The ambiguities of the international conjuncture
Over the last nine months we have seen a major economic crisis in Asia, and new record highs on Wall Street and other western stock exchanges. How to make sense of the uncertain and ambiguous economic situation? Some radical economists forecast a new wave of expansion, others predict a major financial crash. Our own specialist, Maxime Durand, argues for a middle position. There is an open debate as to whether the United States has entered a new wave of expansion, based primarily on the high-
The relatively long duration of the current cycle is one point in favour of this thesis. Growth has been steady since the 1991 recession, and there was a new burst of growth - 3.8% - in 1997. Having said that, these performances are not at all exceptional - average growth between 1992 and 1997 was 2.8%, compared to 3.9% between 1982 and 1989. Furthermore, population growth has been 1% per year in the US, three times higher than Europe, so that the growth trend of per capita production is the same on both sides of the Atlantic.
Nevertheless, the US has created much more employment than Europe, and the unemployment rate has not shown the same tendency to rise. Indeed, US unemployment is as low as it was before the 1990-1991 recession. There is, however, a clearly polarised structure of job creation, with "MacJobs" on the one side, qualified jobs on the other, and a relative decline of intermediate categories. This leads to a slowing, but not a reversal of the principal regressive tendencies, such as a rise in inequality, or an increase in the proportion of the "working poor."
Arguing against the durability of this model of growth is the social contradiction upon which it rests - the reinforcement of inequality. Per capita growth has not exceeded 1%, implying that salary raises have been limited, even for the most skilled jobs. Dynamic consumption patterns have been based as much on an increase of the workforce as on a recovery of wage income. Strong US consumption is also financed by household debt, which has reached alarming levels.
One of the peculiarities of the U.S. economy in recent years has been in fact the weak growth of its global productivity, which also explains its capacity to create employment based on the very marked economy. Similar rates of growth 20 International Viewpoint #300 thus have higher job creation levels in the U.S. than in Europe.
The hypothesis of a new model of growth comes back to a proposition that the current revival of growth is based on a leap in productivity, at least in the manufacturing industries, based on a quantitative increase and a qualitative transformation of the productive apparatus. It's true that private investment has risen considerably since 1993, and that it currently accounts for a record 14% of GDP - higher than at the beginning of the 80's. But this upward spurt can also be interpreted as recuperation after the steep decline that occurred from 1986 to 1993. In any case, this growth in private investment has not resulted in a noticeable rise of productivity in the manufacturing industry, which continues to grow at a steady rhythm of 3% per year. The current rise of profit indicators apparently underestimates this tendency of over-accumulation.
The international configuration on which this growth rests is the main problem. The turning point was at the beginning of the 80's, with a rapid increase in interest rates that was initially accompanied by a major appreciation of the dollar - a nearly 50% rise from 1980 to 1985. This large movement had the effect of increasing the U.S. external deficit, which, at 3% of GDP, is significant, given the relatively small extent of external trade. In September 1985, the "Plaza Accord" (from the name of a New York hotel) was signed by the five major economic powers. It marked a significant devaluation of the dollar, imposed on the other imperialist powers in the name of international monetary co-operation." In the three years from 1985-88, the yen appreciated 46%, the mark 40%, the franc 37%, and the pound 28%. Under these conditions, the trade deficit declined at least 1.5% in 1991, a recession year.
The new US economic cycle of the 90's benefited from this advantageous exchange rate for the dollar. But the rapid increase in exports led to a new rise of the trade deficit, reinforced in recent years by the appreciation of the dollar by about 15%. The U.S. sold about $660 billion worth of goods in 1997, but imported about $860 billion. Despite a surplus in the service category, the current account deficit was $179 billion.
Such a deficit might be sustainable if external financing led to a growth in productivity, which could in turn enable the U.S. to regain its position in some market sectors. But this is not happening. And so, the most likely outcome is a downturn of the cycle, rather than its diffusion to the world economy. The bad news is that the financial fragility of the dominant world economy could prevent a "soft landing. Will the "Euro" reduce unemployment?
There is also a profound ambiguity in the European conjuncture. On one hand, the partisans of the Euro can claim victory, since all of the countries involved have been able to satisfy, at least formally, the Maastricht criteria - notably, the condition of maintaining the public deficit below 3% of GDP. The timetables have been met, so far. Confidence on the part of the financial markets seems assured, no speculative movements have been undertaken, and the horizon is clear until at least January 1,
1999 - the official date for setting the rates of exchange.
