The world economy
New fundamental contradictions in the age of "late capitalism"
T HE INTERNATIONAL capital-
List economy went through a minirecession in the first half of 1986.! Of all the main imperialist countries, only Britain avoided this recession, although its manufacturing industry no more than levelled off. However, this mini-recession did not deepen. The year 1986 ended with an upturn in production that continued throughout 1987, albeit slowly and hesitantly and with many interruptions. This emerges from the figures in Table 1 on 1987 industrial production.
### Table 1
1987 industrial production compared to 1986
Canada +8.8% (Nov-Nov)
France +4.0% (Nov-Nov) FRG +2.0% (Dec-Dec) Haly +3.6% (Oct-Oct)
Japan +8.6% (Dec-Dec) Spanish state +8.9% (Nov-Nov) UK +4.9% (Dec-Dec)
USA +5.1% (Dec-Dec)
Source: Economist, February 6 & 20, 1988
It should be stressed, however, that the concrete reality underlying these figures is highly diversified. Getting out of the minirecession was not easy, and this was not accomplished in a uniform way. It persisted in Japan throughout 1986 and the beginning of 1987 (hence the high percentage of increase in production over the period
Likewise, industrial production declined during three out of five quarters in 1986-87 in France and Canada (International Economic Conditions, October 1987, Federal Bank of St. Louis). In West Germany, the mini-recession showed up again in the third quarter of 1986. In January 1987, industrial production was down 3% from the January 1986 level. At the same time, the United States experienced a 1% fall in production.
It was the continuation of the Reagan administration's ultra-Keynesian policy, that is the enormous US budget deficit, that halted the 1986 mini-recession. This kept sucking into the US domestic market growing volumes of commodities from Japan, West Germany, South Korea, Taiwan, Brazil and, to a lesser degree, from other imperialist countries in Europe. Hence the high US trade deficit, far from being wiped out,
THE ANNOUNCEMENT that the US trade deficit had risen to $13.8 billion sparked off a new 101 point nose dive on
Wall Street on Thursday, April 14. Since last October's stock market crash, even minor hiccoughs in the financial markets are enough to spark off a new round of comparisons with 1929-30.
But while the dollar plummets, banks fail, debts reach astronomical proportions, overproduction and unemployment are rife and the speculators move in to make quick killings, bourgeois commentators insist that everything is fine in the "real" world of international commerce. So what is the real story? Are we simply witnessing a "crisis on paper" that bears no relation to actual industrial production and growth? The following article describes the depth of capitalism's current crisis and argues that, far from being irrelevant, all the current economic indicators point to a generalized international recession in the near future.
### ERNEST MANDEL persisted or even worsened throughout 1987. Hence the accelerating fall of the dollar over the same year and the "flight from the dollar" by major holders of financial capital. Hence the frantic speculation
ECONOMY at the same time in the stock markets, in real estate and works of art.2
The stock market crash of October 19, 1987, marked the turning point in this trend. It foreshadowed a general recession, which will be worse the longer it is delayed. The immediate cause of the stock market crash lay in the very extent of the speculation throughout 1987, or - what amounts to the same thing - in the glut of money capital not invested in actual production.
This enormous money supply created a demand out of all proportion for "real nonmonetary assets." The latter were limited by a relative glut of raw materials, for which prices stayed very low, largely eliminating them as objects of sustained speculation..3 This led to a persistent imbalance between supply of, and demand for, the "hedge investments" favored by speculators. Hence their prices soared.
### Massive speculation causes stock boom
On the New York stock exchange, the Dow-Jones industrial index rose from 800 at the beginning of 1984 to 2,400 at the end of March 1987. In London, the Financial Times industrial index jumped from 400 at the end of 1982 to 600 at the end of 1984, to more than 800 at the beginning of 1986, more than 1,000 at the end of 1986 and over 1,500 at the end of March 1987. In Tokyo, the rise brought average stock prices to a level of 800 at the beginning of 1984, to 1,000 at the beginning of 1986, to 1,400 at the end of 1986 and 1,900 in March 1987 (Sunday Times, April 5, 1987). Despite a warning and a fall at the beginning of April 1987, the price rises resumed with a vengeance in the following months. The DowJones index topped the level of 2,700 in August 1987!
International demand for US stocks and, to a lesser degree, for Japanese and English ones, played a not insignificant role in this buoyancy. Over the first two quarters of 1987, foreign purchases of US stocks exceeded $18,000 million. Japan accounted for $7,500 million of this, Britain for 1. See the figures in /V 106, October 13, 1986. 2. The West Germany weekly Die Zeit summed up the situation in this regard with the lapidary formula "art is capital," 3. Including gold and platinum, whose prices remained depressed during the second half of 1987 as a result of 11 an excess of supply over demand. May 2, 1988• #140 International Viewpoint
ECONOMY $4,000 million, France for $1,800 million and Latin America for nearly $1,000 million. (Financial Times, October 21, 1987.)
On the London stock exchange, Margaret Thatcher's deregulation measures (the celebrated "big bang") brought a tripling of the volume of transactions in domestic stocks and bonds. (Le Monde, October 20, 1987.) The issuing of new stocks and bonds could not keep up. Prices soared, leading to pathetically low yields - less than 1.5% and 2.5% on the Tokyo and New York stock exchanges respectively. In fact, the New York rate was lower than the Tokyo one in real terms, given the higher level of inflation in the US. Once again, in such conditions, a day of reckoning was inevitable.
### Frantic real estate speculation
The frantic real-estate speculation evident in Paris, London, New York and Los Angeles is glaring in Tokyo. On the eve of the stock market crash, Le Monde pointed out that in the space of two years in the prime neighborhoods of Shinjuku in Tokyo, the price per square meter rose from the equivalent of about $31,000 to $77,000 and fluctuated between $110,000 and $227,000 in Ginza. More than two hundred thousand dollars per square meter!
Apartments of 120 square meters rented for around $6,000 dollars a month; 10% of bank loans were invested in the real estate market. (Le Monde, October 9, 1987; Japan Economic Journal, October 10, 1987.) On October 8, 1987, the Belgian paper Le Soir pointed out that in the Japanese countryside the price of rice fields per square meter was 20 times higher than in California. 12 ing capital (including financial intermedi- Two structural factors inherent in bankInternational Viewpoint #140 • May 2, 1988 aries) have greatly contributed to this outbreak of fever.
First of all, the extraordinary increase in the volume of financial transactions* has led to a relative "de-professionalization" of many financial managers, a factor that I have often pointed out. At the same time, these managers have responsibility for so much capital, especially the traders on the exchange markets, that their paths are paved with gold.
