From 1983-85, it was mainly the debt of the big ; American and British trusts that grew. But, more and more, it is the US public debt that has taken over in "bailing out" the international capitalist economy. Ronald Reagan's arms race and the colossal American balance of payments deficit flooded the US and the entire world with dollars.
With the law of supply and demand acting on foreign exchange markets — determining reciprocal currency rates in a "floating" exchange market (that is, no fixed parity between currencies) -it was inevitable that the dollar would resume its free fall, initially reversed between 1980 and 1984. This is what has been happening since 1985.
The objective mechanism behind this motion should not be underestimated. It appears clearly if the "monetary system" is looked at from a global point of view. It can be visualized as a system with four poles: the US dollar; the Japanese yen; the German mark and its European monetary satellites; and the
Table 1
Main USA commercial deficits in
1986 ($1,000 million)
Japan 58.6
Canada 23.3
Taiwan 15.7
West Germany 15.6
South Korea 7.1
Italy 6.5
Hong Kong 6.4 (Source: International Herald Tribune,
May 11, 1987)
currencies; the South Korean won and the Taiwan dollar, oscillating between the dollar and the yen?; the Saudi riyal, which has been detaching itself from the US dollar, and so on. But, essentially, it is a four-cornered system.
However, if the dollar has rapidly lost value against the yen and the European currencies, this is not the case regarding third world currencies. This includes the semi-industrialized countries, with the exception of South Korea and Taiwan — but for how long? Even when their balance of payments is ir credit in relation to the US, these countries have a higher rate of inflation than the United States. The demand for, and therefore the shortage of, dollars for investment and hoarding purposes (fraud, safeguarding private fortunes) stays constant. Consequently, these countries' currencies devalue unceasingly against the dollar, even in the "black" and the "grey" markets of the so-called socialist countries. So the dollar's present fall, as well as the accompanying rise in interest rates, hardly benefits them. The dollar's uncontrollable slide
In the dollar's slide against the yen and European currencies there is something uncontrollable happening, in addition to the intentions of the Reagan administration. An enormous snowball is rolling. Nobody can stop it, and even less stop it completely.
For the general public, the dollar's fall seems mainly to be an instrument American imperialism is using to redress its catastrophic balance of trade deficit, and stop the US market being inundated by industrial goods from abroad - including from countries like Taiwan, South Korea and Brazil. The US now has a trade deficit in manufactured products with these countries, as the major part of these imports are not coming from branches of American trusts established abroad.
The lower rate of the dollar means a fall in American product prices compared to those of Japan and Europe. It can be assumed that this will mean US imports will fall and exports increase,
1. See the chapter on the world debt in Emest Mandel's 1
La crise, Flammarion, Paris, 1985 2. The Taiwan dollar has grown by 20% in relation to American currency. Today, Taiwan holds exchange reserves of more than $50,000 million in exchange value.
On this scale, Taiwan comes third in the world after 3
West Germany and Japan, but before the US, France, Italy, the Netherlands, Britain etc. 3. To take just one example, in Brazil inflation is pres ently growing by 80% a year. June 29, 1987 • International Viewpoint
ECONOMY
DeFiCit Public
HONK!
until the trade balance can be stabilized in one or two years - perhaps three.
1 Nobody dares to make a precise predic-
tion. There is some truth in this analysis, but only some. The success of the Reagan administration's project is uncertain. This plan reflects a sudden and significant shift of the concerns - and the weight - of Wall Street bankers International Viewpoint • June 29, 1987 and speculators towards big industrial capital.4 But, in particular, this whole scenario has to be revised and corrected in the context of the foreseeable reactions of American imperialism's main competitors, Japanese and West German imperialism. And the picture which finally emerges is a lot more complex than the sorcerer's apprentices at the White House have imagined.
It is Japanese capitalists who have financed the bulk of the US balance of trade deficit during the past few years, by massively subscribing to American
Japanese capital exports amounted in 1986 to $145,000 million gross (some million net), of which $47,000 million went to buy American state bonds. But these purchases creased rapidly: from 56.4% of total bonds purchased abroad in the first quarter to 38.5% in the fourth quarter. In March 1987, this fall accelerated: only $2,500 million worth of American bonds were bought. (Far Eastern Economic Review, April 16, 1987.)
Japan has dramatically reversed the situation to become the world's leading creditor. In 1981, it had only $11,000 million in net foreign holdings, whereas the US had $140,000 million. Today, Japan has $200,000 while the US has become a debtor nation in relation to the rest of the
None of this is abnormal in the history of capitalism. Marx had already pointed out in the 19th century that the British bourgeoisie financed a part of British exports by loaning money capital to Britain's trading customers. The US did the same with the Europeans at the time of the Marshall Plan, after the Second World War.
A double blackmail operation
In reality, we are witnessing a double blackmail operation behind the smoke screen of the "trade war" and the protectionist measures taken by the Reagan administration against Japanese electronic products.
