What point has the crisis reached? Historic crisis of the economy

The report on the international situation adopt­ed at the Sixth Congress of Revolution Internationale (July 1984) comprised three parts: the historic crisis of the economy, inter-imperial­ist conflicts and the development of class struggle. Under our regular rubric on the econ­omic crisis in the International Review we are publishing the first part of this report[1] which deals with the different manifestations of the present crisis and the evolution of the crisis in the western bloc towards a new wave of recession.

Today, the disastrous consequences of the first recession of the ‘80s are clear all over the world - a sad spectacle of the catastrophic effects of the violent shock of the productive forces against capitalist social relations.

It is almost as though whole populations were hit by some natural disaster or an extremely violent and deadly conflict. Famine, scarcity, hunger strikes are today normal occurrences (1984 saw riots in Brazil, India, Tunisia, Morocco; expulsions; millions of fleeing ref­ugees). In the developed countries, in the centers of the old world and in the United States, whole regions and cities are becoming like under-developed areas. And these are only the limited consequences of the first wave of re­cession in the ‘80s culminating in 1981-82.

On these unhealed wounds, a new wave of re­cession is unfolding.

A new major wave of recession

The major turn of world economic policies at the end of the ‘70s has in four years strongly acc­elerated the world crisis on a deeper level than the monetary crisis of ‘70-‘71 and the recession of 1974.

These past few years, the effects of moves against the ‘Keynesianism' in force since the Second World War have provoked the greatest world recession since the ‘30s with obvious human and social costs. Although the French and English governments began these moves, the Amer­ican government has led the dance. Since the Second World War - during the reconstruction period and throughout the open crisis of the end of the ‘60s - the world economy has been depend­ent on the situation of capitalism in the US. During the years of reconstruction the US pro­vided Europe with the means of reconstruction. In the ‘70s it played the role of locomotive for the entire world economy through easy credit, deficit spending and cheap paper money.

In the last two years the Third World has fallen apart and one wonders just how far capitalism can go in destroying mankind. These so-called ‘developing' countries are on their knees, crushed under the weight of their debts, their economies ready to give up the ghost. Yesterday's economic ‘miracles' very quickly become today's casualties. Oil-producing countries are collapsing with overproduction. In Latin Amer­ica, Venezuela and Mexico are in potential bankruptcy (in a year the standard of living in Mexico and Venezuela has fallen by 50%). The Middle East is in a pitiful state: one of the main international financial backers and oil producers, Saudi Arabia, is in commercial def­icit suffering from overproduction while two other important producers, Iran and Iraq, have had to cut production by 75% because of the war. In Africa, Nigeria - the ‘sun country', an econ­omic exception on a continent where misery is indescribable - expelled a million and a half workers in two weeks (in January 1983) also because of oil overproduction. Food riots have broken out everywhere: Brazil, Columbia, India, Morocco, Tunisia and recently in the Caribbean. Such are the consequences of world overproduc­tion in under-developed countries. The historic conclusions are not difficult to draw. These countries went from colonialism to decolonization only to fall into collapse. This is an expression of capitalism's inability to carry out its own accumulation process, to assure expansion by integrating other sectors of soc­iety into its mode of production.

The shock waves of crisis went deep in the industrialized countries as well. Measures to end deficit spending, the sharp slowdown in the American locomotive, have profoundly modified the economic habits of the countries of the met­ropole, particularly in Europe. Expansion rates which express the rate of capital accumulation have abruptly fallen to zero or below.

In three years, unemployment has sharply accel­erated while wages continue to fall. The portion of wages contributed by the state has enormously declined in all forms. In other words, all the hard-won gains the working class thought were unalterable are being swept away. In our anal­yses we have always stressed the fact that as the crisis advances, the periods of ‘recovery' will be shorter and more limited and the recess­ions longer, deeper and broader. The facts cer­tainly seem to support this thesis. To characterize the present situation we would have to add that, unlike previous recessions, the 1981-82 recession was not followed by a new Keynesian-style recovery boom. Quite the contrary: the inflationary consequences of Keynesian policies - which, ‘parallel to' deep-seated overproduc­tion, led the world economy to the brink of a financial crash and threatened the breakdown of the entire monetary system - could no longer be tolerated. Thus a general ‘purging' policy followed the first recession of the ‘80s and continues today. (From a certain point of view the US constitutes a special case which we'll examine further on.)

