Friday, 14 February 2014

Future of Democracy

The world economic crisis that began with the Great Recession in developed countries in 2008 has not yet been overcome. Since then hardly anything new has happened. What is new is that the crisis has now reached the so-called emerging-market countries that were at the beginning seen as the hopes or even saviors of the crisis-plagued world economy. The growth rates of their economies have fallen sharply in the past two years. Lately, the currencies of some of these countries have lost value. Against this background, there is also a crisis of democracy emerging, not in this or that country, but in general. It has now become necessary to think about the future of democracy.

In 1992, after the fall of the Berlin Wall and the dissolution of the Soviet Union and the Communist bloc, the American political philosopher Francis Fukuyama announced ‘the end of history’. In his book entitled The End of History and the Last Man, he advocated the thesis that the worldwide spread of liberal democracy, western type of market capitalism and western lifestyles indicates that the socio-cultural development of humanity has reached its endpoint. He thought the combination of these three elements – so to speak, a trinity – is the final form of governance. He backed up this argument with the assertion that after the failure of fascism and communism, there is no alternative to this combination

Despite some criticism of this or that point of his book, Fukuyama's thesis at that time appeared plausible to many people. Some however found the term "end of history" too exaggerated.

Already in 1992 I was sure that the western type of market capitalism could not be the endpoint of the development of the economic order of humanity. For, on the one hand, this type of market capitalism has a growth compulsion, but, on the other hand, there are limits to economic growth. It was also clear to me that the western lifestyle could not be the final one for all humanity, simply because there are limits to economic growth. I was not sure about the future of liberal democracy. I thought, in the future, maybe eco-socialism and a newly conceived democracy could go together.

On this third point, I have now become quite skeptical. At first, back then, it looked like Fukuyama's thesis would gradually come true. Naked dictatorships were gradually replaced both in Africa and in Latin America with some kind of democracy. Long-standing, despotically ruling presidents had to have their legitimacy confirmed through more or less fair elections. In Asia, the military dictatorship in Myanmar recently gave way and initiated a process of democratization. Also the fundamental rights of citizens have been - at least in theory, i.e. on paper - more or less recognized. Left existing are only the dictatorships of the kings and emirs of the Gulf States, the autocracy of the Kim family in North Korea and the power monopoly of the Communist Party in China, Vietnam and Cuba. But several recent events in the world give me reason to have doubts about the future of liberal democracy.

I accept Abraham Lincoln's definition of democracy as the starting point of my reflections. He had said that democracy is governance of the people by the people and for the people. Till now, this definition has been concretized only by representative democracy (with the partial exception of Switzerland) – with the existence of several competing political parties, which participate in periodic elections. The people are represented by the deputies, the majority of whom form the government. In the presidential system the people elect the reigning president. In principle, the minority accepts the decisions of the majority, as long as they do not violate the constitution or any laws. Or the minority swallows them against their will. If the aversion is too strong, the minority may protest and demonstrate. Ultimately, however, they must bow to the will of the majority.

But in the meantime, in many places, democracy is not working smoothly according to these noble principles. Think of Egypt, where an elected president was ousted and arrested by the military, with the support of a few hundred thousand protesting demonstrators. In Greece, Prime Minister Giorgos Papandreou wanted to hold a referendum in order to ask the people whether he should accept the terms of an aid package offered by the leaders of the Eurozone. He was then summoned to Brussels and reprimanded by Merkel and Sarkozy, whereupon he dropped the referendum idea. In the Ukraine, the opposition parties and thousands of their supporters are trying to force the elected government and the elected president to step down before their term is over. In Thailand, the minority of the population – the rich and the upper middle class citizens of Bangkok and the tourist centers of the South – are trying to overthrow the elected government and replace it with one made up of experts nominated by the king or the military. They are not even trying, unlike in the Ukraine, to force early elections, because they are sure they would lose. All these malcontents believe that they only need to assemble one hundred thousand demonstrators at the central square of the capital, camp and demonstrate there for two or three months, and get themselves filmed by the international TV stations. Then the elected government or the elected President will resign. Or they simply march, rifles in hand, into the capital and overthrow the incumbent president, as it recently happened in the Central African Republic. Or, as it is currently happening in Turkey, a battered government abolishes the right to demonstrate, arrests critical journalists, or controls the Internet media. The disgruntled governments of foreign countries instigate the opponents of the battered government, as it is currently happening in the Democratic Republic of Congo and in the Ukraine. Only in Tunisia the elected government has given in. Elsewhere, chaos reigns, with occasional murders and manslaughters, as in Egypt. In Kenya, the people have elected a president who is accused by the International Court of Justice of instigating mass murder.

These few examples suffice to show that Fukuyama's thesis – that the socio-cultural development of mankind (in other words, "history") has reached its endpoint – was very premature. Liberal democracy is currently suffering one setback after another. We have to ask: why?

It should be repeated here that Fukuyama described the endpoint of history, the final form of governance, as a combination of three elements mentioned above. By doing so he also made the hoped-for global and final victory of liberal democracy dependent on the success of market capitalism. This, however, has now revealed itself to be an idol with feet of clay. Capitalism has not delivered what, in the early 1990s, had been promised to the peoples that dissolved the Communist system in their respective countries or to the peoples that abandoned communism as an alternative perspective – Mandela's South Africa for example. For many nations around the world and for large parts of the population in every country, even in the wealthy United States, Germany, etc., the dream of enjoying the western lifestyle has not materialized. For many, their standard of living has even fallen below what it was before 2008 The people are indeed being governed by the people (i.e., by their representatives), but governance is not being done for the people. What is worse, within a few years after the dissolution of the communist system market capitalism delivered mankind two devastating economic crises – the Asian crisis of 1997-1998 and the bankruptcy of the Argentinean state in 2001. Relatively wealthy nations plunged into destitution.

For now six and a half years, much of the world economy, and thus much of the world's population, has been suffering an economic crisis. The Asian crisis of 1997-1998 ended after only two years and Argentina rallied around the middle of the first decade of this century. But the current crisis is showing no signs of coming to an end. There are reasons for this. This crisis cannot end because it is neither a usual crisis within a business cycle, nor is it a structural crisis. It is a crisis of an entirely different kind. It is the product of growing resource scarcity, rising costs of all kinds of environmental destruction, and continuous population growth, in short, of limits to growth. Most conflicts and unrests of the present are only expressions and symptoms of this fundamental crisis. In addition there are the rising, almost childish demands for prosperity made by all peoples of the world, demands that simply cannot be met, while at the same time the gap between rich and poor is inexorably increasing. I remember reading an interview given to a Western newspaper by a Chinese political refugee who had fled to Europe after the failure of the democracy movement of 1986. He said, very resigned, he thought democracy was only possible in a country where the monthly per capita income amounted to U.S. $ 4000.

We – that is, my political friends and I – are convinced that only an eco-socialist social order can be the solution to the above-mentioned, ever-worsening fundamental crisis of all mankind. But will it also be, can it be, compatible with liberal democracy? In principle, yes. But it is difficult to give a safe answer, because the future is in principle always uncertain. It will depend very much on the way and the circumstance in which such a social order will come into existence. The question could therefore be somewhat narrowed down and concretized: Is there enough reason to hope that we would soon be able to create an eco-socialist society by using the ways and means generally available in representative democracies?

