AGAIN WE HEAR FRIGHTENED voices from the world of finance. Claims that “Recovery is here!” have stopped. Not much is left of the promises of economic growth and jobs. There are definite signs that the world economy is in for a new crisis, once again hitting a majority of countries simultaneously. Falling prices on raw material and oil indicate what is going on. A national economy that can pull the global economy out of the ditch and secure world-wide growth acceptable to capitalist investors is lacking. No rescue from China FOR VARIOUS REASONS, CHINA HAS LOST speed. This year it will only increase production of goods and services by a little more than 7 percent. That might seem very high to a South African observer, but the Chinese economy hasn’t been growing that slowly since the crisis in 1990. During the 2008-2011 financial crisis, other countries – not least South Africa – could rely on strong and growing demand from China for raw material. This is not the situation today. Brazil is in recession, meaning a fall in production (GDP) for two quarters in a row. Brazil cannot play any leading role, not even within the so-called BRICS. Main stream economists look hopefully to the US. Together with Germany, it is the only country of the OECD back to production levels of 2007. Still it is doubtful the US today has the same power to pull the world economy that it has done many times before. The experts would rather like to forget about the Euro zone. Economic growth in its biggest economy, Germany, is close to zero. The larger part of the European continent is into a new recession, threatening to develop the “Japanese syndrome”: a situation of falling prices (deflation) that would invite companies and consumers to wait for bigger purchases “later, but not today”. The three biggest sectors – US, China and Europe – will decide what happens in the near future, but several factors appear to be contributing to provoke a global recession. What has been presented as the “only road” for Europe – a policy of economic austerity, meaning large cuts in government spending – is creating a social catastrophe for the continent’s working population. For the system itself, the austerity policy is simply contributing to the lower demand for goods and services.Growth below ten percent in China has been regarded as too low to create sufficient jobs for the growing population. Growth has been above ten percent per year for decades. With China’s enormous size, such growth has meant a lot to the world economy. This might now be coming to an end. For several years, China has experienced a building industry boom. This has created large excess capacity, and now more than 10 million new apartments stand empty. This year, housing sales dropped by 11 percent. China’s new ‘ghost cities’ THIS SHARP DECLINE CREATES BIG problems in the economy. Steel and cement production is suffering from large over capacity, which in its turn might spread to other sectors. Countries like Brazil will in turn be hit: China’s hunger for raw material has been the main driver of Brazil’s economy. To maintain demand, Chinese leaders have unleashed a flood of credit, aiming to stimulate regional authorities to invest in infrastructure. This has often led to bridges that lead nowhere, or shopping malls without customers. The backside of this financial stimulus is higher and higher private and public indebtedness. In June, total outstanding debts reached 251 percent (!) of GDP, up from 147 percent in 2008. This is extremely high. Many loans will never be paid back, since retail prices for industrial goods have been falling for 32 months. If the Chinese central bank did not have enormous dollar reserves, the Chinese banking system would likely explode due its insecure loans to private and public enterprises. The Chinese government will certainly do everything it can to avoid this, even if it means writing off large amounts of loans and paying lenders from the central budget. Such solutions are temporary. Monetary policy cannot solve a problem of large over-capacity in many branches of heavy industry. Jobless recovery IN THE US, INDUSTRY AND FINANCE HAVE done better than in Europe ever since the crisis began in 2007. One reason is Europe’s austerity policy, but production costs in US industry have also fallen since 2008. This is mainly due to falling oil prices. In just a couple of years, the USA has become as large an oil producer as Saudi Arabia, due to its extremely environmentally unfriendly ‘fracking’. But this is not the only reason. Workers’ wages are also key, and the US is the only OECD country where average income has risen, while median income has decreased. From 2007 to 2013, the median wage in USA fell from US53,000 to US46,700. Combined with a rising average income, this means that income inequality has increased. Statistically, high income increases for the top ten percent have offset stagnating or falling incomes for the rest. Since GDP has grown faster than the stagnating or falling wages of the majority, the profit share of national income has increased; thousands of billions of dollars have been redistributed from the working class to the owners of capital. Since the start of the 1990’s, the richest 3 percent of the population have increased their share of the wealth from 45 to 54.5 percent. Meanwhile, the lowest 90 percent of the population have seen their share decrease from 33 to less than 25 percent. But where is all this capital now? If it were invested productively, it would be visible in the form of newly built factories, new infrastructure or transport facilities. Instead, a larger and larger part of the profits is going to dividends – i.e., as ‘income from capital’ hand-outs to shareholders, producing an enormous accumulation and concentration of wealth. This is placed in the financial merry-go-round, contributing to the speculative price bubbles that time and again explode in new financial crises. Accounts of a US recovery are incomplete. Official unemployment has decreased, but the number of people in work has increased only marginally. Many of those who became unemployed bewteen 2008 and 2011 have not returned to the labour market; some 4 to 5 million individuals and have disappeared from the statistics. In 2008, over 66 percent of those in the active age bracket where employed. In June this year, that number had decreased to less than 63 percent. Low levels of investments in infrastructure and increasing inequality mean that US consumption will play a smaller role for the world economy. US households will not initiate another round of buying everything on credit; most people are still trying to decrease their indebtedness. So even if the US is growing faster than Europe, this will not save worldwide growth during the coming quarters. Failed European austerity policy EVEN THE FINANCIAL TIMES AND THE Economist are warning that the austerity policies of the European Union will lead to deflation and economic depression. Six years of lower taxes for the companies and cuts in public spending on service delivery, pensions and the publicsector wage bill have not led to lower unemployment and economic growth, but to the opposite. The aim of cutting government spending was to decrease state debt. The result is recession in most countries. This means lower incomes from taxes to the governments. As a result, their debts, measured as a share of GDP, have increased! Austerity and ‘fiscal consolidation’ policy has completely failed. Perhaps the official goals haven’t been the real goals. It is at least clear that the minority who are in possession of financial claims against governments remain unhurt by the crisis, even if this will lead to social crisis. Greece has been the laboratory for this economic policy in the interests of the few. It has thrown the country into turmoil and a rise in fascism. That the rich in Europe are not hurt by what is happening is clear from a recent report on tax evasion issued by the EU Commission. Every year since 2008, European countries have been losing one thousand billion Euros (about R14 trillion) by companies and wealthy individuals moving their money to tax havens. At the same time, European public services like schools and clinics are getting less and less funding because “there is no money”. So will we have a global recession, or worse? We are already in for a new recession. Whether it will be even worse than that depends on the policies of governments. If present cuts and austerity measures in Europe are not replaced by more expansive measures, we are likely to be in for worse. The destiny of Greece will then become the norm in most parts of Europe.

By Benny Asman
Benny Asman is an economic historian and journalist based in Brussels.