Global economic storm Ridgeway, heading the Democrat ticket in the state of NSW, will become only the second indigenous person elected to the national parliament. The bourgeoisliberal Democrats campaigned against allowing One Nation to gain the balance of control in the senate, and were able to hold enough votes to maintain their seats and decisive role in the senate, though overall they received less support than the racists.
The Greens failed to build substantial votes in the larger states, and may retain only one senate position. Previously strong progressive environmental parties in NSW, the Nuclear Disarmament Party and Common Cause-No Aircraft Noise, this year attracted minimal votes.
Several left groups ran campaigns. The Democratic Socialist Party ran candidates in 13 electorates gaining an average of 0.79% and for the Senate in each of six states, winning an average of 0.27%. The Progressive Labour Party [profiled in last month's International Viewpoint] contested two seats in Victoria, winning an average of 3.3%* * Notes 1. In the electorate of Sydney, six of the eleven candidates were to the left of Labor: the Greens with 5.9%, DSP with 0.7%, Communist Party with 0.6%, Aboriginal activist Jenny Munro with 0.8%, Common Cause with 0.7% and Unity with 2.2%. In contrast, One Nation won 2.5%. 2. The Communist Party ran in two electorates gaining an average vote of 0.85%. Militant ran in one Victorian electorate, winning 1.25%. The Socialist Equality Party (affiliated with the "International Committee of the Forth International"') won an average vote of 0.75% in two NSW seats and 0.05% in two senate races. The Communist League, affiliated with the US SWP won 87 votes in the NSW Senate. 32 International Viewpoint #305 November 1998
It is evident from reading the economic and financial press that the bourgeoisie is now posing the type of questions that formerly were asked by only the most radical critics of capitalism. The current economic crisis is a turning point in the evolution of capitalism. We commissioned this in-depth report from the French economist Maxime Durand. Over 40% of humanity is living in countries hit by recession. And this proportion will probably rise in the coming months. National production has dropped 7% in Thailand, 15% in Indonesia, and about 50% in Russia.
This is not the time for forecasts and scenarios; instead, let us concentrate on the clear evidence in front of us, and try to understand it. The neo-liberal model, which is the contemporary form of imperialism, is clearly not a viable model for development.
It can work for a while, and in a small number of countries. But this model cannot be universalised, because it stands on the inadequate principle of generalised competition.
The chain of "incidents" is impressive: Mexico 1994-1995, Thailand 1997, and Russia 1998. Each time, the crisis hits a particular country, then expands regionally, then affects the world stock markets. The sequence of events is the same each time, but the effect is cumulative.
If we leave aside the particular case of Russia, the crisis isn't hitting the weakest and poorest countries, but rather those countries that had been held up as models of development - for which the World Bank had invented the term front runner.' Which brings us back to the reason why this model simply doesn't work.
The first limitation is quite simply that consumption of the Northern countries is not infinitely expandable. As almost all of the southern countries have turned to a strategy of exports at any cost, this disequilibrium leads logically to heightened competition between the exporting countries. Each one tries to gain advantage - not only absolute, but relative to neighbouring countries. only way to do this is to offer the most attractive (i.e. the lowest) salaries.
This orientation has the effect of blocking the internal market and accentuating dependence on exports. This in not simply an intellectual scheme proposed by Harvard professors. Its generalised imposition was the common strategy of a formidable alliance of multinational corporations, local bourgeoisies, and imperialist institutions.
The debt crisis of the 1980's set in motion the current process: to repay the debts it was necessary to reduce un-
necessary' expenses and to export to the maxımum.
This has always been the kernel of the IMF's restructuring plans. This reorientation of the economy was adopted with enthusiasm by the local bourgeoisie and aroused the interest of the multinationals, who acted as the active agents of redeployment and economic liberalisa-
The current conjuncture can be interpreted as a crisis of overproduction in the southern countries, which were pushed into producing more than the northern countries could buy.
This shows the cynicism of bourgeois analysts who denounce unfair competition from the southern countries.
