In its latest World Economic Outlook (WEO) the IMF has confirmed that the global slump is getting worse. According to IMF managing director, Christine Lagarde, the global recovery has ‘effectively stalled’ as growth and employment have fallen to their lowest levels since early 2009.

A combination of crisis in the Eurozone and renewed concerns about US debt are particularly concerning, as growth forecasts have been cut for the second time in six months. Greece (-6%) Portugal (-3%) Italy (-2.3%) and Spain (-1.5%) are all expected to shrink this year, whilst the Eurozone as a whole will be in recession for at least the next 18 months. On top of this, tax hikes and public sector cuts are expected to choke off any recovery in the US early next year.

With Europe and America mired in recession it is unsurprising that the world’s emerging economies are also starting to feel the pinch. India and Brazil have had their growth forecasts slashed, whilst the expectations for China have also been downgraded.
No recovery in sight

Five years of concerted government intervention and $20 trillion have simply been unable to rejuvenate the global economy. Indeed, despite the best efforts of central bankers everywhere the current crisis has been the longest single period of depression in capitalist history. Let us not forget that the Great Depression had initially begun to subside by 1933 or that the crisis of the 1970’s was centred on three years at the start of the decade (1971-73).

This time the crisis shows absolutely no signs of abating and policy makers everywhere are beginning to despair. Speaking at the launch of the WEO, Olivier Blanchard, IMF chief economist, blamed ‘head winds stemming from Europe and a greater loss of confidence than had earlier been predicted’.

The confidence fairy

The idea that somehow confidence is the real problem is attractive to the ruling class as it deflects attention away from punishing austerity and sets an agenda of further cuts to revive the ‘animal spirits’ of investors. US Treasury Secretary, Tim Geithner, was particularly candid in the wake of the IMF report, arguing that although the reforms in Europe “negatively impact pension benefits, wages, and the power of working people.

In the longer term, investors hope conditions emerge that are favourable for profitable investment as labor costs are lowered and people's expectations are lowered as well”. This shows the real agenda of the ruling classes. But there is also a problem with Geithner’s assertion that capitalists just need a little bit more help from society. The last four years have, after all, been characterised by every advantage being given to the bosses and the bankers.

Working class austerity has been mirrored by vast hand-outs for the rich, as banks have been bailed out and conditions have been dismantled. Despite this the economy is deteriorating and orthodox economists are increasingly worried that there might be something more ominous at play. Besides ‘confidence’ the IMF report highlights fears that “the current slowdown may have a more lasting component than merely another bout of turbulence on what was always expected to be a slow and bumpy recovery”. Similarly, Olivier Blanchard cautions that “beyond the Eurozone and the US fiscal cliff there seems to be other factors working against the expansion of global capital”.

A crisis of profitability

This is no doubt true. But what none of these so-called ‘experts’ can admit is that the real causes of the crisis can never be solved by confidence or austerity. A falling return on profitable investment is at the heart of the current crisis and nothing will stabilise capitalism short of the widespread destruction of capital values. Without a sufficient rate of return, capitalism losses all of its momentum as investment stalls and workers are thrown onto the scrap heap.

This is the kernel of truth in Geithner’s assertions about ‘favourable conditions’, but there is a longstanding problem that mainstream apologists simply refuse to contemplate. As capitalism ages it gets increasingly more difficult to create the conditions for successful investment.

Yesterday’s exploitation (dead labour/capital) increasingly gets in the way of tomorrows investment and the only way to solve this problem is to engage in the destruction of previous accumulation. This problem goes right to the heart of the capitalist system and while governments can help to reduce costs and attack workers’ wages they cannot set out to destroy private capital – at least without engaging in warfare.

A crisis with a working class solution

This shows the absolute barbarity of the system, particularly when governments are hell bent on saving capitalism on the backs of ordinary people. The incessant drive to accumulate capital is completely irrational from the point of view of human development and no amount of tweaking will turn the system into something civilised.

The latest crisis merely confirms this and as the economy continues to deteriorate it is increasingly obvious that a choice between people and profit is confronting us. Hired prize fighters from Geithner to the Labour party are already busy trying to convince us that we ‘all’ need to keep suffering in the interests of the profiteers. Meanwhile those of us with any sanity need to get on with organising people.