I am afraid not. We cannot ignore the fact that in practice this political system is a pure competitive struggle for power. Ambitious professional politicians organized in parties necessarily have limited horizons. They want to be re-elected every 4 or 5 years. So, prior to each election, they must offer a smart mix of program elements capable of winning a majority. They must promise voters a better and more prosperous future. But, in material-economic terms, eco-socialism cannot promise a better future. On the contrary, eco-socialists will not beat about the bush. They will say openly that a contraction of the world economy and sacrifice of many consumption desires are absolutely necessary.

The most important precondition for the success of the eco-socialist perspective, if only in the long term, is, therefore, that the majority of mankind subjectively accepts the need for the unpleasant measures that eco-socialists propose. Only when this point is reached, in other words, only when the eco-socialist perspective has won cultural-intellectual hegemony in the sense of Gramsci – and that may take a long time – can eco-socialists put up presidential candidates for election, as a start, in some countries. They will probably also be elected. We can only hope that by then it has not already become too late and the collapse inevitable. When the cultural-intellectual hegemony of Eco-socialism has been achieved, it will probably not be so important who rules – just as in Germany today, under the hegemony of neo-liberal globalized capitalism, it does not really matter whether the Christian Democrats are ruling or the Social Democrats. This is because the candidates will then probably offer only slightly different variants of an eco-socialist program. Then surely also the realization of genuine liberal democracy will be possible, even with referenda on questions of detail, in line with Lincoln's definition.

If the above-mentioned precondition is met, it will not be necessary to set up an eco-socialist dictatorship. If not, then also the majority of the soldiers and generals will not support an eco-socialist dictatorship as the solution to the fundamental crisis. For us, therefore, there remains no other option but the long march through the consciousness of our fellow humans, by democratic means. If we do not succeed in this endeavor, then we should prepare ourselves for the collapse and the subsequent barbarism followed by a military dictatorship.


P.S  My conception of eco-socialism is presented in detail in my book Eco-Socialism or Eco-Capitalism? (London, Zed Books; 1999) and in the brochure (with Bruno Kern) Eco-socialism or barbarism (in :


Friday, 7 February 2014

Understanding The Present-Day World Economic Crisis -- An Eco-Socialist Approach



By: Saral Sarkar


The current economic crisis that, roughly speaking, began in January 2008 and is, in July 2010, still going on, has shaken the world. Politicians, economists, and publicists are using superlatives to describe it. It has been described as the severest economic crisis since the Great Depression of the early 1930s. Seen superficially, similar, though not equally severe, crises have also taken place in the past few decades. There have been share market crashes, bank failures, crises in the finance market, credit crunches, strong recessions, state insolvencies etc. I have described them in my book Die Krisen des Kapitalismus (2010). But the scale, depth and spread of the current crisis has been so great, that all concerned got panic Many observers feared for the survival of capitalism. The question came up: is it only another crisis in capitalism, or is it the crisis of capitalism that Marxists, communists, socialists and other critics of capitalism have been waiting for since long. At least on one point all agree. Capitalism will never be the same again as it has been before the crisis, i.e. unbridled globalized neo-liberal capitalism will henceforth be bridled, more or less. That work has already begun.

    I assume that the readers of this essay are well informed on the main facts and events of the crisis. Here I only intend to present a deeper and comprehensive understanding of the crisis and do not want to repeat in detail the currently available superficial analyses and speculations about the future perspective.

I. Superficial Explanations

Economists belonging to the various present-day schools of standard economic thought did not differ much in explaining the crisis. Their explanations, which I consider to be superficial, are surely also well known to my readers. Nevertheless, I present below the main elements of their explanations in order to show the contrast between them and my explanation.

    (1) The main element in their explanations is that the greater part of the huge number and amount of bad debts that were the root cause and starting point of the crisis in the USA were the so-called subprime mortgage loans. Such loans were granted by commercial and mortgage banks to house buyers, who in normal circumstances would not qualify for those loans because they were people with low income and/or insecure job. Those risky credits were nevertheless granted because of the faulty structure of the US finance market. The local banks did not hesitate to give such risky credits, because they knew that they would very soon sell them away to the huge mortgage banks (Freddie Mac and Fannie Mae). The latter in turn issued securities based on bundles of such subprime credits, which were sold to banks all over the world who wanted to invest their surplus liquid cash for some profit.

    (2) The Federal Reserve (the central bank of the USA) kept the prime interest rate very low over a long period and thus made it easy for banks to borrow from it huge amounts of money and lend them further to undeserving borrowers as well as to speculators, who were attracted by low interest rates. This is how a real estate boom and then a bubble came up.

    (3) Bankers were greedy. Since a large part of their remuneration consisted of bonus payments, which depended on results, they were extra keen to take risks – both in lending business and in speculative transactions.

    (4) There was too little regulation of the finance and banking industry, and also the globalization of the same had happened in an uncontrolled way. As a result of these two facts, a huge amount of highly risky, highly complicated and barely understandable securities were sold all over the world, mainly to banks

    These elements do not refer only to the situation in the USA, but also to the situation in most leading industrialized countries.

I find these explanations superficial and unconvincing. No doubt, they were facts when the crisis broke out, but they do not give a satisfactory answer to the questions why the crisis became so severe, so widespread and so long-drawn, and why it could not be overcome as easily as the previous similar crises: the stock market crash of 1987, the East Asian crisis of 1997–98 and the crisis of 2001–03 (for details see Sarkar 2010). They do not explain why the crisis is still persisting, and why the outlook is still so gloomy.

    Moreover, two of the facts are really banal. That bankers were greedy does not explain anything, because greed is an essential pillar of the capitalist economic system. All participants in this system are expected to be greedy, more or less. And deregulation of the finance industry is only an essential element of globalized neoliberal capitalism, which is in place since the 1980s.

    The other two elements were indeed somewhat unusual. Bankers have always given some credits that were a little risky, and some of such credits have always had to be routinely written off. But this time, the extent of the subprime credits was so huge that business could not go on as usual when in the USA the housing boom ended, house prices began to fall and thousands of mortgagors defaulted. The creditor banks could not, as before, recover their money by selling off the houses.

    The Federal Reserve's policy during the period in question was also unusual. Generally, the Fed (and, in the neoliberal capitalist regime, almost all central banks) starts tightening money supply as soon as the economy starts heating up, which can be manifested as an above-average inflation or the emergence of a bubble in the stock exchange or the housing market. The usual instrument for this purpose is to cause the market interest rates to rise, which it generally achieves by raising the prime interest rate. In the period in question, however, the Fed let the bubbles continue to grow by keeping its prime interest rate low.

    Both the banks and the Fed have been criticized for pursuing these unusual policies, which, according to their critics, were the main causes of the severe crisis. But to blame the crisis only on them is unjustified, it is an obstacle to finding the true causes and understanding the true nature of the crisis

    It has been reported that the ruling politicians, in fact, wanted a real estate boom. Greed is not a character trait of only bankers and speculators. Also ordinary people, especially ordinary Americans, want to become wealthy. That belongs to the so-called "American dream". And owning a house, as showy as possible, is an ordinary poor man's way of becoming wealthy – especially because it was said that house prices, unlike stock prices, can only go up. Politicians, naturally, wanted to promote the fulfillment of this dream. After all, from poor to middle class citizens made up the majority of the voters. Particularly the Democrats had a special interest in pursuing this policy, because they thought workers and other poor Americans belonged to the group of their (potential) voters. In 1997, the administration of the Democratic president Bill Clinton got a law passed which made profit from selling real estate exempt from taxation. This encouraged speculation..

