Global capitalism has reached a point of no return. The world’s major economies are on lockdown, slowing production, trade, and investments to a crawl. Oil prices have fallen to an 18-year low. With jobs cut, wages and hours reduced, and production firms operating at a loss, a recession is inevitable. The coming spike in global unemployment will likely be more severe than what occurred in the Great Recession of 2008.
The immediate triggers for the financial panic of the week of March 8, 2020 were the coronavirus pandemic and the sharp drop in oil prices caused by the Saudi-Russian oil price war. But we cannot ignore the deeper structural causes of crises under capitalism, which economists and other professional cheerleaders of the ruling class prefer to obfuscate. For them, the COVID-19 outbreak is not different from any other kind of “exogenous shock.” For them, it is external to the economic system strictly speaking, an “unknown unknown” intervening on what would otherwise be a smooth and steady process of accumulation.
But even before the novel coronavirus began to sweep the globe, capitalism was performing poorly. The US, Japan, and the Eurozone all had stagnant GDP growth rates going into this year. China and India are slowing down. “Emerging markets” like Brazil, Turkey, and Russia are almost dead in the water. Within the US, the explosive growth of the stock repurchase market has mainly benefited shareholders, while leading to a wholesale destruction of productive investment, cuts to pensions and layoffs. This past October, the Fed committed to purchasing $60 billion per month in Treasury bills in order to deal with a lack of liquidity in the banking system. The recent fall in oil prices threatens the key sector of shale oil extraction. Corporate indebtedness, stimulated by low interest rates for big capital, has soared over the past decade, while high interest on consumer and student debt continue to burden small borrowers on an enormous scale.
The tremendous growth of fictitious capital, fed by increasing numbers of debtors, ultimately represents the circulation of titles to profits on production that has not yet taken place. As soon as such titles become impossible to convert into money—when the crisis erupts—the speculative nature of fictitious capital makes itself felt with incredible violence. The conditions that have led to a crisis of the reproduction of capitalism—whose full dimensions are not yet known—have nothing to do with a new microscopic infectious agent, and everything to do with the nature of capitalist production itself.
Profitability of the major capitalist economies has been on a secular (or long-term) decline since the 1870s. The US rate of profit has not even recovered to its last peak in the late 1990s (to say nothing of the historic high of the 60s), and it has been declining since 2014. External, temporary factors—a pandemic here, a collapse in housing prices there—cannot explain this long-term trend.
Capitalists seek to extract profits through the exploitation of labor. However, the intensification of this exploitation comes up against natural and social limits: the maximum length of the working day, the physical capacities of workers’ bodies, etc. Therefore, in order to compete on the global market, individual capitalists are compelled to invest in more productive technology in order to lower their production costs. They can then either sell their commodities at market value, making an extra profit, or undercut their competitors by selling them below value. Thus, competition forces individual capitalists to develop more productive technology. However, once that technology becomes generalized throughout society, individual capitalists can no longer reap extra profits. They must therefore further develop the technology within their separate firms, and the process begins once again. What effect does this have on the rate of profit? As mechanization proceeds, more capital is invested in machinery, and less in hiring workers. However, the labor of workers is the only factor of the production process that can create new value on top of what the capitalists paid for, and therefore profits for capitalists. Therefore, as capitalists spend a greater proportion of money on machines, and a lesser proportion on wages, the rate of profit tends to fall on a societal level. There are counteracting factors which prevent the rate of profit from falling to zero, and can even reverse it for a time, but we cannot deal with these here in detail.
So, how does the fall in the rate of profit result in economic crises? Capitalists do not produce in order to meet social needs, but in order to make profits, and in order to reinvest these profits to make greater profits, on an ever-expanding scale. Their products, whether they are medicine, food, housing, or industrial machinery, can only be used to meet social needs if they can be sold on the market, at the desired rate of profit. The falling rate of profit thus results in economic crises in which masses of goods are accumulated which cannot be sold. Companies go bankrupt, factories close, cash and credit disappear, stocks go haywire as the latest bubble of fictitious capital bursts, retirements are wiped out, and equipment and products go to waste. In short, this process destroys huge amounts of value, often literally through imperialist wars, until production and trade speed up again. Once the dust settles, the average rate of profit will be revived, setting the stage for the process to start over again. The big capitals, with their superior cash reserves, can weather the storm and buy up the smaller, debt-ridden enterprises at dirt-cheap rates. Through this process capital is further concentrated and centralized under the control of a handful of oligarchs.
These economic catastrophes, inflicting huge turmoil on the working masses, are a short-term remedy for the contradictions of capitalism, like fevers from a chronic infection. Once again, the cure also acts as a crutch. Low profitability leads to crisis, and it is also a hurdle in recovery. In general, capitalists after the 2008 meltdown have not invested in production. Although these productive investments would produce new value required to ensure returns in the stock market and contribute to economic recovery, the profitability of capital is not high enough to justify the high costs of modern research and development.
For capitalists, the risks of these productive investments command all attention over the risk of a major public health crisis. Most of the capitalist class’s money is stashed in reserves or used to buy back shares in their own stock to maintain inflated prices. Capitalists would rather gamble at the stock market, taking on debt to keep their asset values artificially high, than pursue the “innovation” for which they are so often touted.
Even the conditions for something like the novel coronavirus to emerge are due to capitalism’s overriding concern with profit. No new antibiotics have been developed in nearly 40 years, despite repeated warnings from the scientific community of “superbugs.” Multiple commercial drug companies have pulled out of antibiotics research as recently as 2018. The costs were not worth the possible long term benefits, it seems.
After the recession of 2008, the working masses paid for the sins of Wall Street twice, first through the state bailouts of the banks, and then again when social spending was slashed in a wave of austerity policies. Now, in 2020, the same measures are being taken. Only with the coronavirus, things are even more sinister. Neither the UK government under Boris Johnson nor the Trump administration in the US mounted a serious response to the spread of COVID-19, mainly out of fear of exacerbating the panic. Just as economic crises burn away enough of the total value of capital to keep production going, these governments are content with the virus destroying the “surplus” population, the “unproductive” people. It is a naked Malthusian logic, where everything hinges on population, while no word can ever be said about private property.
The faces of the ruling class, including Trump, Bernie Sanders, and various NGOs and Democratic pressure groups, repeatedly say that “we are all in this together.” But we are not in this together—not as long as the bourgeoisie is on top, riding out the calamity of its own making while leaving the masses to their fates. Not as long as policy makers can kick families off of food stamps, bosses can make their employees choose between health benefits or unemployment insurance, universities can evict their students and tell them to fend for themselves, landlords can evict their unemployed tenants, and elected officials can engage in insider trading to profit off a pandemic while telling their constituents they have nothing to fear.
This crisis is not fundamentally a titanic struggle between humankind and nature. In a society where class divisions are being consciously eliminated, the economy is planned in order to meet everyone’s needs, and political power rests in the hands of the working class, the current pandemic would be unthinkable. We are experiencing yet another crisis of the capitalist system and the bourgeois ruling class that, with each passing day, further displays their inability to rule.