On the one hand, like all big money lenders, Japan is terrified by the idea that the dollar's exchange rate will continue its slow slide. By the end of another year, a further 30% of this capital could evaporate! But, on the other hand, Japan can also give the United States jitters: if the dollar's fall carries on, all the liquid and semi-liquid dollar holdings that the Japanese capitalists possess could be thrown back into the market all at once. That would not only provoke the dollar's collapse, but also the insolvency of the American banking system, already in a bad state. At today's exchange rate, there is not a single American bank among the ten biggest in the world. Most of these banks are Japanese.
American holdings going cheap
This is not the only weapon Japanese imperialism has for retaliating. An expensive yen and Deutschmark and a cheap dollar mean that American land, buildings, stocks and shares and plants are cheap for the Japanese and German bourgeoisies. This is therefore the time to buy up American companies, particularly in the high-technology field. The German and Japanese capitalists are doing just that.
This is where the shoe pinches. We are living in the imperialist epoch, not in the free-market epoch of liberal capitalism. American imperialism cannot tolerate the "de-industrialization" of its country. This would involve increasing US dependence on high-technology products, including military ones, imported or foreign-owned (by Japan and South Korea, and West Germany in the future).
This would be intolerable for big American capital. When the Japanese bought one of the main "sophisticated" electronic companies in the US — Fairchild — Washington said "no". But, as in the imperialist epoch, it is financial capital which decides in the last analysis. One cannot save American factories without saving the dollar, above all the dollars of the American banks. American imperialism faces a wrenching choice. Political pressure and military blackmail, including the threat to reduce the American presence in Japan and Europe, can decide nothing. The decisive battle will be on the financial and industrial terrain.
This is so true that the Reagan administration, at the same time as imposing high customs tariffs on Japanese products, was also forced to increase the interest rate on its public loans. Without this "bonus against exchange loss" — a gap of 6% between 4. Just as ideology generally reflects the preoccupations of the dominant classes, now a work has appeared on the success of the US's "re-industrialization": Manufacturing matters, the myth of the post-industrial economy, by Stephen Cohen and John Zysman, Basic Books, New York, 1986.
the interest rates of the US and Japan — Japanese capitalists would no longer underwrite American obligations. "The Japanese financial institutions insist that if the long-term interest rate does not reach at least 9.25%, they will no longer be the big buyers that they have been in the past." (Business May 11, 1987.) From this point the US could no longer cover its trade deficit except by using the remaining gold in Fort Knox and American property
The rise in interest rates, combined with the upturn in inflation in the US, the recession. And recession is hardly the way to encourage re-industrialization — far from it. This is the problem.
But Japan itself is a giant with feet of clay, given the international monetary crisis and the (mini?) recession.
First of all, the rise of the yen in relation to other currencies makes Japanese exports very vulnerable. They are already dropping in volume, even if increasing in value. They are particularly less and less competitive with goods from South Korea, Hong Kong, Brazil and even Taiwan. Japan's huge trade surplus is concentrated in three sectors: Competition in these sectors is fierce; world demand is either stagnant or already decreasing.
There are two prevalent reactions in Tokyo. First of all, stimulating home demand. It should be noted that the standard of living of the Japanese masses — particularly in housing and social security — is still 25% below that of the US and the richest European countries. But, as the Japanese public debt is already very high, this increase of internal demand would stimulate higher inflation and further undermine the international competitivity of Japanese companies.
Wild speculation on Tokyo stock exchange
The second solution is to increase capital export towards the US and Europe, as well as South-East and South Asia and certain Latin American countries, or even to certain bureaucratized workers' states, particularly China.
In the video-recorder field, for example, the Japanese already produce 1.9 million machines in Europe against 1.7 million produced by European firms. (Business Week, April 13, 1987.) But the South Koreans already have 10% of the market; selling at half price, their share is likely to increase further.
But such a massive shift of productive investment abroad will sharpen the recession which has already started in Japan, and cause a clear explosion of unemployment — hardly likely to en-
### Table 2
US trade deficit ($1,000 mlillon 1972 value) 20
High technology 10 -10 -20
Other industrial -30 products -40 -50 courage American imports.