    But also the Republicans wanted a real estate boom. President George W. Bush (2001–08) said he wanted every American to become a house owner. Politicians in general, therefore, applied pressure on the banks, directly or indirectly, to give housing credits to the poor.

    It would however be wrong, if one concluded from these facts that only narrow electoral considerations of self-interested politicians led to the massive expansion of subprime housing loans. It also made macro-economic sense. We have to remember that both in the early nineties and in the early years of the new century, the USA suffered a recession. The GDP growth rate fell from 3.5% in 1989 to -0,5% in 1991. In 2000 and 2001 the so-called new economy broke down. Along with a long-drawn stock exchange crash, also the real economy suffered a recession, The GDP growth rate fell from 4.4% in 1999 to just 0,8% in 2001. Between 2000 and 2002 the telecom companies retrenched half a million workers. The official unemployment rate increased from 4% in 2000 to 5.8% in 2002 (figures from OECD 2000, OECD December, 2004, and Brenner 2003). Confronted with this recession even the Republican president George W. Bush had to take typically Keynesian measures to stimulate the economy, which also started to recover in 2003–2004. A housing boom promoted through subprime credits perfectly fitted such Keynesian efforts. It promoted growth and employment at a time when more and more American companies in the manufacturing industry were relocating their production in cheap-wage countries or even closing up shop. Producing houses for Americans cannot be relocated in cheap-wage countries, nor can they, unlike e.g. cars, be imported wholesale from abroad. They had to be built in America. Moreover, a house is an essential commodity. Yet, around 2006, observers started warning about a housing bubble and soon thereafter, the market began to cool down.

II. Why Did the Housing Bubble Burst?

It is too simplistic to say any bubble will burst sooner or later. It is necessary to differentiate between a housing bubble and a stock exchange bubble, which too burst in America in October 2008, i.e. after the former had burst.

    It was said that in the first seven days after the stock exchange crash, wealth amounting to 2.5 trillion dollar was lost, and since the stock exchange peak of one year earlier, stock owners lost 8.4 trillion dollar (Wall Street Journal, 10.10.2008). But what does that actually mean? One says in such cases, the wealth vanished into thin air. But in reality, nothing concrete vanished, no house, no car. What vanished into thin air were only some numbers on paper, some zeros after a digit. The 8.4 trillion dollar were only fictitious wealth. A year before the stock prices peaked, the same stocks were valued much lower. Only speculation had driven the market value of the stocks upward. After the crash, what was in any case fictitious wealth ceased to exist.

    The real value of a stock ultimately depends on how much demand in the market there is for the product(s) of the company in question. In case the company has to be wound up for lack of sufficient demand for its product(s), the price of its stocks can fall to zero. Houses are however very concrete things with eminent use value. Generally, there is no dearth of demand for them because almost all over the world population is growing and people are desiring better housing (only particular houses may not find any taker).

    In our concrete case, the subprime mortgage crisis in the USA, it is not as if the mortgagors lost the desire to live in the houses they had bought on credit. They, at least the great majority of them, were not speculators. It so happened that under changed circumstances beyond their control hundreds of thousands of them could not service their debts any more. When they defaulted, they were evicted by the creditor banks and the houses were offered for sale, which set off a chain reaction leading to falling house prices and a falling number of new houses being built. The crucial question for understanding the present crisis is, therefore, why the ordinary people who had bought houses on credit lost their ability to service their debts.

    When the crisis in the housing market caused a contagion in the stock market, and the tumbling stock prices in turn reduced, through the negative wealth effect, the borrowing capacity and purchasing power of millions of stock holders, the total effect of this downward development worsened the recession in the real economy, which, according to American economists, had already begun in December 2007. Like houses, cars, inter alia, are concrete things with eminent use value. It is not as if Americans suddenly lost the desire to own and drive big cars produced by General Motors etc. It was simply the case that many people lost the ability to pay the high price of such cars, and rising petrol prices increased the cost of driving them . They simply could not afford such cars any more.

III. The Deeper Causes of the Crisis

We then have to understand the changed circumstances under which the ordinary people who had bought houses on credit could no longer service their debts.

1. Limits to Growth

Despite several similarities, the present economic crisis differs from the previous ones in one very important respect. The present crisis developed and is continuing against a fundamentally different kind of background. Whereas the crises of the past were addressed by the powers that be with a consciousness occupied by the belief that limitless economic growth is possible – I call it the growth paradigm –, the present crisis has broken out in an intellectual atmosphere and against the background of a public discussion in which even the leading politicians of the world and government leaders are greatly worried about the ecological balance of our planet and the dwindling resource basis of industrial societies. Of course, the authors of the first report to the Club of Rome, Limits to Growth, had forecast the coming of such a situation already in 1972. But humanity could ignore this warning for a long time. Now, however, many political leaders seem to have woken up. Thus, Al Gore, the former vice-president of the USA, has made it his life's work to motivate humanity to seriously try to stop global warming. And the new president of the USA , Barak Obama, in his very first speech after winning the election, on 4th November 2008, spoke of the "planet in peril".

    The planet is in peril not only because of global warming. The ecological balance of the earth is being undermined since long, e.g. through progressive deforestation, especially through the progressive destruction of the rain forests, through progressive decline of biodiversity, through increasing environmental pollution of various kinds.

    The contraction of the resource base of industrial societies is most clearly manifested in the fact that oil extraction has, according to most experts, peaked or even crossed the peak. That is why the price of crude oil, by far the most important resource of modern industrial societies, had been rising continuously in the few years before the present crisis broke out. In July 2008, it reached over $140 per barrel. Also the price of other important resources – the energy resources coal, gas and uranium as well as industrial metals like copper, zinc, iron and steel, tantalum etc. – rose sharply. Even the prices of foodstuffs, for hundreds of millions of people all over the world the main source of energy for recreating their labor power, rose exorbitantly. After the recession began and deepened, the prices of these resources fell again, but they never reached the low level in which they were, say, in 2000. Today, in July 2010, despite the fact that the recovery from the recession is very slow, crude oil price is fluctuating around $80.

    These price rises must not be mixed up with the usual inflations of the past, which were triggered mainly by excessively high wage demands of the working people (the so-called wage-price spiral). As we know, for quite a few years now, the real wages and incomes of most workers in all parts of the world are falling (or stagnating). These price rises are also not being caused only by rising demand from China, India, Brazil etc. If this were the only cause, a corresponding increase in supply by the corporations of the respective branches of the mining industry could stop the inflation soon. No, the main cause of the said price rises is the rise in the extraction costs of the most important raw materials. These cost rises are being caused by the fact that the raw materials in question must increasingly be extracted in geographical and geological regions and layers of the earth which are getting more and more difficult to access (think of extraction of oil from the bottom of the frozen sea at the West coast of Greenland!). For such extraction activities, necessarily, more and more energy and material input is being made. In the case of extraction of energy raw materials, what is most decisive is the energy balance, i.e. the net energy made available at the end of the process. We humans cannot change the geographical and geological conditions. (for elaboration of this point, see Sarkar 1999, chapter 4, and Kern 2010)

    Also the environmental services provided by nature for us are important resources for any kind of society: its ability to absorb a certain amount of man-made pollution, its ability to regenerate the fertility of arable land, the health services provided by clean air and water etc. The costs of maintaining such resources in an industrial society have also increased along with the costs of extracting important resources like the ones mentioned above

    The rising costs of extracting or conserving these resources mean that less and less of them are available to most people. Only those fortunate few, whose real incomes are rising or are not falling despite these circumstances, can consume the same amount of these resources as before. Nobody can know exactly how much of these resources are being consumed by particular persons. But if one says that a person has lost his job or is working only part-time, if one says that a person's real income is going down, then it is tantamount to saying that this person is getting less and less resources, which include the labor power and services of other people (e.g. that of a doctor or railway workers).

