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A Theoretical Exchange:
What Are the Causes of the Current World Capitalist
Crisis?
Capitalism's Economic and Political Crisis
From Socialism
Today November 1998 by Lynn Walsh
Russia's economic collapse at the
end of August, one more broken link in the chain of
international crisis, marked a qualitative turning point.
Bourgeois strategists were at last forced to confront the stark
reality facing them, writes LYNN WALSH.
ASIA, WHOSE INTER-REGIONAL and external
trade makes up a third of the world total, has entered a deep
slump, which is remorselessly spreading around the globe.
Warning the US Congress against complacency, the financier
George Soros said (15 September): 'The global capitalist system
which has been responsible for our prosperity is falling apart
at the seams'. Some commentators are now warning of the onset of
a world depression.
The capitalist ruling elite is also
realising another nightmare: they are now facing not only
economic disaster but also the beginnings of a deep social and
political crisis. This is already clear in Asia. Far from being
merely a cyclical downturn, cumulative losses are leading to a
breakdown of society's productive capacity, opening the door to
social turmoil and political upheavals. The fall of Suharto in
Indonesia is just the overture. It has also began to dawn on the
gurus that, just as the economic contagion is spreading,
political turmoil will also become a world-wide epidemic. In the
sphere of international relations, the Indo-Pakistan nuclear
tests and the US missile strikes on Afghanistan and Sudan are
early symptoms of increased volatility.
The intoxicating aroma of capitalist
triumphalism which flourished after the collapse of Stalinism
has evaporated in a few turbulent months. The 'new economic
paradigm' (model) - recently so popular on Wall Street and in
academia - has been shattered. Conjured up by the born-again
disciples of unfettered market forces - in reality, the
advocates of the multinational corporations and banks - the new
model was based on the claim that liberated market forces,
combined with new technology and globalisation, have given rise
to a prolonged period of unlimited economic growth and rising
prosperity. This has proved to be a fantasy, more an
hallucinogenic trip stimulated by the super-profits of the
1990s, than the product of rational economic thinking.
Despite repeated claims from the
economic pundits that the 'fundamentals' (meaning high profits,
low inflation) were now much sounder than in the bad old days,
the real performance of the advanced capitalist economies (ACCs)
during the 1980s and 1990s has never approached the levels of
the post-war upswing(1950-73). Average annual growth in real
terms (i.e. allowing for inflation) has been about 2.3% in the
1990s, compared with 5% during the upswing. Rates of capital
accumulation (net increase of capital stock) and productivity
growth have also been markedly lower. At the same time, total
unemployment in the ACCs climbed another 10 million every
decade, and now totals over 35 million (according to official
figures, which understate the real levels).
New features of world capitalism
THERE WERE UNDOUBTEDLY new features in
the world economy which appeared in the last two decades and
were linked to the hollow, finance-driven booms of the eighties
and nineties. But far from overcoming capitalism's long-term
trend towards stagnation and decline, they have ultimately given
rise to new contradictions which are aggravating the present
crisis.
(1) New technology:
Microprocessors, new communications
technology, and other innovations, it was claimed, would produce
new products and processes, allow much more flexible methods of
production, and would produce a productivity miracle. In
reality, new technology has had contradictory effects. The
growth of new high-tech sectors has far from compensated for the
de-industrialisation and structural unemployment arising from
the labour- and material-saving effects of new technology
(combined with new management methods).
Microtechnology, especially in the
field of communications, has served as a vehicle for
globalisation, especially of financial markets. It has also
allowed multinational corporations to locate plants and secure
outsourcing in cheap-labour countries, with minimal taxation and
negligible environmental, health and safety, or labour
regulation. Through accelerating some areas of production (motor
vehicles, computer equipment, etc), while causing de-industrialisation
and unemployment in traditional manufacturing areas, the new
technological systems have helped give rise to over-production.
Even in the US, new technology has not
produced the long heralded productivity revolution. Despite a
cumulative investment of $630bn (1987 constant dollars) on
computers between 1980 and 1994, the US could not lift
productivity growth above its pathetic post-1973 trend rate of
1.1% a year (compared with 3% between 1960-73). In the
developing countries, it is also doubtful whether new technology
has significantly raised productivity levels in the new plants
above world averages. Multinationals have primarily relied on
the intensive exploitation of plentiful cheap labour. Growth was
mainly investment-driven, with the influx of capital mobilising
enormously increased inputs of labour, materials and energy into
production. (Ironically, this is analogous to the grossly
inefficient investment-led growth during the last period of the
state-planned economy in the Soviet Union.)
