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Monopoly capitalism, not government budget deficits, at root of euro-zone crisis

Commentary by Fight Back! Editors |
June 28, 2012
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Most of the countries in the euro-zone, which includes most of the major economies of Europe (Great Britain and Switzerland being two notable exceptions), are now in a recession. The zone’s largest economy, Germany, is rapidly slowing. This growing crisis of overproduction among the capitalist economies of Europe is having a worldwide impact, with Asian economies and the U.S. being affected by slowing trade and growing fears of another financial crisis.

For the last two years the mainstream media has been painting a picture of the economic crisis in the euro-zone as one of governments spending too much on social welfare programs, leading to large budget deficits and debt. This reflects a right-wing, free market view that crises of overproduction under capitalism are because of ‘too much government intervention’ in the economy. The poster-child for this story has been Greece, whose large government budget deficit of about 15% of Greek GDP (total production of goods and services) and large government debt (which went as high as 160% of Greek GDP), triggered the crisis in 2010. In response, the big capitalists and their politicians called for more and more austerity in the form of tax increases, spending cuts and reduction in workers’ pensions and employment protection.

But Spain, whose economy is much larger than Greece’s, and which actually has a higher unemployment rate than Greece, is now the new center of the crisis. Spain has just had to take a 100 billion euro ($125 billion) bailout of its banks by the euro-zone. But Spain actually had government budget surpluses during the last economic expansion (2001-2007) so that its tax revenues were greater than government spending. In contrast, Germany, which is often portrayed as being ‘thrifty,’ also had government budget deficits (albeit about half the size of Greece’s). Spain also had one of the lowest levels of total government debt before the last recession and still had a government debt level lower than Germany, until it took out the bank bailout loan.

What Greece and Spain (along with Portugal and Ireland which have also had to impose austerity in exchange for more loans), had in common is that they all had large inflows of capital from Germany and other northern European countries. When the recession (or in a growing number of countries, depression) and financial crisis that began in the U.S. hit, these capital flows dried up. Thus the current euro-zone crisis is very similar to the 1997 Asian economic crisis, which also resulted from a boom and then bust in capital flows and led to a severe crisis of overproduction that spread to Russia and Latin America.

These booms and bust caused by international flows of capital are not accidents; rather they are a fact of life under modern monopoly capitalism. About 100 years ago, the Russian revolutionary V.I. Lenin pointed out that the concentration and centralization of capital led to a handful of huge corporations dominating industry after industry. Lenin called this monopoly capitalism to differentiate it from the more competitive capitalism of Marx’s time, where most capitalist firms were relatively small.

One of the features of monopoly capitalism pointed out by Lenin was that the export of capital, which is movement of money across borders, became more important than international trade, or the movement of goods and services between countries. Today capital flows, for both investment and speculative reasons, far exceed the value of trade. In 2010, world trade averaged about $75 billion per day. In contrast, the foreign exchange market, which trades money for trade, investment and speculation, averaged a whopping $4 trillion per day, or 50 times larger than the trade of goods and services.

While free market apologists for monopoly capitalism claim that these huge flows of speculative capital actually make capitalism more stable, the fact is that these flows can be the trigger for worldwide economic crises of overproduction. These huge international flows of capital go hand-in-hand with the growth of the financial sector, another characteristic of monopoly capitalism described by Lenin in his work Imperialism: The Highest Stage of Capitalism.

Some countries with capitalist economies, such as Malaysia during the 1997 economic crisis, turned away from free-market fantasies and introduced controls on capital flows. While free-market economists predicted disaster, these controls actually helped Malaysia’s economy to weather the storm.

But while controls on capital, like other Keynesian government policies such as government deficit spending, can help reduce the damage of an economic crisis, they do not prevent such crises. The more that such controls help limit the damage of crises, the more the capitalists want to reduce the government’s role in the economy to free big corporations and big banks to make the most profits. This is the policy of deregulation, imposed by politicians bought and paid for by the 1% for the last 30 years.

Only with a socialist economy can a country distance itself from the global monopoly capitalist financial whirlpool that is leading to one economic disaster to another. A socialist economy is one where the production is for people’s needs and not for profit and ownership is not concentrated in the hands of the wealthy 1% but instead collectively owned by the people.

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