The crisis wears on

Issue: 133
Posted: 9 January 12

Alex Callinicos

The world enters 2012 still in the grip of an economic crisis that, by increasingly common consent, is without precedent since the 1930s. Its basic contours haven’t changed since we delineated them in our last issue. On the one hand, the banks and consumers in the bulk of the two main zones of advanced capitalism (the United States and the European Union) are still loaded down with the debt accumulated during the credit boom of the mid-2000s and (in the case of the banks) with many of the losses they suffered when that boom collapsed in 2007-8. On the other hand, the political elites of the US and the EU are paralysed by their internal divisions, which stem more than anything from the increase in public debt generated by the crisis and by the bank bailouts and the fiscal stimuli that marked the initial response by governments to the great financial crash in the autumn of 2008. The central banks have been left, inadequately, to fill the policy gap.

The most important development of the past few months has been the spread of the latest phase of the crisis from its storm-centres in the US and Europe to the rest of the world. In November, Wang Qishan, the Chinese vice-premier in charge of the financial sector, struck a very different note from the boosters who claim China can ride out the crisis. He warned, “Right now the global economic situation is extremely serious and in a time of uncertainty the only thing we can be certain of is that the world economic recession caused by the international crisis will last a long time”.1

In this issue we have a major article by Jane Hardy and Adrian Budd probing the tensions throbbing through Chinese economy and society. We are now seeing the collapse of the boom generated by the flood of cheap loans that brought the 2008-9 slump to an abrupt halt. The November purchasing managers’ index recorded a fall in Chinese manufacturing output. The Financial Times reported in early December: “Millions of factories…are being squeezed from all sides by rising costs, labour shortages, shrinking margins and a collapse in new orders from overseas”.2 Other “emerging market” economies were also affected: after growing by 7.5 percent in 2010, Brazil stagnated in the third quarter of 2011.3

A new strike wave has hit southern China, where workers have seen their overtime cut thanks to the fall-off in export orders, notably from the eurozone. The Chinese authorities, hitherto preoccupied with slowing down an inflationary boom that looked in danger of escaping their control, have started to relax these policies—probably in concert with the US Federal Reserve Board, which sought at the end of November to prop up the European financial system by cutting the interest rate it charges for dollar loans to the European Central Bank (ECB).

The Fed’s initiative, coordinated with other leading central banks, was a response to what Mervyn King, governor of the Bank of England, called “early signs of a credit crunch” like the one that marked the first phase of the crisis in 2007-8. According to the Financial Times:

As fears over the integrity of the eurozone have deepened, European banks have found it expensive, difficult or in some cases impossible to raise funding in the bond markets. So far they have covered barely two-thirds of the amount of outstanding funding that falls due in 2011. For most banks, the bond markets have been closed for months.4

The European banks, holed by the massive losses that they suffered in 2007-8 and have been covering up with the collusion of national governments and EU authorities, are sucking other parts of the financial system into the vortex. Small and medium-sized enterprises already have great difficulty getting access to credit, but European banks, eager to reduce their leverage (the ratio between their capital and loans), are pulling back from other areas like trade finance, emerging markets, and mergers and acquisitions.

In the face of this desperate situation, the policy paralysis has one major exception. The drive to austerity continues, whether steered by the public school Thatcherites who dominate Britain’s Conservative-Liberal coalition or by the “technocratic” governments imposed on Greece and Italy by the unelected and unaccountable “Frankfurt Group” (German chancellor Angela Merkel, French president Nicolas Sarkozy, Christine Lagarde, managing director of the International Monetary Fund, Mario Draghi, the new president of the ECB, José Manuel Barroso and Olli Rehn from the European Commission, Herman van Rompuy, president of the European Council, and Jean-Claude Juncker, chair of the Eurogroup) that now runs the eurozone.5 Merkel’s and Sarkozy’s proposals to deepen the fiscal integration of eurozone governments do not represent a move to a genuine political union based even on the limited form of popular sovereignty expressed in bourgeois democracy.

