There is No Capitalist Solution to a Deepening Economic Crisis


The latest phase of the economic crisis which exploded in 2007/2008 still dominates the world economy. All attempts to break its grip and engineer a new period of recovery and growth have failed. Instead the crisis itself is determining political developments to the extent that our rulers are tending to lose control of the situation. The Euro crisis, the bailouts of the peripheral EU countries and the more recent refugee crisis are all consequences of this latest phase of the economic crisis. In the UK the most recent expression of this is, of course, the political crisis triggered by the Brexit vote which showed the ruling class unable to produce a referendum result which suits the interests of British capital. This in turn has precipitated a political crisis in the both the UK and the EU itself. The moving force behind all this is the economic crisis which our rulers are proving incapable of resolving. As each initiative fails, their room for manoeuvre narrows.

The ICT have consistently argued that the Achilles heel of the capitalist system is the tendency of the average rate of profit to fall and problems in the financial sphere, which struck with such force in 2008, are ultimately expressions of this. Attempts to restore profitability have largely amounted to simply reducing the consumption of the working class via austerity and wage reductions, and reductions in the social wage through cuts in health services, benefits, pensions and education. Attempts to stimulate the economy via monetary manoeuvres of the central banks have also failed. The measures taken in the last 8 years are unprecedented in capitalism’s history. Initially central banks mounted bailouts of retail banks, then direct injections of money into the financial system via Quantitive Easing (QE) and, more recently, by imposing negative interest rates on short term deposits and government bonds. However, these extraordinary measures have all failed to produce an increase in investment or an increase in demand. Now there is talk of central banks resorting to “helicopter money” [1] which means electronically sending money to the population at large to stimulate demand. Such talk has the ring of desperation.

State of the Global Economy

The capitalist economy goes in cycles of accumulation. In the first phase of each cycle the economy is healthy because profits are high. There is almost full employment of workers, trade is expanding and capital accumulation is occurring through investment. The general measure of all this is the growth rate which tends to express indirectly the average rate of profit. This results in increased productivity per worker and increased international trade and a situation in which the financial sphere operates to facilitate trade and investment. By all these measures the global economy today is in a poor state.

We have shown in previous articles that the average rate of profit is in decline [2] and argue below that this is the real reason why investment is being held back. Exploitation of workers in production is the only source of capitalism’s profits and it is not a surprise that global unemployment has risen. According to the International Labour Organisation, global unemployment has increased by 27 million since 2007 and is now stands at 200 million.[3]

The trend growth rate for the US economy is 2% which is half what it was 20 years ago [4]. Globally there has been a decline from a growth rate of 6.4% in 1973 to 2.5% in 2014 [5]. Growth of productivity per worker is very low or nonexistent. In the EU annual productivity growth is now 0.25% and in US it is 1.2% while in the UK it is zero. A report in the Financial Times newspaper expressed the danger the bourgeoisie sees in low productivity;

“Without an improvement in output for every hour worked, economies can grow only if people work harder, longer or more people find jobs.” [6]

Of course, this stagnant productivity can be explained by lack of investment in the means of production which we consider below. However, even if labour were to become more productive, this would ultimately lead to a further drop in the average rate of profit. These figures indicate economic stagnation.

Global trade figures show a similar stagnation. Global trade as a percentage of the global GDP was around 50% of GDP in 2007. After the 2007 crisis it contracted sharply to 30% and after a rise has since stagnated at around 40%. [7] In fact the global trade system established under the World Trade Organisation (WTO) is itself in crisis. The failure of the Doha round of trade negotiations has reduced the WTO to a dispute arbitration body. Furthermore the US is ignoring its judgements when they go against it, and attempting to remove its judges when they find against the US [8]. The US is now negotiating unilateral trade deals such as the Trans Pacific Partnership (TPP) and the Trans-Atlantic Trade and Investment Partnership (TTIP) which ensure greater benefits to US capital.