The rapid modification of the context clearly owes a lot to the revival of the west European economies. This growth coincided with the years in which countries like France had to make sharp reforms to meet the austere economic conditions of the Maastricht Accord. Ten months ago, France's conservative government expected these reforms to be so painful that they called - and lost - a snap election. Thanks to the improvement in the European economy, France's new centre-left government has been able to meet the various Maastricht criteria without major
The European conjunctures, are, however, fairly desynchronised. The relative weakening of Germany has overcome the Kohl government's reticence about a "wide' Euro (i.e. including Italy), which will inevitably lead to a less rigorous monetary policy than that of the
Perhaps more importantly, West Germany's considerable difficulty in absorbing the former GDR has put into question the famous "German model." Employers are undertaking a unilateral offensive, refusing reasonable compromises put forward by the DGB trade union confederation, and overturning a number of collective bargaining agreements. In the place of the "social market economy," the German bourgeoisie's new discourse is classical neo-liberalism: it is imperative to reduce the cost of labour in order to regain competitiveness.
In fact, the declines in parts of the German market are the result of a reorientation to internal demand, and to the continued appreciation of the mark in relation to the dollar, the lira and the pound. Add to that the 1993 recession, which the European countries inflicted on themselves by reducing consumer demand and by adopting restrictive budgetary policies.
The relative decline of Germany is apparent in relation to the spectacular surplus of the European Union's current account balance, which reached $115 billion in 1997, compared to deficits of $80bn. in 1991 and 1992. Four countries are responsible for the European surplus: Italy (S4Ibn.), France (S32bn.), the Netherlands ($22bn.), and Belgium ($14bn.); Germany played no part in this achievement.
In other words, the recent period has revealed a re-balancing of the monetary balance of power within Europe. With a trade surplus representing 6% of GDP, no-one nowadays seriously question's Italy's devotion to monetary stability.
The case of Italy also illustrates to what degree the manipulation of exchange rates and the adherence to monetary orthodoxy have succeeded in attaining the real objective: re-establishing the rate of profit. Capital's share of surplus value has jumped from 36% in 1992 to 42% in 1997, something which could not have been achieved without the economic tightening, which in turn resulted in official rates of unemployment of 9-12%.
The economic cycle in the European Union, particularly in France Germany, is following a W-shaped pattern. After the 1993 recession there was a strong recovery in 1994 (2.9%) which ran out of steam (2.5% in 1995, 1.7% in 1996), but then made a relatively unexpected comeback in 1997. What will happen in 1998? In the optimistic version, exports will continue to grow, but internal demand - notably investment - will become the motor of growth. If this were true, it would be reasonable to assume a 3% growth rate for the next few years. But this "Euro-optimism" is in danger of not lasting beyond 1998, for a simple reason well illustrated in Figure 1. The growth in the portion of surplus value taken as cover feature * profits means a decline in the portion taken as wages. How, then, is internal demand to become a motor of sustained economic growth?
The share of surplus value taken as profit went from 31% in 1981 to 39% in Table 1
Rate of growth
1993 '94 *95 '96 '97 '98
United States 2.3 3.5 2.0 2.8 3.8 2.7
Japan 0.3 0.6 1.4 3.5 0.5 1.7
European Union -0.5 2.9 2.5 1.7 2.6 2.8
Germany -1.2 2.7 1.8 1.4 2.4 3.0 France -1.3 2.8 2.1 1.5 2.3 2.9 Britain 2.1 4.3 2.7 2.3 3.4 2.2
Italy -1.2 2.2 2.9 0.7 1.3 2.1
Spain -1.2 2.2 2.7 2.3 3.2 3.6 Source: OECD 1997. This rise has been more or less constant, with the exception of the early90s recession. The rate of accumulation (investment as a percentage of fixed capital) fluctuates of course with economic cycles, but does not show an upward trend - it is currently between 5 and 6%, a level similar to that of the 80's. Finally, the rate of unemployment has gone from 7% in 1980 to 11% today. This evolution of the unemployment rate, strongly marked by cyclical fluctuations in the opposite direction to accumulation and growth, seems to have preceded the rise in profits.
