WORLD ECONOMY I
Another fluctuation...
GROWTH AND PROFIT IN EUROPE
International Viewpoint #262 December 1994
THE LEADERS of the major industrial countries are celebrating the end of the recession. If they looked at the United States, they would think again. In economic terms, the recession ended in 1992, but while there has been real economic growth since then, most Americans still feel that the country is in recession. MAXIME DURAND and NICOLAS MAHEU explain why the current economic upturn is yet another cyclical fluctuation in a long period of crisis, and how the neo-liberal strategies adopted to sustain this new growth will only increase
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64 65 66 67 68 69 70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 insecurity, marginalisation and exclusion throughout the richest societies of the world. FOR A NUMBER of years there has been an increasing de-synchronisation in the world economy. The trend towards globalisation is real. Yet alongside it runs another trend: The formation of large economic blocs, each with its own dynamic.
In this framework, Maxime Durand and Nicolas Maheu analyse the limits of the current economic upturn, conclud-ing that while the recession maybe over for the employers, mere mortals such as ourselves will hardly notice.
Henri Wilno explains why the restoration of capitalism is at a different stage in each of the countries of the former Eastern Bloc. Yesterday's bureaucrats, and today's capitalists, have chosen to speculate rather than manutacture.
Jacques Cherbourg tells us why Third World Debt still exists, despite the fact that it was repaid long ago. The demand for the cancellation of the Debt will remain a central part of internationalist solidarity.
Finally, Sophie Joanny examines the World Bank's and IMF's extraordinary claim that Chile and Mexico are on the same path to prosperity as South Korea, Taiwan and other "Newly Industrialised Countries". ©
GROWTH
G ROWTH rates in the last
twenty years have been consistently lower than between 1950 and 1970, when annual growth rates averaged 4-5%. The whole period since 1970 has been characterised by cyclical recessions - the low points of the ebb and flow of capitalism. Each of the three major recessions - 1974-75, 1980-82 and 1991-3 — (see fig. 1) was overcome before it developed into a major crisis for the system.
After the 1974-75 recession, all seemed to return to normal for the capitalists, with growth rates regaining their traditional post-war levels in 1978 and 1979. But the 1980-82 recession proved more serious than its predecessor. This second recession opened a new period in economic policy: the full application of neo-liberal economic strategy, based on deflating the economy; reducing the buying power of the work force; reducing the employers' contributions to the social security system; and the deregulation of the economy.
This change in State management of the economy was, and still is, inaccurately and even falsely described as "rolling back the State". In fact, it represented only a new attempt to reduce the cost
PROFIT fig. 1 of labour for employers and to increase the share of the surplus produced by the economy which the capitalists could take as profit. In these terms, the new policies were successful: profits began to rise in 1984, and have not dropped significantly since. From 1988 to 1990 the world economy reached an all-time high, thanks to accumulated investments in productive technology, and the demand created by the consumption of the richest groups in society. The upturn in the United States was more pronounced than in the rest of the world.
The ideologists of capitalism praised the structural adjustment programmes described above, not just because they brought the recession to an end, but also for bringing an end to the structural crisis of the last twenty years. This complacency turned into euphoria after the fall of the Berlin Wall in November 1989. Newspaper columnists proclaimed the final victory of capitalism over all challengers.
In fact, this was just a longer and more pronounced cyclical upturn than the one before. The recession soon returned to drown most illusions that the crisis itself was over. Growth rates fell more than in either of the previous
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Rate of growth in % Rate of profit 3
International Viewpoint #262 December 1994
WORLD ECONOMY
recessions, and unemployment spread once more. Now, the cycle has come round again and everyone is talking about the revival of the economy.
The recession of 1974-75 marked the passage from the post-war long wave of growth to a long wave of recession, which has now lasted over 20 years. What makes the current long wave different from the last is: i) the reduced capacity of capitalism to assure continued growth; ii) small increases in the buying power of the work force and; iii) relatively low unemployment. All three of these characteristics seemed to be stable advantages of the capitalist system in the sixties. Nowadays, economists and politicians are asking themselves if we can live without them. Government policies are essentially crisis management: while the crisis does not mean capitalism cannot reproduce itself, it makes the system more reactionary and unstable than before.