(2) Globalisation:
Facilitated by new technology,
globalisation was increasingly finance-driven. It was an
outgrowth of the relative decline of industrial production in
most advanced capitalist countries. Wealthy investors sought new
fields of investment for their super-profits, seeking higher
profit levels than they could achieve at home. In the 1990s
speculative investment in property, financial services, and
shares and company bonds, became the fastest-growing sector.
True, under globalisation multinational corporations seized
opportunities of locating plant and securing outsourcing in
about two dozen semi-developed countries, mostly in East Asia.
But even investment in new production plant was increasingly
through shares and company bonds, and became more and more
speculative.
During the 1980s net private capital
flows from the ACCs averaged $13bn a year, but rose to $90bn a
year in the early 1990s. By the mid-1990s $300bn a year was
flowing to about twenty-five 'emerging markets'. About 9% of
this was invested in commodities, 37% in manufacturing, and 53%
in services (a third of it in financial services).Globalisation,
however, works both ways. The flood of highly mobile capital to
the emerging markets produced a speculative bubble, especially
in Asia. This collapsed last year when inflated share and
property prices and high debt levels could no longer be
sustained. The rise of the US dollar, moreover, made it
impossible for Thailand and the others to keep their currencies
pegged to the dollar (as it raised their export prices to
uncompetitive levels). However, the devaluation of the Thai bhat
and other regional currencies last July shattered the confidence
of foreign investors. The resulting flight of capital triggered
the opening of a world crisis. The globalisation of financial
markets, under which a shock in one region is rapidly
transmitted to other centres, has ensured that, in less than a
year, the Asian crisis has spread across the continents.
(3) Capitalist restoration in the
former Stalinist states:
The capitalist re-colonisation of the
former Soviet Union, Eastern Europe and the massive penetration
of foreign capital into China, it was claimed, would not only
prove the superiority of capitalism but play an important part
in a world-wide capitalist renaissance. In reality, capitalist
restoration has been a catastrophe for the people of the former
Stalinist states. Russia has suffered a drop in production of
between 50% and 80% since 1989. Following the collapse of the
rouble and the government's default on dollar loans, the peoples
of the former USSR are facing the spectre of mass starvation.
The rapacious antics of capitalism's
infant prodigies, former bureaucrats and mafia turned robber
barons, has provoked an economic and financial collapse which
will inflict serious damage on international finance capital.
Bad loans to Russia make up 20% to 25% of the loan portfolios of
many US and European finance houses. At the same time, the
international ambitions of Russia's emergent bourgeoisie are
causing serious complications for US imperialism on the world
arena. China, recently hailed as a key component of the Asian
miracle, also faces serious economic problems which will soon
spill over into political turmoil.
(4) Neo-liberalism:
Free-market policies (privatisation of
state industries, deregulation of markets and business activity,
and the undermining of work-place rights and organisation to
establish labour 'flexibility') liberated big business from its
Keynesian fetters (full employment, high social spending based
on high taxation, strong workers' organisations). (See endnote
on Neo-liberalism and Keynesianism.) The invisible hand of
free-market forces, it was claimed, would regulate economic
activity far better than governments. Far from being a 'natural'
evolution, however, neo-liberal policies were forced through by
capitalist governments using economic and state coercion,
legitimatized by an array of neo-liberal legislation.The
capitalists turned to neo-liberalism after the high inflation of
1974-79 which followed the exhaustion of the upswing.
The turn away from Keynesianism
provoked big clashes with the working class, but the labour
leaders were incapable of defending past gains. Then the
collapse of Stalinism, which despite its deformations had acted
as a certain counter-weight to capitalism, allowed the ruling
class to abandon all restraint in its switch to uninhibited
free-market policies. Events like Reagan's defeat of the air
traffic controllers' strike in 1981, and Thatcher's defeat of
the year-long miners' strike in 1984-85 in Britain, were
crucial.
By increasing the bourgeoisie's share
of the wealth, however, these policies inevitably accentuated
social inequalities, ultimately undermining the market for
capitalist goods and services. This inevitably sharpens one of
the most basic contradictions of capitalism: the tendency of
capital accumulation to outpace the growth of the employed
labour force, which restricts the ability of the working class
to purchase the goods they produce in the course of the
capitalist production process.
