Conter – The Meaning of the New Recession: An Interview with Michael Roberts

Economist Michael Roberts argues we’ve not seen the worst of the present economic crisis by a long way. We are heading for deeper slumps and intensifying inter-state conflict.

Michael Roberts is an Economist in the City of London and a prolific blogger

Cross-posted from Conter

Even as runaway inflation undermines the incomes of working class people around the world, a global recession threatens. News that the UK economy is now shrinking on adds to a picture of decline.

We spoke to Michael Roberts, a Marxist who worked in the City of London as an economist for over 40 years, and who has meticulously followed economic developments on his website, about what we can expect from the present chaotic period.

Conter: Are we facing a new global recession? If so, what are the immediate features of this new downturn?

Roberts: The 2021 recovery from the Covid pandemic slump in 2020 is grinding to a halt. All the official economic forecasting agencies have reduced their forecasts for real GDP growth in the major economies for this year. Within the top G7 economies, already Germany, Italy and the UK appear to heading into a contraction in the economy this year. The US and Canada are set to slow sharply, while Japan is basically in recession already.

Then there is China, where severe lockdowns to control Covid have brought important areas in the economy to a standstill. Indeed, one of the major reasons for the slowdown and the rising risk of a global recession is the significant supply chain blockages. Goods are not being produced and shipped; ports are blocked and stocks are building up. The supply chain blockages have caused a sharp rise in the prices of commodities, particularly energy and food and now this has been exacerbated by the Russian invasion of Ukraine which has led to a fall in grain exports and of course sanctions on Russian energy.

With inflation in many key countries reaching 30-40 year highs, central banks are being forced to ditch their ‘easy money’ policies of the last two decades that have fuelled a huge credit bubble in financial assets and property. All that is reversing, while the rising cost of borrowing increases the likelihood that weaker corporations and poor countries with lots of debt will default on their repayments, bringing a ricochet effect across all sectors.

However, having said all this, a global recession depends primarily on a sharp drop in productive investment that leads to the laying off of labour and falling wages. Under the capitalist mode of production, changes in productive investment depend on changes in the profitability of that investment. Average profitability of capital in the major economies has been declining in the 21st century, but not in a straight line. Profitability rose in the credit boom of 2001-6; and recovered after the Great Recession of 2008-9 up to about 2017. After that it began to fall again and it was likely there would have been a slump in 2020 anyway even without COVID. Profitability recovered in 2021 – indeed profit margins in US corporations reached a record high at the expense of wages in 2021. But profitability is now turning down again, so we can expect investment eventually to do the same. Coupled with the supply chain blockages and rising real interest rates, 2023 looks likely to herald a new slump.

Conter: Are we facing the threat of ‘stagflation’?

Roberts: I’m not so sure capitalist economies will have ‘stagflation’. Stagflation implies a period of flat economic expansion alongside high inflation, as happened in the late 1970s. That ended when the major economies dropped into a deep slump in 1980-2 and after interest rates were raised sharply. This time stagnation is likely to be replaced by an outright contraction or recession. And that will probably mean inflation will subside (next year) while unemployment will rise.

Conter: Is the crisis caused by contingent or deep, structural factors?

Roberts: Both. As I have argued above, there is an underlying contradiction in capitalist production between producing the goods and services (in an environmentally harmonious way) that humanity needs and profitability for a few owners of the means of production who make the investment decisions. That contradiction is always there, with varying degrees of intensity and impact on production, employment and workers incomes and on the planet. So there are regular and recurring slumps in capitalist production.

But each crisis has a different trigger. The first post-war international slump of 1974-5 was triggered by an oil price hike. The 1980-2 slump which hit manufacturing in particular was triggered by sharply rising interest rates as central banks tried to control inflation and drive down workers’ wages. That slump laid the basis of a long revival in the profitability of capital under neoliberal policies of privatisation, anti-trade union laws and cuts in public services and the welfare state. The 1991-2 slump was again triggered by an oil price hike and a housing slump. And we know the triggers in the Great Recession: credit boom, financial sector greed, a housing bubble. This time, the trigger would appear to be the supply chain nightmare and corporate debt defaults (to come).

Conter: Does the present situation conform with your analysis of some years ago – that we are in a Great Depression? What will be the future course of this phenomenon?

Roberts: My view was that the period after 2008 to 2020 was different from the usual boom and slump cycle of capitalist production. It was more like what I called a depression, similar to that experienced between 1873-95 in the major economies of Europe and the US and the Great Depression of 1929-42 in the US, Europe and Asia. This Long Depression of the 21st century, which is not yet over in my opinion, is characterised by low economic growth (lower on average than in the second half of the 20th century), weak investment growth and above all low profitability of capital in the major economies. On average, the profitability of capital in the last decade has reached historic lows.

There are differences with previous depressions. Unemployment (at least officially) has remained relatively low in the advanced economies and so has inflation (until now). There has been a boom in financial markets and property, driven by a switch of profits into financial assets, funded by very low interest rates and huge injections of credit by central banks. But this is what Marx called ‘fictitious capital’. It is not productive – ie it does not exploit more value out of the labour force but merely boosts profits through redistribution of existing surplus value of profit from productive sectors to the unproductive. It is an illusion of profitability.

Depressions don’t happen very often under capitalism – indeed there have only been three since capitalism became the dominant mode of production globally. The late 19th century depression only ended after a series of deep slumps that finally raised the level of profitability of capital. The Great Depression only ended with World War that also raised profitability and afterwards engendered a short Golden Age for the advanced economies of high profitability, investment, trade and employment that came to an end in the late 1960s. The current Long Depression will require either of these ‘solutions’ to end it.

Conter: Is slowing growth in western capitalism a permanent feature – or can it be reversed?

Roberts: It can be reversed if the slumps to come are deep enough to raise profitability or any wars are effective enough to create the conditions for a pliant and weak labour and a huge need for reconstruction. Both options spell misery and disaster for working people. But such a new lease of life for capitalism is becoming increasingly difficult for capitalism to achieve and each time the recovery will be weaker because capitalism has passed its use-by date as a mode of production to meet human social need. Moreover capitalism has created not only its own nemesis in a large working class globally, but also created the possible extinction of the planet through global warming and environmental degradation.

Conter: Should we expect the present crisis to drive class conflict?

Roberts: The intensity of class conflict depends on many factors, not least the subjective consciousness of working people to see themselves as a class with the objective of ending the capitalist mode of production run by a few owners and replacing it with cooperative production commonly owned and planned for social needs of the many.

But there are objective factors that set the scene. The most intense periods of class struggle have been after a period when workers have improved their livelihoods (wages, employment, education etc) for a period and then capitalists want to reverse those gains because profitability is falling. One such period was from 1910-17 in Europe; Another was in the 1970s. The current period does not match those – yet.

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