The World Bank has warned that the world is going to face a major recession by 2023. Capitalist economists have been consistently saying this; this has now been reaffirmed by the World Bank. There is nothing unexpected in this.
Countries such as the US, Russia and Britain are witnessing high levels of inflation; their highest in the past 40 years. As of May 2022, Russia has the highest inflation rate of 17.8 per cent; in Britain it is 9 per cent and in the US it is 8.3 per cent.
In order to contain inflation, the central banks of many countries have been constantly raising their interest rates; The World Bank, however, said it was not possible to bring down inflation to the pre-COVID-19 levels by raising interest rates, indicating that there is a risk of accelerating the economy towards recession.
The Organization for Economic Cooperation and Development (OECD) has said that the rate of economic growth of most countries will come down significantly due to inflation and recession. According to OECD, it is estimated that the economic growth of the US, which is 1.5 per cent this year, will slowdown to 0.5 per cent in 2023, while China’s growth will be reduced to 3.2 per cent. It also downgraded the global growth rate to 2.2 per cent from 2.8 per cent.
Many countries were heading towards a recession even before the Russo-Ukrainian war. On February 15, exactly nine days before Russia’s full-scale invasion of Ukraine, the World Bank issued an important statement: More than 70 low-income nations are facing crises in debt repayments and forex reserves.
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Countries such as Egypt, Tunisia, Turkey, Lebanon, Argentina, El Salvador, Peru, Ghana, Kenya, South Africa and Ethiopia are going to face an economic crisis similar to that of Sri Lanka, the report said.
In this situation, an impression is being created by the capitalist media that it is the coronavirus pandemic, Russia’s war on Ukraine, and China’s restrictive zero-Covid policy to contain the coronavirus have triggered the global economic slowdown. It can be said that the above external factors have accelerated the economic slowdown; but the real cause of this crisis is the internal character of capitalism.
In the wake of the economic crisis of the 1970s, the monopoly bourgeoisie presented the new economic policy of privatization-liberalization-globalization as a ‘panacea’. Today, they themselves admit that in these fifty years, the neo-liberal policy they advanced has failed and brought them back into a crisis. The countries that advocated globalization, including the US and Britain, have resorted to protectionism today.
The monopoly bourgeoisie is struggling to put forward any alternative policy or strategy. Every move of theirs is pushing them further into the crisis. The position of Britain and the United States are clear examples of that.
The Saviours of ‘Great Britain’!
Britain has seen three Prime Ministers in a very short span of time. The rescuers projected by the ruling classes to shore up Britain’s economy, which has been collapsing since before 2019, continue to suffer defeats.
Boris Johnson stepped down as Prime Minister in July 2022. One aspect is that he had to resign due to internal disaffection within the party over issues including celebrating his birthday in violation of the government’s Covid-19 control norms and giving the post of deputy chief whip to his party MP Chris Pincher, who was embroiled in a sexual harassment case.
But the main reason for pressurizing him to step down was the disaffection over his poor handling of the economic crisis and inflation caused by the Covid-19 pandemic.
After Margaret Thatcher’s victory in the 1983 election, it was Boris Johnson who led the Conservative Party to victory in the 2019 parliamentary election by a huge margin. While his predecessor, Theresa May, was dragging the Brexit deal to exit the European Union, Johnson was the one who completed the deal and fulfilled his election promise, as soon as he came to power. For these reasons, he was an influential figure in the party.
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Boris Johnson, who took power with the slogan ‘Britain Great Again’ – ‘I will make Britain great again’, could not carry it out. Britain did not achieve any rare feat by exiting the European Union. Brexit made a negative impact on the economic relations. Britain, which was the world’s fifth-largest economy, has fallen to sixth place. The Britain’s fall was the reason why India was ranked fifth.
In this situation, along with the crisis caused by the Covid pandemic, the so-called ‘talent’ and ‘influence’ of Boris Johnson got wiped out in an instant. In the worst case scenario, he had to relinquish his prime ministership.
