Where are we in the economic crisis? Recession, unemployment, inflation

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Where are we in the economic crisis?

Recession, unemployment, inflation

The great dive of the late eighties

The ‘recovery' of the American economy which began in 1983 and peaked in 1984, is definitive­ly over. The victory cries of the Reagan Admin­istration, which pretended to have overcome a crisis momentarily alleviated by a drop in the rhythm of inflation and galvanized by the growth record of the American economy in 1984 (6.6%), have been silenced. The fine optimism of the American government, after the doubts of 1985, has foundered in view of the bad results of 1986 which have led all the prin­cipal industrialized countries to revise down­wards their expectations of growth.

The rate of growth of the American economy won't necessarily be worse in 1986 than it was in 1985: after having peaked at 2.2% in 1985, the first estimates for 1986 were 4% then revised to 3%; finally they were reduced to nearer 2%. However the rate of growth for 1986 is certainly weak, and this despite a record budget deficit in order to get production mov­ing, essentially thanks to arms procurements, and above all despite a fall in the dollar of more than 40% in relation to the yen and the deutchmark to give exports, and thus production, a boost. This last hope has not been realized despite all the measures taken, and it's with growing concern that political and economic leaders of the entire world see the American economy on the road to recession, drawing behind it the whole of the world economy.

The remedies of the bourgeoisie for the world economic crisis are no such thing and can only push the contradictions of the capitalist economy to an ever higher level. The famous ‘Reaganomics'- only the name was new - has not escaped this rule. This is true both on the level of the growth in unemployment and of inflation which the bourgeoisie still pretends to have conquered.

A new step in the recession

American growth is built on credit. In 5 years, the USA, which was the principal creditor in the world, has become the principal debtor, the most indebted country in the world. The cumulative debt of the USA, internal and external, has reach­ed the prodigious sum of $8000 billion, when it was ‘only' $4,600 billion in 1980 and $1,600 billion in 1970. That means in order to play its role as locomotive for the world economy, US capital in the space of five years, has accum­ulated as much debt as in the previous ten years. And to what end! This policy has not permitted a world recovery; at most good results for the most developed countries (USA, Japan, Germany) while for the rest of the industrialized countries of the OECD, the economy remains stagnant, and for the less developed capitalist countries, this policy of indebtedness means a flight of capital, a dramatic slump in investments, and a plunge into a tragic recession from which there's no escape. The American locomotive has not been sufficient to lead a real world recovery: all this indebtedness has only won some time. And this pol­icy, led by the USA at the price 'of budgetary and commercial deficits, is no longer possible today. The debt of the US government since the beginning of the decade has grown at an average rate of 16.6% a year; the interest repayments alone have increased to $20 billion for 1986. It's become urgent for the USA to reduce its budget deficits ($210 billion in 1986) and commercial deficit ($170 billion in ‘86). The US must re-establish its commercial balance and can only do so at the expense of commercial competitors (notably Europe and Japan) whose growth was stimulated by exports to the USA. The American market, principal capitalist market in the world, is being closed as an outlet for the other count­ries. The fall of 40% in the dollar vis-a-vis the mark and the yen is the first step of this policy, but as the latter has proved insufficient, even more drastic measures are foreseen by the world's premier power: a new fall in the dollar, increased protectionism, etc. The likely consequences, already being felt, are dramatic: sharpened competition, destabilization of the world market and, above all, a new drop in the recession, the terrible effects of which no economist today dares to predict.

Towards a dramatic growth in unemployment   

The fall in unemployment in the USA - from 9.5%, of the active population in 1983 to 7.1% in 1985- has been one of the axes of Reagan's propaganda to justify his economic policy. But this ‘success' is a false victory, because for the European countries of the OECD, unemployment has continued to grow in this period: 10% in ‘83 and 11% in ‘85. Unemployment has not been beaten: on the contrary, it has developed in spite of all the bluster of bourgeois propaganda. Even where the results have been best, in North America, they must be put in perspective, because the figures furnished by the bourgeoisie on this question are a permanent dec­eption, due to the burning needs of propaganda.

In relation to the results of the USA, it must first be noted that even with the lowering of unemployment, the figures remain higher than all those before 1981.

 

‘77

78

79

80

81

82

83

84

85

USA

6.9

6.0

5.8

7.0

7.5

9.5

9.5

7.4

7.1

Europe

5.7

6.0

6.2

6.8

8.4

9.5

10.0

10.8

11.0

Moreover, if the policy of Reagan has created hundreds of thousands of jobs, it is essentially in the service sector where employment is less stable, and above all less well paid (about 25%) than in industry where 1 million have been lost.

