On 26th May 1996, the New York Stock Exchange feted the 100th anniversary of its oldest economic indicator: the Dow Jones Index. With a 620% rise over the last fourteen years, the Dow Jones has beaten all its previous records: that of the 1920s (+ 468%), which preceded the Great Crash of October 1929 that led to the terrible crisis of the 30s; and that of the years of post-war "prosperity" (+487 % between 1949 and 1966), which preceded sixteen years of stagnation and "Keynesian management of the economy". "The longer this speculative madness lasts, the higher will be the price to pay later" warned the analyst B.M. Biggs: "the share prices of American companies no longer bear any relation to their real value" (Le Monde, 27th May 1996). Scarcely one month later. Wall Street fell abruptly for the third time in eight days, dragging all the European stock exchanges down in its wake. These new financial tremors have put all the talk about the "American recovery" and "the coming prosperity of Europe thanks to the single currency in its place: along with all the other baubles designed to deceive "the people" as to the real gravity of capitalism's crisis, and what is at stake in it. At regular intervals, these tremors return to confirm the currency of the marxist analysis of the capitalist system's historic crisis, and especially highlight the explosive nature of its accumulating tensions. And with good reason! Since the open reappearance, at the end of 1960s, of its inescapable crisis of overproduction, capitalism has survived essentially thanks to a colossal injection of credit. It is this huge indebtedness which explains the growing instability of the economic and financial system, and which engenders frantic speculation and repeated financial scandals: when the profits to be made from productive activity are too meagre, then "easy financial profits" take over.
For marxists, this new financial tremor was thus inevitable, given the situation. In our resolution on the international situation of April 1996, we wrote: "The 11th Congress emphasized that one of the main sources of this "recovery" - which we described at the time as a "jobless recovery" - was a headlong flight into debt, which could only lead to new convulsions in the financial world, and a new dive into open recession" (International Review no 86). Exhaustion of growth, plunge into recession, headlong flight into growing debt, financial destabilisation and speculation, development of pauperisation, a massive and worldwide attack on the living conditions of the proletariat: these are tile well-known ingredients of a crisis situation which is reaching explosive proportions.
Increasing deterioration of the economy
In the industrialised countries, annual growth rates are with difficulty stagnating at about 2%, in sharp contrast to the average 5% of the post-war years (1950-70). This represents a decline that has continued since the end of the 60s: 3.6% during the 1970s, and 2.9% between 1980-93. With the exception of some South-East Asian countries, whose economic overheating heralds new crashes of the Mexican variety, this tendency for growth rates to decline is both continuous and worldwide. This reality has been masked by massive debt, which has regularly boosted the illusory hopes of a "light at the end of the tunnel": the "recoveries" at the end of the 70s and 80s in the industrialised countries, the "development of the third world and the Eastern bloc" during the second half of the 70s, and more recently the illusions as to me opening up and "reconstruction" of the ex-Soviet bloc countries. Today, the last remnants of this fiction are collapsing. The "Third World" countries are bankrupt, and the East European countries are plunged in depression. Now, it is the turn of the last two "model countries": Germany and Japan. Long presented as models of economic virtue, for the former, and of dynamism for the latter, they have finally been caught by recession. Although the German economy was doped for a while by reunification, the illusion of a return to growth thanks to East German reconstruction has not lasted long. The myth of recovery thanks to a take-off of the ruined East European economies has thus been definitively laid to rest (see International Review nos 73 and 86).
As we have already said many times, the "cures" being applied to the capitalist economy, in the long run can only make its sickness worse.
The Japanese caste is significant in this respect. The economy of the world's second economic power represents 17% of global product. With a foreign trade surplus, Japan has become the world's banker, with foreign assets greater than $1000 billion. Japanese methods of organisation in the workplace have been taken as an example the world over, and according to the new theoreticians have become a new means of regulation which is supposed to allow an emergence from the crisis thanks to a "formidable increase in labour productivity". In fact, the Japanese recipes have served everywhere to justify a series of austerity measures such as increased labour flexibility ("just in time" manufacturing, "total quality", etc), and of pernicious ideological poisons like company corporatism, economic nationalism and the like.
Indeed, until recently Japan seemed to be miraculously spared the effects of economic crisis. After the heady 60s, with growth rates around 10 %, growth remained at 5% during me 70s and 3.5 % during the 80s. However, since 1992 growth has failed to exceed 1%. Like Germany, Japan has returned to the feeble growth rates of the other main developed countries. Only idiots or the worst ideological lackeys of the capitalist system could believe or pretend to believe in a Japanese "special case". Its performance is easily explained. Certainly, some special domestic factors may have played a part, but fundamentally Japan benefited from a singularly favourable situation at the end of World War II. Above all, and even more than other countries, it has long used and abused its credit. As a central element in the US opposition to Russian expansionism in Asia. Japan enjoyed exceptional economic and political support from the United States (institutional reforms overseen by the American, cheap credit, opening the US market to Japanese goods, etc). Another factor which is not emphasized often enough is the fact that Japan is certainly one of the most indebted countries on the planet. Today, me accumulated debt of all non-financial agents (households, companies, and the state) represents 260% of GNP; in a decade, it is expected to reach 400%) (see table). In other words, Japanese capital has advanced itself two and a half - soon to be four - years of production in order to stay afloat.
