World economy: A crisis of global capitalism

"Consider the big picture: an east Asia of toppling currencies and bank insolvency: rising unemployment in Latin America’s largest economy (Brazil) and falling real wages throughout the region: stagnation and unemployment in Europe: a rapidly approaching limit to the capacity of US consumers to take on more debt. As the global economy slows, social unrest threatens. This global … contraction could lead to a deflationary cycle." Robert Reich, former US Secretary of Labour, in the British Financial, Times 15 January 1998.

A turning point

The ongoing turmoil and financial meltdown in east Asia, has confirmed the perspective put forward by the CWI at its last IEC meeting, in November 1997, that world capitalism is moving into a new, synchronised downturn. This is a turning point in the post-Stalinist period.

The crisis in Asia became acute in July last year when Thailand, after spending $25 billion in a desperate move to prop up the value of the baht, was forced to devalue and asked for assistance from the IMF. But this is not simply an "Asian crisis"; it is a crisis of global capitalism which will cause economic, political and social instability all over the world.

The crisis is not restricted to finance and banking, but also to what used to be called "the real economy". It is not only banks and finan-cial institutions or investment- and pension funds that are active on the financial markets; the big companies – the multinationals – are also active players in the global ’casino’ economy.

The collapse in east Asia and its aftermath have shattered the illusions built up in the so-called "emerging markets" and is striking a political and ideological blow against the bourgeoisie. These economies were held up as models of capitalism, but what is now left of that model ?

The last recovery (from 1991) was the weakest recovery in world capitalism since 1945 and in Europe it has been a jobless recovery. World capitalism is heading towards a new recession and is in a more volatile and fragile position than before.

East Asia and Japan will hardly experience any growth this year. Indonesia, Thailand and South Korea will suffer an absolute fall in output. Millions of east Asian workers have already become unemployed. In South Korea alone, one million jobs could be lost this year – 12 per cent of the workforce – in a country that does not have a social safety net. As one placard read in a demonstration in South Korea: "IMF = I’M Fired".

The latest figure given is that 7 million jobs will be wiped out during this year in the region. The unemployed will be plunged straight back into poverty. In Indonesia alone, the number of people classified as poor could swell from 24 million to 42 million – one in five Indonesians. "East Asia is heading for a social catastrophe", warned a spokesperson for the ILO in Bangkok. The existing political order in the region can not survive the present crisis; it will be turned upside down.

Over the last couple of months the world has experienced a general slow-down in growth rates, shrinking demand, production cut-backs, mass lay-offs and increased competition on the world market. The finan-cial system is balancing precariously on a tightrope. The credit crunch is causing a wave of bankruptcies throughout east Asia.

Along with that, the present financial turmoil "is perhaps the most serious crisis since the break-down of the Bretton Woods system in the early 1970s. Its repercussions are global and much serious than the financial crises we’ve seen in the past 15 or 20 years", said Yilmaz Akyuz of the UN Conference on Trade and Development in an interview in the US Wall Street Journal, 19 January. In the same interview, he stressed that this crisis is "certainly more serious" than the ’peso crisis’ in Mexico 1994-95 and the Latin American crisis at the beginning of the 1980s "because we have much greater integration financially. And these (Asian) countries have a much higher share in the world economy in terms of trade and production".

At the end of 1997, the debt-ridden economies in the region were on the brink of default. The amount of short-term debt that could not be re-paid – in the case South Korea, $65 bn. – forced the IMF to step in. Part of the IMF’s so-called rescue package was to ensure that at least some of this money would find its way back to western banks and funds. The IMF acted on behalf of western imperialism. Its actions strangled these economies. At the same time, the imperialist powers used the opportunity to strengthen their influence in the area.

This new recession will develop against the background of a completely different world situation compared to that of the last crisis, in the beginning of the 1990s. Then the slowdown was overshadowed by the historic changes that followed the collapse of Stalinism. The world bourgeoisie hailed the collapse of Stalinism as a final triumph for capital-ism and western imperialism – the planned economy had been beaten by the superiority of the so-called free market and liberal capitalism. In that way, the beginning of the 1990s was becoming, despite the crisis facing the world bourgeoisie, dominated by capitalist triumphalism reinforced by the imperialist victory in the Gulf war and the proclamation, by president Bush, of a ’new world order’.

