Zombie Capitalism and the Building of a New Left

Interview with the Turkish Left newspaper, “Ozgur Gundem” (June 2015)

David McNally

1-) You describe the economic crisis which started in 2007 as the fourth biggest economic crisis in the history of capitalism. For a broader picture, could you explain the main characters of this crisis? What can we expect in the near future?

This crisis has exhibited all the features of a classic capitalist slump. A twenty-five year period of investment and accumulation from 1982 to 2007 produced an over-accumulation of capital – more factories, mines, shopping malls, producing and marketing goods, and more apartment buildings and houses appearing on the market than could profitably be sold. Related to this, rates of return on new investment (the profit rate) had declined. In addition, the long period of expansion had seen a financial explosion and a proliferation of new kinds of esoteric financial instruments, such as mortgage-backed securities. So, when the economy began to slow, the most over-extended banks and lenders found themselves in a severe crisis.

While the banking crisis was largely resolved in 2009—by the injection of of trillions of dollars in public funds into private banks—the underlying economic problems have largely persisted. That is why, seven years after the global slump began, we still have not seen a boom in investment and growth. The likelihood is that stagnation and low growth will continue for some time, with a number of economies falling back into recession. There is no new trajectory for sustained growth on the horizon.


2-) In your works you compare this crisis with 1930’s crisis and point out that for example unemployment rates. But we haven’t witnessed a massive militant working class reaction yet like in the 1930’s or 1960’s. Struggles are mostly short-lasting and quite defensive when we compare them with the struggles of last decades. What are the main reasons of this difference?

It is important to remember that the early years of the Great Depression of the 1930s were a terrible time for working class movements and the Left. Fascism was on the rise and workers’ organizations were suffering large defeats. The real upsurge in working class struggle came after many years of crisis, beginning around 1936-37 with big upheavals in Spain, France and the United States in particular. Of course, not all these struggles were victorious. But they did signify a new capacity for mass resistance and self-organization.

The first seven years of this crisis have seen a similar pattern. So far, there have been few significant victories for the Left. But one big difference today from the 1930s is that the militant organizations of the working class—communist, socialist and anarchist—were considerably stronger in the 1930s than they are now, and this reflected a stronger radical culture within the working class. Today, we are confronted with a compelling need both to build real movements of resistance to austerity and neoliberalism and to rebuild a political culture of working class opposition to capitalism.


3-) You point out that neoliberal offensive on labor and social rights but you also highlight the ideological and cultural transformation of neoliberal offensiveness. In your last book you explain this late-capitalist aggression with interesting metaphors like zombie capitalism, monsters and vampires. Could you tell us about this?

One of the victories of neoliberalism is the way it has dampened peoples’ sense of what is possible in their lives. It has created the expectation that we can be little more than mindless labourers for giant corporations and banks. It is not surprising, therefore, that we find images of zombies everywhere in mass culture. For, neoliberal capitalism effectively tells us that we are all the walking dead, to take the name of a major US television show. It tells us that we will live a life of “dead time,” working in demoralizing jobs while we struggle to pay our bills. At the same time, subversive images of zombie uprisings are a reminder that we also secretly hope to escape these dull, dreary lives and turn the tables on the vampires who control our lives. In other words, the zombie is both a figure of our domination by capitalism—and an expression of our desires to turn the world upside down and live as real human beings.


4-) Your another metaphor is about Frankenstein. When I first heard the real story of Frankenstein from you I am quite impressed. Could you explain us the roots of this book and importance on your work?

The Frankenstein story, as it was originally told by Mary Shelley in 1818, is an incredibly interesting analysis of capitalism. Shelley asks us to imagine a gigantic creature, assembled from the body parts of humans and animals. Then she tells us that this creature is brought to life by means of electricity, which was emerging as a driving force in industrial production. So, we have a powerful new being, like the modern proletariat, created from the bodies of poor people and animals—one that the elite find threatening. And Shelley warns the British ruling class that, if they are not careful, this potentially dangerous creature might rebel against them and seek revenge. Of course, this is exactly what happens in her story. The brilliance of Frankenstein as a novel is that it sees the creation of the modern working class as a sort of horror story, not only for the workers but also, if the creature should revolt, for the ruling class that brought it into being.

Shelley also gives us a revolutionary image of the creature’s education in literacy and politics. He learns to read by listening to an Arab feminist read one of the greatest anti-slavery tracts of the age, C. F. Volney’s The Ruins. In this way, Shelley also informs Britain’s rulers that the adversary they have awakened is a proletariat committed to internationalism, women’s right and the struggle against slavery. It is an image of anti-racist and feminist working class politics that can still inspire the Left today.


5-) Inequality, rising of fascism from Europe to India, the intensive militarization of police, barbaric organisations like ISIL, global warming, food crisis etc… Is this going to be the background of zombie capitalism?

Yes, I think this will be the background—unless or until radical socialist movements create a new direction for humanity. Capitalism today increasingly breeds inequality, war, environmental disasters, and sectarian resistances that mimic imperialist practices. I think this is the “new normal” in an age of austerity and crisis. And that is why building mass movements and organizations of a new left is so urgent and important.


6-) We have seen quite strong protests against neoliberalism in recent years like Seattle, Arab Spring, OWS, South America etc. But these movements mostly failed. What do you think about this? What were the main reasons of this failure?

