The crisis of state capitalism: The world economy sinks into chaos

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"Victory! Victory! Capitalism has vanquished communism! Look at the East: it's ruined, poverty-stricken, nothing works any more, the population doesn't want any more socialism! Look at the West, it's opulent, inflation has been brought down, there's been economic growth for seven years, liberal and pluralist democracy is the best of all systems! The market has won." The capitals of the western world resound with euphoric hymns to the capitalist economy. The economic collapse of the eastern bloc is the pretext for unleashing an intense ideological campaign about the glories of liberal capitalism. There are two things that are true in all this: the economy of the eastern bloc is in ruins and the law of the market has imposed itself. The rest is just lies that the ruling class puts out in its ideological war against the proletariat, and because it has illusions in its own system.
The greatest lie is the assertion that communism has existed in the eastern bloc, and in the USSR in particular. That so-called 'real socialism' is the real hell to which Marxist theory leads. Thus, the proletariat continues to pay the price of the tragic failure of the proletarian revolution which began in Russia in 1917: the identification between the Stalinist counter-revolution and the victory of communism is the worst mystification it's ever been subjected to.
A working class that has been starved, exploited to the hilt, massacred at the least sign of revolt. An arrogant ruling class - the nomenklatura - that clings to its privileges. A bureaucratic, militarized state whose tentacles reach everywhere. An economy totally geared towards the production and maintenance of armaments. An extremely brutal Russian imperialism that has imposed rationing and pillage on its bloc. But none of these characteristics of the eastern countries have anything to do with the abolition of classes, the withering away and extinction of the state, or with the proletarian internationalism that Marx advocated.
However, even if the Stalinist dictatorship in the eastern countries has exhibited these traits to the level of a caricature, they are certainly not unique to Stalinism. They exist in a more and more accentuated manner throughout the world. Despite these specificities, linked to its history, the economy of the eastern countries is capitalist to the core.
The break-up of the blocs and the crisis of state capitalism
At the end of the Second World War the para­sitic Stalinist nomenklatura, representing 15% of the population, found itself at the head of a bloc whose economy had either been destroyed or was severely underdeveloped. It could only assert its power by cheating the law of value through the imposition of state capitalist mea­sures. These were of an extreme nature owing to the absence of the old property-owning bourgeoisie, which had been expropriated by the proletarian revolution of October 1917: total statification of the means of production, a tightly controlled and rationed internal market, massive development of the whole economy to the needs of the army, which in the last in­stance was the only guarantor of the submission of its bloc and of its credibility as an interna­tional imperialist power. But now, with its army paralyzed by economic disfunctioning, and faced with a population whose growing discontent could no longer be silenced by police terror, the Russian bourgeoisie has been unable to re­sort to the only card left to it - war. All it can do is admit that its economy is derelict and that it's powerless to do anything about it.
The economic collapse of the Stalinist model doesn't mean the collapse of socialism but a new step by capitalism into the world crisis which has been going on for over 20 years. It's in­deed true that the famous law of the market, whose virtues we hear so much about, has im­posed its authority today, just as it did ten years ago with the so-called 'third-world' countries - which no one denies are capitalist ­plunging them into a level of poverty and barbarism which has not been outdone by the east­ern countries.
You can't cheat the law of value with im­punity. It's the very basis of the capitalist eco­nomic system. But this truth, which the western ideologues repeat ad nauseam - "long live the market, long live the market" - is also imposing itself on the whole of the so-called liberal econ­omy outside of the former eastern bloc. While western propaganda, in the face of the evident economic bankruptcy of the east, sticks to the well-worn tune about everything being OK in the west, the crisis continues to bore away, and the famous law of the market is still at work. Despite all the attempts to manipulate them, growth rates continue their irresistible fall, heralding an even deeper dive into recession for the world economy.
Far from announcing a bright future for capitalism, the bankruptcy of the eastern bloc, following that of the third world, points to the coming bankruptcy of capitalism in its most de­veloped centers. And the USA, the world's leading power, is the first in line.
The USA, which poses as the champion of economic liberalism on the ideological level, hasn't lived up to its speeches in practice. On the contrary, the state's intervention into the economy has been steadily increasing for decades.