All over the globe the message was being spread: there is no alterna-tive to the so-called free market. This idea was echoed by the leaders of the labour movement and penetrated the minds of the masses. In general, consciousness was falling back and the workers’ movement became disarmed in a political and ideological sense. This played into the hands of the bosses, who intensified their attacks on every gain the workers had achieved during the long post-war upswing.

However, the 1990s were also characterised by an increased social and political polarisation, a growing distrust in the capitalist establishment and an undermining of confidence in bourgeois institutions. The political and social discontent that has accumulated even during the latest recovery, will now come to the fore and give way to an anti-capitalist mood. This new recession is developing at the same time as there is a beginning of a global popular reaction against neo-liberalism and the capitalist establishment.

Over recent years the bourgeoisie has constantly repeated that the process of globalisation, de-regulation and the rapid development of new technol-ogy was going to generate prosperity all over the world. There has also been much talk about the "new paradigm" in the world economy: That instead of inflation and low productivity gains, as in the 1980s, the world has entered a period of sustained growth and low inflation, in which capitalism was on its way to overcoming the "productivity paradox". However, investment in ’IT’ (information technology) did not boost overall labour productivity throughout the advanced capitalist countries. Instead of producing a new paradigm, the world economy was breeding a classical capitalist crisis, expressed in overcapacity and, to some extent, even over-production.

The blind and chaotic market forces, fuelled by speculative capital, have created a worldwide overcapacity in several key industries – from semi-conductors to cars. This excess of goods, or ’glut’ – in the sense of profitability rather than real need – will lead to an enormous destruction of capital (productive forces) and wealth.

Every continent will be affected by this new world recession. The events in Asia, according to the IMF, could knock nearly 1 per cent off potential growth in the developed world in 1998. However, the drop in world production is likely to be bigger than this figure, given the fact that there is a lot of wishful thinking based on the assumption that after the ’bail-out’ things will start to get better. But the latest events contradict this: the severe crisis in Indone-sia, the collapse of the Hong Kong merchant bank Peregrini. In a recent speech, Alan Greenspan, chairman of the US Federal Reserve, said: "We have as yet experienced only the peripheral winds of the Asian crisis. But before spring is over, the abrupt current account adjustments, that financial difficulties are forcing upon several of our Asian trading partners, will be showing through here (USA) in reductions in demand for our exports and intensified competition from imports".

East Asia acted as an engine of global growth in 1990s. The region generated 60-65 per cent of the growth in world output between 1990 and 1995. The same region has been responsible for 70 per cent of the increase in world investment in the 1990s. Asia as whole accounted for a bigger share of global investment than the US and the EU put together in the mid-1990s. Rising exports and increased demand in SE Asia have been an important factor behind the recovery in the 1990s. That, in itself, indicates that shrinking demand in Asia, drastic cutbacks in imports and much slower growth will have a huge impact on the rest of the world.

It seems that the world is moving into a new recession at a speed that could not have been foreseen in November last year. No one can predict in advance how deep the crisis is going to be and how long it will last before a new recovery begins to develop.

A crisis was brewing

The private capital inflow into the region was based on the as-sumption that economic growth and a rapidly booming property market could be sustained indefinitely. However, as pointed out by Marx and Engels a long time ago: Capitalist expansion always comes up against the resistance "offered by consumption, by sales, by the market for the products of modern industry… The markets cannot keep pace with the extension of production. The collision becomes inevita-ble".

Already in 1996 there were signs that the investment boom in SE Asia was leading to ’over-investment’ or overaccumulation of capital. It had created overcapacity in goods and property. The return on capital began to fall and the value of exports started to go down.

What took place in South Korea is a graphic illustration of how this process – towards overcapacity and a deflationary spiral – developed. In the words of the British Financial Times, 15 January: "South Korea enjoyed an investment boom 1994-95, but at a cost. The chaebol, always heavily reliant on borrowing, now had huge debts – four times equity on average – and excess production capacity. Prices for computer memory chips, Korea’s largest export, col-lapsed in a global glutted market. Earnings of chipmakers fell by 90 per cent. Cars, shipbuilding, steel and petrochemicals were also affected…. The corporate debt bomb was primed to explode. The first detonation came in January 1997 when Hanbo Steel col-lapsed. By now a wider crisis in Asia was under way."

