David McNally specializes in the history and political economy of capitalism. He teaches in the Department of History at the University of Houston and is the author, among other books of, Global Slump: The Economics and Politics of Crisis and Resistance, Monsters of the Market: Zombies, Vampires and Global Capitalism, and Blood and Money: War, Slavery, Finance, and Empire.
Tempest Collective: We are interested in your take on the current global economic situation, particularly the economic cycle, the response to the 2007–09 crisis, the post-COVID period, and the coming home to roost of the “easy money” moment. What’s your perspective on the current moment? How close are we to a global recession?
David McNally: Those of us who grasp that the global crisis of 2007–09 was a turning point in the evolution of the global economy were proved right. But I think almost all of us (certainly myself) underestimated the degree to which the ruling classes would make an incredibly sharp pivot towards Keynesian-style stimulus and that all of their neoliberal nostrums against deficit spending would fly out the window when they saw a potential meltdown of the global financial system.
It’s always worth reminding ourselves that all seven major Wall Street banks faced collapse in 2008–09 and that there was genuine trauma in ruling-class circles about whether they could pull off an immediate rescue. Once that happened, I think the best commentators understood that neoliberalism was really fundamentally about a realignment of class power and much less about a hard ideological commitment to never running deficits and never going into debt. In other words, to preserve the existing configuration of class power that characterized neoliberalism (based on weakened unions, depleted social movements, and restored profitability), they would inject unprecedented amounts of stimulus into the system, and they would run enormous deficits to make this happen.
While stabilizing the system, stimulus policies also essentially offset capitalism’s inbuilt restorative mechanisms. Classically, the system has used deep recessions to purge the least efficient capitals from the economy and therefore open up the road to a new wave of restructuring, technological innovation, managerial reorganizations, and much larger concentrations of capital that enable a new boom.
We have not seen a new boom. What we did see, however, was a concerted effort by central banks around the world to block the shift into a full-scale depression, which they did avert. This needs to be acknowledged. But one of the issues that then arises is the contradiction of having stopped a recession (and a very deep one) by blocking capitalism’s restructuring mechanism. They have failed to purge the least efficient capitals from the system.
Most commentators agree that a significant number of corporations in the Global North are so-called zombie firms. That is to say, they’re not actually profitable. But when money was effectively free from central banks, they could borrow to stay alive. They could take out loans at 1.5 percent and relend at 3.5 percent, and therefore show financial profits even if their core businesses were not making money.
So, we have not seen the deep and prolonged restructuring that the United States saw in the early 1980s when steel plants, automobile factories, electrical goods, rubber, and parts plants went bankrupt on a large scale. There was very significant technological restructuring in that period which then enabled the neoliberal expansion to take place for the next 20 or 25 years.
We haven’t seen that kind of restructuring in the aftermath of the crisis of 2008–09. Instead what we have now is a capitalism that has dodged a huge bullet but did so at a cost to its own dynamism. But now, central banks have jacked up interest rates in order to bring down inflation, which is what we have seen for the last 18 to 24 months.
Having done that, we need to then ask ourselves what has this produced? They jacked up interest rates because what they feared most was not inflation in the abstract. Rather, what they feared was wage inflation. They feared that there would be a wave of strikes and unionizing efforts to catch up with what workers had lost under price inflation.
If inflation is at 6, 8, and 10 percent a year (particularly in foodstuffs, gas prices, rents), and if workers feel any enhanced bargaining power, they’re going to push to make up that gap. That was the pattern particularly of the late 1960s and the first half of the 1970s when there was a rising strike wave, particularly throughout the Western countries of the Organization for Economic Cooperation and Development and the Global North but also in critical parts of the Global South.
So, the ruling classes were very worried about the so-called low unemployment figures and the problem of the “quit rate,” where workers feel sufficiently confident to leave low wage jobs in search of other work. They were concerned that this had created a sense among working-class people, even in the United States, that they could bargain with employers individually, leaving a low wage job for another slightly better one. But what troubled them the most was that workers might bargain—and act—collectively. They understood there was a new wave of unionization at Apple, Amazon, Starbucks, and beyond, particularly among young workers. They also knew that they might face a United Auto Workers (UAW) strike down the road in the United States, as in the event they did.
The Federal Reserve Board was positioning itself for this. If you read the Fed’s reports, they’re incredibly honest that what concerned them the most was the “sticky” employment rate. They wanted to bring the employment rate down—in other words, bring the unemployment rate up to create a greater sense of insecurity and to essentially inhibit the wave of union drives and strikes that was clearly in play.