    This exactly is happening today in most parts of the world. Even in Germany, one of the richest and economically most successful countries of the world, the real income of the average working person is falling for several years now. In 2006, just a year before the present crisis began in the USA, German official statistics confirmed that since a few years earlier, real standard wages in Germany had been falling (Frankfurter Rundschau, 29.07.2006). Moreover, a large and growing number of workers are finding only temporary and part-time jobs. On the situation in the USA in 2006 it was said by three authors that also there, the real wages of the majority of the workers had fallen despite satisfactory economic growth (cf. Krugman 2006; Luce and Guha 2006). The middle class felt this national-economic growth personally as a descent down the social ladder. A trade union leader described the material situation of workers as a "race to the bottom" – more work for less pay, bad health care etc. But what roused his ire more was the fact that the good jobs were being slashed and that highly qualified technicians were being compelled to take up lowly jobs in Burger King, Wal Mart etc.(CNN, 3.09.2006; my personal notes.)

    It should not, therefore, surprise anybody that in 2007, in the USA, the housing boom came to an end and home-owners began defaulting. It began with the subprime mortgagors, but soon also the established working class and then the middle class started losing their ownership homes.

    Trade-unionists and all kinds of leftists may blame the current misery of the working people on brutal capitalist exploitation, on the weakness of the working class, on speculators without any conscience, on greedy bankers, on globalization that has caused the relocation of many production units in cheap-wage countries etc. Of course, at first sight, all these explanations are partly correct. But on closer look one cannot but realize that when, on the whole, there are less and less resources to distribute because it is getting more and more difficult to extract them from nature (think of oil exploration at the west coast of Greenland!), then, even in a better capitalist world with a strong working class, at best a fairer distribution could be achieved, not more prosperity for all. It is now necessary to think in totally new terms; a paradigm shift is necessary, a shift from the former growth paradigm to what I call the limits-to-growth paradigm.

    We can further explain the matter in the following way: Workers in the broadest sense produce goods and services by using resources (including energy resources), tools, and machines, which are also produced by using resources. If due to diminishing availability of affordable resources a growing number of workers lose their job or are forced to work only part-time, then they are producing no goods and services or less of them than before. Now, since most goods and services are, in the ultimate analysis, paid for by (exchanged with) goods and services, it is unavoidable that these workers can get less goods and services from other people.

    We know that today, because of a higher level of automation and rationalization, less (or less full-time) workers are necessary to produce a given quantity of goods and services from a given quantity of resources than, say, twenty years ago. It is possible to employ more part-time workers for the same amount of production. That would ensure a fairer distribution of the required quantity of paid labor among those who can and want to work. But the capitalist system of production may constitute an obstacle to this idea.

2. Illusion of Growing Prosperity – False Indicator GDP

In his article referred to above, Krugman (2006) speaks of a "disconnect" between wage stagnation, even fall in real wages, on the one hand, and satisfactory national economic growth on the other. The term "disconnect" seems to suggest that it is inexplicable, or that the trade unions are too week to take advantage of the national economic growth. I, in contrast, have said above that the limits to growth have been reached. This is certainly confusing. So let me try to clarify the matter.

    Just as it is possible that real wages are falling while nominal wages are rising, so it is also possible that real national income is falling while real GDP is growing. Real GDP is generally understood as a measure of a nation's prosperity. But, strictly speaking, it neither measures a nation's real income, nor does it indicate a nation's level of prosperity. What it measures is only the real value (i.e. value after correcting the distortion caused by inflation) of all, and all kinds of, goods and services produced in a country in one year. Of course, goods and services produced but not exchanged through the market – for instance, the services of a housewife given to her family – are not included in GDP because they are not sold for a price. But they can be included, if one wishes to do so. Statisticians could impute some reasonable value to them, estimate the total, and add it to the official GDP. Then the same GDP will be expressed through a higher figure. That's all. But that is not the point here.

Defensive and Compensatory Costs

 When one wants to think of real income, prosperity, wealth, wellbeing or welfare of a nation, and not just of the formal GDP, one has to examine the nature of the goods and services produced. A large part of them do not add anything to the income or wealth of a nation, in contrast to those of an individual or individual firm. For instance, the work of a soldier, who is getting paid although there is no war, the work of thousands of people who are producing weapons, the work of doctors who are treating patients, the work of those who are rescuing flood victims – such elements of the GDP are, for the nation (in contrast to the individuals involved, i.e. the soldiers, doctors, rescue workers etc.) actually expenditures, not incomes or additional wealth. They are costs. They are called "defensive costs" by economists who do not want to be victims of an illusion.

    When a house that has been destroyed by a flood is replaced by a newly built one, then that is no addition to the national wealth. Only the loss has now been compensated for. The energy, materials and labor involved in this process are really costs. The same has to be said of all repairs. They are called "compensatory costs". All defensive and compensatory costs are included in the GDP. The 32 billion dollar, that are estimated to be the cost of repairing the pollution-damages caused by BP's oil spill in the Gulf of Mexico, will also be added to America's and Britain's GDP in 2010. The GDP thus loses some of its value as an indicator of prosperity.

    In our context, the damages caused by ecological degradation are more relevant, because they happen mostly as a consequence of the same process that is supposed to be generating prosperity, i.e. industrial production. In China, officials of the national Bureau of Statistics estimated that in 2004 the costs arising from ecological damages in their country amounted to 3% of the GDP of that year. They estimated that it would cost the country 106 billion euro to remove (or repair) the environmental damage. This sum amounted to 7% of the GDP of 2004 (Financial Times, 8.09.2006) The report is a bit unclear. 7% of the GDP of 2004 may have been necessary to remove the environmental damage  accumulated over past years and not only that caused in 2004. (My Chinese readers may do a little research and find out the facts.) The point I want to make here is that all the glorious growth percentages are not really growth in real income.

    The huge damages that have been caused in China this year (2010) by the extreme weather events– prolonged drought, incessant heavy rain causing devastating floods and landslides – are most probably results of global warming. How much it has cost China will be estimated by statisticians only later. But it is safe to say now that these and other similar costs would reduce the real national income substantially.

    But costs arising from single events or in one particular year are not so important for our inquiry. More important is the trend. In 1971, K. William Kapp, the first scholar to study this phenomenon, thought that it is necessary to enlarge the concept by adding to it the costs of damages inflicted by industrial production on the social environment: costs arising from occupational diseases, death, damage to health, physical and psychological suffering etc. due to bad work conditions, all of which, like ecological damages, can also be irreversible. Kapp came to the conclusion that "in spite of the problems that … render estimating social costs difficult, it is justified to say that the dangers to environment and the costs arising to society from that show, both in absolute and relative terms, a rising trend parallel to growth in production and consumption" (Kapp 1979: XIII: retranslated).

    Krugman (2006) wrote in his article that in the USA, wage stagnation and falling real wages in spite of satisfactory GDP growth began already in the 1970s. That was roughly also the time when Kapp came to his above-quoted conclusion. Costs arising to society at large must be borne by members of society. Since in capitalism the rich are powerful and the workers are poor and weak, it is unavoidable that the workers and the poor have to bear the greater part of such costs. Krugman wrote further that the allowances paid by employers to their workers began to be reduced already in the 1980s. The correlation between growing social costs and stagnating or falling real wages is obvious.