Later on, in 1997, an outflow of foreign capital started. "The South Korean currency, the won, dropped sharply. Foreign banks began refusing to roll over short-term loans to South Korea. By early November, the slide in the won was accelerating. Foreign currency reserves started the month at $30 bn, less than three months’ imports. They fell by half in two weeks."

Balancing on the edge

Due to many factors the crisis in SE Asia immediately worsened the crisis for Japanese capitalism (see other material such as the last two issues of Socialism Today, the theoretical and discussion journal of the Socialist Party, the British section of the CWI). 43 per cent of Japanese exports were going to other countries in Asia, up from 30 per cent in 1990. During the 1990s, up to 70 per cent of the increase in Japanese exports has been to the rest of Asia.

Japan is already in a recession. In fact, the country has not recovered since the ’bubble economy’ burst at the beginning of the 1990s. In December1997 the Bank of Japan said, "The economy is undergoing a severe shock". Unemployment could reach 5 per cent this year – the highest figure since the second world war. Retail sales dropped 4.7 per cent from November 1996 to November 1997 – the biggest drop since 1955. Domestic demand in Japan continues to fall as consumer spending goes down. Japanese capitalism is therefore compelled to try to export itself out of the crisis, but meanwhile their competitors in other Asian countries have devalued their currencies and are trying to do exactly the same.

The wave of competitive devaluations that has followed the financial ’meltdown’ is also affecting China and Hong Kong. The Hong Kong dollar is still pegged to the US dollar. Despite the impending crisis in the finance- and property market, the Hong Kong dollar is becoming increasingly over-valued. Asia’s weakened currencies have nearly wiped out all the competitive advantage China gained from the yuan’s 33 per cent devaluation in 1994. Increased competition from abroad and a general slow-down in the growth of world trade could force the Chinese government to devalue again, whatever the Government is saying today. A devaluation in China would make the Hong Kong dollar’s peg to the US dollar unsustainable. In the words of the British Observer, 11 January: "The devaluation of both currencies is now a real possibility rather than a vague fear".

Asia as a region is now becoming a net exporter instead of a net importer. Asia’s slowdown means less demand for Japanese capital goods. Japan must therefore try to increase its share of markets in the USA and Europe. This will build up tension in the world market and cause even bigger problems for Japanese capitalism.

The Far Eastern Economic Review at the end of 1997 asked the question: "How bad can Japan’s economy get ? Consider this scenario for 1998:- Stock prices plunge, causing a number of banks to collapse. Consumers cling to their savings in fear of the future. The economy descends into a full-blown recession… The prime minister resigns and political turmoil reigns. The nightmare is already turning into a reality".

The Finance minister in Japan has already been forced to resign, after yet another corruption scandal and the arrest of numerous officials at the Finance Ministry. The present government may have to go before the end of this year.

The financial meltdown in Asia sent shock waves into the already extremely fragile banking system in Japan. Japanese banks have lent the rest of Asia $275 billion.

Many of the Japanese banks would already have been wiped out (the official figure for the banking system’s bad loans is $600 bn.) if it was not for the fact that they are fiddling the figures. Unlike other banks they can count over-valued equity portfolios as part of their own capital. But that also means that if the Japanese stock market index (Nikkei) starts to fall again, as it did throughout 1997, and if the Nikkei plunges beyond 14 000, Japan’s 20 biggest lenders would face $96 bn. in losses. That figure is from November last year and is probably much higher today.

The spectre of a world financial crash, as the outcome of a severe banking crisis in Japan, cannot be ruled out. If the Japanese stock market continues to go down during this year and the economy contracts even more, then there is a risk that Japanese banks will start to go bust. That can happen despite two government rescue packages. (The first one worth $250 bn. has already been announced; the second one will be announced in February.)

In the three years up to 1995, the Japanese government pumped $500 bn. into the economy but it continued to stagnate and Japan ended up with the largest budget deficit in the G7 group – 7% of GDP. If these new packages fail to stimulate growth and ease the financial crisis, then the Japanese banks may be forced to eat into the re-serves they have abroad and to start withdrawing their holdings in the USA and Europe. Such a development can trigger off a worldwide dip in share prices on the stock markets and cause severe turmoil in the currency markets.

One of the reasons the US government is putting pressure on Japan to boost its economy is that the North American capitalists are facing the threat of an actual capital outflow, if the dollar starts to fall. This will happen especially if the Japanese banks start to take back their holdings in the US and Europe.