Since the end of the post-war boom, and the collapse of the Bretton Woods [9] world order in 1973, the size of the global financial sector has steadily increased relative to the global economy. In the period leading up to the crisis of 2007, US financial profits, for example, were approaching 50% of total corporate profits. This sector does not produce new value. Its role is to recycle surplus value produced in the productive economy. One of its key operations is recycling surplus capital into government debt and collecting the interest. After the crisis of 2008 it was generally agreed that there was a need to “de-lever” or reduce global debt relative to GDP. Global capitalism has simply been unable to do this and, in fact, the opposite has happened. Global debt, the sum of household, corporate, government and financial, has risen from $142tn in 2007 to $199tn in 2014 [10], far outpacing economic growth. Attempts by certain governments, notably the UK, to achieve a balanced budget and so limit the rise in sovereign debt have also failed. The UK has, since 2010, regularly postponed the date at which the famous balance is to be achieved while the debt to GDP ratio has risen inexorably. In the wake of the Brexit vote this ambition appears to have been abandoned altogether and sovereign debt is predicted to rise from its present level of 84% of the GDP to 100% by 2020. In fact bailing out banks has now ballooned so much that the ratings agencies (who determine the climate of investment) have made record downgrades of sovereign debt. [11] These debts are becoming unsustainable, and for smaller countries like Greece this has been recognized by the IMF. Yet the bourgeoisie is terrified of cancelling debt for fear of the turmoil this would undoubtedly unleash. However an unsustainable situation cannot be sustained for ever! The steady rise of indebtedness, which is another symptom of the fall in profitability of capital, points to a new and catastrophic collapse when defaults on the debts begin.

Monetary Manoeuvres

As already mentioned, the bourgeoisie has responded to the 2007 crisis with an unprecedented series of monetary manoeuvres pumping money into the economy. For the Keynesian section of bourgeois economists the problem is shortage of global demand, which is still below the level it was when the crisis struck in 2008 [12], and accompanying lack of investment. There is, they argue, a global savings glut. Yet the central banks all over the world have certainly taken measures to address these issues. The European Central Bank (ECB), for example, has a QE bond buying programme, which previously totaled €1.1tn and was being dished out at €60bn per month. In March it increased this to €80bn per month. It also offered so called “Targeted Long Term Refinancing Offers” (TLTROs) to Euro area banks of up to 30% of their loan book, at no interest whatsoever over 4 years. If these banks borrow additional monies beyond their TLTRO allowance in order to make additional loans the ECB will pay interest on these additional sums at 0.4%. This is based on the ECB’s negative deposit rate of - 0.4% but because this is a loan not a deposit the ECB is paying interest to borrowers at +0.4%. This is the upside down world we are now living in! One wonders what more the central banks could do! [13] Other central banks have been equally generous. The Federal Reserve has handed out $4.5tn in 3 rounds of QE, while the Bank of England has doled out £375bn. Yet, despite the astronomical sums handed out by the central banks and the ultra-low, or negative, interest rates they have set, these measures have failed either to stimulate demand, or to stimulate investment. These failures indicate the impasse in which capitalism finds itself. The best that can be said for these monetary manoeuvres is that they have stabilised the situation in the countries where they have been applied and prevented further chaos. In the global context, QE and zero interest rates have weakened the currencies in the countries where they have been applied, thereby boosting exports at the expense of their competitors. They thus amount to a “beggar my neighbour” policy. However, for the Keynesians all this means only that the programmes have been applied with insufficient vigour hence the proposal of helicopter money and direct infrastructure investment. Ultimately these measures will not help global capitalism recover as they do not affect the problem of profitability.