Christopher Heath, an expert on Japanese stocks in London, has become the best paid person in Britain. He earned the equivalent of $4,500,000 in 1986 as an executive of the Baring firm. Peter Stormonth Darling, of the Warburg bank, earned about $2,000,000 in the same year. In the same year, Michel David Weill at Lazard Frères in New York collected a mere $82,000,000 in pay. Michael Milken, from the Drexel Burnham firm, made himself about
It is evident that such imbalances in jobs and pay multiply the risks of errors of judgement, gross professional faults and grave incompetence.
Moreover, the ideological and moral (or rather "amoral" and "immoral") climate of "get rich quick at any cost and by any means" that the neo-liberal conservative offensive has engendered in the capitalist countries has promoted fraud on a grand scale. Insider dealing, of which the Boesky case was the most significant, is a perfect illustration of this.
Fraud stimulates speculation, which in turn feeds still more use of fraudulent, if not downright criminal, methods. While the frantic stock market and real-estate speculation of 1987 was primarily the outcome of excess liquidity in the capitalist world, this glut itself sprang from a deeper structural cause — the persistent overaccumulation of capital that characterizes the "long wave of depression" that began in 1974, if not at the end of the 1960s and the beginning of the 1970s.
### Enormous excess productive capacity
This over-accumulation means that the new capital formed steadily by the profits realized every year no longer finds investment opportunities sufficient to secure average profit, which itself remains depressed in comparison to its level during the preceding "long wave of expansion." The fact that this capital is no longer being productively invested feeds the economic depression (especially the decline in employment), which in turn feeds the overaccumulation of capital, the growing "liquidity" of this capital (its being retained in the sphere of financial capital or semiliquid capital) and, therefore, speculation.
The fundamental cause of speculation is the overproduction of commodities (which comes down to the same thing), the enormous excess productive capacity burdening most industries, which likewise blocks a real revival of productive investment. The 4. The daily volume of transactions on the exchange markets of the four main centers - New York, Tokyo, London and Zurich - reached the fantastic sum of $300,000 million, or, taking account of days off and vacations, $60,000,000 to $65,000,000 million a year. The annual volume of world trade is only $2,000,000 million. (Neue Zürcher Zeitung, 7-8, November 1987). More than 90% of these exchange operations, therefore, are based on movements of mainly "floating capital" - that is, they are essentially speculative. 5. After getting off with a very high fine, which still left him in possession of several hundreds of millions of dollars of "illegitimate" gains, Boesky was finally sentenced to serve time in prison. For the same crime, Dennis Levine of Drexel-Burnham-Lambert was sentenced to two years in prison. 6. In Tokyo, gangsters are employed to intimidate small land- and house-owners when they hesitate to sell their property to real-estate speculators
Source: Current Industrial Reports, US Trade Dept. 7 (Business Week March 7,
1988, estimates excess capacity in the car industry at 36%.)
figures for the US given in Table 2 are eloquent and spectacular in this respect.
In order to interpret these figures correctly, you have to remember that 1982 was a recession year and that 1979 was the peak of the preceding "industrial cycle." Therefore, the 1979 percentages should be compared with those for 1984-85. Looking at the statistics cited here, it emerges that from one cycle to the other excess productive capacity rose overall from 25% to 33% for US manufacturing industry. According to a ceparate study by the US Trade Department, this was from 30% to 35%.
Japanese industry and
Zaitech
This explains why the massive placing of capital-money in "paper" has by no means been limited to professional "speculators." The big industrial monopoly trusts have also widely resorted to this. The most typical case is that of Japan. This new practice has a new name - zaitech. Stock market transactions by Japanese industrial enterprises went from buying and selling operations of ·3,300 million in 1983 to nearly ·17,000 million in 1987 (I am averaging buying and selling operations here, and not adding the two.
It is small- and medium-sized enterprises that have most accentuated the speculative character of zaitech practices and which are now running considerable risks. But even the main Japanese multinationals are now realizing a considerable part of their profits outside of production, in financial operations. In 1986, this share rose to 53.4% in the case of Fujisawa, 45% for Hitachi and 60.5% for Matsushita Electric Industrial.®
Some people concluded that there was a "de-industrialization" of the imperialist countries.? They were rather hasty, and in particular they lost sight of the very nature of imperialism and finance capital. It would be more correct to point up the temporary character of this disengagement and the attempts undertaken by US and British capital to re-orient toward exporting commodities, and therefore toward modernizing their industry (how successfully depends on capitalist competition; I will come back to that).
In the light of this judgement, the stock market crash emerges objectively as the beginning of a realignment within the bourgeoisie at the expense of the banking and "purely financial" sectors and to the advantage of the classic sectors of industry-oriented finance capital.
The capitalist chain broke first at its weakest link - the stock market. This break is almost automatically leading to others. What is most threatened now are brokerage houses and other financial intermediaries; the weaker banks (and not the smallest of them); the solvency of states, and not only of the relatively more indebted third-world ones; the solvency of the social security system in a number of some badly Growing risk of a complete breakdown
In a chain-reaction effect, as a result of the cumulative consequences of all these crises that have been unfolding under our eyes since October 1987, there is a growing risk that the entire international credit system and the whole international monetary system (or rather non-system) may break down.
The dollar crisis has created a system of
ECONOMY connecting channels between the crisis of the private sector and that of the public mechanisms on the scale of the capitalist economy as a whole. As I wrote at the end of May 1987, the mountain of debts has begun to move. How can the avalanche be stopped? There is nothing surprising about the fact that the most threatened in the aftermath of the stock market crash are the fauna of the financial intermediaries and the big operators in the field of corporate takeovers.
### Massive layoffs after
October crash
In this way, there have already been retrenchment measures and massive layoffs at some of the main stock placement firms on Wall Street - Salomon Brothers, Shearson Lehman, Drexel Burnham Lambert, Goldman Sachs and others. According to the Sunday Times of November 29, 1987, Shearson Lehman lost $70 million in October 1987; LF Rothschild, $44 million; and EF Hutton, $90 million (for all of 1987). In Great Britain, the stock market losses of one of the main brokerage houses, the Warburg firm, are estimated at more than $40 million, those of Zoete Weld Barclay's at more than $80 million.
This is only the tip of the iceberg. In fact, the financial intermediaries, as much as the big banks but with equities far inferior to those of the banks, involved themselves extensively (and imprudently) in financing takeover bids by the main raiders - Icahn, T. Boone Pickens, Sir James Goldsmith and the like. These credits were covered by junk bonds issued by low-profitability companies. After October 19, 1987, the prices of these bonds collapsed. Drexel lost $1,000 million of the $10,000 million value of the bonds it held. Salomon and Goldman Sachs found buyers for only $600 million worth of "junk bonds"
### Table 2
Degree of capacity utilization of US industrial sectors
(4th quarter of each year) 1985 1984 For all industry 67% Durable goods 64% Non-durable goods 72% Food 71% Clothes & textiles 73% Furniture 68% Chemicals 63% Iron & steel 63% Machines:
non-electric 58% Machines: electric and electronic 65% Cars 76% Aeronautics 63% Scientific instruments66%
1983 1982 1979 66% 66% 59% 75% 65% 61% 53% 72% 72% 73% 69% 78% 70% 69% 69% 73% 73% 75% 71% 80% 70% 70% 58% 75% 63% 65% 60% 76% 60% 63% 42% 78% 62% 57% 50% 70% 68% 65% 60% 73% 79% 71% 50% 71% 55% 48% 51% 71% 68% 68% 67% 76%
Many banks have been hard hit by the crash and the successive vicissitudes of the long depression (the agricultural crisis; falling oil prices; third world "bad debts" and so on). In the United States, 200 banks failed in 1987. Savings banks overall are in the red, especially since the failure of 39 savings and loan banks in Texas. In 1987, this deficit was estimated at $4,500 million. (Neue Zürcher Zeitung, December 9, 1987.)