In the late 1980s and 1990s the
neo-liberal package appeared on the surface to have successfully
provided an escape route from the contradictions of the post-war
upswing period (1950-73). That period was also the era of the
Cold War between imperialism and Stalinism. The increased
strength of a working class enjoying full employment, together
with the achievements in that period of the planned economies of
the Soviet Union and Eastern Europe, compelled the capitalists
to make significant concessions to the working class in the form
of state welfare services and relatively high living standards.
There was no shortage of demand for capitalist goods and
services. On the contrary, high and sustained demand combined
with new methods of mass production stimulated a prolonged
investment boom and high profits, despite increased taxation.
In the early 1970s, however, that
virtuous circle of economic and political factors gave way,
through the internal contradictions of the system, to a crisis
of capitalist profitability. As post-war technological systems
(mass production of motor vehicles, chemicals, electrical
equipment, etc) reached their limits, and a strengthened working
class increasingly fought further intensification of
exploitation, the unprecedented growth of productivity (output
per worker/hour) slowed down. Rising real wage levels were
therefore no longer compatible with high profits. Moreover, the
workers used their industrial strength to increase their share
of the wealth produced. It therefore became imperative for big
business to increase the share of the wealth produced (from
workers' labour power) going to profits - which could only be at
the expense of wages.
After the shock of the 1973 oil price
rise, which triggered a world slump (1974-75), the capitalists
therefore turned away from Keynesian policies to neo-liberalism.
Step by step post-war concessions were reclaimed through
privatisation, cutting back the 'welfare state' and, most
decisively, through attacking workplace rights and trade union
organisations.
There was a similar rolling back of
concessions by the advanced capitalist powers to Third World
countries. Through agencies such as the IMF, the World Bank, and
GATT, a free-market 'restructuring' was imposed in order to open
up 'developing' countries to the free-ranging activities of the
multinational corporations and banks.
Neo-liberalism restored the
profitability of the capitalists in spectacular fashion. The
tiny layer of wealthy capitalists reaped hyper-profits, with
much reduced taxation into the bargain. Much of it came from
speculating in finance and property rather than production.
But like every other capitalist
'paradigm', neo-liberalism has created the conditions of its own
destruction. Hyper-profits were excavated from the chasm of
inequality. In the US, the neo-liberal model, the top 1% now
owns as much wealth as the bottom 90%. The earnings of a
majority of workers have steadily declined since 1973. For a
time, the capitalists could develop new markets for luxury goods
and services amongst the affluent strata and also exploit new
markets in a handful of rapidly developing economies in Asia and
elsewhere.
Accelerating inequality, however,
inevitably undermines markets. So the strong demand but
diminishing profits of the post-war upswing have been replaced
by booming profits combined with increasingly inadequate demand.
The result is the currently developing world slump.
A general crisis of the system
ALL THE CONTRADICTIONS of the
neo-liberal adventure are manifest in the current downturn. It
is not merely, or even primarily, a financial crisis: it is a
deeply rooted crisis of capital accumulation, now expressing
itself as a crisis of production.
(1) Over-production:
There is a classical crisis of
over-production. This is associated with the contraction of
production and trade, and a general fall in prices - all coming
together in a deflationary spiral. Even last year it was already
clear that in Asia there was serious overcapacity (of probably
30% or more), especially in computers, electrical consumer
goods, and motor vehicles. The Asian slump almost immediately
caused a sharp fall in the prices of oil and other commodities
(down 30% this year to a twenty-year low), transmitting the
crisis to mainly commodity-exporting economies.
East Asia is, in any case, part of the
US, Japanese and European multinationals' global production
complex. As the crisis deepens and spreads, rising unemployment,
reduced income levels, mounting business and consumer debt
defaults, and government cuts, will further erode demand and
accentuate over-production on a world-wide basis.
Over-production will hit the advanced capitalist economies too.
This must lead, according to the anarchic logic of capitalism,
to a massive destruction of productive capacity and even higher
levels of mass unemployment.
(2) Financial instability:
The acute instability of globalised
financial markets is accelerating and will, at a certain stage,
provoke a major crash. There has been continuous volatility
since the 1987 crash. But in the last three or four years the
volume and volatility of world capital flows has increased
enormously. The recent flight from 'submerging markets' in Asia,
Eastern Europe and Latin America has dramatically increased
volatility.
