International Socialist Archives
International Socialist was the journal produced by our tendency until January 2001, when we left the Committee for a Workers International. We now produce the journal Frontline.
International Socialist was the journal produced by our tendency until January 2001, when we left the Committee for a Workers International. We now produce the journal Frontline.
It was only two years ago and it produced a wave of panic across the world's stock markets. The capitalist press were full of articles predicting impending disaster. The spectre of 1929 came back to haunt the world capitalist leaders as first South and East Asia then Russia then Brazil were thrown into slump threatening to bring the world economy crashing down.
During the last 24 months almost 50% of the world's economies have gone into recession or slump. Although a certain recovery has begun in Asia and Japan it is mostly confined to an increase in the stock and currency markets. In the language of the market traders there is a "dead cat bounce" taking place. In other words not much of a recovery at all. Japan is expected to grow by 1% this year after almost a decade mired in recession.
For Marxists the events that began in Asia in 1997 marked a turning point. The beginning of a global crisis that would engulf the whole of the world economy. Such a perspective was echoed by such esteemed journals of capitalism such as the Financial Times and the Wall Street Journal. So what has happened to the crisis? The New Labour government are claiming unemployment is at it's lowest for nineteen years. While the economy is doing "just fine" and predicted to grow by around 1.5% in 1999 and 3% in the year 2000.
The press and spokespersons of the capitalist system have gone full circle. Gone are the apocalyptic predictions of 18 months ago. Now everything is rosy in the garden. So what is really going on and is a new phase of the world crisis that began in Thailand in 1997 likely to engulf the US and Europe in the period ahead?
It is essential in dealing with these issues to remind ourselves just how weak and fragile the "recovery" has been during the decade of the 1990's. For example more than 80 countries now have a lower GDP (income) per head than ten years ago. That means that there are 1.5 billion people who are now poorer than in 1990. Even in the advanced capitalist countries of Europe and the US there are currently 100 million people officially classified as poor.
In Scotland a recent report showed that 34.5% of Scottish households were poor or in severe risk of poverty and that an estimated 880,000 people, or 44.5% of all adult employees were on low pay in 1997, based on the threshold set by the Scottish Low Pay Unit.
There has been a massive, unprecedented polarisation of wealth which has been fuelled even further by the so called boom of the 1990's. The gap between the richest and the poorest has never been greater. The USA the worlds biggest and strongest economy has the biggest income differential in the world, with the "miracle" economy of the Republic of Ireland coming second. In Britain the top 10% of the population have an income more than ten times that of the poorest 10%. Poverty and debt is endemic for huge sections of the working class and even sections of the middle class.
Workers are working longer hours and under greater stress than at the start of the decade. A recent report estimated that one third of British workers will suffer at some stage from depression due to pressure of work and worries about the future. A recent report by the Salvation Army talked about a "deregulated hell" facing many people in Britain and warned of the dangers in a society that was becoming increasingly polarised.
In the US household income has fallen by 4% since 1989 for average families, while those in families under 25 years have seen average income drop by 25% since 1973. At the same time hours of work for husband and wife couples were up by 617 hours a year-around 15 extra weeks a year-between 1979 and 1996.
In other words this "boom" is based on on the one hand on increasing the hours of work and at the same time cutting wages either directly or indirectly through cutting the social wage. i.e. spending on health, education and social services.
It is important to remind ourselves that despite the propaganda deluge that we have had to contend with throughout the 1990's, about the superiority of the market, the lives of the majority of the world's population have deteriorated.
Profits are up however. There are more millionaires and billionaires and even trillionaires now than at any time since records began to be kept.
That is on the basis of a boom. When the US economy goes into recession the position facing the majority of workers and young people will become even worse.
"THE CRISIS is over and the global economy is booming again". That has been the message of the year. The latest IMF World Economic Outlook repeats it but also admits that "there are still strong risks of a relapse". The IMF expects a slowdown in the US economy - it is only a question of time - and this casts a shadow over "the sustainability of the recoveries under way".
