From the 1970s onwards that is no longer true. The world capitalist economy is no longer developing as an organic whole but has become sliced into two sections - the industrialized countries and Asia on one side, which continued to enjoy growth in per capita GDP, and Africa, the Middle East, and Latin Amerother which experienced declining GDP per capita.
Experience of NICs not
Furthermore in reality the first two groups, the OECD countries and Asia, tend to form a single whole, as the rapid growth of a few Asian Newly Industrializing Countries (NICs) - South Korea, Taiwan, Singapore and Hong Kong — was due to colossal flows of capital, up to 50% of their total investment, from the imperialist countries. Such a method of growth is not available to the vast majority of the world's population as even imperialism could not afford the sums involved — it is not by accident that all the NICs are small countries.
The pattern of decline which has set in in large parts of the world is clear. Most important it is cumulative, not cyclical, that is the circle of impoverishment keeps expanding. A continent once struck down does not recover, nor is it capable of first continent to experience declining GDP impoverishment, was Africa. Growth in per capita GDP ceased in Africa in 1974, stagnated until 1977, and declined thereafter. By 1987 per capita GDP in Africa had fallen by 15% and was back to its level of 1969 - the African continent had been rolled back almost two decades bean - reached its peak in 1980 and then fell back by 10%. Subsequent recovery made up only 4% before the onset of a new wave of austerity programmes which left GDP per capita in 1987 6% lower than that of 1980, back at the level of 1977, and with a decade of development lost.
To assess further the impact of these changes we will shift from considering the trends of development of the continents to their absolute position. This raises a number of problems of measurement — notably the effect of currency devaluations/ reevaluations and that of different price levels in different countries in distorting comparisons. Nevertheless with only a few exceptions, the data will give all the same results and therefore leave no doubt as to the process which is taking place.
The most comprehensive and reliable studies of relative economic positions are those using Parity Purchasing Powers (PPPs) — that is calculations taking into account the effect of different price levels. Unfortunately comparable data are not available for Africa and the Middle East based on PPPs over a prolonged period. However, Angus Maddison was able to calculate aggregate data for the OECD countries, Asia, Latin America, and, for comparison, the USSR. His data may be considered a reliable guide as they comprise 32 countries together accounting for 85% of world GDP and 76% of the world population.
Starting with the comparison of Latin America and the OECD countries, the average GDP per capita of Latin America in 1900 was 41.8% that of the OECD countries, in 1913 it was 44.9%, in 1929 44.7%, in 1950 45.3%, in 1973 35.1%, and in 1987 29.7%. In other words Latin America narrowed the gap in per capita GDP between itself and the OECD countries between 1900 and 1913, maintained or slightly improved its position between 1913 and 1950, and then began to fall further and further behind after 1950.
Average GDP per capita in Asia was 26.7% of that of the OECD countries in 1900, 24.2% in 1913, 22.0% in 1929 14.2% in 1950, 13.5% in 1973, and 19.1% in 1987. Asia's relative position compared to the OECD countries thus progressively deteriorated from 1900 to 1950 — including a major absolute decline across the 1930s and 1940s — stagnated or marginally declined between 1950 and 1973, and then improved after 1973.
However this improvement still left Asia relatively far further behind the industrialized countries in 1987 than it had been in 1900-29 — in 1900, average
WORLD ECONOMY
Population of
GDP per capita in the major Asian one quarter of that in the
OECD states, by 1987 it
OECD states* was one fifth. The recent recovery of Asia is substantial but has not made up the ground lost in relative position earlier on the dealing with a cyclical process but a cumulative
Population of countries gaining in per GDP capita on the OECD states
Population of
Population of countries suffering countries falling further behind in decline in per capit
GDP per capita GDP ompared to th
)ECD state millions
60
189
1192
774
1492 one can be made clearer if a. As categorised by the IMF
Mb. Excluding those suffering a fall in per capita GDP we consider investment - for investment is the Source: Population and GDP per capita calculated from IMF International Financial Statistics motor of growth. It is not Relative GDP per capita calculated from World Bank World Tables 1989 possible for countries, or continents, to develop or recover without a high level of investment. Investment in Africa and Latin America (gross fixed capital formation) has collapsed even more dramatically
African gross fixed capital formation fell as a percentage of GDP from 31% in 1977 to 19% in 1987. Gross fixed capital formation as a percentage of GDP in the Western Hemisphere fell from 25% in 1974 to 18% in 1987. Aggregated figures for the Middle East are only available up to 1985, but already show a fall from a peak of 31% of GDP in 1983 to 26% in 1985. Data for individual countries in the Middle East indicate that the fall after 1985 was still more substantial.
