Economic Crisis: ICC 12th Congress Report on the Economic Crisis

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Ever since 1989, the bourgeoisie's clamour about the end of marxism has been deafening. Not only have we been told over and over again about how the collapse of the "Communist" regimes showed the impossibility of creating a higher form of society than capitalism; we have also been asked to believe that marxism's predictions about the inevitable disintegration of the capitalist economy have not only been proved wrong, but have been proved right only about itself. After all, history has witnessed the collapse not of capitalism, but of socialism!

Marxists have the duty to fight these ideological campaigns, it is worth recalling that such refrains are by no means new. Almost 100 years ago, the "revisionists" in the Second International, dazzled by the achievements of a bourgeois society that had just reached its pinnacle, tried to argue that the marxist theory of crisis was obsolete, thus obviating the necessity for the revolutionary overthrow of capitalism.

The left wing of social democracy, with Rosa Luxemburg in the forefront, were not afraid to stand by the "old" principles of marxism and reply to the revisionists by reasserting that capitalism could not escape disaster; and the events of the first three decades of the twentieth century proved them right in spectacular fashion. The 1914-18 war proved the falsity of theories about the possibility of capitalism peacefully evolving towards socialism; the reconstruction period that followed the war was short-lived and mainly confined to the USA, giving little time for the ruling class to congratulate itself on the success of its system; while the crash of '29 and the profound world-wide depression that followed gave even less basis for the bourgeoisie to argue that Marx's economic predictions were wrong, or better still, valid only for the 19th century.

It was rather different in the reconstruction period that followed the Second World War. The unprecedented rates of growth during this period gave rise to a whole industry churning out theories about the "bourgeoisification" of the working class, the consumer society, the arrival of a new, "organised" capitalism and the final end of the system's tendency towards crisis. Once again the obsolescence of marxism was proclaimed with the utmost assurance.

The crisis that opened up at the end of the 60s revealed, once again, the emptiness of all this propaganda. But it did not reveal it in a self-evident manner, in a way that could be grasped very quickly by large numbers of proletarians. Capitalism since the mid-1930s, but above all since 1945, had indeed been an "organised" capitalism in the sense that the state power had taken the responsibility for staving off its tendencies towards collapse; and the formation of "permanent" imperialist blocs made it possible to extend this "management" of the system onto the global arena. If state capitalist forms of organisation facilitated the post-war reconstruction boom, they also made it possible to slow down the crisis, so that instead of the spectacular dive of the 1930s, we have now been through almost thirty years of irregular, uneven descent, punctuated by numerous "recoveries" and "recessions" which have served to mask the underlying trend of the economy towards a total impasse.

Throughout this period, the bourgeoisie has taken full advantage of the slow pace of the crisis to develop all kinds of "explanations" about the difficulties of the economy. In the seventies, inflationary pressures were first put down to the rise in oil prices, and to the excessive demands of the working class. At the beginning of the 80s, the triumph of "monetarism" and Reaganomics put the blame on the excessive state spending of the left wing governments that had preceded them. Meanwhile, the left could point to the explosion of unemployment that accompanied the new economic policies and blame them on bad management by the likes of Thatcher, Reagan and Co. Both arguments were based on a certain reality: that the modem capitalist system, in so far as it is managed at all, is managed by the state apparatus. What they all obscure is the fact that this "management" is essentially crisis management. Nevertheless, the fact is that practically all the economic "debates" offered to us by the ruling class turn around this issue of how to manage the economy; in other words, the reality of state capitalism has been used to hide the reality of the crisis, since the uncontrollable nature of the crisis is never admitted. And this ideological use of state capitalism was given a further twist in l 989, when the collapse of the Stalinist model of state capitalism was, as we have already mentioned, held up as proof that the main crisis of present day society was not the crisis of capitalism, but the crisis of .... communism.

The collapse of Stalinism and the campaigns about the end of marxism also gave rise to the most extravagant promises about the new age of peace and prosperity that would inevitably follow. The seven years which followed have punctured large holes in these promises, above all the ones about "peace". But although, on the economic level, marxists can offer masses of evidence to show that these have been lean years rather than fat ones, they should not underestimate the capacity of the bourgeoisie to hide the truly catastrophic nature of the crisis from the exploited class, and thus to hinder the development, within the latter, of an understanding of the necessity to overthrow it.

Thus, at the XIth Congress of the ICC, our resolution on the international situation was obliged to begin its section on the economic crisis by refuting the bourgeoisie's claims that we were seeing the beginnings of a new economic recovery, particularly in the "Anglo-Saxon" countries. Two years later the bourgeoisie still talks about the recovery, even if it admits to numerous falterings and exceptions. Here, we will try therefore to avoid the mistake - often made by revolutionaries, out of an understandable enthusiasm to see the advent of the revolutionary crisis - of lapsing into an immediatist assessment of the prospects of world capitalism. But at the same time we will seek to use the most trenchant tools of marxist theory to reveal the shallowness of the bourgeoisie's claims and to underline the significant deepening of tile historic crisis of its system.

