Polycrises again – economic, environmental and geopolitical

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By MICHAEL ROBERTS*

The multiple disruptive tensions that the capitalist mode of production is facing place humanity and the planet in an existential crisis

Earlier this year, I wrote a post about what some call “polycrisis”. The term indicates that the capitalist mode of production is facing several simultaneous disruptive tensions: economic (inflation and recession); environmental (climate and pandemic); and geopolitics (war and international divisions). All of this started to happen at the beginning of the 2010st century. A buzzword on the left connected to the news, it summarizes, in many ways, my own description of the contradictions of the system. What I called the “long depression” of the XNUMXs is now reaching its peak.

As this October the main international economic agencies, the IMF and the World Bank, meet in Marrakesh, it is worth updating that post. It is good to check what is happening with the contradictions that make up the polycrisis of capitalism.

Let’s start with climate and global warming. Global temperatures reached a new record in September; rose above the historical value by a huge margin. Scientists at the Copernicus Climate Change Service have been saying that 2023 is on track to be the hottest year on record. The global average temperature in September was 1,75°C warmer than the average recorded between 1850-1900, a pre-industrial period, after which human-induced climate change began to occur and take effect.

The hottest September on record follows the hottest August; this, in turn, follows the hottest July. Now, the first mentioned – last observed – was the hottest month ever scientifically recorded. The September 2023 level beat the previous record for that month by 0,5ºC, the biggest temperature jump ever seen. This record heat is the result of continued high levels of carbon dioxide emissions, combined with a rapid change in the planet's largest natural climate phenomenon, El Niño. Now, this “extreme month” probably put this year 2023 at the top. He is thus receiving the “dubious honor” to position itself in first place as the hottest year, with temperatures around 1,4ºC above pre-industrial average temperatures.

The world is a long way from effectively tackling climate change. On the contrary, it continues to allow an increase in average temperature of up to 2,6ºC to be achieved. Urgent countermeasures should be being taken – but they are not. This is what the international trade organization, UNCTAD, asked for in its latest report on the global economy. Its technicians stated that countries need to be “more ambitious in action”; They further need to set “more ambitious targets” to reduce emissions by the required 43% by 2030 and by 60% by 2035 compared to 2019 levels, in order to avoid the dire consequences of a hotter planet.

This would require a “radical” transformation of economic and social systems across all sectors, including boosting renewable energy, ending the use of all fossil fuels, reducing methane and other greenhouse gases, ending deforestation and improving energy efficiency.

None of this is happening to a necessary extent. The International Energy Agency (IEA) has stated that demand for fossil fuels would have to fall by more than 25% by 2030 and 80% by 2050. And by 2035, emissions would need to fall by 80% in advanced economies and 60% in emerging markets and in developing economies, compared to the 2022 level.

But countries' current contributions are not aligned with their own net-zero emissions commitments. And these commitments, moreover, are not enough to put the world on the path to net-zero emissions by 2050. The level of emissions is consistent with limiting warming to 1,5°C. in 2030 it is being exceeded by up to 24 billion tons.

Global financing for climate action reached around $803 billion annually for 2019-20, less than a fifth of the estimated $4 billion annual investment in clean energy technology needed to limit temperature increases to 2°C or 1,5ºC. Meanwhile, global fossil fuel subsidies will reach a record $7 trillion in 2022, the IMF estimates. The study by this international body states that subsidies for coal, oil and natural gas in 2022 were equivalent to 7,1% of global GDP. This represented more than governments spent on education and two-thirds of what was spent on health.

At the recent G20 meeting, one of the key political actions needed to save the planet, namely ending fossil fuel production, was ignored.  "To have any chance of meeting the 1,5°C temperature cap target set by the Paris Agreement, sharp reductions in the production and use of all fossil fuels… are essential, and on this issue the G20 leaders are in short supply. in action” - said Alden Meyer, senior associate at E3G, a climate consultancy. Behind this failure are the enormous and grotesque profits made by oil and gas giants in the period of post-pandemic inflation. Its “reluctance” to “divest” itself of its natural sources of profits (that is, not to use them or exploit them to obtain more oil and gas) comes as no surprise.

What policy responses have companies and governments offered to end global warming? First, there are the ridiculous “carbon offsets” schemes. Many of the world's largest companies have used such “carbon credits” in their “efforts to ensure sustainability”; So this voluntary, unregulated market has grown and grown, having now reached $2 billion (£1,6 billion) in 2021. This year, moreover, has seen the prices of carbon credits rise stratospherically.

Carbon credits are often generated based on the assumption that they will contribute to climate change mitigation; They demand in principle the cessation of tropical deforestation, the planting of trees and the creation of renewable energy projects in developing countries. Investigations show that more than 90% of these compensatory credits related to the maintenance of tropical forests – which are the most used by companies – are probably “ghost credits”, which do not represent genuine reductions in carbon emissions into the atmosphere.

