http://www.newleftreview.org/?page=article&view=2799

A crisis occurs sometimes lasting for decades. This exceptional duration means that incurable structural contradictions have revealed themselves and that despite this the political forces which are struggling to conserve and defend the existing structure itself are making every effort to cure them within certain limits and to overcome them. These incessant and persistent efforts (since no social formation will concede that it has been superseded) form the terrain of the conjunctural, and it is upon this terrain that the opposition organizes.

Antonio Gramsci, Prison Notebooks

What is the historical significance of the implosion of neo-liberalism, coming less than twenty years after the collapse of the Soviet Union? A disconcerting thought experiment suggests itself. The ussr, it might be recalled, had reached the summit of its power in the 70s, shortly before stumbling downward into a spiral of retrenchment, drift and collapse. Could a comparable reversal of fortune now be in store for the superpower of the West, one of those old-fashioned ‘ironies of history’? After all, a certain unity of opposites can be traced between an unbridled late capitalism and the centrally planned rust belts of the former Comecon—and precisely in the economic sphere, where they were diametrically counterposed. During the heyday of Reaganism, official Western opinion had rallied to the view that the bureaucratic administration of things was doomed to stagnation and decline because it lacked the ratio of market forces, coordinating transactions through the discipline of competition. Yet it was not too long after the final years of what was once called socialism that an increasingly debt- and speculation-driven capitalism began to go down the path of accounting and allocating wealth in reckless disregard of any notionally objective measure of value. The balance sheets of the world’s greatest banks are an imposing testimony to the breakdown of standards by which the wealth of nations was once judged.

In their own ways, both bureaucratic socialism and its vastly more affluent neo-liberal conqueror concealed their failures with increasingly arbitrary tableaux économiques. By the 80s the gdr’s reported national income was revealed to be a statistical artifact that grossly inflated its cramped standards of living. But in the same decade, an emerging circuit of global imbalances was beginning to generate considerable problems for the measurement of capitalist wealth. The coming depression may reveal that the national economic statistics of the period of bubble economics were fictions, not wholly unlike those operative in the old Soviet system.

Of course, the recurring crises of capitalism are supposed to be different from the terminal stages of non-capitalist civilizations and modes of production. Such social orders seem to have lacked capitalism’s distinctive capacity for creative destruction, for periodic renewal through downturns that liquidate inefficient conditions of production and life forms, opening up frontiers for the next round of expansion. In accordance with this pattern, nearly all commentators on today’s economic meltdown have assumed that this Schumpeterian tale of crisis and renovation will repeat itself in one form or another. But is it, in fact, inevitable that new phases of accumulation will emerge from the aftermath of what now promises to be an enormous and protracted shake-out? I would like to propose that this scenario of capitalist renewal is distinctly less likely than a long-term drift towards what the classical political economists used to call ‘the stationary state’ of civilization.

Growthlessness

From Adam Smith to John Stuart Mill, early theorists of the wealth of nations were pessimistic about their societies’ long-term prospects for growth, and assumed that the productivity gains from specialization and the division of labour would be thwarted after a certain point by the exhaustion of the soil and population increase. The historian E. A. Wrigley writes:

For reasons cogently argued by Smith and his successors, the momentum of growth was expected to peter out after a time, arrested by changes endogenous to the growth process itself, and giving rise in due course to the supervention of the stationary state. Moreover, the classical economists were unambiguous in doubting whether even the then prevailing level of real wages could be sustained indefinitely. Future falls were more probable than future rises. A steady and substantial improvement in real wages for the mass of the population was a utopian pipe-dream, not a possibility that a rational and well-informed man could plausibly entertain, however much he might wish to see it occur. [1]

The passage suggests why Adam Smith and his contemporaries might have thought that a stagnant 18th-century China was in some sense ahead of contemporary Western Europe. Having exhausted the sources of further productivity growth, China had entered, inevitably, onto the path of secular involution: de te fabula narratur. Of course, this pessimistic verdict on civilization’s longue durée was overturned by subsequent great waves of capitalist expansion. Marx’s later critique of political economy was, in part, an attempt to reconceptualize this tradition’s classical, pre-industrial pessimism regarding the external, natural limits to economic growth, transforming it into an account of an ever more difficult to surmount socio-economic impasse of accumulation. [2]

For more than half a century, such attempts to theorize the ultimate limits of capital were relegated to the political and intellectual margins. In the 1920s and 30s contemporaries of varying political persuasions had concluded that capitalism was coming to an end, and were surprised by its stupendous post-wwii recovery. This great come-back discouraged the more prudent from thereafter contemplating a capitalist crisis deep and long enough to put a question mark over the future of the system. Today, so soon after its late 20th-century triumphs, it might seem incredible that anyone would seriously call into question capitalism’s historical viability. The matter was supposedly resolved circa 1989. Departing from this consensus, I propose that the coming era of socio-economic shake-out and contraction—the harvest of unresolved economic problems going back to the 1970s—is being compounded by a drift in the economically most advanced regions towards a stationary condition. The coming period will be shaped by the convergence of a conjunctural crisis of accumulation with ongoing epochal shifts in world capitalism—in its technological bases, demographic patterns and international division of labour—that have diminished its capacities for sustainable growth. In what follows, I will highlight some of the main dimensions of this dual crisis, and consider the forms of politics that may take shape within the contours of structural decline and transformation. What lies beyond the horizon of the current defensive nationalizations and bailouts of a faltering status quo?

Periodizing the present

Historians have long been preoccupied with the problem of decline and fall of communities, of the ways in which modes of life come to an end through structural change, extinction, or their involution into semblances of what they once were. Whoever considers the problem of qualitative historical changes today can draw upon various traditions of thinking about the moment, or whole period, during which some order of human things ceases to exist. There are punctuated collapses—the conquest of Pre-Columbian civilizations, the overthrow of the French Old Regime, the self-liquidation of the Soviet bloc—as well as those drawn-out transitions of which no contemporary was cognizant, like the decline of ancient slavery and the passages to feudalism. How then might the ends of capitalism unfold, over what time span, and along what dimensions?

The defining, expansionary drive of capitalism (M–C–M') depends upon a vast array of supporting and partly autonomous infrastructures and dynamics. Seen in this light, the current predicament of capitalist civilization is not simply a matter of a cumulative logic of economic stagnation. I will argue that an emergent trend line of secular deceleration has been exacerbated—‘overdetermined’—by mounting problems of demographic disproportion, ecological deterioration, politico-ideological de-legitimation and geo-political maladaptation. Nature, culture, war: the expansionary socio-economic drive that partially totalized these different historical dimensions into a world-system may now be faltering, leaving disparate elements and tendencies of the old regime to persist, with indefinite life-spans. Perhaps it would not take many generations for a non-dynamic capitalist order to evolve into an inegalitarian, drifting post-capitalism. In any event, it is safe to assume that the ends of capitalism will be as unprecedented as everything else about it has been.

If the collapse of the world market during the Great Depression initially appeared to confirm one or another ‘orthodox’ interpretation of Marx, in point of fact, no general theory of capitalist crisis has ever proven adequate to explain it. The causes of the depth and longevity of the Great Depression are still not well understood, at least for the us, which, unlike Germany, was far less dependent on an unbalanced inter-war world economy for its growth. Although all capitalist crises stem from anarchic, self-undermining processes of expansion, this self-undermining has failed to adhere to a general pattern, and assumes novel forms in every conjuncture. Exit from a global economic deadlock took one course after 1873—a gradual shake-out, without a precipitous collapse of output or living standards, eventually releasing the upturn of the 1890s; and another after 1929—a cathartic purge of the system by a severe depression, resolved only with the outbreak of war. Each major crisis of capitalism has unfolded in a new socio-historical world that modulated the ebbs and flows of valorization. As a result there are no generally applicable diagnoses and remedies.

While policy flounders, a number of broadly Marxist accounts of the economics of the period have come into their own. The works of Giovanni Arrighi, Robert Brenner and David Harvey are but the peaks of a wider literature on the current age of capital and the state. Compared to previous episodes of capitalist crisis, the long lead-up to today’s downturn has been more profoundly theorized. In the 1930s and 1970s, even those who did not believe that capitalism had overcome its propensity to slumps and crashes failed adequately to explain the causes of a sudden, worldwide systemic distress. What accounts for the difference? Perhaps neo-liberalism swept away many of the regulatory institutions and non-capitalist social formations that had previously impeded and modulated the logic of capital. Perhaps the unprecedented global economic imbalances that led to the current crisis were always harder to ignore, even as markets soared to new heights. For whatever reason, in the age of its universal triumphs, various limits of capital have come into view. And yet despite this cognizance of growing risk, even the harshest critics of neo-liberalism generally assumed that this volatility expressed the dynamism and rude health of the system.

The long 1970s

The last three decades of neo-liberal capitalism can be characterized as a prolonged, unsuccessful attempt to transcend the world economic crisis of the 1970s. Robert Brenner argues that the basic source of today’s crisis is the diminished vitality of the advanced economies over the entire subsequent period. [3] This deceleration is the result of a long-term decline in the rate of return on capital investment. Despite a subsequent reduction in the share of income going to wages and benefits in all the leading economies, Brenner shows that the rate of profit failed to recover after the 70s due to a persistent over-capacity in global manufacturing industries in excess of what would yield the previous return. A faltering rate of profit, occasionally reversed by spasmodic upswings, yielded smaller surpluses for reinvestment, leading to a slow-down in the growth of plant and equipment. In the leading advanced capitalist countries, this led to either wage stagnation or higher unemployment. Attempting to restore profitability, employers the world over held down wage and benefit levels, while governments reduced the growth of social expenditures. But the consequence of these cutbacks has been a protracted sluggishness in the growth of demand, reinforcing the stagnation stemming from overproduction. The cumulative problem of deceleration unequivocally manifested itself in a steady, system-wide expansion of government, firm and household debt. Although many have protested that this picture of the economic performance of the advanced capitalist world since the 70s is far too bleak, this across-the-board growth of debt should be taken as prima facie evidence that there was, in fact, a slow-down. For there is no other explanation for why it happened.