The existence of these movements is important, as they remind us that there is a strong desire for alternatives to the current system. But they have all emerged after nearly forty years of retreats and defeats for working class and socialist movements. As a result, these movements have had a very difficult time sustaining themselves and growing once the first serious challenges and difficulties emerge. One of the political successes of neoliberalism is to have dramatically reduced the core of experienced radical organizers who see the need for long-term movement building to change the world. One of the tasks of the Left in this period is to create political spaces in which a new generation of radical organizers can develop. This means building new institutions of a radical left—enduring organizations and movements, spaces for popular education, assemblies for democratic self-organization, cultural institutions, and so on. Without this network of radical institutions that can nourish a new and growing wave of organizers on the left, it will be very difficult for sustained anti-capitalist organizing to expand and develop.


7-) Against neoliberalism you suggest a strong radical democracy program but for you a radical democratic program should based on strong economic roots. Could you explain this a little more?

I believe that radical democracy is essential to any “socialism for the twenty-first century.” We need to develop new forms of grassroots popular power in neighbourhoods, workplaces and schools, based on mass assemblies, all of which are capable of linking together into accountable systems of democratic self-government. But you cannot have real self-government if people do not have control over the economic relations in their society, especially over production, distribution and finance. We can see this problem in Greece at the moment, where the SYRIZA government has a popular mandate to end austerity, but they do not have the economic means, particularly the control over finance, that would make this possible. More than this, a new society must mean that democracy penetrates all important aspects of life, such as our work relations. And this is only possible if people have power over the economic resources and relations of their society.


😎 Last of all I would like to get your opinions on organisation. You are a strong advocate of unity on the left and (if I am wrong please correct me) once you even suggested a united organisation for anarchists and marxists. We talk a lot about unity too and Kurdish and Turkish revolutionary forces trying to build a united party as well. But what should be done for a wide but also strong anticapitalist party? Also of course I would like to learn your opinions on SYRIZA and Podemos on this matter.

I certainly favour unity on the Left. I believe we need to find ways of establishing more credible radical left organizations that can begin to play a meaningful role in everyday political life. This means overcoming differences on small and secondary matters. It means trying to establish a basis on which thousands of people on the left, notwithstanding real differences that will need to be clarified over time, can work together against neoliberalism, to build working class resistance, to raise anti-capitalist analysis. Of course, there will be “purists” who refuse to associate with other forces of the left. But we need to determine who is prepared to come together around a basic program of building a mass anti-capitalist working class movement, and to agree upon some basic political and organizational principles that will make this possible.

Will there be sharp debates along the way to creating such organizations, and again after they have been created? Yes, absolutely. But developing a political culture of democratic debate, discussion and self-education is an indispensable part of building a new left. And that is much more challenging and exciting than squabbling among small revolutionary groups.

The Greek project of building SYRIZA is one approach to what I am discussing. I believe that forces on the radical left, many of them grouped today in the Left Platform of SYRIZA, were correct to become part of that project. It allowed them to break out of the world of small-circle politics and test their ideas in a much more important arena, one involving masses of people. That does not magically eliminate difficulties. The recent economic agreements between the SYRIZA government and the “troika” are a huge problem, and there is a danger that the SYRIZA government could end up promoting a “soft” form of austerity. But at least the left in SYRIZA, having developed some credibility within working class circles, might be able to get a real hearing as it tries to push things in a radical direction.

Of course, if you are simply satisfied with having a “correct line,” even if no one listens to you, then you can remain content with “I told you so” politics. Then you can say, “I told you SYRIZA would sell out,” or “I told you we need a revolution.” But that approach will never create a mass socialist left. That is why, after forty years of defeats, we need to gamble on new approaches, new political experiments that have at least a small possibility of reconnecting revolutionary socialism with sections of the working class.

The same attitude should apply, I think, to the emergence of Podemos in Spain. It is much better for radical leftists to try to work inside that movement in order to influence its development, than to stand on the outside. This does not mean that we should not fully and clearly express our concerns about particular developments in such parties. We should be clear and forceful in our anti-capitalism, and in our belief that we will need a real rupture from capitalist social relations if we are build a more democratic and just society.

But wherever the Left has the opportunity today to start emerging from the margins, we must seize those opportunities. We need to learn how to be a part of real mass movements and mass organizations, with all the contradictions that involves. As the global economic slump drags on year after year, along with the suffering it brings, we will need creativity and audacity if the socialist left is to have any chance of influencing political events in the years ahead.



The Left and the Election of Syriza

It was always going to be messy—and it has gotten so remarkably quickly. The decision by the Syriza leadership to form a coalition government with the anti-immigrant ANEL party has rightly shaken progressives who hoped that the Greek elections would rapidly transform politics to the left. Instead, we have been harshly reminded that the logic of electoral politics can be dangerously compromising for the left.

For anyone who thought the election itself would transform the landscape, this can only be a bitter disappointment. But Sunday’s stunning electoral defeat for Greek’s governing parties of austerity was not the product of the great minds of the Syriza leadership. It came about primarily due to six years of grassroots struggle—two dozen general strikes, anti-racist mobilizations against the fascist Golden Dawn, solidarity work in neighbourhoods to feed the hungry, protests by migrant workers, student rebellions, campaigns by healthcare workers, and much more. These struggles built the culture of solidarity and resistance upon which Syriza has drawn. And only if there is a deepening of all these forms of struggle in the months ahead will we be able to say that the electoral victory opened a road to real social and political conquests for the left.

There is little doubt that the Syriza leadership desperately wants to compromise with the dominant institutions, particularly the EU. This was to be expected. Moreover, the institutional power of capital is enormous. But, Syriza’s leaders are also under pressure from their party’s largely working-class base, which wants an end to austerity and a real campaign against poverty and social inequality.

