Submitted by International Review on
Six months after the October 87 stock-market crash, the "economic experts" are reviewing upwards their forecasts for growth rate in 1988. At the same time, fears of a new worldwide stock-market crash continue to mount.
The governments of the major economic power treated October's economic convulsions with highly dangerous medicines. Thanks to this treatment, the most recent indicators economic growth in the US have not been as bad as expected; this cannot hide the fact that decadent capitalism's fundamental problems, far from being resolved, have only got worse. Once again, governmental remedies for difficulties are turning out to be poisons whose effects, though slow, are nonetheless deadly.
"What is going on here? By all accounts, the 5 1/2 year old economic expansion should be fizzling out. Already ancient by historical standards, the upswing appeared to have suffered a devastating brow when the stock market crashed last October. But, defying expectations, the economy is till running and even blowing oft enough steam to inspire fears that it may actually be overheating. Forget about a recession, many economists counsel, start worrying about inflation". (Time, May 1988)
To listen to some economic commentators, or ministers of finance like Lawson in Britain, the danger of a new recession has been averted. Today the return of the inflationary monster is more to be feared.
In fact, today everything points to a comeback of inflation in the world economy - or rather of an acceleration of inflation, since despite a certain slowdown in recent years, inflation has never gone away. However, there are no signs that the danger of recession has been avoided. Quite the reverse.
To understand this, we need to look more closely at the reality, and the economic foundations, of these last 5 ½ years' such vaunted "economic expansion".
The real balance-sheet of 5 years' "non-collapse" and devastation
Since the recession of 1982 - the deepest and longest since the war - capitalist production has indeed grown. The growth in OECD (ie the Western bloc's 24 most industrialized countries GDP between 1983 and 1987 has remained positive (+3% on average). In other words, the mass of value produced - as far as it can be measured in national accounting statistic - has not diminished. However, this figure in itself does not mean very much.
We have to get at the reality behind this average.
Growth: weak and localized
Growth during this period has remained below the levels reached during the periods of "expansion" in the 70's: 5.5% in 1972-73; 4% in 1976-79 (annual averages). Since 1984, this growth has systematically declined, falling from 4.9% in 1984 to 2.8% in 1987. Growth has been mostly limited to the United States and Japan; in Europe, it has remained wretched, almost to the point of stagnation. In most of the underdeveloped world, with a few exceptions, it has meant a collapse.
The spreading industrial desert
The stagnation, or slow growth, of production has been achieved by keeping alive the most profitable centers of production, and destroying all those which, according to the laws of shrinking market, fail to produce cheaply enough to remain in the exclusive club of those still able to sell their commodities (Europe, example, still produces about the same number of cars as in 1978. But capital has closed down dozens of factories and got rid of hundreds of thousands of car industry jobs). In the USA, steel mills in perfect conditions are destroyed with dynamite; whole industrial plants are abandoned to rust. Like the Sahara, the industrial desert is spreading. The EEC has decided to "freeze" millions of hectares of farm land. The scourge is moving from the periphery to the centre, hitting the very heart of the major industrial powers.
During the five years of "growth", unemployment has grown constantly in the world as a whole. This is merely the continuation of a phenomenon hitherto unheard-of in world history: 20 years of constantly rising unemployment. Of the major powers, only in the US - and in 1987, in Britain - are the figures for unemployment falling. For Europe as a whole, by contrast, job scarcity has beaten all historical records, even if "officially" its growth has slowed down. In most other countries, unemployment has reached unprecedented proportions.
And this is according to official figures, which deliberately under-estimate the extent of the disaster. Thus government statistics consider that someone working one day a week or following a course for the unemployed, the young who are given some wretched pretense of a job in return for a pittance, or the adults laid off in "premature retirement", are not "unemployed". Precarious employment and jobs at the mercy of capital's immediate needs are being generalized: 12 hours work a day for a while, then 2 hours a day - with a corresponding reduction in wages and the constant threat of redundancy.
To all these forms of destruction of capital (for capitalism, the development of unemployment beyond a certain minimum "reserve army of labor" is a destruction of capital, in the same way as the destruction of capital or the sterilization of farmland), which stamp their mark on these five years of "economic expansion", should be added the development the production of means of destruction - armament - specially in the United States. American capital, whose budget deficit has played the part of major market for world growth, has devoted gigantic sums to this.
"Since 1982, Federal spending has grown by 24% in real terms (4% per year)..This growth can be wholly attributed to defense spending, which has increased by 37%, while other spending has fallen by 7%. A considerable effort has been made in acquiring new equipment, almost doubling in five years: +78%". (Actualites: Banque Francaise de Commerce Exterieur, December 1987)
This is the result, in real terms, of five years of so-called "economic expansion". Despite weak, but positive, rates of growth in production, economic misery has increased without a pause, even in the most industrialized countries. The very basis of capitalist production has not grown, but shrunk. World capital is being restructured through the most massive movement of capital concentration ever seen in history, through stock-market raids on an unprecedented scale, in a war where shark devour the corpses of the bankrupt , where the blood of the wounded only sharpens the greed of the rest.
Far from expressing the system's renewed strength, capable of pushing back the perspective of a new world recession, the last five years' results in the real domain of production concretize the system chronic inability to reestablish a true movement of growth, able to soak up unemployment if nothing else.
The financial balance sheet
On the financial level, the results of the last five years only confirm the inevitability of a new recession, which like those of 1974-75 and 1980-82 will be accompanied by a worsening of that other disease of decadent capitalism: inflation.
"Highway robbery and murder look like acts of charity compared to some financial machinations" (Balzac).
Financing production means providing the money to carry it out. In capitalism, the capitalist gets this money from selling what he has produced, or from credit, which is nothing but an advance on future sales.
