When the current economic crisis broke out in the winter of 2007/08, the causes also seemed to be quickly identified: The problem was due to the greed of the bankers, the high bonus payments and generally the evil financial economy (in contrast to the good "real economy" = production of goods, services, etc.).). It has since become apparent that certain people are really struggling to assess the situation. Many also have no interest at all in naming the real causes of the crisis. Also, high bonuses for bankers are definitely excesses that need to be criticized. The causes of the crisis, however, lie much deeper: such crises are part of the functioning of our economic system, capitalism, and occur again and again at more or less regular intervals.
From BFS Youth Zurich
1. Overproduction crises
Under capitalism, the economic production of goods is not designed to meet people's needs. Producing what can be sold without planning how much of each good is needed ("anarchy of production").[1] Now, if an industry in the economy is doing well (like z.B. the computer technology in the 1990s), more and more capitalists (=factory owners) start to produce this product, because good money can be earned with it. And that is the goal of every capitalist. Making profit is even necessary for them to survive, because the individual capitalists are in competition with each other: the one who can produce cheaper is able to offer his products on the market cheaper and can thus sell more goods than the others. But because capitalists compete with each other and are forced to produce their products as cheaply as possible, their rate of profit tends to fall ("falling rate of profit").[2] The easiest way for the capitalist to achieve the cheapest possible production is for machines to replace human labor and for him to reduce spending on workers' wages. However, in order to be able to buy machines in the first place, it has to make enough profit. The maximization of profit is therefore a necessity of the capitalist mode of production.
If now many capitalists throw the same product on the market, at some point there are too many of these goods on the market. Fewer and fewer people buy the products from the manufacturers. Profits continue to fall. The capitalists are forced to sell even more of the same products even cheaper in order to continue to make their profit. At some point, however, the point necessarily comes where the products can no longer be sold and there is a collapse. This development is called overproduction crisis.
Depending on how strong capitalist overproduction crises are, the more far-reaching consequences they can have. In the worst case, they expand into world economic crises, as in the 1930s and today. Crises are always associated with higher unemployment (as factories close), wage cuts and poverty (as a result of computerization). This in turn aggravates the crisis, because people can buy even less ("no consideration for the decreasing purchasing power of the workers"). The consequences of overproduction crises are particularly perverse, since they do not arise from a lack of material production, but precisely from the fact that too much has been produced.
From the crises capitalism draws however also again new life. Since in crises the production of goods collapses, many factory owners go bankrupt, people are laid off and wages are lowered, individual capitalists manage to be competitive again and to be able to sell their products. And the game can start all over again. Consequently, capitalism always works according to the same sequence: Upswing, boom, crisis, depression, recovery, etc. etc. So crises are an inherent part of capitalism. There can be no capitalism without crises.
2. Economic crisis since the 1970s
The current crisis did not simply break out suddenly and surprisingly. Since the 1970s, it has become increasingly difficult for capitalists worldwide to make a profit ("falling profit rate"). This means that capitalism has been in a crisis of overproduction since the 1970s, but has been able to delay it with certain measures. It has been possible to counteract the outbreak of the crisis by, on the one hand, producing more and more machines (z.B. The crisis was caused by the use of new technologies (e.g., computers), which made it possible to produce more and cheaper.[3] On the other hand, they tried to cut the cost of wages and, in general, the expenditure for the welfare state, so that in the meantime more profit was left for the capitalists.[4] This epoch of capitalism since the end of the 1970s is called neoliberalism.
But from these measures a big problem arose. Since the wages of the workers were cut, they could consume less, thus buy less products from the capitalists, which in turn intensified the crisis ("no consideration for the decreasing purchasing power of the workers"). The decline in consumption was avoided by giving credit cards to the people so that they would continue to consume on credit. Especially in the USA this development took on devastating proportions, because people were increasingly forced to live on credit because of their lousy incomes. The capitalists tried everything to be able to sell the "overproduced" goods ("anarchy of production"). However, as it turned out from 2008 onwards, all these measures could not prevent the crisis.