In these circumstances, the Syriza leadership can be expected to tack and turn, cozying up to the forces of capital on the one hand, making concessions to the demands and expectations of its working class electorate on the other. So, it does a deal with ANEL at the same time that Syriza’s new Prime Minister, Alexis Tsipras, announces that his government will end its military cooperation with Israel and cancel its membership in the EU Free Trade Agreement if the blockade of Gaza is not lifted.

These contradictions will not be wished away. They will not vanish because leftist critics declare that they should. They will be resolved—one way or the other—through sustained social struggle. It will not be easy—and we were hopelessly naïve if we expected it to be so.

But Syriza’s victory and the defeat of the parties of austerity has galvanized the forces of resistance, filled them with energy and hope, and created a more favourable terrain for social struggles. And it is there, in struggles from below, not the arena of parliament, that the decisive battles will be fought.

In this context the March 21 international day of action against racism and fascism and for migrant and Muslim rights—a campaign which originated in Greece—now becomes an urgent rallying point for “Street Syriza, ” as it has been called, to set the tone and the direction of events.

January 26, 2015

The Continuing Global Slump

By David McNally

This article will be the afterword to the forthcoming Danish translation of the author’s book Global Slump: The Economics and Politics of Crisis and Resistance — NSW.

Since the outbreak of the global slump in 2008 we have been treated to an incessant stream of predictions that “the crisis is over,” that we have “turned a corner,” and that “the recovery is now underway.” Each time the cheerleaders have been proved wrong. To the dismay of apologists for the system, the slump has now stretched on for more than five years. And there is no obvious end in sight.

World-wide, there has been no recovery in employment. There are now 50 million fewer people in paid work than when the crisis started. Not only is the Eurozone now officially back in recession, but a number of its economies are in outright depressions. Spain and Greece are each struggling with unemployment rates above 25 percent – and over 50 percent for youth. Even the U.S. economy, notwithstanding a big rebound in corporate profits, is plagued by a jobs deficit of ten million (5.2 million that have not been recovered since 2008 and another 4.8 million required just to keep pace with population growth). The real rate of unemployment in the U.S. – including discouraged workers who have stopped looking for a job and those working part-time who seek full-time employment – hovers around 15 per cent. For racially oppressed groups, jobless rates are at depression levels, well above 20 percent for both African-Americans and Latinos.[1]

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Greek Lessons: Democracy versus Debt-Bondage

It is a truism to say that democracy began with the Greeks – less so to say that it originated in popular rebellion against debt and debt-bondage. Yet, with the Greek people ensnared once more in the vice-grip of rich debt-holders, it may be useful to recall that fact. For the only hope today of reclaiming democracy in Greece (and elsewhere) resides in the prospect of a mass uprising against modern debt-bondage that extends the rule of the people into the economic sphere.

Across virtually all the ancient world, to fall into irretrievable debt was to enter into bondage to the rich. For millennia, the poor typically had no collateral for loans beyond their bodies and their labour. The result in ancient Greece, as Aristotle acknowledged, was that “the poor . . . were enslaved by the rich.”[1]

Beginning more than 2,600 years ago, a succession of upheavals by the Athenian poor – or the demos – broke the power of the aristocracy and began a drawn out democratic revolution. Squeezed by debts and the spread of debt-bondage the common people rendered their aristocratic society effectively ungovernable. In 594 BC, in an effort to restore stability, huge concessions were made to the demos: all debts were cancelled and debt-bondage abolished. For the first time, poor men acquired meaningful rights to political participation. And they used those rights to systematically curtail the unaccountable power of aristocrats, accomplished by elevating the popular Assembly and its direct democracy above all other institutions.[2] So interconnected were the principles of democracy and economic justice for the demos that Aristotle identified “the rule of the poor” as the essence of a democratic state. “In democracies,” he explained, “the poor have more sovereign power than the rich.”[3] For this reason, struggles by the rich to increase their social and economic power invariably took the form of struggles against democracy.

Notwithstanding enormous differences in social and historical context, a similar battle is wracking Greece today. To be sure, the ancient landed aristocracy has been replaced by a capitalist “financial aristocracy.”[4] Yet, war between the modern aristocracy of debt-holders and the forces of democracy once again grips Greek society.

From the earliest days of the recent “debt crisis” – caused, let us recall, by the global bank bailouts and the recessions that followed the financial crash of 2008 – international financial institutions have been on a collision course with democracy. Time and time again, the interests of global banks have over-ridden the will of the people. Consider just the following events of early November:

  • On November 3rd of last year European Union leaders browbeat and humiliated Greek Prime Minister George Papandreou for having pledged to hold a popular referendum on a proposed austerity deal. The confidence of financial markets being unable to abide consultation of the Greek people, Papandreou was quickly forced from office.[5]
  • One week later, the former head of the Bank of Greece and former vice-president of the European Central Bank, Lucas Papedemos, never having been elected to any public office, was installed as Greek PM.
  • Two days after that, a non-elected prime minister was appointed in Italy, in the form of  former Goldman Sachs executive, Mario Monti. Defending this end-run around basic liberal-democratic procedure, the country’s president explained that “Italy could not afford elections at a time of market crisis.”[6]

Speaking of elections, the people of Spain found themselves in the midst of one at the very time Greece and Italy were receiving non-elected prime ministers. Yet, as one perceptive journalist reported, the public displayed a distinct lack of interest. “If scarcely anyone is taking any interest in the election,” he noted, “it’s because the result is seen as largely irrelevant: it’s the markets that rule.”[7]