Who did the world s capitalists sell the little surplus they have managed to extract in recent years to? Essentially, to the United States.
As in 1972-73, as in 1976-77, in 1983 the USA played the part of economic locomotive to pull the world out of the 1980-82 recession: in 1983, the volume of American imports leaped by almost 10%; in 1984, by 24% (an all-time record!). US capital bought everything from everybody. In. 1982, US imports were 15% of world trade; in 1986, they were 24%! In other words, the US buys a quarter of everything exported in the world!
In five years, the US balance of payments jumped from $30 billion to $160 billion. This deficit has increased with respect to every part of the world: $40 billion more with Japan, $36 billion with other Asian countries, $32 billion with Europe, $9 billion with Latin America.
What has US capital paid with?
On the one hand, with over-valued dollars. From 1982 to 1985, the dollar constantly increased in value against all other currencies. This meant paying for imports at reduced prices.
On the other hand, and above all, with credit at every level, both internally and externally. Credit positively exploded. Between late 1983 and mid-1987, total indebtedness grew by $3000 billion -- three times the growth of GNP during the same period. The US has become the biggest foreign debtor in the world. In 1963, 5% of the US economy was financed from abroad. In 1987, the figure was almost 20%. The weight of interest payments alone has become enormous.
Can the US pay back these debts? It must begin by trying to reduce their fantastic rate of growth. To do so, they have no other choice than to reduce their balance of payments deficit, ie increase exports and reduce imports. And amongst other measures, this is what they are trying to do by letting the dollar fall, in order to make imports more difficult and exports "made in USA" more competitive. Already in 1987, this produced a drop in the volume growth of imports to 7%, and an increase in that of exports to nearly 13%. This change is far from providing US capital w.ith the ready cash to pay off its debts. However, it has already had a drastic effect on those whose markets have diminished to the same extent. The American locomotive market is contracting at the same time as American commodities are becoming increasingly aggressive and effective on the rest of the world market. The one-time stimulant of the world economy has disappeared without any other fraction of world capital being capable of playing a similar role.
The devaluation of the dollar is in itself another way to reduce debt. American capital is now repaying with devalued currency what it originally bought with over-valued dollar. This means there is less to repay, but it is also another step towards inflation, and a pure loss for creditors like Germany and Japan ... who are supposed to continue the recovery.
US capital has a third way to repay its debts: by taking out new loans, new debts to pay off the old ones.... just like the under-developed countries. This it has continued to do, and this is what forced it in 1987 to begin raising interest rates again, in order to attract the capital necessary to finance the deficit. The result of this rise, along with the devaluation of the dollar (which also devalues dollar shares) was none other than the October stock-market crash. The gap between the profits to be made on the stock exchange, and the cost of the loans necessary to take part in it had become to wide.
But in every case -- increase in US exports and a fall in its imports, devaluation of the dollar and generalized inflation, or headlong flight into debt -- the problem posed in financing the debt accumulated by the world economy in general and by the world's major economic power in particular opens no perspective other than a new inflationist recession.
The stock market crash
The real miracle hailed by certain economists today, such as those that Time speaks of in the article quoted above, is the fact that growth did not collapse following the stock-market crash in 1987, as it did in 1929.
Most economists predicted a severe cutback in growth just after the October 1987 stock-market crash. Governments revised their already less than brilliant forecasts downwards.
They forgot, first that the situation was not the same as in 1929. The 1929 stock-market crash came at the beginning of an open economic crisis. The October 87 crash came when capitalism had already been slowly sinking into the crisis for the past 20 years: it represented, not the crisis' beginning, but the confirmation of the economic dilapidation that had preceded it.
Secondly, they forgot that the capital present on the stock exchange is to a great extent purely speculative, paper money, or what Marx called fictitious capital: thus to a great extent, especially in a first collapse, its destruction does not mean the destruction of factories, but of paper. The hardest hit sector of the economy was the banking sector, which is more directly linked to speculation.
Thirdly, they forgot that, contrary to 1929, and contrary to the myths of so-called "liberalism" as to a supposed reduction of the state's role in the economy, state capitalism has reached a systematic and general level of development in decadent capitalism. All the world's governments, behind that of the United States, reacted immediately to ward off the danger of an immediate and uncontrolled collapse.
But the remedies they have applied have not resolved the system's fundamental problems: on the contrary, they have made them worse.
Essentially, these remedies have consisted in a forced drop in interest rates and easier credit, particularly in the US. In other words, capital has answered the problems posed by excessive debt through ... increased indebtedness.
This has made possible the "surprising results of American growth" in late 87 and early 88. But it has resolved none of the fundamental problems. Already in May, there was powerful pressure for a new rise in interest rates in the United States, which has to finance a new state loan of $26 billion.
As The Economist noted:
"Even if the economy has shrugged off the crash, its domestic debt burden has left it in a poor state to withstand higher interest rates. And Texas, in particular, is ready to stage a multibillion dollar banking crisis". (The Economist, 7th May 1988.)
The evolution of today's economy, based on massive debt, a credit explosion which has no hope of being repaid, can only end up, once again, in the conjunction of the two diseases of decadent capitalism -- inflation and recession -- just as it did in 1970-71, 1974-75, and 1980-82 (the term "stagflation" was already invented in the 70's). This time, they will be topped by financial collapse.
The bourgeoisie's economic experts do not have too many illusions about it themselves. They have only revised their upward forecasts for growth in 1988 by a small percentage, and the forecasts for 1989 remain gloomy.
 All the countries of Western Europe, plus the US, Canada, Japan, Australia and New Zealand.
 According to this accounting methods, a policeman or a member of the armed forces is considered as creating a value equivalent to his salary.