World economic crisis: A bit more state intervention?

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Far from going into the much prophesied 'recovery', the world economy continues to sink into the mire. At the heart of the industrialized world, the self-destructive ravages of capitalism in crisis have produced millions more unemployed and an even greater decline in the living conditions of those workers who still have jobs.

In spite of this however they are now claiming to have found a new way out. Confronted with the fact that all the old recipes to stimulate productive activity have proved useless, the governments of the big industrialized countries (with Clinton at the head) are proclaiming a 'new' doctrine: a return to "more state intervention". "Public works", financed by the nation states, this is to be the new magic formula to put new life into the decrepit machine of capitalist exploitation.

What lies behind this change in the way the western governments are talking? What chance of success do their 'new' policies have?

We ought to be well into the recovery of the world economy by now. For the last two years, the 'experts' have repeatedly promised it for "within six months"[1]. However 1992 has brought to fruition a truly catastrophic situation. At the heart of the system (that part of the globe which had been comparatively spared previously) those of the major economies who have been hit by the recession since 1990 - the United States, Great Britain and Canada - have never really managed to pull themselves out of it[2], while the economies of the other powers, Japan and the countries of mainland Europe, are being sucked into it.

Since 1990, the number of unemployed has risen by three and a half million in the United States and by one and a half million in Great Britain. The latter has experienced its deepest and longest recession since the thirties; the number of bankruptcies has increased by 40% during 1992. Japan has just 'officially' gone into recession for the first time in 18 years[3]. The same is true for Germany, where Kohl too has just' officially' recognized that the country is in recession. Government forecasts predict half a million more unemployed in 1993, while in what was East Germany it is estimated that 40% of the population who are in work do not have a stable job.

But leaving aside official predictions, the perspective for the coming years is clearly shown in the massive job losses announced in central sectors such as the steel or car industry, or in advanced sectors like computing or aeronautics. Eurofer, the EEC body responsible for steel, has announced that this sector is to shed 50,000 jobs in the next three years. General Motors, the leading industrial company in the world, which has already announced the closure of 21 of its factories world-wide, has just made it known that it has increased the number to 25. IBM, the giant of the computer industry internationally, which has already cut 20,000 jobs in 1991 and at the beginning of 1992 announced the loss of20,000 more, has just stated that it will in fact be 60,000. All the main civil aviation companies have announced redundancies (Boeing, one of the least affected by the crisis, has forecast the loss of 9,000 jobs in 1992 alone).

The reality of the crisis is making its relentless presence felt in every country[4] and in every sector, the basic ones and the more peripheral ones, in industry and in the services. The capitalist world is engulfed in a recession that is without precedent in its depth, geographic scope and in its duration. A recession which, as we have often demonstrated in these pages, is qualitatively different from the four that have preceded it since the 60s. A recession which reveals beyond doubt the chronic inability of capitalism to transcend its fundamental, historic contradictions (its inability to create sufficient outlets for its productive capacity). But this recession also reveals new difficulties for the bourgeoisie, difficulties that are the product of 'remedies' applied throughout two decades of a flight into credit and massive debt[5].

For the last two years the American government has had to get the economy going again by applying the old policy of facilitating credit by lowering interest rates. The interest rate of the Federal Bank of the United States has now been reduced 20 times and it has reached the point that, taking account of inflation, a private bank can borrow money and pay scarcely any interest in real terms. In spite of all these efforts, all signs of life in terms of growth remain horribly absent. The American economy is so hugely in debt that the private banks use these 'free' loans to repay a small part of their previous debts rather than using them for fresh investments[6].

Never has the economic perspective for capitalism been so bleak. Never has its impotence been so blatant. The miracle of 'Reaganomics', the miraculous return to 'pure' capitalism wallowing triumphant amid the ruins of 'communism' has culminated in a total fiasco.

More state intervention?

This is how the new, young democratic candidate for the presidency of the United States is presented with his new solution for the United States and the world.

"The only solution for the president (Clinton) is the one he's outlined throughout his campaign. That is, to boost the economy by increasing public spending on the infrastructure (road network, ports, bridges), on research and training. This will create jobs. What is just as important, this spending will contribute to accelerating growth in productivity in the long term and to real wages." (Lester Thurlow, one of the most noted economic advisors in the American Democratic party)[7]. Clinton has promised that the state would inject between 30 and 40 billion dollars into the economy in this way.