The flight to 'quality' (i.e. 'safe'
investments in the US and Europe) has temporarily postponed a
crash on US and European stock exchanges. In fact, for a time
some of the capital returning from 'emerging markets' went into
US and European shares, leading to further rises. In the last
few weeks, however, there has been a series of sharp falls. The
traders now acknowledge that, after sixteen years, the (rising)
'bull' market has given way to a (falling) 'bear' market.
Nevertheless, leading shares, especially in the US, are
substantially over-valued in relation to companies profit
performance. It is only a matter of time before the US slow-down
(which will be followed by Europe) will precipitate a much
bigger stock-market 'correction' - i.e. an almighty crash.
At the moment, exchange rates between
the US dollar and major European currencies are relatively
stable (though there are some signs that the dollar is beginning
to slide). But a marked decline in the dollar, which is likely
in the next few months, will once again provoke world currency
turmoil. Among other things, this will sink the EMU.
(3) Excessive debt:
Neo-liberal policies, despite their
emphasis on sound money and balanced budgets, have not overcome
the problem of excessive debt which first emerged after the
1974-75 slump. The world debt mountain (both private and
government) is rising rapidly and will sooner or later collapse
under its own weight.
Credit is essential for capitalist
production and trade. The relative decline of production and the
turn towards financial speculation, however, has produced a
disproportionate burden of debt. Much of the investment in
emerging markets - in shares, company bonds, privatisation, etc
- has been financed on the basis of loans (ie debt). Consumer
spending has relied heavily on credit cards and consumer
finance. All's well when business is booming. But a downturn
inevitably produces a chain of bankruptcies, a so-called
credit-crunch.
The sharp fall in prices of
commodities, the main exports of many Third World countries, is
drastically undermining their ability to repay debt and
interest. At the same time, increased unemployment and reduced
incomes will make it impossible for many consumers, especially
the new middle class which enjoyed a short burst of prosperity,
to repay consumer debt. 'Bad debt' is a world-wide problem, but
the Japanese banks excel all the others with unrepayable loans
of at least $1,000bn. An implosion of the Japanese banking
system and/or cumulative defaults around the world will have a
devastating effect on the US and European banks and finance
houses.
These are the interlocking elements of
a critical chain reaction. The sequence and timing of events
cannot be accurately predicted. The leaders of the major
capitalist states are powerless to reverse this process and, on
the basis of their current policies, are unlikely to slow it
down or mitigate the effects of a major slump. Japanese
capitalism, as its leaders now admit, is sliding into a deep
slump. And it is only a matter of time before the US, which is
already experiencing a marked slow-down, also enters a serious
downturn. Given the importance of the US as a world market and
the pivotal role of the dollar internationally, a slump in the
US may well open the door to the deepest economic depression
since the end of World War II.
A crisis of bourgeois economic policy
THE LEADERS OF the advanced capitalist
countries have been plunged into a crisis of policy. Buoyed up
by the apparent continuation of the rising 'bull market' on US
and European stock exchanges, bourgeois strategists (with a few
exceptions like George Soros) were resolutely denying the
seriousness of the Asian crisis and its global effects.
Earlier this year Clinton said it was
just a 'glitch on the road'. Greenspan, head of the US central
bank, even described the Asian crisis as 'a salutary event'
which would dampen the markets' 'irrational exuberance' and help
counter inflationary trends. It took the August collapse in
Russia to jolt most of them out of their blind complacency.Even
now, the G7 leaders have no idea of what measures they can take
to avert the onset of a world slump. Despite Clinton's call for
decisive leadership, there is no real agreement on policy
co-ordination by the leading capitalist powers. They are still
tightly laced in the ideological strait-jacket of
neo-liberalism.
The G7 governments are (a) still bound
to the minimalist, non-interventionist role of the state in the
capitalist economy; and (b) their thinking is still dominated by
the anti-inflation policies which reinforced the financial booms
of the late 1980s and early 1990s but which are
counter-productive in the present situation.
(a) The role of the state:
Privatisation of previously state-owned
industries and the cutting back of state investment in
infrastructure projects, social welfare, and so on, has to some
extent reduced the ability (in any case limited) of capitalist
governments to influence economic trends. With the free movement
of capital and commodities across frontiers, not even the major
capitalist economies can, under present conditions, escape the
pressures of world financial markets.