But in what sense has there been a worldwide growth of debt during this period? After all, at any given moment, investment—including purchases of interest-bearing debt—is supposed to be in equilibrium with savings. The problem has been that an increasingly large part of this world pool of savings has come to support a runaway growth of consumer debt and unsustainable speculation, in lieu of finding an outlet in the forms of investment that would generate sustainable income growth. Other countries’ exports generate reserves that purchase us debt at rates low enough to sustain its bonanzas. The true economic history of the period is not a morality play in which virtuous producers and savers were pitted against gamblers and big spenders. The manufacturing sectors of the world’s leading export economies—China, Japan and Germany—were just as dependent on the build-up of debt and speculation as the finance and real estate of the debtor countries. The reason is that as income from investment in plant and equipment sank, the level of aggregate demand became increasingly dependent on turning savings into interest-bearing debt, which under the right conditions can grow out of all proportion to the streams of income that ultimately support it. Debt is the taproot of the myriad forms of ultimately unsupported claims on wealth. ‘As with the stroke of an enchanter’s wand, it endows unproductive money with the power of creation and thus turns it into capital, without forcing it to expose itself to the troubles and risks inseparable from its employment in industry or even in usury.’ [4]

Eventually, of course, it is exposed to all the troubles and risks of its employment. In Brenner’s account the current crisis is the inexorable resurfacing of the pressure for a systemic shake-out that was never allowed to happen over the course of the last three decades, despite multiple rounds of downsizing and massive departures of capital from overcrowded manufacturing lines to cheaper locales and financial assets. The implosion of the American-centred financial and real-estate bubble is the end of the line for a whole period of gravity-defying account imbalances, asset bubbles and debt creation. Of course, the neo-liberal era has witnessed enormous bail-outs before: from the early 80s, such clean-up operations have been an essential enabling condition of getting the boom and bubble dynamic rolling again. But unlike previous local episodes of neo-liberal meltdown, this one is obviously taking place on a vastly larger scale, and no bailout can realistically keep the world economy from entering into either a new era of world depression or a protracted period of slow-growth stabilization, or perhaps some novel combination of the two.

Elasticity of capital

So far there has been no general fall in price levels, apart from housing markets, of the kind that marked the 1870s or the 1930s. This testifies to the formidable capacities of the post-war state to support demand, although this may soon hit its limits as the toll of unemployment continues to rise everywhere. The current form of stabilization and the market rallies it makes possible come at the cost of growing indebtedness, which cannot continue indefinitely. This does not mean that the bottom will eventually fall out of prices, as it did during the Great Depression. In fact, the deflationary consequences of a large-scale drop in consumption—the upshot of firms and households attempting to pay down their debts—will likely be intertwined with, and occasionally counteracted by, inflationary or even hyper-inflationary bubbles that will result from attempts to stimulate flagging economies with injections of ever more liquidity, that is, by the printing of money. Over the next several years, we are likely to witness the birth of a new and bewildering form of stagflation.

Instead of propping up aggregate demand through debt, one might ask whether it would have been possible after the 1970s to unleash a crisis on a scale sufficient to liquidate the vast quantities of marginal and inefficient capital holding down the rate of return, thereby restoring the necessary conditions for a more dynamic capital accumulation. The Carter–Volcker shock was a brief experiment in that direction. Of course, if the us had stuck to that strategy, Latin American scale structural adjustments might have been the order of the day throughout much of the oecd. Perhaps if these societies had been able to withstand a shake-out on this scale, rates of growth might eventually have returned to a level that could have sustained a less debt- and speculation-dependent, albeit more modest, rate of growth. But would this scenario have materialized? Austerity in this period has only led to growth through a realignment of the economy to exporting. If the us had stayed the Volcker course in the 80s, it may very well have plunged the whole world economy (and not just Latin America) into a depression, and then would have found no one to export to. In any event, few societies in the post-war affluent capitalist mould would have endured such a drastic restructuring and disentitlement, without the clear prospect of a return to rising levels of consumption.

High rates of growth sustained the social contract of post-war capitalism in the West. Even after its Golden Age, a buoyant consumerism remained as an unnegotiable legacy. Not only was a cathartic blast of thoroughgoing creative destruction out of the question after the beginning of the downturn in the 70s; the lower growth rates of consumption characteristic of earlier eras of capitalism were no longer socio-politically legitimate. Growing levels of debt were needed to make up for the potential fall-off in consumption. This happened despite the mass entry of women into the workforce, making double-income households the norm. The build-up of debt in this period, ultimately made possible by fiat money, expressed institutionalized expectations of rising affluence. While it is true that the growth rates of the last thirty years have not been low compared to more remote historic averages, they have been low in comparison to these historically shaped expectations which, as Marx said of the wage level, set the standard of what is high and low.

There are still intact socio-political barriers to the downward adjustment of living standards in the advanced capitalist countries, and probably in some of the more successful recently developing ones too. Neo-liberalism brought large-scale unemployment to Europe, long-term wage stagnation to America and increasing job and benefit insecurity everywhere. But except for the bottom fifth of the population, much of the social damage was cushioned by social provision, the increase of women’s earnings (allowing for growth in overall household income) and, in some countries, burgeoning credit-card debt and house-price inflation. Across the oecd, public provision actually rose throughout the neo-liberal period as a percentage of gdp, largely due to the steadily rising health-care costs of these ageing societies. As a particularly striking example of this trend, Medicare shot up during the administration of G. W. Bush. But in the absence of the cushion of debt and speculation, standards of living could begin to deteriorate in ways more reminiscent of the 30s than the 80s. Of course, several countries experienced Depression-like collapses in the 80s and early 90s, or in the run of crises from 1997 t0 2001; but outside of Africa these had the cold comforts of export-based growth to fall back on, after they were racked by structural adjustment. There are no comparable ‘higher powers’ to impose structural adjustment on the largest advanced capitalist societies, but there is also now no immediate austerity/export path of adjustment. All the current Herculean efforts of bailing out and stimulation demonstrate that the leaders of the advanced capitalist world already know that what was supposedly good for the Third World goose is out of the question for the First World gander.

Technological revolution

No social order ever disappears before all the productive forces for which there is room in it have been developed.

Karl Marx, Contribution to the Critique of Political Economy

The contemporary crisis exhibits a number of unfamiliar characteristics stemming from the inability of advanced capitalist societies to bear the costs of a new socio-technical infrastructure, to supersede the existing fixed-capital grid. The latter currently entrenches a 60-year-old complex of productive forces at the core of the world economy. The structural impasse that this has created has not been fully grasped, leading to difficulties in historicizing the last quarter-century of capitalism. Fredric Jameson’s conception of postmodernism as the cultural logic of the period is arguably the great benchmark of contemporary epochalism. [5] In the early 80s, Jameson originally conceived of this new order of things as a prefiguration of groundbreaking new technologies and energy sources of capitalism. In order to understand the subsequent trajectory of capitalist society, it is important to recognize that this great leap forward, what Ernest Mandel called the Third Technological Revolution, never really materialized. Even a more modestly conceived ‘post-Fordism’ failed to release a productivity revolution that would reduce costs and free up income for an all-round expansion.

Instead, the latest phase of capitalism got an ersatz form of growth primarily through credit-card consumerism and asset bubbles. Jameson’s explanation for contemporary society’s inability to experience and represent the totality of the world system initially attributed it to some immeasurable disproportion between human agency and newly unleashed nuclear and cybernetic productive forces. [6] But in later accounts, the locus of the problem silently shifted to mapping an opaque, pseudo-dynamic world of financial markets. Initial anticipations of an exhilarating new cultural condition gave way to totalizations of a more closed and derivative situation. Capitalism’s culture became an organized semblance of world-historic dynamism concealing and counteracting a secular deceleration in ‘the real economy’.

But what about information technology and containerization—the two signature technological breakthroughs of the period? These have undoubtedly powered a huge increase in world trade, over and above the growth of the world economy itself. Computerization and ‘just in time’ modes of organizing supply chains made it easier than ever before to bring manufactured goods to the world market, and relocate production. These cost-reducing technological and organizational changes countered the potentially inflationary consequences of the growing supply of various forms of money. Alongside American deficits, these trade-promoting changes were responsible for accelerating East Asian and especially Chinese growth. But unlike a ‘nuclear-cybernetic industrial revolution’, or the shift to some alternative energy source, technological change in this form has, by and large, brought vast quantities of goods from countries with lower labour costs into world markets already weighed down by overproduction of their higher-cost equivalents, instead of fuelling growth through the creation of whole new lines of production.

In the 90s it seemed plausible that containerization, post-Fordist production and supply chains and information technology in the new office place were the driving forces of a transition to a New Economy, one more productive, and in different ways, than anything that had come before it. But this great transformation somehow failed to show up statistically and, in due course, the stock-market crash of 2001 brought an end to the decade of cyber-hype. Altogether less plausible was the subsequent expectation that technologically retrograde real-estate bubbles, providing markets for exporters of consumer durables and raw materials, could be a sustainable basis for economic growth. Rather than leading to any ‘New Economy’ in the productive base, the innovations of this period of capitalism have powered transformations in the Lebenswelt of diversion and sociability, an expansion of discount and luxury shopping, but above all a heroic age of what was until recently called ‘financial technology’. Internet and mobile phones, Walmart and Prada, Black–Scholes and subprime—such are the technological landmarks of the period.

Looking east

Alongside this myth of a technological new age, the other grand narrative of capitalism in this period has been the de-centring of the Euro-American core of capitalist civilization by the rise of Asia, by which was meant first Japan, and then China. Postmodern globalization has been an epic of the self-transcendence of the West towards an Oriental horizon. (Both geographically and world historically it makes sense that, in such accounts of the future of capitalism, Asia should appear as the new West, an America for the next millennium.) For more than half a century us hegemony had helped make this development possible, by opening up its vast market to selected clients and providing them with free military protection from Communism. In its late, post-Cold War phase, us demand galvanized the rapid growth of Asia’s export powerhouses, which produced already existing manufactured goods but more cheaply. Instead of unleashing new productive forces more broadly or intensively, the latter’s accumulated surpluses eventually came to fuel the inflation of asset bubbles around the world.

The process of this relocation of technologically less-advanced industrial production to low-wage regions has unfolded differently to that of the classically expansionary phases of the capitalist system. Although China has grown very rapidly along these lines, the world economy as a whole has grown too slowly and disproportionately for even this to be sustainable. While the us, and the West more generally, will come to accept a larger role for China in some emerging, unsteady crisis-management regime, this is not the beginning of a new, China-centred phase of accumulation. For the latter to be conceivable, Chinese growth would have to come to depend on new and more advanced productive forces—not simply the broader dissemination of existing ones that are not even at the most advanced level, like the us techniques that spread to Europe and Japan after the war. The quarter-century story of countries with a half or a fifth of us per capita gdp catching up and indeed surpassing it, cannot be repeated today by others that have scarcely a fourteenth.