The tendency towards state capitalism can't be reduced to its Stalinist caricature, to nationalizations and the abolition of competition on the internal market. American-style state capitalism, which integrates private capital into a state structure - the badly misnamed 'liberal' model - is much more efficient, more supple, more adaptable, and has a much more developed sense of responsibility about the management of the national economy. It's more mystifying because it's better hidden. But above all, it controls a much more powerful economy and market: in 1987, the overall gross national product of the OECD, at around 12,000 billion dollars, represented six times the national revenue of the COMECON countries.
In front of the media, Reagan and his team were fierce partisans of liberalism and less state interference. But in the shadowy inner sanctums of the state power, they carried out an economic policy which was the complete reverse of their professions of faith. But these state policies are also so many distortions of the law of value, so may attempts to cheat the sacrosanct law of the market.
Via the very statist policies of the very statist Federal Bank, the USA has imposed the law of the dollar - through which three quar­ters of world trade takes place - on the world market. In order to defend King Dollar, a discipline was imposed on the big industrial coun­tries who make up the 'G7' group, countries which are the USA's economic rivals but also its vassals. Different parts of the market were ne­gotiated over, divided up, or swapped in the discussions in the GATT, in total disdain for all the rules of competition. The much-vaunted deregulation of the markets was simply the ex­pression of the USA's very statist attempt to impose the norms of its internal market on the whole world. Subsidies of several hundred bil­lion dollars have been poured put by the fed­eral state to protect the hard-hit agricultural sector and to shore up collapsing banks and savings funds, while the Pentagon's orders for arms are a disguised subsidy to the whole of American industry, which has become more and more dependent on them.
The American 'recovery', after the brutal re­cession at the beginning of the 80s (which sealed the fate of the underdeveloped countries) was based on a massive budget deficit that fi­nanced a war-effort unprecedented in peacetime, and on a record trade deficit. Such policies could not have been possible without running up astronomical debts.             .
These state capitalist policies led to growing distortions of the mechanisms of the market, making it more and more artificial, unstable, volatile. The American economy is floating on a vast sea of debt which, just like any under-de­veloped country, it cannot hope to pay back. The overall American debt (internal and exter­nal) corresponds to about two years of GNP, whereas the external debt of Mexico and Brazil, which the world's bankers make so much of to­day (internal debt doesn't mean much for these countries, whose currencies have totally col­lapsed) corresponds to nine and six months ac­tivity respectively. The American super-power has feet of clay and its debts are weighing more and more heavily on its shoulders. Even though it takes different forms, the so-called free market of the western world - in fact the essential part of the world market - is just as artificial as that of the east, because it has been kept afloat by means of fake money and a swelling debt that can never be repaid.
While they have made it possible to strengthen the imperialist supremacy of the USA, the arms orders have not saved American industry. On the contrary. Between 1980 and 1987, the role on the world market played by the three key industrial sectors - machine-tools, automobiles and computer technology - has de­clined respectively from 12.7 to 9%, 11.5 to 9.4% and 31 to 22%.
Arms production reproduces neither labor power nor new machinery. It represents a de­struction of capital, of wealth, an unproductive puncture which deflates the competivity of the national economy. The two bloc leaders who emerged after Yalta have both seen their economies become less competitive than those of their allies. This is the result of the expendi­ture they have had to devote to the strength­ening of their military power, which is the guarantee of their position as imperialist leaders and, in the last instance, of their economic strength.
With the economic collapse of the COMECON countries, the bugbear of Russian imperialism has lost its credibility, and as a result the western bloc no longer has any cement to hold it together.
After decades of state capitalist policies car­ried out under the whip of the imperialist blocs, the current process of the dissolution of the al­liances which have hitherto divided up the planet represents, to a certain extent, a victory for the market, a brutal adaptation of imperialist rivalries to economic realities. It symbolizes the inability of state capitalist measures to short circuit ad eternam  the remorseless laws of the capitalist market. This failure, which goes well beyond the limits of the former Russian bloc, expresses the incapacity of the world bour­geoisie to deal with the chronic crisis of over­production, with the catastrophic crisis of capi­tal. It shows the growing ineffectiveness of the statist measures which have for decades been employed more and more massively, on the scale of the blocs, and which since the 1930s have been presented as a panacea to the insurmount­able contradictions of capitalism as expressed in its market.