Under capitalism investment is only made if there is a prospect of profit and if the rate of profit is low investment will not be made. Bourgeois economists recognise this when they argue that, in their terms, there is a “shortage of investment opportunities.” It is for this reason that the major non-financial corporations are hoarding capital. In 2015 the UK FT100 companies were sitting on a cash mountain of £177bn, or 10% of the GDP. In the Eurozone, the corresponding figure was €14.3tn about 7% of GDP, while in the US it was $1.64tn, equivalent to 10% of the GDP. Instead of being invested these funds are being used to repurchase equity from shareholders, or handed out to shareholders in higher dividends, or being recycled as debt to governments or going into speculation in some form or other. This has pushed the yield on government debt to the lowest levels in capitalism’s history and some nations, for example, Germany, Denmark and Switzerland, have issued bonds with negative interest rates. In February the Financial Times reported that there are now $5.7tn negative yielding sovereign bonds [14]. The fact that capitalists prefer to buy debt and pay out money for holding it, shows that these purchases are speculative. Those who buy these debts hope the face value of the debt will rise in response to further QE. What it also shows is that they consider that other investments are worse. This is a clear indication of their dire view of the economy and its future! Speculation, however, is only likely to create further asset bubbles which, as we saw in 2008, will eventually explode with devastating force.

The above is an empirical catalogue of the poor state of global capitalism. The theoretical reasons for this are hotly disputed. The idea that free markets will solve these problems, espoused by the neo-liberals, has been discredited by the 2007/2008 collapse. However, the idea that state control of the economy, or full state capitalism, could restore the system to health has gained ground, despite such measures being thoroughly discredited by the disasters of the 1970s. Economists, such as Thomas Piketty [15], who is now an advisor to the UK Labour opposition leader Jeremy Corbyn, see capitalism as like a ship heading for the rocks. Piketty argues that the rock on which capitalism will flounder is inequality and calls for the state to rescue capitalism by tax reforms and wealth redistribution. Inequality, however, is simply a result of capital accumulation. He and his mentors [16] mistake symptoms for causes. The reality is that increased accumulation of capital is resulting in reduced profit rates as predicted by Marx. The existence of declining average profit rates is, however, furiously denied by the entire spectrum of bourgeois economy and also by many academic Marxists. We will briefly outline below why we consider Marx was correct.

The Labour Theory of Value and the Falling Rate of Profit

Marx analyses the capitalist system in terms of values. Value is distinguished from price but values and prices form a single system since Marx maintains that the sum of prices in the economy is equal to the sum of values. All value is produced by labour and the measure of value is labour time. Marx’s theory of the tendency of the rate of profit to fall is directly deduced from the labour theory of value.

Under capitalism value is extracted from the working class by dividing working time into a section in which workers’ labour produces the value of their wages and a section in which they labour unpaid for capital producing, what Marx called, surplus value. This unpaid labour produces a surplus product which incorporates the surplus value. Surplus value is the source of all capitalist profit. Profit therefore exists when and only when surplus value exists.

Human labour consists of many types, types which Marx describes as useful concrete labour. The various types of concrete labour are, however, equated in the market and therefore must contain a common element which enables this equation to take place. This Marx calls abstract human labour, that is, general labour abstracted from the various forms in which it exists as useful concrete labour. Marx argues that one hour of abstract human labour, produces the same amount of value irrespective of the productivity of labour.

However then the productive power may vary, the same labour, exercised during equal periods of time, always yields equal amounts of value.” [17]

From this it follows that increases in productivity which reduce the amount of labour in an economy reduce the total labour time in that economy and, since labour is the source of surplus value, they consequently reduce the amount of surplus value produced. The ratio of surplus value to the total capital employed, which is the rate of profit, consequently decreases. As Marx explains:

“The progressive tendency of the general rate of profit to fall is, therefore, just an expression peculiar to the capitalist mode of production of the progressive development of the social productivity of labour” [18]

Marx called this the Law of the Tendency of the Rate of Profit to Fall (LTRPF). This law will hold true for a sector of an economy but, since capital migrates to sectors or regions where the rate of profit is higher, it will ultimately be true for the global economy as a whole. There is thus a tendency for the rate of profit to decline inexorably. This results from the contradictory process which lies at the heart of capitalist accumulation. Marx argued that this tendency could only be resolved in periodic crises in which trade and production collapsed, bankruptcies followed and capital was written off and wages reduced. The key effect of such crises was the devaluation of the means of production or in Marx’s terms “constant capital”. That the capitalist system can only survive by destroying the wealth it has previously created in crises, indicates the historically limited nature of capitalism and the need for humanity to replace it with a higher system of production.