    In Germany, the country I know better, a similar phenomenon can be observed today. To take just one example, health care costs are rising continuously(a growing part of such costs arise from mental and psychical sufferings.). While, on the one hand, employers are refusing to increase their contribution to the statutory health insurance system, pharmaceutical companies are refusing to reduce the prices of medicaments, and doctors are regularly demanding and getting higher remunerations, workers' contributions, on the other hand, are being increased by law. That is part of the explanation for the falling real income of the workers and the poor.

    Let me finish this section with a statement of the government of Great Britain, in which it presents a perspective on the future and gives an example of defensive costs. It says that Britain must reduce its emission of green house gases by 80% in the coming 40 years and that it must therefore use more nuclear, solar and wind power. But then citizens must be prepared to pay 300 pound Sterling more per head per year so that the lights remain on (The Daily Telegraph, 28.07.2010)

IV. Obsolete Profound Crisis Theories – Marxist, Keynesian, Schumpeterian

If the readers realize that my argumentation presented above gives a deeper explanation for the present-day crisis and for the fact that the world economy is having great difficulty in coming out of it, then they must also realize that all the other crisis theories that were formerly regarded as profound, namely those of Marx, Keynes and Schumpeter, are now no longer relevant, however illuminating they might have been in the past. Those theories were indeed profound, although in parts wrong. But they were all conceived within what I have called the growth paradigm. As long as this paradigm was seen as an axiom, a self-evident truth, these theories were valuable. But today the growth paradigm has become only a very dubious belief, just as the Ptolemaic geocentric paradigm of astronomy became obsolete after Copernicus convincingly presented his heliocentric theory of planetary movements.

    The earliest of these profound theories, those of Marx and his followers, were propagated with strong conviction by generations of socialists, communists and trade- unionists. Yet, even before anybody spoke of the limits to growth, many doubts were raised about the validity of the Marxist crisis theories – not only by establishment theorists, but also by a few Marxists, Paul Sweezy, for example (see Sweezy 1942).

    The more important among the Marxist crisis theories consists of two interconnected statements: (1) that economic crises regularly plague capitalism because the average rate of profit has a tendency to fall and (2) that this is caused by the rising tendency of the organic composition of capital. Marx and the Marxists thought that all new value is created by labor (variable capital) only, and that machines and raw materials (constant capital) do not create any new value. In this short essay it is not possible to go into the details of the complex arguments (for which see Sarkar 2010, chapter 1 & 10). Suffice it to say that this thought led to the failure to realize the importance of availability of easily accessible, and hence cheap, natural resources, especially energy resources, for the creation of wealth.

    Both Marx and Engels could observe the ecological devastations caused by the industrial mode of production. But in a famous passage in Capital, Vol.1, Marx, attributed this to "capitalist production", which saps "the original sources of all wealth – the soil and the labourer" (Marx 1954: 506f.;emphasis added). One could conclude from this that once capitalism is overcome, the problem would be solved. Faith in the immense power of scientific and technological development caused one to generally think that all material problems could be solved sooner or later. That is why also Marx and Engels were not overly worried. Engels, who even spoke of the "revenge" of nature, also wrote:

"… after the mighty advances made by the natural sciences in the present century, we are more than ever in a position to realize and hence to control even the more remote natural consequences of at least our day-to-day production activities." (Marx & Engels 1976, Vol. 3: 74f.)

    So far as the resource problem is concerned, in Marx's days, and also until a few decades ago, a shortage of important natural resources was no serious topic of discussion. Nobody even thought of such a possibility. So Marx and his followers had no reason whatsoever to question the growth paradigm.

    We, who are today observing the massive oil spills in the Gulf of Mexico and the Yellow Sea near Dalian, and the ravages of droughts, forest fires, and deluge-like floods in America, Russia, China and Pakistan, all caused by global warming, and those who have experienced the catastrophic blow-out of the nuclear power plant in Chernobyl and the pesticides plant in Bhopal, can only shake our head in disbelief when we read the sentences of Engels quoted above. But Marx and Engels lived in the 19th century. We cannot criticize them for not knowing things we know today. However, we cannot forgive those Marxists, communists and socialists of our times who have not understood yet that there are limits to growth and that there are limits to the power of science and technology (for the latter point see Sarkar 1999, Ch. 4 & Sarkar 2010, Ch. 10).

    Another failure of Marx, Engels and their followers was their refusal to accept the basic truth of the assertions of Malthus on the population question. Marx considered Malthus's essay to be a "libel on the human race". Engels wrote that "economic laws are … [only] historic laws which arise and disappear". Engels and Lenin declared that the limitless advance of science and technology nullified the law of diminishing returns, on which one part of Malthus's theory was based. (This summary of the views of Marx, Engels and Lenin is based on quotations contained in Meek 1971). That population growth and falling or stagnating per capita resource availability, the most important of which is food and water availability, are contributing to all aspects of the present-day crisis of mankind have today become obvious. If the peoples of the world have to spend more of their income on food and water – that is again the case in August 2010 – , then no wonder that demand for other, less important goods cannot rise, and then also the present economic crisis cannot end.

    Another Marxist theory of crisis in capitalism is the underconsumption theory, which can also be seen as an overproduction theory. Keynes's crisis theory is similar to this. He too sees the cause of recession, depression and, more importantly, secular stagnation essentially in deficient aggregate demand. According to Keynes, the more people in industrial societies become richer, the smaller is the proportion of their income they spend on consumption, which consequently discourages investment by entrepreneurs. His witty phrase "paradox of thrift" is a call on the state and the people of rich industrialized societies to consume more and save less. They can make debts and consume more and pay off the debts later from future income that is then expected to rise. Unfortunately, Keynesians of today still adhere to this policy recommendation. But how can more income be generated in future if resources are declining and becoming ever costlier?

    Today, Keynes's theory as well as the Marxist underconsumption (or overproduction) theory must be rejected on two grounds. Firstly, they are not convincing as an explanation of the present crisis. It is, since long, simply not true that the people in the rich industrialized countries are consuming too little and saving too much. In the USA, before the present crisis broke out, the savings rate had fallen to below 1 percent, and even workers and poor people had been, since long, indulging in high consumption with borrowed money. As we have seen, they were even buying on credit showy houses they could not really afford. The same had been the case in all rich industrialized countries, although the savings rate had nowhere been as low as in the USA. The crisis in the US housing market (2006/2007) did not arise from overproduction of houses. All houses produced were also sold to eager buyers.

    Secondly, standard Keynesians as well as standard Marxists have not realized even today that it is the high consumption level of the peoples of the rich countries that is the main cause of global warming and other ecological degradations and damages. Fortunately for mankind, if it is not already too late, the resource crunch and the resulting long stagnation in the world economy will mitigate the ecological crisis a little. We have experienced it already. When, in the first half of the 1990s, industrial production almost totally broke down in the former Soviet Union and the East European countries, their emission of green house gases and other pollutants also went down. There indeed is a contradiction between the industrial mode of production and the health of the earth's environment.

    Schumpeter had accepted economic crises and depressions as an integral part of the process of economic development. Unlike Keynes, he did not recommend any policy for preventing economic crises. On the contrary, he even thought they had a positive function, namely that of "creative destruction", without which economic development and growth of prosperity would not be possible. Present-day Schumpeterians, therefore, see in the current crisis a great opportunity. They hope that the "destructions" would start off a wave of creativity, a wave of innovations pioneered by visionary and dynamic "entrepreneurs", as Schumpeter had defined them. And that, they hope, would be the beginning of a new "long wave", the first phase of which would be one of high growth rates and rising prosperity.

