Fragmented Global Capitalism and Canada

Global capitalism is fragmenting into two competing blocs.

“There is no longer any question that the United States is waging a New Cold War”, as Monthly Review Magazine wrote. “This war, waged not only against Russia, but increasingly against China, whose approach to global governance is seen as a threat to U.S. imperialism.”

Christine Lagarde, the head of the European Central Bank, seems to agree: “We are witnessing a fragmentation of the global economy into competing blocs, with each bloc trying to pull as much of the rest of the world closer to its respective strategic interests and shared values. And this fragmentation may well coalesce around two blocs led respectively by the two largest economies in the world.”

The fragmentation into two competing blocs, one led by the US and the other by China, is characterized by three major trends:

  • Rising military expenditures
  • Increasing protectionist economic policies
  • Declining levels of productivity, investment, and profitability—which reflect an internal tendency of capitalism, which is being exacerbated by the division of the world economy into two competing blocs.

Here are three examples of how Canada has been impacted by these trends:

Firstly, the US is pressuring Canada to increase its military spending, according to leaked documents reported by The Star. NATO has long urged its members to spend at least 2% of their GDP on “defense”, a target that Canada has consistently failed to reach, attracting criticism both domestically and around the world. Since the start of Russia’s war in Ukraine, Canada has provided over $1.3 billion in military aid, including armoured vehicles, cannons, ammunition, and eight Leopard II tanks. Ottawa promised some $14 billion in upgrades to the shared North American continental defense system during Joe Biden’s visit to Ottawa in late March.

Expect more pressure on Ottawa to increase military spending, with which the Liberals would be willing to comply if not faced with strong public opposition.

Secondly, Canada is being affected by US protectionist policies, especially in the energy sector. Governments are legislating to increase supply security, notably through the Inflation Reduction Act in the United States and the strategic autonomy agenda in Europe, as Lagarde said. Today, the United States is completely dependent on imports for at least 14 critical minerals, and Europe depends on China for 98% of its rare earth supply. Supply disruptions on these fronts could affect critical sectors in the economy, such as the automobile industry and its transition to electric vehicle production. The Biden government has mobilized a massive amount of tax dollars to incentivize domestic energy production, particularly the manufacturing of electric car batteries in the US.

Now, Ottawa is providing more subsidies to its capital input to counter US protectionist measures. Last week, a new Volkswagen electric vehicle battery “giga-factory” in St. Thomas was announced, promising 3,000 jobs on the heels of up to $13.2 billion in government aid. Remarkably, this accomplishment was celebrated by both major bourgeois political parties, with Ontario Premier Doug Ford stating, “We put all political stripes aside. Like, who cares about political stripes?” Joining Ford in celebration was Canadian Prime Minister Justin Trudeau, who announced this investment.

Expect Ottawa to spend more tax dollars in subsidies to private corporations to attract investment, especially in the energy sector.

Third, the economies within the US-led bloc are weakening, with poor levels of productivity, investment, and profitability, according to the World Bank. A structural growth slowdown is underway globally, with potential growth expected to fall to a three-decade low. This is due essentially to the tendency for the rate of profit of to fall.  As Marxist economist Michael Roberts states, “Between 2022 and 2030 average global potential GDP growth is expected to decline by roughly a third from the rate that prevailed in the first decade of this century—to 2.2% a year. For developing economies, the decline will be equally steep: from 6% a year between 2000 and 2010 to 4% a year over the remainder of this decade. These declines would be much steeper in the event of a global financial crisis or a recession.”

The global economic slump is primarily due, as mentioned above. To maintain profitability in the absence of productivity growth, capitalists push to suppress wages, intensifying the class struggle. The Public Service Alliance strike in Canada is a clear example of this. Contrary to the Bank of Canada’s argument, the Canadian economy’s slump is not due to increased wages. Economists, such as Jim Stanford, have shown that wages have lagged behind prices since the onset of post-COVID inflation. Real wages, adjusted for consumer prices, are falling rapidly.

However, bourgeois economists are quick to blame strikes and wage increases for the economic downturn. According to BMO Chief Economist Douglas Porter, the economic cost of the ongoing public workers’ strike could come close to 1 per cent of GDP if the strike persists, leading to delays in shipments and travel. Meanwhile, CIBC Chief Economist Avery Shenfeld warns that a full month-long strike could reduce monthly GDP by roughly 0.7 per cent, with additional negative impacts on the private sector. These statements are ideological.  They hide the fact that the economy is already in recession, caused not by workers, but by other factors.

Expect to see more pressure on labour to accept real wage reduction.

Amidst the ongoing global economic downturn and a world divided into two competing blocs, class struggle is bound to intensify.  There are three key trends: a rise in military spending, increased protectionism and subsidies for capital, and mounting pressure to reduce wages. Against this backdrop, it’s crucial to merge labour demands with anti-war demands. We must push Ottawa to prioritize social needs by cutting military expenses and exiting NATO. The NDP’s alliance with the Liberals is repugnant, as the latter is leading Canada deeper into the new Cold War under the direction of the US. The labour-based NDP must recognize that US-led imperialism is pushing the world towards a Cold War, which will result in more money spent on weapons and less for the working class and impoverished people.

Urgent action, that is, a Workers’ Agenda, is needed to address these issues.

(YK / April 27, 2023 / Ottawa)

Illustration: James Ferguson