Many labour activists must think again, too. "Delocalisation" of industrial production from North to South has often been presented, by labour leaders, as the principle reason for the rise in unemployment, especially in Europe. This explanation has been completely demolished by recent events. Not only have the southern countries not benefited from the increased volume of exports, but they have been the first and hardest hit in the
If European growth were threatened by competition from Asia, why then is Asia's collapse being seen as a menace and not as a relief? The reality is that North-South relations have taken the form of considerable transfers of wealth to the North. Unequal exchange is an increasingly obvious reality.
The second cause of the stock market shock is relatively recent. Raw material prices have fallen by 30% since mid1997. Adjusted for inflation, raw material prices are the lowest in 25 years. This decline is sharpest for oil, currently selling at US$12 per barrel, compared to
It is not surprising to see oil producers like Russia and Venezuela in difficulty. Nor is it surprising to see other raw material producers, such as Norway, Canada, Australia, and South Africa on the list of countries affected by the crisis. Of course, the sell-off of raw materials marks a return to the classical form of
More generally, the current crisis reveals the continued dependence of the third-world countries and the illusory character of the neo-liberal nostrums. To place countries whose levels of productivity are qualitatively different in direct competition can only result in the double phenomenon of bankruptcy of non-competitive producers and the neglect of social needs that these producers could have satisfied. Third World countries simply cannot compete under the hypercompetitive rules imposed by world capital.
Alongside producers of raw materials, a second category of semi-industrialised countries are feeling the pain of the current crisis. These countries are those which have indexed their currency to the US dollar or German mark, and which also have a growing commercial deficit.
This, of course, was the situation facing Mexico in 1994 or Thailand in
1997. A similar fate currently awaits
Brazil, Argentina, and Poland.
The victims of the previous crises never really got back on their feet, and the Japanese recession is continuing in such a way that the third world as a whole is about to enter a depressive phase. The Eldorado of "emerging markets" has disappeared into the mist.
After 20 years of application, neoliberal policies of structural adjustment have been proved to be dangerous and
This crisis in not simply financial. Capital doesn't shift completely haphazardly; it enters certain countries, attracted by the likelihood of high profits, and quickly withdraws when these expectations are menaced or put in doubt. Pegging local currency to the dollar, privatisation, and attractive interest rates - everything is done to retain capital.
The uncontrolled rise of the commercial deficit undermines such efforts, and translates into a continued, even reinforced, dependence. The increase in the volume of exports is accompanied by an even faster increase in the volume of imports, fed principally by the consumption of the dominant classes. Overproduction leads to a lowering of the price of export commodities, which in turn aggravates the disequilibrium of foreign trade. Beyond financial instability, these conditions demonstrate that the neo-liberal model is neither coherent The imperialist crisis
Reassuring declarations about the minor risk of repercussions or, in Europe, about the buffer role of the new common currency, the Euro, reveal the cynicism of Western rulers, who are not in the least worried about the crisis in the *emerging' countries (currently more submerged than emerging).
At the same time, the bourgeoisie is not mistaken in insisting on the relative compartmentalisation of the world economy, and the profound asymmetry of imperialist relations.
There is no such thing as a single global economy, perfectly homogenised and unified, where every difficulty is immediately transmitted to the whole. The effects of the shock are principally lateral, and are being transmitted, primarily, between countries of the third world.
The rebound effect on the industrialised countries is initially positive. In a *flight to quality, capital is fleeing the emerging markets to take refuge in the most secure areas of the world economy. Securities (Treasury bonds and equivaeconomics * lents) issued by imperialist states to finance their budget deficits, offer the ideal safe refuge.
As Europe is currently in a growth phase, it is the principal beneficiary of this movement. The increased demand for state debt means interest rates (the price of this debt) can come down. Since this means private companies and consumers can also borrow money more cheaply, it contributes, in theory, to further growth.
The transmission of the crisis through commercial channels is easy to understand: when countries enter in crisis, they are no longer market outlets.