The proportion of Asian GDP allocated to gross fixed capital formation at the beginning of the 1960s was the lowest for any continent. However in the 1970s investment as a percentage of GDP grew sharply — reaching a peak of 28% in 1981 and still at 25% in 1986, a fall of
Making calculations for countries, not continents, reveals three main trends of
• By the end of the 1980s international economic inequality had reached its highest point in human history.
• The number of countries catching up with the industrialized states, in terms of GDP per capita, fell by three quarters in
• The number of countries suffering absolute declines in their GDP per capita has quadrupled since the 1960s and the population involved in countries suffering a decline in GDP per capita has increased from 60 million to 774 million since the 1960s — a number more than twice the population of western Europe.
Regarding the long term development of economic inequality Maddison's is the most thorough study using the best data. He concluded: "The average OECD (industrialized countries) level (of GDP per capita) was nearly five times that in Asia and three times the Latin American level in 1900. The regional gaps have widened since.... In 1987 the gap between the poorest country and the richest was 36:1;
in 1900, the spread was much smaller at
The situation for the very poorest countries, for which systematic data do not exist for such a ninety year period, are even more extreme. Surveying the most recent period the United Nations, in its World Economic Survey 1989, concluded: "the gap between them (the poorest countries) and the richest countries was widening. Average per capita income in the industrial countries is about fifty times that of the least developed countries"
Studies by the World Bank for the post war period in dollar terms found that in 1967 the gap in GDP per capita between the richest country, the United States, and the poorest, then Rwanda, was 82:1. By 1987 the gap between the richest country, the US, and the poorest, Ethiopia, had
Overall situation worsening
Turning from the absolute range of overall situation is improving or worsening; the number of countries catching up in GDP per capita on the industrialized countries, in dollar terms, was 24 in 196770, rose to 35 in 1970-80 and collapsed back to 14 in 1980-87. The population represented by such countries even more sharply — rising from 530 million in 1967-70 to 604 million in 1970-80 and plummeting by almost three quarters to 167 million in 1980-87.
In short, the NICs, which are gaining in relative terms on the industrialized countries, do not show a generalized way forward but stand out because they are so much the exception to the rule. Apart from the East Asian "miracle" economies the number of countries improving their relative economic position compared to the industrialized states has fallen dramatically and chiefly comprises a few states receiving massive foreign aid (Egypt), recovering from economic catastrophe (Somalia), or with small and extremely specialized economies (Bahamas, Barbados, Seychelles, Oman, St Vincent).
It is not just relative impoverishment, but also absolute impoverishment — that is falling living standards in absolute terms — that is increasing. In 1960-70, 13 countries, with a combined population of 60 million, constituting 2.7% of the population of the capitalist economies, were suffering falls in GDP per head (see table 1). In 1980-87 this increased to 59 contries, with a total population of 774 million, comprising 24.4% of the population of the capitalist countries. The number of those suffering declines in real living standards increased from 1 in 37 of the population of the capitalist countries to 1 in 4.
This allows us to synthesize the situation of the world capitalist economy since the beginning of the 1980s as it affects the living standards of the population of the capitalist countries. Its chief feature is the huge rise, doubling, of the proportion of those who are either falling further behind the living standards of the imperialist countries or who are suffering absolute falls in their living standards. These two categories together increased from 47% of the population of the capitalist world in 1967-70 to 71% in 1980-87.
The pattern of the latest phase of capitalist development is clear. Far from entering a new progressive phase of liberalism and progress capitalism has developed most barbaric tendencies since the period 1930-40. It has ceased to take forward the world economy as a relatively organic whole and commenced an unprecedented assault on Africa, Latin America and the Middle East with a widening wave of relative impoverishment and, for the first time since 1945, a huge development of absolute impoverishment.