### Pronounced
This is not to say that capitalism is declining inevitably and steadily to final collapse. Instead, we believe that the cycles of the system are becoming more and more pronounced. Thus, having exhausted all the means which helped contain fluctuations in the post war period, contemporary capitalism can only be managed by classic capitalist
Times like the present show simply that cycles have ups as well as downs. In the medium term none of the capitalist powers are capable of sustaining the annual rates of growth common before 1974, neither can they assure the workers a slowly but consistently rising standard of living. Even less can they absorb the unemployed back into the work force (which only happens when there is a social struggle to put pressure on them). Changes in the economy have made financial and monetary crises central components of the system. Again we can see the difference between temporary improvement in and exit from the
As Fig. 1 shows, there is a clear relationship between the rate of profit and rate of growth. Years of high growth are also years of high profit. However, since 1988-89 the relationship seems to be weakening. The last five years have seen regular increases in rates of profit, which are now at their pre-crisis levels, despite the cyclical recessions we have already discussed. At the same time, growth rates since 1988 have fluctuated wildly around a very mediocre average.
To understand this recent trend we should remember that, despite the relationship between rate of profit and rate of growth, growth in itself is not the end goal of capitalism. Profitability is. Growth, full employment and unemployment are only means to realise that
In Europe, 1993 was the year of the Single Market. We were promised the earth, and millions of new jobs. In fact, 1993 saw the worse recession in over 20 years. Five million workers saw their jobs disappear in the European Union (EU) alone. The southern European countries were particularly hard hit, Spain, Portugal and Italy losing 5-8% of their workplaces in 24 months! Unemployment in the Eu is now over 11.3%, which means 17.4 million unemployed And despite expected growth in 199495, unemployment in the EU will rise above 12% (that is, higher than during the previous recession).
The OECD admits that their (optimistic) prediction of 2.8% growth in 1995 would do no more than stabilise unemployment at this new higher level. They have noted that, with the exception of Germany, fewer and fewer new jobs are being created in the service sector in all twenty-five industrialised countries which make up the organisation. This is particularly serious since, according to the report, "in previous recessions, employment in the service sector increased to compensate for the reduction in employment in the other sectors."
### Growth
New growth in individual countries is not general throughout the advanced capitalist world. The Anglo-saxon countries went into recession first and came out first. Growth in the USA is already slowing. Japan experienced a decline in the rate of growth of demand from 6% in 1990 to 0% in 1992 and only 1% in 1993. State programmes to stimulate demand made up 2% of the Japanese GDP. Despite continued large trade surpluses, the causes of Japanese growth seem to have weakened.
It might seem strange that countries are more and more out of step at a time when bourgeois leaders cannot stop talking about globalisation and international integration. In fact, what has actually emerged is a trend towards globalisation, alongside a contradictory trend towards the formation of large economic blocs, each with its own dynamic. The differences between the major countries show that their economies have different dynamics, and that at the same time there is a lack of economic policy coordination between the major powers.
This lack of co-ordination in an increasingly international economy is a major contradiction of the economic system of the 1990s. For example, most major industrialists now think that financial liberalisation has gone too far. Capital flows are now so volatile that they are a constant source of instability and uncertainty. Financial markets have reflected this through repeated currency devaluations which have impeded the new neo-liberal measures introduced by the Maastricht Agreement.
But, at a more fundamental level, the end of the recession has established a lack of symmetry which cannot be properly managed. Today for example, growth in the US automatically provokes a chain reaction of budget deficit, fall in the value of the dollar, and an increase in interest rates, even though the latter will tend to block growth in the long term, since all the capitalist coun tries are still more or less obliged to follow the shift in US interest rates.
Today, each State needs to borrow money from abroad to finance its budget deficit.2 The result is a chain reaction of dips in financial markets, and monetary crisis. A 'soft' stock-market crash could actually help stimulate growth by orienting capital towards the productive sphere, at a time when profits are relatively high, which would make it possible for companies to finance their investment projects without having to borrow money. Nevertheless, we will probably see the end of the Japan-US double act of the 1980s, when the constant Japanese surplus financed the indestructible US
In Europe, the alignment of national currencies to the German D-Mark no longer has its former stabilising effect, because the position of the D-Mark on currency markets is now heavily influenced by questions over the soaring cost of German re-unification. As a result, the European Monetary System (where national currencies fluctuate within a narrow band of exchange rates) exploded when Britain, Italy, Spain (and Sweden, which was not part of the European Monetary System) devalued their currency by more than the EMS could allow,
1. Out of 140 million who are currently in employment.
2. see 'La folie rationnelle des marchés financières' in Inprecor, no. 383, September 1994.
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"Deficits have grown because of strong social resistance to
International Viewpoint #262 December 1994 thus encouraging their exports. on the other side of the coin, these countries have now had to reduce the cost of labour, and cut State spending, which has meant a sharp reduction in internal cuts in State spending and to demand. Those European countries whose currency rose in value (Germany, "rolling back the State"' Austria, Holland, Belgium, Denmark and France) found that demand for their exports dropped considerably. These distortions in the European economy make the European Commission's pleas for co-ordination of economic policies and co-ordinated and simultaneous stimulated growth into little more than wishful thinking. The whole project of European growth stimulation policies carries round its neck the weight of budget deficits in all the member states.