Lower-tech manufacturing could conceivably keep China growing at an impressive rate but it cannot be the basis for a new global phase of accumulation. Moreover, China’s rate of growth will soon be checked as export markets dry up. It is not clear whether China can now shift to domestically driven accumulation without a significant slow-down in growth. Only after a long, socio-politically transformative process of building up a compensatory domestic demand will some of the bases of sustained growth be secured for its population of a billion and a quarter. The prc’s current infrastructural investment stimulus is unlikely to counteract the massive shake-out of its export sector, because it is probably too small and too capital-intensive to begin shifting the economy towards domestic demand.

If the world was moving towards a new phase of vigorous, capitalist accumulation, China would be one of its main epicentres. But are there any reasons for thinking that, as the downturn simultaneously intensifies in Japan, the us and much of Europe, China will not only be able to avoid being dragged down with them, but will be able to grow so fast as to open up opportunities for their export-based recovery? Even by the largest estimates of its size, and even assuming that its increasingly export-dependent high rate of growth will not now decline precipitously, China’s economy is too small to carry the weight. The West will continue to decline without giving rise to an ascendancy of the Far East, let alone of Brazil, Russia or India.

These conjectures are attempts to situate where we are in the longue durée of capitalism—somewhere in mid-stream or, alternatively, closer to an end; whether this mode of production is old or new, reaching its outer limits or poised for further waves of expansion. The dramatic geo-economic expansion of the system over the last two decades, the ongoing formal subsumption of the last great peasant populations of Asia, as well as the incorporation of the ex-Comecon industrial world, seemed to demonstrate the long-term growth prospects, inner and outer vistas of colonization, of an Empire in statu nascendi. But secular stagnation and chronically sputtering economies in much of Latin America, Africa and the former Soviet Union stand as sobering testimony to the failures of neo-liberal ‘primitive accumulation’ when compared to the classic enclosures that fuelled capital’s genesis and episodes of expansion. Mike Davis’s Planet of Slums is a disturbing exposé of the expulsion of an ever-growing mass of obsolete humanity from the world market, as either producers or consumers. [7]

Parallel processes of obsolescence have unfolded in the advanced capitalist sector. Despite periodic bursts of frenzied speculation from the mid-1980s, accompanied by fanfare announcing the advent of an era of unprecedented capitalist dynamism, the results have only been brief, unsustainable bouts of new technological investment. Marx seems to have anticipated that capitalism would begin to slow down in the mature lines of its old homelands, as the explosive productivity growth of machines making ever more productive machines resulted in the employment of ever fewer workers. Over the long term, the further growth of industrial productivity would be thwarted by its tendency to reduce employment in this sector, and thus also to reduce the aggregate demand that would purchase the expansion of output. This was the form in which a contradiction between the forces and relations of production would unfold.

Grey society

Whatever the merits of this account, it is questionable whether the story of sustainable productivity growth through industrial revolutions will continue in the era of the service sector. Marx implied that the ‘internal’ cost of capital borne by firms would go up, bringing down the profit rate. What is being suggested here is that certain external social costs rise over the long term that cannot be counteracted by productivity gains elsewhere in the economy. Advanced capitalism would get a new lease on life if it found a way to decrease significantly the costs of health, education and age care without drastically reducing the level and quality of provision. But the productivity revolutions that reduced the agricultural population to single digits, and are now doing the same to industrial workforces—of course, counteracted by outsourcing to cheaper labour zones—are unlikely to be repeated for large parts of what is called the service economy. This is the main reason why capitalist economies eventually head towards the stationary state.

The reason why manufacturing is ‘technologically progressive’ has to do with its intrinsic attributes—production in this sector can be readily standardized, and consequently, the information required for production can be formalized in a set of instructions which can then be easily replicated. In the case of services, there are large differences between various activities in their amenability to productivity growth. Some services which are impersonal, as in telecommunications, have attributes similar to manufacturing and hence, can be ‘technologically progressive’. However, personal services, such as certain types of medical care, cannot be easily standardized and subject to the same mass production methods used in manufacturing. These types of services, therefore, will be ‘technologically stagnant’. In general, if there are two activities, one of which is ‘technologically progressive’, and the other ‘technologically stagnant’, then in the long term the average rate of growth will be determined by the activity in which productivity growth is slowest. [8]

It is not clear how ‘post-industrial’ capitalism will be able to reduce the costs of social reproduction, given the long-term problems of technological stagnation in services like health care. This economic transition overlaps in turn with a demographic one, in which ageing populations come to be supported by diminishing numbers of productive workers: by 2050, 22 per cent of the world’s population will be over 60; for Asia, the figure will be 24 per cent. The core of the post-1970s conjunctural crisis is an unresolved problem of overproduction and declining returns, leading to a slow-down of growth both relieved and exacerbated by the compensatory build-up of debt. The inherently slow growth of service-sector productivity further exacerbates the problem of demand, reinforcing other tendencies in this direction. The conjunctural crisis of neo-liberalism has become intertwined with an epochal-structural one brought on by a transition to a slow-growth, post-industrial service sector economy—the ageing, grey capitalism that Robin Blackburn has analysed. [9]

Blackburn’s studies explore the ways in which pension-fund expansion has generated the potentials for a socialization of the financial sphere, even as this development remains trapped and thwarted by short-term, speculative logics. Intrinsic to this is the insight that modern economies have come to rely upon ever-greater state support of the infrastructural environments that sustain the value form. Both the viability of capitalism and the form of whatever lies beyond its horizon depend upon whether a politics emerges that will move this process of the socialization of infrastructure building and maintenance onto a rational and planned track, as opposed to it unfolding as an ever larger public subsidy to the flagging powers of private capital. It is hard to imagine a socially acceptable, cost-effective solution to many of these ‘bio-political’ problems within the framework of capitalism. Its historical vitality and expansiveness has depended upon a demographic youthfulness that is unsustainable over the long term.

After neo-liberalism

What are the prospects today for reforming capitalism in the aftermath of neo-liberalism? Some change is inevitable, as the ruling ideas of the period have suddenly gone bankrupt, even as they, like the great banks they promoted, get propped up for a while, or gently whisked off stage. But in this dilapidated state, neo-liberalism’s former pretensions to intellectual superiority and realism will no longer be sufferable. One of its more scrupulous apostles recently made the following announcement: ‘Another ideological god has failed. The assumptions that ruled policy and politics over three decades suddenly look as outdated as revolutionary socialism.’ [10] But popular subscription to these policies has arguably always been shallow, depending upon the perception that there was no alternative way for an economy to move forward. Although the reflexes of most political systems make a clean break with the status quo inconceivable, one would expect these governments to react pragmatically as economies start contracting, by ditching further experiments in deregulation and privatization, while trying to prop up market values through vast public interventions, in the few instances where such options are available.

It might be thought that the discrediting of neo-liberalism would send us back to an earlier Keynesianism, but this is unlikely to happen. Neo-liberalism was not just a ‘reverse course’ departure from the thirty years of post-war managed capitalism, but also a continuation of it by other means. This implies that what might be coming to an end is the whole post-1945 period of capitalism, in which governments claimed the capacity to smooth out business cycles and recessions through demand creation. If the last thirty years of neo-liberalism have witnessed a massive expansion of overall levels of private and public debt, compensating for persistent slow growth in the real economy, can governments realistically stimulate economies now by taking on more debt through public expenditure? The Keynesianism of the 30s was a remedy for economies that had already bottomed out, not a means for preventing debt-laden economies from deleveraging. More American debt just prolongs the cumulative problem of massive global misallocation and imbalances, even if the alternative of letting the problem unravel in a chaotic free-for-all would make things considerably worse.

The hope that the present crisis might facilitate a transition to green capitalism may be equally unfounded. While stagnation itself could possibly slow down an ongoing, headlong deterioration of natural environments, a shift to alternative energy and green technology would almost certainly be undermined by the reduction in the price of fossil fuels that would result from a protracted slump. Overcoming these disincentives, the public commitments of leading states could of course be shifted to alternative fuels or green technology by a politics rationally oriented towards the long term. But at present it seems unlikely that such a politics could also be harnessed to a narrow project of capitalist restoration. The scale of public support for sufficiently remedial measures would overstep these bounds, and therefore be resisted very strenuously, unless precipitous deterioration exposed socially relevant populations to emergency conditions. However determined these efforts in conservation and sustainability eventually become, the ecological impasse of capitalism is likely to be the most absolute of all.

These problems are always perceived and treated by whole peoples as field problems, i.e. they are regarded as being soluble (and amenable to analysis) only in the capitalist field . . . At the helm is this or that class, this or that regime, this or that solution is being pressed, this or that particular direction has been taken etc, and until the real and imaginary possibilities of the field have been framed, tried, exhausted and discredited, no other field arises. Though the field itself may not satisfy reason (imagination may locate other fields, experience suggests yet others), in the currently functioning field of practice there is still enough reason operating for the purposes of the entire people and for the purposes of justifying what is happening.

Bertolt Brecht, Journals 1934–1955, entry for 14 June 1940

With its enormous bailouts, the Obama Administration has sought to salvage whatever might be saved from the neo-liberal status quo, including, of course, American seigniorage. This effort, even if it moves beyond the passivity of existing measures, will likely fail on its own terms. The level of expenditure and state indebtedness required to stimulate unsustainable stock-market rallies and ward off deflation will eventually compel foreign holders of dollar reserves to abandon further purchases of dollar-denominated debt, thus driving up its cost. Until now, East Asian governments have been happy to fund us external and government deficits, in order to sustain us consumption and their own exports. But with the crisis overtaking even China, these governments may lose the capacity to finance us deficits, especially as they grow to unprecedented size, yielding diminishing returns.

For the time being, the world’s leading export economies continue to accumulate dollar reserves, for fear that if they were to stop, a stampede to dump dollars might begin, resulting in a punishing devaluation of their reserves. Besides, in the absence of any other suitably big and liquid store of value, us Treasuries have preserved a now improbable aura of safety. But the tipping point is perhaps not so far away; a run on the dollar might break out despite the best efforts to prevent it; or, pre-emptively, the us could attempt to liquidate its debt load to foreigners with money printed on a scale that would unleash an explosive bout of hyperinflation, undermining the foundations of the world market for a long time to come. This impossible either/or situation has led to an impasse: debt levels cannot be brought down through vast devaluations because the worldwide socio-political fallout would be overwhelming; but propping up existing levels with more debt is economically unsustainable, even under the best-case scenarios of coordination. In their timidity, present efforts to shore up a tottering status quo with vast stimulus packages may wind up sharing the fate of efforts by early Depression-era governments to do the same through austerity measures. The ‘solution’ to the conjunctural problem of financial implosion might be a prolonged, difficult-to-sustain holding pattern, converging with an epochal shift to a stationary state. The former process may already have started; the latter could be the work of a generation.

