Stock Exchange slide exposes a parasitical system

The slides on world stock markets in March punctured the optimism of the apologists of capitalism. Richard Brenner shows that, whether this is followed by a resumption of spiralling growth or the slide downwards continues, the shape of the next recession is becoming clearer

Financial journalists in the first week of March took a short break from their normal job of telling us how great capitalism is to explain to their worried readers why:
• The Chinese stock exchange plunged by 9 per cent
• Stock markets around the world panicked and all fell together
• The former head of the USA's federal reserve said America could be in recession by the end of the year
• $1 trillion was wiped off the value of shares worldwide.

All of a sudden, this most perfect of economic systems was again looking less than... perfect.

So what happened and what does it mean for workers and youth who don't own shares and don't have a stake in the system?

The first sign of trouble was on Tuesday 27 February when the Shanghai stock exchange dropped like a stone. The reason was - apparently - nothing more than a rumour that investors on the Shanghai stock exchange, which has more than doubled in value in the last year, were to be taxed on their capital gains.

These days, in the globalisation phase of capitalism, money is directed and redirected around the world in seconds, depending on where the highest profits, the best returns can be found. So traders who had bought the lie that the Chinese economy is just going to keep on rising forever were open mouthed as investors sold across the board.

Stock markets all over the world started to dive at the news. It wasn't long before people started looking for deeper reasons for the fall - and the state of the US economy soon emerged as the prime culprit, spurring another three days of falls.

Despite being the world's largest economy and still the most powerful nation on earth, the US is in a vulnerable situation. In January orders for durable goods fell by a massive 7.8 per cent. Predictions for economic growth have been revised downwards from 3.5 per cent to just 2.2 per cent this year. Investors are starting to worry that they will not make sufficient profits from their investments, and annual profit growth is now predicted to be under 10 per cent for the first time since 2003. In a survey last month by the US Business Council, three out of four chief executives of big companies expected growth of profits to slow down over the next year - only 1.3 per cent expected profit growth to speed up.

Even more worrying for the US economy is the end of the house price boom. Over there, house prices are actually falling for the first time in donkey's years. This will limit the ability of ordinary consumers to spend their spare cash in the shops. People will be less inclined to borrow and spend - and it is this that has been powering America's boom, and the massive expansion of production in China too. Banks are making it harder to borrow, and the numbers of people, who can't pay their mortgages and lose their homes, has risen sharply and will continue to do so over the months ahead.

Small wonder then that Alan Greenspan former chairman of the Federal Reserve - America's equivalent of the Bank of England - broke cover and predicted a possible recession by the end of the year.

Given that the United States makes up nearly a third of the world economy, a recession there will have major consequences for the rest of the world - including countries like India and China, whose sharp growth has been spurred by US demand for consumer and durable goods.

Already workers are under attack everywhere. In Britain - despite the economic boom - Gordon Brown wants to hold down public sector workers' pay to well below the rate of inflation: a pay cut in all but name. All over the world bosses and their governments are privatising our services, cutting our pensions and benefits. And all this at a time of global "boom". Imagine what a recession would mean. As it says in the bible, if these things are done when the tree is green, what shall be done when it is dry?

This month's stock market slide exposed another feature of global capitalism's instability: parasitism. Increasingly investors feast off one another's investments, trading in a bewildering variety of instruments and "derivatives", all essentially charging one another for handling money, levying interest for lending money, or just betting in one way or another on the performance of each other's investments. The fact that such investments do not have even the veneer of a socially useful purpose is, to the capitalist, neither here nor there. Their only morality is profit. As Karl Marx said, for the capitalist, "Accumulate! Accumulate! That is Moses and the prophets." But the joke is on them: for all the froth of parasitic speculation, it cannot survive indefinitely without production of real value beneath it. When sufficient capital is withdrawn from real production, the speculative bubble must eventually burst.

At the foundation of all this - the core of the economic system - stands not the swashbuckling entrepreneur, but the exploited worker. All profit ultimately derives from this - the fact that workers are paid under capitalism not the full value of the goods and services they produce, but the rough cost of getting us back to work in one piece the next day. The difference between the two - which Marxists call surplus value - is kept by the capitalist. This unpaid labour is the source of all profit, of all the capital in the world, whether it is ploughed into new sweatshops in China, or sitting idly in some imbecile billionaire's bank account.

Stagnating and declining rates of profit in domestic manufacturing drive capitalists both to invest in cheap labour abroad and to direct their investments into ever more arcane parasitic forms. The wide array of weird and wonderful investments makes the system even more vulnerable. One incident in the stock market slide illustrated this - the rise in value of the Japanese yen and of Japanese interest rates threatened to wreck the increasingly important so-called "carry trade". This miserable business, in which financiers borrowed money cheaply in recession hit Japan to lend to other people for higher interest rates elsewhere, is now set to collapse, as Japan comes out of recession.

Far from being a rational system based on steady and unlimited expansion, global capital is revealed as an irrational, unplanned system, in which huge investments can be tied up in what amounts to a rip off schemes to exploit unevenness in economic cycles around the world.

It even emerged that while stock market volatility hit record highs, some people were still making money - apparently volatility itself is now a "tradable item". Capitalism has succeeded in turning its own instability into something that can be bought and sold.

Marxists call the current stage of global monopoly capitalism imperialism: the fusion of banking and manufacturing capital to form finance capital, and the domination of the global economy by great corporations, and of the world by a small number of great powers.

Beneath all the sound and fury of the market falls, behind all the explanations and denials, the official statements of confidence from the politicians, and the worried editorials in the bosses' papers, one thing is becoming pretty clear. While we do not know exactly when it will happen or how severe it will be, America is heading for recession and this will have a major impact on the capitalists and the working class everywhere.

When we reach the top of the business cycle, when society stands poised precariously on the brink of a downward cycle of economic contraction and decline, then suddenly there is a proliferation of parasitic activities of every imaginable type, then the "confidence'' of consumers becomes a critical indicator capable of tipping the system into recession, then big financiers prepare to shaft thousands of small middle class private investors, then workers' pension schemes bear the brunt of falling share prices, then the capitalists prepare to withdraw their money if necessary from even socially critical forms of production if a higher return can be secured elsewhere; then thousands of gleaming new factories in the East will be closed down even faster than they opened up; then the workers are forced to fight ever harder to defend our living standards and stop our families being thrown on the scrapheap and our communities plunged into decay; then far from appearing decked out in gold as a shining system of plenty and progress, capitalism's true face is revealed to millions: a system of decline, of anarchy, in which private ownership of the sources of wealth and progress - above all of human labour - is allowed to strangle human potential in a sordid quest for profit.