Overproduction, no longer absorbed by deficits, has spread to all sectors of the economy and is blocking the entire mechanism. This character­istic of crisis in the period of decadence, the crisis generalized to all sectors of production, appears today more clearly than ever:

-- the sector producing the means of production, from machine tools to heavy industry (such as steel);

-- raw materials and power;

-- the production of consumer goods with the focus on agriculture and housing;

-- the production of means of transportation, from aeronautics to shipyards and the automobile industry;

-- the ‘service' industries of capital circula­tion (banks in particular, the main benefic­iaries of the ‘inflationary' period which seemed to be the most solid of institutions, have been especially hard-hit in the first two years of the ‘80s)[2];

-- and finally the so-called public service sector; grossly inflated in the previous per­iod, it has become a particular target of the purging policies.

We can already begin to see the importance of the generalized character of the crisis hitting all sectors in terms of the development and uni­fication of workers' struggles. We'll now exam­ine 1983 and 1984, particularly the so-called ‘recovery' in the US, not only to draw general conclusions about these first years of the dec­ade but above all, to develop a perspective for the months and years to come.

The US recovery

All the different commentators of the economic situation agree that all the industrialized countries (except France) seem to have begun an ‘economic recovery', particularly the US. For the beginning of 1984 countries like the UK and West Germany can point to a clear fall in inflation, a stabilization of unemployment and an increase in GNP of 2 or 3% (which, incidentally, corresponds to the population growth). We shall not go further into the situation in the Euro­pean countries since their evolution is totally dependent on the economic situation in the US. The readjustment of the trade balance in Japan and Europe was only possible at the price of a gigantic commercial deficit of the American economy. Only the US recorded an increase of 5% in GNP for 1984 - but at what price and with what perspective.

 

Growth of GNP (in %)
	1982	1983 (estimate forecast)	1984 (estimate forecast)
US	-1.9	3.5	5.0
Japan	3.0	3.0	4.0
West Germany	-1.1	1.2	2.0
France	1.9	0.5	0
UK	2.0	2.5	2.2
Italy	-0.3	-1.5	2.0
Canada	-4.4	3.0	5.0
Total 7 countries	-0.5	2.5	3.7
Industrial production of the 7 countries	-5.0	3.5	5.7

 

Beyond the aspects of monetary manipulation, we can already see what the ‘recovery' of the US economy really means and what it contains. At the end of ‘83, one of the high points of what was called the ‘recovery', we were told: "The Department of Commerce announces that orders for durable goods from US companies incr­eased 4% in November to $37.1 billion. This increase, the highest since last June (+7.6%), is due in large part to increases in military expenditures (+46%) and orders of trucks and cars (+17.7%). Orders for household machines increased only 3% and orders for production equipment fell by 4.4%." (Le Monde, 24 December, 1983.)

This financing, 50% of which was destined to be used in the war effort produced by the US offen­sive, was only possible because of the manipula­tion of the dollar, the currency propping up all of world commerce. The dizzying rise in interest rates (up to 18%) drained millions of dollars which had been spread throughout the world back to the US. And even this wasn't enough. Despite the savings gained by cutting the welfare bud­gets in the US itself the American budget def­icit went from $30 billion in 1979 to $60 bill­ion in 1980 and $200 billion in 1984. In such a situation it isn't surprising that Volcker, President of the Reserve Bank, should say that the enormous US budget deficit is "a loaded gun pointing at the heart of the US economy and no-one can tell when it will go off." (Le Monde, 3 January, 1984.)

This is the basis of the recovery in the US:

-- the rise in interest rates, in the dollar, in the trade deficit (-$28.1 billion in ‘81; -$36.4 billion in ‘82; -$63.2 billion in ‘83; -$80 billion estimated for ‘84) ;

-- the deficit of the balance of current accounts (+$4.6 billion in 1981; -$11.2 billion in ‘82 and -$42.5 billion in ‘83) ;

-- the increase in the monetary mass through the printing of paper money (from July ‘82 to July ‘83 monetary expansion was 13.5%, the largest since World War II).

