The report on the International situation (Part 1)

Printer-friendly versionSend by email

Economic crisis: Descent into the abyss and the impasse of the capitalist class

This part of the report on the international situation is concerned with the course of the world capitalist economic crisis which is, ultimately, the determining factor in the development of inter-imperialist antagonisms and the axis around which the shifting rapport de force between the capitalist class and the proletariat revolves[1]. The actual evolution of inter-imperialist antagonisms and the course of the class struggle can be analyzed only on the basis of a clear understanding of the course of the economic crisis itself.

Unlike 1929-1933, which saw an abrupt collapse of the world capitalist economy, the consolida­tion of the universal tendency to state capit­alism made it possible to ‘phase in' the present world crisis of overproduction during the 1970s. The systematic recourse to a massive expansion of credit, orchestrated by the central banks of the industrialized countries of the American bloc, and in particular by the international finance arms of American state capitalism (the IMF, the World Bank, the Export-Import Bank, etc) momentarily permitted world capital to compensate for the growing lack of effective demand on a saturated world market. This creation of a vast mountain of fictitious capital (to which there corresponds no real capital assets) could do no more, however, than provide the world economy with a decade of chronic stagnation, punctuated by two increasingly sharp downturns in industrial production (1970 and 1974-75), together with galloping inflation. This latter had by 1979-1980 brought the capitalist metropoles themselves to the brink of a hyper-inflation which would have quickly led to a collapse of the world economy. The only course open to world capital, if it was not to be consumed in the whirlwind of a hyper-inflation, was a shift to an economic policy of deflation and auster­ity. However, no longer able to rely on a Keynesian policy of steady credit expansion, the ever larger doses of which had alone made it possible to phase in the crisis, world capital over the past three years has plunged headlong into the dark abyss of a depression which on the economic level has already con­firmed the ICC's analysis of the ‘80s as the years of truth.

In this text, we shall first survey the curr­ent economic situation of world capital focus­ing on the key indices which clearly show the desperate condition of the global economy today. We shall then demonstrate the increas­ingly narrow range of economic policies avail­able to capital as it tries to slow down its descent into the abyss. In demonstrating the impasse into which the crisis has led the capitalist class, we shall show how in terms of the economic perspective alone[2] the situation of the capitalist class is today much worse than was the case 50 years ago, in 1933.

**********

The current economic situation of world capital

Perhaps the most infallible index of the existence of a super-saturated world market is the figures for industrial output and the percentage of industrial capacity which is idle. Industrial output in the seven largest industrial countries of the American bloc (US, Japan, West Germany, France, Italy, Canada, France) was virtually stagnant in 1981 rising a miniscule 0.8% with respect to 1980. In 1982, industrial output plunged in these same countries, falling 4.5% for the year. In the US, industrial production began to collapse in the second half of 1981 and had declined more than 12% by the end of 1982, In Britain, the fall in industrial production since its cyclical peak in 1979 is 16%, while in Canada output in August 1982 was 14.75% below its June 1981 peak. In West Germany, France and Italy, where the collapse began somewhat later, industrial output fell 6% during July, August and September 1982, comp­ared to the preceding three months., Meanwhile, by the end of 1982, 31.6% of the industrial plant in the US and 31.8% of the industrial plant in Canada lay idle, the glaring express­ion of the hypertrophy of productive capacity in the face of the chronic lack of effective demand which is the hallmark of capitalism's permanent crisis.

The counterpart to this sharp decline in output and bloated mass of idle plant through­out the advanced countries of the American bloc, which account for by far the largest part of the world's industrial production, has been a no less devastating collapse in produc­tive investments. Thus, in the US, between the second and forth quarters of 1982, business investment in new plant and machinery fell 14.5%. Meanwhile, in West Germany, machinery and equipment investments declined 6.5% and construction investment 15% during the first half of 1982.