Since then, the recognition that “it’s the markets that rule” has grown, and with it the decline of even the most elementary forms of democracy. Nowhere has the assault on democracy been more brazen than in the negotiations leading to the most recent “bailout” of Greece – which, of course, is really just another bailout of Europe’s banks.[8] As the price of paying back the banks while impoverishing its people, the Greek government has been forced to accept nothing less than outright colonization by the European Central Bank and the International Monetary Fund. In fact, the “bailout” agreement states that:

  • Greece is required to rewrite its constitution to give priority to debt repayment. A political document meant to enshrine the rights of the people will now be amended to give priority to the rights of banks.
  • The “loans” bestowed on Greece will be placed in a special escrow account which can release funds only for the purpose of payments to banks. Spending these funds on pensions or healthcare is explicitly forbidden.
  • Foreign lenders will have the right to seize the gold reserves of the national Bank of Greece.
  • A task force created by the European Union will be given an “enhanced and permanent” presence in Athens, where it will monitor all financial and social policy activity of the Greek government.

Whatever semblance of democracy is possible in a capitalist society has now been shunted aside in Greece. The country’s elected institutions now function as little more than fig leafs for the power of global capital. And its people are being subjected to modern forms of debt-bondage in which the bodies of poor and working class people are sacrificed to debt payment.

Under the bailout package, for instance, the Greek minimum wage will be slashed by 22 per cent (and more for young workers); 150,000 public services jobs will be eliminated; pensions will be savaged. Living standards, which had already contracted on average by 30 per cent, will be pushed down a further 15 per cent. An economy that has been in recession for five years (and has shrunk by more than one-fifth) will be pushed into a further downward spiral. More than 60,000 small and medium-sized businesses will collapse, and a quarter of a million private sector jobs will evaporate. Youth unemployment will soar above 50 percent.[9] Homelessness and street begging, already rising alarmingly, will worsen.

How long this can continue is anyone’s guess. Since the economic crisis emerged in 2008-9, Greece has seen waves of general strikes, mass demonstrations, and fighting with riot police. Anger and frustration may well boil over. In the view of one trade unionist, “People are literally hungry and the number of homeless is growing every day . . . soon they won’t take anymore. There’ll be a popular revolt.” [10]

If it is to have any chance of success, such a revolt will have to reclaim the ancient connection between democracy and economic justice. It will have to revive the meaning of democracy as “the rule of the poor” – all of the poor exercising real sovereign power in popular assemblies. And such a project of radical democracy will have to break decisively with liberalism through the deepening and extension of popular power and control into the economic sphere.

Liberal-capitalist democracy, observes Ellen Meiksins Wood, “leaves untouched vast areas of our daily lives – in the workplace, in the distribution of labour and resources – which are not subject to democratic accountability but are governed by the powers of property and the laws of the market.”[11] Those powers of property and the market have now shown their utter incompatibility with any kind of genuine democracy.

It thus falls to the radical Left to reclaim the project of democracy and to once again link it to popular struggles against new forms of debt-bondage. Not only does this mean learning from the ancient example of “the great democracy of Athens,” as C.L.R. James urged.[12] It also requires attending to the new practices of assembly-style democracy that have emerged at the highest moments of recent struggles from Tahrir Square to Occupy Wall Street.[13] All of this means building a radical Left uncompromisingly committed to deepening the project of direct democracy as an indispensable part of all popular movements against austerity and injustice.

[1] Aristotle, The Constitution of Athens, Ch. 2. Scholars are uncertain as to whether this text was written by Aristotle or by one of his students.

[2] See W. G. Forrest, The Emergence of Greek Democracy, Ch. 6, and the monumental study by G.E.M. de Ste. Croix, The Class Struggle in the Ancient Greek World. It is true, of course, that the participatory democracy they created was profoundly limited by the exclusion of women and slaves. Yet, as C.L.R. James, one of the great advocates of ancient democracy, declared, typically “those who are prone to attack Greek Democracy on behalf of slavery are not so much interested in defending the slaves as they are in attacking the democracy.” See James, Every Cook Can Govern: A Study of Democracy in Ancient Greece (section, “Slavery and Women”) available at: http://www.marxists.org/archive/james-clr/works/1956/06/every-cook.htm

[3] Aristotle, The Politics, Book VI, Ch. 2.

[4] For the idea of a “financial aristocracy” in a capitalist society, see Karl Marx, “The Class Struggles in France, 1848 to 1850” in Marx, Surveys from Exile, pp. 36-38.

[5] Not that Papandreou was any friend of Greek workers. He was utterly committed to the austerity agenda, but concerned to preserve some public legitimacy.

[6] “Italy races to install Monti,” Financial Times, November 14, 2011.

[7] Stephen Burgen, “Protests pointed to new way forward,” Guardian, November 12, 2011.

[8] See my blog, “Follow the Money: Behind the European Debt Crisis Lie More Bank Bailouts,” available at: http://davidmcnally.org/?p=403

[9] Eric Reguly, “Second bailout hasn’t stopped the Greek time bomb,” Globe and Mail, February 25, 2012.

[10] Ilias Iliopoulis, quoted by Helena Smith, “Greece lies bankrupt, humiliated and ablaze: is cradle of democracy finished?” Guardian, February 13, 2012.

[11] Ellen Meiksins Wood, Democracy Against Capitalism, p. 234.

[12] C.L.R. James, as in note 2 above.

[13] See my lecture, “Radical Democracy and Popular Power: Thinking About New Socialisms for the 21st Century,” available at: http://vimeo.com/24952896

Follow the Money: Behind the European Debt Crisis Lie More Bank Bailouts

While I was cursing the inane mainstream commentary on the global economy recently, I was reminded of a pivotal scene in the 1976 movie, All the President’s Men. As two young reporters investigate the burglary of Democratic Party offices in the Watergate Hotel, a disgruntled, high-ranking FBI agent, code-named Deep Throat, advises, “Follow the money. Always follow the money.”

