There is no light in the tunnel of the long depression

Image: Flora Westbrook


The only hope of escaping the impact of the Long Depression and more wars is for democratic socialist governments to come to power.

One of my basic theses about modern capitalism is that, since 2008, the major capitalist economies have been in what I call the “long depression”. In my 2016 book of the same name, I distinguish between what economists call recessions (declines in production, investment and employment) and depressions.

Under the capitalist mode of production (i.e. profit-oriented social production; this comes from human labor and appropriated by a small group of owners of the means of production), there have been regular and recurrent declines every 8-10 years since the beginning of the XNUMXth century. After each slump, capitalist production revives and expands for several years before returning to a new slump.

However, depressions are different. Instead of coming out of recession after a while, capitalist economies remain depressed for a long time, with lower production, investment and job growth.

Depression is nothing new. It has occurred three times in the history of capitalism:

The first was in the late 19th century in the US and Europe, lasting roughly from 1873 to 1897, depending on the country. During this long depression, there were short periods of increases, but also a succession of declines. Overall, output and investment growth remained much weaker than in the previous boom period of 1850-73.

The second depression, which was called the Great Depression, lasted from 1929-1939-1941, until the beginning of World War II; it occurred mainly in the USA and Europe, but also affected Asia and South America. It just ended with the big investments in armaments.

The third depression began after the global financial meltdown of 2007-8. This depression (as defined above) lasted for at least a decade, until 2019. It was clear, then, that the major economies were not only growing much slower than before, but were headed for a sharp slump. The following graph shows this.

But the situation described above was strongly affected by the coronavirus pandemic. Then what was not expected happened: the world economy suffered a strong contraction. According to a forecast by the Brookings Institution, the world economy was in a very difficult situation.

Now, just as major economies were staggering out of the pandemic, the world has been hit by a bomb again; the Russia-Ukraine conflict and its ramifications will affect economic growth, trade, inflation and the environment.

The contradictions of the capitalist mode of production intensified in the 2007st century. Now there are three big barriers. There is the economic hurdle: with the Global Financial Crash of unprecedented proportions occurring in 8-2008, followed by the Great Recession starting in 9-1930, the world is now facing the biggest economic recession since the XNUMXs.

Then there is the environmental barrier: with capitalism's voracious pursuit of profit, there is uncontrolled urbanization, predatory energy and mineral exploitation, extensive industrial agriculture that depletes the planet. In any case, within this framework of widespread predation, the release of dangerous pathogens previously trapped in animals in remote regions for thousands of years has occurred. These pathogens have now escaped from farm animals and (possibly) laboratories to humans with devastating results. Covid-19 is just one example.

One must also not forget the imminent nightmare of global warming, which mainly affects the poor and vulnerable globally.

Third, there is the geopolitical contradiction that surrounds the struggle for profit among capitalists in this depressed economic period. Competition intensified between the imperialist powers (G7+) and some economies that resisted the hegemony of the imperialist bloc, such as Russia and China. Thus, in the XNUMXst century, from Iraq to Afghanistan and Yemen and Ukraine, geopolitical conflicts are increasingly conducted through weapons, increasingly powerful to destroy and kill. And the big battle between the US and China/Taiwan is looming.

The Long Depression of the 2009st century may have started in 1997, but the economic forces that caused it were underway as early as XNUMX. It was then that the average rate of profit of capital in the major capitalist economies began to fall. Despite some small bouts of recovery (mainly driven by economic downturns and huge credit injections), equity profitability remains close to historic lows.

Penn World Tables, author's calculation

Profit drives investment in capitalism; and, therefore, the decline and low profitability led to a slow growth of productive investment. Instead, capitalist institutions have increasingly been speculating in financial assets in the fantasy world of stock and bond markets and cryptocurrencies. And the imperialist bloc is increasingly seeking to compensate for the weakness of the “global north” by further exploiting the “global south”. The differences are large and tend to increase.

So far, there are few signs that capitalism can emerge from this Long Depression, even if the current disaster in Ukraine is resolved. Ending the depression would require cleaning up the economic system through a recession that liquidates the zombie companies that reduce profitability and productivity growth and increase debt burdens. Currently, it is estimated that 20 percent of US firms are zombies, that is, they cannot meet their financial commitments because profitability is too low.

Furthermore, it seems that recalcitrant economic powers like Russia and China must be tamed or crushed if the major capitalist economies are to be given a new lease of life. That's a frightening prospect. The only hope of escaping the impact of the Long Depression and further wars is the coming to power of democratic socialist governments based on working people, which can sponsor a truly united nation to end economic crises; reversing environmental disasters for the planet; and achieve peaceful development of human society.

*michael roberts is an economist. Author, among other books, of The Great Recession: A Marxist View.

Translation: Eleutério FS Prado

Originally published on the website The next recession blog.


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