    They particularly address the twofold problem with fossil fuels serving as the main energy basis of industrial economies: the problem of their exhaustion (peak oil, rising prices) and the problem of CO2 emissions as the main cause of global warming. They believe that soon, thanks to further research and development as well as to initiatives of dynamic entrepreneurs, renewable sources of energy – solar, wind, biomass, geothermal etc.– would rapidly replace the conventional sources. There is already much talk about the coming green industrial revolution.

    In our concrete case of the current crisis, when, about a year ago, the three great US car companies, particularly General Motors, were in danger of going bankrupt, Schumpeterians with their credo of creative destruction advised the US government to let them go bankrupt. A German publicist, Thomas Steinfeld, wrote:

"Schumpeter helped us realize that crises belong to capitalism just like wheels belong to a car. … In the past, hundreds of great companies have perished, often with very bad consequences for their employees. But then, till now, again and again, new companies have taken their place. Then why should now a few companies get an existence guaranty? And why particularly these ones, and why now?

At the end of his article, referring to the greatest worry of the car industry, namely the supply and price of oil, Steinfeld wrote:

"Whole sectors of the economy will now have to reinvent themselves. Politicians should not hinder them in that process. … capitalism does not need any particular resource. It needs just resources. Maybe it would not even need oil, but would be ready, without any problem, to switch over, with the money earned in oil business, to alternative energies if only the profit is satisfactory. In this complete indifference of capitalism towards the materials entrepreneurs deal in lies a lot of hope." (Steinfeld 2008)

I shall come back to this point further below.

V. The Current Keynesian Dilemma

The way the governments of the major industrialized countries reacted to the current crisis was typically Keynesian. It was not only that the central banks poured money into the finance sector to provide urgently needed liquidity to the banks and other financial companies, which had also been the case after the stock exchange crash of 1987. This time the state too became directly involved. It put hundreds of billions of dollar and euro at the disposal of companies, which were in danger of going bankrupt, and also allocated billions for spending (in the USA 790 billion dollar) in order to stimulate the economy and thus avert a catastrophic recession. In some cases, the state, in effect, also temporarily took over some large corporations which stood on the brink of bankruptcy: e.g. Fannie Mae, Freddie Mac, the AIG and General Motors in the USA, the Royal bank of Scotland in the UK, Hypo Real estate in Germany etc.

    This has been usual practice even in earlier decades, albeit at a smaller scale. This time, however, there are two new and big problems: Firstly, the immensity of the amounts of money thus provided raised fears of unacceptably high inflation, because much of the money was newly created by the central banks (in old jargon, printed). And secondly, this came at the top of already existing mountains of public debt. In May 2010, to give only a few examples, the ratio of total public debt to GDP stood in Germany at 76.7%, in the USA at 92,6%, in the UK at 78.2%, in Greece at 124.1%, in Japan at 227.3% (Süddeutsche Zeitung, 19.05.2010).

    A state can go bankrupt, although it cannot be wound up easily like a company, especially if a large part of its debts is owed to foreigners and if simultaneously its economy is in a bad shape. This has happened many times in history, even in recent history. In the case of Argentina in 2001, one could say it was an especially bad case of mismanagement. But this time even Greece, a member of the EU and the Euro-zone with their strict rules and regulations, stood in May 2010 on the verge of bankruptcy and is still not out of danger. Because of too high public debt, 99% of which are owed to foreigners, and bad economic fundamentals with a budget deficit of 8.9% (ibid), the credit-worthiness of the country in the world finance market was recently downgraded to junk status. Also the credit-worthiness of Portugal, Spain and Ireland, who too are a member of the EU and the Euro-zone, has been downgraded. They all have difficulty getting their new state bonds sold and rolling over old bonds falling due for repayment. They must therefore offer high effective interest rates.

    All this means that states can no longer spend their way out of a recession. They must cut spending in order not to go bankrupt. But if they cut spending in a recession, they deepen it. Spain, for instance, suffering from a deep recession with unemployment rate standing at 20%, has thus been forced to cut public spending, because its budget deficit, 7.3 percent, is too high (ibid) . But this has not helped her in the world finance market. The rating agencies downgraded her credit-worthiness again; this time with the argument that the massive cuts in public spending dim the hope of a recovery from the recession.

    This intractable dilemma has led to a controversy between the policy makers of the USA, who want to pursue the Keynesian policy of increasing public spending for some more time, i.e. until a convincing recovery has started, and those of the EU, led by Germany, who are afraid of the other, long-term consequences of growing public debt in the member countries. They are especially worried about loss of investors' confidence. The Europeans have now decided to pursue a policy of reducing budget deficits. Keynesian economists are, so to speak, campaigning against this conservative austerity policy of the EU. Paul Krugman, for instance, wrote recently: "We are now, I fear, in the early stages of a third depression. It will probably look more like the Long Depression [of 1873–1896] than the much more severe Great Depression [of the 1930s]. But the cost – to the world economy and, above all, to the millions of lives blighted by the absence of jobs – will nonetheless be immense" (Krugman 2010). David Leonhardt wrote: "The world's rich countries are now conducting a dangerous experiment. They are repeating an economic policy out of the 1930s – starting to cut spending and raise taxes before a recovery is assured … " (Leonhardt 2010). Another critic commented: if now many states simultaneously dig holes in their budget, they will dig themselves together into a deeper hole.

    The severe austerity measures that have already been imposed on the Greek people have led to massive protest demonstrations, violent riots and strikes that are further crippling the economy. In Spain too there have been demonstrations and strikes. But the majority of the people in these countries seem to understand that their governments have no alternative, that they must tighten their belt. They are only demanding that the necessary sacrifices be distributed fairly, that also the rich bear their share of the burden of the austerity policy.

    The American policy makers are, of course, hoping that the worst will soon be over, that a strong recovery and then an upswing will set in. But this hope of the Americans is unfounded. In the middle of 2009, the US economy indeed started to grow again. But after growing in the first quarter of 2010 at the annualized rate of 3.7%, it could grow only at the rate of 2.4% in the second quarter.* And no new jobs were created (Süddeutsche Zeitung, 2.08.2010). The unabated high unemployment (9.5% at the time of writing) have disappointed all concerned.

    It is now obvious that a people cannot indefinitely go on living well by spending money they have not earned. There is a limit to private borrowing. Similarly, a state cannot go on stimulating the economy by borrowing and/or printing money. At some point, the old public debts due for repayment cannot be repaid because would-be lenders would not give new loans to a state the economy of which is stagnating or even suffering from a recession. And if there is only modest and uncertain growth, which is today, in July 2010, the case in several countries (there are a few exceptions, e.g. China, India, Brazil etc.), the state cannot increase taxes out of fear of stifling the growth, nor can it hope that the modest and uncertain growth will generate enough tax revenue, so that new borrowing would not be necessary. A modest growth, moreover, is not enough to create new jobs, as the US data quoted above show.

    Early Keynesians had even hoped that growth brought about through implementation of their recommendations would generate so much tax revenue that also accumulated past debts could be paid off or at least reduced. But their recipes work only if real growth potential was earlier remaining unutilized. That is no longer the case today. They were (today's Keynesians still are) totally unaware of the limits to growth and the defensive and compensatory character of much of GDP growth. They did not face them in their days. Today, however, we can not only see these limits, but are also feeling the pinch. Of course, there have been some cases of prosperous and newly prospering countries that could in some years boast a balanced or even a surplus budget, but there is no case of accumulated public debts having been fully paid off.