As the commentator Wolfgang Munchau puts it, “Contrary to what is being reported, Ms Merkel is not proposing a fiscal union. She is proposing an austerity club, a stability pact on steroids. The goal is to enforce life-long austerity, with balanced budget rules enshrined in every national constitution”.6 Sarkozy’s version is somewhat different because he wants austerity to be policed by national governments rather than by the European Commission and the European Court of Justice, as Merkel does. Their agreement in early December favoured her rather than Sarkozy, reflecting the balance of power between Germany and France. If implemented, it will institutionalise the dominance of the Frankfurt Group. The idea that judges should vet national budgets is an extension of the neoliberal imperative to take control of economic policy away from elected politicians and transfer it to “experts” (making central banks independent was an earlier stage of the same process).

The EU summit that accepted this package on 8-9 December was dominated by David Cameron’s “veto”, which means the new fiscal regime will apply to the existing eurozone governments plus states that want to sign up, rather than, as Merkel wanted, to the EU as such. The crisis of the euro and the moves towards the greater integration of the eurozone have reawakened within the Tory party the toxic issue of Europe, which destroyed the governments of Margaret Thatcher and John Major during the 1990s. Cameron acted to prevent a major backbench rebellion, but left Britain isolated in the EU. Kelvin MacKenzie, editor of the Sun in the Thatcher era, may be “dancing with joy”, as he told the Financial Times, but Cameron’s Liberal Democratic partners are furious—though they are still too frightened of electoral destruction to bring the coalition down.

But the reality is that the changes under way in the eurozone would in any case have rendered unsustainable the comfortably semi-detached position that British capitalism has enjoyed in the EU since Major negotiated Britain’s opt-outs from the 1991 Maastricht Treaty and Gordon Brown blocked British participatopm in the euro in 1997. Britain kept the pound, making it easier to absorb the great shock-waves of the crisis, but had access to the single market, while the City of London acted as a global platform for the big European banks. It is significant that the breaking point in Cameron’s negotiations with Merkel and Sarkozy came over the regulation of the City. This doesn’t only show how hollow the coalition’s promises to “rebalance” the British economy away from finance have been. Merkel and Sarkozy want the eurozone mark two to have its financial centres in Frankfurt and Paris rather than London. But such long-term issues are moot, since it is completely unclear whether the promise of greater fiscal discipline in the future will be enough to stop the financial markets forcing the weaker eurozone states into default. Forecasts that both Britain and the eurozone will shrink this year are proliferating.

Many mainstream economists have pointed to the irrationality of austerity and highlighted various technical devices that could stabilise the financial system and begin to raise the level of effective demand.7 But these criticisms and suggestions pass the political elite by. The stance taken by Tory chancellor of the exchequer George Osborne in his Autumn Statement on 29 November is entirely typical. Faced with the evidence that, quite predictably, austerity is slowing the economy down and thereby raising government borrowing, making it impossible for him to meet his target of eliminating that part of the budget deficit not caused by the recession by 2015, Osborne not only refused to change course but provocatively imposed yet more restraint on public sector pay.

Locking public policy onto austerity cannot be explained merely as an intellectual error or even as a product of neoliberal ideology. It is an assertion of class power. Confronted with the economic uncertainty highlighted by vice-premier Wang, the neoliberal coalition that has dominated Western capitalist states for the past generation is determined that, whatever else happens, it won’t pay for the crisis. The incredibly skewed distribution of wealth and income that has developed in the neoliberal era will be maintained. The costs of an economic catastrophe that shows no signs of ending will be paid by working people and the poor.

New anti-capitalist horizons open

Fortunately, austerity is meeting with increased resistance. In Britain this has taken the form above all of the public sector mass strike of 30 November 2011. Charlie Kimber analyses this fundamental development elsewhere in this issue. But the ideological context has also changed significantly. The Occupy Wall Street (OWS) movement has had the most astonishing impact since it emerged in mid-September.