The European upswing will soon be confronted with these internal limitations, just as it has seen the stagnation or decline of exports to Asia and Eastern Europe [Which optimists presented as the magical motor of sustained growth into the next
The contradictions of the Euro could reappear before 2002, since the homogenisation of national economic cycles, and the European internal division of labour is not sufficient to allow a smooth regulation of the tensions which, for the moment, can
Figure 1
Profit, accumulation and unemployment in the European Union, 1981-1998
39
38
Unemployment
37
35
12
* - 11
7 be eased by fluctuations in European exchange rates. Once the Euro is adopted, that will no longer be possible. Of course, one could imagine an acceleration of the institutional unification of Europe, which would permit a European budget to deal with these regional and structural tensions. But that would be contrary to the neoliberalism strategy in force across the member states. After the Asian crisis, financial crash or generalised downturn?
Much has been written about the Asian crisis, and the following is limited to a few
Profit
Accumulation
32
31
81 82 83
87
86
89
+ 6
- 5
90
94
95
96
97
98 essential points. The first is that Japan seems to be confined to its current trend of limited growth. The injection of considerable sums of money got the economy going again in 1996, but not enough for a durable upturn. Part of the banking system is technically bankrupt, and the Asian countries which absorbed many Japanese
21
----- photo credits and running heads -----
Profit as % of surplus value Unemployment and accumulation
exports are in deep recession. The dynamism that Japan gave the whole region and beyond, to the world economy, is about to dry up.
A similar situation faces the "Dragon" economies of South-East Asia, especially Korea, and all the Asian countries whose economies have been hard hit, and who can't hope to minimise the impact by currency devaluations. The principal impact of such devaluations will be to intensify competition between these countries, and to threaten China's pursuit of expansion, since its products will be less competitive from now on. More generally, this crisis throws into reduction hit Korea particularly hard, and aggravated the situation of Indonesia and Mexico when, without precedent, the price of oil fell from $18 to $12 per barrel.
The most perverse mechanism, however, is the opening of third-world economies to competition with the hypercompetitive multinationals. Entire sectors of agriculture or traditional industry are being wiped out. This leads to generalised under-employment, which is not countered by job creation, except in a very limited number of countries for a limited duration. This is very far from the widespread image of low-wage countries competing to "steal" "Northern" jobs!
recent strengthening of the dollar.
The effects of the Asian Crisis weigh on the current conjuncture in several ways. First, there is the more or less classical crisis of overproduction, with a brutal devaluation of excess capital (hence the periodic financial crises) and by violent austerity policies, designed to freeze any expansion of internal markets. The IMF has lowered its world growth forecast for 1998 from 4 to 3%.
"Experts" everywhere are announcing an imminent turnaround, and the effects of the Asian crisis are being minimised. But the question remains: where are the dynamic zones of the capitalist economy
Figure 2 Accumulation in the imperialist centres, 1981-1997
8,0
7,5
7,0
6,0
5,5
85 86 87 88 89 90 question the entire neo-liberal programme of development. All of the models have been battered, one after the other, by a revolving crisis. An opening to the world market reveals a continued dependence whereby the volume of imports tends to be higher than the volume of exports. To make up for the increasing deficit, these countries end up making commitments and anchoring themselves to a hard currency, in order to guarantee the profitability of capital. Since they cannot devalue the national currency, the only way they can minimise their balance of payments deficits is through controlled inflation, high interest rates, and privatisations. This style of management is not, therefore, an error; it is, on the contrary, a necessary element of the neo-liberal model - until it becomes unsustainable, as happened to Mexico in 1994, and several Asian coun tries in 1997. The rupture then takes brutal forms. The list of future problem-cases includes Brazil, Argentina, and Poland
One constant characteristic of imperialist relations is that competition amongst low-wage countries unleashes the generalised reduction of the price of raw materials and intermediate products, such as electronic components. This price 22 International Viewpoint #300
United States Japan and European Union 91 92 93 94 95 96 97
The world economy has undergone two serious shocks, which can be measured by the sum that had to be mobilised by the IMF: $50 billion for Mexico, double that for the Asian crisis. In both cases, however, the domino effect on the international economy that was forecast by some analysts did not take place. In 1995, the "tequila effect' on Latin America was relatively limited. In 1997 the big stock exchanges vacillated at the beginning, but the strictly financial crisis did not unleash chain reactions - quite the contrary, all records were broken on the principle stock exchanges, reaching such extravagant levels that the next conjunctural turnaround should bring a brutal fall in the
Certainly the IMF had a hard time managing the latest crisis. But this was partly because it involved private debt, which is more difficult to centralise and administer, than public (government) debt. But, for the moment, the firewalls have held, and stopped the "contamination." from spreading outside South-East Asia.