This dynamic has so far only been evident in Asia, where the interdependence of Japan, the Tigers, and the Dragons has involved them all in a downward spiral.
The Japanese recession has greatly contributed to the fall off in raw material prices, especially oil.
China is the great unknown, shaken by internal tensions at the same time as by speculation on the Hong Kong dollar. A simultaneous devaluation of the Chinese yuan and the Hong Kong dollar is now a possibility.
As to the imperialist countries, analysts are trying to reassure themselves by pointing out the limited role that the crisis-ridden countries play in their exports. This may be true for each country taken separately, and particularly true in the case of Europe, but the boomerang effect is already visible, not only in Japan, but also in the United States, nearly half of whose exports go to Asia or Latin America.
Apart from these direct effects, indirect effects also have to be taken into account. If, for example, the U.S economy
International Viewpoint #305 November 1998 33
* economics slows down as a result of a decline in sales to Asia, this slow-down would have an immediate effect on European and Japanese exports to the United States.
This is why the IMF forecasts are constantly being lowered, including for the current year. Last May, the IMF predicted world economic growth of 3.1% for 1998; now they are forecasting a growth rate of 2%. Compare this to average 4% growth rates from 1994 to
Parallel to the return of capital to safe harbour, the transmission channels of finance started to speculate, at first with the stock exchanges which are falling chaotically and ultra-sensitive to the most minimal announcement which might be judged unfavourable.
Wall Street fell 6.4% in one day, after the announcement of a 150 milliondollar loss by the Salomon Smith Barney investment bank. All of the stock exchanges stumbled over the Starr report, while Alcatel lost 40% of its value in one day after the announcement of a lowered
The banks play the role of transmission channel at the heart of the financial sphere, but also that of a channel to the productive economy. The banks in effect hold the assets that serve as guarantees
If stock market panies devalue these assets, they find themselves in a predicament which leads them to tighten loan conditions, shrinking the volume of loans. This credit crunch is well illustrated by the case of Japan, where the entire banking system finds itself in just such a situation. This helps to explain the Japanese enigma, where for years neither lowered interest rates nor fiscal expenditures have helped to refloat the economy.
When the German banks do their accounts of losses sustained in Russia, there is a chance of the same type of phenomena occurring, even if the government absorbs a part of these losses. Inter-imperialist contradictions
There has been no growth in the Japanese economy for almost six years. The famous Japanese model, so much praised a few years ago, is over. The slowdown in Japanese exports is, of course, partly the result of the revaluation of the yen in the mid 80's. This policy, which made it harder for Japan to export, but easier for Japanese consumers to buy foreign goods, was adopted by Tokyo at the insistence of the USA. Washington was increasingly frustrated at the inability of US multinationals to gain control of the "hearts and minds" of Japanese consumers.
Japan's real estate crisis and the potential failure of the country's banking system, awash with property-backed loans and negative equity, contributed to the intensifying of this downfall. In addition, there has been a long-term dec34 International Viewpoint #305 November 1998 line in the creative and inventive capacity of Japanese industry. The country's leading companies are finding it increasingly difficult to system to resist the North-American attack, and restore Japan's technological supremacy.
Given the size of the Japanese economy, the recession there makes it more difficult to stimulate growth in the rest of the world. Particularly, of course, in the Asian countries currently suffering most from the economic and financial crisis.
The United States are coming to the end of a growth cycle whose unusual length has given rise to euphoric theories. In fact, the apparent increase in US productivity stems from a double statistical under-estimation: the reality of working life in the US is a lengthening of work-time and the expansion of multiple jobs.
US capitalism is still incapable of realising all the potentialities of new technologies.
The end of the cycle is coming. The only real question is which form it will it take: a soft-landing or a brutal collapse.
The second scenario is more likely. It is hard to see how the growth of domestic consumption can be maintained, and the foreign trade deficit brought under control. The level of household savings in the US has fallen to 0.6% of disposable income. In other words, households now consume the whole of their
One factor that has helped boost consumption in recent years has been the profits made by some upper-middle class families in the USA, where it is common for richer individuals to place their savings in shares as well as savings accounts. Since the value of shares had, until the recent shock, doubled, compared to 1995, many well-off families had plenty of extra money to spend.