Looking at these figures, the giant bubble of this recovery in the US becomes obvious. Also the fact that behind the reduction of inflation on paper (13.5% in ‘80; 10.4% in ‘81; 6.1% in ‘82; 3.5% in ‘83) - essentially due to the rise in the price of dollar (the rise in the dollar lowered the price of imports by 10%) - hides a true hyper-inflation (in January ‘84 the over-valuation of the price of the dollar was put at 40%).

This explosive economic situation requires a look backward in order to draw more clearly conclusions for the future.

In 1979 the runaway dollar, the reference curr­ency for all international trade, threatened a crash in the whole international monetary sys­tem. To deal with this situation, American authorities raised the interest rate to 18% to pro­tect their currency and soak up the enormous international debt of the billions of dollars spread around the world. The result was, in 1981-82, the deepest recession since World War II. In the industrialized countries (particularly the US) whole industries collapsed like a house of cards. The ‘developing' count­ries can no longer pay back their debts. Over and above these bankruptcies a failure in the entire banking system of the developed countries appears on the horizon.

In 1982 the general asphyxiation of the economy pushed the American authorities to lower inter­est rates to 11% by the same voluntarist methods. This was still high enough to keep draining to the US the mass of dollars and capital fleeing investments in the rest of the world and low enough to enable American companies to borrow again.

In 1983-84 the downward spiral seemed to pause but as we have seen this was at the price of incredible deficits. Again a new international retreat of the dollar shook the monetary system. In one month, the price of the dollar lost in volume (nominally of course) what it had taken six months to gain and inflation almost doubled (from 3.5% to 5.5%). The only solution - Amer­ican authorities were once again forced to raise interest rates and recession threatened again.

This threat or, in fact, this reality of a new recession with consequences still difficult to calculate (although the beginning of the ‘80s surely shows the general drift) and the conditions under which it is developing will eat even more into the flesh of mankind as all over the world capital's sphere of activity shrinks more and more.

Even the capitalist class has no illusions about the perspective for the months to come and it is preparing for an extremely violent shock. The attitude of capital in the US is in this respect very significant. These past two years (espec­ially in the last few months) there has been a considerable acceleration of the concentration of capital, in large part financed by an influx of foreign capital. But this concentration is nothing like the capital concentration corres­ponding to an extension of capital activity as was the case in capitalist ascendancy. This concentration, fed by empiricism typical of capital, is the expression of a mortally wound­ed beast focusing all its last remaining energy on one point. The best proof of what we are saying is that the greatest concentration of companies took place in the US in the industries most affected by the world overproduction crisis: the oil industry and construction.

"Four years later (than 1977) mergers are 14 times greater representing $82,000 million. That year, just the buying up of Conoco (9th largest US oil company) by Dupont (the leading chemical company) involved $73 billion, a sum greater than the total value of all mergers in 1977." (Le Monde: Economic and Social Balance Sheet, ‘83.)

Thus, against the sharp decline in profit rates and above all in preparation for the next shocks, American industry is gathering its last forces, leaving the rest of the world drained, cold and paralyzed, like dislocated puppets.

The US trade deficit enables Europe and Japan to maintain a certain level of activity for a few months. But again, what a price has to be paid: not only the US deficit but also the price of the dollar. Despite this margin, the struggle to maintain exports pushes Europe, already on its knees, to cut into workers' living conditions with unprecedented brutality.

It is in this context that a new wave of world recession is preparing to break the bubble of the ‘recovery' in the US. When and how? It is difficult to say with precision but we can reasonably expect that it will develop after the US elections in November 1984.

But whatever the exact date of the new assault, it is close upon us with the characteristics of the world situation it implies - and the first years of the ‘80s and recent months have given us a foretaste of what is to come.

The dynamite of inflation accumulated in def­icits, concentrated in the economic stronghold on which the entire world rests gives an idea of the force of the new wave of recession coming. The last recession brought unemployment to record highs, in some countries to a level not seen since the ‘30s (an average of 12% of the active population in the developed countries). In the months and years to come the unemployment rate which has almost doubled in the last three years will double again or even triple, reaching 20 or 30% of the active population.