Political forms

Which oecd societies could withstand prolonged bouts of structural adjustment of the kind that immiserated populations from Lagos to Vladivostok—especially now, when there are no longer export outlets to counteract the implosion of the home market? It is difficult to see what measures could be taken by political establishments to ensure that depression-stricken societies stick to the course during this long march. It is probably safe to assume that elected parliaments, sheikhdoms and oligarchies will all cleave to the dilapidated hull of American statecraft for as long as they can, after a prolonged period in which such rulers have stopped contemplating the alternatives. But the de-linking that will now unfold in the form of collapsing exports or withdrawn credit in any number of these countries might escalate to a different stage if power were to slip from their hands.

What politico-ideological forms will resistance to restructuring take, when the latter can no longer be implemented in accordance with the dictates of money markets, and now has to be imposed through more directly political—and therefore more controversial—processes of determining winners and losers? The erosion of older traditions of collective response makes prediction hazardous. The initially localized opposition to these processes will be ‘class-like’ to radically varying degrees, conditioning the shape of the social structures that will emerge out of the contemporary retrenchment of capitalism. The outcome of these struggles may depend upon the degree to which state powers can fortify the essentials of property and privilege as they could in an older age of class conflict. In many parts of the world, the coercive core of the state apparatus has undergone a long-term process of neutralization. Elsewhere, this is a more recent and reversible development. In the coming period, how will different political systems respond to creeping and direct threats to the rule of capital and its core constituencies, when the emergency resort to force may no longer be available to any decisive effect? During the 30s most of Europe outside of Scandinavia lurched to the Right, with brief Popular Front interludes in Spain and France. The us, and much of Latin America went Left. It might be interesting to try to anticipate similar variations today across all the zones of the world-system.

With a few worthy exceptions, there are currently no large-scale left-wing parties and movements implementing or even demanding radical reforms. But despite their abundant reserves of inertia and passivity, advanced capitalist societies are probably incapable of enduring the scale of hardship that a true depression would inflict on them, in the way that these same societies managed to get by in the 30s, and other poorer ones have done in our period. If there are no immediate left-wing Keynesian solutions, and society cannot be allowed to take the plunge into a full-scale shake-out, are there then any viable right-wing ‘statist’, i.e. non-market-based, solutions to the current contradictions of capitalism? Comparisons to the 1930s inevitably raise the question of whether it is possible for advanced capitalist societies to move in the direction of a politics analogous to fascism. There is little chance that the electoralism that swept the earth after 89 will be menaced from this direction, although various weak states of emergency will no doubt abound. It is unlikely that older, right-wing forms of authority and discipline could be imposed on a demos of service workers and consumers, inured to more indirect forms of power, but allergic to traditional authority.

Since the conclusion of the Second World War and the advent of the atomic age, there have been no head-to-head confrontations between the world’s most powerful states. This long peace in the Eurasian core has led to lower levels of manpower mobilization, promoting a less authoritarian but thoroughly depoliticized cultural atmosphere. The consequences of this pacification for relations between the sexes have been momentous, forming a powerful progressive trend from an earlier era that continues through this one. Fourier claimed that the level of emancipation in any society could be measured by the position of women within it, a metric that qualifies any overly pessimistic conception of this historical period. This is an age in which statist authoritarianism lives on only in vestiges and backwaters. Of course, reactionary campaigns tailored to the sensitivities of these more democratic populations need not be militaristic. Immigration, and in America ‘race’, are still potentially toxic wedge issues. In some cases, one can expect that the blame for collapsing employment and social provision will be pinned on ethno-racial minorities, but it is hard to see how the resulting exclusionary measures could even put a dent in the problem.

The radical right politics of the inter-war era depended upon the mobilizing atmospherics of great-power rivalry, drastically sharpened by the perception of a Red menace. Moreover, in the midst of a collapsing world market, a new international order based on a mutant form of autarchic capitalism seemed entirely plausible. (How viable it would have been over the longer term is another matter.) Even if we are moving from a neo-liberalism to new forms of public ownership, tomorrow’s stagnant and pacified state capitalisms are unlikely to exhibit the political directiveness of their antecedents from a bygone industrial era of welfare and warfare. Mid-century state capitalisms were briefly dynamic because their production targets were set by total war and popular mobilization, neither of which are on the horizon today.

Classical inter-imperialist conflicts, violently expediting the renewal of the system along new frontiers of expansion, are no longer compatible with the preservation of the system. Moving in the opposite direction, the scale of the fiscal crisis that all states will be confronting, whether presently debtors or not, may eventually compel them to cut back on military budgets, perhaps on a large scale. Of course, this is not even on the agenda yet in the us, but if insolvency and public-sector shutdowns loom, it is hard to see how this could be deferred indefinitely. As a result, for the time being it is very unlikely that the us will venture forth in new risky, costly expeditions, although it will no doubt do its best to maintain its present commitments. ‘Terrorism’ is another matter, and can be dealt with more cheaply. But its brief moment of geo-political significance is already passing, even as the West soldiers forth in the Hindu Kush.

Another end of history?

We are now at the end of an Indian summer of reflated American imperial power. What power(s) will be able to uphold and constitute the interests of the world capitalist system as a whole in the coming period? These general interests can only ever have approximate embodiments in the hegemonic centres that stand in for this absent universal dimension. Very few incumbent powers are willing to concede that their particular interests might have to be sacrificed to the universal interests of the larger field of accumulation. If no inter-imperialist struggle to determine a new hegemon is possible, can there be a coordinated multilateral devaluation of debts and inflated assets? It is not clear what kind of system will emerge if neither this nor any functional surrogate to this process occurs.

Giovanni Arrighi’s three geo-political projections, laid out in TheLong Twentieth Century, were that the flight forward into financialized neo-liberalism would only bring a brief prolongation of American hegemony and would have to yield eventually to either a West-run global empire, an East-inflected world market-society, or long-term systemic chaos. [11] A full-fledged version of the first possibility can probably be ruled out. But following the logic of Arrighi’s historical narrative, the emergence of a new hegemonic centre seems equally improbable. After all, each of the successive hegemons in his account was a larger and more advanced capitalist economy than the one that preceded it. By that standard, there is obviously no power in the world that could supersede the us, neither China—at present a considerably smaller and more backward economy—nor ‘Europe’, which is not even a state, and will soon perhaps begin to abort its historically anomalous quasi-statehood. Japan, once thought to be the nation most likely to succeed, has long since been eliminated from consideration. The most likely development is a combination of possibilities one and three: a concert of powers to stave off financial meltdowns, but incapable of orchestrating a transition to a new phase of sustainable capitalist development.

We are entering into a period of inconclusive struggles between a weakened capitalism and dispersed agencies of opposition, within delegitimated and insolvent political orders. The end of history could be thought to begin when no project of global scope is left standing, and a new kind of ‘worldlessness’ and drift begins. This would conform to Hegel’s suspicion that at this spiritual terminus, the past would be known, but that a singular future might cease to be a relevant category. In the absence of organized political projects to build new forms of autonomous life, the ongoing crisis will be stalked by ecological fatalities that will not be evaded by faltering growth. An observation from Fredric Jameson at the onset of this age of capitalism still frames the present:

Confusion about the future of capitalism—compounded by a confidence in technological progress beclouded by intermittent certainties of catastrophe and disaster—is at least as old as the late nineteenth century; but few periods have proved as incapable of framing immediate alternatives for themselves, let alone of imagining those great Utopias that have occasionally broken on the status quo like a sunburst. [12]

[1] Edward Anthony Wrigley, Continuity, Chance and Change, Cambridge 1990, p. 3. Pessimism was perhaps the wrong word for Mill, who wrote in 1848: ‘I cannot, therefore, regard the stationary state of capital and wealth with the unaffected aversion so generally manifested towards it by political economists of the old school. I am inclined to believe that it would be, on the whole, a very considerable improvement on our present condition. I confess I am not charmed with the ideal of life held out by those who think that the normal state of human beings is that of struggling to get on; that the trampling, crushing, elbowing, and treading on each other’s heels, which form the existing type of social life, are the most desirable lot of human kind, or anything but the disagreeable symptoms of one of the phases of industrial progress.’ Principles of Political Economy, Part ii, Chapter vi, § 2.

[2] Marx’s speculations on a supposed tendency for the rate of profit to decline are notoriously unclear, but underlying them, perhaps, was the older Malthusian intuition: ‘The more a country proceeds from large-scale industry as the background of its development, as in the case of the United States, the more rapid is this process of destruction. Capitalist production, therefore, only develops the techniques and degree of combination of the social process of production by simultaneously undermining the original sources of all wealth—the soil and the worker.’ Capital Vol. 1, London 1976, p. 638.

[3] Robert Brenner, The Boom and the Bubble, London and New York 2002.

[4] Capital Vol. 1, p. 919.

[5] David Harvey’s alternative theorization of postmodern capitalism is more directly focused on the problem of the rise and fall of socio-spatial infrastructures. See Harvey, The Condition of Postmodernity: An Enquiry into the Origins of Cultural Change, Cambridge 1990.

[6] Jameson, The Ideologies of Theory, London and New York 2008, p. 496; ‘Post-modernism, or the Cultural Logic of Late Capitalism’, nlri/146, July–Aug 1984.

[7] Mike Davis, Planet of Slums, London and New York 2006.

[8] Robert Rowthorn and Ramana Ramaswamy, ‘Deindustrialization: Causes and Implications’, imf Working Paper 97/42, April 1997.

[9] Robin Blackburn, Banking on Death, London and New York 2003; and Age Shock, London and New York 2007.

[10] Martin Wolf, ‘Seeds of its own destruction’, Financial Times, 8 March 2009.

[11] Giovanni Arrighi, The Long Twentieth Century, London and New York, pp. 355–6.

[12] Jameson, The Ideologies of Theory, p. 644.

Industrial production fell 1.5 percent in March after a similar decrease in February.  For the first quarter as a whole, output dropped at an annual rate of 20.0 percent, the largest quarterly decrease of the current contraction.  At 97.4 percent of its 2002 average, output in March fell to its lowest level since December 1998 and was nearly 13 percent below its year-earlier level.  Production in manufacturing moved down 1.7 percent in March and has registered five consecutive quarterly decreases.  Broad-based declines in production continued; one exception was the output of motor vehicles and parts, which advanced slightly in March but remained well below its year-earlier level.  Outside of manufacturing, the output of mines fell 3.2 percent in March, as oil and gas well drilling continued to drop.  After a relatively mild February, a return to more seasonal temperatures pushed up the output of utilities.  The capacity utilization rate for total industry fell further to 69.3 percent, a historical low for this series, which begins in 1967.