Liz Truss, who defeated Rishi Sunak in the party elections held after the resignation of Boris Johnson, resigned within 45 days. This made her the shortest-serving Prime Minister in Britain’s history.
The newly elected Liz Truss did not announced any welfare program for the working people of Britain, who have been unable to meet even their basic subsistence needs because of rising prices, inadequate income and layoffs. But in the mini-budget she brought, she made concessions to the corporates and money hoarders.
The previous government had increased the tax rate for corporates from 19 per cent to 25 per cent. Liz Truss again reduced it to 19 per cent. She also removed the 45 per cent tax hike imposed on high-income earners.
The view of the neo-liberal ideologues is that, the more concessions we provide to the corporates, the more the economy will grow. The mini-budget prepared by Liz Truss, which ignored the interests of the vast majority of working people in the face of an economic crisis, is a stark reflection of that ideology. Within the ruling party, however, there was opposition to Liz Truss’ economic measures. The reason is that it dragged the economy into the quagmire even more rapidly.
The British government had to borrow money for these concessions to the corporates. This was an additional burden on the finance department, which is already reeling in crisis due to inflation and economic slowdown. Eventually, Liz Truss took responsibility for the economic disruption and withdrew her mini-budget and resigned.
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After Liz Truss’ resignation, Rishi Sunak has been elected as the third Prime Minister. He was largely supported because he had previously opposed Liz Truss’ actions vehemently and said that he had a plan to reform the economy.
Speaking during his swearing-in ceremony, Rishi said, “I will place economic stability and confidence at the heart of this government’s agenda. This will mean difficult decisions to come”. The difference between Liz Truss and Rishi Sunak in serving the corporates lie only in their ‘means’; that is, only in which way the burden of the crisis can be placed on people’s heads. We will see it overtly in a few days. The day is not far off when the third saviour will be exposed.
There is no escape!
Inflation in the United States is at its highest level in 40 years. As of September 2022, the level of inflation stood at 8.2 per cent. The Russia-Ukraine war is the main reason why inflation has risen to record highs in many countries, including the United States and Europe.
Oil trade has been crippled by the imposition of economic sanctions on Russia by the US and European Union countries. In response to the EU’s sanctions, Russia has also cut half of its natural gas flowing into Europe. Due to this, industries operated with oil and natural gas have been badly affected. Europe is caught up in the energy crisis.
Moreover, many countries in the world are heavily dependent on Russia and Ukraine for wheat and soybeans; Because of the war, there is a shortage of these goods as well. Therefore, the prices have gone up drastically and there is inflation.
Governments in all countries are raising the interest rates of their central banks to bring inflation under control. This is the third time the Federal Reserve has raised the interest rates by 0.75 per cent (as of September 22). As a result, it has become a huge burden for home loan borrowers, automobile loan borrowers and credit card users to pay interest.
The federal bank’s move is an attempt to bring the needs of the people under control by reducing the flow of money. But the bourgeois intelligentsia themselves are wondering how could the most essential needs, such as fuel and food, be controlled by reducing the flow of money.
On the other hand, the industrial capitalists are trying to put their production on hold as they could not get credit at lower interest rates. So capitalist economists themselves warn that the US Federal Reserve’s interest rate hike will not bring inflation under control, but will lead us to the greatest economic recession at a leaping pace.
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Though all this is well known, there is no alternative, so everything is going ‘by fate’. “We have got to get inflation behind us. I wish there were a painless way to do that. There isn’t” said Jerome Powell, Chairman of the US Federal Reserve.
More than 90 per cent of the world’s trade is done in US dollars. Therefore, the impact of the US Federal Reserve raising interest rates has resonated throughout the world.
Following the Covid-19 pandemic restrictions, the Russo-Ukrainian war, and the resulting economic crisis is naturally prompting the investors to stop production and save the financial capital. Once the Federal Reserve raised the interest rate – higher interest rates for bank deposit holders – investors in most countries began to move their dollars into the US banks.