The hollow recovery

The resolution on the international situation at the XIth ICC Congress (April 95) analysed the reasons for the increased growth rates in certain important countries as follows:

"The official speeches on the "recovery " make a big thing out of the evolution of the indicators for industrial production, or the improvement in company profits. While we have indeed, in particular in the Anglo-Saxon countries, seen such a phenomenon recently, the foundation on which these rest must be pointed out:

- the recovery of profits is very often, especially for the big companies, the result of speculative windfalls; its counterpart is a new upsurge of public debts; it also flows from the elimination of "dead wood" by the big companies, in other words of their less productive sectors;


- the progress of industrial production results to a large extent from a very substantial increase in the productivity of labour based on the massive utilisation of automation and information technology.


 It is for these reasons that one of the major characteristics of the present "recovery" is that it has not been able to create employment, to significantly reduce unemployment or temporary employment, which, on the contrary, can only increase, since capital constantly wants to keep a free hand in order to be able to its throw its superfluous workforce onto the streets at any moment" (International Review no.82).

The resolution goes on to emphasise that "the dramatic indebtedness of states has reached a new crescendo" and that "if they were to be subjected to the same laws as private companies, they would already have been declared officially bankrupt". This recourse to debt is a measure of the real bankruptcy of the capitalist economy, and can only presage catastrophic convulsions of the whole financial apparatus. One indication of this was the crisis of the Mexican peso. Mexico had been considered one of the models of third world "growth", but when the peso began to collapse, it needed a massive £50 billion dollar rescue operation to prevent a real disaster on the world's money markets. This episode revealed not only the fragility of the much-vaunted growth in some of the third world economies (with the Asian "tigers" being the most vaunted of all), but also the fragility of the entire global economy.

One year later, the resolution on the international situation from the 12th RI Congress reviewed the perspectives for the world economy drawn out at the XIth ICC Congress. The latter had predicted new financial convulsions and a new dive into recession. The resolution from the RI congress pointed to the factors which confirned this overall analysis: dramatic problems in the banking sector and a spectacular fall in the dollar at the financial level; and, at the level of the tendency towards recession, the increasing difficulties of those former models of economic growth, Germany and Japan. These indications of the real depth of the capitalist crisis have become even more significant over the past year.

Debt and capitalist irrationality

In December 96, Alan Greenspan, head of America's central bank, got up at a posh diner party and began talking about the "irrational exuberance" of the stock markets. Taking this to be warning of a financial crash, investors around the world were caught up in a selling panic and billions were wiped off share prices around the world - £25 billion in Britain alone, resulting in one of the steepest drops in share prices since 1987. The world's stock markets quickly recovered from this mini -crash, but the episode is a telling reminder of the fragility of the whole financial system. And indeed Greenspan was not at all wrong to talk about irrationality. The capitalists themselves have noted the absurdity of a situation in which Wall Street prices now tend to take a tumble when the rate of unemployment falls too low, since this revives fears of an "overheating" of the economy and new inflationary pressures. Bourgeois commentators can even see that there is an increasing divorce between the massive speculative investments carried out through the world's stock markets and not only real productive activity, but even "real" buying and selling. As we pointed out in our article "The Casino Economy" (IR 87), written just before the December mini-crash, the New York Stock Exchange had recently celebrated its 100th anniversary by announcing that the Dow Jones Index, with a 620% increase over the past 14 years, had beaten all previous records, including the "irrational exuberance" that had preceded the 1929 crash. And several capitalist experts met this announcement with profound misgivings: "Share prices of American companies no longer bear any relation to their real value" said Le Monde; "the longer this speculative madness lasts, the higher will be the price to pay later" said the analyst B M Biggs (both cited in IR 87). The same article in the Review also pointed out that while annual world trade is worth some $3,000 billion, international capital movements are estimated at $100,000 - 30 times more. In sum, there is a growing divorce between stock market prices and real value, the bourgeoisie is aware of this, and so deeply worried about it that a few hints from a leading US economics guru can trigger a huge crisis of confidence around the world's money markets.

What the capitalists can never understand, of course, is that "speculative madness" is merely a symptom of the impasse facing the capitalist mode of production. The underlying instability of the capitalist financial apparatus is based on the fact that a vast proportion of all economic activity today is not "really" being paid for, but is maintained by an ever-increasing mountain of debt. The wheels of industry, indeed of all branches of the economy, are being turned by debts that can never be repaid. The resort to credit has been a fundamental mechanism not only of the post-war reconstruction, but also of the "management" of the economic crisis since the 1960s. It is a drug that has kept the capitalist patient alive for decades; but as we have said many times, the drug is also killing the patient.