INDUSTRIAL PRODUCTION AND CAPACITY UTILIZATION: SUMMARY Seasonally adjusted

Market Groups

Most major market groups recorded decreases both for March and for the first quarter as a whole.  The production of consumer goods declined 0.3 percent in March and dropped at an annual rate of nearly 15 percent in the first quarter.  Consumer durables declined 0.5 percent in March, as a gain of nearly 2 percent in the output of automotive products partially offset declines in home electronics; appliances, furniture, and carpeting; and miscellaneous goods.  Despite the recent increase in automotive-related production, motor vehicle assemblies in March, at an annual rate of 5.0 million units, were more than 4 million units below the level 12 months earlier.  The production of nondurable goods edged down 0.3 percent in March, as declines in foods and tobacco, chemical products, and paper products offset gains in clothing and energy.

The output of business equipment decreased 2.3 percent in March, as production in all of its major categories moved down.  For the first quarter as a whole, business equipment fell at an annual rate of 11.7 percent.  The production of transit equipment increased at an annual rate of 70 percent in the first quarter; this advance was more than accounted for by a gain in civilian aircraft after a strike that affected output in the fourth quarter.  Elsewhere in business equipment, the output indexes for information processing equipment and for industrial and other equipment fell.

The output of defense and space equipment dropped at an annual rate of 1.8 percent in the first quarter despite a gain of nearly 1 percent in March.  Overall, production in this sector has been little changed, on net, since the third quarter of 2007.

The output of construction supplies decreased 2.8 percent in March.  Production of these goods dropped at an annual rate of nearly 36 percent in the first quarter after falling a bit more than 26 percent in the fourth quarter of 2008.  This index is now about 27 percent below its peak in January 2006.  Widespread declines pulled down the output of business supplies 1.1 percent in March.

The production of materials to be further processed in the industrial sector continued to exhibit broad-based declines.  Materials output decreased 2.0 percent in March, and for the first quarter, output fell at an annual rate of 22.4 percent after dropping more than 16 percent in the fourth quarter.  All major components of durable and nondurable materials posted steep declines in March, and the production of energy materials slipped 0.7 percent.

Industry Groups

In March, manufacturing output decreased 1.7 percent, and, for the first quarter as a whole, manufacturing output dropped at an annual rate of 22.5 percent after falling nearly 18 percent in the fourth quarter.  The factory operating rate, which extends back to 1948, dropped 1.1 percentage points to a new historical low of 65.8 percent.  The production index for durable goods fell 2.4 percent in March and contracted at an annual rate of more than 30 percent for the first quarter.  The only major component of durable manufactures to increase production for the month was motor vehicles and parts; nonetheless, output in this industry fell at an annual rate of about 67 percent for the quarter as a whole.  The production of nondurable goods decreased 1.0 percent in March as a result of substantial declines in textile and product mills, paper products, and plastics and rubber products.  Production for nondurable goods fell about 13 percent in the first quarter and has fallen for six consecutive quarters.

The index for the other manufacturing category, which consists of publishing and logging, fell nearly 3 percent in March.

The output of electric and natural gas utilities moved up 1.8 percent in March, as production rebounded after temperatures returned to more seasonal norms.  The operating rate for utilities moved up 1.3 percentage points, to 80.5 percent, yet remained below its 1972-2008 average.  Mining output dropped 3.2 percent in March, and the utilization rate fell to 83.8 percent, roughly 4 percentage points below its 1972-2008 average.  For the first quarter, the output of mines fell nearly 15 percent at an annual rate.

Capacity utilization rates in March at industries grouped by stage of process were as follows: At the crude stage, utilization dropped 1.8 percentage points, to 79.5 percent, a rate 7.1 percentage points below its 1972-2008 average; at the primary and semifinished stages, utilization dropped 1.1 percentage points, to 66.8 percent, a rate 15.2 percentage points below its long-run average; and at the finished stage, utilization slipped 0.6 percentage point, to 67.9 percent, a rate 9.8 percentage points below its long-run average.

Revision of Industrial Production and Capacity Utilization

The Federal Reserve Board released its annual revision to the index of industrial production (IP) and the related measures of capacity utilization on March 27, 2009.  The revised IP indexes incorporated data from selected editions of the U.S. Census Bureau's 2007 Current Industrial Reports.  Detailed data from the 2007 Economic Census, however, were not available.  Annual data from the U.S. Geological Survey regarding metallic and nonmetallic minerals (except fuels) for 2007 were incorporated.  Utilization rates were updated to incorporate data from the U.S. Census Bureau's Quarterly Survey of Plant Capacity through 2008 as well as data from other government and trade sources.

The published revision release is available on the Board's website at www.federalreserve.gov/releases/G17.  The revised data are also available through the website of the Department of Commerce.  Further information on the revision can be obtained from the Board's Industrial Output Section (telephone number 202-452-3197).

Note. The statistics in this release cover output, capacity, and capacity utilization in the U.S. industrial sector, which is defined by the Federal Reserve to comprise manufacturing, mining, and electric and gas utilities.  Mining is defined as all industries in sector 21 of the North American Industry Classification System (NAICS); electric and gas utilities are those in NAICS sectors 2211 and 2212.  Manufacturing comprises NAICS manufacturing industries (sector 31-33) plus the logging industry and the newspaper, periodical, book, and directory publishing industries.  Logging and publishing are classified elsewhere in NAICS (under agriculture and information respectively), but historically they were considered to be manufacturing and were included in the industrial sector under the Standard Industrial Classification (SIC) system.  In December 2002 the Federal Reserve reclassified all its industrial output data from the SIC system to NAICS.

In a far reaching interview with Red Pepper, David Harvey argues that the current financial crisis and bank bail-outs could lead to a massive consolidation of the banking system and a return to capitalist ‘business as usual’ – unless there is sustained revolt and pressure for a dramatic redistribution and socialisation of wealth

Does this crisis signal the end of neoliberalism? My answer is that it depends what you mean by neoliberalism. My interpretation is that it’s a class project, now masked by a lot of rhetoric about individual freedom, liberty, personal responsibility, privatisation and the free market. That rhetoric was a means towards the restoration and consolidation of class power, and that neoliberal project has been fairly successful.

By TUNKU VARADARAJAN

New York

Nouriel Roubini is always dressed in black-and-white.

I have known him for nearly two years, and have seen him in a variety of situations -- en route to class at New York University's Stern Business School, where he's a professor; over a glass of wine in his boyish loft in Manhattan's Tribeca; at an academic conference, seated sagely on the dais; at a bohemian party in Greenwich Village, at . . . oh . . . 3 a.m. -- and he always, always wears a black suit with a white linen shirt.

Terry Shoffner

And so, in black-and-white he was, earlier this week, when he rushed into the office of Roubini Global Economics, his consulting firm in downtown Manhattan, and offered a breathless apology to this correspondent, who'd been waiting for half an hour. "Really sorry I'm late! Charlie Rose taped for way longer than he said he would."

Mr. Roubini -- a month short of 50 -- is in huge media demand, the nearest thing to a rock-star among the economists who hold our fate in their hands these days. The peculiar thing, of course, is that he's in demand because he specializes in predictions of gloom. (He has earned himself the sobriquet of "Doctor Doom.") In person, though, he's anything but a downer.

The man has instant impact on public debate. An idea he floated only last week -- that our "zombie banks" be temporarily nationalized -- aired first on Forbes.com, where he writes a weekly column. It has evolved, in the space of just a few days, from radical solution to almost received wisdom.

Last Sunday on ABC, George Stephanopoulos asked Lindsey Graham, the conservative Republican senator, what he thought about all this talk of bank nationalization. Mr. Graham said that he wouldn't take the idea off the table. And on Wednesday, Alan Greenspan told the Financial Times that "it may be necessary to temporarily nationalize some banks in order to facilitate a swift and orderly restructuring."

Mr. Roubini tells me that bank nationalization "is something the partisans would have regarded as anathema a few weeks ago. But when I and others put it in the context of the Swedish approach [of the 1990s] -- i.e. you take banks over, you clean them up, and you sell them in rapid order to the private sector -- it's clear that it's temporary. No one's in favor of a permanent government takeover of the financial system."

There's another reason why the concept should appeal to (fiscal) conservatives, he explains. "The idea that government will fork out trillions of dollars to try to rescue financial institutions, and throw more money after bad dollars, is not appealing because then the fiscal cost is much larger. So rather than being seen as something Bolshevik, nationalization is seen as pragmatic. Paradoxically, the proposal is more market-friendly than the alternative of zombie banks."

In any case, Republicans must now temper their reactions, he says. "The kind of government interference in the economy that we saw in the last year of Bush was unprecedented. The central bank -- supposed to be the lender of the last resort -- became the lender of first and only resort! With our recapitalizing of financial institutions, and massive government intervention in the markets, we've already crossed a significant bridge."

So, will the highest level of government be receptive to the bank-nationalization idea? "I think it will," Mr. Roubini says, unhesitatingly. "People like Graham and Greenspan have already given their explicit blessing. This gives Obama cover." And how long will it be before the administration goes in formally for nationalization? "I think that we're going to see the policy adopted in the next few months . . . in six months or so."

That long? I ask. "Six months from now," he replies, "even firms that today look solvent are going to look insolvent. Most of the major banks -- almost all of them -- are going to look insolvent. In which case, if you take them all over all at once, you cause less damage than if you would if you took over a couple now, and created so much confusion and panic and nervousness.

"Between guarantees, liquidity support, and capitalization, the government has provided between $7 trillion to $9 trillion of help to the financial system. De facto, the government is already controlling a good chunk of the banking system. The question is: Do you want to move to the de jure step."

Yet another reason why bank nationalization is a good idea, Mr. Roubini continues, is that "we started with banks that were too big to fail, but what has happened, in the process, is that these banks have become even-bigger-to-fail. J.P. Morgan took over Bear Stearns and WaMu. BofA took over Countrywide and then Merrill. Wells Fargo took over Wachovia. It doesn't work! You can't take two zombie banks, put them together, and make a strong bank. It's like having two drunks trying to keep each other standing.