This mountain of debt is a real powder-keg, whose fuse is already burning slowly. The danger is all the greater, not just for the country itself but for the rest of the world economy as well, because Japan is the world's savings bank, providing 50% of the OECD countries' financing needs. All this puts into proportion the recent Japanese announcement of a slight upward movement in growth figures, after four years of stagnation. The bourgeois media represented this as a piece of encouraging news, whereas in reality it only illustrates the gravity of the crisis since the result was only achieved with difficulty, after massive cash injections by five separate recovery plans. This expansion of the budget - in the purest Keynesian tradition - bore fruit at last...but only at the cost of debts still more gigantic than those which lay behind the original recession. The "recovery" is thus extremely fragile, and in the end is doomed to collapse like an overcooked soufflé. At 60% of GDP, Japan's public debt is now larger than the USA's. Given the credits already committed, and the snowball effect, in ten years this figure will rise to 200% of GDP, or two year's average salary for every Japanese citizen. In 1995, the budget deficit was already 7.6% of GDP, which is well above Europe's Maastricht criteria, and the USA's 2.8%. Nor do these figures take into account the consequences of the bursting of the bubble of property speculation at the end of the 80s, whose effects are yet to be felt in an extremely fragile banking system. The latter is still struggling to absorb its enormous losses; many financial institutions have gone bankrupt or are about to do so. In this domain alone, the Japanese economy is confronting a mountain of $460 billion of bad debt. One sign of the sector's extreme fragility is the country's classification by the specialist in risk analysis, Moody's: Japan is the only OECD country with a "D" classification, which puts it at the same level as China, Mexico, or Brazil. Of the eleven merchant banks classified by Moody's, only five have assets greater than their bad debts. Twenty-nine of the world's 100 largest banks are Japanese (including the top 10), whereas the USA only has nine, and starts at the 29th position. If we add the debts of these financial organisms to those of other economic agents (see above), we have a monster alongside which Tyrannosaurus Rex is no more menacing than a domestic cat.
Doped capitalism creates a casino economy
Contrary to myth - a myth carefully maintained to justify a succession of austerity plans - capitalism's health is not improving. The bourgeoisie would like us to believe that we must pay today for the follies of the 70s, in order to make a new start on a healthy basis. Nothing could be further from the truth. Debt is still capitalism's only means of retarding the explosion of its own contradictions, and it has no choice but to use it. In fact, the increase in debt is the means of mitigating the effects of a level of demand which has been historically inadequate ever since World War I. The conquest of the entire planet at the turn of the century represents the moment from which the capitalist system has been constantly confronted with a shortfall of solvent outlets necessary for it to function "well". Unable to sell all that it produces on the market, capitalism cannibalises itself at regular intervals in a growing and infernal spiral of crises (1912-1914, 1929-39, 1968-today), wars (1914-1918, 1939-1945), and reconstructions (1920-1928, 1946-1968).
Today, the falling rate of profit and the frantic competition between the main economic powers are driving an ever-increasing productivity, which only increases the mass of products to be realised on the market. However, these cannot be considered as commodities representing a certain value unless they are sold. The problem is that capitalism does not create its own markets spontaneously: it is not enough that a commodity should be produced for it to be sold. As long as a product has not been sold, labour remains incorporated within it; only once production has been recognised as socially useful through sale, can products be considered as commodities, and tile labour incorporated within them converted into value.
Debt is thus not a choice, an economic policy that the world's leaders can decide to use, or not. It is a constraint, a necessity forced on them by the very functioning and contradictions of the capitalist system (see our pamphlet on The Decadence of Capitalism). This is why the debt of all the economic actors has grown continuously, and especially during the last few years.
This gigantic indebtedness of the capitalist system, which has reached levels, and ratios, unknown in its entire history, is the real source of the world financial system's growing instability. It is also significant that for some time now, the stock exchange seems to have integrated into its own functioning the irreversible decline of the capitalist economy; this gives some idea of the capitalist class' confidence in the future of its own system! Whereas under normal circumstance, share values rise when the health and prospects of quoted companies are good, and fall when they are poor, today shares rise when news is bad, and fall it is good. Thus we saw the Dow Jones index rise 70 points in one day when the USA's unemployment figures showed a rise for July 1996. Similarly, ATT's shares shot upwards at the announcement of 40,000 redundancies, while those of Moulin ex in France rose by 20 % the day it was decided to lay off 2,600 workers, etc. Conversely, when official figures show unemployment in decline, the same is true of share values! It's a sign of the times, that profits are no longer expected from capitalism's growth, but from its "rationalisation".
George Soros, who made some £600 million by speculating against sterling in 1992, recently declared that "There is something perverse in the system, if a man like me can break a currency". But this perversion of the system is not due, as the media like to tell us, to the greed or "lack of civic spirit" of a few speculators, nor to capital's new international freedom of circulation, nor to progress in computing and telecommunications. Patchy growth, and a general difficulty to sell, creates an excess of capital which can no longer find productive investments. The crisis is thus also expressed in the fact that profits made from production no longer find enough outlets in profitable investment to increase productive capacity. "Crisis management" thus means finding other outlets for this excess of floating capital, to avoid their abrupt devalorisation. States and international institutions are thus working to create the conditions which would make this possible. Hence the new financial policies being put in place, and the new "freedom" of capital.
"outlets" in speculation, financial operations and dubious international loans. Today, annual world trade is worth some $3,000 billion, while international capital movements are estimated at $100,000 billion (30 times more!). Had there been no removal of exchange controls, or floating currency, this dead weight of capital would have made the crisis still worse.
Capitalism in a dead-end
* The data concerning company and household debt is taken from Michel Aglietta's book Macroeconomic financiere, Ed La Decouverte, collection Reperes no 166. His source is the OECD's calculations on the basis of national accounts.
* The data on state debt is drawn from the annual L'etat du monde 1996, Ed La Decouverte.
* The data cited in the text comes from the papers Le Monde and Le Monde Diplomatique.