In fact, the ideologists of capitalism
have in the recent period elevated 'market forces' to the level
of mystical forces operating above the social and political
relationships through which real economic activity develops.
Some even hail 'the market' as society's ultimate - and of
course benevolent - governing authority.
Government is seen merely as a
ringmaster maintaining the circus arena for a troupe of private
performers. If they all pursue their own individual profit (it
is claimed), the 'hidden hand' of the market will ensure that
everyone is better off as a result. The ringmaster, of course,
is expected to use his whip when necessary against the workers
outside the privileged bourgeois circle. And despite the
globalisation of finance and trade, capitalist governments are
still charged with the task of maintaining the apparatus
(including the armed forces) of the national states, which
remain capitalism's basic territorial units.In the 1980s and
1990s it was no wonder that the major capitalist powers
willingly accepted the dominance of the global market, when they
operated as a siphon sucking profits from the whole world into
the coffers of the metropolitan bourgeoisie.
Through the IMF, World Bank, GATT, and
other agencies, backed up with threats of financial sanctions,
the imperialist powers forced the underdeveloped countries to
open up their economies and drastically scale down state
intervention in their economies. Third-world countries, which
had previously been allowed some protected national economic
development, were opened up to plundering by the multi-national
corporations and banks.
As a result, globalisation has not only
produced a slump but provoked deep social crisis, already posing
the threat of revolution to the ruling class in a number of
countries. That is why Mahathir Mohamad, Malaysia's president,
has turned against the free market, reimposing controls on
capital, foreign currency exchange and imports. This is a
pointer to the future. Other governments, faced with economic
collapse and the prospect of revolution, will resort to similar
measures to defend the national interests of the ruling class.
The leaders of the advanced capitalist
countries are, at the moment, unanimous in their condemnation of
Mahathir's rejection of globalisation. But when the economic
crisis hits the US and Europe with its full force, they will
undoubtedly move in a similar direction. They will not be able
to preserve an 'open' global economy any more than they could
after 1914, when the 1870-1913 world upswing gave way to a
period of depression and intense inter-capitalist rivalry.
When the US national economy faces
devastation, its capitalist leaders will once again turn to
controls of capital and protectionist measures against foreign
imports. This will not prevent US imperialism from continuing to
preach free trade to the rest of the world. In the next period,
the return to protectionism will most likely be on the basis of
the main trading blocs rather than individual states. Both NAFTA
and the EU, while relatively open at present, have all the
reserve mechanisms needed to establish a continental siege
economy behind protective walls. The looser Asian block
dominated by Japan would also raise protective walls.
When the capitalist class is faced with
the threat of social explosions and mass political movements, it
will be forced to turn back towards state intervention to prop
up big business and banks. Spending programmes will not
primarily be social programmes (though they will also be forced
to concede temporary reforms) but the 'socialisation' of big
business's liabilities. Such policies will not provide a way out
for capitalism, any more than similar measures did in the Great
Depression of the 1930s.
For the moment, however, the capitalist
powers are still locked onto free market policies. In relation
to the Asian slump, these policies, imposed through IMF
intervention, have exacerbated the crisis.
(b) Neo-liberal orthodoxy:
The new orthodoxy, which took over from
the early 1980s, is that the 'freeing up of markets' will
overcome every problem. Clearly, this corresponded with the
interests of the finance capital based in the major centres. The
only real danger, it was argued, was that posed by monetary and
fiscal laxity (that is, excessive money supply or budget
deficits). This reflects the capitalists' phobia about
inflation, which above all erodes the wealth of finance capital
(price rises reduce the real value of borrowers' repayments to
lenders).
After all, it was the high rates of
inflation which infected the world economy in the late 1970s,
when the Keynesian order was crumbling, that impelled the
capitalist class towards the sound money policies of monetarism
and neo-liberalism.
When the Asian crisis broke out with a
round of currency devaluations in July 1997, the IMF intervened
on the basis of anti-inflation policies. As the price of rescue
loans, the IMF demanded that the governments of Indonesia,
Malaysia, South Korea, etc, should shut down insolvent banks,
raise interest rates, and slash government expenditure - in
other words implement a severely deflationary policy.