They did. And, in the process, the real-life journalists, Bob Woodward and Carl Bernstein, blew the lid off one of the great scandals of 20th century politics. Since then, investigative reporting in the mainstream has gone the way of the dodo. As Bernstein noted twenty years after Watergate, “the media — weekly, daily, hourly — break new ground in getting it wrong.”

And nowhere are they getting it more wrong than in their coverage of the debt crises in Europe. Over and over again, we are treated to the most vacant banalities. “Greece lived beyond its means,” pundits intone, “and now it must pay its bills.” So too for Ireland, Portugal, Spain, Italy. . . all of which are said to be cases of out-of-control people who now must get their houses in order – by way of huge cuts to government programs.

Yet these cuts, known in the jargon as austerity measures, represent political crimes of equal if not greater magnitude to that burglary at the Watergate – though you would never know it by consulting the mainstream press, which long ago lost any inclination to follow the money.


But were journalists to heed Deep Throat’s counsel, they would be forced to draw an inescapable conclusion: The multi-trillion dollar rescue of the banks that started in 2008 has not ended. It continues today under the guise of sovereign debt bailouts. And the cutbacks – to pensions, education, welfare, and public sector jobs – that wreak havoc on the lives of millions are all about funnelling public wealth to banks, pure and simple.

Consider this. As of the middle of 2011, German banks had loaned out about 170 percent of their total equity capital to governments in Greece, Ireland, Portugal and Spain. French banks had about a 100 percent capital exposure to the same governments.[1] The number shoots significantly higher when Italy is added to the equation. U.S. banks meanwhile, hold about $700 billion of government debt from the five shakiest Eurozone economies.

While a virtually inevitable Greek default is unlikely to topple banks – outside of Greece, that is – it could well set off a series of debt crises and further defaults that will bring some down. . As sovereign debt defaults appear increasingly unavoidable, so do multi-billion dollar bank losses. That’s why the stock of French banks like BNP Paribas and Société Générale has been in freefall in recent months. It’s why large firms, banks, and hedge funds have been pulling their money out of Euro banks.

We are, in short, very close to seeing “World Financial Crisis: The Sequel,” a disaster with enormous implications. Yet, where is the investigative reporting about the underlying causes of this? Where are the stories explaining how it is that three years after the collapse of Lehman Brothers investment bank triggered an acute financial meltdown in 2008, so little has changed?

In the absence of serious analysis, we are repeatedly subject to thoroughly moronic reports blaming the people of indebted nations for the mess. Remember the scapegoating of poor people in the U.S. who took out subprime mortgages? It was all the fault of the poor, you see, rather than the banks that wheeled, dealed and conned them into borrowing – all in an effort to create toxic but highly profitable mortgage-backed securities that could be sold to investors. It was, in short, predatory lending to boost financial profits. Pretty much the same thing happened in Ireland, Spain and Britain. At the same time, banks in Germany and France sent their salespeople to sell loans to governments and banks in other parts of Europe. Now, those same banks are watching in horror as their loans turn sour, just as real estate loans did in the U.S. a few years earlier, and they too are blaming the borrowers.

Worse, just as they did in 2008-9, governments are rushing to rescue rickety banks with public funds. That’s why the European Central Bank, the IMF and Europe’s leading powers keep bailing out ailing states like Greece, Ireland and Portugal. Again: follow the money. When debt-strapped governments receive hundreds of billions in new loans, that money is immediately sent into the coffers of private banks as payments on past loans.  The whole situation, observes one writer in the Financial Times, “resembles a pyramid or Ponzi scheme” in which original lenders are paid back with new loans.[2] The difference is that the new loans are coming from public funds, which is another way of saying that private banks are being rescued once more by the people. Just as in the global bank crisis of 2008-9, bank profits are private, but their losses are public. Not exactly the free market. But it’s a nice deal for profligate bankers.

And the scale of this cozy deal is breathtaking. In July, the U.S. Government Accountability Office published a document detailing the the bank bailouts. Between December 2007 and July 2010, it shows, more than $16 trillion was channelled by the American government into U.S. and European banks.[3] Trillions more were spent to bail out U.S.-based auto corporations and to fund stimulus programs.  Additional trillions were dished out in bank rescues and stimulus programs in China, Latin America, Europe, and beyond.

At the time I released Global Slump (December 2010), my estimate for the combined global bank bailout and stimulus spending was in the range of $21 trillion, or more than one and one-half times U.S. gross domestic product.[4] It is now clear that my estimate, among the largest (and arguably most accurate) at the time, was many trillions shy of the real total.

That astounding bailout of global capital drove a massive build-up of government debt. Engaged in a world-wide intervention without precedent, states borrowed in debt markets (by selling government bonds). Now, in light of the scale of the accumulated debt, some lenders have grown gun shy. They doubt the capacity of many governments to repay. As a consequence, lending rates have soared: Italy and Spain can only borrow (for ten year bonds) at rates in excess of five percent. For Ireland, the rate is pushing toward nine percent; for Portugal it already exceeds 11 per cent; and for Greece it has hit a nightmarish 23 per cent. And when it comes to short-term borrowing, Greece has already been shut out of money markets, which are demanding an interest rate of 80 percent on its two-year bonds. In sum, Greece is broke and a default is almost certainly just a matter of time.