3. Overaccumulation crises
One problem that arose from the protraction of the crisis was that capitalists could no longer profitably invest their profits in the "real economy" precisely because too many capitalists were already offering the same products on the market. Also, the emergence of new economic sectors such as z.B. computer technology offered the broad mass of capitalists the opportunity to invest profitably again only for a time (namely only until the year 2000, when an overproduction crisis – the so-called dotcom crisis – broke out in this sector as well). They therefore had to look for new investment opportunities in order to continue to make a profit, which they need to "survive".
So capitalists around the world began to invest their profits in shares on the stock exchanges on a grand scale. You tried to increase your money with various stock market gimmicks and investment tricks. That also went well for a while. The problem, however, is that shares of a company (shares = share certificates) only reflect a more or less fictitious value, which does not have to correspond to the real value of this company. For example, 10 mio. Franks own shares in a factory. In truth – and this turns out then in crises, if the shares collapse – the factory would be however only 5 millions. francs worth. So one possessed real "worthless" money in the form of shares.
Because more and more money has been flowing into the financial sector since the 1980s that had no real value, a huge financial bubble has been created. So it was only a matter of time before this bubble burst. The development of capitalists accumulating profit, but no longer being able to invest it profitably, is called an overaccumulation crisis and is part of a capitalist overproduction crisis.
4. Outbreak of the economic crisis in 2008
From the late 1990s onwards, the overproduction crisis erupted again and again in individual regions and economic sectors (Asian crisis 1997/98, dotcom crisis 2000, Argentina's sovereign default 2001), but did not yet become a global crisis. It was not until the winter of 2007/08 that the overproduction crisis broke out around the world. It began in the U.S. with the so-called subprime crisis,[5] when real estate prices in the U.S. began to fall. As a result, a huge real estate bubble burst, because the houses were not worth as much as they were on paper and the people were led to believe by the banks. Many Americans financed their "life on credit" (see above) to an important part with the rising prices of their real estates. When real estate prices started to fall, they suddenly lacked a lot of money. As a result, from 2006 onwards, they were increasingly unable to pay the banks the mortgage interest on their homes as well as their high credit card bills. Accordingly, the banks soon also lacked money to continue doing business. That's why in the winter of 2007/08 all these bubbles on the stock exchanges, created from the over-accumulation crisis, then burst. This was the beginning of the global financial crisis in 2008.
Many banks around the world made huge losses with these burst financial bubbles, as they had invested their money in stocks etc. which were not worth as much in real terms as the banks themselves assumed. Some of these banks were even (and still are) close to bankruptcy and needed a lot of money fast. This money they got from the national banks and parliamentarians of the respective states loyal to them z.T. awarded overnight. By having these multi-billion dollar bank bailout programs paid for by wage-earning taxpayers, the cost of the crisis produced by the capitalist economic system has been passed on to the population everywhere. Because now the states spent billions of francs for the rescue of the banks, they have massively – partly up to the insolvency (Ex. Greece) – indebted. In order to balance the state budgets, however, it is not those who have caused the whole crisis (the industrial and financial capitalists and their vassals in the parliaments) who are asked to pay. Instead, the costs are being passed on to the wage-earning population as states impose massive austerity programs to slash spending on public services and welfare state.
So the 2008 financial crisis is the product of the overproduction and overaccumulation crisis since the 1970s. Thus, the crisis is a classic crisis of capitalism as a whole. That it did not remain with a pure crisis at the financial markets, was confirmed to us since 2008. All these attacks on the working and living conditions of workers described above, which are taking place all over the world, have the common goal of making capitalist production work again. The costs of the crisis are to be passed on to the population, so that the capitalists can produce profitably again as soon as possible and the whole story can thus start all over again.