What needs to be emphasised is that the tendency of the rate of profit to fall is a conclusion derived logically from the labour theory of value. The rejection of the one implies rejection of the other.

Over the last century Marx’s theory of the tendency of the rate of profit to fall has been furiously disputed, and still is disputed, not only by bourgeois economists, but also by academic Marxists. While bourgeois economists reject the labour theory of value and hence the basis of the theory, academic Marxists attempt to keep the labour theory of value while rejecting the conclusion. Instead they have maintained that Marx made mistakes and his work is inconsistent and self-contradictory [19]. During the post war boom in the 1960s, when capitalism appeared to have solved its problems, and capital was being accumulated more rapidly than in any previous period, the Japanese academic Marxist N. Okishio produced a theorem, which supposedly proved algebraically, that increased productivity would always cause the rate of profit to rise, not fall. Marx was therefore deemed incorrect. A further error in Marx was that, supposedly, prices could not be derived from values. This theorem was generally accepted by Marxist academics who subsequently devoted their energies to correcting what they saw as Marx’s mistakes. However, with the return of the capitalist crisis from the 1970s this analysis has been challenged. More recent academic works [20] have shown the Marx’s system is not self-contradictory and that his conclusions follow from his premises and there is therefore no theoretical error. This has been done by showing that if inputs and outputs to the capitalist production cycle are valued temporally rather than valued simultaneously and if price and value are treated as a single but related system then all of Marx’s conclusions follow. In particular; Okishio’s theorem, which is based on simultaneous valuation of inputs and outputs to the production process, fails to disprove Marx’s conclusions. Marx’s conclusions remain valid, in particular:

Surplus value is the only source of profit

The aggregate sum of values in the economy is equal to the aggregate sum of the prices

The aggregate sum of all the surplus value produced is equal to the aggregate sum of the profit

Increases in the productivity of labour lead to a fall in the rate of profit.

As capital accumulates thereby increasing constant capital, productivity rises and labour is forced out of the productive process. This removes the source of surplus value hence causes the surplus value produced to decline. This decline is either absolute or relative to the increasing constant capital. The economy therefore experiences a tendency for the rate of profit to fall. This tendency in turn increases competition and accelerates the process.

The measures open to the bourgeoisie to reverse this fall are as follows:

Increasing the exploitation of labour. The most direct method is to increase the length of the working day or week so that more unpaid labour is produced. This can also be effected by increasing the intensity of work via speedups or reorganisation of the system of work. These amount to what Marx called increasing the absolute surplus value extracted from the working class. An alternative is to increase the productivity of workers by installing more productive machinery. This is equivalent to reducing the time of work a worker spends producing his or her wages and increasing the time spent working without pay for capital. This results in an increase in what Marx called the relative surplus value. The problem with this is that, as argued above, it invariably involves squeezing workers out of production and installing machinery or constant capital of higher value and ultimately leads to falling profitability.

Increasing the speed of turnover of circulating capital. Each production cycle is funded with capital which pays for means of production and workers’ wages and is regenerated when the commodities produced are sold on the market. If the number of cycles per year can be increased the annual value of workers’ wages is reduced and hence the rate of profit is increased.