There are also taxes and price increases related to carbon emissions. This market solution to dissuade the use of fossil fuels is the IMF's main platform for solving global warming. Carbon emission pricing regimes, in fact, only hide the reality. Nothing has good results as long as the fossil fuel industry and the other large greenhouse gas emitting multinationals remain untouched.

It would be necessary for these companies to be included in a plan to progressively eliminate these emissions, before the turning point – the one at which global warming becomes irreversible – is passed. Instead of waiting for the regulated market to speak and act for the good of all, what we need is a global plan in which the fossil fuel industries, financial institutions and major emitting sectors are brought under public ownership and controls. 

There are two months left until countries meet in Dubai at the UN COP28 climate summit. Given that this international climate conference is being organized by a major oil and gas producing country, no radical action regarding fossil fuels can be expected.

The other dimension of the polycrisis is poverty and inequality. At a meeting this month, the World Bank presents a new report on poverty. According to the World Bank, global poverty has fallen to levels closer to pre-pandemic levels, but this still means that three years have been lost in the fight against poverty. The recovery is also uneven: although extreme poverty in middle-income countries has declined, poverty in the poorest countries and countries affected by fragility, conflict or violence is still worse than before the pandemic.  

After much criticism of its ridiculously low threshold for global poverty, the Bank now has three levels. By 2023, 691 million people (or 8,6% of the world's population) are predicted to live in “extreme poverty” (i.e., those living below $2,15/day), which is slightly below the level before the start of the pandemic. At the $3,65/day line, the poverty rate and the number of poor people are both lower than in 2019. At the more realistic (but still very low) $6,85/day level, a smaller percentage of the global population also now lives below that observed before the pandemic. But due to population growth, the total number of poor people living below this line is still higher than before the pandemic. And when we look at the poorest countries, they still have higher poverty rates than before, that is, they are not reducing the “gap” that separates them from a more satisfactory condition.

These poverty rates are misleading, as I have previously endeavored to demonstrate. Almost all of the reduction in global poverty (whichever level is used) over the last 30 years is due to the fact that China lifted around 900 million Chinese people out of poverty. Excluding China, global poverty has not fallen in either percentage or absolute numbers. In fact, even including China, there are still 3,65 billion people on the planet below the $6,85/day poverty threshold, according to the World Bank.

In 2021, Lloyd's Register Foundation, in partnership with the Gallup Institute, surveyed 125.000 people in 121 countries, asking how long people could cover their basic needs if their income was suspended. The study concluded that a staggering number of people, 2,7 billion, could only cover their basic needs for a month or less. And of that number, 946 million could survive for a week at most.

The UN goal of ending “poverty” by 2030 is, therefore, a mirage.

Global hunger is still well above pre-pandemic levels. It is estimated that between 690 and 783 million people in the world will face hunger in 2022. This represents 122 million more people than before the COVID-19 pandemic. It is predicted that almost 600 million people will suffer from chronic malnutrition by 2030. Therefore, the UN target of zero hunger by that date is a long way from being met. More than 3,1 billion people in the world – or 42% – could not afford a healthy diet. Worldwide, in 2022, it was estimated that 148,1 million children under five years of age (22,3 percent) were stunted, 45 million (6,8 percent) were wasted and 37 million (5,6 percent) were overweight.

Of a total of 2,4 billion people in the world facing “food insecurity” in 2022, almost half (1,1 billion) were in Asia; 37 percent (868 million) were in Africa; 10,5% (248 million) lived in Latin America and the Caribbean; and about 4 percent (90 million) were in North America and Europe. One billion Indians cannot afford a healthy diet. That's 74% of the population. India performs slightly better than Pakistan but lags behind Sri Lanka. The corresponding figure for China is 11%.

And then there is wealth and income inequality. Credit Suisse's latest report on global personal wealth showed that in 2022, 1% of adults (that's 59 million people) owned 44,5% of all the world's personal wealth, slightly more than before the pandemic in 2019. At the other end of the wealth pyramid, the poorest 52,5% of the world's population (2,8 billion people) had a net wealth of just 1,2%.

Wealth inequality within countries is also not decreasing overall. See: the Gini coefficient (the usual measure of inequality) for wealth reached enormous values ​​in the United States, that is, 85,0 (note that if this number were 100, this would mean that a single adult would own all North American wealth). In fact, in the United States, all measures of inequality have trended upward since the early 2000s. For example, the wealth share of the richest 1% of adults increased from 32,9% in 2000 to 35,1%. % in 2021 in the United States.