### Deficit
The recession has increased public sector budget deficits everywhere. In Europe, most state budget deficits now exceed the 3% limit fixed by the Maastricht Agreement. And the budgetary stability of Japan is more and more under threat. The reason deficits have grown is because of strong social resistance to cuts in State spending and the "rolling back the State" called for by neo-liberal ideologists. At the same time, the recession itself cuts into all the sources of income for public budgets. The percentage of GDP made up by these resources has increased by six points since 1978, and will not stop growing before 1996 at the earliest.
At Maastricht, the member states of the European Union defined the reduction of State budget deficits as a key medium term goal. The Belgian government wants to reduce its deficit from 7.2% of GDP in 1993 to 3% in 1996. Difficult, unless social struggles somehow fail to materialise. The gap between the statistical "reality" of the end of the recession and economic life as it is experienced by most people should, logically, increase social conflicts over wages and social security, and over cuts in state education and health budgets. Living conditions will rise only when workers exploit the slightly increased room for bargaining which the upturn brings. But with over a million Italians demonstrating against reductions in the pension system on 12 November, the ruling classes of other countries can expect similar reactions to their own projects. Current initiatives in France are particularly promising, because they combine the demand for wage increases with the demand for job creation.
If they succeed in blocking budget cuts, the current wave of protests will contribute to a boost in effective demand, and thus encourage economic
In effect, the "need to maintain budget austerity" is itself a major threat to the present period of modest growth. The OECD talks of reducing the average budget deficit in Europe from 6.3% (1993) to 2% by the year 2000. This scenario presumes growth of 3% per year until the end of the century. Even if it succeeds, the scenario predicts that EU unemployment will fall only from 10.7% (1993) to 10.4% in the year 2000.
### Explicit
However the OECD believes that high unemployment is not such a bad thing since "wage increases in the OECD zone remain modest, partially as a result of the persistence of high rates of unemployment". Another study is even more explicit: "Increases in profitability should be achieved above all by keeping rises in remuneration lower than rises in the productivity of labour" 3 The European Commission's policy document, "White Book on Employment", even proposes to make this strategy into an "acceptable empirical rule". The reduced share of the surplus taken as salaries is to finance investment, and thus growth. The problem is that this sober and praiseworthy sacrifice has been tried for ten years now, and has still not worked. Profitability increased by one third between 1981 and 1992, without any noticeable effect on the rate of investment expressed as a percentage of GDP.
What we see at the moment is a "technical boom" as the statisticians say. Having exhausted their stocks, companies are spending a little bit more money on buying in, and investment is timidly rising, after declining to the point where production capacity was under pressure.
In other words, the growth in investment will only continue if the capitalists see signs of an increase in consumption.
Unfortunately, shop takings in France declined 2.3% during October, according to a survey commissioned by the Paris Chamber of Commerce. A recently-published report sponsored by French business claims France cannot hope to attain its 1988 level of performance next year, "since consumption in Europe in 1995 will suffer the effect of sharp spending cuts decided as part of plans to reduce the public deficit". As a result, European capitalists are pinning their hopes on the export market. Their suc-: cess or failure is a key factor for the future of the current upturn.
With budget austerity and low wage increases, where is the increase in demand going to come from ? The bourgeoisie has an answer. By making the division of wealth even more unequal,. the rich will have more cash to buy the "right sort" of goods. And in a more divided and insecure society, part of the army of unemployed will be thankful for the low-paid, part-time work and odd jobs which come up.
In Europe, this grim scenario signals the end of the German model of social consensus. German employers and politicians now propose cuts in real wages and deregulation in the same way as their counterparts abroad. And both Germany and Japan will bite the bullet of liberalisation of the banking and financial sphere, as did the Anglo-saxon countries some time ago.
For the great majority of the population, the end of the recession will have a bitter taste as exclusion and marginalisation increase, and jobs become less secure. For the employers the recession is over — but few of us will notice. *
3. Economie européene, no. 54.
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ECONOMY WORLD
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5
Collapsing production
THE RESTORATION of capitalism is at a different stage in each of the countries of the former Eastern Bloc, and has not been completed in any of them. Since 1989 production has collapsed. "Successful" economies such as Hungary and the Czech Republic have contracted by around
15%. The average decline in production in the states of the former USSR is closer to 50%. While new capitalist structures are being put in place in the Visegrad countries (Poland, Slovakia, Hungary and the Czech
Republic), the Russian and Ukrainian elites are still divided in their strategy. HENRI WILNO argues that across the entire region, yesterday's bureaucrats, and today's capitalists, are more interested in speculation
International Viewpoint #262 December 1994