In Great Britain, the very conservative Major, responding to the first signs that the combativity of the working class is returning, and weighed down by economic bankruptcy, has suddenly abandoned his liberal creed 'against statification'. He too is chanting the same Keynesian refrain by announcing a "strategy for growth" and the injection of 1.5 billion dollars into the economy. Then it is turn of Delors, representative of the EEC, who goes further by insisting on the need to accompany the new policy with a strong dose of "co-operation between states": "This initiative to stimulate growth is not a classic Keynesian boost to the economy. It isn't simply a matter of putting money into circulation. We want above all to send the message that cooperation between states is on the agenda."[8]

At the same time, the Japanese government has decided to supply a massive amount of aid to the main sectors of its economy (90 billion dollars, which is the equivalent of 2.5 % GDP).

What is the significance of all this exactly?

The democratic propaganda in the United States, like that of some of the left parties in Europe, presents it as a change from the excessively 'liberal' policies of the Reagan period. After the verbiage of 'less state involvement' in that period, they are now claiming to return to greater fairness through the activity of that institution which is supposed to represent 'the common interests of the whole nation'.

In fact all it is, is the continuation of the tendency that is characteristic of decadent capitalism. The tendency, that is, to rely on the power of the state to keep the economic machine turning over, when left to itself the economy is increasingly paralyzed by the heightening of its internal contradictions.

The truth is that the capitalist economy has constantly increased the level of state control, ever since the First World War when each nation's survival began to depend upon whether it was able to carve a place for itself by force on a world market that had grown definitively too small. In decadent capitalism the tendency towards state capitalism is a universal tendency. It may be concretized at a different rate or in a different form, depending on which country and the historic period. But it never has stopped progressing, to the point where it has turned the state machine into the very heart of social and economic life in every country.

German militarism at the beginning of the century, Stalinism, fascism in the 30s, the public works of the New Deal in the United States that followed the economic depression of 1929, or those of the Popular Front in France in the same period, are simply manifestations of the same movement towards the statification of social life. This development did not stop after the Second World War. Quite the reverse. And 'Reaganomics', which were supposed to constitute a return to a 'liberal', less statified capitalism, did not interrupt this tendency either. The 'miracle' of the American recovery in the 80s was founded on the doubling of state debt and a spectacular increase in armaments expenditure. By the beginning of the 90s, after three Republican terms of office, the gross public debt represented nearly 60 % of American GDP (the figure was 40% at the beginning of the 80s) and the financing of this debt alone absorbs half of the national savings[9].

The policies of "deregulation" and "privatization" that were carried out throughout the 80s in all the industrialized countries did not produce a lessening of the role of the state in managing the economy[10]. These policies mainly served as a justification for redirecting state aid towards the more competitive sectors, eliminating less viable companies by reducing certain state grants and concentrating capital to an incredible degree (which has inevitably led to a growing fusion between the state and large 'private' capital in terms of management). At the social level, they inaugurated a trend towards redundancies and a tendency for jobs to become generally more insecure, as well as the reduction of so-called 'social' expenditure. After a decade of 'anti-statist liberalism', the state's grip on the economic life of society has not lessened. On the contrary, it has grown stronger because it has become more effective.

By the same token, the talk of "more state involvement" that is being put about today does not represent a reversal but a strengthening of this tendency.

What does the proposed change mean then?

Throughout the 80s, the capitalist economy went through the greatest orgy of speculation in its history. Now that the whole bubble has burst, the damage can only be limited by the iron hand of bureaucracy.[11]

But it also means that the state will constantly increase the amount of paper money it chums out. As the 'private' financial system cannot expand credit because it is so horrendously in debt and so totally devoid of speculative value, the state intends to get the machine going again by injecting money, by creating an artificial market. The state is to buy up "infrastructures" (road network, ports, bridges, etc), with the aim of orienting economic activity towards sectors more productive than speculation. It is to pay with ... paper, with money issued by the central banks without any cover whatsoever. In short, it means a further increase in the state deficit.

In fact, the policy of "public works" put forward today, is essentially the policy that Germany has been carrying out for the last two years in an attempt to 'reconstruct' the old GDR. And we can get some idea of the effect of this policy by considering what it has accomplished there. It has had a particularly marked effect in two areas: inflation and external trade. In 1989 Federal Germany had one of the lowest inflation rates in the world; it was in the forefront of the industrial countries. Today inflation there is the highest of the seven leading nations[12], with the exception of Italy. Two years ago West Germany had the biggest trade surplus globally, surpassing even that of Japan. Today it is cracking under the weight of a 50 % increase in imports.