In the advanced countries of the American bloc, the saturation of the world market man­ifests itself in the form of a mounting stock­pile of unsaleable commodities, and an over­production of capital for which no productive investment is possible. In the countries of the Russian bloc, the same global crisis of overproduction manifests itself in long lines before empty stores and the rationing of basic necessities for the working class, together with a chronic scarcity of capital with which to vainly attempt to overcome the backwardn­ess which is the historical legacy of an imp­erialist bloc which arrived on the world market in the full decadence of capitalism. The impact of the economic crisis on the Stalinist regimes can be seen in the fact that in Russia itself, industrial production rose an anemic 2.8% in 1982 instead of the planned 4.7% rise, the smallest increase in production since World War II. Given the fact that the military sector -- which represents a steriliza­tion of capital, though absolutely essential in terms of inter-imperialist competition accounts for perhaps 25% of Russian production, and that output in this sector is growing at an extremely rapid pace, this means that there has been a very sharp downturn in the output of the productive sector of the Russian economy. In those economies of the Russian bloc most immediately bound to conditions on the world market, the situation is even more grim. In Poland, industrial output in 1982 declined 5% with respect to 1981. In Hungary and Czechos­lovakia, industrial production was virtually stagnant, rising only 1%, while in Romania industrial output rose 2.5% instead of the 5.5% target the planners had set.

In the handful of third world countries which are not totally dependent on the production of foodstuffs and raw materials for export, but which also have a significant industrial sector, the same picture of decline or stagnation in industrial output is repeated. In Mexico, land of the last great ‘economic miracle' of the 1970s, the bubble has burst and industrial output has begun to plunge, declining 1% in 1982. In Argentina, industrial production fell by more than 4%, while in Brazil and India output in industrial sectors was stagnant.

The same crisis of overproduction which has brought about this decline in industrial output is also working havoc with that part of the economy devoted to the production of food­stuffs and raw materials. Thus, in a world where an ever-growing mass of the population is condemned to starvation, 16% of world-wide grain production in 1982 was unsaleable, adding 35 million metric tons of grain to the already swollen world stocks. The glut of food and raw materials for which there is no effective demand has led to a collapse of prices in 1982:

Wheat ---------- -15%

Iron ---------- -31%

Corn ------------ -12%

Zinc --------- -15%

Sugar ----------- -38%

Coal --------- -12%

Oil -------------- -15%

 

For farmers this has meant a crisis of devast­ating proportions, not seen since the 1930s. All commodity crops (eg corn, cotton, sugar, soybeans) are now selling below farmers' real production costs. In the US, the agricultural giant of the world economy, since 1979 net income for farmers has plunged 50%, from $32.3 billion to 16.5 billion in 1982. Mean­while, the interest on farm loans alone was $22 billion in 1982 -- far in excess of net income. The result has been a spate of bank­ruptcies and forced sales of farms which are spreading like a plague through the country­side.

The situation of the world market has now led to a decline in the volume of world trade for two years in a row, the first time this has happened since the end of World War II and the creation of GATT, when a victorious American imperialism imposed its brand of free trade on a prostrate world. To this fact must be added the unraveling of the complex financial network set up by the American state to facilit­ate the flow of trade on a world market, the bulk of which had fallen under its domination in 1945. In 1982, an unprecedented 30% of world trade -- in contrast to 2% just two years ago -- was carried on in the form of barter.

The recourse to barter has been imposed by the dearth of foreign exchange, the collapse in the value of most currencies and the lack of credit available to the bulk of the world's countries. This fact is one more indication that the elaborate financial mechan­isms created by capital to link the various parts of the world are disintegrating before its very eyes.