Inequality of wealth and income is the counterpart of an economic system focused on profit and not on meeting the needs of the people. A UNCTAD report reads that “during the period of high price volatility since 2020, some large food trading companies made record profits on financial markets, even as food prices soared globally and millions of people faced a food crisis. cost of living". The graph below shows this clearly:

In fact, the pandemic and the subsequent rise in inflation have left their mark on average household incomes. Take the United Kingdom for example: never in the memory of today's working families have they been as poor as they are now. According to the Resolution Foundation think tank, “this legislature is on track to be by far the worst for living standards since the 1950s. Typical working-age household incomes are expected to be 4% lower in 2024-25 than they were in 2019-20. Never in living memory have families been so much poorer because of a parliament.”

The winner of the Nobel Prize (actually Riksbank Prize) for economics in 2015, Angus Deaton, has released a new book called Economics in America: an immigrant economist explores the land of inequality.  In it, he attacks the failure of neoclassical economics to in any way address the issues of poverty and inequality. Leading US economists deliberately ignore rising levels of inequality and the terrible impact of poverty, claiming that this is not an issue for Economics.

See what it says in this book: “real wages have stagnated since 1980, while productivity has more than doubled and the rich have lost their profits. The richest 10% of US families now own 76% of the wealth. The poorest 50% own just 1%.”  He now imposed a system of class struggle: “the war against poverty has become a war against the poor”.

Deaton stresses that greater equality will not be achieved simply through transfers of resources collected from taxes, i.e. through social assistance payments; – he said – this type of interference in the market will hardly make any difference. A better response, for him, would consist of increasing state spending on education and creating jobs for everyone.

Deaton opposes more radical policies: “We don’t need to abolish capitalism or selectively nationalize the means of production. But we need to put the power of competition back at the service of the middle and working classes. There are terrible risks ahead if we continue to run an economy organized to allow a minority to attack the majority.”

But isn't this attack by the minority on the majority actually the very essence of class societies and modern capitalism in particular? In my opinion, Deaton's political solution is as utopian as the one he criticizes. Because, it does not address the control and ownership of the means of production by capital; as well as not paying attention to the fact that work submitted to capital is what guarantees that a small minority has a large part of the wealth and income, while society as a whole does not have enough to satisfy even basic needs.

The pandemic and subsequent rise in global inflation and interest rates have exposed many of the world's poorest countries in the Global South to default on their debt obligations abroad. They owe billions to creditors, both public and private, who are in the so-called Global North. They can only pay for this by cutting services and any expenses to meet the needs of their citizens – and increasingly they are unable to pay.

Global debt has reached a new high, according to the International Institute of Finance (IIF). Total debt – covering sovereign governments, companies and households – increased by US$10 billion, to around US$307 billion, in the six months to June, or 336% of world GDP. The World Bank estimates that 60 percent of low-income countries are heavily in debt and are at high risk of defaulting. At the same time, many middle-income countries also face significant budgetary challenges.

Interest rate increases by central banks also caused a sharp increase in borrowing costs. According to the IMF, they can currently reach the 8% level. The burden of paying high interest rates to the IMF itself is growing: “If the IMF's worst-case scenario of deteriorating global economic conditions materializes, the demand for IMF support will increase even further.”

Therefore, the IMF has created a debt trap for the IMF itself! At this month's meeting, this global institution will warn that governments “should take urgent action to help reduce debt vulnerabilities and reverse long-term debt trends.”.  But how? There are no proposals from rich countries to pay off these debts or even to end trade tariffs and restrictions on exports from emerging markets; or, of course, stop the enormous extraction of profits from poor and resource-rich countries by multinational companies.

Global warming, endless global poverty and inequality, debt disaster, all these aspects of the “polycrisis” of capitalism in the XNUMXst century are linked together due to the insoluble and growing economic crisis.

Global trade volumes are now falling at the fastest rate since the pandemic. Trade volumes fell 3,2 percent in July compared with the same month last year, the sharpest drop since the early months of the coronavirus pandemic in August 2020. The turnaround in export volumes is broad-based; Most countries in the world are now reporting that they are seeing a drop in trade volumes.

China, the world's largest exporter of goods, recorded an annual decline of 1,5 percent; the euro zone, in turn, recorded a contraction of 2,5 percent; in the US, there was a decrease of 0,6 percent. The World Bank also reported that global industrial production fell 0,1 percent compared with the previous month, driven by sharp declines in production in Japan, the euro zone and the United Kingdom – and has been declining year after year.

The World Bank has just published a report in which it considers that Asia faces one of the worst economic prospects in half a century. The formerly so-called “Asian tigers”, made up of Korea, Taiwan, Singapore, Hong Kong, etc., are expected to expand at the lowest rates in five decades as US protectionism and rising debt levels pose an economic drag. .