The forecast figures given by the OECD in ‘83 counted on an ‘international recovery' and yet were still quite pessimistic:

"We realized that to maintain unemployment at its present levels in relation to the predictable increase in the active population, 18-20 million new jobs would have to be created before the end of the decade. The OECD experts estim­ated that there would have to be 15 million additional jobs if we wanted to return to 1979 levels, that is 19 million people without work. This would mean creating 20,000 jobs per day between ‘84 and ‘89 while between 1975 and 1980 (after the first oil crisis) the 24 member countries only created 11,000 jobs daily. Thus, quite pessimistic prediction followed, planning on 34.75 million unemployed in 1984; 19.75 for Europe and 2.45 for France." (OECD Report 1983)

But even more than the absolute number of un­employed, the characteristics of unemployment and the conditions under which it speeds up are significant indices of the proportions of the crisis. Unemployment benefit is being reduced to a pittance when it is not simply eliminated altogether. Unemployment is reaching whole sec­tors of the working class even though ‘young people' and immigrants suffer the hardest blows.

For millions the length of unemployed periods becomes longer and longer without hope of a solution.

 

Unemployed for more than one year as a percentage of total unemployment
	1982	1981
West Germany	21.2	16.2
Belgium	59.5	53.6
UK	33.3	21.6
US	7.7	6.7
France	39.8	32.9
Source: OECD

 

Unemployment among young people as a percentage of the active population under 25
West Germany	13.5
Belgium	32.6
UK	23.5
US	17.75
France	24
Italy	32.75
Japan	5.5

 

At the end of its report the OECD did not fail to mention these characteristics and draw the appropriate conclusions:

"Beyond the furor this report will provoke, the OECD threw light on the deep-seated character­istics of unemployment ... The first element involves the length of unemployed periods which deprives an ever-increasing portion of the pop­ulation of any social activity. The discourage­ment of the long-term unemployed is obvious. They are forced to accept part-time stop-gap jobs if they can or worse, some no longer declaring themselves on the register. From all points of view, this situation contains ominous social risks." (idem)

Unemployment is the spearhead of capital's attack on labor. Unemployment epitomizes the workers' condition; it is the human expression of overproduction, of the overproduction of lab­or power, of commodity relations, of labor's place as cannon-fodder for the system. As the historic crisis of capitalism leads to an abs­olute pauperization[3] of the working class, it also (and this is a fundamental point) pro­foundly modifies the class structures of soc­iety formed during the period of capitalist growth and expansion.

The stratification of the working class into layers of skilled and unskilled workers, white and blue collar workers, immigrants and non-immigrants; the possibility for certain skilled workers to reach a situation approaching the middle classes after years of effort by becoming foremen or getting white collar jobs mostly as technicians for themselves or their children: with the crisis, as it is developing today, all of this is finished. The working class no longer looks up to the top but down to the frightening depths below where all of yesterday's distinctions disappear. In this process accelerating right before our eyes, unemployment will play a central role especially when it involves 20 or 30% of the active population. With massive un­employment, the middle classes are squeezed apart and join the ranks of the working class in its most poverty-stricken ranks.

This isn't just a simple prediction we're mak­ing; it's a description of a real process happ­ening right now. It's a process which not only opposes social classes but clearly shows up their irreconcilable differences. This reality sweeps away the smokescreen the middle classes represented in the high life days of ‘Keynes­ianism' and all the theories on the aristocracy of labor.

Conclusions

1. This brief survey of the economic picture of the first years of the eighties and the perspectives for the years to come, despite its limitations and imprecisions, gives an indication of the direction of the class struggle and its new impulsion today in all countries as it comes up against the ruling class. Rosa Luxem­burg correctly declared that "for the revolution to happen, social life has to be ploughed up from end to end, what is deeply buried must rise to the surface and what is on the sur­face must fall to the bottom." (Mass Strike)

The unity created by renewed class struggle, by historical experience of the working class and the unprecedented economic crisis is in the pro­cess of accomplishing this task. The rapid and absolute pauperization produced by the economic crisis pushes the working class to look back to the past before it can look forward to the fut­ure, to think about the meaning of these 70 years of decadence.

2. We dedicated a large part of our analysis to the situation of capital in the US because, as we've said, this economy represents 45% of the production of western countries and a quarter of world production. It determines the evolution of the rest of the world economy. But this isn't all. There's another point about the deep crisis in the US which is extremely important from a historical point of view. US capitalism, a pro­duct of the decadent period with all of its basic characteristics (state capitalism, milit­arism) developed at the beginning, due to an immense internal market, and then further with the world war which eliminated its rivals. Only because of US capitalism could a completely dec­repit Europe, totally exhausted by two world wars, have kept itself alive for the last 40 years; through the US-financed capitalist recon­struction from ‘45 to the ‘60s, during the ‘70s when the US played the role of world locomotive, and to a certain extent in ‘83-‘84 when only the enormous American commercial deficit has made it possible for Europe to keep afloat.