This was a classic case of incompetent
generals fighting the last war rather than the one engulfing
them. Monetarist policies which preserved currencies as a store
of value and a sound medium of exchange served finance capital
well in the 1980s and 1990s. But in Asia today, and the world
tomorrow, the capitalists face, not an imminent threat of
inflation, but the reality of a deflationary spiral. The
collapse of banks, a flight of capital abroad, falling prices,
drastic cuts in employment and wage levels, all combine to bring
about a massive reduction of liquidity in the economy. The cash
flow required to finance production, trade, and all forms of
commerce dries up. Government measures like interest rate
increases and spending cuts can only exacerbate the problem.
Some capitalist policy-makers are now
beginning to recognise this. In recent months, the IMF has begun
to come under severe criticism for the policies it tried to
impose on governments in South East Asia. Joseph Stiglitz, chief
economist at the World Bank, complained that the IMF was pushing
East Asia into a severe recession: 'virtually every American
economist rejects the balanced-budget principle during a
recession. Why should we ignore this when giving advice to other
countries?' Now, while they would never dream of advocating such
policies at home, some economists are advocating a reflationary
policy for Asia, especially for Japan. In effect, they are
turning back to a form of Keynesianism.
A return to Keynesianism?
COULD A RETURN to Keynesian-type
policies provide a way out of the slump for capitalism? The
continued paralysis of Japan shows that it will by no means
provide a quick fix. Despite the complaints of western
governments that Japan was not doing enough to stimulate growth,
since 1993 the Japanese government has introduced six government
spending packages, estimated to total over $651bn. True, a large
share of it went to subsidise big construction companies to
build 'roads to nowhere'.
The spending packages were also
undermined to some extent by the government's attempt to claw
back some of the cost through increased taxation in order to
prevent a further rise in the budget deficit. Nevertheless,
these packages constituted the biggest Keynesian-type stimulus
in modern times. But even combined with near zero interest
rates, they have not succeeded in jump-starting the
economy.There is no easy way for reflationary policies to
overcome the deep structural contradictions that have built up
since the bubble economy of the 1980s.
The banks' mountain of unrecoverable
loans (which probably totals over $1,000bn) and the black hole
of overvalued shares and property concealed under the fictitious
figures currently entered in bank and company accounts, remain
an apparently insuperable obstacle to any economic revival.
Short of the liquidation of a series of banks and major
industrial conglomerates, in other words allowing a slump to
take its course, it is hard to see how any recovery can develop.
Defying the inflation taboo of the last
period, a number of US strategists have now began to advocate
the unthinkable for Japan - a policy of deliberate long-term
inflation. If zero interest rates have not stimulated any upturn
in spending, either by companies or consumers, then (their
argument goes) there must be a prolonged period of price rises
which will effectively produce a negative real interest rate
(i.e. the nominal interest rate minus the rate of inflation). If
savings are thus threatened by prolonged inflation, companies
and consumers will be persuaded to spend their money on goods
and services. Moreover, negative real interest rates have the
inestimable advantage for governments of eroding the real value
of their national debt.
Support for such a policy, strictly to
be applied to Japan and 'lesser breeds without the law', is
gaining ground in Washington and EU capitals. Support for
inflation, however, remains an abomination for the US and
Europe. This is shown by the refusal of Greenspan, chair of the
US Central Bank, to substantially cut US interest rates. The
fears of the capitalists that spending packages will push budget
deficits up to much higher levels underlines the dilemma they
face in this period. Government debt has reached historically
unprecedented levels, despite a period of neo-liberal policy.
(The huge costs of mass unemployment and pensions for ageing
populations is a big factor in this.) But in order to stave off
total economic collapse, governments will be forced to resort to
new spending packages. However, this will soon impose a
crippling burden of debt on many states.
Nevertheless, as the Asian slump
spreads to the West, the US and Europe may well face the very
same kind of liquidity trap as Japan. In that situation,
regardless of government policies, 'market forces' will sooner
or later produce new inflationary effects. Whether these will be
effective in reviving the economy is an entirely different
question. At a certain point, the spectre of inflation, even
hyper-inflation, would reappear.
While it can be a stimulus in mild
doses, inflation is a deadly cancer in its virulent
form.Capitalism will not be able to escape from its fundamental
contradictions. Whatever the depth and duration of the coming
world slump, however, the world economy will sooner or later,
given the political weakness of the forces opposed to
capitalism, move into a new period of cyclical growth. This will
not allow the capitalists to repair the damage to the system's
foundations - and the ruling class will face mounting mass
opposition to its rotten system.