Extortionate borrowing rates on this scale mean that the debt crises just get worse. Barring a miracle – or our preferred option, default – each of these countries will be more indebted next year, and the year after that, notwithstanding slash-and-burn austerity programs. Meanwhile, those programs, with their massive cuts to government spending and huge public sector layoffs, invariably deepen the economic crisis. Already, the official unemployment rate in Ireland has catapulted above 14 percent (27 percent for youth), while in Spain it tops 21 percent (45 percent for youth). Greece, meanwhile, is in a full-fledged depression, its economy contracting by 5.5 percent this year with no sign of recovery for years to come.


And yet, as debt mounts, the cuts keep coming. Greece’s latest austerity package includes a two billion euro cut to healthcare spending and elimination of 30,000 more public sector jobs. On the heels of earlier measures, Ireland has slashed 20 per cent from the salaries of nurses and other public employees, while also reducing child and social welfare benefits. Everywhere, the most vulnerable are being sacrificed so that banks may prosper.

Even the odd central banker has been compelled to acknowledge that truth. Speaking to British Members of Parliament in May, Mervyn King, governor of the Bank of England, observed, “The price of this financial crisis is being paid by people who absolutely did not cause it.” Furthermore, he continued, “Now is the period when the cost is being paid, I’m surprised that the degree of public anger has not been greater than it has.”

Of course, there has been massive resistance: general strikes, youth occupations of city squares in Greece and Spain, popular uprisings in Tunisia, Egypt and beyond, a student-led upheaval in Chile.[5] But in much of the world, the degree of public anger has been surprisingly low – at least thus far. And part of the responsibility for that lies with a media culture that blames the victims and refuses to follow the money.

That is one reason we need radical political economy now more than ever. One of the secrets of capitalism, after all, is the way in which it obscures and conceals processes of economic exploitation. Wealth moves and accumulates along hidden circuits that tend to elude us. Serious economic analysis thus requires real detective work, investigative acts that uncover capitalism’s dirty secrets – sweatshops, child labour, migrants toiling in fields and on construction sites, and the fantastic wealth all of this makes possible for a few.

We need the same critical sensibilities when it comes to the debt crises that are rocking parts of Europe at the moment. In the face of the banal mainstream discourse of undisciplined borrowers, we need to demonstrate that, as one senior economic advisor at UBS bank puts it, we are dealing with “a once-in-a-generation crisis of capitalism.”[6] That crisis has ratcheted up the system’s crimes against the innocent. And there is a powerful way to expose that: Follow the money. Always follow the money.

David McNally teaches political science at York University, Toronto and blogs at www.davidmcnally.org. His recent book on the world economy is Global Slump: The Economics and Politics of Crisis and Resistance.


[1] See the charts assembled by Martin Wolf, “The Eurozone after Strauss-Kahn,” Financial Times, May 17, 2011.

[2] Mario Blejer, “Europe is Running a Giant Ponzi Scheme,” Financial Times, May 5, 2011.

[3] United States Government Accountability Office, Federal Reserve System: Opportunities Exist to Strengthen Policies and Processes for Managing Emergency Assistance, (July 2011)., Table 8, p. 131. Important analysis of this report is provided by Petrino Dileo, “The $16 Trillion Bailout,” socialistworker.org, September 7, 2011.

[4] David McNally, Global Slump: The Economics and Politics of Crisis and Resistance (Oakland: PM Press, 2011), pp. 2-3, 197n4.

[5] See my previous blogs, “Night in Tunisia: Riots, Strikes and a Spreading Insurgency,” January 18, 2011, available at: http://davidmcnally.org/?cat=6; and “Mubarak’s Folly: The Rising of Egypt’s Workers,” February 11, 2011, available at: http://davidmcnally.org/?p=354. On the student protests in Chile, see Manuel Larrabure and Carlos Torchia, “’Our future is not for sale’: The Chilean Student Movement Against Neoliberalism,” The Bullet, n. 542, September 6, 2011, available at: http://www.socialistproject.ca/bullet/542.php.

[6] George Magnus, “Markets are Reacting to Crisis of Capitalism,” Financial Times, September 12, 2011.

And They Call This a Recovery?


By David McNally

The strut of confidence is gone and the jitters are back. A flurry of dreadful statistics at the end of April made sure of that.

On April 26 came the news that the British economy grew a mere 0.5 per cent in the first quarter of 2011. Coming on the heels of a contraction by that amount in the previous quarter, one commentator was prompted to declare that “the UK is teetering on the brink of a double dip recession.”[1] Forty-eight hours later the Commerce Department revealed that the U.S. economy had slowed to a crawl, recording a meagre 1.8 per cent growth rate in the first quarter, down from over three percent at the close of 2010.

A day later word arrived that the Canadian economy had shrunk in February, and that the official rate of unemployment in Spain had jumped to 21.3 percent – and the youth jobless rate to a staggering 40 percent.

Oh, and did I mention Greece? That country’s government, having imposed draconian cuts to public spending only to watch the economy shrivel by nearly five percent last year, discovered that it would have to offer a 23.5 per cent rate of interest on its two year bonds if it wanted to raise funds in money markets. Bond yields at such extraordinary rates can only mean that the financial sharks smell a Greek debt default coming, which seems an inescapable conclusion.