    There is, of course, a difference between the USA and Greece. Because the USA is by far the largest economy of the world and because the US-dollar is the number one world currency, it will be able to attract people with money to invest, who will for some more time buy US state securities. And because Greece does not have a currency of its own, it cannot solve its problems by devaluing its currency or by simply printing new money. The USA can do both. But even the USA will one day face the problems that Greece is facing today. (For a detailed discussion and my critique of Keynesianism see Sarkar 2010: Ch. 3, 5, and 7.)

VI. Perspective

Let us now try a little intelligent speculation on the shape of things to come.

    As I have argued above, in the ultimate analysis, it is the limits to growth that are today preventing the world economy from coming out of the present crisis. Since the objective limits to growth cannot be overcome, it is most likely that the rich industrialized countries would suffer from a long period of stagnation (anemic growth or no growth) like Japan in the 1990s. I am not saying here anything very new. Even many establishment economists are nowadays saying that. For the immediate future, some economists are even seeing the danger of deflation (International Herald Trubune, 7.08.2010), which is worse news for the economy than inflation. In Japan it is already the case, and policy makers don't see any option for them to utilize (Süddeutsche Zeitung, 3.07.2010; International herald Tribune, 24.8.2010). Of late, among economic experts, the number of "doomsayers" is increasing and they are being seriously listened to (Thomas Jr. 2010). The difference is that while these experts are mostly speaking of a decade or so of stagnation, I think it will be a continuous contraction until at some point a steady state will have been reached. That is the logic of limits to growth. Those who do not explain the present crisis with this logic, i.e. those who think that a clever mix of various policies could ultimately overcome it, they are naturally looking forward to a new long period of growth and prosperity.

    Many among them, the optimists, are hoping that soon a new "green" industrial revolution will begin that will generate a strong economic growth, which will be sustainable – both ecologically and in respect of resources. If that hope materializes, then not only would the present crisis be over, but capitalism would also get a very sound basis for eternal growth. For then there would be no problem any more with energy supply and availability of other resources. After all, the sun will shine for a few billion years more and give us everyday, gratis, 15000 times as much energy as the world consumes today, a great part of which is claimed to be already economically usable. And with this much renewable energy available, nearly 100% recycling of all materials could be possible.

    In two of my books (Sarkar 1999 & 2010) I have presented my arguments for not sharing this hope. They cannot be repeated here, But three facts can be mentioned that strongly indicate that the powers that be also cannot share this hope: Firstly, nowhere is any great effort being made to recycle all waste materials, except in very poor countries where labor is damn cheap, and except in case of the very highly priced metals gold and silver. On the contrary. For example China, not a rich country as a whole, is making great efforts for several years now to build up in Africa and Australia a solid source of all kinds of minerals. To use the title of a book that appeared in 1975 in German, the planet is being plundered. Secondly, despite all the din about renewable energies, massive investments are being made all over the world to build conventional power plants including dangerous nuclear ones. And the search for oil and gas is being extended to deeper and deeper ocean bottoms including at the North Pole. Thirdly, the giant oil company BP, which for some time changed its name to "Beyond Petroleum" in order to say that it is beginning the transition to renewable energies, has now decided to bore for oil in the deep waters near the Libyan coast instead of building solar power plants in the Libyan desert. And that soon after the oil spill catastrophe in the Gulf of Mexico.

    This being the situation today, there is little probability that Obama's big talk of last year about the USA coming out of the crisis stronger than before will come true. It is proving more and more to be empty talk. I have mentioned above the job crisis in the USA. The growth rate in the second quarter of 2010 has fallen short of the minimum growth rate of 2.5%, that, according to US economists, is necessary to just hold the unemployment rate constant (Süddeutsche Zeitung, 5.08.2010). How high must the growth rate be to reduce the unemployment rate, say, by half? What is worse, the job crisis is threatening to become also a bad social crisis. 6.6 million Americans are looking for a job, without success, for more than 27 weeks. They are defined as the long-term unemployed. About one million of them are unemployed for more than 99 weeks, the limit after which the state stops giving them any aid. These people will now become destitute. Many of them will land on the streets (Süddeutsche Zeitung, 5 & 7.08.2010).Also the finance industry has not yet overcome the crisis fully. In the first seven months of 2010, another 103 banks, albeit smaller ones, went bankrupt. This leads to big banks becoming bigger. This shows that the government has failed to attain its declared goal not to allow any bank to become too big to fail. All in all, today, the spectre of a second financial crisis and a double-dip recession is haunting both America and Europe.*

    Also in Germany, the much vaunted welfare state is on the decline. I have mentioned above the higher health insurance costs that working people have to bear alone. As for the unemployed, the poor and people with low pensions, several benefit payments to them have been cut or are being proposed to be cut. For example, it has been proposed by politicians that unemployed people who get their accommodation paid for by the welfare office must now accept a smaller (up to 25 square meter only) apartment than the 48 square meters they are entitled to at present. This can be easily explained in macro-economic terms. The gross profit expectation of business (e.g. that of Deutsche Bank) is at present 25%. If real GDP grows at the rate of only 2% and real national income – after deducting the continuously rising defensive and compensatory costs (see section III.2 above) – not at all or at a still lower rate, then the aspirations of business can only be fulfilled by depriving the poor and the weak.

    The situation of the welfare state is equally bad, if not worse, in the other countries of Western Europe. One observer, Steven Erlanger, writes:

"Europeans have boasted about their social model, with its generous vacations and early retirements, its national health care systems and extensive welfare benefits, contrasting it with the comparative harshness of American capitalism". But now, he continues: for western Europe, "the lifestyle superpower, the assumptions and gains of a lifetime are suddenly in doubt. The deficit crisis … has also undermined the sustainability of the European standard of social welfare, built by left-leaning governments since the end of World War II (Erlanger 2010).

This is not an ephemeral phenomenon. As to the future, Erlanger concludes: "The deficit crisis in Europe spells doom for the welfare state" (ibid). I agree. To take a concrete country as an example, Spain, reporter Sebastian Schoepp writes: "The crisis has spoilt their wish to beget children. Compared to the previous year, the birth rate fell in 2009 by five percent. Three out of ten Spaniards look without hope into the future" (Schoepp 2010).

    There is also one good news, for the Germans. In the last one year, Germany has recovered much lost ground in the area of exports and the further prospects, at least in the short term, are now very good. But in the media reports and comments celebrating this strong recovery two facts had also to be mentioned: Firstly, Germany's strong export-driven recovery is taking place at the cost of its EU partners. The French Economy and Finance Minister recently reproached Germany for letting its economy grow at the expense of its neighbors. Subsequent data corroborated her criticism. In contrast to Germany's strong recovery – the GDP grew there in the second quarter of 2010 by 2.2% – the economy of the whole euro-zone grew in the same period by only 1%, that of France by only 0.6% (Süddeutsche Zeitung, 14.8.2010). Secondly, the leaders of the German economy are worried about the world-wide shortage of raw materials (Süddeutsche Zeitung, 10.08. 2010). What should be added here is that while the German managers are again looking forward to better business, especially abroad, and while the share market index is rising, private bankruptcies are also rising. More than six million Germans are recognized as too heavily indebted (Süddeutsche Zeitung, 23.6.2010).

