The International Situation

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The International Situation

Extracts from the report to the 6th Congress of the ICC (August 1985)

A generalized crisis of over-production


The accelerating tendency towards absolute pauperazation

Today, in 1985, 40,000 human beings die of hunger each day, and the FAO (Food and Agriculture Organization) predicts that by the year 2000, 200,000,000 men women and children will have died from malnutrition. Still, according to the FAO, a third of the Third World's population does not even dispose of the recognized minimum for physical subsistence; 835 million inhabitants of the planet have a yearly income of less than $75.

In Brazil, a country once presented as an ex­ample of development, the health minister has admitted that almost half the population (55 million people) is ill: tuberculosis, leprosy, malaria, schisostamiosis, and other parasitic diseases; 18 million suffer from mental ill­ness. In Brazil's seven north-eastern states, more than half the children die before the age of five. Millions of others are blind (protein deficiency) underfed, diseased. The Brazilian government estimates the number of abandoned children at 15 million. The Brazilian miracle has been forgotten.

Africa's 450 million inhabitants have the world's lowest life expectancy: on average, 42 years. Africa has the highest rate of infant mortality: 137 deaths during the first year per 1,000 births. From Morocco to Ethionia, famine is raging throughout the Sahel: in 1984, 300,000 died of hunger in Ethiopia, 100,000 in Mozambique. Since 1982, in Bangladesh, 800,000 have lost their sight through protein deficiency.

For more than two-thirds of the planet's population, every day and night is a never-ending Calvary.

The 1980s, which have witnessed the constant increase in misery throughout the world, to a point unknown in humanity's history, which has never before seen such a world-wide extension of famine, have definitively put an end to the illusions in any kind of development in the under-developed countries. The gap between developed countries and the constantly under-dev­eloped countries is growing unceasingly. Today, 30% of the world's population lives in the industrialized countries of Europe (USSR included), North America, Australia and Japan, representing 82% of world production, and 91% of all exports.

It is certainly not the least of paradoxes to see the bourgeoisie using the misery for which its system of exploitation is responsible to make the proletarians of the industrialized world, who produce the major part of the planet's wealth, think that they are privileged, and would be wrong to complain. The aim of the incessant media campaigns on the famine, far from easing the suffering of the hungry, in which they have long since shown themselves totally ineffective, is to create a feeling of guilt in this determin­ing fraction of the world proletariat at the heart of the industrialized metropoles, to make it accept its own worsening misery without reacting.

The first half of the ‘80s has been marked by a brutal drop in living standards in the developed countries. In this respect, the evolution of unemployment is particularly significant; thus, for the European countries of the OECD, it has gone from 2.9% in 1968 to 6.2% in 1979, and 11.1% at the beginning of 1985, reaching 21.6% in Spain, and 13.3% in the world's oldest industry­ ial country: Great Britain. Even then, these official (OECD) figures are profoundly underestimated. 25 million workers are unemployed in Western Europe and are seeing their and their families' living conditions getting worse as state benefits drop. But unemployment is only an inadequate indication of the developing poverty in the industrialized countries. Thus, in France, while unemployment hits 2.5 million people, there are some 5 to 6 million who survive on 50 Francs (about $5) a day.

In the United States, the richest country in the world, hunger is gaining ground. Whereas in 1978 there were 24 million Americans living below the poverty level, today there are 35 millions.

As for the USSR, unemployment figures certainly won't give us an indication as to the degradat­ion in the population's living conditions. Just one figure gives an idea of the growing; misery; life expectancy has fallen from 66 years in 1964 to 62 years in 1984.

‘New Poor', the ‘Fourth World' - the expressions have flourished to describe this misery that was thought to be reserved for the under-developed countries. The tendency towards absolute pauperization appears today as a sinister reality throughout the world, not only in the death rows of the third world's slums and countryside, but also at the heart of the industrial metropoles of ‘developed' capitalism. The economic catastr­ophe is world-wide, and the last illusions about the supposed ‘islands of prosperity' of the industrialized countries in contrast to the rest of the world's under-development are disapp­earing with the generalization of misery from the periphery to the centre of capitalism.