The threat of deflation

The new recession will aggravate the confusions, splits and divisions that are already evident inside the bourgeois camp. A section of the bourgeoisie will undoubtedly, for their own reasons, come out in favour of increased public expenditure – a reflationary policy to prop up demand – and for more regulations to protect markets.

The most far-sighted section of the bourgeoisie has started to draw parallels with the situation before the 1929 crash. As the former US Secretary of Labour, Robert Reich, wrote in the British Financial Times January 15:

"The seeds of depression were sown in the late 1920s, when demand began to fall. By 1927 sales of houses, cars and consumer durables were in decline, commodity prices had turned downwards and industrial production began to fall. We are entering a similar era."

"Even before the Asian currency crisis, world prices were falling for basic goods such as food, energy, steel and other commodities. A large… global contraction is under way. We are experiencing only the beginnings".

However, it is too early, at this stage, to conclude that the world is heading towards a slump on the scale of 1929-33. There are no exact parallels between today’s position and the one that existed in the late 1920s and the decade after. Every crisis and period of depression has its own historical peculiarities.

Nevertheless, if the present stagnation turns into an absolute fall in world production, as in 1974-75, the entire world will experience the most severe crisis of capitalism since 1929-33. Many countries, both in the underdeveloped and in the advanced capitalist world, will experience a similar catastrophe to that which took place in the US in 1929 when the economy, in the words of Trotsky, "catapulted itself into the abyss of monstrous prostration".

Trotsky’s description of what happened in the USA in 1929 can be applied to what is now happening in Indonesia, a country with nearly 200 million inhabitants, the 4th most populated country in the world. The currency, the rupiah, has lost 85 per cent of its value against the US dollar in seven months. Interest payments are over 100 billion rupiah a year, twice as much as the government receives in income from tax and VAT. According to the magazine Far Eastern Economic Review, January 29: "At least 6 million people are newly unemployed, and over the next few months untold millions more stand to lose their jobs". Ninety per cent of listed firms are technically insolvent and they have stopped paying their debts. Indonesia has sunk into stagflation and price increases are now running at an annual rate of 60 per cent.

In the search of food, shops are being rioted and looted. The food crisis is becoming increasingly acute in Indonesia. The days of Suharto are numbered – he will have to go.

No wonder that a section of the bourgeoisie is now saying, as expressed by Martin Wolf in the British Financial Times, 20 January, that: "One important lesson from the east Asian crisis is that international capital flows can threaten economic stability. Some regulations are re-quired."

A cynical joke, spread amongst the world’s speculators, sums up the reaction of the market after the events in east Asia: "What is the definition of an emerging market ? Answer: A market that you can’t get your money out of in an emergency !" This is one way of saying (and it is certainly not funny) that capital flow into the so- called emerging markets is slowing down as a result of what happened in east Asia, Brazil and even the Czech Republic last year.

The speculative character of this capital has been shown in east Asia. South Korea, Indonesia, Malaysia, Thailand and the Philippines suffered a net private capital outflow of $12 billion in 1997 – "The first ’major retrenchment’ by international investors in emerging markets in the 1990s", according to the US Wall Street Journal, 30 January. In 1996 these countries were recipients of a net inflow of $93 bn.

In total, net capital inflow to Asia will sink to $62 bn. in 1998, from $90 bn. in 1997 and $150 bn. in 1996. Latin America will slip to $65 bn. in 1998 from $82 bn. 1996.

Under the hammer of US imperialism and the IMF

Under the policies that east Asian countries have been forced to implement by the IMF, they have been ordered to balance budgets, raise interest rates, abolish subsidies on food and electricity, accelerate de-regulation and privatisation and to put their banks and industries up for sale. This is enormously aggravating the social and economic crisis in the region. Not only the masses, but also the petit-bourgeoisie and a section of the national bourgeoisie, will come under the hammer of the IMF.

Western imperialism is acting in a very arrogant way; the de-scription now widely used of "a new form of neo-colonialism" is accurate. The IMF is a direct tool of US imperialism.

The IMF and western imperialism were compelled to act, when South Korea was just days away from "having to default on its maturing short-term dollar (loans) at the turn of the year", (British Observer 11 January). A Korean default would have triggered off a banking crisis in Japan, which held $25 bn. Korean debt, and caused enormous financial turmoil in countries where South Korean banks had invested money. South Korean banks were large investors in, for example, East European junk bonds. The US, with 37,000 troops in South Korea, realised that a default on the part of that country would have huge geo-political repercussions throughout the region. But the IMF and imperialism did not act just to avoid an acute crisis. Wider and strategic factors were behind this so-called bailout, worked out in a special ’war room’ in the White House.