The massive recourse to credit, which made it possible to stave off an abrupt collapse of the world economy during the ‘70s, but which had to be restrained as the advanced countr­ies hurtled towards hyper-inflation, has left world capital with an enormous and insupport­able burden of debt. The foreign debt of the third world and Russian bloc countries has now reached an astronomical $853 billion! Caught between this crushing burden of debt on the one hand and the downturn in production, prices and trade on the other, the three biggest debtors, Mexico ($81 billion), Brazil ($70 billion) and Argentina ($40 billion), whose ‘economic miracles' had been built on a foundation of paper, lurched into bankruptcy in 1982. The biggest debtors of the Russian bloc, Poland ($27 billion) and Romania ($10 billion), also declared themselves insolvent. Only a frantic rescheduling of debts and moratoria on payments worked out by the IMF, the World Bank and ‘private' lenders prevented the whole international monetary system from collapsing like a house of cards. Moreover, both the debt and the danger of bankruptcy by third world and Russian bloc countries is only the tip of the iceberg. The debt of the advanced countries of the American bloc by far overshadows the debts of the poor countr­ies and has made the financial situation of even these industrial giants precarious. In the US, the cumulative result of the hyper­trophy of credit is a public and private sector debt which has now reached a stagger­ing level of five trillion dollars!

A capitalist crisis is always a crisis of profitability, one in which not only the rate of profit but the mass of profit sinks. The situation of American capital, the dominant national capital in the world, can perhaps illustrate the increasingly precarious state of this most important index of the health of the capitalist economy. In the US, pre-tax corporate profits, which were running at an annual rate of $260 billion in the first quarter of 1980, sunk to an annual rate of only $170 billion at the end of 1982. The after-tax profits of the largest American companies declined almost 20% in 1982; in the key oil industry, the profits of the twenty-five largest American companies fell 27% in 1982. Beyond this dramatic fall in the mass of profit, is the fact that crit­ical sectors of basic industry in the US are now operating at a loss: steel, automobiles, machine tools, agricultural implements, non­ferrous metals, mining. The American steel industry, to take a glaring example, lost $684 million in 1982.

The enormous rise in unemployment is at one and the same time the expression of the barbarism of capitalism, which condemns an ever-growing mass of humanity to the scrap heap, and the admission of the historical bankruptcy of a mode of production which can no longer profitably exploit the labor-power of its wage-slaves. In the industrialized countries of the American bloc, there are now 32 million unemployed workers, on the basis of official government figures which clearly hide the real depth of this catastrophe. (thus, if unemployment today were measured on the same basis in the US as in the 1930s, the unemployment rate for American workers would be the highest since 1935!) The extent of the increase in unemployment in these countries is but one more devastating index of capitalism's plunge into the abyss:

 

1980

1981

1982

U.S.

7%

7.5%

10%

Japan

2%

2.2%

2.4%

W. Germany

3%

4.4%

7%

France

6.3%

7.3%

9%

Britain

7.3%

11.4%

13%

Italy

7.4%

8.3%

10%

Canada

7.5%

7.5%

11%

Belgium

9%

11.1%

15%

Netherlands

4.9%

7.5%

10.4%

Spain

11.2%

14%

16%

In the backward countries, meanwhile, capitalism continues at an even faster rate -- its grisly process of creating a permanent mass of unemployed living in sub-human cond­itions in shanty towns, or mobilized to work in slave labor battalions in the country­side (China, Vietnam, etc).

Three years of deflationary policies in the metropoles of the American bloc, after a decade during which an abrupt collapse a la 1929 was only averted by the creation of a mass of paper values, has accelerated the downward plunge without, however, banishing the specter of hyper-inflation. A number of key economies remained caught in the grips of double-digit inflation at the end of 1982!

Annual rate of consumer price increases:

FRANCE ----- 12.6%

CANADA ----- 11%

ITALY --------16.6%

SPAIN            --------- 16%

An unparalleled budget deficit in the US of over $200 billion for 1983, massive foreign borrowings by countries like France, Canada Spain and Italy to shore up their collapsing economies, together with interest rates which remain at historically extremely high levels, all indicate that the inflationary whirlwind remains a real danger to the terminally ill capitalist economy.

All of the indices, therefore, show that over the past three years, the world economic crisis has taken a qualitative leap forward from which -- as we will now show - no recovery is possible.

