The pundits are very busy these days looking for scapegoats among the swindlers, liars and manipulators who by their greed and excesses have caused the meltdown that led to this mother of all stock market crashes.

Now it’s true that in the midst of every economic boom some masters of the universe exercise no scruples in grabbing their share, and then some, of the profit bonanza; and when conditions sour, find novel ways of hiding their true bottom lines to keep investor capital coming their way.

But acts of greed and corruption, no matter how outrageous, are not the cause of collapse.

It’s Capitalism, Stupid.

Cycles of booms and busts are an inherent feature of the capitalist economy. Every boom is eventually marked by distortions and imbalances:

• Too much production - more than the market will bear; and desperate marketing devices to attract new buyers - heavy discounts, interest free loans, sub-prime loans; stock market margins - all resulting in debt bubbles waiting to burst – and a consequent credit squeeze when banks fear their loans are in jeopardy of not being paid.

or

• Too tight labour markets causing rising labour costs that squeeze out profits.

or

• Ballooning of assets of all kinds ­ houses and other real estate, stock and its derivatives far in excess of their true worth.

Collapses are essential for capitalism. We can count the ways:

• mass unemployment reignites fear among workers, reducing their demands and recreating labour discipline.
• plant closures and production cutbacks allow businesses to reduce their inventories of unsold product.
• capital values of assets fall back to levels in line with their worth.
• weak and inefficient firms are wiped out and their assets transferred at bargain basement prices to larger and financially stronger firms.
• borrowing rates are cut so money can be raised more cheaply.

In normal cycles, when conditions are favourable for profit margins, businesses will be willing to expand their operations again. That’s Capitalism 101.

As of this writing, stock markets around the world are in a free fall; moneymarkets are shut down; banks and shadow banks are collapsing; commodity prices and housing prices are plunging; production is beginning its slow-down. In a globalized world with massive excess capacity and a glut of housing, automobiles and most everything else, there is a strong possibility of a general deflation.

Meanwhile, despite all the desperate measures taken by central banks and governments to rescue overstretched commercial banks ­ including buying worthless subprime mortgages and toxic debt securities from the banking system, cutting interest rates, guaranteeing deposits and other bank liabilities, even nationalizing banks ­ none of this has yet had much impact in stemming a run on the banks and containing the crisis. And the financial contagion is spreading globally, with all of Europe and now Japan and the rest of Asia caught in the downswing.

But even when the financial crisis is finally halted, the decline of the real economy has barely begun. This will not be a short six month recession typical of the post WWII period. It will be deep and protracted ­ two years perhaps. Even a decade long recession like the one experienced by Japan after its real estate and equity bubble burst cannot be ruled out.

While no country in the world can avoid being pulled into the coming downturn those, like Canada that are so deeply integrated with the US, will be felled most severely.

Let there be no doubt – this is one of the greatest crises in the history of capitalism. How will it end and what will the world look like in its wake we can only reflect on.

Is this the “End of the American Order” as a Report on Business headline screamed? (Globe and Mail, October 4).

On the one hand, America’s brand of free market capitalism has clearly lost its international purchase. As well, for some years now, the Americans have lost the free trade wars in the WTO; and the IMF, through which the US made a practice of dictating free market policy directions to Latin America, has lost its credibility. Washington has also lost influence and prestige arising from rejection of its invasion of Iraq and Afghanistan and from human rights violations like Abu Ghraib. Some of this may be recovered with an Obama administration, but this is unclear.

On the other hand, despite the financial crisis, global capitalism still sinks or swims with the USA. The capitalist world, including China, is so dependent on the American market and American technology that for now no country is in a position to challenge the US as the dominant economic power. Some years ahead that could change in which case we could be facing a crisis of a different kind since capitalism has always required a global command centre.

What does the aggressive intervention including nationalization of some banks say about the future of economic policy? Hardly a turn to the Left that some politicians and commentators are worried about. In all crises the state comes in to rescue capitalism from the capitalists.

What does this crises mean for those of us on the socialist left? It is not our function to join the search for solutions to save the capitalist economy. As Leo Panitch and Sam Gindin have argued, “the crisis and the popular outrage today provide a historic opening for the renewal of the kind of radical politics that advances a systemic alternative to capitalism.” The alternative we advance will address both capitalism’s economic failures especially its failure to meet the human needs of the world’s majority­ and the threat it poses to the planet arising from global warming. In short, what we need and must fight for is real regime change: that is an ecosocialism for the 21st century.

This article appeared in the November/December 2008 issue of Canadian Dimension .