Today this period is over, ideologically and economically. The US can no longer play the role of a material support or an ideological support; it can no longer make people believe in an infinite, prosperous development of capitalism via the ‘American dream' which has become a verit­able nightmare.

3. This conclusion to the report on the crisis of the economy leads us to criticize a point of view put forward in the report for the Fifth Congress of RI[4] where we maintained that the ‘70s would see the end of deficit spending. The ICC was entirely right to say that the ‘80s would see the failure of all the Keynesian pol­icies which characterized the preceding years. But to draw the conclusion that this would be the end of deficit spending was a step that shouldn't have been taken.

Reality itself has made it clear that this idea was mistaken. In the past two years, both in the developed countries and in the under-developed countries, debts in all their diverse forms have not only grown but doubled, tripled, quad­rupled in relation to the previous 10-20 years.

This situation is linked to the very nature of the crisis of capitalism, the overproduction crisis and the growing inability to continue the accumulation process without which capital cannot exist.

We have to make a distinction (and this was in­deed our real concern at the beginning of the ‘80s) between debts as they developed in the ‘70s and in today's situation. In the ‘70s, despite a large deficit due to armaments world debt still allowed a certain level of accumulation and expansion. But the ‘80s have amply demonstrated this general tendency of decadent capitalism to substitute an accumulation of armaments for the accumulation process. Today's colossal debts, much greater than that of the ‘70s, are essentially based on armaments.

It's no secret that the American budget deficit is in exact proportion to the incredible increase in armaments. Capital flows out of Europe to participate in the war effort of the western bloc. Missiles have replaced them. In the Middle East, Africa, Asia and South America, ‘aid' is replaced by a gigantic accumulation of weapons. For the US itself, economic tutelage gives way to the use of military force. This is what Reagan calls "rediscovering the strength, the power, of America." Stupid puppet!

Today the capitalist crisis reveals clearly and unequivocally how the crisis of overproduction, the impossibility of continuing the process of accumulation leads inexorably and mercilessly to a self-destruction of capital. Self-destruction not of capitalism but of capital and the existence of hundreds of millions of human beings attached to this infernal machine.

This question of the self-destruction of capit­al is not a simple question of ‘theoretical interest'. It's a fundamental question for sev­eral reasons:

-- because it illustrates and makes explicit the link between the historic crisis of capitalism and war;

-- because it shows that it's not enough to say that the crisis "works in favor of the proletariat". In fact, we have fought for years against these conceptions which saw the proletarian revolution as a question of will - the whole idealist rag-bag. Today, when the crisis is clear, one must not fall into the opposite error and think that because the crisis is here it will necessarily turn into a social revolution. This conception is as wrong as the first. We must fight the idea that the capit­alist crisis, the crisis of overproduction will appear as a simple accumulation of goods, unsold and unsaleable, that this overproduction linked to a sharp decline in the rate of profit will eventually make capitalism collapse under its own weight and that the proletariat will only have to reach out its hand to pick revolution like a ripe fruit.

This vision is fundamentally mistaken and we have lived through the ‘80s long enough to see this clearly.

Revolution Internationale

July 1984

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[1] For the orientation of the report on other points, see the resolution on the international situation published in Revolution Internationale 123, August 1984.

[2] "The numbers of bank failures continues at a record high. Never before have US banks taken such losses as in the second half of 1983. Sev­eral of them have had to declare bankruptcy." (Le Monde Economique et Social: Bilan ‘83, p 11)

[3] Where are those ardent critics of Marx to­day, those who hammered this notion of pauperization without ever making any distinction bet­ween absolute and relative pauperization. Today, not only has the relative pauperization of the working class increased with the rise in prod­uctivity, but absolute pauperization is growing every day. History confirms as never before what the supposedly ‘outdated' Marx wrote: "Cap­italism was born in blood and scum and tears and it will end in blood and scum and tears."

[4] International Review 31, 1982.