Indeed, in her answer to the revisionists in 1898, Rosa Luxemburg explained with great clarity why the resort to credit, while appearing to ameliorate things for capital in the short term, could only exacerbate the crisis of the system in the long term. It is worthwhile quoting her at length on this point since it sheds a great deal of light on the situation facing world capitalism today.

"Credit, through share-holding, combines in one magnitude of capital a large number of individual capitals. It makes available to each capitalist the use of other capitalists' money - in the form of industrial credit. As commercial credit it accelerates the exchange a/commodities and therefore the return of capital into production, and thus aids the entire cycle of the process of production. The manner in which the two principal functions of credit influence the formation of crises is quite obvious. If it is true that crises appear as a result of the contradiction existing between the capacity of extension, the capacity of production to increase, and the restricted consumption capacity of the market, credit is precisely, in view of what was stated above, the specific means that makes the contradiction break out as often as possible. To begin with, it increases disproportionately the capacity of the extension of production and thus constitutes an inner motive force that is constantly pushing production to exceed the limits of the market. But credit strikes from two sides. After having (as a factor of the process of production) provoked overproduction, credit (as a factor of exchange) destroys, during the crisis, the very productive force it itself created. At the first symptom of the crisis, credit melts away. It abandons exchange where it would still be found indispensable, and appearing instead ineffective and useless, there where exchange still continues, it reduces to a minimum the consumption capacity of the market.

Besides having these two principal results, credit also influences the formation of crises in the following ways. It constitutes the technical means of making available to an entrepreneur the capital of other owners. It stimulates at the same time the bold and unscrupulous utilisation of the property of others. That is, it leads to speculation. Credit not only aggravates the crisis in its capacity as a dissembled means of exchange, it also helps to bring and extend the crisis by transforming all exchange into an extremely complex and artificial mechanism that, having a minimum of metallic money as a real base, is easily disarranged at the slightest occasion.

We see that credit, instead of being an instrument for the suppression or the attenuation of crises, is on the contrary a particularly mighty instrument for the formation of crises. It cannot be anything else. Credit eliminates the remaining rigidity of capitalist relationships. It introduces everywhere the greatest elasticity possible. It renders all capitalist forces extensible, relative, and mutually sensitive to the highest degree. Doing this, it facilitates and aggravates crises, which are nothing more or less than the periodic collision of the contradictory forces of capitalist economy" (Luxemburg, Social Reform or Revolution, Part One).

In many ways, Luxemburg is predicting the conditions that appertain today: credit as a factor that appears to attenuate the crisis, but actually aggravates it; credit as the basis of speculation; credit as the basis for turning exchange into a "complex and artificial" process increasingly divorced from real monetary values. But although Luxemburg in 1898 was already laying the foundations for her explanation of the historic crisis of the capitalist system, this was a moment when only the broad outlines of the decline of capital could be seen in advance. In the process of conquering the last non-capitalist areas of the globe as the soil for the extension of the world market, capitalism was still functioning according to its own inner "statutes" and had not become the irrationality, the absurdity that it is today. This applies to credit as much as to any other sphere. The "rationality" of credit for capital is that you borrow or lend money on the understanding that it will be used to expand production and extend the market. As long as the market can be extended, debts can be repaid. Credit "makes sense" in a system that has a future. In the decadent epoch of capitalism, however, the market, globally speaking, has reached the limits of its capacity to extend and credit itself becomes the market. Thus instead of larger capitals lending to smaller capitals on the understanding that they will find new markets, make profits, and return their loan with interest, large capitals dole out huge amounts of money to smaller capitals in order to sell them their own products. This, roughly speaking, is how the USA financed the post-war reconstruction: the Marshall Plan involved the USA granting huge loans to Europe and Japan so that they could become a market for American commodities. And once the principal industrialised nations, above all Germany and Japan, had become economic rivals to the USA, the crisis of overproduction came to the surface and has been there ever since.

But now, in contrast to the days that Luxemburg was writing about, credit no longer disappeared in a crisis, eliminating the weakest capitals in good old Darwinian manner and adjusting prices downwards to reflect the fall in demand: on the contrary, credit became more and more the only mechanism for keeping capitalism afloat. So now we have the unprecedented situation whereby not only are the large capitals lending to the smaller capitals so that they can buy their goods from them: the world's main creditors have themselves been compelled to become debtors. TIle present situation of Japanese capital demonstrates this very succinctly. As we pointed out in "The Casino Economy", "with a foreign trade surplus, Japan has become the world's banker, with foreign assets greater than $1000 billion ", it is "the world's savings bank, providing 50% of the OECD countries financing needs" But the same article also points out that "Japan is certainly one of the most indebted countries on the planet. Today the accumulated debt of all non-financial agents (households, companies, the state), represents 260% of GNP; in a decade, it is expected to reach 400% ". Japan's budget deficit stood at 7.6% for 1995, compared to the USA's 2.8 %. As for the banking institutions themselves, "the Japanese economy is confronting a mountain of $460 billion of bad debts". All this has led to the specialists in risk analysis, Moody's, giving Japan a "D" classification, in other words, it is as big a financial risk as countries like China, Mexico and Brazil!