Moreover in financial terms, Germany is one of the strongest and most 'stable' economies in the world[13]. This same policy applied in a country like the United States especially will have far more devastating effects in the short or medium term[14]. The state deficit and trade deficit, the two chronic ills that the American economy has suffered from for the last two decades are much higher than in Germany. Even if these deficits are at present lower than they were at the start of "Reaganomic" policies, their increase will have dramatic repercussions not only for the United States but also for the world economy, especially in terms of inflation and the anarchy in the exchange rates. On the other hand, the fragility of the American financial apparatus is such that an increase in the state deficit runs the risk of bringing about its' definitive collapse. In fact over the years the state has systematically taken responsibility for the bankruptcy of increasingly important and numerous banks and savings banks that have been unable to repay their debts. By giving a new boost to a policy of state debt the government is debilitating the last, and already feeble, guarantee of a financial order that everyone knows to be falling apart.

More cooperation between states?

It is no accident that Delors is insisting that the policy of public works ought to be accompanied by greater "cooperation between states". As the German experience shows, increased state expenditure is bound to result in an increase in imports and therefore worsen the trade imbalance. During the 30s the policy of public works was accompanied by a savage increase in protectionism - to the point of autarchy in Hitler's Germany. The same tendency is emerging today. No country wants to increase its own deficit in order to boost the economies of its neighbors and competitors. The statements of Clinton and his advisors, demanding a strong reinforcement of American protectionism, are particularly clear on the point.

Delors's appeal is no more than a pious wish. In the face of the aggravation of the world economic crisis, it is not the tendency towards more "co-operation between states" that is the order of the day; on the contrary it is an economic war waged by each against all. All the policies of co-operation, which are really aimed at making partial alliances to better confront other competitors, always work towards the strengthening of all these internal centrifugal forces. The heightening of the convulsions which are tearing the EEC apart, the most spectacular demonstration of which was the recent collapse of the EMS, bears witness to this. The same can be said of the tensions within the Free Trade Agreement between the United States, Canada and Mexico, or the still-born attempts to establish a common market between the countries of the southern tip of Latin America or the countries of the "Andean pact".

Protectionism has developed unceasingly throughout the 80s. In spite of all their talk about "the free circulation of goods", in spite of this principle that western capitalism has trumpeted abroad as an expression of the "rights of man" (bourgeois man), the fetters on world trade have gone on and on multiplying[15].

The tendency is towards the exacerbation, rather than the attenuation, of the relentless trade war facing the large commercial powers, of which the GAIT negotiations are just a small part. The strengthening of the tendency towards state capitalism, aggravated by the policy of "public works" , can only make it all the more acute.

Obviously governments can never remain inactive in the face of the catastrophic state of their economies. For as long as the working class has not managed to definitively destroy the political power of the international bourgeoisie, the latter will go on running the machine of capitalist exploitation in one way or another, however decadent and decomposed it may be. Exploiting classes do not commit suicide. But the' solutions' that they are able to come up with are inevitably characterized by two things. Firstly, they resort more and more to intervention by the state that organized instrument of force controlled by the dominant class. It is the only instrument able to ensure by coercion the survival of mechanisms which tend towards paralysis and self-destruction. That is what all the current talk of "more state intervention" means. Secondly, these 'solutions' become increasingly aberrant and absurd, as we can see in the current GATT negotiations. Different fractions of world capital, bunched around their respective states, confront each other to decide how many million hectares of agricultural land is to be left barren in Europe (the 'solution' to the problem of agricultural overproduction). In the meantime every television screen in the world covers the numerous famines in Africa, Somalia, for the purpose of war propaganda.

Decades of Stalinist and 'socialist' ideology has inculcated workers with the lie that statification of the economy is synonymous with an improvement of workers' conditions of existence. But the state that exists within a capitalist society can only be a state that represents capital, the state of the capitalist class (rich owners or big bureaucrats, that is). The inexorable strengthening of the state that they are talking about will bring nothing to the working class except more misery, more repression, more wars.


[1] In December 1991, no 50 of Economic perspectives for the OECD reads:

"Every country should experience an increase in demand as a similar expansion takes place more or less simultaneously in other countries; the recovery of world trade is in sight ... The acceleration in activity should be confirmed in Spring 1992 ... This development will produce a progressive growth in employment and a recovery in business investment ..." We should note that even at the time the same 'experts' had to conclude that, "Growth in activity within the OECD in the second quarter of 1991 seems weaker than the Economic perspectives predicted in July ..."   