The so-called war on inflation was a preemptive assault against a wage explosion that would have been driven by unionization and a much larger wave of strikes than we’ve seen, even though we’ve seen a not insignificant one, in Britain, France, India, Argentina, the United States, and so on.
But as they drove up interest rates, they created a predicament, which is that more and more of those zombie companies are now deeply precarious. The bankruptcy rate for corporations has started to rise, but they’ve not yet seen a huge purging of the system, because they’ve avoided a deep recession. If demand falls off, then the most vulnerable firms are in huge trouble. The financial system will face growing challenges due to bad loans.
But more than this, the driving up of interest rates has displaced the crisis onto the Global South. We’re once again in a situation where there are probably 50 or so countries in the Global South that are at risk of debt default, resulting from a simple inability to pay because they’ve now had to renew the 2 percent they initially paid in financing loans at 5 and 6 percent instead. The only option outside of debt repudiation is a further move down the road of catastrophic cuts to health care, education, fuel subsidies, and so on.
Over the next year we may see a variety of revolts in parts of the Global South, from places like Nigeria to Pakistan, where debt burdens are becoming so unsustainable that either reaction to huge austerity programs will produce social upheaval or countries will essentially have to go into debt default and in all probability negotiate draconian agreements with the International Monetary Fund, the World Bank, and other global lenders.
This is a class warfare from above led by central banks that has been disguised as an anti-inflationary war. It has put the most vulnerable sections of the global economy under a very dire threat of debt crisis. This scenario will be in play over the next 12 months in a very dramatic way.
Of course, all of this then means as well that the dominant imperial powers will intensify their jockeying for supremacy. It is often forgotten that part of what imperialism is about is deflecting the effects of the global crisis from one block to another. A good part of U.S. strategy is precisely about deflecting the crisis toward China, Russia, and those in their orbit.
Today inter-imperial conflict is intensifying. The long, grinding war in Ukraine is an expression of that. Although founded upon a legitimate resistance by the Ukrainian people to foreign occupation, the war is also overlaid with an inter-imperial conflict.
Among Marxists there is a classic understanding that you can have a war which is multilayered, in which a variety of different antagonisms coexist. What we’re seeing in Ukraine is an inter-imperial rivalry overlying a colonial-style war of Russia against the Ukrainian people.
This is indicative of growing fractures in the global system. It’s easy to forget that the neoliberal game plan was integration of China into the world capitalist order. Western ruling classes pursued that quite vigorously for a quarter century. That has now significantly wound down because of the effects of the 2007–09 crisis.
We’ve moved from integration to disintegration. We’ve moved from cooperation to rivalry.
TC: Do you think that the U.S. ruling class, represented in the central bank, has been successful, considering they were driven centrally by the question of wage inflation and the labor market? We still have a very hot labor market. It’s not clear that they’ve successfully suppressed wages. The seeds of labor militancy continue. And with regards to the question of inter-imperial rivalry generally, the crisis in China has meant that there’s been a retreat from the Belt and Road Initiative, a retreat from its efforts to extend alternative debt offerings. That may, as we saw in Sri Lanka, compound the debt dynamic.
DM: Regarding the United States, I think what’s so interesting is that they have brought down the core inflation numbers. But I don’t think they have significantly dented the mood of combativity among working-class people, particularly among young workers in large multiracial urban settings.
One of the ironies of this moment is that the proliferation of political conflicts, most critically Palestine, actually will feed back into workplaces, especially among young workers. I was speaking with Kim Moody recently about how young activists and organizers in the late 1960s and 1970s brought Vietnam back into the workplace. The mood of defiance toward the ruling class over the Vietnam War was part of the radicalization of a young layer of workers in the workplace.
I think the global justice movement for Palestine is going to play out that way. Millions of young workers are completely disconnected from the ruling class over Palestine. It puts them in an oppositional spirit and creates a pattern similar to what Rosa Luxemburg described about the interplay of political and economic dynamics. In this scenario, even if one level of struggle starts to subside a little bit, the other dimension (in this case, the political) will have a feedback effect and nourish new kinds of economic disputes, confrontations, organizing campaigns, and so on. We’re not in a mass strike wave, of course, but there is an invigorated combativity.
I think they’ve singularly failed to stop the overall oppositional sense among young workers in particular within workplaces. While I’m emphasizing young workers, because there’s a locus of defiance there, labor unrest can very quickly take off among an older layer of workers as we saw in the UAW strike, for all of its unevenness.