Political crisis
THE APPROACHING ECONOMIC crisis has
already begun to reveal the rotten hollowness of the world's
most powerful capitalist leaders. Clinton, leader of the world's
lone superpower, is embroiled in the Lewinsky affair and is
threatened with impeachment. This reflects a much deeper crisis
of US capitalism's political machine, which is incapable of
formulating, let alone implementing, a coherent economic and
foreign policy.
The political impotence of Obuchi's
government in Japan reflects the crumbling of the LDP's social
and political base.In Europe most of the EU leaders are
fanatically committed to EMU, which will be a major casualty of
the coming slump, but can agree on little else. In Germany, Kohl
faces the prospect of defeat in the coming elections. Capitalist
leaders have yet to grasp the scale of the crisis facing them,
let alone formulate a policy to ride it out.
The real question is how did the
bourgeois leaders get away with it in the last period?
Governments of all complexions carried out neo-liberal policies
which heaped super-profits on the rich while cutting the living
standards of big sections of the working class and sections of
the middle class. In several European countries, notably Italy,
France, Belgium and Spain, this provoked massive waves of
strikes and social protest.
Yet governments of capitalist parties
and also of pro-market 'socialist' parties were able to ride
these out. Moreover, for a time bourgeois leaders were able to
win support, or at least acquiescence, on the electoral level
for the idea that the market is the only workable system and
therefore the logic of market-forces and globalisation have to
be accepted.
The electoral successes of pro-market
governments arose from several factors. The prestige of the
capitalist class - the appearance of social and economic power -
was enormously enhanced by the collapse of Stalinism. Linked to
that, the bourgeoisie was able to rely on the leaders of the
traditional social democratic parties and trade unions for
collaboration in carrying through pro-market policies.
Crucially, however, the capitalists'
ability to gain wider electoral acceptance for free-market
policies depended on the growth of the economy. This enabled
them to spread a small sliver of their fabulous profits among a
section of the middle class and skilled working class - who in
most advanced capitalist countries form a wedge of floating
voters whose choice of party determines the outcome of
elections. Some even gained a small share of the booming
financial and property markets, winning some acceptance for the
idea that the further enrichment of the super-rich is a
condition of increased prosperity for wider layers.
Deprived of their paupers' share of the
fruits of growth, however, the acquiescence of the suburban
'middle class' will rapidly change to anger and opposition.
There is already a deep reservoir of social discontent amongst
this strata. They, too, have been hit by cuts in public services
and are experiencing the insecurity of short-term job contracts.
They cannot escape the general effects of the social alienation
resulting from the dictatorship of the market - intense economic
pressure on personal relations, rising crime, the commercial
degradation of cultural life.
In the US, but also elsewhere, a large
section of middle class and skilled workers have bought shares,
or are now relying on pension schemes, annuities, life
insurance, etc, which depend on the performance of shares. A
major stock exchange crash would effectively wipe out their
savings - provoking a tidal wave of anger against the profit
system.
Historically, there has never been a
mechanical link between economic crisis and mass political
movements. The forms of struggle, and especially the timing,
cannot be predicted in advance. But one thing is certain. A deep
slump will shatter the illusions in capitalism which were built
up in recent years (even though all the underlying features of a
depression were already present). Consciousness will rapidly
catch up with reality.
Capitalist leaders made no attempt to
conceal their smug satisfaction when the crumbling Stalinist
dictatorships were shaken by waves of mass protest after 1989.
Thatcher, for instance, hypocritically championed 'people's
power' in Eastern Europe, which Western leaders utilised as a
cover for the restoration of capitalism. But as capitalism moves
into a deep crisis, the system - like Stalinism in the 1980s -
will also be shaken by a generalised social and political
crisis. Capitalist regimes everywhere will face mass rebellion.
We have seen the outlines of such
movements in recent years. In Belgium in 1996, the paedophile
murder scandal provoked mass demonstrations against the rotten
corruption of the state and main political parties. Workers and
many sections of the middle class were drawn in. The 1995 strike
wave in France evoked enormous sympathy from wide sections of
society, including the middle strata and small business people.
The pit closure crisis in Britain in 1992 also mobilised an
extraordinary cross-section of society in two huge mass
demonstrations. This is the music of the future.
