The Economic Crisis

The new period began with the financial crisis. The seriousness of the crisis became clear to all as several major banks and other financial institutions failed—Fannie Mae and Fredddie Mac, Bear Sterns, Lehman Brothers, AIG, Citibank, etc.—corporations began to go bankrupt, and plants shuttered operations while retail chains closed their stores, all on a scale not seen for decades. In the United States, the center of the storm, no sector of the economy has been spared. What began in the housing construction, real estate, and mortgages soon spread to finance and quickly jumped to the auto industry, and from there to the economy as a whole. The collapse of General Motors and Chrysler represents the most dramatic and significant industrial restructuring in the modern history of the United States.

In the period leading up to Obama’s presidency and then on into his first months in office more jobs were lost than in any similar period since October 1949. At the end of January alone, widely disparate corporations—Citigroup, Caterpillar, Harley-Davidson, Home Depot, General Electric and Nokia, Sprint Nextel, Texas Instruments, and even Microsoft—announced layoffs amounting to 75,000 jobs. Boeing and IBM also cut their workforces. In February, the 500 largest U.S. corporations laid off 123,604 people at JP Morgan, Dow Chemical, Corning, Micron Technology, Avon, U.S. Steel, Best Buy, Chevron, Delta, Goodyear, General Motors, Delphi, John Controls, Smithfield, Wal-Mart, United Technologies, W.W. Grainger, Caterpillar, U.S. Airways, Nike, General Electric, and Macy’s. All sectors of the economy have been caught up in the crisis.[8] General Motors, for decades a linch-pin of U.S. industry, has gone bankrupt.

The U.S. Bureau of Labor Statistics has reported that the unemployment rate has risen to the highest rate in over 25 years. Moreover, the economic crisis has hit hardest those who already had the least: the elderly, children, and African Americans, though white male workers have also been hit harder than usual in this recession. With unemployment officially at 9.4 percent (and the “real” jobless rate at 16.4%) for the entire population in May, African American unemployment was at an official 14.9 percent, with 12.7 percent of Latinos and 22.7 percent of teenagers unemployed. Many U.S. cities now have official unemployment rates of between 10 and 20 percent for all workers, according to a report by the US Labor Department of 372 metropolitan areas.

The economic crisis and unemployment mean a rise in poverty for the population. Already in 2006, 18 percent of all children lived in poverty, and the recession is increasing those numbers. Similarly 12.6 percent of the country’s total population and 25 percent of all African Americans lived in poverty in 2007, numbers which are now rising dramatically. The Obama administration came to office facing the worst global economic crisis since the Great Depression.

A World Economic Crisis

The economic crisis that began in the U.S. has been rapidly communicated to the rest of the world. Those countries that believed that they were insulated from the financial crisis have found that if the banks did not draw them down into a whirlpool, then they have lost the market for their products, and jobs for their migrant labor forces. Production, sales, employment, and profits are all falling at a dizzying rate everywhere. Japan’s economy soon reacted much like that of the U.S.: Toyota Motor Co., Nippon Steel, and Panasonic laid off thousands. In Europe, by April 2009 the unemployment rate of the 16 euro currency countries had reached 9.2 percent; while for all 27 members of the European Union it climbed to 8.6 percent.

The crisis became international. The International Monetary Fund’s January 28, 2009 news release, “World Growth Grinds to Virtual Halt, IMF Urges Decisive Global Policy Response,” predicted that the U.S. economy would not grow this year, but rather shrink by 1.6 percent and that global economic growth would be a mere 0.5 percent, the worst rate of economic expansion in 60 years. [10] This overly optimistic projection will have to be revised downward. [11] Since then Japan’s industrial production fell by 10 percent in January and the U.S. economy shrank by 6.2 in the fourth quarter. Even the Indian economy, expected to do better than most found its growth rate reduced to 5.3 percent from the previous year’s 8.9 percent.

The ILO issued a report in January that predicted that global unemployment in 2009 could increase over that of 2007 by a range of 18 million to 30 million workers, and more than 50 million if the situation continues to deteriorate. At the same time some 200 million workers, mostly in developing economies, could be pushed into extreme poverty. ILO Director-General Juan Somavia said that “the number of working poor living on less than a dollar a day could rise by some 40 million -- and those at 2 dollars a day by more than 100 million.” China alone could lose 50 million jobs just among its internal migrant workers.

At this time (June 2009) it is not clear whether this Great Recession might become a second Great Depression, something which remains quite possible. What is clear, however, is that the process of capitalist crisis which opened in the late-1960s continues to move on, with each new economic crisis—1974-75, 1980-82, 1990-91, 1992, and now 2008-09—the standard of living for workers has been ratcheted down. We may not experience a Great Depression on the 1929-1939 scale, but the seriousness of this crisis is not to be minimized and if it continues will lead to a working class response.

U.S. Hegemony Tested

While Obama faces the economic crisis both domestically and internationally, he also finds the United States tested in its role as “leader of the free world.” Though the United States retains its role as the dominant military power, its slipping economic position means that it can no longer so easily assert its will over all the other major powers. Japan and Germany remain major competitors, while China will soon overtake Japan as the second largest economy. While most other nations will remain stagnant or contract during the crisis, China is expected to grow at 6 percent per year––far below its 10 percent per annum for the last several years, but still a growth which will strengthen it vis-à-vis its rivals. China continues to expand its economic interests in Africa and Latin America, and Australia.

In this situation, Obama is calling for more cooperation with Europe, the U.N. and NATO. The approach is not novel. Since the end of World War II, the United States pursued its foreign policy objectives—domination of the skies and seas, containment of Soviet and Chinese Communism, control of Middle Eastern oil, subordination of Latin America as a U.S. sphere of interest, expansion of its role in Asia—through the U.N. and NATO. This was the policy under George H.W. Bush and under Bill Clinton, the first in the Iraq War and the second in the war against Serbia. George W. Bush, under the influence of his neo-con advisors, broke with that pattern, undertaking unilateral U.S. action, or action in alliance with the “coalition of the willing,” that is, Great Britain and a collection of small, dependent nations. Obama now returns the United States to its traditional policy of seeking to carry out its imperial objectives through a coalition with it European allies, and through the U.N. and NATO. But this is a policy that means the U.S. will also have to share the spoils.

Something more profound may be at work here. The weakening of U.S. hegemony may mean that we are witnessing a transition from the long period of U.S. domination to a new period of Great Power politics such as existed through much of the 19th and 20th century. The U.S. finds itself confronting not only Japan, Germany and the rest of the European Union, and Russia, but also by stupendous expansion of capitalism in China, and the rise of countries such as Brazil and India. Thus, Obama is led to work with Europe and through the U.N. and NATO. But it may be that we are seeing something new here, the actual decline of the United States and the beginning of a transition first to Great Power rivalry and then to the rise of a new hegemonic power, perhaps China. Such a transition cannot be imagined without a new period of international warfare in which China or any other pretender would have to prove its military superiority before assuming the mantel of world hegemon. For the moment, however, the U.S. remains the greatest economic and military power and the international organizations will be the vehicles of its continued dominance. We appear to be returning to the Clinton years or something very like them, that is to say to the ‘normal’ imperial policies of the post-war period.