The USA dives into recession ...
While the paid ideologues of capital still go in to ecstasies about the victory of ‘free market cap­italism' and believe that a new dawn is breaking in the east, a new era of reinvigorated and tri­umphant capitalism, the hurricane approaching the American economy will make their empty phrases about the market stick in their throats.
The symbol of triumphant capitalism, the holy land of liberalism, the American economy, is low­ering its wheels and attempting the last impro­vised maneuvers of a landing that will be anything but soft.
The USA is losing credibility on the financial markets; the money-lenders are more and more reticent. Merely paying the interests on the federal debt envisaged for 1991, 180 billion dol­lars, would be the equivalent of over six months of exports. The European and Japanese capital­ists, who have financed most of this debt, are beginning to grow wary about accepting the ailing products of the US treasury. Thus, thirty year loans to the American treasury are now being negotiated at 5% below their nominal value.
Deprived of liquidity, the American economy is like a car running out of oil, and its artifi­cially protected economy has lost its competivity on the world market. The last quarter of 1989 has been marked by a brutal plunge into reces­sion: official growth has fallen by 0.5% annually. The flowers of American industry have announced a big fall in profits. In computers, IBM has announced a 74% fall for the last quarter of 1989, and a 40% fall for the whole year. Digital Equipment has gone down 44% over the year. Control Data has announced losses of 680 million dollars in 1989, 196 of them in the last quarter. It's the same in automobiles: Ford, Chrysler and General Motors have announced tens of thou­sands of redundancies. The production of oil is at its lowest level for 26 years. The steel in­dustry is even worse off. The weakest enter­prises are all accumulating losses and going bust.
Wall Street is increasingly unstable, and has lost 300 points since October, creating alarm in all quarters. The stock-exchange employers are following the lead of their industrial colleagues and laying off workers in droves: Merryl Lynch, Drexel-Burnham, Shearson-Lehman etc. The prospect of a reduction in the budget deficit is causing anguish to industrialists facing a drop in state orders: a billion dollar reduction in the arms budget means 30,000 redundancies. And the more mass unemployment develops, the more the solvent market will shrink.
For lack of buyers, the property market is tumbling after years of frenzied speculation. The brutal devalorisation of the property scene is the expression of a general devalorisation of American capital. Just like the hundreds of savings funds that have gone bust because the value of their investments has melted away to nothing through the collapse of property spec­ulation, so the international speculators who set up industrial empires through credit-financed 'leveraged buy-outs', are seeing the value of their assets become completely volatile, and are unable to keep up the payments on their debts.
Panic is beginning to seize the big banks. While the question of the unpaid debt of the poor countries remains unsolved, they're now faced with the declining solvency of the American economy. The percentage of property debtors having difficulty in reimbursing the banks has gone up from 8% to 15% in one year in the industrial north-east. The loans which once financed the leveraged buy-outs and all the stock exchange speculation are becoming in­consistent with the vicissitudes of Wall Street. Thus the bankruptcy of a single speculator, Robert Campeau, left an estimated bill of between 2 and 7 billion dollars being wiped off the state. The business bank of Drexel-Burnham announced losses of 40 million dollars and de­clared itself bankrupt. Industrialists stuck in a stagnant market are finding it harder and harder to reimburse their loans and the 200 bil­lion dollars circulating in 'junk-bonds' (risky investments which have a high rate of return ... as long as things are going well) have also been through a collapse in value.
The big banks, the standard bearers of American capitalism, have consequently been piling up losses: 1.2 billion dollars for J.P.Morgan, 665 million for Chase Manhattan, 518 for Manufacturers Hanover. And the worst is yet to come: since the decline began to accelerate in the last quarter of 89, the effects can only in­tensify. With this new dive into recession, the American economy is about to lose its solvency, not only at the national level, but also and above all on the international level. The dollar is based on the power of the American economy and the growing collapse of the American market contains the prospect of a collapse of the dollar. The international financial system has become a huge house of cards, shaking more and more under the asthmatic breath of the US economy. The famous policy of interest rates has proved incapable of holding back the march of inflation and preventing the dive into recession.