"So if you took over a big bank, and you split the assets in three or four pieces, maybe you create three or four regional or national banks, and they're stronger! Nationalization -- or 'temporary receivership,' if you like, if the N-word is a political liability -- is an occasion to undo the sort of consolidation that has created an even bigger systemic problem. And the only way to do it is by essentially taking them over and breaking them up."

Here, I ask Mr. Roubini whether he has been more right -- more prescient -- in his reading of the economic downturn than all the other famous bears in America. After all, judging by the attention paid to him in the press, it is hard not to conclude that he is the leading guru of the current recession, or "near-depression," as he often calls it. My question, remarkably, induces in him some diffidence. "I don't want to personalize the analysis, you know . . . because, first of all, there were many people who got many of the elements right.

"People like [Robert] Shiller were very worried about the housing bubble. People like Steve Roach were worried about an economy based on asset bubbles leading to consumption bubbles that were unsustainable. People like Ken Rogoff talked about global imbalances in the current account deficit not being sustainable. Nassim Taleb has been worrying for a while about 'fat tail' events . . . . So lots of people signaled concern about things. I was one of those who put the dots together and thus gave a more fleshed-out picture."

To Mr. Roubini, the most interesting question isn't the one of who got it right. Instead, he asks why we "over and over again, get into these periods of irrational exuberance, when not only is there an asset bubble and a credit bubble, but people believe these are sustainable over a long time -- Wall Street, policy makers, rating agencies, academics, journalists . . . ."

What exactly is Nouriel Roubini's economic philosophy? "I believe in market economics," he says, with some emphasis. "But to paraphrase Churchill -- who said this about democracy and political regimes -- a market economy might be the worst economic regime available, apart from the alternatives.

"I believe that people react to incentives, that incentives matter, and that prices reflect the way things should be allocated. But I also believe that market economies sometimes have market failures, and when these occur, there's a role for prudential -- not excessive -- regulation of the financial system. The two things that Greenspan got totally wrong were his beliefs that, one, markets self-regulate, and two, that there's no market failure."

How could Mr. Greenspan have been so naïve, I ask, hoping to get a rise. "Well," says Mr. Roubini, "at some level it's good to have a framework to think about the world, in which you emphasize the role of incentives and market economics . . . fair enough! But I think it led to an excessive ideological belief that there are no market failures, and no issues of distortions on incentives. Also, central banks were created to provide financial stability. Greenspan forgot this, and that was a mistake. I think there were ideological blinders, taking Ayn Rand's view of the world to an extreme.

"Again, I don't want to personalize things, but the last decade was one of self-regulation. But in the financial markets, without proper institutional rules, there's the law of the jungle -- because there's greed! There's nothing wrong with greed, per se. It's not that people are more greedy now than they were 20 years ago. But greed has to be tempered, first, by fear of losses. So if you bail people out, there's less fear. And second, by prudential regulation and supervision to avoid certain excesses."

How does Mr. Roubini think the media has covered the financial crisis? "The problem," he says -- after first stating to me that he intends "no offense!" -- "is that in the bubble years, everyone becomes a cheerleader, including the media. This is the time when journalists should be asking tough questions, and I think there was a failure there. The Masters of the Universe were always on the cover, or the front page -- the hedge-fund guys, the imperial CEO, private equity. I wish there had been more financial and business journalists, in the good years, who'd said, 'Wait a moment, if this man, or this firm, is making a 100% return a year, how do they do it? Is it because they're smarter than everybody else . . . or because they're taking so much risk they'll be bankrupt two years down the line?'

"And I think, in the bubble years, no one asked the hard questions. A good journalist has to be one who, in good times, challenges the conventional wisdom. If you don't do that, you fail in one of your duties."

Mr. Varadarajan, a professor at NYU's Stern School and a fellow at Stanford's Hoover Institution, is executive editor for Opinions at Forbes.

David Harvey

Much is to be gained by viewing the contemporary crisis as a surface eruption generated out of deep tectonic shifts in the spatio-temporal disposition of capitalist development. The tectonic plates are now accelerating their motion and the likelihood of more frequent and more violent crises of the sort that have been occurring since 1980 or so will almost certainly increase. The manner, form, spatiality and time of these surface disruptions are almost impossible to predict, but that they will occur with greater frequency and depth is almost certain. The events of 2008 have therefore to be situated in the context of a deeper pattern. Since these stresses are internal to the capitalist dynamic (which does not preclude some seemingly external disruptive event like a catastrophic pandemic also occurring), then what better argument could there be, as Marx once put it, “for capitalism to be gone and to make way for some alternative and more rational mode of production.”

I begin with this conclusion since I still find it vital to emphasize if not dramatize, as I have sought to do over and over again in my writings over the years, that failure to understand the geographical dynamics of capitalism or to treat the geographical dimension as in some sense merely contingent or epiphenomenal, is to both lose the plot on how to understand capitalist uneven geographical development and to miss out on possibilities for constructing radical alternatives. But this poses an acute difficulty for analysis since we are constantly faced with trying to distill universal principles regarding the role of the production of spaces, places and environments in capitalism's dynamics, out of a sea of often volatile geographical particularities. So how, then, can we integrate geographical understandings into our theories of evolutionary change? Let us look more carefully at the tectonic shifts.

In November 2008, shortly after the election of a new President, the National Intelligence Council of the United States issued its Delphic estimates on what the world would be like in 2025. Perhaps for the first time, a quasi-official body in the United States predicted that by 2025 the United States, while still a powerful if not the most powerful single player in world affairs, would no longer be dominant. The world would be multi-polar and less centered and the power of non-state actors would increase. The report conceded that U.S. hegemony had been fading on and off for some time but that its economic, political and even military dominance was now systematically waning. Above all (and it is important to note that the report was prepared before the implosion of the U.S. and British financial systems), “the unprecedented shift in relative wealth and economic power roughly from West to East now under way will continue.”

This "unprecedented shift" has reversed the long-standing drain of wealth from East, Southeast and South Asia to Europe and North America that had been occurring since the eighteenth century (a drain that even Adam Smith had noted with regret in The Wealth of Nations but which accelerated relentlessly throughout the nineteenth century). The rise of Japan in the 1960s followed by South Korea, Taiwan, Singapore and Hong Kong in the 1970s and then the rapid growth of China after 1980 later accompanied by industrialization spurts in Indonesia, India, Vietnam, Thailand and Malaysia during the 1990s, has altered the center of gravity of capitalist development, although it has not done so smoothly (the East and South-East Asian financial crisis of 1997-8 saw wealth flow briefly but strongly back toward Wall Street and the European and Japanese banks). Economic hegemony seems to be moving toward some constellation of powers in East Asia and if crises, as we earlier argued, are moments of radical reconfigurations in capitalist development, then the fact that the United States is having to deficit finance its way out of its financial difficulties on such a huge scale and that the deficits are largely being covered by those countries with saved surpluses – Japan, China, South Korea, Taiwan and the Gulf states – suggests this may be the moment for such a shift to be consolidated.

Shifts of this sort have occurred before in the long history of capitalism. In Giovanni Arrighi's thorough account in The Long Twentieth Century, we see hegemony shifting from the city states of Genoa and Venice in the sixteenth century to Amsterdam and the Low Countries in the seventeenth before concentrating in Britain from the late eighteenth century until the United States eventually took control after 1945. There are a number of features to these transitions that Arrighi emphasizes and which are relevant to our analysis. Each shift, Arrighi notes, occurred in the wake of a strong phase of financialization (he cites with approval Braudel's maxim that financialization announces the autumn of some hegemonic configuration). But each shift also entailed a radical change of scale, from the small city states at the origin to the continent-wide economy of the United States in the latter half of the twentieth century. This change of scale makes sense given the capitalist rule of endless accumulation and compound growth of at least three per cent for ever. But hegemonic shifts, Arrighi argues, are not determined in advance. They depend upon the emergence of some power economically able and politically and militarily willing to take on the role of global hegemon (with its costs as well as its advantages). The reluctance of the United States to assume that role before World War II meant an interregnum of multi-polar tensions that could not halt the drift into war (Britain was no longer in a position to assert its prior hegemonic role). Much also depends on how the past hegemon behaves as it faces up to the diminution of its former role. It can pass peaceably or belligerently into history. From this perspective the fact that the United States still holds overwhelming military power (particularly from 30,000 feet up) in a context of its declining economic and financial power and increasingly shaky cultural and moral authority, creates worrying scenarios for any future transition. Furthermore, it is not obvious that the main candidate to displace the United States, China, has the capacity or the will to assert some hegemonic role, for while its population is certainly huge enough to meet the requirements of changing scale, neither its economy nor its political authority (or even its political will) point to any easy accession to the role of global hegemon. Given the nationalist divisions that exist, the idea that some association of East Asian Powers might do the job also appears unlikely as does the possibility for a fragmented and fractious European Union or the so-called BRIC powers (Brazil, Russia, India and China) to stay on a common path for long. For this reason, the prediction that we are headed into another interregnum of multi-polar and conflictual interests and potential global instability appears plausible.

Tectonic Shifts

But the tectonic shift away from United States dominance and hegemony that has been under way for some time is becoming much clearer. The thesis of both excessive financialization and “debt as a principal predictor of leading world powers' debilitation” has found popular voice in the writings of Kevin Phillips. Attempts now under way to re-build U.S. dominance through reforms in the architecture of both the national and the global state-finance nexus appear not to be working while the exclusions imposed on much of the rest of the world in seeking to re-shape that architecture are almost certain to provoke strong oppositions if not overt economic conflicts.

But tectonic shifts of this sort do not come about as if by magic. While the historical geography of a shifting hegemony as Arrighi describes it has a clear pattern and while it is also clear from the historical record that periods of financialization precede such shifts, Arrighi does not provide any deep analysis of the processes that produce such shifts in the first place. To be sure, he cites “endless accumulation” and therefore the growth syndrome (the three per cent compound growth rule) as critical to explaining the shifts. This implies that hegemony moves from smaller (i.e. Venice) to larger (e.g. the United States) political entities over time. And it also stands to reason that hegemony has to lie with that political entity within which much of the surplus is produced (or to which much of the surplus flows in the form of tribute or imperialist extractions). With total global output standing at $45-trillion as of 2005, the U.S. share of $15-trillion made it, as it were, the dominant and controlling share-holder in global capitalism able to dictate (as it typically does in its role as the chief shareholder in the international institutions such as the World Bank and the IMF) global policies. The NCIS report in part based its prediction on loss of dominance but maintenance of a strong position on the falling share of global output in the U.S. relative to the rest of the world in general and China in particular.