Bubbles burst and each recovery reaches its peak at a certain stage, thanks to the limits set by the capitalist market. But it is almost impossible to predict when the fall will come and how big it will be. As the veteran US Keynesian economist, JK Galbraith, said in a lecture at Cambridge University in July: "The speculative crash, now called a correction, has been a basic feature of the system. Periods of speculation do come to an end".
There are many factors, however, that point towards a slowdown in the world economy. The rosy picture painted by many commentators and politicians corresponds more to their wishful thinking than reality. It is true that the crisis-ridden economies in East Asia are recovering and that Japanese capitalism is performing better than expected. However, the recovery is extremely fragile and it is doubtful it can be sustained.
The recovery in parts of Asia, and to some extent Europe (although the Euro-zone has only experienced sluggish growth), has been based on cheap exports to the US and an increase in consumer spending. The latter is due to lower savings, and real income grow
th would be needed next year to sustain the same level of spending.
The fact that the US became the investment haven and buyer of last resort in 1998 made it possible to temporarily subdue the shock to the capitalist system delivered by the crisis that started in Thailand in July 1997. That crisis spread to other so-called "emerging markets" and the world economy was on the brink in September 1998 when the Russian economy collapsed.
The threatened financial meltdown was only avoided by the bail-out of LTCM, one of the bankrupt US hedge-funds, and a series of interest rate cuts throughout the world. These actions, together with the continuation of the capital flow into the US, a drastic fall in commodity prices during 1997 and 1998 (oil prices, for example, more than halved), and a consumer boom in the US based on credit, gave a temporary breathing space to world capitalism last year. It also made it possible for the US to finance its deficits, uphold the value of the dollar, and counteract inflationary pressures.
The global crisis was postponed but new problems were added to the old ones, as the stock-market bubble expanded. The consumer boom was increasingly supported by rising share prices while, at the same time, "virtually all the indicators on the bubble are flashing red for the US. When such bubbles burst soft landings never seem to be within reach". (Bubble Trouble, HSBC Bank, May 1999)
Private savings in the US went negative last year for the first time since the 1930s. The current US corporate financial deficit is the largest for 20 years. The total private-sector debt is now around 130% of GDP, compared with less than 100% in 1929, just before Wall Street crashed.
The world economy became even more dependent on the US, which accounted for half of the increase in global demand in 1998. "The world now depends on America, the American economy depends on the consumer, and the American consumer depends on Wall Street, and Wall Street depends on 50 companies, half of which have never made any profit", comments Paul Volcker, former chairman of the Federal Reserve (Times, 6 July 1999).
The new and dangerous imbalances created in global capitalism have worsened this year and are now taking their toll. The value of the dollar has started to fall. The soaring trade and current account deficits reached record highs in July, and were far worse than expected. It was the largest trade shortfall since July 1992.
The prospect of international investors fleeing the US for other markets has become a reality and is further undermining the value of the dollar, particularly against the Japanese yen. Capital has started to move away since the summer - as much as $50 billion of overseas funds may have gone into the Japanese equity market. Nowadays, capital flows determine the value of a currency and this is pushing up the value of the yen. The risk is that a strong yen could raise Japanese export prices and end the "recovery". In the words of US economist, Paul Krugman: "Hopes of a recovery are starting to look like a self-denying prophecy; as soon as investors start to think the worst is over, the yen pops up and undermines expansion"
If the value of the dollar continues to drop, and there is little indication that the trend will be reversed, the Federal Reserve would probably raise interest rates to support the dollar. The slide of the dollar has been accompanied by a drop in the value of US shares, and suddenly some speculators are starting to predict "a slide of dire proportions, implying that US share prices are heading for a fall of between one-third and one-half". (Evening Standard, 14 September 1999)
It is too early to conclude that the world economy has reached a new turning point, although many factors point in that direction: the fall in the value of the dollar; signs of a sharp downward adjustment in US share prices; the Federal Reserve's reversal of earlier interest rates cuts; the strengthening of protectionist sentiments in the US; the beginnings of capital outflows from the US; a growing reluctance by foreign speculators to finance the soaring US deficits; and the rise in the oil price. Moreover, the threatened devaluation of the Chinese yuan, further stagnation in Latin America, or countries being forced to default on their loans, could all trigger a new slump.
