Recession scenarios

Philip Ferguson

In the past couple few weeks the Reserve Bank governor Alan Bollard, prime minister John Key, and other commentators have been talking about the recession, or at least the worst of it, being over. 

 Bollard is a fairly level-headed and reasonably sophisticated bourgeois economist and Key is a fairly level-headed, reasonably sophisticated capitalist political manoeuvrer. So their view of the current state of the recession is worth some consideration and can’t just be dismissed as capitalist propaganda.

 The evidence, such as it is, that has been presented to suggest NZ is coming out of recession is pretty flimsy, however. A news item that featured what they were saying on the subject showed a case of one house that had been sold in five days, whereas last year the same house hadn’t sold in months. That is hardly evidence for much at all.

 Harcourts’ real estate blue book in early July contained an ‘informational’ sheet in which Harcourts declared the recession, or at least the recession in house prices, over. Their evidence was improved house sales for the past two months. This verdict on their part seemed rather unconvincing – especially since it came in a blue book that was at least 1/3 smaller than the size of the blue books last year. If the housing market was really jumping back up, then the Realtor and the Harcourts blue book wouldn’t be the slimmed down volumes that they are at present.

 More importantly, a real recovery couldn’t be judged from house prices. No new value is created in the sale of houses – all that is involved is prices going up and down. If they go up, above the actual value of houses, these boosted prices simply draw money from elsewhere in the economy – and, usually, also involve the extension of more credit.

 So a real recovery has to involve an increase in output and productivity in the real economy – in the production of goods (and services) for the market. In relation to housing, this would mean more house-building, rather than simply more house-selling, ie more selling of existing housing stock.

 But it would also mean, crucially, more industrial production. There seems little evidence of that.

 That’s not to say that NZ isn’t starting to pull out of recession – just that no convincing evidence has yet been presented.

 What is useful about Bollard and Key’s claims, however, is a reminder that much of the left ‘talked up’ the depth of crisis. It was the biggest economic catastrophe since the Great Depression; for some, it even held the possibility of being the final meltdown of capitalism globally.

 Some of these people making such claims were actually around in the mid-1970s when the long postwar boom came to an end, so they should’ve known better than to claim that the current woes are the biggest thing to go wrong since the 1930s. Even more of the left were around in 1987, when stock markets around the world crashed, and NZ capitalism took a major hit which it has never really recovered from (actually, NZ capitalism has never really recovered from the end of the postwar boom).

 In contrast, we in the Workers Party looked clinically at what was happening and made a calm, rational analysis to the limited extent that we could (ie not having full-timers, researchers etc etc). Our analysis has been vindicated. We said it was a significant recession, but it wasn’t anything like on the scale of the 1930s and it wasn’t on the scale of the malaise that followed the end of the postwar boom either. We also delayed judgement on how serious it might (or might not) get, preferring an evidence-based analysis rather than wishful thinking and hyperbole. And we pointed out that, in the absence of substantial movement by the working class, the system could renew itself without a major meltdown.

 Moreover, it’s important to keep in mind that recessions have a two-fold character. They are not only a symptom of the disease – they are also a cure. Capitalism not only creates regular recessions, because it is an unplanned system which generates contradiction and crisis; it also creates recessions as a self-protection mechanism. Through recession, capitalism is revitalised. A lot of the left are very easily excited by a recession, or even the spectre of one, and in their excited state they overlook or forget that recession has this second function within the operations of the capitalist system.

 At this point in time, no serious Marxist can know what is going to happen next – whether the worst is over or whether there will be a deepening of the recession. That’s why it also never pays to be a one-trick pony, but to have two sets of arguments to deal with two possible scenarios.

 Even if the worst is over, and it may not be, any recovery is going to be rather weak. The ‘best’ that NZ capitalism can deliver these days is what it delivered from the mid-1990s (final years of Nat government) to about 2008 (the global financial-sector meltdown or semi-meltdown). There’s certainly no sign of a major reinvigoration of the productive economy – that would require massive new investment in plant, machinery, technology, research and development and there has been no indication since the end of the postwar boom that the NZ bourgeoisie has much inclination for such new investment. In fact the last major round of such investment had to be carried out by government – indeed, a National government; namely, Muldoon’s ‘Think Big’ projects.

 Our analysis may lack the glamour and hyperbole of the pronouncements of many others on the more easily excited left, but it has served us well.


  1. I think that your analysis is fairly realistic and it looks like the real estate fraternity are trying to artificially inflate the price of property, would that be correct?

    I would like to know WP’s position on the Paul Bennet incedent as there are going to be protests around the country. The National are behaving like bullies kicking the vulnerable when they are down.

    That really gets my blood pressure up.