The immediate consequence of this difficult choice is that the rise in the yen is expressed in Japan by an excess of money-capital and bankers searching desperately for new outlets. Given the prevailing climate in the international capitalist economy, this has provoked wild speculation on the stock exchange. The capitalization of stocks on the Tokyo exchange in the present yen/dollar exchange rate is already that of Wall Street: $2,750,000 million. This enormous wave of speculation is in turn mainly financed by credit. The speculators in Tokyo buy on credit, offering the shares bought as guarantee. But these have reached breathtaking heights: 70 times the income of these shares. (Financial Times, April 28, 1987.) In addition, a good part of the purchases of long-term obligations abroad are also done on credit (short-term dollar buying) accorded by the
These latter must, in turn, incur heavy debts abroad. According to the Bank of Japan's statistics (reported in Far Eastern Economic Review, April 9, 1987), the Japanese private sector at the end of 1985 held foreign shares and obligations worth $146,000 million, but owed $161,000 million in
The risk of a bank crash, like the 1929 Wall Street crash, could arise today through the bankruptcy of the big third world debtors, the decline of the dollar or a crash in the Tokyo stock
It should be emphasized that the competition on the world market — which is no longer expanding — is determined in the last analysis by the law of value, that is by the long- and medium-term movement in labour productivity in the main countries concerned. In this regard, the relative decline of the US is striking (see Table 2 above for the evolution of the Ameri-
It is true that in principle no capital-
ECONOMY ist power has a longer-term interest in stifling the expansion of world trade by protectionism. Each one will end up suffering from a contraction of its outlets, except perhaps the most competitive. This is why there is a growing chorus warning against an extension of the trade war? And it is hardly by chance that these warnings are growing in Germany in particular. (Die Zeit, May 8, 1987.) Of all the big imperialist powers, this is the one that depends most on exports.
But re-absorbing the trade deficit without a trade war simply through the fall in dollar exchange rates and deflation in West Germany would also be a severe blow to German exports and those of other European countries. This would spread the Japanese and US recession to Europe. With an international capitalist economy in recession, how could American exports really take off? The problem seems insoluble.
Making workers pay for the crisis
Another dimension of international capitalist competition and the "trade war" should not be hidden. Each "national" bourgeoisie — those in the imperialist countries - constantly tries to make the wage earners of its country pay the cost of making its companies more competitive interna-
There is no lack of opportunity and pretext for doing this: diktats from the International Monetary Fund (Brazil); pressing obligations to pay the interest on the debt (Mexico); maintaining an "open" economy (France under the Union of the Left); drastic reduction in the rate of inflation (Britain under Thatcher or Spain under Gonzalez); or the rise and subsequent fall in oil prices or reduction of the public spending 5. At the last auction of monthly American treasury bonds, Wall Street and Washington were very worried: "to buy or not?" Finally, the Japanese bought, but only 20% of their usual amount. (International Herald Tribune, May 4, 1987; Sunday Times, May 10, 1987.) 6. Here is an interesting remark from the Japan Economic Journal, May 16, 1987: "Japanese financial institutions confront a speculation...produced by an excess of liquidities. While they suffer a big pressure to lend, there is only a limited circle of borrowers," explains an analyst of the Bank of Japan. "They have practically no other choice than to lend to the US." [All quotes in this article are re-translated from the French.] 7. Capitalist logic in the crisis has some rules of conduct: "We are all in the same boat. Don't let us capsize it by making false moves. But even so we must manoeuv- re to be in the best position in case it capsizes. " During 1 his trip to the US, Nakasone announced a certain num ber of measures including "re-cycling $30,000 milion of Japanese surplus as loans to developing countries in
Latin America, Africa and Asia during the next three 5
years...In the past, similar commitments to use Japanese capital to stimulate growth were criticized as being simply attempts to ensure the sale of Japanese products." (Far Eastern Economic Review, May 14, 1987.) June 29, 1987 • International Viewpoint
ECONOMY/ IRELAND deficit (Belgium under the various Martens' governments).
But the result is always the same: seeking increased competitivity on the world market (for exports) through reducing wage costs. ONE 15>
WALL
1577)
To get caught up in this, as a number of trade union bureaucracies throughout the world have done, is extremely dangerous. There is no limit to how far wages can go down and unemployment can go up, except for the physical nonreproduction of the labour force - that is, death from famine. According to the
Times (April 19, 1987), a labourer in the copper mines of Kitwe in Zambia at present receives less than $3 per week for 84 hours of work.
We are not yet at this point in Europe, Japan or the United States. There is still determined workers' resistance. Working class gains are only being worn away. But there is already a real erosion in the US, where the buying power of wages is 14% less than it was in 1973, and even slightly below that of 1962. (Financial Times, May 13, 1987.) Nevertheless, American industry's "competitivity" has never been Attempt to extend the model of the "dual society"
The bourgeoisie is resolutely trying to extend on a world scale the model of a "dual society" originating from Japan and East Asia. Here there are, side by
1 side, an ultra-modern, relatively pro-
tected and well-paid sector and an "archaic" sector (and social infrastructure) with miserable wages and working conditions; a low organic composition of capital and a high rate of super-exploitation.
Describing the luxury flaunted by the International Viewpoint • June 29, 1987 nouveau riche in Taiwan, Business Week (April 13, 1987) points out: "But the roads are not those of a modern industrialized nation. The streets of Taipei are polluted. The road full of potholes. There is a stinking black smoke coming out of the antique buses. The pavements, potted with holes, are covered by a hoard of parked mo-
"In Taipei a factory is often just an apartment in a back courtyard where the workers work six days a week in bad lighting and without airconditioning.
It is, therefore, just a short-sighted policy to try to save jobs by protectionism and wage concessions on the part of the workers. This unleashes a descending spiral of "wage costs" on
Referendum victory for proimperialists