I’m living and working in Texas these days. We had GM plants and auto parts plants on strike in Texas with very solid picket lines. That’s telling us something. Labor defiance continues even outside the centers of young worker organizing I was talking about. So, I don’t think that the ruling class has succeeded in dampening oppositional attitudes among workers.
In terms of China, there is what you might call a reconsolidation of an imperial bloc strategy. In addition to moves toward greater protection by both the U.S. and Chinese states, there is also a retreat from some efforts to incorporate other states. When growth rates were high, when China was leading the world in rates of investment and growth in output, its rulers could afford to experiment with a number of initiatives to see what worked and what didn’t work.
Now, as their growth rates are tumbling, it’s not clear whether China is going to avoid a major crisis in the property sector. There’s a huge overaccumulation in the housing sector in China, which has not yet shaken out, and it is unclear if they can contain that. This doesn’t mean the ruling class in China is going to retreat towards a kind of autarkic isolationism. But it is consolidating, retrenching, and reprioritizing investment policies outside of China. This isn’t purely economic. It is also deciding which geopolitical and military investments are worthwhile and which ones ought to be shelved.
The Belt and Road Initiative, for instance, is really being throttled back. One way to think about the Chinese ruling class is to think about the conflict that’s being waged largely between Biden Democrats, on the one hand, and Republicans, on the other, about the degree of global military, diplomatic, and foreign policy spending that’s appropriate. Biden is still pushing hard for major U. S. spending designed to ensure global hegemony, but a whole layer of the Republicans, influenced by Trump’s kind of semi-isolationism, wants a retrenchment.
This has played out largely between two parties in Congress in the United States. But in China it has played out inside the one ruling party. In other words, they’ve got different currents and factions, and they’re trying to resolve their differences right now. I think they are retrenching but they’re not going to move backward on increased military spending. I don’t think they’re going to back off in their tacit support for Putin in Ukraine. They’re not going to back off over Taiwan.
But they are reconsidering within their own ruling circle what they see as extravagant foreign initiatives. That fits with the U.S. pattern overall also. When there’s a single ruling party, as in China, the shifts occur without much open debate of the sort that we’re seeing inside the U.S. ruling class.
I think that the axis of U.S.-China rivalry is not only going to continue throughout this period, but it’s going to remain very sharp. We saw the beginnings of the pivot from integration to rivalry after the 2007–09 crisis, but it has really sharpened since 2016.
TC: To what extent do you believe the imperial blocs are entrenched? Do you think Russia is more committed, perhaps by necessity, to an autarkic model because it’s under such pressure? To what extent is Russia an independent actor in light of its attempt to assert regional power via Ukraine, its threats to Finland, and so on? To what extent do you see Russia as answerable to the Chinese?
DM: I think we need a much deeper analysis of the internal dynamism within imperial blocs. We have a tendency to think that one state dictates, but I think it’s much more complex than that. The junior partners within an imperial bloc can at times exercise a more significant degree of autonomy than we often imagine. They are not writing the script. That’s not how global power works. But the dominant power within the bloc has to accommodate other powers.
An imperial bloc involves regional powers that have their own aspirations. The dominant power needs their regional influence and often has to accept actions that are not fully in their own interests. For example, China is not moving troops into Eastern Europe any more than the U.S. military is going to move 100,000 troops into Gaza and occupied Palestine. But they are enabling sub-imperial powers to do so.
Regional powers that need the umbrella of the larger imperialist power exercise a lot of autonomy themselves, particularly at this moment. Right now, Putin cannot afford to back down on Ukraine. That’s a simple reality. Defeat in Ukraine is the end of the line for Putin and his section of the ruling class. They remember what happened when Russia lost a war with Japan in 1905 and how it cracked open Czarism and opened up the floodgates of the 1905 revolution. They remember the lessons of the First World War: all the losing belligerents were shaken by working-class upheavals involving soldiers and sailors on a very large scale.
Putin needs to persist in Ukraine. China needs the alliance with Putin’s Russia because Putin is the containment strategy for NATO. Without Putin, China’s rulers fear NATO will sweep across Eastern Europe. So, Putin gets a lot of leash from the Chinese state to pursue a war with Ukraine that does not offer a lot to China itself.