All of which returns us to an obvious deduction, even if it is resisted by most mainstream economists: this is no more a normal economic recovery than the Great Recession of 2008-9 was an ordinary downturn. Instead, we are in the midst of a much more complex period – one of deep recessions, shallow upturns, high unemployment, government debt crises, renewed recessions, and an ongoing era of austerity – which I have characterized as a global slump.[2]

Of course, there was no reason to expect a normal recovery in light of what preceded it. The Great Recession of 2008-9, after all, was the deepest and longest downturn experienced by global capitalism since the catastrophic slump of 1929-32. The 30 large economies that comprise the Organization for Economic Cooperation and Development (OECD) underwent a six percent contraction in Gross Domestic Product (GDP) with jobless rates jumping two-thirds higher on average. World industrial output fell 13 per cent; international trade dropped by 20 per cent; and global stock markets plunged 50 per cent. The largest wave of bank failures in 80 years shook the financial system. All of this should have indicated that, rather than an ordinary recession, we were dealing with a systemic crisis, one that announced the end of the neoliberal phase of capitalist expansion. And recovering from such an event will be very difficult indeed.

As of mid-2011, for instance, well into the “recovery,” annual economic growth in the U.S. and the more robust parts of Europe was in the 2.5 to three percent range – about half the rate we would expect based on past business cycles. Even during the revival in the middle of the Great Depression, the U.S. economy grew much more dramatically: by almost eight percent in both 1934 and 1935 and by a stunning 14 percent in 1936. Yet, so low are rates of expansion today that they are barely making a dent in unemployment. In fact in some part of Europe, like Ireland, Greece and Spain, joblessness is on the rise. In the United States, as the graph below shows, employment is still more than five percent short of its pre-recession level. Across the entire period since the Great Depression there has never been a “recovery” that produced jobs at so anaemic a rate as what we are seeing at the moment.


U.S. Job Growth After Recessions, 1974-2011

Source: Bureau of Labor Statistics. Chart by Amanda Cox, New York Times, April 1, 2011.


The big reason for the failure of jobs to return is that, while profits have recovered, business investment has not. In one major economy after another, corporations are hoarding cash rather than investing it. This is obviously true in European centers, like Germany and Britain, as it is in the U.S. But it is also the case in states like Canada, which escaped the worst effects of the financial crisis and whose economy has been buoyed by rising prices (and export demand) for raw materials. Business investment in new equipment and machinery in Canada was at just 5.5 per cent of GDP in early 2011, compared to 7.7 percent in 2000, or to just under seven percent in 2005.[3] As for the United States, business fixed investment remained about 15 per cent below pre-recession levels in late 2010, more than a year into “recovery.”[4] Put simply, the rise in profits is not translating into new capital accumulation on any meaningful scale. Instead, corporations in the U.S. and elsewhere are simply hoarding cash, holding on to it in larger amounts than at any time in the last 60 years. By the beginning of 2011, in fact, non-financial firms in the U.S. had at least $2 trillion in cash and checking deposits, an extremely sharp increase in their holdings of liquid assets, as the next figure illustrates.[5]

It does not take rocket science to discern why investment is so lacklustre. First, capacity utilization – the share of existing productive capacity used by business – remains well below historic averages. Secondly, businesses know that with depressed consumer spending, the withdrawal of stimulus, and the turn to austerity (deep cuts in public spending), economic demand will take big hits. Consumers and governments will be spending less, not more, in the months and years ahead. And so, rather than invest, businesses are holding on to their profits, or engaging in speculative activity (in oil, gold, food futures, etc.) unable to see what in the economic picture would justify large expenditures on new plants and equipment. Even in China, where some manufacturers are building plants, the economy is slowing down as the government there tries to deflate asset bubbles and bring down inflation.


Meanwhile, austerity measures – deep cuts to public spending and layoffs of public sector workers in order to rein in government debt – are driving a number of major economies back into recession or, what is effectively the same thing, into zero-growth scenarios. After having been hit by multi-billion dollar cuts, for instance, Ireland’s Department of Finance now estimates its economy will expand by a miniscule 0.75 percent this year, less than half the rate predicted only a few months ago. Unemployment, at just 4.4 percent prior to the crisis, continues to soar, having hit an official rate of 14.7 percent. The British economy, as we have seen, is limping along at a worse pace than Ireland.

Then there is ailing Greece, where unemployment figures have risen for seven straight months, topping 15 per cent officially, a huge jump from just a year ago. Big surprise that Greek retail sales have plummeted 10 per cent in the past year – during the “recovery” phase of the business cycle, let us recall. Meanwhile, Spain, also frantically implementing austerity, has seen the biggest drop in retail sales in two years, while four out of every ten young people cannot find work, according to official data that seriously understate the real scale of the jobs crisis.[6] In short, austerity is kicking the feet out from under an already feeble recovery.

This has prompted a variety of Keynesians to claim that austerity and the removal of stimulus are simply products of the delusional outlook of crazed right-wingers. To be sure, there is something crazed about the deficit-cutters. But, from a capitalist standpoint, they are not entirely wrong. Having to finance deficits by raising cash in financial markets, governments must pay a rate of interest determined by calculations as to the probability that they might default on their payments. That’s why Greece is paying nearly 25 percent on its two-year bonds. And that is something very real, a genuine financial reality, not just the ideological madness of right-wing nuts. Of course, the Right will attempt to exploit such moments to pursue an aggressive political program of attacks on unions and public spending, something I’ll return to in a future blog.

Very real pressure from global markets compels governments to implement austerity even though this is damaging to the economy.  Here we are reminded that capital’s primary concern is not, and has never been, with the “economy,” but with profits and the stability of the system. If those are best achieved in ways that damage jobs and incomes for the majority, so be it. This is why austerity fits the logic of capital even if it means economic stagnation and mounting unemployment. In addition to serving as a reminder that the interests of capital have nothing to do with economic growth and well-being, it also underlines why the only economics and politics capable of effectively resisting are anti-capitalist ones. Only sustained processes of political education, mobilization and resistance will determine whether this insight will become widespread in a context of austerity and global slump.