 
… Announcing a new collapse in the world economy
With the slow-down of the American economy, the stage is set for a much deeper plunge into recession by the world economy. While the eco­nomic collapse of the eastern countries has only had a very weak impact on the world economy ­for decades these markets were closed and trade with the rest of the world was very mini­mal - it won't be the same with the American economy. Even though since the end of the Sec­ond World War its part of the market has fallen from 30% to 16%, and even though its competiv­ity has gone down and down, the American economy is still the first in the world and its market is by far the most important.
The exports of Japan and the industrialized countries of Europe are dependent on the American economy. The 'empire of the sun' of­floads 34% of its exports onto the USA. It is the one most dependent on the American market. In 1989, its trade surplus, as the result of a knock-on effect of America's problems fell by 17%. Consequently the recession in the USA, the growing insolvency of the American market, means that the door is closing on imports from other countries and that there will be a fall in world production. Because of this spiral of cap­italist catastrophe, the whole planetary economy is about to descend into chaos. The unbelievable shambles which the world is heading towards, and which makes it difficult to give any detailed prognosis of the exact form the acceleration of the crisis is going to take, shows one thing at least: the illusion of relative stability, which capital has managed to keep up in the most de­veloped metropoles during the 1980s, is now at an end.
All the mechanisms for 'regulating' the mar­ket are beginning to clog up. The states are trying to oil the wheels but the remedies are more and more ineffective. The bankers are gripped with fear as their balance-sheets point to a bottomless abyss, while the golden boys of Wall Street, the heroes of Reaganite liberalism, are today unemployed or "in jail. The big stock exchange floors are full of disquiet: they've been through a series of shocks. 13 October 1989, then 2 January to begin the year 1990, and 24 January to confirm these sinister auguries. Each time, the state has inundated the market with liquidity to dispel the panic, but how long can this day-to-day policy, this acro­batic improvisation, be kept up?
A significant indication of the unease which has befallen the world of the speculators: on 2 January it wasn't Wall Street that fell first, it was the Tokyo stock exchange, which has be­come the world's leading stock exchange and has up to now been noted for its solidity and stability. The rebound effect is already under­way, announcing future cracks and collapses.
The illusion of new markets
However, despite these somber perspectives, the ideologues of capital continue to celebrate the famous market. And just as the world market goes through yet another drastic contraction, as the American economy begins to sag, they search desperately for a new oasis that can quench the thirst for outlets of an industry which after the investments of the last few years has an enormously developed productive capacity. But all they find is new mirages to perpetuate the illusion:
- the Japanese market which, for years, was supposed to be on the verge of opening up, but which remains desperately closed, occupied by its own industries and leaving no place for foreign imports;
- the market of the eastern countries, which now opening up to the west, but which have been ruined by decades of bureaucratic pillage and the whole aberration of Stalinism and which, in order to import, are crying out for massive credits from the western countries;
- the coming European 'unification', which in1992 will institute the biggest single market in the world – a hypothetical perspective made even more distant by the growing instability of the world. And in any case, it's already an oc­cupied market, even if it's cut up into fragments.
With all these markets, it's the same problem: as far as their solvency is concerned, they're already fully saturated. A recovery in these regions could only be based on credit and on printing money. This is precisely the economic policy the USA has been pursuing for years, and we know where that leads!
The world financial situation doesn't encourage investors to dole out new credits, which don't have any more chance of being reimbursed than the old ones. It's significant that for all the declarations about giving aid to the east, western credits have been extremely parsimoniousness. The world economy has reached a watershed. The policy of forcing exports by loaning out the money to pay for them is becoming less and less possible and more and more dangerous. The quack remedies of liberal economics as applied to the newly-opened eastern countries means:
- galloping inflation, already 900% in Poland; in Hungary, in the price of basic necessities has doubled;
- the closure of uncompetitive factories - which means the majority of them, consequently the development of massive unemployment, previously unknown in these countries.                       
The mythical Eldorado of western capitalism, propagandists of capitalism, which generations of workers have dreamed about in the east has become a daily nightmare involving an intolerable deterioration of living conditions. Just as the under-developed coun­tries have not been able· to escape the misery they fell into at the end of the 70s, the coun­tries of the former eastern bloc will not be able to break out of the economic catastrophe which is now hitting them. The recipes of liberal state capitalism will be no more effective than those of Stalinist state capitalism.