    Up to now I have concentrated my attention mainly on the rich industrialized countries. The picture is the opposite in some newly industrialized countries: China, India, Brazil etc. The growth rate in these countries is very high. But we should not forget that much of it has been possible because, since long, labor-intensive industries are being relocated from the rich industrialized countries to these low-wage countries. China has been (and still largely is) the "factory" of the world, India the back-office. Part of the prosperity of these countries is only the result of a zero-sum game. Moreover, the reason why the Chinese economy is booming despite the stagnation in Europe and America, its main export market, is the great real-estate bubble, which has been created by the state through its 450 billion euro stimulus packet at the height of the crisis and which is now threatening to burst (cf. Wagner 2010). Moreover, nobody thinks here of the horrendous social and ecological costs of growth, although they cannot be hidden. Only the recent prosperity of Brazil is not much dependent on these phenomena. Brazil is a vast country with a (relatively) very small population, an enormous area of fertile land and enormous natural resources. That is an exception.

    The social costs of the of prosperity of the middle class of China and India are escalating and manifesting themselves in some or the other kind of class struggle. In China, for several years now, it has taken the form of local revolts, sometimes violent, against the authorities and the entrepreneur class. Recently, it has also taken the form of some (till now) successful strikes for higher wages. But it also took the form of physical violence against doctors in hospitals where poor patients were neglected (International Herald Tribune, 10.08.2010), and even deadly attacks on school children of the urban middle class, presumably perpetrated by losers in the struggle for existence. Some recent cases of suicide of frustrated factory workers may also be interpreted as a form of protest against the prevailing situation.

    In India, in a large underdeveloped swathe of the country, called by the media "the red corridor", "Maoists", i.e. the ignored or exploited local people, who are moreover being threatened with eviction from their land, have taken to arms and are fighting against the state. In the more peaceful regions of the country, in the last ten years or so, about 200,000 bankrupt small farmers committed suicide. In Bangladesh, the country with the cheapest labor, textile workers, who produce garments for the rich of Europe and America, have had to resort to violent strikes to get a slightly better deal.

VII. Conclusion

It is now time to come back to the question whether this is just another crisis in capitalism or the crisis of capitalism. Already in October 2008, in San Francisco, an international conference of some selected left and liberal intellectuals discussed the question: will capitalism be soon over? In the last quarter of 2008 and a few months thereafter, due to the severity of the international financial crisis then, it seemed to many that capitalism might breakdown, others thought it would not be able to recover from this crisis. I was not convinced. I argued, its financial system is only one of the more important mechanisms through which capitalism functions, it is not the system's foundation. A defect mechanism can be repaired, but not an irrevocably eroding foundation. If the foundation remains strong, the system will survive. The foundation of today's capitalism is its material resource base. And I think it is eroding fast and irrevocably.

    The manifestations of class conflict mentioned above – including those in Greece and partly in Spain – hearten traditional Marxists and communists. But they do not yet understand that this crisis is not simply the crisis of capitalism. It is the crisis of industrialism altogether, in whichever socio-political frame it might be packed. Happily, it is also dawning on some of them that they cannot simply hark back to the good old conceptions of communism or socialism. The severity of the ecology crisis and the limits of resource availability cannot be denied by them any longer. And some among them are no longer convinced that further progress of science and technology would enable mankind to carry on with the quest for ever more prosperity through the development of "green" technologies. They now feel compelled to make the necessary adjustments in their theory as well as in their practical politics. They now call themselves eco-socialists, sometimes eco-Marxists. I welcome this development very much.

    It is beyond the scope of this essay to present the views of the eco-socialists (other than me) and eco-Marxists. There are, moreover, different degrees of ecological radicalness among them.. But I think it is necessary to briefly say why I consider the term "eco-Marxism" inappropriate for the contents of eco-socialism. The term "socialism" is very much open and amenable to the revisions necessary today. In contrast, "eco-Marxism" is, and logically has to be, connected with Marx's thoughts as laid down in his texts written in the 19th century. That can hinder our theoretical and practical work. Marx's works are, after all, no holy scripture!

    I am aware that prominent Marxologists, e.g. John Bellamy Foster, have taken pains to prove that it is "possible to interpret Marx in a different way, one that conceived ecology as central to his thinking, …" (Foster 2000: vi, emphasis added). After painstaking study, Foster even "came to the conclusion that Marx's world-view was deeply, and indeed systematically, ecological (in all positive senses in which that term is used today), … " (ibid: viii).

    Whereas it takes a lot of painstaking study and interpreting to come to the conclusions that Foster has come to, there are many clear words of Marx himself that show that Marx's conception of emancipation of humanity was "Promethean" or "productivist". For example, the following famous words:

" The development of the productive forces of social labour is capital's historic mission and justification. For that very reason, it unwittingly creates the material conditions for a higher form of production." (Marx 1981: 368)

Obviously referring to such words of Marx, Ted Benton concludes that Marx's vision of capitalism as "preparing the conditions for future human emancipation" shares "the blindness to natural limits already present in … the spontaneous ideology of 19th century industrialism" (quoted in Burkett 1999: 148). He interprets Marx as follows:

"Modern industrial production … is a precondition for the future communist society. The 'historical task' of capitalism is precisely to transcend the conditional and limited character of earlier forms of interaction with nature. … Elsewhere there is a recognition that some element of 'struggle' with nature for the necessaries of life is inevitable, the content of emancipation being given in the reduction to a minimum of the time taken up in this struggle. Either way, the possibility of human emancipation is premissed upon the potential for the transformative, productive powers of associated human beings to transcend apparent natural limits, and to widen the field of play for human intentionality." (quoted in: ibid.)

Burkett, who wants to defend Marx against such criticism, argues "that Marx's belief in the historical progressivity of capitalism is not based on an anthropocentric preference [of Marx] for material wealth over nature" (ibid: 149).

    Be that as it may, it is not our duty to defend Marx, nor is it necessary to criticize him for not having said things in the 19th century that it is our duty to say today. It is our duty to make a convincing synthesis of socialism and the ecological insights that science has achieved. And that is possible, as follows:

    Under capitalism, but also under the Soviet model of socialism, development of the productive forces has gone so far that the latter have become destructive, for nature as well as for humans. Therefore, generally speaking, not only must this development be stopped, but also, again generally speaking, the world economy must be brought down to a level that is truly ecologically, and in respect of resources, sustainable. In other words, world economic production must contract. But such a contraction is not compatible with capitalism with its growth compulsion. That is why it must be organized through a planned economy with socialized means of production. Moreover, this would definitely entail sacrifices in material standard of living. In any society, it would be rejected by the majority of the people of the lower strata, who constitute the majority of the population. In an egalitarian society – that is the defining characteristic of a socialist society – the necessary sacrifices would also be distributed equally and would, hence, be more likely to be accepted by the majority. That is why our vision should be eco-socialism, with or without Marx.

    As stated above, we have seen that in Greece and Spain the majority of the demonstrators against the recent austerity measures of the government have realized that they must accept cuts in their standard of living, but they are demanding that the necessary sacrifices be distributed fairly, that also the rich must sacrifice part of their income and profit and thus bear their share of the burden. The present world economic crisis is thus preparing the ground for the vision of an eco-socialist society. Our duty is to utilize this situation.




* After closing the text and sending it off to the editor, I received the information (CNN, 28.08.2010) that the US growth rate for the second quarter of 2010 has been revised down to only 1.6%. This naturally increases the fear of a second recession.



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Written in July–August 2010. Manuscript closed on 28.08.2010.