Capitalist crisis, a socialist alternative
Section One: World Relations
Chapter Two: The economy and the productive forces
At the same time, it is the development of the economy, of the productive forces, that is ultimately decisive in determining the march of events. When the Asian crisis first broke in the middle of 1997, our international organisation, in the teeth of considerable scepticism from the ‘experts’ of capitalism argued that this was the beginning of a world economic crisis, which at the least, would be a serious recession and could topple over into a slump. In a series of CWI documents, articles in the weekly press of the CWI British section and its journal Socialism Today, we have charted the development of this crisis at every stage. We also have a separate resolution that deals with present trends in the world economy and particularly future perspectives. But in any analysis of world relations, it is necessary to touch on some of the fundamental features of the world economy and their impact on political events
Despite all the frantic urgings of bourgeois strategists, particularly directed towards Japan, like a Greek tragedy, the world inexorably moves towards a serious economic downturn. All the factors which led to the feeble growth which followed the recession in the early 1990s have now turned into their opposite and like great leaden weights are dragging down the world economy. Globalisation was seen up until recently as one of the factors that guaranteed that capitalism had entered a ‘new era’, had established a new and permanent equilibrium, a ‘paradigm’. In reality, as we argued, it has acted ultimately to undermine capitalism. The globalisation of finance capital, in particular, means that the crisis, the ‘Asian flu’, has spread at lightning speed, touching every part of the globe, resulting in unparalleled gyrations in the stock markets, and resulting in the spectacular and sudden drop in the real economies of Asia in particular. Globalisation has been used an ideological and political weapon against the working class and as one of the main arguments against the idea of struggle. Rather than trade union leaders taking steps to unify workers’ struggles internationally, Globalisation has been used by these privileged layers to hold back and derail struggle by workers, especially those concentrated in the powerful multi-national conglomerates.
The empiricism of most bourgeois ‘experts’, and the panic which events have introduced in the thinking of the serious strategists of capital, was summed up in an article in the British Financial Times by Robert Wade, a professor of political economy at Brown University. He declared: "Those who thought that the Asian crisis had abated have had a rude shock. Forecasters are again chasing Asian economies downhill. Earlier estimates that in 1998 Korea’s output would fall by 5%, Thailand’s by 7% and Indonesia’s by 2% appear to have been too optimistic. Implied falls in consumption and welfare are even bigger, because the output figures include substantial net exports. Asia is in the grip of a debt deflation akin to the Great Depression of the 1930s."
And as the good professor further comments: "Financial systems are grounding down as private and public debtors stop repayments, tipping more and more companies into insolvency."
The contagion has gone from Asia to Russia, parts of Central Europe and Latin America. Yavlinsky, the Russian bourgeois politician who stands for ‘clean capitalism’ declares that "this is not Asian flu. This is Russian pneumonia". As the crisis has spread to each area, it has amplified "the downturn in the others and fuelling the US bubble through capital flight".
Asian crisis deepens
The fond hopes that the crisis could be restricted to just five countries in east Asia - Indonesia, Thailand, Korea, Malaysia and the Philippines - have been dashed as Hong Kong and, above all, Japan have been burned and, in turn, have aggravated the crisis in Asia. More importantly, as we have pointed out, Japan, the second-most important economy in the world, threatens to drag the whole of world capitalism down with it in the next period. Hong Kong, a haven for finance capital which was supposed to be immune from the Asian catastrophe, is following in the footsteps of Japan with a colossal asset deflation of 40% in six months and a 50% drop in the stock market. The situation has prompted the European and the American bourgeoisie in particular, to hysterically denounce the Japanese capitalists for allegedly refusing to lead Asia out of the crisis. ‘Spend, spend, spend’ is the cry of even those monetarists who have demanded financial rectitude from governments in the past. Even the guru of monetarism, Milton Friedman, alongside Paul Krugman of the Massachusetts Institute of Technology, has urged Japan to go in for a "sustained dose of rising inflation". The new vogue for neo-Keynesianism has been adopted in the most unlikely quarters, such as the writers of the British Financial Times. The six failed attempts - amounting to a total injection of $1,000 billion has only acted to aggravate Japan’s recession, yet the international bourgeois still urge increased state expenditure. The British Financial Times has gone so far as to demand that a new reflationary programme should amount to as much as 3% of Japan’s gross domestic product.