Nothing could be further from the truth then the belief that what we are seeing is a new wave of liberal capitalism. What is developing is the greatest wave of capitalist offensive and impoverishment since World War 2. Having rolled over three continents capitalism is now turning its sights on Eastern Europe. What is devel-
Ipismore noihio a no do arth 'im. alism. 23
It is more akin to a new barbarism. *
----- pull-quotes on this page -----
1991: a difficult
International Viewpoint #200 • February 18, 1991 tors. First, their capacity to export to the US market, made easily penetrable because of the high value of the dollar during the first half of the 1980s. Second, the size of their foreign debt, increasingly expensive to service because of the maintenance of high interest rates. Finally, the repercussions of these same rates of inter-
1991 will be a year of recession for international capitalism.
But It will not be a generalized recession similar to those of
1974-75 or 1980-82: what should be expected Is rather a new phase of slackened growth, accompanied by additional wage austerity and a new rise of unemployment.
CHRISTIAN BARSOC
HE recession we are entering is
T not the expected one, and it has arrived later than had generally been thought. From
1985, numerous analyses saw a recession in the
United States as inevitable. Instead, it has been delayed by five years, and it has, therefore, not provoked a third worldwide recession. The financial crash of October
1987 led all observers to predict at least a strong slowdown in growth in 1988.
However, the year was in fact characterized by a 4% overall growth in production in the OECD countries. Such failures of prediction underline the need to develop a better understanding of the nature of the period that began in 1982-83, and a more precise examination of the mechanisms which have enabled world capitalism to avoid a third generalized recession, and even to register overall growth in the second half of the 1980s.
The fundamental contradiction confronting capitalism at the start of this period was the opposition between profits and markets. In a period of frenetic restructuring and technological change, the principal capitalist countries engaged in, or deepened, a turn towards ultra-liberal policies which sought to put a brake on purchasing power and to disconnect it from productivity increases, and to roll back the social gains of the working class and other "rigidities".
The central objective was to jack up the rate of profit, which had been significantly cut by the crisis, and which had not been restored by the traditional recipes implemented between the two recessions.
But this wages squeeze, carried through on a grand scale and by every country at the same time, carried with it new dangers for capitalism, above all as a result of the contraction of markets.
orthodoxy to which the latter's government paid lip service. The 1980s saw a spectacular increase in the US' double deficit; an internal budgetary deficit and an external trade deficit. Reagan's America pursued an economic policy that would have brought screams of horror from the International Monetary experts charged with straitjacketing the indebted countries of the Third World. The success of the Reaganite scam was assured principally by the influx of Japanese, and, to a lesser extent, German, capital, into the United States.
Interest rates reach insane level
But, to guarantee the regularity of financing from this source, it was necessary to push interest rates as high as possible. The precarious equilibrium of the international financial market was only reestablished with a level of real interest rates (that is, taking account of the drift of prices) which was absolutely insane on a historic scale, and which spread to all the world's financial markets, since no country, at least without totally disconnecting world financial market, can maintain a durably lower rate of interest without finding itself confronted by a flight of capital and a depreciation in the value of its money.
Given the policy pursued by the United States, the economic fate of the other countries was determined by three fac-
Table 1 est on their domestic economies.
Japan and the "Four Dragons" of South East Asia (Hong Kong, South Korea, Taiwan and Singapore) made the most progress, largely because of their export success. On the other hand, the heavily indebted and less industrialized countries have been the losers, hit hard by the high interest rates; starting from 1984, the increase in service charges on the debt (interest and repayment) has led to a situation where each year the developed capitalist countries receive more capital from the Third World than they furnish to it under the form of new loans.
On the other hand, the effects on the European economy have been more ambiguous, notably because of the economic brake that high interest rates represent. This is particularly true for a country like France, which, as a member of the EEC and in the context of the European Monetary System, must, to align itself with Germany, maintain an overvalued currency and high interest rates.
For the OECD countries as a whole, the 1983-89 period was less severe than predicted - as can be seen from a medium term periodization (see Table 1). The first generalized recession (1974-75) led to a net slackening up of growth, which fell from 4.7% to 2.8%. The second (1980-82) led to a new decline. Finally, the period 1983-89 corresponded to a growth rate of 3.5%, still inferior to that of the years of expansion, but superior to that of the 1973-79 period. Fluctuations in unemployment follow this same periodization; for the OECD countries overall it went from 3.1% in 1970 to 5.2% in 1975, first period, then to 8.5% in 1983, second period. Then it fell to reach 6.2% in 1989.