But as Arrighi points out, the politics of such a shift are by no means certain. The United States bid for global hegemony under Woodrow Wilson during and immediately after World War I was thwarted by a domestic political preference in the United State for isolationism (hence the collapse of the League of Nations) and it was only after World War II (which the U.S. population was against entering until Pearl Harbor occurred) that the U.S. embraced its role as global hegemon through a bi-partisan foreign policy anchored by the Bretton Woods Agreements on how the post-War international order would be organized (in the face of the Cold War and the spreading threat to capitalism of international communism). That the United States had long been developing into a state that in principle could play the role of global hegemon is evident from relatively early days. It possessed relevant doctrines, such as “Manifest Destiny” (continental wide geographical expansion which eventually spilled over into the Pacific and Caribbean before going global without territorial acquisitions) or the Monroe Doctrine which warned European Powers to leave the Americas alone (the doctrine was actually formulated by the British Foreign Secretary Canning in the 1820s but adopted by the U.S. as its own almost immediately). The United States possessed the necessary dynamism to account for a growing share of global output and was quintessentially committed to some version of what can best be called “cornered market” or “monopoly” capitalism backed by an ideology of rugged individualism. So there is a sense in which the U.S. was, throughout much of its history, preparing itself to take on the role of global hegemon. The only surprise was that it took so long to do so and that it was the Second rather than the First World War that led it finally to take up the role leaving the inter-war years as years of multipolarity and chaotic competing imperial ambitions of the sort that the NCIS report fears will be the situation in 2025.

The tectonic shifts now under way are deeply influenced, however, by the radical geographical unevenness in the economic and political possibilities of responding to the current crisis. Let me illustrate how this unevenness is now working by way of a tangible example. As the depression that began in 2007 deepened, the argument was made by many that a full-fledged Keynesian solution was required to extract global capitalism from the mess it was in. To this end various stimulus packages and bank stabilization measures were proposed and to some degree taken up in different countries in different ways in the hope that these would resolve the difficulties. The variety of solutions on offer varied immensely depending upon the economic circumstances and the prevailing forms of political opinion (pitting, for example, Germany against Britain and France in the European Union). Consider, however, the different economic political possibilities in the United States and China and the potential consequences for both shifting hegemony and for the manner in which the crisis might be resolved.

In the United States, any attempt to find an adequate Keynesian solution has been doomed at the start by a number of economic and political barriers that are almost impossible to overcome. A Keynesian solution would require massive and prolonged deficit financing if it were to succeed. It has been correctly argued that Roosevelt's attempt to return to a balanced budget in 1937-8 plunged the United States back into depression and that it was, therefore, World War II that saved the situation and not Roosevelt's too timid approach to deficit financing in the New Deal. So even if the institutional reforms as well as the push toward a more egalitarian policy did lay the foundations for the Post World War II recovery, the New Deal in itself actually failed to resolve the crisis in the United States.

The problem for the United States in 2008-9 is that it starts from a position of chronic indebtedness to the rest of the world (it has been borrowing at the rate of more than $2-billion a day over the last ten years or more) and this poses an economic limitation upon the size of the extra deficit that can now be incurred. (This was not a serious problem for Roosevelt who began with a roughly balanced budget). There is also a geo-political limitation since the funding of any extra deficit is contingent upon the willingness of other powers (principally from East Asia and the Gulf States) to lend. On both counts, the economic stimulus available to the United States will almost certainly be neither large enough nor sustained enough to be up to the task of reflating the economy. This problem is exacerbated by ideological reluctance on the part of both political parties to embrace the huge amounts of deficit spending that will be required, ironically in part because the previous Republican administration worked on Dick Cheney's principle that “Reagan taught us that deficits don't matter.” As Paul Krugman, the leading public advocate for a Keynesian solution, for one has argued, the $800-billion reluctantly voted on by Congress in 2009, while better than nothing, is nowhere near enough. It may take something of the order to $2-trillion to do the job and that is indeed excessive debt relative to where the U.S. deficit now stands. The only possible economic option, would be to replace the weak Keynesianism of excessive military expenditures by the much stronger Keynesianism of social programs. Cutting the U.S. defense budget in half (bringing it more in line with that of Europe in relation to proportion of GDP) might technically help but it would be, of course, political suicide, given the posture of the Republican Party as well as many Democrats, for anyone who proposed it.

The second barrier is more purely political. In order to work, the stimulus has to be administered in such a way as to guarantee that it will be spent on goods and services and so get the economy humming again. This means that any relief must be directed to those who will spend it, which means the lower classes, since even the middle classes, if they spend it at all, are more likely to spend it on bidding up asset values (buying up foreclosed houses, for example), rather than increasing their purchases of goods and services. In any case, when times are bad many people will tend to use any extra income they receive to retire debt or to save (as largely happened with the $600 rebate designed by the Bush Administration in the early summer of 2008).

What appears prudent and rational from the standpoint of the household bodes ill for the economy at large (in much the same way that the banks have rationally taken public money and either hoarded it or used it to buy assets rather than to lend). The prevailing hostility in the United States to “spreading the wealth around” and to administering any sort of relief other than tax cuts to individuals, arises out of hard core neoliberal ideological doctrine (centered in but by no means confined to the Republican Party) that “households know best.” These doctrines have broadly been accepted as gospel by the American public at large after more than thirty years of neoliberal political indoctrination. We are, as I have argued elsewhere, “all neoliberals now” for the most part without even knowing it. There is a tacit acceptance, for example, that “wage repression” – a key component to the present problem – is a “normal” state of affairs in the United States. One of the three legs of a Keynesian solution, greater empowerment of labour, rising wages and redistribution toward the lower classes is politically impossible in the United States at this point in time. The very charge that some such program amounts to "socialism" sends shivers of terror through the political establishment. Labour is not strong enough (after thirty years of being battered by political forces) and no broad social movement is in sight that will force redistributions toward the working classes.

One other way to achieve Keynesian goals, is to provide collective goods. This has traditionally entailed investments in both physical and social infrastructures (the WPA programs of the 1930s is a forerunner). Hence the attempt to insert into the stimulus package programs to rebuild and extend physical infrastructures for transport and communications, power and other public works along with increasing expenditures on health care, education, municipal services, and the like. These collective goods do have the potential to generate multipliers for employment as well as for the effective demand for further goods and services. But the presumption is that these collective goods are, at some point, going to belong to the category of "productive state expenditures" (i.e. stimulate further growth) rather than become a series of public "white elephants" which, as Keynes long ago remarked, amounted to nothing more than putting people to work digging ditches and filling them in again. In other words, an infrastructural investment strategy has to be targeted toward systematic revival of three percent growth through, for example, systematic redesign of our urban infrastructures and ways of life. This will not work without sophisticated state planning plus an existing productive base that can take advantage of the new infrastructural configurations. Here, too, the long prior history of deindustrialization in the United States and the intense ideological opposition to state planning (elements of which were incorporated into Roosevelt's New Deal and which continued into the 1960s only to be abandoned in the face of the neoliberal assault upon that particular exercise of state power in the 1980s) and the obvious preference for tax cuts rather than infrastructural transformations makes the pursuit of a full-fledged Keynesian solution all but impossible in the United States.

In China, on the other hand, both the economic and political conditions exist where a full-fledged Keynesian solution would indeed be possible and where there are abundant signs that this path will likely be followed. To begin with, China has a vast reservoir of foreign cash surplus and it is easier to debt finance on that basis than it is with a vast already existing debt overhang as is the case in the United States. It is also worth noting that ever since the mid 1990s the "toxic assets" (the non performing loans) of the Chinese Banks (some estimates put them as high as 40 per cent of all loans in 2000) have been wiped off the banks' books by occasional infusions of surplus cash from the foreign exchange reserves. The Chinese have had a long-running equivalent of the TARP program in the United States and evidently know how to do it (even if many of the transactions are tainted by corruption). The Chinese have the economic wherewithal to engage in a massive deficit-finance program and have a centralized state-financial architecture to administer that program effectively if they care to use it. The banks, which were long state owned, may have been nominally privatized to satisfy WTO requirements and to lure in foreign capital and expertise, but they can still easily be bent to central state will whereas in the United States even the vaguest hint of state direction let alone nationalization creates a political furor.

There is likewise absolutely no ideological barrier to redistributing economic largesse to the neediest sectors of society though there may be some vested interests of wealthier party members and an emergent capitalist class to be overcome. The charge that this would amount to "socialism" or even worse to "communism" would simply be greeted with amusement in China. But in China the emergence of mass unemployment (at last report there were thought to be some 20-million unemployed as a result of the slow-down) and signs of widespread and rapidly escalating social unrest will almost certainly push the Communist Party to massive redistributions whether they are ideologically concerned to do so or not. As of early 2009, this seemed to be directed in the first instance to revitalizing the lagging rural areas to which many unemployed migrant workers have returned in frustration at the loss of jobs in manufacturing areas. In these regions where both social and physical infrastructures are lagging, a strong infusion of central government support will raise incomes, expand effective demand and begin upon the long process of consolidation of China's internal market.

There is, secondly, a strong predilection to undertake the massive infrastructural investments that are still lagging in China (whereas tax reductions have almost no political appeal). While some of these may turn into "white elephants" the likelihood is far less since there is still an immense amount of work to be done to integrate the Chinese national space and so to confront the problem of uneven geographical development between the coastal regions of high development and the impoverished interior provinces. The existence of an extensive though troubled industrial and manufacturing base in need of spatial rationalization, makes it more likely that the Chinese effort will fall into the category of productive state expenditures. For the Chinese, much of the surplus can be mopped up in the further production of space, even allowing for the fact that speculation in urban property markets in cities like Shanghai, as in the United States, is part of the problem and cannot therefore be part of the solution. Infrastructural expenditures, provided they are on a sufficiently large scale, will go a long way to both mopping up surplus labour and so reducing the possibility of social unrest, and again boosting the internal market.