Such proposals for Europe, infringing as they do the Maastricht criteria, would be seen as pure financial heresy if there was an attempt by the any European government to implement them. At the same time, the Japanese government has been urged to deal with the colossal $200bn (estimated) total of ‘problem loans’ of the banks, which is, by the way, three times higher than previously thought. This huge ‘debt overhang’ has acted as a colossal incubus on the Japanese economy.
But, as bourgeois economists have pointed out, a write-off of these loans, or a foreclosure on bad loans, would force a huge number of Japanese companies into bankruptcy. This, in turn, would risk tipping the Japanese economy into an even deeper slump with huge company closures and a massive credit squeeze. As one Japanese government official complained: "If we don’t act at all, we will get criticised. But if we act too fast, we could worsen the recession. We cannot win."
The liquidation of bad loans and with it of companies, despite the economic and social havoc which it causes, is an intrinsic feature of capitalist crisis. It represents the ‘slaughter of capital’ which is a feature of overproduction and slump. This, in turn, prepares the ground for the emergence of new capital with a higher rate of profit, which plays a role in the recommencement of the economic cycle, the beginning of an upswing. But we are far from that situation in Japan; in fact, we face a further and further deepening of the recession and possibly a slump.
Despite all the wailing of the bourgeois experts, there is very little that Japan can do to postpone the evil day of economic recession and slump. The underlying and fundamental weakness of the Japanese economy is reflected in the collapse of the yen, which has only temporarily been bailed out by the intervention of the US Federal Reserve, which acted to prop up the yen. This was the first currency market intervention by the US since the summer of 1995 and reflects the fear that, if left uncorrected, the fall of the yen was about to trigger a new series of Asian devaluations led by China. The latter had maintained the rate of the renminbi, the Chinese currency, even though its rivals have devalued, which has seriously affected Chinese exports. For instance, the value of the Indonesian rupiah has fallen by 80% in comparison with the Chinese currency.
With Japan also depreciating its currency, this situation threatened to further undermine Chinese exports. A devaluation was clearly threatened which, in turn, prompted the US to intervene. However, such intervention is only a temporary tool, and without any solution being possible in the short term to the underlying problems of the Japanese economy, the yen will probably continue to fall. Therefore, at a certain stage, China will be compelled to devalue which, like the 1930s in the advanced industrial countries, could trigger a new wave of devaluations across Asia which would have an immediate impact on the neighbouring countries of Australia and New Zealand. It could also spread to Central Europe and Latin America, and would have a big effect on Europe and the US.
Despite a certain flight of capital to the ‘safe haven’ of the dollar, the underlying position of the US economy, as we have explained previously, is unsound. The US trade deficit rose 9.5% in April of 1998 to a record $8.8bn. Moreover, the tightening of credit in the US, the continuing squeeze on wage rates which, in turn, depresses the ‘market’, the increased competition from Asian imports, all means that the US itself is coming to the end of its economic cycle. There is now a strong possibility that a repetition of the events of Asia, a financial crisis leading to a slump in the world economy (a repetition of 1929), could take place on a world scale in the period that we are entering.
‘Anti-foreigner’ and anti-imperialist moods
Our broad analysis of the situation in Asia has been confirmed but the suddenness of the drop in the economy in countries like Indonesia, the Philippines, etc., even we could not have anticipated. What haunts the bourgeoisie is the political and social consequences of such a development. Robert Wade comments in a masterly understatement: "We have seen large-scale social protest in Indonesia. But Indonesia may be a special case. South Korea is the key to the wider regional response. There, unemployment is rising at more than 6,000 people a day and, when the big conglomerates start to fire workers towards the end of June, the number will rise much higher. Hyundai recently announced plans to fire 18% of its employees. Korea has only the most minimal social safety net. But it is also has strong trade unions which can be expected to mount resistance.
"If the worse came to the worst, anti-foreign movements could sweep president Kim Dae Jung from office. A new government might declare a moratorium on its foreign debt, turn real interest rates negative and begin to inflate out of the crisis. This would dramatically change other Asian leaders’ surprisingly passive acceptance of the IMF strategy. The odds of this happening may be no more than one in five. But it is clear that the IMF’s approach is not working."
Korea shows that the slaughter of capital is not a theoretical idea but takes a material, concrete form. The Korean government is set to close a swathe of Korean businesses, including five chaebol. This could unleash an unprecedented movement of the Korean workers.