  2. Jurriaan Bendien says:


    I commented a bit on New Zealand here, referring to an article by Brian Fallow: My main forecast is simply that the average annual unemployment rate will settle at a durably higher level than previously, and that financial institutions will become much more conservative in extending credit facilities. The financial crisis was worsened very considerably by a panic reaction among investors. As that begins to clear, there will be some recovery of output growth, but employment levels will most likely not recover to the same extent. The financial crisis provided the corporations with a rationale to shed labour, and indeed in the USA the job cuts are far in excess of what you would normally expect in this situation. This feeds back into recessive conditions, since unemployed people cannot pay their bills (cf. ). The credit crunch will most likely rumble on for a few years, the main effect being the further impoverishment of part of the population and a further increase in socio-economic inequality. The overall effect is a further downward pressure on real wages.

  3. Barrie (AWSM-personal capacity) says:

    I thought your article was accurate in warning against hysterically exaggerating the extent and nature of the current problems experienced by capitalism. Its a system that (say what else you like about it) has undoubtedly shown itself capable of taking hits (self-created or otherwise)and rebounding.

    I was wondering which groups, political tendencies or particular commentators you have in mind when you distance the WP from others on the left who you claim have fallen into the trap of hyperbole etc?

  4. Mike22275 says:

    Paul, there’s a protest against Paula Bennett this Saturday in Auckland:

    Workers Party will be there!

  5. Philip Ferguson says:

    In reply to Paul D, yeh, it looks like the real estate agents are trying to ‘talk up’ house prices. We’ll see over the rest of the year whether people are actually prepared to pay ‘talked up’ prices. I think probably not. I also think it’s important to understand how different sectors of capitalists see things. For instance, if you’re a capitalist real estate company that makes profits selling property, then it looks like the eocnomy is doing well if your outfit (and sector) and making lots of profit. But from the point of the overall economy, this may not be good at all. Money that is getting soaked up in property buying and selling (and speculation) is money that is not creating any new value, just lifting prices. This means it is draining potential investment away from areas of the economy that actually create new value, ie areas whch expand the total amount of value acorss the whole economy (as opposed to mere prices or profits in particular sectors).

    A partial understanding of this porblem is what has got Key and English talking about a capital gains tax.

    Of course, for Marxists, this is quite amusing. It shows how inept the ‘spontaneous workings of the market’ are when it comes to actually creating a vibrant, growing economy, even in purely cpaitlaist terms. The reality is that the state always has to intervene to some extent because capital is not especially efficient at either reproducing itself (although it’s certainly ruthless in doing so), let alone reproducing all the necessary social conditions for its own reproduction.

    In response to Jurriaan, thanks mate, that’s all very helpful. I’m not an economist and the amount of time I have to continually keep up with Stats NZ stuff is very limited. Your research and insights are always much appreciated.

    To Barrie, I think in NZ groups like Socialist Worker and Socialist Aotearoa exaggerated the degree of crisis and also what policies the new government would follow. For some reason known only to themselves, they expected Douglas to be prominent, even calling the shots. What the NZ ruling class would need with a tired old has-been like Douglas in the 21st century, lord knows. His policies were useful to NZ capital, especially financial capital, 25 yeares ago, but capital is at a different point in the accumulation process today and needs policies quite different from Douglas. That’s why the NZ Institute is way more important than the Business Roundtable.

    I also recall some Christchurch anarchist coming on here and bitterly denouncing us for not recognising the depth of the crisis.

    Globally, a lot of the left exaggerated the depth of crisis too. An hour or two ago I was reading an interview in the British ‘Weekly Worker’ with Hillel Ticktin of ‘Critique’ magazine. I’ve long admired Ticktin but I found his analysis of the crisis last year way over the top. In the interview in the current WW he mentions that the system has been stablised but gives no account of how this is very different from his own prognostications. If the system has been (relatively easily) stabilised, then the crisis was clearly not as deep as he and so many others suggested.

    I think it’s important to keep a level head and make very clinical analyses of each capitalist downturn. While avoiding the catastrophism which characterises quite a lot of the far left, we don’t want to go to the opposite extreme and pretend capitalism isn’t facing some serious problems. It is. But they don’t appear to be anything on the scale of the Great Depression or of the protracted economic crisis (or crises) that followed the end of the postwar boom around 1973/74.

    My view is that the current woes are actually largely a product of the end of the postwar boom and the fact that the capitalists have never managed to solve the problems that arose with (and underlay) the end of the long boom. What’s happened in the meantime is that enough of a defeat was inflicted on the working class and enough mechanisms for (distorted) growth found to allow capital to continue but each of tjhose mechanisms (eg massive extension of credit) build up new problems.

    If we had a resurgent working class in the imperialist countries then we might see a really serious capitalist crisis. But in the absence of that, capital reorganises, chunks of capital go to the wall, the state intervenes more and shores up some sections of the overall edifice of capital, workers take more hits etc, and the system regenerates itself, albeit in a somewhat more senile state.

    One of the big indicators of capitalist decay for me is that in the 1960s the big idea that summarised capitalist confidence and superiroity was the notion of “the leisure society”. According to capitalist ideologues the biggest problem we’d all face (well, at least in the West) was what to do with all the leisure time that the wonderful productivity of capitalism would provide us with. When was the last time any of us heard capitalist ideologues raising that question? Now they want us to work longer hours, faster and harder and quite possibly even extend our working lives (John Key’s opposition to raising the retirement age notwithstanding).


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