As the first strikes and wider fightbacks flare amidst a cratering economy and an exploding pandemic, David McNally, a professor of history at the University of Houston and an award-winning author of numerous works including Global Slump: The Economics and Politics of Crisis and Resistance and forthcoming, Blood and Money: War, Slavery and the State, spoke with Snehal Shingavi of Section 44 about what’s behind the crisis — and ahead for the Left.
Before March of 2020, we were already seeing signs of a global economic downturn: India had revised its growth numbers downwards, China was seeing a contraction in exports, and the US had some of its weakest growth numbers in a while. What were some of the features and causes of that economic contraction? Why hadn’t the global economy recovered since the 2008-9 recession?
The crisis of 2008-9 was one of the four great contractions in the history of capitalism (the previous ones occurring 1873-96, 1929-39, 1971-82). Yet, unlike those earlier slumps, the last one did not produce a decade or more of panics, bankruptcies, and double-digit unemployment levels. Instead, central banks engaged in an unprecedented bailout—funnelling more than $19 trillion into the financial system in the US alone—and thereby prevented a catastrophic meltdown. At the same time, they drove interest rates down to historic lows and held them there so that banks and businesses could effectively get funds for free.
The irony is that, in rescuing the financial system, central banks also blocked capitalism’s highly destructive “cleansing” mechanism. For in a capitalist economy a full-scale crash drives the least productive firms out of business, allowing the survivors either to gobble them up or seize their market share. Alongside that, a decade-long depression with mass unemployment tends to push down workers’ wages. Once corporate bankruptcies have been widespread enough and wages have dropped far enough, the surviving firms discover that lower costs and larger markets make profitable investment viable once again. At long last they start investing again in new factories, mines, and office complexes, along with new equipment and machinery. Slump thus gives way to expansion and a new cycle of boom and bust begins.
But by using the 2008-10 bailouts to prevent a devastating downturn, central banks blocked the destructive reorganization of the capitalist economy that lays the groundwork for a new wave of expansion. In short, in short-circuiting a deep and sustained slump, they also short-circuited a new boom.
Of course, the economy did experience a statistical “recovery” from 2010 on. But it was far and away the most anemic recovery of the post-World War 2 period. A typical boom sees sustained growth rates of five to ten percent a year. But in the decade since 2009, Japan grew by an annual average of 1.4 percent, Europe by 1.8 percent, the United States by 2.5 percent. These are growth rates that border on stagnation.
Levels of business investment were extremely low in large measure because, rather than widespread bankruptcies clearing out the least efficient firms, thousands of companies hung only thanks to the free money offered by central banks. Such “zombie firms” persisted only because of a decade of life-support. But they are now loaded with debt and could easily collapse if the new slump deepens, as it likely will.
And just as investment was largely stagnant since 2010, so wage growth was almost non-existent. More than forty percent of all wage earners in the US, for instance, earn $18,000 or less per year. This is why millions of working class households have kept their heads above water only by going farther into personal debt. They are in no position to ride out an economic downturn.
The only real boom that took place from 2009-19 was in the stock market. There, the trillions pumped out by central banks were used to purchase stocks, much of it as corporate stock buybacks that move profits into the hands of the wealthiest shareholders. That’s one reason that ninety percent of all the new wealth created over the last decade went into the hands of the one percent.
But the value of stocks—which are a claim to a portion of a firm’s future profits (in the form of dividends)—can only get out of synch with the state of actual corporate profits for so long. Eventually they need to be aligned with the actual state of profits. The latter started to turn down in 2016. Then they got a massive boost from Trump’s corporate tax cuts. But by 2019 they were turning down again. In fact, last fall there was so much stress and turmoil in financial markets that the Federal Reserve Bank started financial transfusions into the market. When the coronavirus pandemic erupted in January of this year, the global economy was already in the early stages of recession. To make matters worse, at just this time Saudi Arabia and Russia got into an oil price war, which has devastated much of the energy industry. For a capitalist system that was already staggering, the pandemic was a gigantic body-blow.
The global Coronavirus pandemic has produced even more challenges for the economy. While it gives the ruling class an ideological alibi for the crisis (that it was in Michael Robert’s terms “exogenous” to capitalism), it also poses new challenges for ruling classes globally, because they cannot solve the public health crisis and the economic crisis at the same time. What impact will the Coronavirus pandemic have on the economy and how will it impact the downturn that was already in progress?
In economic terms, the pandemic is disastrous. Huge chunks of the service industry—airlines, hotels, tourism—are effectively shut down. Restaurants, bars, and cafes are limping at best. Hundreds of millions are living with stay-at-home orders. Non-essential manufacturing businesses are idled or operating at reduced capacity. Predictions are that economic activity could fall by 30 percent or more by the second quarter of 2020. Already stock markets have dropped by 25 percent in the US, and by more in other countries.