With the fall in growth and the resulting in­creased competition, a new wave of massive redun­dancies is in progress and today it's typical to see a company like General Motors announce the closure of 11 factories, and tens of thousands of redundancies. The myth of the possible drop in unemployment has been defeated, when there are already 32 million (officially) without jobs in the OECD countries; when the rate of unemployment in 1985 was already 13.2% in Belgium, 13% in GB, 13%, in Holland, 21.4% in Spain - rates comparable with those which followed the great 1929 crisis, the profile of which is appearing on the horizon.

At no time has the American ‘recovery' reduced unemployment to the levels of the ‘70s, and now that this recovery is over, it's a dramatic perspective for the end of the ‘80s.

The return of galloping inflation

If there's a level on which the dominant ideology insists it's won something, its inflation which went from 12.9%, in the OECD countries in 1980, to 2.4% in the 12 months preceding August ‘86. However inflation has not disappeared, far from it. For the world as a whole, it has continued to grow according; to the IMF: 12.6% in 1983, 13.8%, in 1984, 14.2% in 1985. In fact, only the most industrialized countries have benefitted from the fall in inflation which has continued to rav­age the rest of the world, and all the plans of draconian austerity in Mexico, Argentina and Brazil haven't stopped it. Inflation is present at the frontiers of the most industrialized centers, ready to break out anew: in Mexico at the gates of the USA, 66% in 1986; in Yugoslavia, next door to industrial Europe, 100% predicted for 1986!

The anti-inflationist policy led by the USA and the rest of the industrialized countries has only been possible because of:

-- a severe attack against the standard of living of the working class, in order to lower the costs of production: massive redundancies, attacks on nominal wages, cutting social protection, speed‑ups, etc;

-- and above all a dramatic fall in the market price of primary materials, imposed and orchestr­ated by the dominant economic powers which profited from the situation of generalized overproduction, plunging the poorest countries - essentially producers of raw materials - into an even more dreadful poverty. This policy has produced a shrinking of the world market and exacerbated competition. It's the fundamental origin of the recession, the expression of generalized over­production. However, at the same time, the USA's policy of indebtedness in order to maintain activity in the most important concentrations of the capitalist world has been a fundamentally inflationist policy whose effects have only been postponed for the future. In proceeding this way, the dominant class has only bought time, and the specter of inflation, chased from the door by the fall in production costs, can only return through the window, via indebtedness.

Thus it's not by accident if, at the same time, the principal industrialized countries have lowered their growth forecasts, presenting the perspective of a new acceleration in the recession, and an increase in inflation. All the measures taken to break the inevitable recession can only contribute to a recovery of inflation in a situation where the accumulation of gigantic debt has created the conditions for a rapid dev­elopment of the former. The double curve - fall­ing growth, rising inflation for 1986 - is characteristic of the profound degradation of the world economy in recent years.

Japan and Germany in the midst of the crisis

Finally, the feeble results of the US recovery:

-- the world economy has not escaped the recess­ion which began at the start of this decade; it, has been delayed, essentially in the most industrialized countries;

-- unemployment has continued to develop, and where it has decreased from one year to the next, it has nonetheless never returned to the level before the beginning of the ‘80s;

-- inflation has not disappeared, and the con­ditions for its redevelopment have been reinforced.

This wretched result has been obtained at the high price of gigantic indebtedness, in the US but also for the whole world: the debt of the under-developed capitalisms has grown from $800 billion in 1980 to more than $1000 billion today; at the price of a dramatic pauperization of the population, with famines unseen before in human history; at the price of increased inequality between the richest and poorest capitalist count­ries; at the price of a growing instability of the world market which has seen its principal currency, the dollar, acting like a yo-yo, doubl­ing its market price in 3 years only to lose half its value in a year. All this shows a very significant weakening of the world capitalist economy.

And today, even this policy with its catastrophic consequences is no longer possible in order to maintain the activity of the industrial centers; the US economy, locomotive of the world economy, has begun its irresistible plunge into recession. In the light of the foreseeable cat­astrophe to come, it's with a growing concern that the world leaders are desperately searching for new solutions to prolong the ‘soft landing' of the world economy. The Reagan administration pretends to have found the answer with its repeated demands on Japan and Germany to con­tribute to the recovery of the world economy. But this "solution", no less than its predecess­ors, is no such thing. With less means, Japan and Germany cannot succeed in resuscitating the world economy where the American economy has failed.