If Japan is the world's creditor, where does it get its credits from? Not even a Zen-trained Japanese businessman-samurai could unravel this koan. The same question could be asked about American capitalism, which is also simultaneously a global banker and a global debtor, even if its rulers have made a song and dance about tile reduction of the US deficit (in October 1996, government and opposition both rushed to claim credit for the fact that the US budget deficit was, at 1.9 percent of GDP, the lowest for 15 years).

The fact is that this absurd situation demonstrates that, for all the talk of sound economies and balancing the books that both governments and opposition like to indulge in, capitalism can no longer function according to its own rules. Against the bourgeois economists of his day, Marx went to great lengths to show that capitalism cannot create an unlimited market for its own commodities; the enlarged reproduction of capital depended on the capacity of the system to constantly extend the market beyond its own confines. Rosa Luxemburg demonstrated the concrete historical conditions in which this extension of the market would no longer be able to take place, thus plunging the system into irreversible decline. But capitalism in this epoch has learned to live with its own death agony, flouting its own rules in tile most shameful manner. No new markets you say? Then we'll create them even if it means that everyone, including the richest states on the planet, are, strictly speaking, bankrupt. In this manner, capitalism since the late sixties has avoided the kind of sudden deflationary crashes which it knew in the 19th century and which was still the form taken by tile crisis of 1929. In the current period, periodic recessions and financial splutterings have the function of letting off some of the steam that global debt is building up inside the capitalist pressure cooker. But they also presage the far more serious explosions that lie ahead. The collapse of the eastern bloc should serve as a warning to the bourgeoisie everywhere: you can only flout the law of value for so long. Sooner or later it will reassert itself, and the more you have flouted it, the more devastating will be its revenge. In this sense, as Rosa Luxemburg insisted, "credit is far from being a means of capitalist adaptation. It is on the contrary, a means of destruction of the most extreme revolutionary significance" (Social Reform or Revolution).

The limits to growth: the crisis in the US, Britain, Germany and Japan

The resolution of the Xlth ICC Congress was thus perfectly correct to talk about the prospect of growing financial instability. But to what extent has the perspective of a new dive into recession been verified? Before looking in more detail at this, we should remind ourselves of the danger of taking tile analyses and terminology of the bourgeoisie at face value. Evidently, for the ruling class, there is no such thing as an irreversible crisis of its mode of production. Lacking any broad historical vision, its view on the economy, even when it talks about "macroeconomics", is necessarily immediatist. When it talks about" growth" or "recession", it uses only the most superficial economic indicators and does not stop to ask about the real bases for the spurts of growth that it sees, nor the real significance of the moments it describes as recession. As we have had occasion to point out before, periods of growth are generally expressions of a hidden recession, and in any case do not put into question the overall tendency of the capitalist economy towards an insoluble impasse. To prove the existence of the crisis, it is not necessary to show that every country in the world is showing negative growth rates. Furthermore, bourgeois economic statistics tell us very little about the real effects of the crisis on millions of human beings. Le Monde's Bilan du Monde for 1995 tells us for example that the African countries experienced growth rates of3.5% in that year and that this was expected to increase further the following year. Such figures only serve to mask tile fact that in whole swathes of the African continent, society has collapsed into a nightmare of war, disease and starvation - all of which are, in a global sense, effects of the economic crisis in tile "underdeveloped" countries, but which do not enter into the considerations of the bourgeoisie's economic "experts" because they are historic rather than immediate effects.

It is all the more important to bear this in mind at the present juncture, where a number of apparently contradictory elements present themselves. The "recovery" centred in the "Anglo-Saxon" countries has faltered somewhat in the bourgeoisie's own terms, but most of the pundits are at least "quietly optimistic" about the prospects for growth. For example, The Sunday Times of 29/12/96 made a tour of the predictions US experts were making for the American economy in 1997, based on its performance in 96:

"Our tour of American prognosticators begins with the Business Week survey of the 50 top practitioners of that art. On average, those seers expect 1997 to be a repeat of 1996. Gross Domestic Product (GDP) is forecast to grow steadily at a 2.1 % annual rate, and consumer prices to rise 3 %... The unemployment rate is expected to remain at a low 5.4 % and the interest rate on 30-year Treasuries to stay close to current levels at 6.43%". Indeed, the main debate among American economists at the moment seems to be whether continued growth will result in excessive inflation, a question we will come back to later on.

