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.
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.
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.
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.
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.
This is a global crisis and requires global action in the same way that the pandemic should have been dealt with and the climate crisis needs.
Inflation globally will not subside until a new slump emerges, signalling that the central bank war on inflation has been lost.
There seems to be no evidence to justify the claim by some mainstream optimists that the advanced capitalist world is about to experience a roaring 2020s as the US briefly did in 1920s after the Spanish flu epidemic.
A company based in a tax haven can have assets anywhere in the world. On the other hand, what appears as foreign direct investment in tax haven countries has no counterpart in real productive investment.
