World economy – heading for the junkyard

asian_markets5_4215_356David Cameron seems to have woken up to the problems facing the world economy when he said “red warning lights are once again flashing on the dashboard.”

For once the Socialist would agree with him, but of course the Tories offer no answers. Having blamed Labour for the last crisis they are now trying to get their excuses in first. Cameron promises only more of the same failed policies of austerity. For him protecting the economy means bolstering the profits of his big business mates – and to hell with the rest of us.

The world economy doesn’t just have lights flashing on the dashboard, there’s smoke billowing out from under the bonnet. On the day that Cameron’s warning appeared Japan, the third largest economy in the world, announced that it had gone into recession.

This represents a failure of ‘Abenomics’, named after Japanese Prime Minister Shinzo Abe. Stimulus packages have not been enough to overcome the ongoing effects of capitalist crisis.

China

The slowdown of growth in the second largest economy, China, is a blow to those who thought it could rescue of the world economy. It seemed to have weathered the crisis better than many countries on the basis of huge government stimulus, however this has inflated an economic bubble.

Reflecting weak demand at home and abroad China now has a problem of industrial overcapacity where the ability to produce far outstrips what can be sold. However, the epicentre of the crisis remains the eurozone, the UK’s largest market for exports. Here harsh austerity measures have exacerbated economic differences between members and further cut demand as living standards fall. Unemployment across the zone is 11.5%, twice that among young people.

The financial sector still contains timebombs, 1 in 5 European banks failed recent “stress tests.”

Weak demand means there is now a worrying trend toward deflation, a generalised fall in prices. This may sound good but it means consumer spending falls further as people don’t buy today what will be cheaper tomorrow. Businesses are even less likely to invest while debts get bigger in real terms. There is still a huge amount of debt among consumers, companies and nations.

UK

Cameron may trumpet UK growth as an exception but this pride will come before a fall. The British economy is not immune from problems elsewhere but also shows many weaknesses of its own. For example, the growth in house prices forming an unsustainable bubble.

The headline growth also masks a rise in inequality. While the rich have got richer, workers’ living standards have fallen – there’s no recovery for us.

Capitalism has never found its way out of the crisis of 2007-08, the deepest for generations. In reality it remains in a depression that neither policies of austerity nor stimulus are able to shift.

The best this system has on offer is more of the same – low wages and high unemployment. But all the material is there for another crash and a new stage of the crisis.

Unplanned production for profit can never deliver economic stability and capitalist exploitation means workers cannot afford to buy back all the goods they produce. Crises like this are not an exception for capitalism; it’s the way the system operates.

The only way out is the socialist alternative. The economy can’t be left in the hands of those who exist only to make a profit. Instead, workers should own and control the wealth that we produce. Only democratic socialist planning can deliver a stable economy where production is geared to meet people’s needs.

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