The British bourgeoisie, or at least its governing team (ie the Major government, when this report was written), has swapped styles with the Americans, and instead of being cautiously optimistic, is shooting its mouth off at every opportunity. According to the Chancellor of the Exchequer, the British economy is "in its best shape for a generation". Speaking on 20.12.96, he quoted figures from the Office for National Statistics which "prove" that real disposable income has risen by 4.6% over the year; consumer expenditure was up by 3.2 %; overall economic growth was put at 2.4 %, while the trade deficit has also fallen. In the same month, official unemployment, in general descent since 1992, fell below 2 million for the first time in five years. In January, various forecasting institutes, such as Cambridge Econometrics and Oxford Economic Forecasting predicted that 1997 would bring more of the same, with growth rates of around 3.3%. In Britain too the most talked about concern of the experts is that the economy will "overheat" and provoke a new surge of inflation.

As we have seen, the ICC has already analysed the reasons for the relatively strong performance of the Anglo-Saxon countries in recent years. Apart from the factors cited by the resolution from our Xlth Congress, we have also pointed, in the case of the US, to "unprecedentedly brutal attacks against the workers (many of whom are forced to hold down two jobs to survive), and to using the advantages conferred by its special status as world superpower; financial, monetary, diplomatic and military pressure all put to the service of the trade war it is waging against its competitors" (resolution on the international situation, 12th Congress of RI, published in International Review no.86). In the case of Britain, the report to the 12th WR Congress (see World Revolution no.200) confirmed the degree to which the "recovery" has been based on debt, speculation, the elimination of dead wood and the massive utilisation of automation and information technology. It also points to the specific advantages Britain obtained by withdrawing from the ERM in 1992 and the resulting devaluation of sterling, which greatly increased its exports. But the report also details the real impoverishment of the working class that this "recovery" has been based upon (increasing rates of exploitation, decline in social services, growth of homelessness and so on), while exposing the bourgeoisie's lies about falling unemployment: since 1979, the British bourgeoisie has altered the criteria for its unemployment statistics 33 times. Current definitions, for example, ignore all those who have become "economically inactive", ie those who have finally given up looking for employment. This fraud was even owned up to by the Bank of England:

"Almost the entire net improvement in unemployment performance in the 1990s compared with the 1980s was accounted for by the rise in inactivity" (Financial Times, 12.9.96). So much for the "highest living standards for a generation" claimed by Mr Clarke.

But while marxists are always obliged to show the real costs of capitalist growth to the working class, merely pointing to the misery of the workers does not in itself prove that the economy is in bad shape. If this were the case, then capitalism would never have had an ascendant phase, since the exploitation of the workers in the 19th century was, as everyone knows, absolutely ruthless. To show that the bourgeoisie's optimistic forecasts are based on sand, we need to look at the deeper trends of the world economy. And here we must examine those countries whose economic difficulties provide the clearest indications of where things are going. As the resolution of the 12th Congress of Revolution Internationale points out, the most significant developments at this level in the last few years has been the decline of those two "powerhouse" economies, Germany and Japan.

The recent territorial conference of Welt Revolution identified a number of elements confirming this decline as regards Germany. These include:


- the shrinking of the internal market: for decades, the Germany economy provided a big market for the European and world economy. With the growing impoverishment of the working class, this is ceasing to be the case. In 1994, for example, expenditure on food shrank by 6 % to 20%. More generally internal investments will be 8 % lower this year; investment in buildings and equipment are some 30 % below the peak of 1992. Real turnover fell by 2 % in 1995. But the most significant figure in this respect is certainly the fact that unemployment now stands at well over 4 million: according to Germany's Labour Office, it could reach 4.5 million over the next few months. This is the clearest evidence for the pauperisation of the German working class and its decreasing ability to serve as a market for German and world capital.

- the growing burden of debt: in 1995 the state deficit (federal, Lander and municipalities) reached 1,446 billion DM. When another 529 billion DM of "hidden" debt is included, the total sum amounts to about 2,000 billion DM, corresponding to 57.6 % of the GNP. Over the past ten years, public debt has risen by 162 % .


- the increasing cost of maintaining the working class: tile growth of unemployment further increases the insolvency of the state, which is confronted with an undefeated working class and cannot simply allow the unemployed to starve. Despite all the famous austerity measures introduced by the Kohl government this past year, tile state still has a massive bill for maintaining the unemployed, the old age pensioners and the sick. Some 150 billion out of a federal budget of 448 billion DM are spent on social payments to the working class. The Federal Unemployment Office has a budget of 104.9 billion DM, and is already bankrupt.

- the failure of the German bourgeoisie to build up an "industrial landscape" in the east: despite the gigantic amounts of money spent in the east after reunification, the economy there has not taken off. Much of the money has gone into infrastructure, telecommunications and housing, but little into new industries. Instead all of the former, obsolete plants have gone bankrupt; and if new, modernised plants have been set up, they have absorbed less than 10 % of the old workforce. The army of the unemployed remains, but now has the "benefit" of sophisticated telecommunications and smart new roads!