[2] The few signs of recovery that have been manifested up to now in the United States are very fragile and do not indicate a real reversal of the tendency. They have more the appearance of a temporary slowdown in the decline, a product of the desperate attempts on the part of Bush during the electoral campaign.

[3] The technical definition of entry into recession (according to the American criteria) is two consecutive quarters of negative growth in GDP (gross domestic product, which means all production including the salary of the state bureaucracy which is taken as producing the equivalent of its salary). In the 2nd and 3rd quarters of 1992 Japanese GDP fell by 0.2 and 0.4%. But in the same period the fall in industrial production in relation to the previous year was more than 6%.  

[4] We will not return here to the development of the situation in the 'third world' countries whose economies have been steadily sinking with no remission since the beginning of the 80s. However it is interesting to make some remarks about the development of the countries once called "communist", those countries whose entry into the "world market" was supposed to make them prosperous and turn them into a rich market for the western economies. The dislocation of the old USSR has been accompanied by an economic disaster that has no equal in history. By the end of 1992 the number of unemployed has already reached 10 million and inflation is increasing at an annual rate of 14,000% - a figure which surpasses all comment. As for the countries of Eastern Europe, the economies of all of them are in recession and Hungary, the most advanced, which was the first to implement "capitalist reforms" and which ought to find it easiest to enjoy the benefits of liberalism, is being swept by a devastating wave of bankruptcies. The unemployment rate has already reached 11 % officially and is forecast to double throughout next year. As for Cuba, the last bastion of so-called "real socialism", annual production in 1992 has fallen to half that of 1989! The only exception remaining is China which starts at a level which is already exceptionally low (industrial production in People's China is not much higher than that of Belgium). Its present rate of growth is relatively high because of the expansion of areas "open to the capitalist economy" where they burn the massive credits that Japan grants them.

As for the four little dragons of "capitalist" Asia (South Korea, Taiwan, Hong Kong and Singapore), their exceptional growth is beginning to fall in its turn.

[5] See in particular, 'A recession unlike the others' and 'Economic catastrophe at the heart of the industrialized world', in International Review, nos 70 and 71.

[6] The total debt of the American economy (the government plus businesses plus individuals) is equivalent to nearly two years' national product.

[7] Le Monde, 17 November 1992.

[8] Liberation, 24 November 1992.

[9] The development of the public debt is a phenomenon that has characterized this decade in particular. What it means concretely is that the state takes on the responsibility of supplying a regular return, a part of social surplus value, in the form of interest on an increasing volume of capital, which is invested in "treasury bonds". This means that a growing number of capitalists no longer derive their income from exploitation at businesses belonging to them but from taxes raised by the state.

We should note that the increase in the public debt for the EEC, as a percentage of GDP, is more than that of the United States (62%).

[10] Even if we look at it from a purely quantitative point of view, measuring the involvement of the state in the economy by the proportion of the gross national product that public administration costs represent, this rate is higher at the beginning of the 90s than at the beginning of the 80s. When Reagan was elected, the figure was in the order of 32 %; when Bush left the presidency it was over 37%.

[11] American banks and savings banks going bankrupt, Japanese banks in difficulties, the collapse of the Tokyo stock exchange (already equal to the 1929 crash), the bankruptcy of a growing number of finance companies, etc, these are the first direct consequences of the crazed speculation of yesterday. Only the state can cope with the financial catastrophes that are taking place.

[12] United States, Japan, Germany, France, Italy, Great Britain, Canada.

[13] What is more, the German government is committed to financing the state deficit by means of international loans while attempting to keep inflation under control by restricting (with diminishing success, to be sure) the expansion of the monetary mass and keeping interest rates very high.

[14] In the case of countries like Italy, Spain or Belgium the state debt has reached such heights (over 100% of GDP in Italy, 120% in Belgium) that such a policy is quite simply unthinkable.

[15] These fetters on trade do not take the form of customs duties so much as restrictions pure and simple: import quotas, agreements on self-limitation, "anti-dumping" legislation, rules governing the quality of products, etc. " ... the proportion of commercial exchanges accompanied by non-tariff measures has greatly increased in the United States as well as in the European community, which together represent nearly 75% of imports within the OECD (excluding combustibles) n OECD, The development of structural reform: a view of the whole, 1992.

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