On the eve of the stock market crash, the US government had to intervene to prevent the biggest bank failure that has threatened 7. This data was provided by comrade W.I. Mohareb from Boston, USA. 8. Frédéric Burgière, Japon in extenso 6, December 1987, reprinted in Problèmes Economiques, February 3, 1988. 9. The thesis that the big imperialist powers are undergoing "de-industrialization" has been defended by many authors. I would note, above all, Kees van der Pijl's The making of an Atlantic ruling class, London, 1984.
10 2m unide, he snowballing financial crisis 13
in /V 123, June 29, 1987. May 2, 1988 • #140 International Viewpoint
ECONOMY the country since the bailing out of Continental Illinois in 1984. The bank in question was the First City Corporation in Houston, Texas. The salvage operation cost the Federal Deposit Insurance Commission $1,000 million. (Die Zeit, September 18, 1987.) For 1987, for the first time in its history, this institution will undoubtedly show a deficit. (Le Monde, January 19, 1988)
Biggest bank failure in
US since 1974
In 1986, the failure of the First National Bank and Trust Company of Oklahoma (holding an equity of $1,600 million) was not averted. This was the biggest bank failure in the United States since that of the Franklin National Bank in 1974.
Graver still than the cases of these middle-sized banks was that of one of the main American banking institutions, the Bank of America, which for a long time was the world's largest in terms of the volume of its deposits. It was in serious difficulties, and was saved only by the massive participation of Japanese capital in an operation to increase its capital. In a more general way, the main US banks are now insufficiently profitable, and Wall Street no longer considers them as prime placements.
The position and the difficulties of the banking system in the US are better known the other imperialist countries, which keep up a curtain of discretion, if not secrecy, over such matters. Nonetheless, information on the state of affairs in some countries has filtered out.
Considering the third-world debts it holds as largely unrecoverable, the Bank of Nova Scotia reported losses of $240 million for the accounting year running from October 1986 to October 1987. In Canada, five of the six main banks have closed, their balance sheets at the time being in the red." In Sweden, three major banks have lost altogether more than $100 million as a result of the stock market crush. In Norway, the main bank is said to have lost almillion in the crash and following exchange operations that came
In Australia, one of the main brokerage houses, Western Continental Corp, has shut up shop. In Britain, the country's richest bank, National Westminster, has revealed that a company that it controls lost $130 million as a result of the stock market crash. Another one of the "big four" British banks, Midland, was rescued from serious difficulties by a massive placement of capital from Hong Kong. The Hong Kong and Shanghai Bank bought 14.9% of its capital. The Midland Bank's losses for 1987 are estimated by the bank itself at £505 million, or $900 million and those of Lloyds Bank at £248 million, or $432 million.
Australia is the country where the stock 14 market crash seems to have had the most repercussions outside of financial compaInternational Viewpoint #140 • May 2, 1988 nies properly speaking. Three of the coun try's main trusts — Broken Hill, the Bond Corporation and the Adelaide Steamship Company - have suffered cumulative losses of more than $500 million. (Sunday Times, February 20, 1988.) It is true that these are said to be "paper" losses (although included in their balance sheets), because they are the result of the fall in the price of unsold stock held by these compa nies. This, however, is a partial view of things. In fact, once the holdings of these companies decline in accounting value (and this loss of value is very real), the credits that they can get shrink proportionately, as do their possibilities for investment and other sorts of activities.
This has been revealed in a spectacular way in the case of the "operator" Robert Holmes in Court, who was one of the richest men in Australia.12 The value of his three main companies (Bell, Bell Resources and J.N. Taylor) plunged in a few days from $5,700 million to $1,200 million. He was forced to divest himself of his stock in Broken Hill, Australia's main heavy industry trust, which he had sought to control. This sale brought him a loss of $270 million. (Neue Zürcher Zeitung, January 23-
Threat of third world debt non-repayment
Over this whole melancholy scene hangs the threat of the non-repayable debts of third world countries. The paper on these debts is already being sold on the market at a 50% discount. Officially, the Morgan Bank has exchanged its Mexican debt certificates with the government of that coun try at a discount of 35% to 50%. If this percentage were to rise to 50%, Citicorp, for example, would lose half of its equity. Manufacturers' Hanover and the Chemical Bank would lose all of their equity.
According to the weekly business magazine The Economist (February 27, 1988), the American banks are also threatened by their imprudent involvement in takeover bids based on junk bonds, and what is called "leveraged buyouts" (that is, buying out companies by using the lever of transforming the stock of the bought out companies into debts). On the eve of recession, many certificates of bought out companies may lose their value. The "lever" does not work any more.
Moreover, these high-risk credits exceed the entire equity of the Wells Fargo Bank and amount to 72% of the equity of the First Chicago, 71% of that of the Bank of America, 64% of that of Manufacturers' Hanover Bank, 57% of the Bankers' Trust, 45% of the Chemical Bank, 21% of Citicorp and 20% of Chase Manhattan. In absolute volume, they are especially high for Wells Fargo, Citicorp and the Bank of
From a purely technical point of view, the stock market crash was precipitated by the rise in interest rates in the United States that resulted from the famous "Louvre Agreement" concluded between seven big imperialist powers with the aim of braking the fall of the dollar. This ill-conceived maneuver, which was quite comparable to the Central Banks' decision before the 1929 crash to maintain at any cost the exchange rate of pound sterling (linked to gold), almost automatically brought on a fall in stock prices. In fact, the "objective" basis
of these prices - leaving aside the oscillations produced by the law of supply and demand - is the capitalization of dividends discounted at the average rate of interest. When the latter rises, stock prices fall.
However, the extent of the fall in stock prices was out of all proportion to the increase in interest rates in the United States. On Wall Street by November 3, the decline reached -28% in comparison with the record 1987 level; in London, it was -33%;
in Frankfurt, -35%; in Zurich, -28%; in Paris, -32.5% (later it reached 40%); in Milan, -41.6%; in Australia, 41%; in Singapore, -41%; and in Hong Kong, 45%. (The Economist, November 7, 1987.)
