Wednesday 19 September 2018

Tracking The Crisis of 2008 - Boom and Bust

Boom and Bust 

The new long wave boom started in 1999, as I have described in numerous posts. It is manifest, again as I have set out in numerous posts, by a noticeable increase in global trade, in global GDP, and in global fixed capital formation, in the years after 1999. It is also manifest in the traditional surge in primary product prices that accompanies the commencement of a new cycle, as the increase in economic activity causes the demand for primary products, and foodstuffs to rise, as production increases, and the labour force rises, along with a rise in wages

But, such a long wave boom does not imply that economic activity continues to increase, in a straight line, throughout its 25-30 year duration. Mandel, in The Second Slump, identified five recessions during the post-war long wave boom that ran from 1949-1974, for example. (I described this in my October 2008 post 1929 And All That). Moreover, as Marx describes, in analysing crises of overproduction, such a crisis can arise in a period of rapidly rising economic activity, precisely because activity rises so quickly that the demands placed upon supplies of raw materials cannot be met from the existing mines, quarries and farms, etc., so either the consumed elements of capital cannot be completely physically reproduced, or they can only be reproduced at prices for raw material, food etc. that rise so sharply that they cannot be recovered in the market prices of the end product, so causing a squeeze on profits, and potentially a curtailment of production. The boom phase of the long wave does not imply constantly booming conditions; it only implies a period during which, over its duration, growth rises more rapidly than during the crisis and stagnation phases of the cycle. The extent of that is only visible at the end of the cycle itself. 

According to the ILO, the world labour force grew by around a third in the first decade of this century alone. The number of workers employed in industry has risen by around 30%, the number employed in services has risen by 35%. This incessant demand for labour-power pushed up nominal and real wages significantly. That was manifest in a sharp rise in global food demand, as the higher living standards of these workers was first translated into a better diet. 

In 2005, Chinese consumption of meat was 2.4 times what it was in 1990, milk 3 times, fruit 3.5 times, vegetables 2.9 times, fish 2.3 times, whilst its consumption of cereals, mostly rice, fell by 20%. The large rise in demand from China, and other developing economies, was part of the reason for the spike in global food prices, at the end of 2007 and beginning of 2008. Demand for food rose so sharply that shortages began to appear, which, along with the price spikes, caused riots in a number of countries in 2008. Although global food demand is even higher today, no such shortages are likely, as the sharp and sustained increase in demand has led to an expansion of supply, including the development of large scale, industrialised farming in a number of parts of Africa, such as Angola. 

The increasing production of China, and other rapidly growing economies, also sucked in larger and larger quantities of raw materials, as well as food. Global GDP rose from around $41 trillion in 2000, to nearly $72 trillion in 2012. Between 2002 and 2010, global fixed capital formation rose from $7 trillion to $14 trillion. Of all the goods and services produced in Man's entire history, almost 25% have been produced in the first decade of this century alone! From 1999 on, primary product prices turned sharply upwards, as demand for all raw materials, and foodstuff increased significantly as the new long wave boom began. It has seen steady increases in the prices of copper, oil, corn and almost every other primary product, as global demand, fuelled by rising economic activity in China, and other BRIC economies, as well as the rising demand of millions of new consumers, in those economies, rose sharply. 

The extent of the new boom, starting from 1999, can be seen in the change in the figures for world trade. Between 1980 and 1990 global trade rose from around $4,000 billion to around $6,000 billion, remaining flat until around 1994 (i.e. 50% rise in 14 years). Between 1994 and 2000 it rose from around $6,000 billion to $12,000 billion (i.e. 100% rise in 6 years). But, the sharpest rise has most notably been since 2002 where it rose from around $12,000 billion to around $28,000 billion by 2007 133% rise in just 5 years!). (Source: WTO Thomson Datastream

In 2007, Bridgewater Associates, in its comprehensive survey, found that, for the first time since 1969, not one single economy in the world was in recession. 

It was not just the BRIC economies that were experiencing rapid growth, like China's growth of around 10-12%. On the back of its demand for food and raw materials, economies in Latin America were growing rapidly, and, for the first time, economies in Africa and Central Asia were beginning to grow rapidly too. Azerbaijan grew at around 26%

as did Angola, 

whereas Mauritania grew at around 12%.

Of the world's ten fastest growing economies, in 2012, seven were in Africa, and Ethiopia, has been growing at around 10% p.a. for nearly twenty years. 

I'd set this out in a post of  September 2007, which also discussed the way this global boom affected different economies across the globe, as a result of the new international division of labour that had been established from the 1980's and after. It discussed how this would manifest itself in different responses of capital and of labour. 

The IMF lists the top ten growing economies in 2016.
However you look at it, this means that the growth in the rate and mass of surplus value during this period, from the 1980's onwards, is undeniable. For a Marxist, capital is congealed surplus value. The question those who deny that the rate and mass of surplus value rose, during this period, have to answer is this, if it didn't, where did all this vast amount of new capital come from? 

So, the 2008 crisis cannot be explained as some manifestation of a long run tendency for the rate of profit to fall. As with the crisis of 1847, it occurs during a period of significant boom and growth in the rate and mass of profit. As with 1847, that boom produces such a large quantity of surplus value that it cannot all be immediately absorbed, in productive activity, and fuels speculative bubbles, in numerous spheres, that were themselves being stoked by large amounts of liquidity, pumped into the system, particularly in the US. 

Such periods undoubtedly do suffer from real crises of overproduction. In the late 90's/early 2000's, for example, there was a classic partial crisis of overproduction in relation to the production and laying down of fibre optic cable, and of telecommunications equipment. But, such crises, as Marx sets out, are a means of correcting the contradictions that flare up as a result of the boom itself. They are, as Marx says, generally short-lived, allowing the boom to continue once those contradictions are resolved. They should not then be confused with the periods of stagnation, when there is, by contrast, a lack of any rapid accumulation of capital, as capital accumulates intensively rather than extensively. 

If 2008 represented any kind of crisis of overproduction, it was not in the US or UK, or EU, but in China, and other Asian economies, where the process of capital accumulation had been able to continue apace, precisely on the back of the fuelling of the speculative financial bubble, in the North Atlantic area. I had set out this backdrop in my lengthy post setting out a first draft of a thesis on the World Economy in March 2008. I also discussed this bifurcation of the world economy into debtor and lender economies, producer and consumer economies, in a series of posts – A Tale of Contradictions, and Bifurcations Continue in September 2010. 

For that same reason, when the financial crisis erupted, in 2008, and brought economic activity to a halt, in the US and UK and Europe, it necessarily manifested itself in China and Asia, because they faced the disappearance of markets for their output. In that sense, the crisis was similar to 1857, when the US faced a sudden reduction in demand for its agricultural exports, following the end of the Crimean War, which resulted in European agricultural production rising, reducing the need for US imports. 

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