It is the working class, however, which
will provide the decisive forces in opposition to the effects of
capitalist crisis. It remains the only force in society capable
of fighting for a new social order. Undoubtedly, economic
restructuring during the last 20 years has changed the structure
of the working class. Some of the former 'heavy battalions' have
been greatly diminished or even disappeared. Yet new contingents
which have developed on the basis of new industries and services
will, in the next period, begin to move into action, organise,
and come to the fore as a decisive political force. Women
workers, who now make up over half the workforce in some
regions, will play a significant role in this process.
During the neo-liberal period the
workers in many advanced capitalist countries suffered some
serious set-backs. The leaders of the social democratic parties
and trade unions were incapable of defending the gains of the
post-war upswing. In fact, during the 1980s, most of them
accepted the 'market' and 'globalisation' as justification for
collaboration with capitalist governments in carrying through
counter-reforms. The ideological counter-revolution launched by
the capitalists internationally after 1989 played a big role in
fragmenting and disorientating the active sections of the
working class.
But the working class has not suffered
the kind of shattering, historic defeat that was inflicted under
fascist regimes in the 1930s. The proletariat has preserved its
capacity to struggle, as recent European movements show.
Recently there has also been an increase in strikes and other
kinds of industrial protest in the US (the UPS strike, the GM
shut-down) and Britain. This is only the beginning.
The main set-back of the 1980s and
1990s was a pushing back of working class consciousness. The
capitalist class was only able to turn the clock back because of
the political disarming of the working class. But a period of
deep international crisis for the capitalist system will produce
enormous struggles and a radicalisation of consciousness. What
is required in addition is a programme to defend the interests
of the working class and fight for an international socialist
transformation. The starting point is a clear analysis of the
present economic crisis and a perspective for its unfolding in
the months ahead.
Neo-liberalism and Keynesianism
Neo-liberalism, or 'new-liberalism', is
a return to the liberal or 'free market' policies which
prevailed in the mid-nineteenth century during the first period
of capitalism's world-wide industrial expansion, dominated by
British capitalism. Its slogan was 'laissez-faire', or 'leave
alone', and it favoured international free trade and
non-interference of government in the national economy. It was
based on the notion that the market (directed by 'an invisible
hand') is self-regulating and that the pursuit of individual
self-interest ultimately produces the best outcome for everyone.
The industrial bourgeoisie used
laissez-faire policies to destroy the earlier mercantilist
practices, under which vested interests such as landowners, the
monarchy, merchant-bankers, etc, monopolised various fields of
production and trade. However, late-developers like US, German
and Japanese capitalism, followed protectionist policies
(defending their developing industries with tariffs) until they
were strong enough to compete openly on world markets.
Keynesianism takes its name from the
British economist John Maynard Keynes, who after the great crash
of 1929 advocated increased government expending on public works
and social welfare in order to stimulate demand and 'pump-prime'
or jump-start the stagnant economy. His policies were hardly
implemented in the 1930s, except in the US New Deal, which was
not very effective in reviving the US economy.
Keynesianism came into its own after
the second world war on the basis of new social and economic
relations which produced a prolonged economic upswing. Within
the national economies Keynesianism supported increased state
intervention through nationalisation of some basic industries,
higher levels of welfare expenditure financed from progressive
taxation, and government manipulation of spending, taxation and
monetary policy to try to smooth out the boom-slump cycle,
particularly to stimulate demand during a downturn.
Internationally, Keynesianism supported
a politically managed money system (the so-called Bretton Woods
system), with fixed exchange rates based on the dominant role of
the US dollar, which was pegged to gold at a fixed price.
However, subject to approval by the (US-dominated) IMF, exchange
rates could be adjusted in a crisis to protect national
economies. Trade was gradually liberalised through tariff
reductions under the auspices of the GATT (General Agreement of
Tariffs and Trade), but international capital flows and
financial markets were subject to government regulation.
The acceleration of world inflation in
the late 1960s, which marked the exhaustion of the post-war
upswing, led to a breakdown of the Bretton Woods system, to
floating exchange rates, and the growth of capital flows outside
the control of national governments. Faced with declining levels
of profit, big business and finance capital stepped up the
pressure to roll back state intervention nationally and
internationally and to open up the free movement of capital.
Back to neo-liberalism.
[Continue]
From Socialism
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