We now know that the stock market and government officials panicked. At the time, that was carefully hidden from public view. The monetary authorities intervened massively in Wall Street and in Tokyo, injecting credits (that is, increasing the money supply). They aimed above all at keeping the brokers and other financial houses from being forced to sell stock at any price because of a lack of liquidity in the United States, and also at bringing down the interest rate again. On this, I need only quote the Wall Street Journal of November 23,
"On Tuesday...October 20, the US stock market, and by extension all the financial markets in the world, experienced one of their gravest crises. The full details about what happened during this fateful week are only beginning to come to light...
"Trading in stocks, options and futures was almost totally halted for a crucial moment on Tuesday. Many of the most important stocks, such as IBM and Merck could not be exchanged. Investors, large and small, could not sell their stocks; there were no buyers. Those who run the market on the New York stock exchange, the specialists, were submerged by unexecuted sale orders, and their holdings were swept
The true story of Wall Street
"Many banks, frightened by the collapse of stock prices serving as guarantee for loans to brokers refused to extend more credit to some of them, who were already in disarray. They also demanded repayment of some major loans, endangering some brokerage houses. Some big financial investors, threatened with catastrophic losses if the panic continued on the stock market, demanded that the New York Stock Exchange close on the spot.
"Only the intervention of the Federal Reserve Bank, the joint announcement of programs companies and mysterious movements and possible manipulation of futures contracts on the basis of a little-used stock exchange index [nonsense! - E.M.] managed to save the markets from total breakdown.
"The history of this Tuesday reveals big weaknesses in the financial system of the United States and raises the spectre of the possibility that such a crisis might strike again. "Tuesday was the most dangerous day in the last 50 years,' said Felix Rohatyn, who is linked to Lazard Frères. 'I think that we were an hour from the breakdown of the stock market,' he said." [Retranslated from the French.]
However, in seeking to save a conjuncturally dangerous situation, the American
ECONOMY central bank — in fact, the government of the United States — aggravated the structural financial crisis confronting it.
The United States' large trade deficit cannot, in fact, be covered without a massive and regular influx of foreign capital, primarily Japanese, into the country. And, given the decline of the exchange rate of the dollar, foreign capitalists are not inclined to lend capital-money to the United States, if the interest rate is lower than in Tokyo, Frankfurt and Zurich, where it has been oscillating between 4% and 5% for certificates, and this is after adding on the rate of inflation, which exceeds 3% in the United States.
US annual trade deficit of $150 million
This means that a fall of nominal longterm interest in the United States below 8% to 9% could stop the inflow of foreign capital necessary to save the United States from a Mexican- or Brazilian-type situation -that is, suspension of payments on their foreign debt. (In case of the US, these are short-term commercial debts, that is bills for a part of the goods and services currently imported.) In fact, the United States no longer has exchange reserves covering a good part of the annual trade deficit of $150
So, we are watching a gigantic poker game (in fact, blackmail), which reveals a double dilemma on both sides.
By playing (or threatening to continue to play) to the hilt the card of a drop in the dollar, the United States is regaining trade advantages. That is, it is stimulating its exports and limiting its imports, which could precipitate a recession in Japan, West Germany, South Korea, Brazil, Taiwan and elsewhere. But these gains would be more than neutralized by the situation that would result from a total collapse of the dollar — a very grave financial and economic crisis in the capitalist economy, a resumption of inflation and consequently a new fall in US exports. In that way, a serious recession would also hit the US economy.
If the United States sought to stabilize the 11. The Canadian banks imprudently engaged in the operation of privatizing British Petroleum, which Margaret Thatcher launched on the eve of the stock market crash. They risked very big losses, since the BP stocks that they had subscribed at 330 pence were worth no more than 250-260 pence on the market. They then exerted enormous pressure on Thatcher to get the Bank of England to guarantee them against these losses, which was done. "It all depends on whether you are rich or poor." Small investors should reflect on this wise observation by the great Marxist La Fontaine [the seventeenth century French fable writer). They would profit morally if not financially from this. Free-enterpriser "anti-state" fanaticism runs up against an insurmountable limit in the private interests of the all powerful. 12. In the United States, the notorious Hunt family of "cowboys" (new rich Texas oilmen), formerly one of the richest in the world and celebrated for its attempt to comer the world (!) market in metal-money, was reduced after the stock market crash to having to sell its race horses to clear a part of its debts, which have been 15 estimated at more than $1,000 million. May 2, 1988 • #140 International Viewpoint
ECONOMY dollar by raising interest rates, it would precipitate an immediate domestic recession, or, more precisely, it would reinforce all the tendencies toward recession that are now manifesting themselves.
On the other hand, if West Germany, and above all Japan, pursue the line of "defending the exchange rate of the dollar — more precisely of defending the stability of their own currencies — they can do so only by increasingly massive dollar
, which leads to accumulating holdings of dollars that are depreciating more and more - that is, to gigantic losses of capital. (If Japan holds dollar $200,000 million, they are worth 50% less in yen than they were a year ago.)
However, if these countries let the dollar fall freely, this will almost automatically make their products less competitive relative to those of the United States, and will accelerate extensive declines in exports, producrecession. Moreover, the devaluation of their dollar assets would be still greater, although on a smaller volume
Behind these dilemmas, we find the reality of a capitalist market that constantly generates a two-fold movement, a movement of commodities and of capital (of realized and capitalized surplus value after the sale of commodities). Any long-term phase of depression, such as the one that we are now going through, is characterized by a growing contradiction between these two movements, which can be explained by the sharpening of competition on a stagnant market. What the capitalists gain in the first area, they risk losing in the second, and vice-versa.
The chain reaction of crises that can be seen since October 19, 1987 market crisis, a crisis of financial intermediaries, wobbly banks, a crisis of the dollar, dysfunctioning of the international monetary system, the threat of a second stock market crash — is multiplying the tendencies toward a generalized recession of the capitalist economy in 1988. In fact, a certain number of economists are saying that this recession has already begun in the United States, because for seven consecutive months the composite "cyclical indicator" has been pointing toward a decline in that country. Automobile sales already fell by 15% in 1987.
Housing starts are declining. If industrial production has not yet fallen, a large part is going into inventories, which are rising to a disturbing level in retail outlets, whose sales are slipping (Business Week, January
Many sources could be cited that confirm this diagnosis. I will mention only two. Former economic advisor for Citicorp's international operations, Harold Van Buren 16 of the policy of "cheap money" and low in- of Cleveland, points up the perverse effect International Viewpoint #140 • May 2, 1988 terest rates in the United States. According to him, this will bring an uninterrupted series of crises on currency and financial markets, which will lead finally to raising interest rates to a level that will precipitate a recession. (International Herald Tribune, January 2-3, 1988). Three weeks later on January 25, the same paper published an article under the eloquent headline "Wall Street waits for the recession. For many economists, the question is not if, but when." The piece began with the following
"Waiting for the recession is the name of the game in Wall Street these days. Wall Street economists and analysts see this recession as inevitable. The whole question is knowing when it will arrive. Some observers think that it will be 1989 rather than
Proposal for concerted action to avert crisis
On December 17, 1987, 33 of the most prestigious economists in the capitalist world, including several neo-Keynesians, issued a statement proposing concerted action by the rulers of the main capitalist countries to avert a grave economic crisis. The appeal was addressed first of all to the United States. For that country, the economists prescribed a pronounced austerity policy reducing domestic spending relative to the volume of current production in order to eliminate the deficit in the trade balance as well as to wipe out the budget deficit between now and 1992.