Even more than the dramatic growth in the misery at capitalism's periphery, it is the proletariat of the industrialized countries plunge into poverty under the blows of the bourgeoisie's austerity programs that is significant of the quantitative and qualitative deepening of the crisis at the beginning of the 1980s. The crisis has undermined and reduced the bourgeoisie's room for maneuver; transferring the crisis' major effects onto the weaker countries is no longer enough to avoid a frontal attack on the living conditions of the world working class' decisive fractions in the develop­ed countries, which produces 4/5ths of the world's wealth, which has the greatest historical experience, and which is the most concentrated. If the bourgeoisie is today attacking the strongest bastions of its historic enemy, the working class, this is because it cannot do otherwise. In the middle of the 1980s, the bank­ruptcy of the capitalist economy is obvious not only in the misery of under-development - it is lived out daily by the working class everywhere, in the dole queues, the penniless ends of the month, the accentuation of exploitation at work, day to day worries and problems, the anxiety for tomorrow. Over and above the figures, this is the balance sheet of the capitalist crisis, of a bankrupt system that has nothing left to offer.

Faced with this truth appearing more and more clearly, the bourgeoisie has nothing but lies to offer. Ever since the beginning of the open crisis of its economy at the end of the ‘60s, the bourg­eoisie has constantly proclaimed that it has the remedies to the crisis, that tomorrow everything will be fine, and yet the situation has constan­tly degenerated. Today, Reagan and the American bourgeoisie are once again serving up the shame­less propaganda in the form of ‘Reaganomics', accompanied by a ‘new technological revolution' sauce, and to prove these affirmations, we are presented with the recovery of the American economy. What exactly is this famous recovery that we are so often told about? What is the state of the world economy?

In spite of all the bourgeoisie' talk, claiming daily to have felled the monster of the crisis, the recovery of the American economy has been the tree that has hidden the forest of the world recession. The planetary economy has not emerged from the recession begun with the opening of the 198Os. Thus, while in 1984 grew in value by 6.5% and 6.1%, for imports and exports respectively, this was only after three continuous years of recession. The recovery has not been enough to get back to the level of 1980. Relative to 1980, the industrialized countries' exports and imports have fallen by 2% and 4.5%, respectively. This decline is even greater for the countries of the third world, whose exports and imports have fallen in the same period by 13.7%, and 12.5%.

A generalized crisis of overproduction

Mounting stocks of minerals and closing mines, farm produce heaped up in the silos and refrigerators while crops are destroyed wholesale, closing factories and masses of workers unemploy­ed - all this expresses one thing: the generalized crisis of overproduction.

Let's take just one example: oil, a symbol in itself! Despite the paralysis of production in war-locked Iran and Iraq, both big exporters during the 1970s, overproduction is raging. The scarcity which supposedly threatened the world economy in 1974 has been definitively forgotten. OPEC is on the verge of breaking up. Stocks are piling up on land and sea, super­tankers are rotting in the Norwegian fjords, or sent to the breaker's yard, the shipyards' order books are empty, the oil companies have cash-flow problems and the bankers who have lent them money are biting their nails. The black gold is incapable of extracating Nigeria, Mexico, Venezuela or Indonesia from their under­development and misery, while even ‘rich' countries like Saudi Arabia are announcing balance of payments deficits. The overproduction of oil affects the whole world economy, and resonates with the overproduction in other sectors.

The generalized crisis of overproduction is a crying demonstration of capitalism's contradictions. American farmers are pulling the bankers who lent to them down into bankruptcy, while cereals rot in the silos for lack of a solvent market, and famine ravages the world. And today, this intolerable contrast has erupted in the ‘rich' countries, where a mere shop window separates the unemployed and the ‘new poor' from the ‘riches' which can no longer be sold, and pile up until they rot.