Not any more. Every slowdown on Wall Street and every reversal of growth will immediately intensify the slide. And when the banks and investment houses cut their high-paid workforce, the credit institutions which were partly tinancing the good life will also be in difficulty
The US persistently registers record deficits in its foreign trade. How to finance this deficit? This veritable sword of Damocles is something which the more zealous supporters of the new era systematically forget.
True, the current deficit is less than 3% of GDP. But that means US$220 billion. And interest payments of $100bn in 1998. So far, the deficit has been covered by an inflow of capital from Japan and Western Europe. Profits in Europe are still good, and Japan has such a low interest rate that those with real money prefer to invest it in the US. For how long? No-one knows.
These factors underline the unsustainable character of the American model, and the impossibility of spreading the "virtuous circle" to Europe.
The most probable scenario is a slowdown of the American economy faster and greater than estimated
Economists have a tendency these days to confuse Euroland and Disneyland. The new common currency, it seems, will usher in a new period of stability and growth. After years of sclerosis, the European Union is expecting to play the role of the engine of the world economy. Unfortunately, this optimistic view is not the most probable.
The EU's 1997 Amsterdam Treaty, which governs the management of the Eurozone, does not make adequate provision for the hard, and rapid decisions which must be made in moments of financial turmoil.
If Europe faces some future "asymmetric shock" (i.e. something which affects one member state much more than the others), the Euro system will come under incredible strain.
This is not surprising. The national economies of Europe are not equally positioned from the point of view of their integration in the world market (structure of foreign trade, specialization, sensitivity to the dollar's fall), and the relations of internal forces between classes are different from one country to
These are the objective reasons that will form an obstacle to a coordinated policy. The reactions will have a tendency to diverge spontaneously, whether from the point of view of the states or of the different fractions of European capital. Should there be an injection of liquidity or should the opportunity to restructure capital be taken? Should austerity be increased or on the contrary purchasing power raised? Should countries follow suit of the dollar's fall or not? These are just some of the questions for which Europe has no answers. The Maastricht and Amsterdam Treaties on European Monetary Union have not specified a mechanism for dealing with these questions, or the
principles, necessary for a coordinated
The whole philosophy of the European integration project leads to a procyclic policy, which instead of dampening the shock will multiply its effects. Just listen to Wim Duisenberg, president of the European Central Bank: *If governments are only keen to maintain the initial objectives in terms of deficits for 1999, some countries will drift away rather than approach the requirements of the stability pact which calls for a budget near equilibrium or even in surplus." Hardly reassuring.
The recent G7 meeting of the key imperialist countries sent a message in favor of policies in support of growth, by hinting that inflation is weak or falling in numerous parts of the world" and by insisting on the necessity of "close cooperation" to "pressure or create the conditions for a sustainable subsequent growth and financial stability". US president Bill Clinton rushed to clarify that "the US will have to work with Japan and Europe, as well as with other countries to stimulate growth"
Officials from the central banks of the G7 countries were quick to spoil the party atmosphere. The head of the US Federal Reserve, Alan Greenspan, declared that "for the moment there aren't any attempts to coordinate interest rate
, while Hans Tietmeyer, his colleague from Germany's Bundesbank, warned that the G7 statement did not contain any "signal for overall monetary and that he doesn't see any reason" for such a loosening of monetary policy in continental Europe.
Undeterred. Bill Clinton and lony Blair said global financial institutions should be reformed and reinforced to deal with future shocks. In response, members of the American Congress refused to authorise any increase of the US contribution to the International A political and ideological turn
The anxiety of the bourgeois officials is evident. "Every person endowed with a sense of history and a spark of imagination should be seriously worried," Martin Wolf wrote in The Financial Times on September 9th. IMF President Michael Camdessus declared that he was "ringing the alarm bell: get prepared for the next crisis!"
