Despite the lowering of the dollar and the increases in oil prices, the specialist economic forecasters are reassuring themselves with the positive rates of growth for 2004: 4.7% for the USA; 3% for Japan; 1.6% for the Eurozone; 9.1% for the first three quarters of 2004 for China. How do we interpret these results? Is the world economy getting better? Can the United States, and above all China, presented by the bourgeoisie as the new Eldarado, be the locomotives of the world in order to re-launch the economy, including that of Europe?
To answer these questions it is first of all necessary to analyse the situation of the main world power, in order to see how the bourgeoisie uses its underhand methods to hide from the proletariat the growing bankruptcy of its system.
The colossal debt of the American economy
If there is one thing on which all the specialists of the world economy are not mistaken it is on the debt of the world’s main power. In order to re-launch the economic machine, the American administration has let public and commercial deficits run wild. It has artificially financed household spending (this consumption represents more than two-thirds of US GDP and has a determinant influence on economic activity), through the massive lowering of taxes on household goods, which was decided after the election of 2001 (in fact there were repeated reductions in 2001, 2002, 2003 and 2004, to a total of 1,900 billion dollars over 10 years) and of interest rates on borrowing, brought to their lowest level since 1945 (reduced by the FED to 1%). Despite these measures, economic growth has fallen to 3.5% against the 5% of only a few months ago. Consumer confidence again fell in October 2004 to its lowest level for 7 months and deficits do not stop rising. The American administration is even talking of “twin deficits” in order to qualify their gravity. The budget deficit has risen to 413 billion dollars after the 377 billion of 2003. The experts are looking at an accumulation of supplementary debts of 3,000 billion dollars from here to 2011.
“The government must now borrow 1.1 billion dollars a day and spend more in order to assure the servicing of interest on debt (159 billion), which corresponds to the accumulated budgets of education, domestic security, justice, the police, army veterans, space exploration and international aid” (Le Monde of November 4, 2004). As to the commercial deficit, it has gone beyond $650 billion, or 5.7% of GDP. The situation is not much better for the other capitalist states. The jump in petrol prices and the rise of the Euro will lead to maximum rates of growth in Europe of 2%, in a context where public debt doesn’t stop growing and where no European state is up to respecting the 3% of deficit fixed by the Maastricht Treaty: more than 4.1% deficit for France, 3.9% for Germany, 3.2% for Britain (double the previous year) and more than 4% for Italy.
The lowering of the dollar: an expression of the trade war
The G7 Summits follow one another and behind the determined speeches in favour of common policies, in reality the opposite is the result. The aggravation of the crisis and notably of American debt, with its inflationary risks, tends to increase the competitive aspect that is at the very basis of the capitalist system. With the lowering of interest rates, the American administration has developed a policy of lowering the dollar against the Euro, its main competitor currency, in order to gain parts of the export market and lower the level of its financial debt. This policy of “competitive devaluation” has already been used by the United States, in 1980 and 1995. What’s different today is the context in which the American government uses this lowering of the dollar: the unprecedented indebtedness of its economy. Despite the pressure on its rival economic powers through the fall of the dollar, American exports still only cover some 75% of its imports, thus making the insolubility of American debt yet more flagrant. In this raging commercial war, while the dollar loses 25% of its value, the external deficit is about to pass 5.5% of American GDP. “To take it below 3.5% of GDP, which seems to be the objective, will doubtless necessitate a supplementary depreciation of the dollar of 35% against all monies. The fall in the Greenback is an attempt to lead the American economy back towards a better equilibrium. The Euro will have to climb to 1.7 a dollar, heavily penalising European exports”. (Les Echos, November 6). Faced with this perspective of an unprecedented lowering of the dollar, Japan (whose tiny economic recovery is based on the re-launch of exports) is openly threatening the United States with an intervention on the financial markets through their central banks in order to raise the American currency. The gravity of the present situation doesn’t so much reside in the competition between the industrial countries, which is the very essence of capitalism, as in the tendency to call into question the very minimum of agreement which has existed up to now between the major powers in order to offset the effects of the crisis onto the rest of the world.