However, as table 2 shows, national economies have behaved in a differentiated manner in the course of the last 15 years of slackened growth. Japan never registered the rate of unemployment considered normal in the West during the years of expansion. The United States
Growth in OECD countries
The fundamental reason why capitalism was able to postpone the onset of a new recession was that it found the means to ward off the acute effects of this contradiction. The chief method of achieving this was the massive expansion of credit in the United States under Reagan, entire-
24
• ly contrary to the principles of economic
----- pull-quotes on this page -----
WORLD ECONOMY transition 70-73 73-79 4.7% 2.8% Source: OECD 79-83 83-89 1.0% 3.5%
Performance of capitalist countries compared
Employment
February 18, 1991 • #200 International Viewpoint started the period with a rate of unemployment higher than that of Europe, and it then increased considerably. The 1980s however saw a reduction of US unemployment to pre-crisis levels.
Japan and the United States thus had a different experience to Europe, and notably the EEC, where the rate of unemployment has grown considerably and has only declined a little since the recession which began in the early 1980s. On the other hand, non-members of the EEC have obtained good results — this is true notably of Switzerland, Austria and Sweden.
The reasons for these differences in performance lie in the first place in the capacvigorous growth of its economy. The capacity for rapid growth without coming up against the constraint of balance of trade problems, or of overheating of production capacities, has depended on an
3
2
WORLD ECONOMY Unemployment rate 1974 1979 1983 1989 1.1 1.7 3.7 3.2 2.5 7.5 13.2 8.1 1.7 8.6 18.2 17.1 2.9 6.0 8.4 9.4 5.4 7.8 10.0 • 12.1 1.4 1.9 3.4 5.1 1.7 3.5 11.2 7.4 1.3 2.9 6.6 5.6 2.2 4.5 11.2 6.2 0.0 0.3 0.8 0.6 2.6 5.5 10.1 9.0 5.6 5.8 9.6 5.3 1.4 2.1 2.7 2.3 3.5 5.2 8.6 6.4
GDP: Average annual % growth rate 1983-89 advantage in competitivity. This could be Employment: Average annual % growth rate 1983-89 obtained through technological advan- Source: OECD: Economic Outlook, December 1990 tage, or on the basis of inferior wage costs, or, as in the case of Japan, from a combination of the two. The United States, for its part, profited from the period because of a specific imperial privilege, that of being able to borrow beyond habitual norms.
The disparities in performance can be attributed thus to the different abilities of countries' products to win shares on the world market. World trade has played a motor role during the 1980s, with the exports of OECD increasing by 6.4% on average between 1983 and 1989, whereas production grew only by 3.5%. Japan was ahead of the pack, with an average growth of exports of 6.9%, on the basis of a triple competitive advantage based on lower wages, rapproductivity, technological superiority. Despite the progressive increase in the value of the yen, Japan still disposes of an impressive trade surplus, even if it is diminishing.
There is a contrast then between the United States, which imports more than it exports and has based its growth on this deficit, and Japan, which sells more than it buys on the basis of a competitive advantage, and whose capital is used (along with that of Germany) to finance the deficit of the USA (see table 3).
Europe overall is in a position between the two - it possesses technological supremacy in only a limited number of industrial slots. It is not in a position to impose the financing of its deficit on the rest of the world. Moreover, the various European capitalisms come up against the resistance of the working class to attacks on their social conquests and the installation of a two speed labour market (the real objective behind what the OECD calls "structural adjustment"). Each of these countries is marked off by a whole series of factors (demographic dynamism, control of immigration, extension of forms of part-time and temporary work, industrial competitivity, and so on) which define a mode of internal reproduction of the national economy specific to each individual country.
