Unemployment has risen by a third in the last year and everyone agrees that worse times are ahead. Worries about losing jobs and not being able to pay the mortgage are growing. Whose fault is it? Is it the politicians administering the economy, or is it the capitalist economy itself?Recession means less is being produced and that means more unemployment. As a result, our bargaining position as workers is weakened and wages decline. An early sign of this is the aggressive stance taken by the employers in the current ‘partnership’ pay talks.

Under capitalism, decisions about what to produce are made by hundreds of competing firms. The competitive drive to grow bigger and get more market share forces them to expand as if the market they are producing for has no limits.

There is no rational planning. Growth is not linked to people’s needs, but simply to the expectation of profit. We get ‘overproduction’, where there are more products than buyers. Goods pile up, unable to be sold, and the firms that have over-produced have to cut back.

Products lie unsold and profits fall, making further investment less worthwhile. Spending decreases and the downturn spreads throughout the economy. The first over-producing firms cut back on investment and this leads to less demand for their suppliers’ products, who in turn are forced to cut back, causing problems for their suppliers' suppliers and so on.

Recessions always follow this pattern and the result is always the same one of falling production, increased closures, lower wages and higher unemployment - with an inevitable growth in poverty.

To get out of a slump unnecessary productive capacity has to be wiped out, less profitable firms go out of business. Stocks of finished goods have to be bought up cheaply or written off entirely, as investment will not restart if overproduction still exists. And there has to be an increase in the rate of profit, achieved by both wage cuts and falling interest rates.

Each slump helps build the conditions for future growth by ridding capitalism of less efficient/profitable firms. Growth begins once more with capitalism creating a boom situation which will be inevitably followed by another recession. This has been the history of capitalism ever since it first developed.

Governments can make a small difference, they can shift investment around, increase or reduce taxes, borrow or cutback. But today they have very limited power because we live in a world economy where all countries import and export and where most big companies have long outgrown national borders.

Indeed, this cycle shows how pointless are the long term economic plans of Sinn Fein, Labour and other reformers. Far from being some sort of mistake or mismanagement, this cycle of insecurity is the natural cycle of capitalism. It is part and parcel of the system, and one more good reason for getting rid of it.

Issue 105 of Workers Solidarity Sept/Oct 2008

[PDF of southern edition of WS 105] [PDF of northern edition of WS 105]