I would argue that there are elements of these dynamics in play in the Middle East. There’s no question that Israel is utterly reliant on foreign and particularly military aid from the United States. It needs the United States’s global authority with Egypt, Saudi Arabia and other Gulf states for its long-term plans. So, it’s reliant on the U.S. government. But the United States wants territorial influence and to prevent anti-imperialist upheavals in the region. At the same time, it prefers to limit its own direct interventions. Better to let regional proxies do the dirty work. So, the likes of Saudi Arabia and Israel—especially Israel—are given a lot of rope to do what they deem necessary. The United States may try to constrain its allied states in the region, to influence and pressure them. But since it needs these powers as regional police forces for empire, it gives them a lot of room to maneuver. This is the long-standing Kissinger Doctrine after the U.S. defeat in Vietnam.
We need to recognize that imperial blocs are dynamic and that the junior parties within a bloc can exercise very significant regional autonomy while carrying out strategies that often are not identical with those of the larger patron that dominates the bloc.
I think there was a period of time when China hoped for a negotiated settlement in Ukraine. They thought it was in their overall best interests to be seen as a power that could actually bring about a settlement. When they couldn’t do this, they decided to live with an ongoing war.
I think the United States genuinely wants a less destructive pulverization of the people of Gaza right now. I don’t think they’re going to get it. They probably know that, and are going to live with that. Those tensions are going to continue.
The interesting thing is there are no hegemonic powers that have the kind of influence within their blocs that Russia and the United States had in 1948. They don’t dominate in the same way. So we’re going to see tensions that are sometimes even much more overt inside the blocs, although this doesn’t mean the blocs are going to fly apart.
TC: Regarding the Middle East, certainly one sees the tensions you are talking about play out between Iran and Saudi Arabia. There are independent assertions of power by the Gulf states. There’s been a commitment over the last few U.S. administrations, and perhaps further, to strengthening regional stability and normalization of relations with Israel, most importantly with Saudi Arabia. That appears to have been part of the motivation for the October 7 attacks and appears to have at least momentarily impacted that process. What’s your assessment of what October 7 has meant for that dynamic—or is it too early to say?
DM: It’s too early to say. We’re in the middle of it. There are still an awful lot of factors that could come into play. We should not underestimate what it would mean to have a mass global Palestine solidarity movement capable of the kind and level of mobilization that the anti–Vietnam War movement had over years.
We’re not there yet. But should we get there, it then becomes an independent factor in drawing up a kind of balance sheet. Such a mass movement could become a very important factor.
I don’t believe it’s the case that everything that happened around October 7 was dictated by the regional and global dynamics. They were a factor, no doubt a significant one, but we need to understand the ways in which Hamas confronted a dilemma that earlier confronted the Palestine Liberation Organization (PLO).
Many folks have been rightly reading Tareq Baconi’s book on Hamas recently, but let’s remember the title, Hamas Contained. Baconi sketched a scenario in which Hamas ran the risk of becoming a rump administrative power in Gaza, contained by the occupation and essentially administering local austerity. It wasn’t yet in the situation in which Yasser Arafat of the PLO had found himself, literally in a compound and surrounded by the Israel Defense Forces (IDF). But Hamas understood that risk.
If you cannot pose as a force of resistance to the occupation of Palestinian lands, over time you become an administrator of the occupation. I think that was a large part of what happened on October 7, an attempt to restore the idea of resistance.
Now, I take it for granted that Hamas does not represent the politics of Palestinian liberation to which we aspire. Hamas’s politics, political strategies, and ideological formation are foreign to those of the revolutionary socialist left. It does not represent authentic resistance, but it is a genuine force and it had to do something.
In terms of the regional context, Saudi Arabia in particular was being reconciled to the status quo. Saudi Arabia was moving toward a U.S.-driven accommodation with Israel because of Iran. It fears Iran as a destabilizing force hostile to the power of the Gulf states in the region.
But ultimately we need to understand that the Israeli state has demonstrated that it has no interest in negotiating with any representatives of the Palestinian people. Recently, Netanyahu has said bluntly and overtly that he is completely opposed to any kind of parcellized and fractionated Palestinian state. To suggest that the objectives of the Oslo peace process are some huge risk to the Zionist project is borderline crazy. The Oslo Accords were a victory for the United States and Israel. Nevertheless, the dominant ideology of the Israeli right sees in them excessive concessions to Palestinians.
As much as the regional dynamics matter in generating the events of October 7, we shouldn’t lose sight of the fact that so long as there is no movement toward any kind of even semi-reasonable Palestinian sovereignty, there’s going to be resistance. Regrettably that resistance won’t always take shape in the way that the socialist left would like. But it’s going to happen one way or the other.
Featured image credit: BullMoose1912; modified by Tempest.
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