The recession, which began before the invasion of Kuwait, is thus marked by a heterogeneity of the situations of the different powers. In Germany the collapse of the productive activities of the exGDR combined with the maintenance of household demand (a product of the specific conditions of the process of the resreunification) furnishes a supplementary market to the industries of the West. Germany cannot escape the consequences of the slackening dynamism of the world economy, but growth should remain quite strong — a rise of around 3% of the GNP is anticipated for the ex-FRG in 1991 (as against 4.6% in 1990). The slowdown of the Japanese economy will also be moderate (the rate of growth going from around 6% in 1990 to less
Clearly recessionary trend
On the contrary, the trend is clearly recessionary in the other OECD countries. In the USA, only the external demand stimulated by the fall in value of the dollar is maintaining the level of economic activity. Average growth in 1990 against 2.5% 4.5% in 1988), and at the end of the year industrial production clearly fell (to an annual rhythm in the order of -4%) and should continue to do so in the first quar-
All the big industrial branches are affected by the slowdown. This is particularly the case in the chemical industry, which has been expanding since the beginning of the decade, in electronics (there is a clear slowdown in demand for information technology) and in cars, where the market is contracting in North America and in Western Europe (with the exception of Germany). If Japanese and German manufacturers appear for now to be escaping the effects of the slowdown, the reduction of activity in the other countries is clear, with the usual consequences for wage earners.
How deep is this recession likely to be? Predictions are hazardous, but, on the basis of the currently available information, what seems likely is a more limited slowing up than was the case in the two preceding recessions, which had similarities with the recessions of the 1960s (end of a conjunctural cycle. The remaining uncertainty concerns the profile of the economic cycle in the period to come: will economic activity bounce back in the second quarter of 1991 or will it be the beginning of a fairly long phase of weak
Several factors tend to support the second hypothesis, at least so far as the United States is concerned. The recession is happening in a context where the high US budget deficit does not allow a policy of reflation and where the level of debt is very high. The budget deficit ($220 billion for the budgetary year 1990, against around $150 billion during the three preceding years limits the margins manoeuvre of the Federal state; in spite of the new compromise agreed at the end of last year between the President and Congress, the deficit could continue to increase because of the effect of the slowing up of activity on tax income, and the weight of expenditure linked to the bailing out of the Savings and Loans associations and the war in the Gulf.
The federal government's debt is still growing and reached 58.9% of GNP in the 1972, variet interest carain 37.8% i 25 1972), whilst interest charges on the pub-
No miracle in the East
THE transition to capitalism of the bureaucratic states will be longer and more difficulf than the bards of free enterprise anticipated at the beginning of 1990. In an Interview in Le Figaro (January 2, 1990), the French
International Viewpoint #200 • February 18, 1991
WORLD ECONOMY investment in the context of a stagnation of profits and a contraction of world demand? This might imply a longer than anticipated period of weak growth.
Another imponderable is the possible effect of the difficulties of the US banking secretary of state for planning, Lionel Stoleru, declared himself "very pessimistic" and, drawing a balance sheet of 1990 on the transition to capitalism in Eastern Europe, he said "everything was possible, nothing has been done". In fact this is not true, and some things have been done, notably in countries like Poland, Hungary, or Czechoslovakia where poilt
Ical power is indisputably in the hands of forces determined to realize the restoration of capitalism. But the difficulties facing such a transition In the countries of Central and Eastern Europe are very real and significant, contrary to the hopes expressed at the beginning of last year that the dis location of the Eastern bloc would have only a short term effect on the economic conjuncture of the developed capitalist countries (apart, obvi ously, from the consequences of German reunification).
The breadth of the recession (as much in the countries where economic reforms have been genulnely undertaken as In the others) has limited the
Eastern European market in 1990; the exports of the OECD to the ex-
COMECON countries of Eastern Europe (apart from the GDR fell back In the first quarter of 1990 by an average of 5% in relation to the first quarter of 1989, and all the countries of the zone have Imported less, apart from
Rumania. In 1991, the situation should be similar; the share of the products imported from the OECD countries will grow, without corresponding to an increase in absolute value of the Imports, because of problems of financing, of stabilization policies and the deepening of the recession. In the case of the USSR, the higher price of olf could ameliorate the situation
(to the extent, of course, that the effects of this are not cancelled out by
Moreover, political uncertaintles tend to limit the outlook for profits and thus the initiatives of private capitalists (firms or banks). The private banks tend to no longer lend to the Eastern European governments unless guaranteed by a Western government Deutsche Bank has thus just announced that there will be no loans by a German bank to the USSR without a 100% guarantee by the Bonn government. Statistics recently published by the Bank of International payments (AGE), January 8, 1991)
show a fall of 5.3% In bank loans to Eastern Europe In the course of the first quarter of 1990. Firms have lent money to finance some investment operations but this represents (allowing for exceptions) limited support from capital in relation to what is needed. * lic debt represent 16.5% of US budgetary expenditure. The trade deficit (in spite of the improvement in the balance of payments thanks to the depreciation of the dollar limits (in the medium term) the possibility of cuts in interest rates (to limit the recession, the Federal Reserve carried out some cuts in the rate at the end of
1990).