For one thing, OWS has reframed the political debate in the US. Barack Obama’s failure politically to master the crisis in the way which his former chief of staff, Rahm Emmanuel, suggested when he said a crisis like this was too good to waste had left the initiative in the hands of the Republican right, and in particular the Tea Party movement. But this group’s relatively narrow base has been exposed by the extraordinary impact that OWS’s targeting of the banks and the rest of the corporate elite has had. The slogan of “The 99 percent versus the 1 percent” has translated into popular language the Marxist conception of the class antagonism constituting capitalist society and captured the mass imagination.

The influence of OWS has been seen in the way in which the international day of action on 15 October—originally called by the 15 May movement in the Spanish state—involved around a million people in protests around the world. It can also be measured by the proliferation of its imitators both across the US and elsewhere and also by the speed with which the American trade unions and (more problematically) some Democratic Party politicians have responded. Elsewhere in this issue Megan Trudell explores the interaction between Occupy and the signs of reviving working class resistance in the US.

It is easy enough to point to the limitations of the Occupy movement. Ideologically it embraces a range of positions, from those who want to regulate capitalism (or even, among the followers of the American libertarian rightist Ron Paul, to purify it) to much more hard-edged anarchist and autonomist politics. It has varied from place to place how hospitable Occupy has been to the revolutionary left. And the impact has been largely symbolic—though in some US cities (apart from New York itself, for example, in Oakland, California, where police brutality provoked a mass stayaway in early November) it has reached deeper into society.

All the same, Occupy demonstrates that the process that began with the protests at Seattle in November 1999—an ideological radicalisation that mobilises a wide range of people to target the system and not merely to press specific grievances—continues. Occupy shares many features with the movement for another globalisation that became visible in Seattle—for example, the ideological heterogeneity noted above, but also a reliance on highly problematic consensus-based methods of decision making. But it represents an acceleration in the process of radicalisation: 15 October came a few weeks after the emergence of OWS, whereas it took nearly a year after Seattle for European anti-capitalist networks to mount their first major protest in Prague in September 2000.

The speeding up reflects, more than anything else, the impact of the crisis. More than four years into a depression that shows no sign of ending, with faith in economic and political elites nearing zero, there is a growing willingness to hold capitalism itself to account and to take action against it. Of course, protest is not enough. Austerity, as we have already seen, is an assertion of class power by the 1 percent against the 99 percent. Class power has to be countered with class power. This is why the signs of recovery in the British workers’ movement are so important. The challenge is to connect the anti-capitalist imagination showed by Occupy with the collective strength that only organised workers can deploy.

Egypt: the revolution in balance

The inspiration, without which neither the 15 May nor the Occupy movements are conceivable, is, of course, the occupation of Cairo’s Tahrir Square in January-February 2011. “Tahrir” itself is partly a symbol for a much more complex but less visible revolutionary process that was actually more militant, and more dominated by working class people in other urban centres such as Alexandria, Suez and Port Said. Nevertheless, what it has done is provide the 21st century with a concrete image of collective self-emancipation. The idea, fashionable after the fall of the Stalinist regimes in Central and Eastern Europe and the Soviet Union, that the classical tradition of revolution was exhausted looks pretty hollow now.

In November and December 2011 Tahrir Square was the scene of another great battle, which this time pitted predominantly young working class militants against the ruling Supreme Council of the Armed Forces (SCAF) and its reconstituted riot police. As Anne Alexander shows elsewhere in this issue, this confrontation took place against the background of the huge leap forward made by the independent workers’ movement in August and September.

But, as Lenin wrote long ago, “politics is the most concentrated expression of economics”.8 This does not mean that what happens in the political field simply reflects the unfolding of the economic class struggle. Daniel Bensaïd puts it very well: “Lenin was one of the first to conceive the specificity of the political field as a play of transfigured powers and social antagonisms, translated into a language of its own, full of displacements, of condensations and of revealing slips of the tongue”.9 Because politics concentrates the totality of social contradictions, it operates according to a logic that is irreducible to that of any specific struggle, even by the most militant workers. Moreover, politics concentrates the totality of social contradictions, the interplay of the entire spectrum of class forces, and not simply the antagonism between capital and wage labour.10

This understanding of politics is indispensable to decoding the revolutionary process in Egypt, a society with a vast and complex population embracing, alongside capitalists, workers and the managerial-professional “new middle class”, a vast petty bourgeoisie shading into the urban poor and the substantial peasantry in the countryside.