The infernal cycle of overproduction is getting worse. In a saturated market, competition intensifies; production costs must be lowered, and therefore so must wares. Therefore the number of wage earners which turn reduces the solvent market and intensifies competition ... Thus each country tries to reduce its imports and increase its exports, and the market continues inexorably to contract.

The end of American recovery

Already 1985 mark the slowdown of the American economy which is showing signs of running out of steam. The enormous budget deficit is more and more inadequate in maintaining US economic activity: the growth rate has fallen from 6.8% in 1984 to a feeble 1.6%, for the first 6 months of 1985. American industry is suffering from the dollar's high exchange rate, which is hitting its exports and its competivity against its Japanese and European rivals, who are cutting; themselves large shares out of the world market, and even in the US home market. Between May 1984 and May 1985, US exports fell by 3.1%.

Reflecting the slowdown in growth, the net income of the 543 major US companies fell by 11.3%, dur­ing the first quarter of 1985, and by 14%, during the second. The three major US car manufacturers recorded a drop in profits of 26.4% while the decline in the hi-tech sector, with a 15% drop in IBM's profits, and losses for Wang, Apple and Texas Instruments (3.9 million dollars for the latter, at the second quarter of 1985), have blown to pieces the myth of the supposed techno­logical revolution that was to have given capit­alism a second wind.

Whereas a whole series of important sectors of the American economy, such as the oil and steel industries, and agriculture (US farm debt today exceeds that of Brazil and Mexico together), have never emerged from the doldrums, today new crucial sectors are joining them in the crisis - construction, electronics, the computer and car industries.

In this situation, to maintain a minimum of health in the economies of the industrialized countries, the American state will have to allow the balance of payments and budget deficits to grow ever more enormous. Even the world's greatest economic power cannot permit itself this luxury, which would mean in the end that its debt would reach the limits of the finance available on the world market.

The perspective of a new dive into recession

After hardly two years, the famous victorious recovery of the American economy, so dear to Reagan, is showing signs of exhaustion. This illustrates clearly the world economy's constant tendency towards shorter recoveries, of more limited effects, while at the same time the periods of recession become longer and deeper. This demonstrates the acceleration of the crisis and the increasing damage that its effects wreak on the world economy.

With the slowdown of the American economy, the perspective of a still-deeper plunge into recession looms on the horizon. No bourgeois economists dare to forecast the effects of a lasting recession on the world economy. The recession of 1981-82 was the worst since 1929, and the one to come, because it expresses the impotence and exhaustion of the recipes adopted by the Reagan administration since then, can only be still deeper and longer lasting in the developed countries, since the under-developed countries have never emerged from the recession begun at the opening of the 1980s.

The plunge into recession implies:

-- A new decline in world trade, following the contraction of the solvement market, when in 1984 it had still not returned to the level of 1980;

-- A fall in production, which will hit the heart of the industrialized countries still harder than in 1981-82, while the production of the under-developed countries has not stopped falling since 1981;

-- More company bankruptcies, more factory closures; millions more laid-off workers will join the ranks of the unemployed, which have not stopped swelling in every country except the USA, despite the ‘recovery';

-- And, in the end, an increased fragility of the international monetary system, which is likely to culminate in monetary storms and a return to high rates of inflation.

It is understandable that the bourgeoisie, faced with such a perspective, should want to hold back as long as possible this plunge into the crisis, for behind the collapse of capital looms a developing instability on every level: economic, political, military and above all, social. Its room for maneuver is more and more limited as the crisis deepens, and now that they have witnessed the bankruptcy of all their theories, the irresistible exhaustion of all the measures they have recommended, the wise economists of the ruling class are anxious­ly scanning the future, what they themselves call the "economy's unexplored zones", thereby admitting their own ignorance and impotence.