The impasse of the capitalist class

Even in this epoch of an historic crisis of the capitalist mode of production, which poses the alternative of imperialist world war or proletarian revolution as the only possible outcomes to the economic collapse, the course of the crisis is never straight down. The crisis retains its zig-zag charact­er, though its basic thrust is to become even deeper. Therefore, the descent of world capitalism into the abyss of depression is not incompatible with short, cyclical upturns, limited both in time and space. Indeed, the American economy is probably already beginn­ing to experience such an upturn. However, unlike the situation after 1933, when it was possible for capital to stimulate the economy for a period of five or six years through the consolidation of state capitalism and a variety of Keynesian economic policies, today such policies and therefore such a recovery is excluded.

The year 1933 saw Roosevelt and Hitler come to power in the US and Germany in the midst of a quasi-total economic collapse. In Germany Hitler and his economic czar Hjalman Schacht launched a recovery program based on autarky and the deficit financing of vast public works and armaments projects. Industrial production in Germany rose 90% between 1933-38, while unemployment declined from 3.7 million workers to 200,000 over the same period. Roosevelt and his ‘brains trust' utilized the protectionism begun by the Snoot-Hawley tariff of 1930 together with a combination of Keynesian pol­icies consisting of deficit spending, credit expansion and monetary inflation, and the creation of a ‘social wage' to compensate for the lack of effective demand[3] -- which brought about an annual growth in GNP of 9.1% during 1933-35 and 9.8% during 1935-38, Cert­ainly the vast expansion of state capitalism and the utilization of Keynesian economic policies, which were the basis of the five years of recovery, could not provide any solut­ion to the historic crisis of capitalism. In the US, from September 1937 to June 1938, ind­ustrial output dropped 30%, while unemployment rose 22%. Before this devastating new stage in the economic crisis could spread to Europe, the second imperialist butchery had begun and capitalism had thereby provided the only ‘solution' to the economic crisis of which it is capable.

The situation which faces world capital today is qualitatively different from that prevail­ing in 1933. The type of policies which made it possible for the capitalist class to bring about an economic upturn for five years, during which time the economic, military and ideo­logical preparations for imperialist world war were completed, are precluded in the present conjuncture. The universal tendency to state capitalism, which was the response of capital to the necessity to centralize and organize its productive apparatus for the world war during 1914-18, had to a consider­able degree been attenuated during the phase of reconstruction in the 1920s. The utilization of state capitalist measures after 1933, therefore, for several years had the effect of rationalizing a productive and financial apparatus which was obsolete in the face of the needs of capital itself, faced as it was with a permanent crisis. Today, however, after fifty years of almost uninterrupted expansion of state capitalism under either a Stalinist or ‘democratic' form, the capitalist economic base is crumbling under the very weight of the parasitism of the leviathan state. Additional state capitalist measures -- however necessary as capital reacts to growing inter-imperialist antagonisms and to the danger of proletarian class struggle - far from stimulating an economic upturn only constitute a further burden on an economy smothered under the unproductive weight of a parasitic bureaucracy.

The Keynesian reflationary economic policies introduced after 1933 had as their point of departure four years of deflation and rapidly falling prices, during which a mountain of debt was liquidated. As a result a vast expansion of credit and massive deficit financing could compensate for an effective lack of demand without immediately provoking galloping inflation or a breakdown of the monetary system. Today, though, after decades during which the drug of credit was lavishly administered to a capitalist economy mired in a permanent crisis, world capital totters on the brink of hyper­inflation and is suffocating under a mount­ain of debt. These very Keynesian economic policies must now be reversed if the capit­alist patient is not to die of an overdose of the lethal drug which was used to keep it alive over the past years.

After 1933, the expansion of the ‘social wage', that part of the cost of producing and reproducing the commodity labor-power (variable capital) paid directly by the state, which was primarily a means of bind­ing the working class to the capitalist state, also acted as a stimulant to the depressed economy. This growth of the social wage has always been linked to Keynesian reflationary policies, and, therefore, it follows that in the present situation the social wage is everywhere under attack and is being savagely cut. This dismantling of the ‘welfare state' necessarily being carried out by governments of the left and right alike, removes one of the key ideological props of capitalist domination over the proletariat; at the same time it will lead to a further shrinking of a market which is already too small to absorb the plethora of commodities the industrial plant of capitalism is capable of producing.