They did not seem, however, to envisage that such a policy — which would considerably increase unemployment in the United States — would automatically bring on a recession in the short run in the United States. The assumption that such a recession would not extend to the rest of the capitalist world is risky, to say the least. (For the statement of these economists, see in particular Neue Zürcher Zeitung of December 17, 1987.) In fact, the only hope cherished by the "optimistic" economists is that the US economy will succeed in one way or another in muddling through. The pessimists, even the conservatives, foresee a grave recession. The fundamental cause is obviously not the stock market crash or the monetary mess. It lies in the disequilibrium between the growth of productive capacity, marked by a gradual substitution of machinery for living labor, on the one hand; and the relative stagnation of the market (the buying power of the "final consumers"), on the other. This engenders a fall in the average rate of profit and an over-accumulation of capital. But the frenzied plunge into debt and speculation, of which the stock market crash was at once the expression and the result, is aggravating these contradictions and increasing the momentum toward a downturn. From this standpoint, it is significant that, despite all the bad experiences on the stock market, corporate takeovers are rolling merrily on, especially in the United States and Great Britain. In fact, the stock market crash even seems to have encouraged them, because it costs a lot less today to buy up stocks on the market than it did before October 19, 1987. What has to be stressed is that banks are continuing to grant extensive credits for such operations, despite their bad experience with junk bonds.
The banks' hunger for profits is being sharpened by their own reduced profitability, but they are playing without regard for elementary caution. A second stock market crash already looms. Will it start in Tokyo? No few indications point to that. The Japanese stock market is very vulnerable, since prices of stocks with a minimum average yield remain irrationally high. A more modest fall, only of the order of 10%, did not correct prices to the same degree as in the United States and Europe. Moreover, the volume of Japanese exports is already shrinking, as a combined result of the very 13. There is an altemative solution for defending Japanese and West German exports against the falling dollar. It is to let the mark and the yen fall along with it. The Hong Kong bourgeoisie has been following this recipe with some success. This is why Japanese and European monetary policies can be summed up better by the formula "defence of their currencies" than by the formula "defence of the dollar." This brings us back to the relationship of forces between the "banking" and "industrial" sectors within these respective bourgeoisies. Any pronounced decline in exports would undoubtedly lead to a "painful reassessment" of these priorities. This will be something to watch...
high rate of the yen, the fall of the dollar and growing competition from industry in South Korea, Taiwan and Hong Kong. 14
The Japanese bourgeoisie is trying to compensate for this decline both by stepping up capital exports (even medium-sized subcontracting firms are moving to South Korea and Taiwan!) and by expanding the domestic market, especially for housing. (Japanese workers are the worst housed in the imperialist countries and among the worst paid. It is estimated that the average monthly wage in the engineering industry is 30% lower than in West Germany and Great Britain and even lower than in Spain, while the productivity of labor in Japan is much higher.)
Outsize swelling of the public debt
However, in order to avoid cutting too deeply into the profits of businesses, this expansion of the domestic market has been effected above all by increasing public spending, that is by a more and more outsize swelling of the public debt. Contrary to a widespread false impression, public debt in Japan is larger relatively than in the United States. Between 1973 and 1986, it rose from 30.9% to 90.9% of Gross National Product, while in the same period it rose in the United States from 39.9% to 52.4% of
The US budget deficit reached 3.4% of GNP in 1986. In Japan, it amounted to 4.2% of GNP. (Banque des règlements internationaux, Basle, June 1986.) This is a supplementary factor increasing the vulnerability of the Japanese economy in the
This problem is compounded by a stagnation, or perhaps already a clear erosion, of the advantages that Japanese industry had acquired in a whole series of key sectors of the world market. In the automobile industry, the Japanese share of world exports has levelled off since 1980, if not slightly declined. Even if you correct these figures by including the manufacturing that Japanese, American and European trusts do abroad, the picture does not change substantially.
In color television sets, Japanese exports have reached a plateau since 1984. Their compact disks exports levelled off after 1984 and showed a pronounced decline since 1985. Between now and 1990, the shipbuilding and coal-mining industries, routed by foreign competition, are going to eliminate 90,000 jobs. (All this data comes from the "Spécial Japon" feature published by the weekly Le vif-l'Express of November 27, 1987).
Japanese deliveries of complete factories built abroad on contract dropped from ·2,500,000 million in 1982 to ·600,000 million in 1986. Nearly a quarter of these contracts were in Eastern countries, hence Japan's growing resistance to the US embargo on a part of these projects. (The Japan Economic Journal, August 8, 1987.)
An inevitable corollary, but a very worrying one for Japanese capitalism, is that the center of gravity of current activity is shifting dramatically toward the "paper economy" in Japan also. In 1987, Japan became the world's number one capital exporter. But more than 50% of these exports were concentrated in the financial sector and in real estate. According to The Japan Economic Journal of January 16, 1988, the main sectors sustaining the economic upturn underway in Japan are chemicals, housing construction, advertising and the "leisure industry".
The decline of the dollar has accelerated the decline of US financial supremacy. Among the ten biggest banks in the world, only two are American. The main ones are now Japanese. The United States has become a debtor power internationally, whose foreign debt is growing with terrifying speed. Today, it has reached $500,000 million, and it increases by $100,000 to $150,000 million every year. At this rate, in a few years it will exceed the debt of the entire third world. Japan has become the number one creditor power internationally.
Behind this decline of American monetary and financial dominance, obviously looms a pronounced decline of US industrial and technological dominance. The United States' share of world exports fell from 20% in 1981 to 13.8% in 1986. At the same time, the share of imports in the US domestic market has skyrocketed.
### Table 3
% US domestic imports 1979 1986
Steel 10.3 15.9
Aluminium 7.8 22.7
Zinc 37.6 56.7
Electronic components 14.1 18.1
Information technology 4.6 18.7
Machine tools 19.3 40.0
Textile machines 32.9 48.8
Cars 13.7 4.0
Shoes 35.2 62.5
TV & radio 41.6 63.8
Source: Le Monde, January 19, 1988.