What precipitated this latest drama was a miscalculation by SCAF. Concerned simultaneously rapidly to restore bourgeois stability and to entrench the considerable privileges the Egyptian military has acquired since the Free Officers seized power in July 1952, the junta announced that it would continue to exercise power well into 2013, long after the protracted process of electing a civilian parliament and president had been completed. It also decreed that, for example, the military budget should be exempt from parliamentary scrutiny.

This attempt, in effect, largely to pre-empt the results of the elections, provoked a reaction, not simply by the most advanced revolutionary elements, but by the political forces that SCAF had looked towards as allies in restabilising Egyptian society, the Muslim Brotherhood, and even sections of the Salafis, the Saudi-sponsored ultra-puritanical Islamist networks that are particularly influential in rural Upper Egypt, in the south of the country. The Brotherhood itself has developed into an organisation that, though economically and socially conservative in outlook, became the main political vehicle for opposition to the regime of Hosni Mubarak. This made it, as we suggested in the immediate aftermath of the 25 January Revolution, the ideal partner for SCAF in trying to establish a broader mass base for bourgeois rule in Egypt.11 Last July a mass demonstration organised by the Brotherhood and the Salafis provided the military with the political cover violently to clear Tahrir Square of a demonstration by the families of revolutionary martyrs.

But SCAF overreached itself. The Brotherhood leadership had no desire to see the electoral success they justifiably expected to dominate nullified by continued military superintendence of the political process. A vast demonstration representing the temporary convergence of the Brotherhood and some Salafis with more liberal and leftist secular political forces filled Tahrir Square on 18 November. But when this developed into a confrontation with the riot police and the army itself, the Brotherhood leadership (though not all its activists) pulled away.

The clashes in the square—and in other Egyptian cities—produced a certain equilibrium of forces. On the one hand, the numbers and the sheer heroism of the shabab, the young working class protesters, proved too great for SCAF to crush them, despite the many killed or maimed by gunfire and tear gas. On the other hand, the occupiers did not succeed in achieving what became their objective, the removal of Field Marshal Hussein Tantawi, the leader of the junta. This was in large part because SCAF retreated, offering a speeded-up transition to civilian rule.

This was enough to satisfy the Brotherhood. Its leaders threw their weight against the calls emanating from Tahrir Square to boycott the parliamentary elections, whose first stage went ahead with little disruption on 28-9 November. If the demands of the occupiers had been backed up by mass strikes, this might have been enough to tilt the balance, but the support given to the revolutionaries by the Egyptian Federation of Independent Trade Unions remained largely symbolic. The mass strikes of August and September had already reached a plateau: they represented a step-change in the depth and scale of working class organisation, but did not win many of their demands.

More broadly, a gap has opened up between a substantial, self-organised
minority that recognises completing the revolution requires breaking the power of the military and the bulk of the population, who are willing to give the elections a chance. There have been other cases during revolutions when the most advanced elements have found themselves isolated when calling for boycotts of elections—as the German Communist Party was after the November 1918 Revolution and the section of the Portuguese far-left that stood aloof from the Constituent Assembly elections of April 1975.

People who have not yet had a taste of bourgeois democracy, particularly in the rural areas that have as yet been relatively untouched by the revolution, will need more experiences before they look towards the higher alternative of socialist democracy. Hossam el-Hamalawy suggests a more concrete motive: “Their rush to vote is largely driven by the general desire to see SCAF go”.12 The outcome of the first round, in which between them the Brotherhood’s Freedom and Justice Party and the Salafi Nour Party won 60 percent of the vote, is among other things an indication of this. Rather than representing the beginnings of an Islamist avalanche, it shows that the mass of Egyptians are at the early stage of a process where they test various political options, beginning with the most familiar.