As a result, the foreign exchange (dollar) reserves of other countries have declined and there has been a crisis; The value of the dollar has risen and the value of other currencies against the dollar – especially the pound, the euro, the yuan, the rupee – has fallen drastically.
With the country’s foreign exchange declining on one hand and the dollar rising on the other, many countries fear that imports from other countries will lead to crisis in their economy. However, there is a compulsion to import crude oil, food items, etc. at any cost. In this context, paying interest in dollars on loans borrowed from the World Bank, the International Monetary Fund and other countries amounts to suicide for poorer countries.
The rise in the value of dollar is not a good news for American capitalists also; Multinational companies headquartered in the United States are trading in the currencies of many countries. When they convert other country’s currencies into dollars, their value gets drastically reduced. The rise in the value of dollar has also reduced the demand for US-made goods. For example, Apple has reduced the production of its product, the iPhone 14.
Already, Russia and China are entering into non-dollar trade agreements with other countries against the dominance of the US dollar. They have also developed trading centers for the same. We explained this in an article in the May 2022 issue titled ‘Russian-Ukraine War: America’s Proxy War and the Danger of World War’. Under these circumstances, the rise in the value of the dollar and consequently the economic crisis of their country will push the countries of the world towards non-dollar trade.
Proletariat of the world! Be prepared!
The current position of the world imperialists, including the United States, is like ‘encircled by abyss in whichever way they turn’. So the burdens of the crises are being imposed on people’s heads.
American bourgeoisie are engaged in a conspiracy to divide workers so that they do not fight against rising prices or demand wage hikes. In order to corrupt the frontline workers, salary hikes are provided only to them. Many workers are being laid off.
Last year in the United States, workers of corporate companies such as Amazon, Starbucks and Apple won union rights for the first time. Subsequently, managements should have reached an agreement on the workers’ demands by negotiating with the trade unions. But Amazon, Starbucks and Apple have been delaying contract negotiations with the unions; they are also engaged in the task of breaking up the union.
Protests have erupted in many countries of the world, including Sri Lanka, Indonesia, Pakistan, Morocco, Zimbabwe, Britain, Germany, Italy, Spain, Hungary, the Czech Republic, Moldova, Ecuador and Belgium, against the rising food prices, rising fuel prices and low wages.
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The struggles of the European countries are particularly important. Anti-NATO slogans were also seen in demonstrations in the Czech Republic, Germany and France against rising gas prices. Workers chanted slogans such as “Get out of NATO or get out of the country first”.
Even as the country’s people are living in hunger and poverty, the US and its allies, the European Union, are spending huge sums of money on their budget to provide military aid to Ukraine. The slogans against NATO show that the workers are beginning to understand the wickedness of the ruling classes, despite the instilling of jingoism by the ruling classes to overshadow the popular discontent.
The US-led war frenzy imperialists are providing huge military aid to Ukraine; between January 24 and August 3, the United States provided military aid worth $25 billion, Britain $4.03 billion, Poland $1.8 billion, Germany $1.2 billion, France $230 million and Estonia $250 million.
The ruling class intellectuals do not have any alternative to any problem, including the economic crisis. As the great Marx said that “the bourgeoisie produces its own gravediggers”, the solutions offered by the ruling classes are only aggravating the crisis; that is evidenced by the fact that capitalist economists themselves have asserted that the impending economic slowdown may be worse than the 2008 subprime crisis!
Their ultimate weapon is fascism and world war. The fascist Giorgia Meloni has won the recent elections in Italy. In the Russo-Ukrainian war, she has been openly saying that the only way to peace is to help Ukraine. Fascist parties/groups are participating in the struggles for the livelihood of the people in Europe and are raising their slogans. The Ukraine-Russia war itself is a preparation for world war.
There is nothing to be afraid of, no matter what happens. Let’s defeat the conspiracy of the ruling class of imposing the burdens of crises on the working class through fascist rule and world war! The time has come to overthrow the imperialists and create an egalitarian world, a socialist society; The proletariat of the world! Be prepared!
Palraj
