By Stephen Boyd, Editor, the Socialist
2008 will be remembered for the credit crunch and world financial crisis. But as 2009 begins we can safely predict this year will be remembered as the year when the “real economy” of countries all around the globe went into meltdown.
More workers lost their jobs in the US last year, 2.6 million, than at any time since the Second World War, 524,000 in December alone.
Some economists are predicting job losses in the US will increase to one million per month as its GDP shrinks this year by 3%. Unemployment will rise more sharply in most countries because companies had been holding onto workers in a hope that the “credit crunch” was a financial sector and housing market problem that wouldn’t affect the rest of the economy as much. The fall in consumption in the last two quarters in the majority of the advanced capitalist countries has dashed this hope.
The increase in unemployment in November in Northern Ireland was the highest for 30 years. The North’s biggest employer, FG Wilson, has laid off 440 workers, while other factories have had longer than usual Christmas shutdowns raising the spectre of many more job losses in the immediate future. Unemployment in Britain now stands at 1.86 million with predictions it will reach three million by the end of this year. Official government projections estimate that unemployment in the South of Ireland will reach 540,000 (15.5%) by the end of 2010.
However, these job losses are dwarfed by the situation in India and China. Previously heralded as the future saviours of the world economy, as alternative engines to the US to drive world growth, India and China’s economies are in serious crisis as western demand for their exports has collapsed. Indian exporters are set to lay off 10 million workers in the next three months. Some economists have predicted 60 million jobs will be lost in China this year, resulting in major industrial and political unrest.
Desperation has forced the governments of the major political powers to try to rescue their economies from this crisis through major stimulus packages. Obama is set to unveil an $800 million 21st century version of the New Deal with the aim of creating three million jobs. This latest US package brings the total in the pipeline to nearly $7 trillion, the equivalent of half its annual GDP. The Bank of England has cut interest rates to 1.5%, the lowest level in its 315 year history in order to stimulate borrowing and investment. The US and British governments will begin printing money in a policy now known as quantitive easing in order to avoid deflation which now threatens the world economy. Falling demand has resulted in disinflation, with the now real potential for a general and persistent fall in the price of goods and services. Burdened by massive corporate debts, deflation would be disastrous for big business. Deflation, a feature of the Great Depression, would dampen demand for commodities even further with consumers waiting to see how cheap commodities will become combining in a “lethal” cocktail with rising unemployment.
The financial system is also set to face further shocks as corporate bankruptcies and falling sales will result in another wave of bad debts. On top of this, the pain which many working class and middle class families will suffer due to losing their jobs will result in massive bad debts on credit cards as well as mortgage and personal loan defaults.
It is doubtful in the short term that government stimulus packages will be capable of acting like a defibrillator to revive their economies from the shock and awe they are experiencing.
This is not just a failure of neo-liberalism, this is a failure of the capitalist system. During the boom, half of the world’s population lived in abject poverty and unimaginable deprivation. Now during what may become a world economic depression like the 1930s, billions of working class people and poor will suffer terribly because capitalism will be incapable of meeting even their most basic needs.
2008 ended with general strikes and mass protests in Greece. Those events are a small foretaste of what we can expect with the “rebirth” of the class struggle around the globe as the working class and poor are forced to defend themselves from the ravages of the recession. Hand in hand with this struggle, which will result in revolutionary surges in many countries, millions will seek out an alternative to capitalism and will turn towards the ideas of socialism.