There is obviously no question of US imperialism accepting "de-industrialization," specifically because it is an imperialist bourgeoisie. Dependence on imports of footwear is tolerable. Dependence on imports of key nuclear missile or electronic components - which amounts to the same thing - made in Japan or South Korea is intolerable for US imperialism.'5 This is why the American government vetoed the absorption of the Fairchild semiconductors trust by the Japanese firm Fujitsu. Finally, it is the US firm National Semi-Conductor that is going to refloat Fairchild.
What is more, after trying to form a cartel with the Japanese firms to divide up the world market - primarily the US market
ECONOMY — in March 1987, American microchip manufacturers formed a consortium, enjoying large governmental subsidies, with a view to advancing their own technology for making semi-conductors. But their starting position has been badly undermined, as can be seen from the worldwide sales of microchips shown in Table 4.
### Table 4
The six main world producers of semi-conductors
NEC (Japan) $260,000m
Hitachi (Japan) $230,000m
Toshiba (Japan) $228,000m
Motorola (US/Japan) $202,000m
Texas Instruments
(US) $180,000m
Philips (N'lands) $140,000m
What underlies US imperialism's attempt to "re-industrialize," especially the aid for the export offensive heralded by the fall of the dollar, is the crying inadequacy of productive investment. In 1982, industrial investment per job was three times higher in Japan than in the United States (Futuribles, July-August, 1987.) The productivity gap is widening, despite an unquestionable effort by American industry in recent years.
### Table 5
Average increase in labour productivity 1980-1986 Japan 5.6% UK 4.7%16 France 4.0% USA 3.4% FRG 3.3% Italy 3.2% 14. Japanese textiles exports to the United States fell from 700 to 450 million square yard equivalents between 1985 and 1987 (January-August, for 1987), while those of the People's Republic of China, Taiwan and South Korea are clearly on the rise. (Far Eastern Economic Review, February 25, 1988) 15. Cautious but real tendencies toward Japanese rearmament are firming up more and more According to the Japan Economic Journal of February 27, Japan and the United States have just concluded an agreement for joint manufacture of the most sophisticated types of conventional weapons, of which the FS fighter plane is the best example. But it took strong US pressures to keep Japanese imperialism from undertaking this on its own. Henry Kissinger has written that in his view it is inevitable that Japan will (again) become "a major military power." He has said that in fact Japan is already spending 2% of its GNP on arms, despite the 1% limit set by the country's constitution. 16. This leap forward in British productivity, in monetary terms, is the result of a reduction of British wages relative to those of the other imperialist powers. According to Die Zeit of January 1988, toward the middle of 1987 hourly labor costs (including indirect wages) in the UK represented 53 points on a index relative to 100 in West Germany and Switzerland (this was equal to those in Spain!), while they were 76 in the United States, 75 in Japan, 72 in Italy and 68 in France. At the same time, the value of the product of an hour's labor was 100 in West Germany, 55 in Spain, 54 in Great
35 in 7, 5 ans 0 in the United States, 83 in Japan, 17
75 in France and 70 in Italy. May 2, 1988 • #140 International Viewpoint
ECONOMY
The least than can be said is that it will not be easy for the United States to regain lost ground, whether or not the fall of the dollar continues.
Four "high tech" industries illustrate perfectly the changes in the inter-imperialist relationship of forces. The ten main firms in the telecommunications industry, which may be the one most likely to undergo continuous expansion in the coming years, include only two American ones.
### Table 6
Annual sales (in £m) 1986
AT&T (US) 7,590
Alcatel (Fr/US) 5,435
Siemens (FRG) 2,530
Northern Telecom
(Canada) 2,460
Ericsson (Sweden) 2,380
NEC (Japan) 2,010
GTE (US) 1,710
Philips (N'lands) 893
GEC (UK) 74617
Fujitsu (Japan) 744
In the race to exploit superconductivity, the scientific discovery of 1987, the US government has pushed US firms by subsidies (and by holding on to "secrets") to become the world leaders. But Japanese and European efforts seem to be equal. In high-definition television (screens with 1,125 lines instead of 625), the Japanese and Europeans are neck-and-neck. The United States seems to have been left behind, although its market is the main target.
In the aeronautics industry, all the Reagan administration's pressures and threats have not kept Airbus from staying well in the race with Boeing. In the capitalist world, there are practically only two large-scale producers, one US firm and one inter-
Does this mean that with the "definitive" creation of a united common market in Western Europe in 1992 we will see a pronounced resumption of fusions among European firms in order to reconsolidate the place of the European imperialisms on the world market? The depression climate is hardly propitious for that. We should rather expect a multiplication of raiding operations, and the creation of several European multinational groups, whose potential dynamic is well illustrated by the recent takeover bid aimed at Belgium's Société
As in every one of the "long waves of depression" until now, the situation of the international capitalist economy is characterized by the fact that the decline of the previously dominant power has not been "compensated for" by the appearance of a new dominant imperialist power able to replace it. This is why the place of the dollar has not been occupied either by the yen, or by the Ecu [European currency 18 franc, or ahe guilder if This is why all iss unit], to say nothing of the mark, the Swiss International Viewpoint #140 • May 2, 1988 appeals for worldwide concerted action by the governments and states, which are already replacing the fanatical declarations of faith in the capacity of the markets for "self-correction," have little chance of getting anywhere.
Fiscal problems for the
European community
Helmut Schmidt and Giscard d'Estaing's project of creating a European central bank has just been officially proposed by the West German government. Carrying it out depends on an agreement with France, which in turn depends on the establishment of a stable parity between the mark and the French franc, at least for an entire period. This problem points to the danger of a massive capital flight from France to its neighboring countries, if the unification of the Common Market in 1992 is not accompanied by a complete harmonization of fiscal systems, as well as of exchange rates, between West Germany and France. We are still a long way from that. The French bourgeoisie is envisaging, notably, a new "adjustment" in the parity between the franc and the mark, that is a new devaluation of the franc, before taking any risks in this
In order to understand the effects of the
"readjustment" on the economies of the so-called third world countries, we have to separate out roughly three categories of countries, without giving this classification any absolute value or scientific significance. (India, for example, remains a case apart, given the continuing pronounced isolation of its domestic
• The trade-surplus countries of OPEC, essentially Saudi Arabia, the Gulf emirates and Kuwait. These countries were suffering the combined effect of an erosion of oil prices, which the coming recession will accentuate, and the fall of the dollar, which is producing a notable depreciation of their assets and reserves. This is such a sore point that even Saudi Arabia is cautiously murmuring that it might be ready to cut loose from the dollar. If such disengagement were massive, it would create a catastrophe for Washington. For political reasons, such a financially reasonable course of action will not be adopted.' But there is (as yet) no question of a fall in mass consumption or in industrial production.
• The semi-industrialized countries, essentially South Korea, Brazil, Taiwan, Mexico, Singapore and Hong Kong. In 1987, they experienced an industrial upturn, thanks above all to a continual expansion of their exports to the United States. The combined effect of the fall of the dollar and an American recession would limit their exports to the US and provoke a recession in them also by a ricochet effect. The Japanese market is not big enough to offer an alternative outlet at once for South Korea, Taiwan, Brazil and Mexico.