This time, US intervention took the opposite form from that in the aftermath of the 1949 Chinese revolution and the Korean War of 1950-53. Then, imperialism was prepared to give full support – financially, politically and military – to South Korea and other east Asian countries.

The backing of US imperialism, to-gether with the active role played by the state – even protection-ism to support developing industries and reserve domestic market for them – laid the basis for the transformation of South Korea into a highly sophis-ticated economy. These special factors explain why South Korea enjoyed an export growth of 34 per cent a year in the 1960s and 23 per cent in the 1970s.

However, the situation changed dramatically after the collapse of Stalinism. In the new world order, western imperialism, for a long time now challenged by these countries’ performance on the world market, saw no reason why domestic markets in SE Asia should be restricted or why the state should continue to protect – through laws and regula-tions – banks and industries owned by the national bourgeoisie. Western imperialism’s denunciation of "crony-capitalism" in east Asia has to be seen in that context. The very same "crony-capitalism" was build up with the support of US imperialism as a bulwark against social revolution.

The IMF’s programme and the outcome of the debt crisis will give western monopolies an opportunity to buy cheap assets in these countries. Banks and industries will now be ’on sale’ and, in the words of the US Magazine Newsweek 2 February, "The Americans have returned with a vengeance. This time they have taken the form of U.S. investment banks, asset and hedge funds and specula-tors like George Soros, all of them riding a tide of triumphalism as the West’s powerful capital markets overwhelm the closed finan-cial system that Japan inspired throughout Asia. As the Asian contagion topples economy after economy, the U.S. firms are prising open these systems with a ferocity that 150 years of U.S. trade negotiation could not achieve". In short, western imperialism is going to plunder the region. This will provoke a strong mood of anti-imperialism which will also be directed against those politicians and capital-ists seen as responsible for this surrender to IMF and US imperialism.

We have to see the revolutionary potential in such a move in an anti-imperialist direction and big struggles that might develop. However, there is also a danger that, if the working class can not lead the struggle, this anti-imperialist mood could be exploited and diverted by chauvinists or even racist demagogues. The recent attacks against the Chinese minority on the Indonesian island of Java is a warning of what can happen in the future.

Nevertheless, the policy of the IMF, together with the arrogance of imperialism, is a recipe for social unrest and workers’ revolt in east Asia. A new generation of workers will enter the arena of struggle and try to form their own independent organisations. However, in the initial stage, the proletariat in east Asia could be stunned by the speed and depth of the crisis.

Even new bourgeois governments could be forced, during the course of a deepening crisis and under pressure from the masses, to implement measures that challenge western imperialism and the IMF. Such measures could include refusal to pay off debts, nationalisations, controls over foreign exchange and reintroduction of food subsidises. This happened in Venezuela in 1993-94, when a new government came to power after a banking collapse and a revolt from the masses. The present triumphalism of imperialism will cause its own backlash.

US imperialism is exploiting the crisis in Asia and is trying, at the expense of other advanced capitalist countries, to conquer a bigger share of the region’s shrinking market. The Australian government has, for example, accused the US of "stealing its traditional export market", particularly in Indonesia. The head of Australian cotton growers said recently, "The US has behaved like looters after an economic cyclone". Australia supplies about 40 per cent of Indonesia’s cotton and is the largest supplier of numerous commodities. The growing trade friction between the US and the Australian government reflects the rising tensions which have built up in the sphere of world trade due to the economic collapse in east Asia.

The alleged miracle in Mexico

The bourgeois commentators are now saying that Asia should ’learn from Latin America and Mexico’. The alleged Mexican miracle, after the devaluation of 1995 and the IMF rescue package (to save US inves-tors), resulted in:- another million workers on the dole, 20 million more Mexicans pushed below the poverty line, huge sections of the middle class ruined and an uprising in Chiapas! The PRI (the ruling party) and the state-controlled union federation ended up in complete disarray. The peso crisis broke down the old political order in Mexico. Still, GDP (in US dollar terms) has not reached its 1994 level. Mexico today is even more dependent on the US than it was then. More than 85 per cent of Mexico’s exports go to there. A slow-down in the US and a fall in the value of the dollar will immediately hit the Mexican economy.