5. From financial crisis to sovereign debt crisis
Bourgeois economists and their media are constantly trying to convince us that the financial crisis is something different from the debt crisis or the euro crisis. But these apparently different crises are just different sides of the same coin. The current sovereign debt crisis is the product of the financial crisis and this in turn – as explained above – is part of the general crisis of the capitalist economic system. But how did we get from this financial crisis to the current debt crisis?? Four points should be mentioned here:
- Basically, a state gets into debt when it spends more than it takes in. A state makes revenues mainly through tax revenues. Since tax competition is an important factor of location competition within the EU, the European states massively lowered the taxes of the rich and companies in the last two decades. So the states lost billions in tax revenue.
- The financial crisis endangered the banks to the highest degree, as they suffered huge losses. The banks were then bailed out by their respective governments with massive rescue packages worth billions of euros, which resulted in the countries taking on additional debt. In addition, the effects of the financial crisis could be passed on to the wage-dependent population, since the rescue packages were financed by the state, i.e. through tax revenues. The losses of the banks were thus "socialized" and private debts became public debts.
- During an economic crisis, more and more people become unemployed or their wages are reduced. This also leads to lower tax revenues.
- Among other things, because of the decreased tax revenues, the state had to find additional means to raise money, namely by means of government bonds (= debentures). This works like this: the states write out a promissory bill to the lenders – mostly private banks and insurance companies – in which they assure that they will pay the borrowed money z.B. will pay back within 10 years. The lenders then collect the money plus interest back from the states. By tendering government bonds, the states took on additional debt.
The debt problem is compounded by another problem. The problem of the Euro. Due to the massive debt, the lenders, i.e. the banks, which bought government bonds from the states and gave them money in return, were able to borrow from some states (z.B. Greece, Spain, Italy, Portugal etc.) no longer be sure whether these states can ever pay back the borrowed money, since the latter may go bankrupt again. This would mean huge losses for the banks.
In the past, in such cases, states could simply issue their own currency (z.B. devalue the lira in Italy) by printing massive amounts of money, which led to an oversupply of the currency and thus a collapse in prices. Thus, the states were able to repay their own debts "cheaper". With the euro this is no longer possible, since only the European Central Bank can devalue or revaluate the euro. Therefore, the banks that lent the money to the states are now raising the interest rates on these government bonds in order to get back at least a part of the money they advanced. This in turn makes it even more difficult for the states to get out of the debt trap, since they have to get into even more debt in order to be able to pay the interest on the older debts at all.
6. Conclusion
Today we are experiencing a classic capitalist crisis of overproduction and overaccumulation. This means that, on the one hand, too many goods have been thrown on the market, which now can no longer be sold. Due to this general overproduction crisis, the banks and other financial institutions, on the other hand, could no longer profitably invest their capital in the so-called real economy. As a reaction to this, the banks etc. increasingly invest their money on the stock exchanges (which are detached from the real economy). This development finally led to the bursting of a huge financial bubble in 2007/08 and thus to the financial and economic crisis.
A product of this economic crisis is the massive and steadily increasing debt of European countries. In response, states are now trying to cut spending to balance their budget deficits. This happens by means of savings proramme worth billions, which hit almost exclusively the lower and middle strata of the population. Once again, the consequences of the capitalist economic crisis are being passed on to the wage-dependent population. Thus, in this crisis, not only the character of the capitalist economic system, but also that of the bourgeois-democratic state becomes all the more evident: namely, as a willing helper, almost a slave, of the big financial and industrial capitalists.
So the current crisis was not caused by the high bonuses of bankers or their greed or by individual rampant financial institutions, as still many people believe and claim. The causes of the current crisis lie in the function of the capitalist mode of production. Capitalism drives thus once more millions of humans into unemployment, poverty and hunger. This should not be. This must not be. That is why it is so important for us to question the whole capitalist economic and social system and to give anti-capitalist, socialist answers to the crisis.