A YouGov opinion poll conducted between 23 and 27 November (sample of 1992 respondents across Egypt) offers a snapshot of the complex state of popular consciousness. Some 46 percent overall strongly believed the army would “facilitate free and fair elections” but 32 percent also agreed strongly that the new constitution drafted by SCAF “would allow the army to retain too much power after a new civilian government was elected”. Overall 48 percent thought that the protests were “necessary actions to achieve the goals of the revolution”, and this figure rose to 55 percent among the lowest income category ($266 per month and below). Some 59 percent said they were “very likely” to vote in the elections.13 So, on the one hand, people were willing to try the electoral route laid out by SCAF, but, on the other, there is a strong attachment to the tradition of mobilisation from below that has developed since January.

On balance, developments since the summer have seen the Egyptian Revolution go forward. Large numbers particularly of young activists have seen through the rhetoric of the unity of army and people that prevailed at the time of Mubarak’s fall. The workers’ movement has made major advances. Self-organisation both in the workplaces and on the streets has developed. The uneasy partnership of the generals and the Brotherhood will face deep difficulties. The pressure that the global economic crisis puts on living standards is a continually destabilising force. Precisely because the Brotherhood has emerged as such a broad political force, all the contradictions of Egyptian society run through it.

Wael Gamal, editor of the daily Shrouq, argues:

SCAF is very, very weak. Every time 100,000 people go to Tahrir, the government falls. They are on the defensive. The problem is that people in Tahrir don’t have the power to put more pressure on, to confront the real web of interests behind SCAF and to confront the old regime in the workplaces. There will be a real fight for democracy and social change.14

So the Egyptian Revolution continues. As el-Hamalawy puts it, “There will be waves, ebbs and flows, battles to be won and others lost”.15 The ultimate outcome will depend on whether the activists who definitively broke with the military in November succeed in winning the support of the broader masses who held back this time. And that in turn will require both the further development of the workers’ movement and much stronger and better rooted revolutionary socialist organisation than now exists.


1: Anderlini, 2011.

2: Anderlini and Jacob, 2011.


4: Jenkins and Milne, 2011.

5: See Elliott, 2011.

6: Munchau, 2011.

7: It is fascinating, moreover, to see two distinguished outliers, the monetarist Samuel Brittan of the Financial Times and the Marxist John Weeks, converging on a Keynesian critique of austerity economics: see, for example, Weeks’s excellent blog

8: Lenin, 1965, p32.

9: Bensaïd, 2004, p121.

10: See the discussion of Lenin’s political method in Lukács, 1970.

11: Callinicos, 2011, pp28-29.

12: El-Hamalawy, 2011,

13: Thanks to Anne Alexander for these data, which she discusses here:

14: Fisk, 2011.

15: El-Hamalawy, 2011.


Anderlini, Jamil, 2011, “China Fears Lasting Worldwide Recession”, Financial Times (20 November),

Anderlini, Jamil, and Rahul Jacob, 2011, “Global Decline Drags Down Chinese Factories”, Financial Times (1 December),

Bensaïd, Daniel, 2004, Une Lente impatience (Stock).

Callinicos, Alex, 2011, “The Return of the Arab Revolution”, International Socialism 130 (spring),

El-Hamalawy, Hossam, 2011, “The November Uprising” (4 December),

Elliott, Larry, 2011, “The Emergence of the Frankfurt Group has Turned Back the Democratic Clock”, Guardian (8 November),

Fisk, Robert, 2011, “ ‘The Real Fight for Democracy in Egypt Has Yet to Begin’”, Independent (1 December),

Jenkins, Patrick, and Richard Milne, “Return of the Credit Crunch: Caught in the Grip”, Financial Times (1 December),

Lenin, VI, 1965, “The Trade Unions, the Present Situation and Trotsky’s Mistakes”, in Collected Works, volume 32 (Progress),

Lukács, Georg, 1970, Lenin: A Study on the Unity of his Thought (NLB),

Munchau, Wolfgang, 2011, “France and Germany Look Set to Fudge It Yet Again”,
Financial Times (4 December),