All these factors are severely hampering German competitiveness on the world market and are compelling the bourgeoisie to make savage attacks on all aspects of working class living conditions: on wages, social benefits and jobs. The end of the German" social state" is the end of many capitalist myths: tile myth that hard work and social passivity give workers higher living standard, the myth of the necessary and profitable collaboration between bosses and workers, the myth of a German model of prosperity that can show other countries the way forward. But it is also the end of a reality for world capital: Germany's ability to act as a locomotive for the European and indeed the world economy. Instead, the very overt decline of German capital, and not the superficial "recovery" boasted by the US and British bourgeoisie, shows the real prospects of the system as a whole.

Equally significant is the wearing out of the Japanese economic "miracle". This had already became apparent in the early 90s, when growth rates - which had soared up to 10% in the 1960s - slumped to no more than 1 %. Japan was now "officially" in recession. A slight improvement in 1995 and 96 led some commentators to wax enthusiastic about the prospects for the year ahead. An article published in The Observer in January 1996 pointed to Japan's "unstoppable" export performance (a 10 % increase on 1994 meaning that Japan had now overtaken the US as the world's biggest exporter of manufactured goods). It confidently announced that "Japan is back in the global economic driving seat".

Our recent article "The Casino Economy" poured cold water on such hopes. We have already mentioned the mountain of debt weighing down the Japanese economy. The article goes on to insist that "this puts into proportion the recent Japanese announcement of a slight upward movement in growth figures, after four years of stagnation. The bourgeois media represent this as a piece of really 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 souffle".

The latest OECD report on Japan (2.1.97) fully confirms this analysis. Although the report predicts increased growth rates for 1997 (around 1.7%), it places all its emphasis on the need to tackle the debt problem. "The report concludes that, while the fiscal stimulus of the past year and a half was crucial in offsetting the impact of the recession, in the medium term Japan must control its budget deficit to reduce accumulated government debt. That debt is 90% of the economy's yearly output ... " (The Guardian, 3.1. 97). The OECD calls for increased sales taxes but above all largescale public spending cuts. Its concern about Japan's longer term economic health is openly announced. In short, this leading bourgeois think-tank makes no attempt to disguise the fragile nature of any "recovery" in Japan, and is clearly worried about the economy borrowing its way into even bigger problems in the future.

When it comes to countries like Germany and Japan, the bourgeoisie's worries are well founded. It was above all the reconstruction of these two war-shattered economies that provided the stimulus of the great boom of the 50s and 60s; it was the completion of that reconstruction in these two countries that provoked the return to the open crisis of overproduction at the end of the 60s. Today, the increasingly evident failure of these two economies constitutes a qualitative shrinking of the world market and is the sign that the global economy is tottering towards a new stage in its historic decline.

The wounded "dragons"

Disillusioned by Japan's difficulties, the bourgeoisie and its media tried to generate new false hopes by pointing to the performance of the east Asian "tigers", economies like Thailand, Indonesia and South Korea, whose staggering growth rates were heralded as the wave of the future. China too has been presented as being on the road to "economic superpower" status in place of Japan.

The fact is that, like previous third world "success stories" like Brazil and Mexico, the growth of the Asian tigers is a debt-fuelled bubble that could burst at any time. The big western investors, including the IMF, are already becoming aware of this:

"Among the reasons the richest industrial countries have been so anxious to double the IMP's emergency credit lines to 850 billion is that a new Mexico-style crisis is feared, this time in the Far East. The upsurge in the Pacific economies has stimulated enormous private sector capital flows, which have been substituted for domestic saving, lending to an unstable financial situation. The question has been which Asian tiger would be the first to fall.

Certainly the situation in Thailand is starting to look dicey. The finance minister, Bodi Chunnananda, has resigned amidst slumping investor confidence and shrinking demand in key sectors, including construction, property and finance - all symbols of a bubble economy. Similarly there has been a focus on recent uncertainty in Indonesia, as the stability and human rights record of the Suharto regime has become an issue" (Guardian, 16.10.96).

Most striking of all is the current social and economic situation in South Korea. The bourgeoisie here, learning from its European cohorts, has certainly drawn the workers into a large-scale manoeuvre: in December 96, tens of thousands of workers came out on strike against new labour laws which were presented above all as an attack on democracy and trade union rights, thus allowing the unions and opposition parties to take the workers off their own terrain. But behind the government's provocative attack is a real response to the crisis facing the South Korean economy: the central feature of the law is that it makes it far easier for businesses to lay-off workers and set working hours, and is clearly seen by the workers as a preparation for attacks on their living conditions.