Meanwhile, in downtown Athens these days, as darkness descends, buses full of riot police take up positions near the city center. Knowing that austerity means suffering for the majority, our rulers rightly fear that this majority might at any time pour into the streets. Whether the mass protest they fear will reach the scale required to defeat the austerity agenda is the burning political question of our moment.

[1] Business economist John Hawksworth, quoted by Philip Aldrick, “Britain ‘on the edge of a double dip recession’,” Telegraph, April 27, 2011, available here.

[2] See my Global Slump: The Economics and Politics of Crisis and Resistance (Oakland: PM Press, 2011), available here.

[3] Karen Howlett, “Corporate Tax Cuts Don’t Spur Growth,” Globe and Mail, 6 April 2011.

[4] Robert Sadowski, “A Cash Buildup and Business Investment,” Federal Reserve Bank of Cleveland, January 10, 2011, available here.

[5] This figure is taken from Sadowski. See also Justin Lahart, “U.S. Companies Hoarding Cash,” Wall Street Journal, December 10, 2010.

[6] On Greece and Spain see Phillip Inman, “Greek and Spanish Economies Falter Ahead of Expected Rise in Interest Rates,” Guardian, April 29, 2011, available here.

Toronto Book Launch for Global Slump

On January 20, 2011 about 200 people gathered in Toronto’s Lula Lounge for the launch of Global Slump: the Economics and Politics of Crisis and Resistance. Emcees Liam McNally Faria Kamal (No One Is Illegal, Toronto) and Syed Hussan (No One Is Illegal, Toronto) introduced the event. Jesook Song (Department of Anthropology, University of Toronto and New Socialist Group) and John Clarke (Ontario Coalition Against Poverty) offered appreciations of the book. After brief opening remarks, David McNally did a short reading from the text. Music at the opening and conclusion is “Revolution” by Nina Simone.

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Like we said, it’s a global slump

slump picI have never accepted the postmodernist contention that contemporary capitalism is all about smoke and mirrors. The notion that ideology and illusion make the system go round strikes me as another mode of reductionism – this one based on culture rather than, say, economics. But it must be said that, at first blush, the mainstream business media certainly offers some sustenance for the smoke and mirrors thesis.

Consider, for instance, new data showing that as of November the slump in U.S. housing prices had surpassed that of the 1930s. For 53 consecutive months American home prices have fallen. What’s more, their 26 per cent drop on average since 2006 exceeds the home price meltdown of the first five years of the Great Depression (see here).

None of this seems to faze the vast majority of business commentators, who display a manic ability to shrug off such facts in favor of any uptick they can find in some economic indicator or other. This is then quickly trumpeted as proof that the long-awaited recovery is underway and that all will soon be right with global capitalism.

So it was that on Monday Jim O’Neill, chairman of Goldman Sachs Asset Management, proclaimed in the Financial Times that “This will be the year of the US comeback.” This followed on the heels of numerous claims in the same vein that dotted my daily newspaper last week, including one headed “The recovery is on.”

Then came the latest – and devastating – jobs data for the U.S. and the illusion was shattered (more on that below). On cue, the scramble for a new fix of “confidence” was promptly resumed.

It helps, of course, that the business media have no idea what really makes the economy tick. They slavishly report a hodgepodge of undigested data linked to declarations by economists and financial consultants who utterly failed to see either the financial crisis or the recession coming. What drives the operation is pure and simple feel-goodism. “The United States,” noted an insightful headline in the French daily Le Monde (December 30) “wants to believe in an economic upturn”. Indeed it does. But wishing don’t make it so.

So, let’s take a step back and look at a few facts. Then we’ll even entertain a bit of analysis.

Note that it’s not only the housing sector that refuses to exhibit signs of recovery. So does the all important job market.

The December job creation figures for the U.S. were dismal: 103,000 jobs generated, notwithstanding bold predictions mere days earlier of job growth at twice that rate. Now, let’s put this in some context.

Simply to restore the jobs lost during the recession (nearly nine million) and those required by population growth during the same period (nearly three million) would require a boom that produced jobs at twice the December rate for 142 months, or nearly 12 years. That, I repeat, is at twice the recent rate of job creation. If by some magic we were to more than triple the recent job creation rate (to 321,000 net new jobs per month), it would still take five years to get back to pre-recession levels (see here).

Of course, nothing like this is going to happen. The euro zone is drowning in waves of cuts to social spending (welcome to the new age of austerity) that drive up unemployment and dampen down economic activity. Japan remains mired in a slump that has persisted for 15 years. And China, on the heels of an extraordinary stimulus program in 2009-10, is now throttling back in order to subdue inflation and obvious bubbles in stock and real estate markets. In short, there is no dynamic engine capable of pulling the world economy behind it.

Expect, then, no major change in the official unemployment rate (9.4 per cent in the U.S.), which remains more than twice as high as it was in 2007. The real jobless rate, of course, is considerably higher. Include those who have become so discouraged that they didn’t look for a job last month, and those working part-time hours because they cannot find full-time work, and we get a combined unemployment and underemployment rate of 17 per cent, or about 27 million U.S. workers. For African-Americans and Latinos the real jobless rate is around 25 per cent, depression levels by any historical measure.

No amount of manic optimism is going to change this. Only real resistance to corporate power and corporate policies can do so – something I’ll return to in future blogs.

David McNally teaches political science at York University, Toronto and is the author of the recently published book, Global Slump: The Economics and Politics of Crisis and Resistance (see here).