The World Bank predicted that China's growth would slow to 4,4% in 2024, the lowest rate in decades, although still more than double the rate of any G7 economy. The deterioration in forecasts also reflects that much of the region is beginning to be affected by new US industrial and trade policies under the Inflation Reduction Act and the Chips and Related Science Act (Inflation Reduction Act and the Chips and Science Act).

UNCTAD's latest report on the world economy considers that the world economy has stagnated and risks over the next year are increasing. UNCTAD envisages that “faltering growth for the period 2022-24 will fall short of the pre-Covid rate in most regions of the world economy. The debt burden is crushing too many developing countries. The external public debt service in relation to government revenues increased from almost 6% to 16% between 2010 and 2021.”

There is a lot of optimism in the US that the economy will achieve a “soft landing”, that is, that the inflation rate will soon return to the target rate of 2% per year without real GDP going into recession. I have discussed this possibility. Even if that were to happen, a “soft landing” would not apply to the rest of the major advanced capitalist economies. The euro area is contracting sharply. Furthermore, countries such as Canada, the United Kingdom and several smaller economies such as Sweden are suffering; Japan, in turn, is on the brink.

In fact, the Organization for Economic Co-operation and Development (OECD), in its latest report, predicts that global growth in 2024 will be lower than in 2023, falling from 3% this year to 2,7% in 2024. Although the global economy, in the first six months of 2023, is proving that it is “more resilient than expected ”, growth prospects “remain weak”. Real GDP growth in advanced capitalist economies will slow from 1,5% this year to just 1,2% in 2024; the GDP per capita will be close to contraction.

OECD economists consider that inflation will not return to pre-pandemic levels anytime soon; as a result, central banks must keep interest rates high. In fact, the IMF also calls on central banks to continue the miserable policy of raising debt burdens in the “war against inflation”. However, as I have argued, because higher inflation comes from a “supply-side” problem, central bank monetary tightening does little to reduce inflation and is merely a recipe for “recession.”

And there are two other aspects of the 40st century polycrisis that are still developing. There is the weakening of US dominance in world affairs. The “globalization” of trade and finance during the last XNUMX years under US hegemony is over. The following graph shows this:

The ability of US capital to expand productive resources and sustain profitability has declined. This explains its intensified effort to strangle and contain China's growing economic strength and thus maintain its hegemony in the world economic order. 

A recent study by Sergio Camera showed “a prolonged stagnation” of the US profit rate in the 19,3st century. The overall profit rate was 1950% in the “golden age” of US supremacy in the 1960s and 15,4s; but then fell to an average of 1970% in the 16,2s; The neoliberal recovery (coinciding with a new wave of globalization) pushed this rate to 1990% in the 14,3s. But in the two decades of this century the average rate fell to just XNUMX% – a historic low.

This led to lower investment and lower productivity growth in that decade. Therefore, I already indicated in the 2010s that we were in the presence of a “long depression”. Using Camera’s words, the “US economic base has been seriously weakened”.   Now, this is weakening the hegemonic position of North American capitalism in the world. Now there is what is described as “geopolitical fragmentation”, that is, the rise of alternative blocs that attempt to break away from the US-led imperialist bloc. The Russian invasion of Ukraine highlights this “fragmentation” in a dramatic way.

What the world needs is global cooperation to overcome the polycrisis of capitalism. Instead, capitalism is fragmenting; in fact, it is inherently incapable of forging international unity that promotes global planning. The economic costs of this fragmentation have already been measured: due to the contraction of trade, it will be up to 7% of world GDP; with the addition of technological decoupling, production loss could reach 8-12% in some countries.

Longer term is the growing economic disruption brought about by the rise of artificial intelligence (AI). Economists at Goldman Sachs consider that if new AI technology lived up to its promise (which is doubtful), it would bring “significant disruption” to the job market. The equivalent of 300 million workers would be exposed to full-time unemployment in major economies due to the automation of the work they perform. It is estimated that around two-thirds of jobs in the US and Europe are exposed to some degree of automation through AI. This conclusion was reached based on data on tasks normally performed in thousands of professions.

Humanity and the planet face an existential crisis due to global warming and climate change; But will human work be replaced by thinking machines even before the climate catastrophe occurs, thus widening inequalities and increasing wealth for machine owners (capital) and poverty for billions (labor)? The polycrisis of capitalism in the XNUMXst century has just begun.

*Michael Roberts is an economist. Author, among other books, of The great recession: a marxist view (Lulu Press). [https://amzn.to/3ZUjFFj]

Translation: Eleutério FS Prado.

Originally published in The next recession blog – 08/10/2023


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