• Other "third world" countries. They have suffered especially from the effects of the so-called adjustment policy imposed by the IMF in order to facilitate management of their debts. This policy has had catastrophic effects of de-industrialization and impoverishment. The effect on the capitalist economy has been particularly perverse - a massive transfer of resources from the poor countries to the rich ones; a no less massive shrinking of the outlets for imperialist industries in the third world.
In 1965, the OECD countries exported three times more manufactured goods to the six semi-industrialized countries than they imported from them. In 1985, on the contrary, they had an overall trade-deficit of $18,000 million with these countries, a deficit that rose to $40,000 million for the United States in 1986 (Japan continues to have a trade surplus with these countries, although this is being wiped out.)
De-industrialization and impoverishment
The effects of de-industrialization and impoverishment are particularly pronounced in Latin America. Pierre Salama has provided the figures for Table 7.20
According to CEPAL, the per capita product fell between 1980 and 1986 by 6.4% in Chile, by 12% in Mexico, 14.2% in Argentina, 19% in Venezuela and 27% in Bolivia. These figures do not make allowances for social differences and have to be revised upward as regards the drop in the (consumer) buying power of the workers, poor peasants and marginalized strata (the unemployed and semi-proletariat). The buying power of wages in Mexico was cut in half between 1980 and 1987; in Brazil this reduction fluctuated between 37% and
It is true that the fall of the dollar has had the effect of reducing the value of the debt and the service on it (as a result also of the fall in interest rates), to the extent that a part of the resources of third-world countries come from exports to Europe, Japan, the Far East or that their own currencies are 17. GEC has since fused with the British firm Plessey. Their turnover is £1,420 million, and this still only puts them in eighth position among worldwide leaders. 18. According to the 57th Annual Report of the Banque des Règlements Intemationaux (Basle, June 15, 1987), gold valued at the "market price" represented 42% of the capitalist countries' overall exchange reserves in 1986; the Ecu, 3%; special issuing rights, 1.5%; the special reserves of the IMF, 2%; the mark, 0.5%; other European currencies, 0.5%; and the yen 1%. The rest, about 50%, was accounted for by dollars. 19. The accumulated assets of these countries are evaluated at $200,000 million, of which they are supposed to have lost 25% to 30%, expressed in the average exchange rates of the "strong" currencies. Hence the threats to detach the Saudi Arabian] rial and the currencies of the Emirates and Kuwait from the dollar. The current petro-dollar income of Saudi Arabia has dropped, falling from nearly $100,000 in 1980 to $28,000 million forecast for 1988, which is still not an d' ajustement, le cas des économies latino-américaines
Table 7
Effects of de-industrialization on Latin America
(percentage of GNP)*
"detached" from the dollar, which at the moment is true only of Taiwan. But these momentary advantages have been neutralized, or more than compensated for, by the growing "dollarization"
The international capitalist economy is in fact currently experiencing a two-level compartmentalization. On the one hand, there is what can be called an inter-imperialist level (although Taiwan is also
1980
Net transfer of
+2.2% resources
23.3%
Investment rate
ECONOMY
1983
1984
1985
1986
-4.1%
-5.1%
-4.7%
-3.0%
17.4%
17.5%
16.9%
17.4%
* From 1980-86, in absolute figures, $145,000 million has been transferred from involved), where the dollar is depreciating
Latin America to the imperialist countries.
sharply with respect to other currencies. On the other hand, there is a third-world level, where the "national" currencies, hit harder and harder by inflation, are depreciating against the dollar.
Table 8
Added to this is the effect of the continu-
Total third world debt ($ million)
ous deterioration in the terms of trade to the detriment of the third world. This has cost it far more resources than it gained from the fall in interest rates or the depreciation of the dollar. (Between 1984 and 1986, the prices of raw materials fell by a quarter.)
1984
Long term
714
163
Short term
1987
1988
1985
1986
980
930
784
871
155
150
155
166
Source: World Bank report, summarized in Neue Zürcher Zeitung, January 19, 1988 This is compounded also by the continuous flight of capital placed by the owning classes in dollars or strong currencies, which are a considerable counterpoint to the foreign Unceasing growth of third world debt
The overall result is that the extent of the third-world debt has grown ceaselessly, despite the terrible sacrifices imposed on the popular masses of the third world, despite the de-industrialization that it has suffered. The semi-industrialized countries are the exception, although this is only partial, because there has also been a slowing down of industrialization in Brazil and especially in Mexico (see Table 8).
The effect of the policy of servicing the debt and a partial repayment/reconversion of it imposed by the IMF is just as perverse industrialized countries as it is for the imperialist ones. Since the export offensive is based above all on reducing wage costs, especially under the whip of inflation, the internal market shrinks as exports increase. As a result, in these countries also substantial excess productive capacity is appearing and persisting.
For example, in the Brazilian "capital goods" sector, the rate of utilization of installed productive capacity fell from 64.1% in 1982 to 54.9% in 1984; and climbed back only to 62.9% in 1987.
New orders at the end of the year fell from 127,000 million stable cruzeiros in 1982 to 103,000 million in 1987. It should be noted at the same time that there has been a spectacular fall in imports of producers' goods, from $1,637 million in 1981 to $912 million in 1982 and to $548 million in 1987. In 1985 and 1987, for the first time in history, Brazil had an even balance of trade in producers' goods. (Jornal do Bra-
The new general recession on the horizon will first of all bring about a new spurt of unemployment. In the imperialist countries alone, about 40 million people are unemployed.21 This figure may reach 45 million or even more in the trough of the coming CrISIS.
Threat to social security systems
With the erosion of buying power and the threats hanging over social security systems, the fear of unemployment is today the main motivation in the strategy of the unions in many imperialist countries. But while resistance to attacks on direct and indirect wages is clearly stiffening and leading to struggles, some of which are beginning to win victories (undoubtedly, also under the influence of the temporary upturn), there is a sharp counterposition between two strategies for combating the elimination of jobs or threats of job losses.
Some are concentrating on a fight for a drastic reduction in the working week.22 Others are succumbing to the lure of protectionism. This latter course is only a variand hardly a new one, of class collaboration taking the place of international class solidarity. Instead of trying to unite the workers of all countries in the fight for a 35 or 32 hour working week, these people are uniting with their own bosses against the jobs of workers in other and therefore against these
This is the policy of "exporting unemployment," whose disastrous effects the international working class has already been able to appreciate over the decade 19291939. Above all, the trade-union bureaucracies in the United States have yielded to a large extent to this temptation.
The objective basis for this reaction and for the chord that it has struck for the time being among some layers of the working class — lies in the enormous differences between the wages of the workers in the industrialized ones. This is a relationship of 1 to 10 at present exchange rates (the difference in buying power is less pronounced, but still large). So people believe that the capitalists are "betraying national industry" by shifting centers of production to lowwage countries (a shift that is much more limited than people think), and that importers especially are sinning against the "national interest."