Mega-investor George Soros, who has experienced huge losses in recent months, seems to be sinking into depression: "The global capitalist system, which has generated a remarkable prosperity in this country during the last ten years, is on its way to disintegration," he
The credit rating agency Standard & Poor believes that a second depressive wave is affecting Singapore, Taiwan, Hong Kong and China and is starting to reach the shores of the United States and of Europe. It estimates at 4:1 the probability that the problems in Asia will continue aggravating during the coming months and lead to a depression similar to that of the 30's which will have a significant impact on the world economy.
This dark scenario would combine the following elements: the bankruptcy of many large financial institutions in Japan, another collapse of the Tokyo stock exchange, the yen's fall to 200 to the dollar, a devaluation of the Chinese yuan and the Hong Kong dollar, further devaluations in the rest of Asia, failure by Indonesia to repay its external debt, and important devaluations in Latin America, notably in Brazil.
The result of these events will be a recession in the US in 1999 with a drop in GDP of 0.5%, and a steep slowdown in Europe where growth will drop to
The difficult articulations between the disparate elements of this dark scenaro suggest that such a catastrophic, simultaneous and general collapse of all the major economies is not the most plausible hypothesis, even if its probability coefficient has risen during the last
The most probable scenario is a shrinking of the cycle in the United States and Europe which would lead to a successive entry of the different zones of the world economy into a stage of very slow growth coupled with localized recessions and a growing disconnection between the North and the South. Its exact outline will depend mainly on the degree of coordination among imperialist countries. When we hear the president of the IMF explaining that "the term "coordination' ceived by Central Bankers, who tend to maintain the spontaneous character of miracles of forward planning.
We certainly cannot rely on the expert leadership of Michael Camdessus, for whom "it is not the strategy that was bad, but its application".
More serious bourgeois ideologists go to the depth of the problem. On September 5th one editorialist in The Economist reluctantly admitted that China and India, which for years have been far less connected to the global capitalist system than South Korea and other countries, have fared much better in the crisis. "There are doubtless lessons to be learned from this," he wrote. Quite what those lessons are, he
Presumably, he wanted to say something along the lines of "we are forced to recognize that the world capitalist economy is not the best imaginable. In any case, there is a need for a controlled reversal that saves the essential."
The breach is opened. The fact that
Camdessus can declare in the name of the IMF that "controls on capital movements are not prohibited" but that "they ought to be used with extreme caution" hardly encourages partisans of the new Multilateral Agreement on Investments, which seeks to forbid the slightest attempt by states to control capital flows.
In The Economist of September 12, Jeffrey Sachs violently attacks the IME, where he was a guru, and suggests that "developing countries should impose their own supervisory controls on short-term international borrowings... Chile does this by taxing short-term flows; other approaches may
This is one of the most astounding features of the current environment. Sup posedly archaic economic policies are suddenly being discussed and their implementation is tolerated. Malaysia implements strict controls on capital movements. Hong Kong intervenes on the stock exchange to penalize speculators, Russia suspends its debt, and the Japanese government announced the nationalization of the Long Term Credit Bank of Japan (under the more delicate term "special administration by the
Sacks is not satisfied with criticizing the IMF and the World Bank for having acted "with stunning arrogance in developing countries". After denouncing the "dictates" of the IMF (though without much explicit self-criticism he adds propositions. The first is to launch a kind of Marshall plan, through regional organizations like ASEAN. Another proposal is the cancellation of debt of the poorest countries, on a much faster rhythm than
A considerable change is taking place. Not only have neo-liberal solutions suddenly lost their legitimacy. But at the same time radical solutions have emerged, and are the subject of serious debate by economists, bankers and
Now they accept that total liberalization of capital is not optimal. This leads them to admit the possibility, even the utility, of controls on capital movements. The proponents of the MAI project have been pulverized. Not by the progressive opposition, but by their own side!
controls and nationalization can again be discussed in polite society. Though radical social alternatives will not emerge overnight, we are certainly entering a new phase. *
International Viewpoint #305 November 1998 35
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