The bourgeoisie no longer has any economic policies to propose; more and more, day to day measures are forced on it. The bourgeoisie is flying without instruments to try and put off a catastrophe. However, the fact that its room for maneuver is diminishing does not mean it no longer exists; and from a certain standpoint, the very restriction of the room for maneuver pushes the ruling class to do so more intellige­ntly. However, all the measures adopted, while they make it possible to put off the deadline, and to slow down the crisis' devastating effects, contribute to making the deadlines more catas­trophic, accumulating capitalism's contradictions, pushing the tension daily closer to its breaking point.

The international monetary system is a good example of this situation, and of the contradictions in which the theoreticians and managers of capital are caught. While the policy adopted during the ‘70s, of easy credit and a cheap dollar, made it possible, by absorbing part of the surplus product, to put off the dead­lines at the same time as it ensured the suprem­acy of the dollar, it is expressed today in a mountain of debt all over the world, which, with the recession of the 1980s, states, companies, and individuals are less and less able to repay. The breath of panic that blew through the world's financial markets in the winter of 81-82 due to the inability of third world countries to pay back a debt of 300 billion dollars, could only be calmed by the intervent­ion of the great international lending organisms such as the world Bank and the IMF, which imposed draconian austerity programs on the indebted countries as a condition for according new credits. While they did not make possible the repayment of the overall debt, these credits at least allowed the maintenance of interest payments to give the banks a breathing space while awaiting the results of the hastily erect­ed austerity plans.

However, while a crisis was avoided, the inter­national monetary system's fragility has nonetheless continued to grow. The bankruptcy of the Continental Illinois in 1983, whose debts were the least weak, forced the American state to intervene rapidly to mobilize $8 billion aimed at plugging the hole and avoiding a chain reaction in the US banking system, which, once again, could have led to a major crisis. Despite the American recovery, these last years have seen a record number of bank failures in the US, and some 100 more bankruptcies were forecast for 1985 as a result of the slowdown in the American economy.

But if the third world's debts are large, they are nothing compared with the $6000 billion of debt accumulated by state, companies and individuals in the USA. In such conditions it's easy to see that Volker, head of the Federal Reserve, can say that: "debt is a pistol aimed at the American economy."

The crisis of the American farming, industry, whose competivity has been wiped out by the rise of the US dollar, is directly expressed in a series of bankruptcies of farm savings banks; for the first time since 1929, anxious depositors are to be seen queuing up at the doors of closed banks. Federal intervention has made it possible to stave off a worse panic, but today the Federal Farm loan organization (the Farmer Bank) is itself on the verge of bankruptcy, with a deficit of more than $10 billion that the state will have to fill in. The mere slowdown of the US economy in the first half of 1985 has been transformed, for Bank America, the USA's second largest bank, into enormous losses for the second quarter of 1985: $338 billion. At this rate, the federal state is likely to have more and more difficulty in filling in the gaping holes that opening in the accounts of American banks. This situation contains the germ of the bankruptcy of the whole international monetary system, with the dollar at the heart of the bankruptcy. The speculation which has taken the dollar to the heights is likely to turn against it, and still further accentuate the yo-yo move­ment that, in six months (March to August 1985) has taken it from ff10.60 to ff8.50 and severely disturbed the equilibrium of the international banking system.

In these conditions, it is easy to understand the anxiety that is gripping the capitalists, with the slowdown of the American economy and the worsening world-wide recession looming on the horizon, and which means a dramatic aggravation of their difficulties, as millions of workers are laid off, thousands of companies go into liquidation, and new states are unable to continue paying their debts. Capital's contradictions on the financial level will become explosive, and are likely to take on the form of panic crisis of speculatory capital on the world financial markets; and, because the international banking system is indissolubly tied to the international monetary system centered around the dollar, by monetary storms that will reveal a return to large-scale inflation.