The capitalist response is a direct one: Let us unite our efforts to lower wages in our own countries and to limit imports of foreign products (that is, increase the prices of consumer products, which amounts to lowering real wages still more).
By accepting this reason, the unions are letting themselves be drawn into an infernal spiral: the gradual reduction of wages (in the United States the weekly wage fell in real terms from $201 in 1973 to $167 in 1987); a "two-tier society" (in France, one wage-earner out of five does not have a "real" job), along with a proliferation of intermediary statuses depriving workers of all or part of social protection; and a continual erosion of employment.
This downward spiral can only end in the lowest wages in the semi-industrialized 21. The real number of the unemployed is greatly underestimated both in Japan in the United States, especially by means of statistical subterfuges of all sorts. According to the American weekly magazine The Nation, the real unemployment rate is around 10% in the United States. 22. In my opinion, in view of the current extent of unemployment, the demand for going over immediately to a 32-hour working week (four eight-hour days) is 19 more realistic than one for 35 hours, if the objective is really to boost employment decisively. May 2, 1988 • #140 International Viewpoint
ECONOMY world. This means hardly more than a dollar an hour in Mexico and Brazil (in Brazil, they even refer to an average hourly wage of 75 cents). In South Korea, the average hourly wage is estimated at $2.5; in the Indian textile industry, it is $1. But in the non-unionized branches of Indian industry, we find even wages of 40 cents an hour.
In every country, it is always possible to point to a "competitor" country where wages are lower, in order to press for lowering wages and concomitantly to increase pressure for protection. This is particularly aberrant from the standpoint of the workers, inasmuch as this policy destroys jobs. In fact, while it maintains or boosts profits, at the same time it restricts outlets, since reducing wages means reducing sales. But there cannot be any sustained capitalist growth unless there is a parallel rise in profits and expansion of outlets, which is not the case with a protectionist policy. The proof of the pudding is that in every coun try where trade-unionists have accepted a policy of cutting wages in order to "defend
" employment has continued to decline in industry.
Protectionism must be rejected
Therefore, the lure of protectionism must be resolutely rejected, along with illusion of "necessary sacrifices to defend jobs." It has to be countered with a call for joint action by workers in all countries to win a radical reduction of the working week with no cut in pay, as well as for joint action by the unions to raise the starvation wages in the semi-industrialized countries. The argument of the nationalist bourgeoisies in those countries that this will stop industrialization is just as unacceptable as the protectionist argument in the imperialist countries. Far from putting a brake on industrialization, higher wages in the semiindustrialized countries will stimulate it by leading to an expansion of the internal market and more advanced models of economic development.
What has been revealed by the flagrant imbalances that led to the stock market crash, and which will lead to the third general recession, since the start of the 1970s are new fundamental contradictions of the capitalist system as it is operating in the age of "late capitalism," especially in a "long wave of depression." These contradictions, moreover, had already manifested in the preceding phase of expansion, and to a certain extent they gave impetus to it.
The enormous indebtedness — the debt payable in dollars alone now undoubtedly amounts to $800,000,000 to $850,000,000 million - a sum that is hard to conceive of — is structurally linked to the survival of the system. Without the constant generation of an enormous debt, neither outlets for commodities nor expansion of busi20 nesses nor financing of public spending can be assured.2 International Viewpoint #140 • May 2, 1988
Of course, excess liquidity now exists. The accumulated debt is out of all proportion to the needs of "normal" capital accu-
There will therefore be a destruction of "fictitious" capital, of a part of the "paper economy," a writing off of a part of the debts (through bankruptcies and open or tacit agreements). But a considerable share of it will remain, even at the end of the coming recession.
No new phase of capitalist expansion
It follows from this that the "normalization" of productive accumulation will be extremely difficult, if not impossible. The rearmament economy will more than ever play the role of a substitute outlet for a sick capitalist economy, and this remains true despite all the East-West disarmament accords. The new rise of the profit rate, weighed down by the burden of indebtedness, will remain slow and inadequate.
There will be no new phase of expansion of the international capitalist economy comparable to the one of 1948-1968/73, at least as long as there is not a spectacular rise in the rate of surplus value resulting from a catastrophic defeat of the working class and the anti-imperialist movement in a series of key countries. And that is not on the horizon in the foreseeable future.
The debt mountain is in large part a mountain of private debt. It reflects a generalized phenomenon of privatization of the money creation and of the "central" control over capital in the capitalist countries. A consequence of this process is that the relationship between capital in private hands and official exchange reserves has been suddenly turned upside down. Around 1958, the central banks of the ten main imperialist countries held five times more exchange reserves than private capitalists. In 1986, private capitalists held ten times more liquid or semi-liquid capital ($2,400,000 million!) than the exchange reserves of these ten central banks, not counting gold.?4
A new deadly curse hanging over the planet
The weakening, or even paralysis of national states - even of the United States -reflects this situation, as well as the rise of multinational trusts that are beyond the control of any national state. The decline of the "interventionist" ideology was only a reflection of this new reality. But it leads to a flagrant illusion - that the market will re-establish the necessary balances (for capital and in the interest of capital) and that prosperity will therefore automatically return, although somewhat belatedly.
After October 19, 1987, there is no longer so much faith in the market. Once again "effective" government action is being called for. Internationally, a neo-Keynesian wind is blowing. But unfortunately for the ideologues, no effective concerted action is possible among nation states that are inextricably locked in competition with each other, and besides which are weaker and weaker in relation to private capital. There can be neither a world state nor a "world lender of last resort" under the capitalist system. This is undoubtedly a new deadly curse hanging over the planet, alongside all those discovered by Karl Marx. * 23. In the United States, consumer debt amounts to 20% of the disposable income of households. In Great Britain, already in 1985 one out of every three pounds spent by consumers was borrowed. This percentage increased considerably in 1986 and 1987. In West Germany one household out of two is in debt, to the tune, on the average, of 10,000 marks. Four million households are behind in their payments on, or unable to pay back, debts amounting to 20,000 million marks. (Sources: Neue Zürcher Zeitung, November 23-24, 1987; Sunday Times, January 12, 1986).
Between 1975 and 1986, the gross debt of enterprises rose from 37% of GNP to 45% in the United States; from 94% to 102% of GNP in Japan; from 63% of GNP to 71% in West Germany. During the same period, gross household debt rose from 50% of GNP to 65% in the United States, from 33% to 47% of GNP in Japan, and from 42% of GNP to 55% in West Germany. (Banque des Reglements Internationaux, Basle, June 1987.) 24. Banque des Règlements Internationaux, cited by Le Monde, January 6, 1986. Hence a growing pressure for "re-monetarization of gold," or even a return to the gold standard, that the American goverment has suddenly started to support.