These completely different opportunities to pursue a full-fledged Keynesian solution as represented by the contrast between the United States and China have profound international implications. If China uses more of its financial reserves to boost its internal market, as it is almost certainly bound to do for political reasons, so it will have less left over to lend to the United States. Reduced purchases of U.S. Treasury Bills will eventually force higher interest rates and impact U.S. internal demand negatively and, unless managed carefully, could trigger the one thing that everyone fears but which has so far been staved off: a run on the dollar. A gradual move away from reliance on U.S. markets and the substitution of the internal market in China as a source of effective demand for Chinese industry will alter power balances significantly (and, by the way, be stressful for both the Chinese and the United States). The Chinese currency will necessarily rise against the dollar (a move that the U.S. authorities have long sought but secretly feared) thus forcing the Chinese to rely even more on their internal market for aggregate demand. The dynamism that will result within China (as opposed to the prolonged recession conditions that will prevail in the United States) will draw more and more global suppliers of raw materials into the Chinese trade orbit and lessen the relative significance of the United States in international trade. The overall effect will be to accelerate the drift of wealth from West to East in the global economy and rapidly alter the balance of hegemonic economic power. The tectonic movement in the balance of global capitalist power will intensify with all manner of unpredictable political and economic ramifications in a world where the United States will no longer be in a dominant position even as it possesses significant power. The supreme irony, of course, is that the political and ideological barriers in the United States to any full-fledged Keynesian program will almost certainly hasten loss of U.S. dominance in global affairs even as the elites of the world (including those in China) would wish to preserve that dominance for as long as possible.

Whether or not true Keynesianism in China (along with some other states in a similar position) will be sufficient to compensate for the inevitable failure of reluctant Keynesianism in the West is an open question, but the unevenness coupled with fading U.S. hegemony may well be the precursor to a break up of the global economy into regional hegemonic structures which could just as easily fiercely compete with each other as collaborate on the miserable question of who is to bear the brunt of long-lasting depression. That is not a heartening thought but then thinking of such a prospect might just awaken much of the West to the urgency of the task before it and get political leaders to stop preaching banalities about restoring trust and confidence and get down to doing what has to be done to rescue capitalism from the capitalists and their false neoliberal ideology. And if that means socialism, nationalizations, strong state direction, binding international collaborations, and a new and far more inclusive (dare I say "democratic") international financial architecture, then so be it. •

David Harvey is Distinguished Professor in the CUNY Graduate Center in New York. He is author of A Brief History of Neoliberalism and maintains the Reading Marx's Capital blog.

France paralysed by a wave of strike action, the boulevards of Paris resembling a debris-strewn battlefield. The Hungarian currency sinks to its lowest level ever against the euro, as the unemployment figure rises. Greek farmers block the road into Bulgaria in protest at low prices for their produce. New figures from the biggest bank in the Baltic show that the three post-Soviet states there face the biggest recessions in Europe.

It's a snapshot of a single day – yesterday – in a Europe sinking into the bleakest of times. But while the outlook may be dark in the big wealthy democracies of western Europe, it is in the young, poor, vulnerable states of central and eastern Europe that the trauma of crash, slump and meltdown looks graver.

Exactly 20 years ago, in serial revolutionary rejoicing, they ditched communism to put their faith in a capitalism now in crisis and by which they feel betrayed. The result has been the biggest protests across the former communist bloc since the days of people power.

Europe's time of troubles is gathering depth and scale. Governments are trembling. Revolt is in the air.

Athens

Alexandros Grigoropoulos, a 15-year-old middle-class boy going to a party in a rough neighbourhood on a December Saturday, was the first fatality of Europe's season of strife. Shot dead by a policeman, the boy's killing lit a bonfire of unrest in the city unmatched since the 1970s.

There are many wellsprings of the serial protests rolling across Europe. In Athens, it was students and young people who suddenly mobilised to turn parts of the city into no-go areas. They were sick of the lack of jobs and prospects, the failings of the education system and seized with pessimism over their future.

This week it was the farmers' turn, rolling their tractors out to block the motorways, main road and border crossings across the Balkans to try to obtain better procurement prices for their produce.

Riga

The old Baltic trading city had seen nothing like it since the happy days of kicking out the Russians and overthrowing communism two decades ago. More than 10,000 people converged on the 13th-century cathedral to show the Latvian government what they thought of its efforts at containing the economic crisis. The peaceful protest morphed into a late-night rampage as a minority headed for the parliament, battled with riot police and trashed parts of the old city. The following day there were similar scenes in Vilnius, the Lithuanian capital next door.

After Iceland, Latvia looks like the most vulnerable country to be hammered by the financial and economic crisis. The EU and IMF have already mounted a €7.5bn (£6.6bn) rescue plan but the outlook is the worst in Europe.

The biggest bank in the Baltic, Swedbank of Sweden, yesterday predicted a slump this year in Latvia of a whopping 10%, more than double the previous projections. It added that the economy of Estonia would shrink by 7% and of Lithuania by 4.5%.

The Latvian central bank's governor went on national television this week to pronounce the economy "clinically dead. We have only three or four minutes to resuscitate it".

Paris

Burned-out cars, masked youths, smashed shop windows, and more than a million striking workers. The scenes from France are familiar, but not so familiar to President Nicolas Sarkozy, confronting the first big wave of industrial unrest of his time in the Elysée Palace.

Sarkozy has spent most of his time in office trying to fix the world's problems, with less attention devoted to the home front. From Gaza to Georgia, Russia to Washington, Sarkozy has been a man in a hurry to mediate in trouble spots and grab the credit for peacemaking.

France, meanwhile, is moving into recession and unemployment is going up. The latest jobless figures were to have been released yesterday, but were held back, apparently for fear of inflaming the protests.

Budapest

A balance of payments crisis last autumn, heavy indebtedness and a disastrous budget made Hungary the first European candidate for an international rescue. The $26bn (£18bn) IMF-led bail-out shows scant sign of working. Industrial output is at its lowest for 16 years, the national currency - the forint - sank to a record low against the euro yesterday and the government also announced another round of spending cuts yesterday.

So far the streets have been relatively quiet. The Hungarian misery highlights a key difference between eastern and western Europe. While the UK, Germany, France and others plough hundreds of billions into public spending, tax cuts, bank bailouts and guarantees to industry, the east Europeans (plus Iceland and Ireland) are broke, ordering budget cuts, tax rises, and pleading for international help to shore up their economies.

The austerity and the soaring costs of repaying bank loans and mortgages taken out in hard foreign currencies (euro, yen and dollar) are fuelling the misery.

Kiev

The east European upheavals of 1989 hit Ukraine late, maturing into the Orange Revolution on the streets of Kiev only five years ago. The fresh start promised by President Viktor Yushchenko has, though, dissolved into messy, corrupt, and brutal political infighting, with the economy, growing strongly a few years ago, going into freefall.

Three weeks of gas wars with Russia this month ended in defeat and will cost Ukraine dearly. The national currency, at less than half the value of six months ago, is akin to the fate of Iceland's wrecked krona. Ukrainians have been buying dollars by the billion. In November the IMF waded in with the first payments in a $16bn rescue package.

The vicious power struggles between Yushchenko and the prime minister, Yuliya Tymoshenko, are consuming the ruling elite's energy, paralysing government and leaving the economy dysfunctional. Russia is doing its best to keep things that way.

Reykjavik

Proud of its status as one of the world's most developed, most productive and most equal societies, Iceland is in the throes of what is, by its staid standards, a revolution.

Riot police in Reykjavik, the coolest of capitals. Building bonfires in front of the world's oldest parliament. The yoghurt flying at the free market men who have run the country for decades and brought it to its knees.

An openly gay prime minister takes over today as head of a caretaker government. The neocon right has been ditched. The hard left Greens are, at least for the moment, the most popular party in the small Arctic state with a population the size of Bradford.

The IMF's bailout teams have moved in with $11bn. The national currency, the krona, appears to be finished. Iceland is a test case of how one of the most successful societies on the globe suddenly failed.

The mobilization for the day of action on Thursday promises to be impressive, with the unions' call for refusal to pay for the crisis.  On Thursday, France will confront the crisis, perhaps with anxiety, no doubt with anger, but also with ideas.

Ooh la la!  It's hard to row against the current.  Budget Minister Éric Woerth, embarking on France Inter's morning show yesterday, had a taste of how devilishly difficult it is.  How indeed can anyone hope to convince the majority that they are on the wrong track, given their opinion about the day of strikes and demonstrations tomorrow on Thursday in response to the call of the unions that signed a joint appeal, which is a major event?  "In my opinion," he said, "there are other ways to get heard today than take to the streets in an old-fashioned way, as people have done for thirty or forty years in France, with the same all-purpose banners and slogans."

Who cares about the opinion of Éric Woerth, which is deceptively naïve and affects the air of common sense?  In fact, the minister tried just about everything without convincing anyone: the storm in the southwest to cynically divert attention from the rising wind; and the call for unity of the French in taking measures against the crisis, with a contemptuous suggestion that "they get a move on already," which he must have blurted out.  In the end he brought out the expected sledgehammer argument about "the crisis": the strike is not suitable in the crisis.

But therein lies the problem facing the government.  Yesterday, a new poll by the BVA Institute showed, like the previous CSA and IFOP surveys on Sunday, that more than two thirds of the French supported this day of action.  And among those in favor of it are 54% of the supporters of the Right, according to BVA, which is not trivial all the same.  It's a completely new element.  The French are not only not ignoring the crisis, but most of them are thinking that they shouldn't be the ones to bear the brunt of it and pay the price for it.  And undoubtedly many of them, echoing the joint statement of the trade unions, believe that there are other solutions than throwing money into the ever-draining Danaides' barrels that are the banks, which only helps pay dividends to those who thirst for profit without risk.

What we'll hear tomorrow in hundreds of cities won't be old slogans, but the echo of strong, coherent proposals for employment, purchasing power, reduction of inequality, consumption-led economic recovery, public housing, and investment.  Tomorrow, France will confront the crisis, perhaps with anxiety, no doubt with anger, but also with ideas.  Yes, ideas, which become "a material force when they seize the masses."  And yes, France is getting a move on, but not in the way that the minister wants it to in his "opinion". . . .

Nicolas Sarkozy, who now has to fear a massive social movement, is surely of the "opinion" that it isn't very opportune to clash with the movement head-on.   On Tuesday in Châteauroux, during an improvised trip, having judged the situation serious enough to cancel a previously scheduled tour of Africa, he announced sham measures for employment, and he sought to sound firm and calm, describing it as "normal" and "healthy" that people protest and there are debates, while asserting once more that he was elected to find solutions.

Very well.  So where are they -- those solutions?  It's precisely because they don't see them that the French are in the process of inventing others, together with their unions and the Left, as evidenced by the statement signed by ten organizations, including the French Communist Party (PCF), the Party of the Left, and the New Anti-Capitalist Party (NPA).  The president has no solutions, because the real solutions go against the interests he protects and serves and the capitalist system he defends tooth and nail, the system for which, as he also reiterated yesterday, he intends to pursue his "reform."  Meanwhile, the Union for a Popular Movement (UMP) is concerned about the "abuse" of the right to strike.  Watch out.