Economic crashes are part of capitalism’s history. And 50 years before 1929 there was another major global downturn
‘Growth, growth, my kingdom for some growth!” But the kingdom is in double-dip recession and the painful slog out of it may be longer than the government expected. Elsewhere, it’s not fun either. Spain is in serious recession with unemployment at almost 25%. Its borrowing costs are increasing, as are those of Italy – two major markets for British exports. In France, whose economy is faltering, François Hollande is poised to win the presidential election. The “markets” are running scared.
Crises have always been with us. They are part of the history of capitalism. This crisis is not like any of the previous big capitalist crises except in this: “we are not all in it together”. There will be winners and losers and, as usual, the outcome is uncertain.
The crisis of 1929, or the Great Depression, has become the ur-crisis, the proto-crisis, the one crisis all other crises are compared to. Is the present downturn as bad as that of 1929? Recent OECD data is not encouraging, particularly for Europe. The Federal Reserve chairman, Ben Bernanke, is more optimistic, at least for the United States. The meltdown, he explained, would have been even worse than that of 1929 had it not been for decisive government intervention (a modest way of patting himself on the back).
Comparisons are always useful, but the truth is that the crisis of 1929 was quite different from today’s – not surprisingly since the world has changed considerably. It is more globalised, more financialised (in the west), and more industrialised (in what we used to call the third world). In 1929 some looked back to the previous big crisis of capitalism, the so-called Long Depression of 1873-96, in the hope of learning something. Strictly speaking, the Long Depression was not a real one in the sense of stagnant or negative growth. But prices fell – great for consumers but disastrous for businesses. Growth faltered but never turned negative. And the crisis was global. There was a realignment of the world economies (this, after all, is what big crises do); the US replaced Great Britain as the leading industrial power, while Germany caught up.
The fall in prices led to several stock exchange panics (Vienna 1873 and Paris 1882). There was a tariff war between France and Italy. Everyone, bar Britain, adopted protectionism. The US, today’s haven of neoliberal ideology, was already the world’s most protectionist country. Contrary to current mythology, the power of the state increased. US federal spending reached new heights. Imperial powers (France and Britain) expanded their empires. Others (Germany and Italy) tried to join in.
States also became more authoritarian. In the 1870s, Bismarck passed anti-Catholic and anti-socialist legislation. In Italy the governments waged a virtual war against southern “bandits”. But along with the sticks there were some carrots. The working week was shortened, and the basis of the modern regulatory welfare state was created, particularly in rich states such as Germany, Belgium and Britain.
These reforms were spurred by the rise of labour, for in 1889 they were the central plank of the Second International, the organisation of socialist and labour parties. While dreaming to end capitalism, socialists effectively reformed it: universal adult suffrage, equal rights for all including women, legal aid, the eight-hour day, free medical service, and free education. It was during the Long Depression that most socialist parties were created, and by 1918 some were electorally stronger than they are now. Of course, they thought that capitalism would collapse. As the German socialist leader August Bebel wrote to Engels: “Every night I go to sleep with the thought that the last hour of bourgeois society will strike.” Engels had to calm him down.
Bebel had a point though: rising unemployment, increased capitalist concentration, strikes – but no economic collapse. Instead, there was an increased commercial and political rivalry between the great powers and, eventually, a major European war (1914-18) that had, among its consequences, the further consolidation of the American economy, the Bolshevik revolution, and the beginning of the end of Europe as a significant political force in the world.
The crash of 1929 accelerated these trends. By 1936 it appeared to have been resolved, but a year later a second dip threatened. The second world war, the most savage of all times, resolved the situation, thanks to a mega state stimulus. Keynes had said that it would be worth paying people to dig trenches and fill them up again. War does it better: it employs people to produce and use weapons of mass destruction. The outcome eliminated Europe from any leading role in international affairs, establishing the political supremacy of the US and the rise of the USSR as a world power.
Today, of course, the chances of an international war are remote, and everyone is betting on China; but what is most telling is that few had predicted the depression of 1870-96, or the crash of 1929, and fewer still guessed what would be their outcomes – just as few predicted the current crises and no one knows what will happen next. When it comes to forecasting really important events (the rise of Islamic fundamentalism, the end of the USSR, the Arab spring, etc) we are barely ahead of our ancestors, who read the future in the entrails of slaughtered goats.
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