Beyond this, the pandemic also poses huge social challenges to capitalism. Most importantly, it highlights the fact that a system of production for profit is ill-equipped for saving human lives. It exposes the inhumanity of an economy that elevates profits over people. To avoid millions of deaths, governments are scrambling to boost the production of basic medical equipment, to increase the number of intensive care beds, to stop evictions, even in some cases to house the homeless. Of course, all these things ought to be at the heart of any humane social order. But capitalism systematically neglects the protection of lives in the same ways in which it systematically damages the natural environment. And now the irrationality of such a way of organizing our lives stands baldly exposed.
So, at the same time that the pandemic deepens the economic slump, it also produces huge social and ideological challenges for capitalism.
In Texas, we’ve seen a contradictory response to the coronavirus and the economy. While some state leaders are bent on returning people to work as quickly as possible, municipal leaders, especially in the denser, urban areas are committed to resolving the public health crisis first. Coupled with the oil shock (the very rapid drop in oil prices) and the depletion of revenues from state sales taxes (on which the state budget overwhelmingly relies), what can we expect to happen to the Texas economy?
The Texas economy is in big trouble. Let’s start with the oil industry, which is a key part of the state’s economy.
The world price of oil is in the midst of a historic crash. Since January, the price has slumped from about $70 a barrel to less than $25. West Texas Intermediate crude oil crashed below $20 a barrel today (March 31). Energy firms, including giants like Exxon Mobil, Halliburton, and Shell, have slashed billions of dollars from their investment plans. Thousands of energy industry employees are out of work.
All of this has considerable spillover effects. In Houston, more than a quarter of all manufacturing jobs are linked to the oil and gas industries. Not surprisingly, in late March the Texas manufacturing index, which tracks economic activity in that sector, plummeted faster than ever before. Huge layoffs are in the works. Alongside the mammoth damage coming in energy and manufacturing, Texas, like all major economies, is experiencing terrible job loss in food and hospitality services, an in sports and entertainment.
The state’s enormous reliance on its sales tax will also wreak havoc. One-third of the Texas budget comes from the federal government. Of the rest, nearly sixty percent comes from sales tax. But what happens when sales of cars, electronics, furniture, clothing, sports tickets, and so on fall off a cliff? We can expect government revenues to fall by billions in the coming months at the same time as government expenses rise in order to cope with the pandemic. The government may well try to impose draconian cuts to social services once we have exited the crisis. The job of the left will be to vigorously oppose this and to campaign instead for increased taxes on corporations and the rich.
We’ve already begun to see some signs of labor militancy. Two years ago, Red4Ed utilized social media to its advantage to develop general strike plans in advance of the leadership of the unions in several states. There is some indication that some workers in the so-called “essential” jobs (nurses, transportation, warehouse, grocery) are also talking about labor actions, specifically because their jobs do not provide adequate safety measures for them. Given that you have recently talked about the “return of the mass strike” what opportunities and possibilities do you see for labor actions in the current moment?
This is one of the most exciting and inspiring developments in the early days of this crisis. Already we have seen wildcat strikes by grocery store workers, bus drivers, Amazon warehouse workers, healthcare employees, and autoworkers. They are all demanding protective gear, hazard pay, and dignity at work. They increasingly understand that capitalism will not protect them. Instead, they must rely on themselves and the solidarity of other working class people.
Equally uplifting are workers’ protests meant to address the wider crisis. So, employees at General Electric have walked out demanding that their factories start producing generators. In Wichita, Kansas, unionized workers have called for their plants to produce face masks and other medical equipment. Not only are workers striking back to defend their lives—they are also striking for the lives of others.
Alongside this, there are movements to occupy vacant housing, coordinate rent strikes, house the homeless, open the jails and detention centers. All of these too are part of putting life before profit.
The task for the socialist left is to figure out how to spread these struggles, link them into generalized movements, and build the politics of working class solidarity and struggle—radical socialism—at the same time. This will not be an easy task. But little is going to be easy during this crisis and pandemic. However, there are elements of a new course for society springing up all around us. It is true that the new is still “struggling to be born,” to quote Antonio Gramsci. But it is struggling. And our best hope lies in assisting those struggles in ways that build unity, fighting determination, and clarity of vision—a vision of socialist solidarity committed to life over capitalism.
One reply on “What happens next | Interview with David McNally”
I enjoyed this. The analysis seems right on. One of the problems I see in our rough new socialist movement is timidity. We need a new system. We know that the people benefiting from the old system have to be overcome. We often lead right up to saying so, but hardly ever clarify the only possible ultimate goal we can have. Workers must take power! –genelantz in Dallas