Devaluation of constant capital. If the value of constant capital can be reduced while the surplus value remains unchanged the rate of profit will rise. Devaluation of capital occurs in crises where means of production are written off or sold for a fraction of their nominal value. In the 19th century crises devalued constant capital sufficiently to restore profit rates and initiate a new round of accumulation. In the 20th century the mass of capital accumulated on a global scale was so vast that sufficient devaluation could only be effected by world wars in which constant capital was not replaced, competition was suspended and the products of industry were destroyed in war. We argue that this was the economic effect of the two world wars. In particular the recovery, and 30 years of growth, which followed the Second World War was made possible by the devaluation, and destruction, of capital in the 6 years of war. However, the reconstruction period was a period of capital accumulation and massive increases in the productivity of labour and consequently the average rate of profit declined ushering in the start of the long crisis from the early 70s to today.

What capitalism really needs is a massive devaluation of capital as outlined in the third option above, a devaluation which can only be achieved by generalised war. Our rulers, of course, do not go to war to devalue capital. They go to war for imperialist reasons, but imperialist ambitions have their roots in the economic crisis. They go to war to destroy their competitors and to devalue their competitors’ capital and so increase their share of the available global surplus value extracted from the world’s workers. Although the system has spawned a host of local wars, and although the disputes which could lead to a new global war are certainly growing, a new global war is not on the immediate agenda. This means that only the first two options are open to the bourgeoisie today. Both these options have their limits. The working day or week cannot be extended beyond a certain maximum and increasing the rate of turnover of circulating capital without increasing the constant capital also has its limits. Capital has already increased the rate of turnover significantly and it is questionable how much further this could be taken. Studies of the annual turnover of circulating capital in the Netherlands and Japan found that whereas the average number of annuals cycles of production was 5 in 1965 by 2005 it had risen to 12 [21]. Such dramatic increases could not be achieved without the installation of more productive means of production. This means an increase in the constant capital and an increase in productivity of workers. Consequently there will be a compensating fall in the rate of profit.

If we discount the manoeuvres in the monetary sphere, which, as we have seen, have failed to stimulate investment or demand, our rulers are left with only option 1. This, however, is being pursued with a vengeance.

Attack on Wages and Living Conditions of the Working Class

Globalisation of production has opened the path for both direct and indirect attacks on the working class in capitalism’s central countries. An attack whose principal objective is to increase the absolute surplus value extorted from the class. The lower wages in the peripheral countries, particularly Asia, have produced a situation where the price of labour power is tending to reduce to a global average. This has allowed the bourgeoisie to impose direct cuts in wages, increased flexibility at work, and cuts in the social wage. In effect these developments represent the repudiation of social settlement between capital and labour which followed World War Two. These attacks have been codified in a series of new labour laws across Europe. Examples are the Hartz IV law in Germany, the Jobs Act in Italy, the Peeters Law in Belgium, numerous amendments to labour laws in the UK and the recent El Khomri law in France which has provoked a wave if class struggle. All of this is aimed at reducing the share of the social product going to the working class and an increasing in the share going to capital.

Cuts in direct wages have been widely enforced. In the UK and the US real wages have fallen since the end of the post war boom in the mid-1970s. In the UK since 2008 there has been an average fall in wages of 8%. The figure for the public sector employees is even higher at 10%. Cheaper labour has been imported to the UK, particularly from Eastern Europe which has enabled wages in the service sector to remain at the level of the minimum wage. In addition there has been an increase in taxation on staples consumed by the working class.

Increased “flexibility” has been imposed on the workforce. One of the ways this has been done in the UK is through “zero hours” contracts. Workers are not guaranteed any work whatsoever but must come to work when the boss requires them and are only paid for the hours they work. In the UK there are now 1 million working under such contracts. The Confederation of British Industry estimates that this type of flexible working keeps 500,000 workers from claiming unemployment benefit. In Germany there is a similar version of this arrangement called mini-jobs. It is estimated that 7 million workers now work in such mini-jobs. While unemployment in the UK has been kept down through the new flexibility and wage cuts this has led to the zero increase in productivity we noted above. However, in the EU as a whole 10% of the population are unemployed. They constitute capital’s reserve army of labour. But capitalism is now incapable of integrating them into productive work. Its strategy is to confine them to ghettos or imprison them or recruit them to the military.