While the US and Europe have been concerned to contain the Asian crisis for fear of it affecting their own economies, at the same time they have seized the opportunity to enhance their own position at the expense of Japanese and Asian capitalism in general. The IMF has been the instrument to impose austerity programmes, a vital part of which is to open up these economies through flexibilisation and investment of foreign, particularly US, capital. Thailand, a formerly closed economy, has been compelled to ease the rules governing foreign ownership because of the desperation for foreign cash. Even Japan, famed in the past for refusing to create a more favourable climate for foreign investment, under the impact of the crisis, has caved in and is now prepared to ‘give its blessing to foreign take-overs’.
This goes together with indications that Japan has been compelled to undertake a partial financial withdrawal from Asia. 56% of companies with investments in Asia have been damaged by the crisis. As we predicted, one consequence of Asia’s crisis, and the intervention of US imperialism through the medium of the IMF, is increased imperialist financial penetration. The arrogance of Clinton and his financial representative, Larry Summers, towards Indonesia, for instance, fuelled opposition to the IMF and ‘foreigners’.
In 1998 US acquisitions of Asian businesses have reached a value of $8bn, double that of the previous record year, which the British Financial Times correctly comments is a reflection of the "drive by US corporations to take advantage of Asia’s deepening crisis". Little wonder that even in Japan, "resentment is building in Tokyo against perceived US economic imperialism".
At the same time, some of the tenets of the ‘free-market’ economy have been challenged by sections of the Japanese bourgeoisie themselves. Confronted by a plunge in the economy, estimated at 5% this year, the weakness of the yen and the outflow of investors into non-yen assets, such as US government bonds, sections of the ruling Liberal Democratic Party, the main bourgeois party, have raised the need for "controls on the flow of capital". Even the British Financial Times has flirted with "regulating capital flows, particularly short-term speculative capital".
One thing is clear from these developments in Asia, that not just in the underdeveloped part but even in advanced Japan, deep-seated, ‘anti-foreigner’ moods can be fanned into flames in the teeth of a serious economic downturn. This, in turn, can lead to action being taken against ‘foreign capital’. Already we have seen the effect of the ‘nationalisation’ of companies in some countries and the threat to do so for ailing companies even in Japan. A pronounced anti-imperialist and more nationalist mood will be one of the consequences in Asia and other parts of the underdeveloped world of this economic crisis. And, as we have pointed out, Asia is already having an effect on Europe and the USA. However, irrespective of this effect, the economic cycle in Europe, and particularly in the US, is drawing to an end.
Unemployment in all sectors of the world
Commenting in an American journal recently, Cait Murphy compares the record of the US in creating jobs to the position in Europe. She points out that there were 4.5 million fewer people working in the countries of the European Union in 1996 than in 1991. We have to remember that this is during a so-called ‘economic boom’. Moreover, unemployment in Europe amongst those under 24 and not in school is 20% and, as Murphy points out, "There is no more volatile, or violent, section of human society than a pack of idle young males."
The recent OECD report on unemployment shows just how intractable are the problems of capitalism even during an upswing. It points out that the level of registered unemployment in the industrialised world is expected to stabilise at about 35 million people, or 7% of the workforce. However, this perspective is highly optimistic given the likely developments in the world economy and their impact on Europe and the US. It points out that, although unemployment in the OECD area declined to 7.2% of the workforce in 1997, in Europe it is over 10% and "will remain a serious economic and social problem". Bourgeois experts have tried to argue that structural unemployment does not exist and that what takes place is a ‘churning’, that is, the entry and leaving of unemployment in rapid succession by the majority of those who are counted as out of work. Yet the OECD points out that there is a "growing number of households without any earners" in the industrialised world. It states that as many as "25% of households in Finland and 24.8% of those in Belgium have nobody who is employed".
The layering of the proletariat is also indicated in the OECD report when it states: "There is some evidence of a polarisation of employment", with the growth both in the proportion of workless households and in households containing two working adults. Over the last ten years only Ireland, the US and the Netherlands have experienced a rise in employment strong enough to lead to a reduction in the incidence of household worklessness. In the UK, Japan and Belgium, the OECD found that the household jobless rate had actually risen since 1985, despite the fall in the individual base rate of unemployment. The largest increase in household worklessness took place in New Zealand. This, of course, has been the country, at least in the advanced industrialised world, where neo-liberal attacks on the working class have perhaps gone furthest.