Together, Japan and West Germany only rep­resent half the GNP of the USA (in 1985: $612 billion for W. Germany, $1233 billion for Japan, against $3865 billion for the USA); at the very most could they, through a policy of internal stimulation, break the fall into recession? If so, at what price? The famous countries of the Japanese and German economic miracles can only produce miraculous delays. Germany and Japan profited the most from the US recovery: the closure of the US market today hits their economies with full force. The example of Japan is particularly significant. Initially estimated at 4% in 1986 (after being 5.1% in 1984, and 4.8%, in 1985) the growth has been revised down­wards throughout 1986. Officially it will be 2.8%, but in view of the results in can only really reach 2.3% During the first quarter of 1986, industrial production fell 0.2% in re­lation to the same period in 1985; the results from the autumn risk being even more alarming. Recession is already a tangible reality in Japan, the second economic power in the world.

As a result, there's a rocketing of unemploy­ment and the figure of 6% announced by Japan­ese newspapers is certainly more realistic than the 3% official rate (which doesn't consider as unemployed someone who has worked only one hour in a month). All the big industrial groups are announcing redundancies. From now to 1988, the five large steel groups have planned 22,500 job cuts. At the end of 1986, 6000 jobs are to go in shipbuilding. The government, for its part, has decided to cut jobs on the railways, and above all in the coal mines: 8 out of 11 mines will be closed, leading to 14,000 redundancies. The myth of an unemployment-free Japan has been definit­ively dashed.

These negative results have been achieved despite the Japanese government's policy of internal stimulation which has seen its discount rate lowered throughout 1986 to today's record low of 3%. But this is not sufficient to compensate for the fall in exports to the USA.

The record commercial balance surplus should not create any illusions. Its due essentially to the drop in imports, linked to the fall in the market price of raw materials, in particular petrol. But this situation is completely provisional. It is only with great effort that Japan has maintained its exports, by trimming its profit margin against the low dollar which has reduced its competivity. This has led for the first time to the big Japanese exporters registering losses.

The German economy has hardly preserved its reputation any better, the situation is not healthy. Unemployment persists at 8.5% of the active population; industrial growth has stag­nated at 1.6% from August 1985 to August ‘86 and the bad results of the autumn have led the German authorities to revise downwards all growth forecasts (for 1987, a rate of no more than 2%, which is perhaps still optimistic). The growth of the monetary mass from 7.9% in August 1985 to August ‘86 has not stimulated growth. Despite the exceptional results obtain­ed at the level of inflation, which are due essentially to the revaluation of the mark, this monetary growth announces inflation in the short term.

Japan and West Germany have begun a policy of internal growth, but the latter has already revealed itself insufficient for their national economies. Thus stimulating the world economy is out of the question. The Reagan recipes applied to these countries can only have even more hazardous results than for the USA. Japan and Germany are also sinking further into the abyss of the world recession.

Both the feet in the economic catastrophe

The perspective is thus black for the world economy. All the ‘solutions' put forward and applied by the bourgeoisie have been exposed as unable to choke off the crisis which contin­ues its long work of degrading the capitalist economy. The dominant class is in the process of firing its last shots to delay as long as possible the plunge into recession. Recent years have shown that the world recovery has become impossible, the crisis has defeated all measures learnt by the bourgeois economists since the crisis of 1929, and even the boost of the war economy has been grounded with the end of the US ‘recovery'. Overproduction is generalized, including the armaments industry, where today one can see a firm like Dassault in France, being obliged to lay off workers. The only question which is posed now, is not if the perspective is catastrophic - it is - but at what speed the world economy is sinking into this catastrophe! The more the bourgeoisie wants to delay the development of the recession, the more inflation develops. The more the bourg­eoisie wants to delay the development of inflat­ion, the more the recession accelerates, and in the end the two tend to develop together.

With the collapse of the world economy, the roots of the last illusions in capitalism are going to be weakened. Poverty and barbarism which is developing more than ever imposes the necessity of the communist perspective. The crisis clears the way for this perspective to become the sole issue. The crisis, despite the poverty that it imposes, is the best ally of the proletariat in destroying the bases of the existence and of the mystification of the dominant class.

JJ 26.11.86.