Even though diminished, inflation has certainly not disappeared, and if we consider that the inflation of the ‘70s was reduced essentially thanks to the fall in the prices of raw materials which, apart from oil, have dropped by 28% between 1980 and 1985, and thanks to falling production costs due to the attack on wages and redundancies, then even its low level during the first half of the ‘80s is a demonstration ‘a contrario' of the increased inflationary pressures linked to the gigantic debt, to the weight of unproductive sectors (especially army and police), and to the load of the bankrupt but strategic sectors that the state has to finance. Thus, even as far as inflation is concerned, in reality the situation is far from having improved, and inflationary pressures are far stronger now than they ever were during the ‘70s; this means that the return of inflation will become, much more quickly than in the past, a tendency towards hyper-inflation.        

While the 1970s demonstrated the bourgeoisie's ability to transfer the effects of the crisis on to capitalism's periphery, the 1980s show that this is no longer enough to allow the most developed economies to escape from stagnation and recession. Increasingly, capitalism's contradictions tend to reveal themselves at the centre to polarize around king dollar and the American economy that supports him, and on which the whole world economy is more and more dependent. This is why capitalists throughout the world are keeping their eyes riveted on the day to day results of the US economy; the whole world's economic and monetary stability depends on its health.

This is why, as soon as the first signs of an economic slowdown appeared, Washington sounded the call to arms, to soak the budget deficit, reduce the state's indebtedness, and diminish the balance of payments deficit by restoring the American economy's competivity. But this policy can only be carried out at the expense of the exports of European and Japanese industry which have profited from the US recovery and the balance of payments deficit of the world's biggest market, so reviving the trade war between the most developed countries. However, the US, through its economic and military power, and because it controls the dollar, has the means to turn the laws of the market to its advantage, to impose its diktats, and can also use the blackmail of protectionism.

The 20% drop in the dollar in recent months aimed firstly to restore the American economy's competivity, which had suffered badly (falling by 40% since 1980) from the previous rises in order to correct its balance of payments. However, such a measure can only have two results:

-- on the one hand, to plunge Europe and Japan into recession by closing the US market to them, and through the competition with their products in the rest of the world;

-- on the other hand, a return to inflation, to the extent that the fall of the dollar is in fact a devaluation, which will raise the prices of imports to the American market.

For American capitalists, the temptation is extremely strong to allow the dollar to fall and inflation to rise, since this is the best means for them to pay back their debts in "funny money" after having harvested the capitals of the whole world. It is vitally necessary to keep the US economy afloat to avoid a world-wide economic disaster. But this can only be done at the expense of the USA's main allies.

However, given that Europe and Japan are essential pieces of the imperialist puzzle of the western bloc, and faced with the social instability that can only develop in Europe, primary proletarian concentration on the planet whose working class has, since autumn ‘83, been at the heart of the international recovery in the class struggle which continues to develop, the bourgeoisie can only be extremely cautious and try to slow down as much as possible the effects of the recession in order to keep the situation under control. This is why Reagan is talking about a "soft landing" for the American economy, and at the same time as he demands economic concessions from the capitalists of Europe and Japan (opening of their markets, limitations of their exports to the US, internationalization of the Yen in order to support the dollar and weaken the competivity of Japanese industry by revaluing its currency), he invites them to apply the same policies as those adopted in the US in recent years, ie budget deficits and rising debts, in order to counter the negative effects on their economic activity of their falling exports. But Europe and Japan are not the United States, and they cannot adopt such a policy without a rapidly increasing inflation: that is to say that Washington today is preaching exactly the opposite policy to the one imposed 5 years ago. However even if the bourgeoisie is managing to slow down the movement, this will be less and less effective; the ‘80s are marked firstly by an acceleration of the crisis, and by increasing­ly serious shocks to the world economy.

Whereas the first half of the ‘80s was marked by descent into the recession and stagnation, with a fall in inflation, the second half of the decade will be marked by both a renewed plunge into recession, which will hit the most developed economies head-on, and a sharp rise in the inflation that the bourgeoisie thought had been throttled in a situation of growing monetary and economic instability which will culminate in acute crisis characteristic of the acceleration of the crisis' devastating effects.

The 1980s are the years of truth, because they lay bare for all to see the catastrophic bankruptcy of the capitalist economy.