Growth in Latin America as a whole will not exceed 3 per cent this year – down from 5.5 per cent in 1997. Brazil is already in a recession. The J P Morgan Bank is forecasting that the Brazilian economy will drop 0.5 per cent in absolute terms this year. In the wake of the government’s last $18 bn. austerity package, unemployment soared to a record level – 16 per cent in Sao Paulo. If the Brazilian government fails to uphold the value of the currency, the ’real’, and is forced to devalue, then a whole series of compet-itive devaluations could erupt throughout the continent.

The recession in Brazil has been accompanied by a slow-down in Chile. One third of Chile’s exports went to Asia. The loss of markets in Asia, together with the collapse in the price of copper – Chile’s main export, has caused stagnant growth and soaring deficits.

The fall in commodity prices will tend to undermine the economies in the less developed countries even further. Some countries which have only one source of income, like Nigeria with its oil-exports, are going to face a nightmare.

The West is sliding into recession

In the West, the bourgeoisie is becoming more pessimistic about the future or as Financial Times wrote January 27: "Asia’s financial crisis is starting to have knock-on effects on companies around the globe".

North America is now the only major economy that is a net importer and inevitably the US trade gap will soar. This could "arouse protectionist sentiments", in the words of The Economist 17 January. However, given the development of world trade and the process of globalisation, a move towards protectionism or "regulated trade" will probably be on the basis of the main trading blocs rather than individual nation states.

As long as the US economy is growing at its present rate, there is not an acute danger of a return to protectionism. Anyway, the US cannot on its own act as a locomotive in the world economy, especially not at this time, when the recovery in the US has reached its peak. The latest forecast by the Federal Reserve is also warning that there are signs of weakening demand in the US and that Asian exports are gaining competitiveness.

Weakening demand means lower profits and ultimately a fall in share prices. The Wall Street Dow Jones Index is bound to come down this year from its lofty heights and: "A dramatic drop in the Dow could squash consumption and investment and drag the economy into recession". The Economist, 17 January.

A crash on Wall Street could trigger a worldwide stock market crash. This is not 1987. Then, the world economy was still in a recovery stage and, with the injection of more than $ 100 bn. by the governments in Japan and West Germany, the fall of the dollar was halted and the crisis was postponed for two years.

This can not simply be repeated. World capitalism is in a much more difficult position today than it was in 1987. The economic conjuncture – the upturn – has reached its peak. German and Japanese capitalism no longer have the enormous surplus they had in that period and the market in Asia is shrinking. Although, faced with the prospect of a slump, governments and central banks will have to intervene and pump in more money. This will not necessarily have anything like the same result as in 1987, given the difficulties that exist.

Since 1995, nearly every country has experienced an effective devaluation of its currency against the US dollar. The appreciation of the dollar has boosted, for example, German and French exports. A strong dollar is making US firms less competitive and is increasing the USA’s current-account deficit. This, together with a tendency towards slower growth, could start to bring the dollar down which, at a certain stage, will cause a flight of capital from the US. However, for the time being, the US dollar is regarded as a "safe haven". The capital inflow into the US, partly motivated by an assumption that interest rates there may raise, is holding up the value of the dollar, despite a soaring trade and current account deficit. Nevertheless, an opposite process could develop when the speculators, for one reason or another, fear that their assets in US dollars are at risk. Then they will look for other "safe havens", such as the deutschmark or the Swiss franc. This could trigger turmoil on the European currency market. It would be impossible to maintain an all-European fixed exchange rate mechanism under such circumstances.

As was pointed out in an article in The European, 19-25 January: "The impact of an American downturn on Europe would be particularly marked if, as expected, it sends the dollar into reverse. The pick up in Germany and France has been export-led as the deutschmark and other EMU currencies have fallen against the dollar. Domestic demand has hardly picked up at all. Should the dollar be weakened through 1998, the main impetus for Europe’s encouraging growth rate could be removed. Forecasters are already starting to anticipate this as 1998 is progressing". If, the article continues, this becomes a reality, "growth in Europe will quickly fall back to the dismal level of the early 1990s. Would the euro survive ?" We have to answer ’no’ to that question.

