The WEF aims to discuss the challenges facing humanity in 2024 and onwards. These challenges, however, are primarily seen from the point of view of global capital and any proposed policy solutions are driven by the aim to sustain the world capitalist order.
To get a step-change in the profitability of global capital would require a major cleansing (slump) to remove the weak (zombies) and raise unemployment in low-value sectors. So far, such a ‘liquidation’ or ‘creative destruction’ policy has not gained support in the mainstream or in official policy circles. ‘Muddling through’ is better.
Changes in business investment have always been an indicator of future growth in output and employment – not vice versa, as Keynesians argue. And in Q3, business investment came to a standstill. In previous quarters it was investment in new structures (offices, manufacturing plants etc) that kept business investment contributing about 1% pt to quarterly growth. But in Q3 that has evaporated.
The wealth pyramid shows that 62 million people out of a total of 4.4 billion adults in the world, or just 1.2%, had 47.8% of the world’s wealth while 2.8 billion adults (or 53.2%) had just 1.1% – a staggering level of inequality. While the top 1.2% had average wealth after debt of well over $1 million each, the bottom 53% had well below $10,000 each, at least 100 times less.
In the year to Q1 2023, in Europe, unit profits increased more than unit labour costs in manufacturing, construction and finance, and grew at the same rate as unit labour cost in “accommodation food and transportation”.
Marxist economic theory suggests that slumps will happen when the profitability of capital starts falling; eventually leading to a fall in total profits in an economy. Those profits can further be squeezed by increases in the cost of capital i.e. interest costs on borrowing.
First Republic is the third bank to fail after the Silicon Valley Bank (SVB) and Signature. In total, $47bn in bank assets have disappeared into smoke, the losses being taken in part by the shareholders and holders of the bonds in these banks. But there has also been a cost to public funds.
What is certain is that credit terms are tightening, bank lending will drop and companies in the productive sectors will find it increasingly difficult to raise funds to invest and households to buy big ticket items. That is going to accelerate economies into a slump this year.
A financial crisis not seen since the global financial crash of 2008 appears to be unfolding. What will be the response of the monetary and financial authorities?
Just before the start of the Forum in the snow of the exclusive ski resort of Davos, Switzerland, the WEF published its Global Risk Report. It makes shocking reading on the state of global capitalism in the 2020s.
We won’t control or reverse (if that’s still possible) greenhouse gas emissions and rising global temperatures in a capitalist world economy that supports and finances the fossil fuel industry.
The G7 has agreed to stop buying Russian oil, as part of its programme of using economics sanctions as a war weapon. But up to now, energy imports from Russia have not been stopped because it would mean a catastrophe for the EU countries, particularly Germany.
The recovery from the COVID slump of 2020 has petered out. The world economy is teetering on a slump according to the latest data by JP Morgan economists.
Real GDP contracted in the second quarter of this year by a 0.9% annualised rate (or by 0.2% quarter over quarter). That meant the US economy had contracted for two successive quarters, and so ‘technically’ (by that definition) was in a recession.
Far from forcing Russia to submit to NATO demands, any oil price cap is more likely to drive the oil price to near $200/bbl. That would trigger a global slump.