In parallel with all this the social wage has been cut. There have been cuts in welfare allowances, cuts in education and health provision as well as increased student fees for university, cuts to pensions and increases in retirement age, and savage cuts to disability benefits.

As we wrote in our comment on the French strikes against the El Khomri law:

“Laws from a previous era that still “limited” and “regulated” workers’ exploitation (are) no longer tolerable with capitalism in its current state. The deep crisis in the global economic system makes the bosses more “vicious”, urges them to put pressure on their governments to eliminate all that prevents the extraction and realisation of a “fair” profit, a profit, that is, adequate for the current organic composition of capital, for the investment needed to continue the process of accumulation … In short, behind the war of the bourgeoisie against the proletariat and the social strata closest to it are not only social factors but also one of the most serious crises of capitalism, of which the imperialist wars, with their tragic “side effects” such as the flight of millions of human beings in desperate conditions, are “only” the other side of the coin.

Welfare is finished, it’s time for workfare. In other words, … the compulsory levy on deferred and indirect wages has to carry on, but less and less of this tax on wages goes to social services (pension, health, education etc.), whilst more and more is sucked in by the economic and financial “institutions” of the bourgeoisie, or rather their companies wherever and however they are operating. “ [22]

The effect of all this has been to reduce the living standards of the working class and create social hardship. An OECD report found that in the UK 8.1% of the population found it difficult to afford food. A third of the councils in England and Wales report they have subsidised food banks and according to the Trussel Trust, which runs 400 foodbanks, 1.1 million [23] received emergency food for at least 3 days from one of their food banks in the last year.

We have already pointed to the limits of the extraction of absolute surplus value from the working class. These are set by the fact that the day only has 24 hours and workers need a minimum period to eat, drink and sleep to reproduce their ability to labour. In the longer term, austerity measures will not work. However, in the shorter term these measures are succeeding in transferring the burden of the crisis onto the shoulders of the working class and, as long as the working class accepts them, they will provide some increase in profit and so provide the system with a little oxygen to keep it alive. The real question is how long the working class will tolerate the austerity being imposed on it before it returns to open struggle against the whole system. Such a turn will require a renewed consciousness of its position as an international class for-itself with an historical mission to create a higher system of social production.



1 See Adair Turner, former Financial Services Authority chairman, writing in the Financial Times 23/05/16

2 See Revolutionary Perspectives 06, Series 4 “Piketty, Marx and Capitalism’s dynamics” and RP 62, Series 3 “The Tendency of the Rate of Profit to Fall, the Crisis and its Detractors”

3 See ILO

4 Quoted in the Financial Times 30/05/16

5 See World Bank

6 Financial Times 26/05/16

7 Financial Times 3/03/16

8 US is attempting to block reappointment of Mr. Seung Wha Chang after rulings went against the US. See

9 Named after the US meeting place of the United Nations Monetary and Finance Conference in July 1944. This set up the World Bank, the IMF, and established the dollar as the lynchpin of the international monetary system.

10 Financial Times 5/02/15

11 “Sovereign downgrades surge to record levels” Financial Times 8/07/16 p.32. Fitch have downgraded the debt of 14 countries (including the UK), S&P, 16 and Moody’s, 24 this year so far.

12 For the EU demand is 2.4% below 2008 see Financial Times 7/07/16

13 Financial Times 11/03/16

14 Financial Times 18/02/16

15 Piketty is an advisor to Jeremy Corbyn. For a criticism of his book, “Capital in the Twenty-first century” see Revolutionary Perspectives 06, Series 4

16 Tony Atkinson ex-professor of economics at Oxford has been writing about inequality since 1960s. His recent book “Inequality: What can be done” recommends every 18 year old given an inheritance and guaranteed public employment.