Moreover, there big are three unknowns, with unforeseeable implications. First, there is the fragility of the financial system, manifested by the slump in the international financial markets and the crisis of the US banking system.
All the big financial markets fell in
1990. The fall has been limited but significant on Wall Street (-4.3% for the Dow
Jones index, -6.5% for the Standard &
Poors which covers a broader field), more accentuated in Europe (20-25% according to the market) and sharpest of all in Japan
(-39%). The financial crash of 1987 has not had any impact on the real economy, but this does not mean that we can infer a new economic law to the effect that, in
26 modern capitalism, the financial and economic spheres are henceforth independent. Are we witnessing, as some maintain, a simple "deflation" of a financial bubble wildly out of synch with the fundamental realities of the economy, a deflation whose breadth can be explained by diverse "accidents" (1990 was a fertile year for stock market scandals and bankruptcies of intermediary financiers)?
Other observers put forward the possibility that what is going on is a "devaluation of assets", but without drawing any very clear conclusions. Yet, classically, assets devalue when there is a risk that the profits attached to them are not as high as anticipated. In this case, there would certainly be a relation between the situation of the financial markets and the general economic climate, and the risk cannot be ruled out of the slump on the markets having an effect on economic activity, notably through the banks' tightening up on credit.
Thus, the sharp fall of the Tokyo stock exchange has consequences for the balance sheets of the Japanese banks which could lead them to restrain their distribution of credit. What could be the consequences of this situation for firms and system - 35 of the 200 biggest banks are close to insolvency. The deterioration of their situation is explained by the combination of a fall in the profitability of their activities (because of deregulation) and the immediate economic situation (property crisis, recession). The US authorities are in a contradictory situation; there is a need for increased resources for the system of insurance for the banks (the FDIC) financed by the payments of the banking establishments, but a significant raising of the level of payments or of obligatory reserves would increase the difficulties of
A crisis of the US financial system cannot be ruled out, but it is important to remember the lesser concentration of the banks in the United States than in many other countries. In the US there are more than 12,000 banks, as against 400 in France, and the impact of the failure of a bank is therefore reduced. The immediate manifestation of these difficulties is evident in significant restrictions of credit to firms, but these have not yet led to the "credit crunch" feared by certain economists, which would paralyze economic activity because credit is an indispensable lubricant in a capitalist economy.
Trade talks at an impasse
To this financial unknown must be added a trade unknown; the so-called Uruguay Round negotiations (see IV 198), supposed to lead to a new reduction of customs duties, are today in an impasse, particularly between the European Community and the United States on the level of support for agriculture. Certain ruling class circles have sounded the alarm, thus a recent communiqué (published in the Financial Times of January 26-27, 1991) of the Confederation of British Industry warned of the consequences of a definitive breakdown of these talks: "It would lead to a dramatic growth of economic uncertainty, to the threat of discriminatory measures and to a multiplicity of trade conflicts".
The third great unknown - the war The journalistic commentaries on this question often emphasize the recessionary impact of a significant increase in the price of oil; certainly, this did not happen the day after the outbreak of hostilities (which speaks volumes on the largely speculative character of the behaviour of the markets since August 1990), but the risk still exists if there should be significant destruction inflicted on the Saudi and Kuwaiti wells.
In a less superficial fashion, other commentators emphasize the role of a growth of military expenditure in stimulating the
Table 3
Trade balances
1989
-115
USA
Japan
+77
FRG
+77
1990
1991
-116
-115
+81
+60
+81
+66
WORLD ECONOMY / ISRAEL