Will Brown looks ahead to 2009 and suggests it’s not a good time to be a capitalist.

Adam Smith suggested that capitalism would allow people to be selfish and greedy and somehow this would help humanity. It never looked very likely.

The world’s central bankers are wobbling across a plank over a disused mine shaft. They are desperate to get to the other side of the recession but they don’t know how deep it might be. Below is a brief survey of what’s happened in the last month and where things might be going next year.

There are indicators of the gravity of the situation. The oil price has collapsed from a record high of $147 a barrel in June to below $40 in spite of record production cuts by OPEC of 2million barrels a day. This indicates a collapse in demand by industry and private consumers. Futures markets show no expectations that demand is about to rebound soon. Tony Jackson, a regular Financial Times columnist points out that the 40% fall in car sales at General Motors is uncannily close to that experienced in1931. The US Fed (the US central bank) has cut interest rates to nearly zero so the only move it has left to make is ‘quantitive easing’ – printing money and pumping it out. Jackson observes that this was the action followed by Japan to ward off deflation 10 years ago. It had muted success. Jackson argues that it is not now clear that the world will be able to avoid an economic meltdown similar to the 30’s.

This is a change of mind for the Financial Times. The previous view went as follows – ‘ The situation is similar in gravity to the 1929 crash but the disaster in the 1930’s was the result of bad policy decisions and unsophisticated economic management. These lessons have been learnt and the bold action taken by the Fed and the Bank of England will prevent a return to the 30’s’. Now they are not so sure.

The spectre haunting the central bankers is deflation. The disaster of falling prices is a hard one to grasp for those of us who are not wealthy. But if there is a general fall in asset prices (land, houses, shares); retail prices and earnings, then two things happen. One is that people stop spending because they know if they hang on things will be cheaper later. More damaging still, the only prices that don’t get smaller are debts. So anyone with debt just sinks deeper and deeper as prices fall. Deflation in the 30’s led to wave after wave of uncontrolled bankruptcies – it became evident that economic events were out of any governments’ control.

Financial Times asks will capitalism survive?

There are further indications of the gravity of the situation. The markets in the bonds of industrial companies are at levels that imply a third of industrial companies will go bankrupt. This would be financial Armageddon and commentators view this as implausible – so they have to conclude that the markets are deeply distorted and not reflecting economic reality. Disturbing enough for fans of the free market. As a Xmas special the FT interviewed Prof Nouriel Roubini – a New York university economist who has become a celebrity by predicting the gravity of the crisis at an early stage. Roubini was asked a telling question by the FT’s correspondent: ‘did he believe capitalism would survive the crisis?’ That such a question could be asked is startling: for 99% of its venerable history the FT hasn’t questioned capitalism’s immediate survival prospects.

Roubini believes capitalism will survive. He predicts that this will be an awful year with a deep world recession. He suggests growth will resume in 2010. He points to the following areas as particular cause for concern: default on bonds by weak countries – for example in South America or Eastern Europe, further big losses on credit card debt, mortgages and loans to companies. This will threaten further bank failures and demand further government bank bail-outs. Unemployment will rise across the industrialised world and government budgets will strain as tax revenues fall and dole queues lengthen.

It seems to me that it is likely the current crisis will deepen into a depression on a par with the 1930’s or worse. Every prediction to date has underestimated the gravity of the situation. Growth is slowing in every economy in the world, output is already falling in most. It is clear that global economic links are now profoundly intertwined. The banking and finance system has already nearly collapsed, it is still in intensive care. World trade is falling fast. Commodity and asset prices are still falling. Workers in industrialised countries are offering wage cuts desperate to save jobs. The central banks have nearly run out of ammunition.

Unemployment will rocket across the world this year. Weak countries will see their economies implode and the IMF won’t have the money to bail them out. There will be no jobs to emigrate to. There is every chance that sacked workers will fight. Unemployed graduates and school leavers may join them in many countries. Workplace occupations are the obvious strategy for workers in a world where capital has ceased to work. The excellent ‘Live Working or Die Fighting’ by Paul Mason catalogues previous waves of occupations and reports from the new industrial quarters of Lagos, Shenzhen and Delhi. China, Russia and Eastern Europe face major social unrest as the darker side of the capitalist dream engulfs workers. In a globalised economy, factory occupations will mean nothing unless workers organise internationally. The Internet is the obvious tool: world revolution through Facebook. The rulers may wish to take the Internet down but it is already indispensable. Rulers will identify foreign enemies in an attempt to change the subject. But war between major industrial powers would destroy the world. Prospects may look grim for the working classes – but for the capitalists they hardly look rosy.

In the main hall of Bristol Museum hangs a replica of the Bristol Boxkite. It’s an aeroplane made of sticks, wire and canvas. It first flew at a stately 40mph over the Bristol Downs on the 29^th July 1910 – 6 years after Orville and Wilbur Wright flew at Kitty Hawk, North Carolina. Less than 59 years later Neil Armstrong walked on the moon. The builders of the Boxkite would have been astonished by that achievement. It is worth asking what developments in the next few decades could astonish us to the same degree? Events that would truly surprise us would not be technical or scientific. Peace, equality and justice would surprise us. Capitalism has clearly failed. It is in social relationships that we need change and progress. And it is those people across the world pushing for economic justice, an end to war, freedom and democracy that hold the key to the future.

Will Brown

Totterdown

Bristol