It is becoming increasingly likely that Europe is heading for a recession during this year. The effect of the Asian crisis is lagging behind a bit, but the latest reports and warnings from industries in, for example, Sweden and Germany are saying that exports and output will go down. A new recession in Europe will, in the end, wreck the EMU project or compell the EU-countries to postpone it to the distant future.

Exactly when this would be is another question. Nevertheless, the EU-countries are still trying to bring themselves together and go ahead with the project. The struggle against the Maastricht austerity measures will therefore continue to be a feature in any major class battle in Europe.

The repercussions of the Asian crisis on European exports, output and banking could be much bigger than anticipated by the bourgeois media. European banks lent heavily to east Asia even in 1997, when all the other banks were pulling out. Europe’s banks combined have $365 bn. loaned to Asia. It can not be ruled out that the taxpayers of Europe (in many countries for the second time this decade) will be asked to pay for the losses incurred. In addition to that, slower growth will increase budget deficits throughout Europe and "take the gloss off the predicted recovery in 1998", according to the Observer, 25 January. New austerity measures will be needed in order to meet the Maastricht criteria. This, together with job losses, is going to pave the way for an upsurge in the European class struggle. As one Guardian journalist put it:"There is a risk that the financial meltdown in Asia will be followed by a social meltdown in Europe".

The gap between rich and poor is now greater than at any time in the history of capitalism. Mass unemployment and under-employment in the world are now on the same level as in the 1930s, although in western Europe still ’cushioned’, to some extent, by social security provisions. Wage inequality in many countries, one of them Britain, is now bigger than at the beginning of the Industrial Revolution. In 1997, 1.3 billion people on the globe lived in absolute poverty (according to the United Nations definition). Even in the developed capitalist world, there are now 100 million people that the UN regards as poor.

The recovery in the 1990s was mainly based on the super-exploitation of workers and the oppressed masses in the less developed world. Capitalism in the 1990s has all the features that Marx describe in the volumes of Capital: "Accumulation of wealth at one pole is therefore at the same time the accumulation of mis-ery, agony of toil on the opposite pole i.e. on the side of the class that produces its product in the form of capital". For a huge section of the working class, especially the most oppressed – the low paid, part-time and un-skilled workers, women and immigrants – there has been an absolute decline in their living standards, despite the recovery.

A constant re-distribution of wealth and incomes, from ordinary people and the public sector into the pockets of the capitalists, has taken place during the last 10-15 years. Over the last fifteen years the earnings of about half of all working people in the US have dropped in real terms, while the share of profit of national income rose from 4.8 per cent to 8.4 per cent 1995.

The contradictions in society which were deepened during the last economic recovery, will pave the way for social explosions in the future. The movement of the unemployed in France is an indication of what can take place. Such a movement can act as catalyst and inspire other sections of workers and youth to take the streets.

For the parties, sections and groups affiliated to the CWI, the coming period will open up new possibilities for growth, both in membership and influence. The most burning issue now is to pre-pare our forces, theoretically, politically and organisationally for the turmoil and social unrest that lies ahead. The greatest danger is that our programme, slogans, tactics and day-to day work reflect the past and not the present or the future.

Back to Socialism and Marxism

The bosses will try and put all the burden of the crisis on the shoulders of workers and the poor: that is a recipe for bitter class struggle of strikes, occupations, etc. In the movements that will erupt – in defence of jobs and welfare and for shorter working hours and a living wage – the ideas of socialism and public ownership will be back on the agenda. A strong feeling will emerge against the dictatorship of the market and those who argue that it should be replaced by a democratically planned economy based on people’s needs not profit will find a ready response. We have to be seen as the champions of international socialism and transform our sections into combative organisa-tions that can intervene in struggles and show the way forward.

Recent events have exposed the crisis of capitalism and bourgeois ideology. The question that follows from that is: Why is capitalism not working and what are the origins of this crisis ? To find an answer and a rounded out explanation, youth and advanced workers will turn to the ideas and methods of Marxism.

This year sees the 150th anniversary of the Manifesto of the Communist Party, written by Marx and Engels. The Commu-nist Manifesto was written in order to arm and prepare the mem-bers of the Communist League for impending revolutions that swept across Europe in 1848. It still stands out as one of the most important works ever written. Its last words are more resounding than ever: "Let the ruling class tremble at a Communist revolution. The proletarians have nothing to lose but their chains. They have a world to win. Workers of all countries, unite!"

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