The increase in oil prices, an aggravating factor of the crisis
In the context of the monstrous debt of the main developed countries and the lowering of the dollar, the rise in the price of raw materials and notably of oil has just reactivated the spectre of inflation, which ravaged the world economy during the course of the 1970s. This warning came from the IMF: “To wait very long before reacting to the first signs of inflation could turn out to be costly, and could cost the central banks a part of the credibility that they have been building up in the 1980s and 1990s” (Le Monde, October 1). Despite this warning, the bourgeoisie’s experts focus attention on the causes of these increases which are supposed to be due to a strong demand for oil at the world level, notably China and the United States. And also to a certain instability in some producing countries (e.g. Iraq and Saudi Arabia), which we are told is only a temporary problem. On the other hand, the marxist analysis situates this phenomenon in a more global framework. The increases of 1973, 1979, 1997 and 2000, were largely utilised by the United States in the commercial war against other capitalist states, Europe and Japan notably (see our article ‘Increases in oil prices: a consequence and not the cause of the crisis’ in International Review no. 19). These latest increases, on the contrary, strongly penalise the US economy in general and notably American domestic consumption, in a context where the US is obliged to import much more oil than before. The higher price for oil immediately reverberates into an aggravation of the American budget deficit, much more so because oil is paid for in dollars and it thus costs America dearer than the European economies (which pay per barrel with dollars cheaper than their own money, the Euro). Thus the oil price increase shows the gravity of the economic crisis and at the same time the link that it can have with present wars. The speculative dimension accounts for a part of this increase (the experts estimate it to be between 4 and 8 dollars per barrel); but the impact of war on oil prices is even more clearly the expression of the growing weight of chaos and barbarism at the world level. The incapacity of the United States to restart Iraqi production because of the military mess it’s getting sucked into in Iraq, the threats of attacks against the installations of the main producer country, Saudi Arabia, social troubles in Venezuela and Nigeria are elements in this. All of these events demonstrate that there is not the economic aspect on one side and the military or imperialist aspect on the other, but a greater and greater interpenetration of all these factors, each feeding the other and giving rise to a more and more chaotic situation that is less and less controllable by the bourgeoisie. Instability and growing disorder in the capitalist world feed economic instability, which in turn can only produce still more military instability.
The increase in military budgets
In the context of this astronomic debt of the world economy, especially of the main world power, the increase in military expenditure is a further factor in the aggravation of budget deficits. Military spending is at the expense of civil budgets, and these can only be reduced in order to finance the endless, spreading barbarism.
Thus, since unleashing the war in Iraq, the United States has spent 140 billion dollars. This effort is not sufficient since “At the beginning of November the Pentagon asked for an extension of $70 billion to finance military operations in 2005 (Le Monde, November 9). The budget of the Pentagon will in 2005 go beyond $400 billion, not counting the cost of wars in Iraq and Afghanistan, which represents almost half of world military expenses (45% exactly).
Comparison with previous wars shows the exorbitant cost of present spending. While WW I cost the US economy $190.6 billion, WW II $896.3, the first Gulf War in 1991 absorbed $76.1 billion in a few months (sources: Economic Problems, 1.9.4).
But other states are not far behind and we can cite the case of France where, since the end of the 90s, military budgets have been hiked up to the world level. While France’s arms budget has increased significantly, the government has decided to grant “an extra 550 million Euros to finance the military engagement going on in the Ivory Coast and a hundred million more to cover other external operations. These amounts are at the expense of the civil ministries.” (Les Echos, November 10).
Spending in the military sphere does not serve the reproduction of productive capital. It represents the destruction, pure and simple, of capital invested. That means that the development of militarism and the spending increases that are linked to it are a supplementary weight which can only accentuate economic stagnation.
Behind the figures of so-called capitalist growth for 2004, we can discern a dramatic new stage in the worsening of the crisis, illustrating the historic failure of the capitalist system of production. Donald, 12.12.4.