Who could finance a recovery that would at­tenuate the after-effects of the decline of the American economy? Ever optimistic, the world bourgeoisie replies, "But look at Germany and Japan!" And indeed these countries have been enjoying an indecent vigor, beating all the ex­port records, hyper-competitive on markets that have been torn apart by competition, carrying out a monetary policy more rigorous than that of their American mentor.
However, even the economies of these coun­tries put together wouldn't be enough to keep the world economy afloat. Together they only represented three-quarters of the American GNP in 1987. The bulk of their assets are immobilized in US treasury bonds, in shares and reserves held in dollars, which couldn't be realized with­ out creating panic in the markets. Japan's 're­launch' on a highly protected national market would only help Japanese industry, and would have a negligible effect on the world market. As for a German 're-launch', we have a foretaste of what it would mean with the projected monetary unification which is a prelude to the unification of the two Germanys. First of all no one can calculate the cost: estimates vary from tens of billions of Deutschmarks to several hundred bil­lion. Uncertainty reigns, but the attraction of a 'Greater Germany' has pushed the Federal Republic to take down the fences around its stock-exchange, to pursue a policy of big spending in order to finance this reunification. As with Japan, charity begins at home.
The impact of such policies can only be lim­ited on the international level. Germany's abandonment of the policy of monetary rigor - which has so often been seen as an example to follow - is sowing disquiet in a financial world  fearful of this leap in the dark. As a result, the European markets have been destabilized; and given the fear that these policies will fuel in­flation, interest rates are shooting up in Frankfurt and Paris, putting the speculative markets in a tricky position. Japanese investors are hesitating, the European 'monetary snake' doesn't look too well. West Germany's' 'German' option is worrying the other western countries, notably in Europe, who are seeing the door closing on a solution they were counting on to save their own economies.
The Federal Republic doesn't have the means to finance both the absorption of the GDR and a mini-recovery in Western Europe. The European Community doesn't look too happy and the single market of 1992 appears more and more dis­tant and improbable at a time when the com­bined effects of the acceleration of the crisis and the break-down of the discipline of the blocs are pushing each capitalist power into a state of bitter competition dominated by 'everyone for themselves' and growing leanings towards protectionism.
Far from being a victory for capitalism and the dawn of a new period of development as the claim, the economic collapse of the eastern bloc is the harbinger of a new stage in the world economic crisis. Linked in a paradoxical destiny, the two great super­powers who divided up the world at Yalta are now both feeling the stinging blows of the cap­italist crisis. From east to west, from north to south, the economic crisis is world-wide, and while the collapse of the eastern bloc has been more of a factor of disorientation than of clari­fication for the world proletariat, a significant plunge of the world economy into a much sharper and more dramatic level of crisis following the recession in America, will provide the opportunity to clarify things again. The USA's 'attainment' of the dreaded 0% growth figure is inevitably going to undermine the foundations of western propaganda.
The marxist prediction of the catastrophic crisis of capitalism is now becoming more and more concrete. It's the catastrophe of a plane­tary economy that is hurling more and more of the world's population into a bottomless pit. It's the growing anarchy of the capitalist markets, expressing the impotence of all the state capi­talist measures. The developed metropoles are about to take the plunge themselves; inflation, recession, the return of massive unemployment, paralysis in the functioning of the bureaucratic state, decomposition of social relations ...
The blind laws of the market, the laws which lead capitalism into its insurmountable contra­dictions, are at work here. They are leading humanity into barbarism and decomposition: the machinery of capital is out of control. A new wave of attacks against the working class, more severe than ever, is now underway; living stan­dards ravaged by galloping inflation, mass lay­offs, all sorts of austerity measures. Everywhere the same policies of impoverishment are directed against the working class. All the old 'models' are crumbling in front of the hard facts, in­cluding the ones which claim to defend the in­terests of the working class. Not only the Stalinist model, but now the 'Swedish model of socialism': the social democratic government there has just announced a wage freeze and proposes to outlaw strikes.
The deterioration is accelerating and capital­ism in all its forms is proving that it can only lead the human species towards destruction. More than ever, the communist revolution is a necessity, the only way to put an end to the law of the market, ie to the law of capital.
JJ 15.2.1990