and vital public services cut.    

As millions are losing their jobs, homes and pensions, people are occupying spaces in cities and towns throughout the world in opposition to the system, inspired by the revolutionary uprising in Egypt and democracy movements in Europe.

The crisis of the capitalist system brings with it the danger of dictatorship and war, which is their “solution”. We have to build People’s Assemblies everywhere, to aim beyond resistance, beyond protest and pressure, beyond strikes and even occupations. They have to challenge and replace the old order. There is no acceptable alternative.

Why can’t the banking system be regulated?

Deregulation was driven by the need for more and more credit to fund investment in production and for consumers, so that they could soak up the torrent of new, cheapened buy-one-get-one-free commodities. As production shifted to Asia, the global financial system invented new ways of making money out of money. It couldn’t last and didn’t. States don’t have the power to re-regulate, even if they wanted to. Ultimately, the crisis is not a financial one but about production for profit.

What is the eurozone crisis all about?

The 12-year-old European currency union of 17 states binds them together around an agreement meant to guarantee stability and growth. But rules limiting budget deficits were dropped when the world economy ran into the buffers. Governments accumulated massive volumes of ‘sovereign debt’ in the 2008-9 bail-outs.

Money markets which lend to states lost confidence in the ability of Ireland to pay back loans so it had to be bailed out. Then Greece joined the queue, followed by Portugal. Spain and Italy are not far behind. Interest rates on their loans have soared, adding to the total debt. European banks have enormous sums tied up in loans to indebted nations and without new bail-outs will not survive if and when Greece and other countries default.

Why is Greece in so much trouble?

Its economy is dependent on two key industries: it is home to the world’s largest merchant shipping fleet, and its history and climate made it a magnet for tourism. After 15 years of above average growth, the 2008 global recession hit the economy especially hard. Tax receipts are shrinking whilst the interest rate it has to pay speculators for new loans is 25%. Spending cuts demanded by the IMF and EU have only worsened the recession in Greece and impoverished the population.

Wouldn’t a low-growth, eco-friendly capitalism work?

The growth in the productivity of capitalist society is driven by an essential contradiction. Competition for profit makes corporations strive for success in producing more commodities at lower prices. But the more successful they are at growing their businesses, the faster the overall profit rate made by the whole system declines.

This tendency of the rate of profit to fall further intensifies competition which increases growth again and again – until, of course, the limits of consumption are breached. One consequence is the exhaustion of resources and uncontrollable destruction of habitats, species and ecosystems. So you can’t take the ‘growth’ mechanism out of capitalism. Contraction of now surplus productive capacity is a necessary consequence of credit-extended growth.

What’s the position in America?

In the US, dependence on unprecedented mountains of debt has stretched the political system to breaking point. The Obama administration is unable to hold back the recession. Mortgage payment defaults and the repossessions which follow – which triggered the crisis in 2007 – accelerate, throwing millions of American families on to the streets. Over 10 million Americans are out of work.

China is booming. Won’t it rescue the world economy?

China’s boom is unsustainable and is slowing. Only monumental sums of government-sanctioned credit-funded spending on infrastructure – new cities and transport networks – kept it, and much of the rest of the world economy going after the 2007/8 crash. The resultant internal debt vacuum is certain to intensify the global implosion as defaults sweep across Asia.

How can we do things differently?

In the end, it has to be about getting from A to B, transcending capitalism as a social system, replacing alienating, oppressive, undemocratic power structures with new democratic forms. Millions of people now see that there is something fundamentally wrong with the system. On October 15, their anger produced the first global day of action in the history of the world. Let’s take it on from there. We can learn from workers co-operatives, employee-owned enterprises, building societies and credit unions and public services including the NHS, but we have to bring an end to production for profit.

How de we get from where we are to where we need to be?

A new democratic system formed of networks from People’s Assemblies can set a new framework which would:

1 November 2011