Demystifying the economic crisis

February 13, 2009

Meltdown! A Socialist view of the Capitalist Crisis

By Tony Iltis, Lee Sustar, John Bellamy Foster, Phil Hearse, Adam Hanieh & Dave Holmes

Resistance Books, 2009

54 pages, $6.00

Available from

Meltdown! is an essential part of the activist tool kit for campaigning during this new economic situation we find ourselves in. Global economic downturns are not unprecedented — indeed the current crisis can be traced back to the collapse of the "dotcom" bubble in mid-2000.

Capital needed somewhere to re-invest. Big investors began shifting their investments to a traditionally safe market — the housing market.

This created a speculative bubble even bigger than the "dotcom" one that preceded it. This housing bubble — fed by so-called "subprime" loans made to some of the poorest people in the US — burst in 2007. This time, however, there is nowhere for finance capital to turn.

"A speculative bubble in natural resources or food is hard to imagine since these are known to be the most volatile areas in which to invest", US Marxist John Bellamy Foster says.

Traditionally, speculative bubbles have been based on the stock market or real estate. Indeed capitalism — in its present phase — is dominated by monopolies and cannot exist without these speculative bubbles because "capitalist enterprises had become too big to rely simply on their own profits to finance expansion", as Lee Sustar explains.

The fact of the matter is that "the present slump was deeply embedded in the DNA of neoliberal globalisation at birth and is an inevitable consequence of central features of the neoliberal 'regime of accumulation'", adds Phil Hearse.

Meltdown! does so much more than just explain the current crisis and its historical cause. It briefly deals with the financial jargon and demystifies the terms — such as "mortgage-backed securities", "credit default swaps" and "hedge funds".

Bellamy Foster explains why neoclassical economics failed to predict the current financial collapse. The problem, he says, is that neoclassical economics assumes a non-relation between the real economy and the financial economy.

In business circles, Bellamy Foster argues, "neoclassical economics is often viewed as useless in any real world terms, including the making of money".

Bellamy Foster does an excellent job of explaining why the dominant response to the crisis has been to throw money at the problem. "It was simply a problem of liquidity and that you can drop money from helicopters if need be", the thinking went.

Naturally, bank executives — upon receiving these handouts — saw no reason to lend this money in the present circumstances. There were already too many bad debts going around.

Nationalisation of key industries is one way to respond to such a large global downturn. This has been recognised by capitalist governments around the world who have done just that, albeit often only partially and by another name.

In Iceland the three largest banks have been completely taken over by the government in a desperate attempt to stop the country going bankrupt.

However, nationalisation remains a key demand for socialists, combined with workers' control, as one step towards a more fundamental transformation of the system to one organised around human need not private profit.

Nationalisations potentially raise the question of how an economy should run, by who and in whose interests. Socialists do not just support simply nationalising major industry but also transforming the political system to introduce genuine democratic control over all aspects of society, including the economy.

In most of the Western world the government "nationalisations" have been nothing more than taking the "toxic assets" off private shoulders — in other words transferring the cost of the crisis to taxpayers. The socialist alternative is to nationalise the banks (without compensation to large investors) and use the then-liberated financial power to fund genuine social development.

Dave Holmes explains why nationalisation is a key demand and answers some common questions/objections to this demand, such as: under capitalism, what's the real difference between private and public ownership? The public doesn't relate to the idea of nationalisation and it "won't or can't happen under capitalism", etc.

By way of example, Holmes goes into some detail about the bank nationalisation struggle of 1947-1949 waged by the Chifley Labor government. In doing so he explains why — if there was a "full-blooded" union campaign to nationalise the banks today — it would stand a greater chance of success, or at least win massive support from the working class.

Today, we have at least two converging crises, the climate crisis and the economic crisis. In order to successfully combat either crisis, we must deal with them simultaneously.

The Great Depression ended when governments began pouring all available funds into construction and engineering projects in preparation for World War II.

Nothing short of this all-of-economy approach and level of organisation is required to avert the worst aspects of global warming.

Tony Iltis examines the links between the two crises and why their solution is not just a problem of a lack of resources.

He asks, what could $US700 billion (referring to the largest single bailout of the banks in the US in 2008) achieve if directed to socially useful programs. Even this amount, he points out, is dwarfed by military spending in the dubious wars of occupation in Iraq and Afghanistan.

To conclude the pamphlet, Holmes gives an inspiring history of the rise of the Communist Party of Australia during the Great Depression.

While shackled by its sectarian line imposed by Russia, known as the "third period" schema, the CPA still grew 100-fold in the space of six years!

This was due predominantly to its work in the unemployed workers movement and also the Militant Minority Movement within the unions. If socialists can play a leading role in defence of workers' rights and the environment in this period, the possibilities could be enormous.

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