The war economy, which was the real axis around which state capitalism developed again beginning in the 1930s, has never been an economic policy, an attempt to overcome the intrinsic barriers to the accumulation of capital; it is by its very nature unproductive in capitalist terms. The real function of the war economy is always a direct preparat­ion for inter-imperialist war itself. Nonethe­less, after 1933, within the framework of the period of savage deflation which had just occurred, the war economy could have the subsidiary effect of momentarily stimulating the economy. Today, while armaments production must grow at an ever-faster rate as the two imperialist blocs prepare for war, its econ­omic impact -- in sharp contrast to the 1930s -- will be disastrous for capital. In the face of    already unmanageable budget deficits, the massive increase in military spending, which the growth of inter-imperialist antagon­isms makes necessary, is an economic burden which will only accelerate capitalism's descent into the abyss.

After 1933 autarky and protectionism were utilized by Hitler and Roosevelt, together with deficit financing, to temporarily overcome the saturation of the home market even while world trade stagnated. Today, the extreme inter-dependence of the advanced capitalist economies of the American bloc under US dom­ination is such that the dominant factions of capital in each country are bound to the Ameri­can imposed version of ‘free trade' which has prevailed since 1945. Certainly there are real and growing sectors of capital in each country demanding a shift to protectionism, but these remain concentrated in the most anachronistic and weakest sectors of each economy. A thorough-going policy of protect­ionism or autarky is opposed by the most pow­erful sectors of the capitalist class because it directly threatens to exacerbate the collap­se of world trade and the international monet­ary system, as well as the very coherence of the American bloc. The real value of protect­ionism for capital today is not as an economic policy as in the 30s but as a nationalist mystification to attempt to derail the class struggle -- a tool particularly important to the left of capital in opposition.

What we are now seeing is nothing less than the complete bankruptcy of Keynesianism, of the economic policies upon which capitalism has relied since the 1930s. The state can no longer compensate for the lack of effective demand on a saturated market through reflationary policies, which was the veritable lynchpin of Keynesianism. Moreover, while the state's direction and control over the economy -- the other basis of Keynesianism -- will continue to grow at an ever faster rate, it is now absolutely clear that this can provide no ‘solution' to the economic crisis. The bank­ruptcy of Keynesianism is the glaring manifestation of the impasse of the capitalist class, the confirmation of the fact that in economic terms the perspective facing world capital today is much more grim than it was in 1933.

The long dependence on Keynesianism having shattered the very basis for the continuation of these reflationary policies, capital has no new economic palliatives with which to replace them. The only policy open to capital today is deflation and austerity, economic policies which can only push capital further into the abyss of world depression, while at the same time destroying the bases on which it has sought to maintain a semblance of ideological control over the proletariat (welfare state, social wage, etc.).

To prevent the collapse of the whole internat­ional monetary system -- the veritable spinal column of world capital -- by hyper-inflation requires policies of austerity and deflation which will accelerate the plunge in industrial production and world trade. Yet these policies themselves will generate ever new pressures towards a generalized bankruptcy by debtor nations and enterprises which would also result in the very collapse of the monetary system which the austerity measures were intended to prevent. This dilemma is insoluble short of a destruction of capital values only possible through a third inter-imperial­ist war -- though the physical destruction of such a holocaust would very probably make any kind of ‘reconstruction' problematic. Nevertheless, it is this very path that capital -- because of the nature of its own contradictions -- must take. This means that capital must attempt to respond to this new stage in the unfolding of its historic crisis, not with economic policies, which are today no more than a very short-term holding operat­ion, but with a political strategy designed to first derail and then defeat the working class. Only such a defeat can open the way to the capitalist ‘solution'.

********

 


[1] This, of course must not lead to overlook the fact that the ways in which capital reacts to inter-imperialist antagonisms and class struggle can itself affect the way the crisis unfolds.

[2] The situation of the capitalist class vis-à-vis the proletariat is examined in the other part of the report on the international situation.

[3] Clearly the objective function of all these policies was to bind the proletariat to the capitalist state and allow imperialism to complete its mobilization for world war.