During the Asian crisis, many capitalholders switched from Asian stocks to more stable public debt securities of the rich countries. This partially explains the for the coming years?
The indirect effects of the current conjuncture are more difficult to predict. For example, pension funds face a formidable range of difficulties. Their viability depends on the maintenance of very high rates of income, and a sharp decline coul put into question their ability to pay their pensions, thus opening a financial, bur also social crisis. A new global polarisation
The uncertainties characterising the international financial system put question mark over the entire concept the Triad - a triangular balance of force between Japan, the USA and Westem Europe, each dominant in its region economy.
Obviously, each of these three impe rialist poles has a role in restructuring specific continental zone of the world ec nomy. After all, internationalisation h not lead to the formation of a perfect united market. However, the commerc flows of the emerging countries of As play a complicated role between the the poles of the Triad, with their curren. being indexed to the dollar, and not yen. From the military and diplom
----- photo credits and running heads -----
Accumulation as
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point of view, the USA is still the dominant player in Asia.
In short, from the economic point of view, the image of polycentric or Triad imperialism is losing ground.
The US has succeeded in imposing on the rest of the world two contradictory elements: a dollar exchange rate which is very favourable to the US in terms of exports, coupled with a massive commercial deficit. This means that the growth in the American economy, where the savings rate is very low, must be financed by capital flowing in from the other poles of the Triad, particularly Japan. This unequal relationship has existed since the mid80's. The recent re-evaluation of the yen has led to a relation of dependence between Japan and the US, which, in turn, is slowing down the Japanese economy. It is hard to imagine the European Union replacing Japan as the main creditor of the USA over a long period of time
As for Europe, the convergence of neo-liberal policies led to a similar situation in the first half of the 90's. The rate of accumulation of capital best shows this inversion of the cycle (see Figure 2). The data for the US shows a slowing of accumulation until the early 90's, and then a strong resurgence. What is striking about the graph is that, if Japan and Europe are grouped together, the data shows that, conInternational Viewpoint trary to the US, accumulation increased until the early 90's, then declined sharply, followed by a very hesitant recovery.
The main issue is whether the two curves can rise again simultaneously, or not. If they can, then the dynamism of capital accumulation in the USA can be transmitted to the rest of the Triad. But if, on the contrary, financial relations between the USA on the one hand, and Japan and Western Europe on the other are structured in a complementary way, as suggested by Figure 2, then the continuation of the American cycle seems to be incompatible with the continuation of the European
The U.S. has, in any case, been able to impose on the world its programme of absolute freedom for the circulation of capital - first in imposing the World Trade Organisation (successor to GATT), which polices international trade, then, more recently, in the attempt to impose the MAI treaty, which would prevent countries from placing restrictions on foreign investment. Fortunately, the MAI initiative is encountering a lot of resistance.
This internal reorganisation of the Triad is accompanied by a return to classic imperialist politics, in opposing, for example, any progress in the establishment of the Mercosur free trade area between Brazil and Argentina, under the pretext that it would disrupt commercial flows.
World capitalism has not succeeded in establishing the basis of a new long wave of expansion, because it is unable to ensure a sustained growth of consumer (wage) demand, and because capitalism structures the world in such a way that zones of economic depression are periodically generated. The capitalist economy is mired in a recessive phase that has lasted longer than any comparable episodes. The current cycle, developing on the basis of a crisis of overproduction, can only with great difficulty be seen as putting in place cover feature * a new world economic order. But neither is the final collapse in any way automatic.
The most probable outcome is general deceleration, lasting through 1999, and which could be masked by high profits in some of the main sectors. This could lead to an open crisis of legitimacy for neoliberalism. * remin onli milliarist democratic
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