As for China becoming the new powerhouse economy, this has never been more than a sinister farce. True, the capacity of the Stalinist regime there to adapt and survive when so many others have collapsed is remarkable in itself. But no amount of economic liberalisation, "opening up to the west", nor exploitation of tile new outlets that will be offered by the handing over of Hong Kong will transform the foundations of the Chinese economy, which remains desperately backward in industry, agriculture and transport, and, like all Stalinist regimes, chronically hampered by the weight of a bloated bureaucracy and military sector. As in the de-Stalinised regimes, liberalisation has indeed blessed China with western-style benefits... such as mass unemployment. On 14 October the state-run China Daily admitted that the number of unemployed could rise by more than half the present figure to 268 million in four years. With millions of rural migrants flooding the cities and bankrupt state enterprises desperate to shed "surplus" workers, tile Chinese bourgeoisie is deeply concerned about the danger of a social explosion. According to official figures, 43 % of state enterprises were losing money in 95, while in the first three months of 96, the entire state sector was running at a loss. Hundreds of thousands, if not millions, of state enterprise workers have been paid no wages for months (The Economist, 14-20 December 96). It is true that an increasing proportion of China's industrial output derives from private or mixed-ownership enterprises, but even if these sectors prove to be more dynamic, they could hardly compensate for the huge burden of bankruptcy in the directly state-owned sector.

Every time the crumbling of one myth threatens to expose the failure of the whole capitalist system, the bourgeoisie conjures up new ones. A few years ago it was the German and Japanese miracles; then, after the collapse of the eastern bloc, the bright new tomorrow offered by the "new markets" in Eastern Europe and Russia. No sooner had these myths fallen flat (for tile catastrophic state of these countries, see the article in International Review no.88), than we were told about the East Asian "dragons" and China. Today, more and more of these little emperors are proving to have no clothes. Perhaps tile great new hope for the world economy will be the sterling performance of the United Kingdom. After all, Britain was the workshop of the world last century, was it not? Perhaps John Bull can get it all started once again? Such is the growing bankruptcy not only of world capitalism, but also of the myths it uses to hide it.


1. A sharpening trade war

Another myth used to convey the idea that there is plenty of life in capitalism yet is the story about globalisation. In the article "Behind the "globalisation" of the economy, the capitalist crisis worsens", (International Review no. 86) we showed, against some of tile confusions affecting even the revolutionary milieu, that globalisation does not at all mean a new phase in the life of capitalism, an era of "free trade" in which the nation state has less and less of a role to play. On the contrary, the ideology of globalisation - apart from its value for stirring up nationalism amongst the workers - is actually a cover for the deepening trade war. Then we gave the example of the new World Trade Organisation to show how the most powerful economies - the USA in particular - were using this body to impose environmental, health and welfare standards that the weaker economies could not hope to meet, thus crippling them as potential economic rivals. The December 1996 ministerial meeting of the WTO carried on in the same vein. Here the more developed countries sowed divisions between the weaker ones to scupper a plan to give some of the poorest countries duty-free access to western markets. Meanwhile the Americans made concessions over tariffs on whiskey and other spirits in order to achieve something far more lucrative: the opening of both European and Asian markets to Information Technology products. Here was clear proof that "globalisation", the new" free trade", means above all the "freedom" of American capital to penetrate the world's markets without the inconvenience of their weaker competitors protecting their own markets with trade barriers and tariffs. That this is largely a one-way "freedom" was already noted in our IR article: "the same Clinton who in 1995 obliged the Japanese to open - their frontiers to American products, who never tires of asking his "associates" for free trade demonstrated this by ordering the increase of duties on planes, steel, and agricultural products and limiting state agencies acquisition of foreign products".

We have already pointed out that America's capacity to use its muscle internationally has been a big factor in the relative strength of the US economy in the past few years. But this also highlights another feature of the current situation: the growing intimacy between trade war and inter-imperialist competition.

Evidently, this intimacy is a product both of the general conditions of decadence, in which economic competition is increasingly subordinated to military and strategic rivalries, and of the specific conditions prevailing since the collapse of the old bloc system. The period of the blocs highlighted the subordination of economic rivalries to military ones, since the two main superpowers were not the main economic rivals. By contrast, the imperialist fissures that have opened up since 1989 correspond much more closely to direct economic rivalries. But this has not overthrown the domination of imperialist-strategic considerations; on the contrary, the trade war is more and more revealed as an instrument of the latter.

This is very clear with the Helms-Burton law passed by the US. This law makes unprecedented incursions into the "trading rights" of America's main economic and imperialist rivals, forbidding them to trade with Cuba on pain of sanctions. This is very clearly a provocative response by the US to the challenge to its global hegemony by the European powers, a challenge being mounted not only in "far away" regions like the Balkans and the Middle East, but also in America's "back yard", the Latin American countries, including Cuba itself.

The European powers have not remained passive in the face of this provocation. The European Union has taken the USA to the new World Trade Organisation court at Geneva, demanding the lifting of the Helms-Burton law. This confirms what we said in our article on globalisation - that the formation of regional trading conglomerations like the EU corresponds to "the necessity for groups of capitalist countries to create zones of protection from which to confront their most powerful rivals" (IR 86). The EU is thus an instrument of the global trade war, and the recent moves towards a single European currency have to be seen in this light. But it has more than purely "economic" functions: as we saw over the war in ex-Yugoslavia, it can also serve as a more direct instrument of inter-imperialist confrontation.