Even the IMF has issued warnings about the prospect of a hard landing in the US, commenting that the combination of strong growth and low inflation in 1996-98 was the result of "fortuitous but temporary events". The same report also says that there is no evidence of a "new economy or new paradigm".
Share prices will drop sharply as the US economy moves towards a recession or slump. When "the US markets reach their peak - and many believe that this will happen soon - recovery in Asia will be its first casualty". (International Herald Tribune, 18 May 1999) Not only Asia will be affected but Europe as well.
The political effects of a downturn in the USA would be profound. The sluggish growth in the European economies would end and the sectors of the world already in deep recession would face an even bleaker future.
While it is true that there has been a major counter offensive against the ideas of socialism since the collapse of the Stalinist regimes ten years ago a new downturn in the world economy would begin to lay the basis for a revival in socialist ideas. There has been big opposition to the effects of the market-deregulation, privatisation and casualisation of work- among workers internationally. In countries such as France, Germany and Belgium mass confrontations have taken place between the working class and their capitalist governments during this period.
In Britain the horrifying Paddington rail crash has driven home the widespread feeling that privatisation and service for profit are costing lives. Over 80% in a poll taken after the crash supported the re-nationalisation of the railways.
Whether a new phase in the world crisis unfolds very rapidly or is delayed for a further period it will not prevent major class battles from unfolding even if the so called recovery were to continue. Amongst the teaching profession in Scotland there is uproar at the government proposals on pay and changed working conditions. The recent EIS ballot saw an unprecedented 98% of teachers vote to reject the package in favour of an 8% wage increase. The more "moderate" NAS/UWT general secretary in Scotland told a Scottish newspaper that unless Sam Galbraith agreed to their demands he would "see him at the barricades".
These trade union leaders will of course attempt to use the massive ballot results as a bargaining chip with the Scottish Executive rather than preparing for serious action. Nevertheless we cannot rule out a major battle breaking out in Scotland over pay and conditions in the next few weeks.
The fall in unemployment in Britain and Scotland lately has not been due to a rise in employment in manufacturing, there are barely 4 million workers in Britain still employed in this sector. It is the service sector, shops, call centres etc that is absorbing new workers.
The conditions facing workers in the new industries such as the growing call centre sector is horrendous. There are reports of workers being timed to check how long they take for a toilet break. The management regime is draconian and the turnover of staff huge. There is in general a tightening of the screw on all workers especially those in the public sector and local government through "best value" and other cost cutting measures. All of this is preparing a ferocious backlash by the working class at these ever increasing attacks on basic human conditions.
A backlash that could take place even before the US economy goes into recession or slump, which itself would give the forces of socialism important opportunities to build and extend it's influence. The world downturn will have the effect of politically preparing millions of workers and young people into drawing far reaching anti-capitalist conclusions. This in turn would provide very fertile ground for the ideas of socialism and marxism to make decisive advances.
A world slump even if it had the effect of stunning the working class for a time, as a result of devastating job losses and the closing down of entire industries, would nevertheless lead a new generation to draw revolutionary conclusions.
The CWI's ability to chart the unfolding world economic crisis, the collapse of Stalinism and it's effects on the decade of the 1990's has been of vital importance in preparing our forces and the working class we have been able to reach for the events of the next months and years.
A decade that began with the ruling class seemingly euphoric following the fall of the Berlin Wall and the victory in the Gulf War is ending with world capitalism facing it's biggest economic crisis at least since 1974.
As importantly the new decade will lift a new generation, and especially the youth, into the orbit of revolutionary socialism. The analysis and programme as well as the tactics and strategy of Marxism will find a road the hundreds of thousands and to the millions of workers, the poor and the exploited throughout the world. On that basis we can build a new society internationally and achieve, in the new millennium, our goal of world socialism.