17 Marx, Capital Volume 1 p.53 Progress edition.

18 Marx Capital Volume 3 p.213 Progress edition

19 E.g. the US Monthly _Review_ School.

20 See for example A. Kliman “Reclaiming Marx’s Capital”, Michael Roberts “The Next Recession”, and Paul Mattick junior, “Business as Usual: The Economic Crisis and the Failure of Capitalism” amongst many. We don’t necessarily endorse their political views but on the crisis they all make a similar case to ours.

21 See E Maito

22 See

23 See Trussel Report

Tuesday, August 23, 2016


"Weak investment is the cry of all these international agencies. And it has also been the message of private sector economic strategists like McKinsey, the management consultants. In a new report, called_Turbulence ahead: Renewing consensus amidst greater volatility,McKinsey outlines why global trade and growth has slowed to a crawl since the end of the Great Recession in 2009. “The shock of the 2008 global financial crisis triggered the first recorded drop in global GDP and the hangover has since persisted, with many countries struggling with unexpectedly weak recoveries.”_ And it is not going to get any better, McKinsey projects: “More worryingly, long-term growth prospects are serious cause for concern. Annual GDP growth from 2014 to 2064 is projected to effectively halve, falling to 2.1 percent globally and 1.9 percent for developed countries”

The International Monetary Fund has urged governments to take action to tackle a record $152tn debt mountain before it triggers a fresh global financial and economic crisis.

Warning that debt levels were not just high but rising, the IMF said it was vital to intervene early in order to mitigate the risks of a repeat of the damaging events that began with the collapse of the US sub-prime housing bubble almost a decade ago.

It said that new research in its half-yearly fiscal monitor covering 113 countries had shown that debt was currently 225% of global GDP, with the private sector responsible for two-thirds of the total.

Vitor Gaspar, the director of the IMF’s fiscal affairs department said: “$152tn is a record high. In places around the world we have excessive debt. In some places we have debt, in particular non-financial corporations’ debt, growing very fast.

“A crucial message from the fiscal monitor is that when private debt is on an unsustainable path it is important to intervene early on in the process to make sure financial crises and recessions can be prevented.”

The IMF says fiscal policy, the power governments have over tax and spending, could help. It suggests government-led programmes to restructure debt and tax breaks to persuade creditors to lengthen repayment periods.

Central banks have borne the brunt of attempts to boost growth for the past eight years, but the IMF said more active use of fiscal policy would provide a better mix. Excessive private debt was making global recovery more difficult and had increased the risk of financial instability. Rapid rises in private debt often led to financial-sector triggered recessions which were longer and deeper than normal downturns.

Gaspar said debt was unevenly spread and concentrated in the advanced countries of the west and some of the big emerging market economies such as China. He advised countries where it posed a risk to financial stability to be proactive and intervene early.

The IMF’s report shows that the overall debt level has not fallen since the financial crisis and recession of 2007-09, despite the fact that the most severe downturn of the post-war era was the consequence of too much reckless borrowing.

Debt levels were high at the end of the second world war, but decades of strong growth and moderate inflation led to a steady decline in debt to GDP ratios.

Gaspar said that the reason debt levels were now higher than they were before the 2007-09 crisis was that economic growth had been so weak. Faster US expansion since the crisis had resulted in a much sharper decline in private indebtedness than in the eurozone, he added.

Some countries, including the UK, have seen a decline in non-financial private sector debt since the world economy fell into recession in 2008. But the IMF expressed concern about the rapid growth of China’s private sector debt to GDP ratio, up 70 percentage points between 2008 and 2015.

“China is so large and the debt of non-financial corporations is growing so fast that it is having significant effects on global trends,” Gaspar said.

Revolutionary Perspectives

Journal of the Communist Workers’ Organisation -- Why not subscribe to get the articles whilst they are still current and help the struggle for a society free from exploitation, war and misery? Joint subscriptions to Revolutionary Perspectives (3 issues) and Aurora (our agitational bulletin - 4 issues) are £15 in the UK, €24 in Europe and $30 in the rest of the World.