Of course, the EU is itself wracked by deep national-imperialist divisions, as illustrated recently by the disagreements between Germany and France on the one hand, and Britain on the other, over the single European currency. In the general context of "every man for himself", we can expect to see both trade and imperialist rivalries taking an increasingly chaotic form, aggravating the instability of the world economy; and, as each nation is forced to place barricades around its national capital, this will further accelerate the contraction of the global market.

2. Inflation and depression

Thus, whatever straws the bourgeoisie tries to cling to, world capitalism is inching towards the edge of vast economic convulsions, on a scale that will dwarf all those seen in the past thirty years. This is certain. What cannot be so clear to revolutionaries is not only the exact timescale of such convulsions (and we will not enter into the forecasting game here), but also tile precise form they will take.

After the experience of the 1970s, inflation has been presented by the bourgeoisie as the great dragon to be slain at all costs: the wholesale policies of deindustrialisation and cuts in public spending advocated by Thatcher, Reagan and the other monetarists were founded on the argument that inflation was the number one danger for the economy. By tile early 90s, inflation, at least in the main industrial countries, appeared to have been tamed to tile point that some economists began to talk about the historic conquest of inflation. One might ask whether we are not in fact seeing a partial return to the kind of deflationary crisis of the early 30s: a "classical" crisis of over-production in which prices tumbles with the sudden shrinking of demand.

Moreover, we should note that this tendency began to be reversed after 1936, when the state intervened -massively in the economy: the growth of the war economy, the boosting of demand by government spending- gave rise to inflationary pressures. This modification was even more apparent with the crisis that opened up in the late 60s. The first response of the bourgeoisie was to pursue the "Keynesian" policies of the previous decades. This had the effect of slowing down the pace of tile crisis but resulted in dangerous levels of inflation.

Monetarism presented itself as a radical alternative to Keynesianism; as a return to classical capitalist values of only spending money that had really been made, "living within our means" and so on. It claimed to be dismantling the bloated state apparatus and some revolutionaries were hoodwinked, talking about the "rolling back" of state capitalism. In reality, capitalism could not return to the forms and methods of its youth. Senile capitalism cannot keep going without the crutch of a hugely swollen state apparatus, and while the Thatcherites cut state spending in some sectors - especially those relating to tile social wage - they have hardly touched the war economy, the bureaucracy, or the machinery of repression. Furthermore, the trend towards deindustrialisation has increased the weight of unproductive sectors on the economy as a whole. In short, the "new" policies of the bourgeoisie could not remove the factors underlying the inflationary tendencies of decadent capitalism: the necessity to maintain a huge unproductive sector (see in this regard "Overproduction and inflation" in World Revolution no.2 and Revolution Internationale no.6, December 1973).

Another factor of the greatest importance in this equation is the system's growing dependence on credit, which we have already looked at. The huge extent of government borrowing shows how little the bourgeoisie has been able to break from the "Keynesian" policies of the past. In fact, it is the lack of solvent markets which makes it impossible for tile bourgeoisie, whatever the ideological varnish of its governing teams, to escape the necessity to create an artificial market. Today debt has become the principal artificial market for capitalism, but the original measures proposed by Keynes led straight in this direction.

If we bear this in mind, it will shed some light on some of the most recent discourse of tile bourgeoisie. It seems that its confidence in the historic conquest of inflation is not that deep, since no sooner had it detected signs of renewed growth in countries like America and Britain than it once again began to talk about the danger of a new surge of inflation. The economists differ about the causes: some favour the hypothesis of "cost-push" inflation, with particular emphasis on the threat posed by the unrealistic wage demands. The idea is that if the workers no longer fear unemployment and see profits picking up, they will start asking for more money, and this will result in inflation. The other idea is "demand-pull" inflation: if the economy grows too fast, demand will outstrip supply and prices will rise. We will not repeat the arguments we made 25 years ago against these theories. What we will say is that the real danger of growth leading to inflation is situated elsewhere: in the fact that any such growth today, any so-called recovery, is based on a huge - increase in debt, on the artificial stimulation of demand - in other words on fictitious capital. This is the matrix which gives birth to inflation because it expresses a profound tendency in decadent capitalism: die growing divorce between money and value, between what goes on in the "real" world of the production of things and a process of exchange that has become such an "extremely complex and artificial mechanism" that even Rosa Luxemburg would be astounded if she could witness it today.

If we want to find a model for the collapse of an economy which has turned the law of value inside out - the collapse, that is to say, of a state capitalist economy - we should look at what is happening in the former eastern bloc countries. What we are seeing here is not only a collapse of production on a far greater scale than in the crisis of 1929, but also a tendency towards uncontrollable inflation and the gangsterisation of the economy. Is this the shape of things to come in the west?

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