The full extent of the financial crisis which began just over a year ago in South-East Asia is beginning to emerge. It took a new plunge during the summer with the collapse of the Russian economy, and the unprecedented convulsions of the "emerging countries" of Latin America. But today, it is the developed countries of Europe and North America that are in the firing line, with a continuing slide on their stock exchanges and the constant downward adjustment oftheir forecast growth. We have come a long way from the bourgeoisie's euphoria of a few months back, expressed in the dizzying rise in western markets during the first half of 1998.
Today, the same "specialists" who had congratulated themselves on the "good health" of the Anglo-Saxon countries, and who forecast a recovery for all the European countries, are the first to talk of recession, or even "depression". And they right to be pessimistic. The clouds gathering over the most powerful economies are pregnant, not with some passing squall, but with a veritable temptest, an expression of the dead-end into which the capitalist economy has plunged.
The summer of 1998 devastating for the capitalist system's credibility: a deepening crisis in Asia, prey to a lasting recession which has evev hit the two major economies of China and Japan; a menacing situation looming over Latin America; the spectacular crash of the Rusian economy; close to record falls on world's stock market. In three weeks, the rouble lost 70% of it's value (since June 1991, Russia's GDP has fallen by between 50% and 80%). On 31st August - the famous "blue Monday", according to athe expression of a journalist who dared not call it "black" - Wall Street fell by 6.4%, while the Nsdaq (the exchange specialising in technology shares) fell by 8.5%. The nxt day, the European exchanges were hit in their turn. Frankfurt begn the morning with a 2% fall, Paris with 3.5%. During the day, Madrid lost 4.23%, Amsterdam 3.56% and Zurich 2.15%. In Asia, during 31st August Hong Kong fell by mre than 7%, while Tokyo fell sharply to reach its lowest position for 12 years. Since then, the stock markets have continued to fall, so that by 21st September (and the situation will probably be worse by the time this issue of the International Review goes to press) most of the indices had returned to the same level as the beginning of the year. New York was up to 0.32% and Frankfurt 5.09%, but London, Zurich, Amsterdam, and Stockholm were all down.
This accumulation of events is not due to chance. Nor it is the sign of some "passing crisis of confidence" in "emerging economies", or of a "salutary automatic correction of an over-valued market". It is on the contrary another episode in the decline of capitalism as a whole, a descent into hell caricatured by the disintegration of the Russian economy.
The crisis in Russia
The world ruling class and its "experts" had a serious fright a year ago, with the financial crisis in South-east Asia. For months afterwards, they consoled themselves with the thought that this crisis had not dragged the other "emerging economies" down with it. The media went on about the "specific" natue of the difficulties affecting Thailand, Indonesian, Korea, etc. Alarm-bells rang again when chaos gripped the Russian economy at the beginning of the summer1. The "international community", which had already paid heavily for South-east Asia, found itself forced to cough up an aid of $22.6 billion over 18 months - combined, as usual, with draconian conditions: a drastic reduction in state spending, an increase in taxes (especially taxes on wags, to compensate for the Russian state's inability to collect taxes from business), price rises and a rise in pension subscriptions. And all this, when the living conditions of Russian workers are already wretched, and most state and many private sector workers have notbeen paid for months. A dramatic expression of their poverty is the fall in life expectancy since June 1991; down from 69 to 58 years for men; the birth rate has also fallen substantially.
A month later, it was clear that these funds were merely good money thrown after bad. After a dreadful week, which saw the Moscow stock market plummet, and hundreds of banks teeter on the edge of bankruptcy, on 17th August the Yeltsin government was forced to abandon its last shred of credibility: the rouble and its parity wtih the dollar. Of the first tranche of IMF aid - $4.8 billion in July - $3.8 billion were swallowed up in a vain defence of the rouble. As for the remaning billion dollars, they were not used to restore the government's finances, still less to pay worker's back wages, for the simple reason that they had also melted away, to service the national debt (which already devours more than 35% of the country's income), in other words in interest payments fallen due during this period.not to mention the money that sticks to the fingers of this or that faction of a gangsterised bourgeoisie. The failure of this policy means not only a string of bank failures (more than 1,500 banks were affected), a plunge into recession, and an explosion of the state's dollar debt, but a return to galloping inflation which is already forecast to reach 200% or even 300% this year.
This disaster immediately provoked a political crisis in the upper echelons on the Russian state, which had still not been resolved at the end of September. The discomfiture of the ruling circles, which makes Russia look more and more like a vulgar banana republic, alarmed the Western bourgeoisies. But while the ruling class frets over the fate of Yeltsin and his henchmen, it is the Russian people and the working class who are paying the heavy price of thi situation and its consequences. The rouble's fall has already increased by 50% the price of imported food-stuffs, which amount for more than half of Russia's consumption. Production is barely 40% of its level prior to the fall of the Berlin wall.
Today, reality fully confirms what we said nine years agoin our "Theses on the economic and political crisis in the USSR and the Eastern bloc", written in September 1989: "Faced with the total collapse of their economies, the only way out for these countries, not to any real competitiveness, but at least to keeping their heads above water, is to introduce mechanisms which make it possible to impose a real responsibility on their leaders. These mechanisms presuppose a "liberalisation" of the economy, the creation of a real internal market, a greater "autonomy" for enterprises and the development of a strong "private" sector (...) However, while this kind of programme has become more and more vital, its application runs up against virtually insurmountable obstacles" (International Review no. 60)
A few months later, we added: "(...) some fractions of the bourgeoisie answer that a new Marshall Plan is needed, to rebuild these countries' economic potential (...) today, a massive infection of capital in the East European countries aimed at developing their economic, and specially industrial potential, cannot be on the agenda. Even supposing that such an industrial potential were to be re-established, the goods it produced would only burden stiil further an already super-saturated world market. The countries emerging form Stanlinism today are in the same position as the unde- developed countries: for the latter, the policy of massive credit injections during the 1970s and 80s has simply lead to the catastrophic situation which is well known today (a debt of $1.400 billion, and economies in a still worse state than before). The fate of the East European countries (whose economies in many ways resembles those of the under-developed world) cannot be any different (...) The only thing we can expect is their provision of emergency credit or aid, to allow these coutries to avoid an open financial bankrsuptcy and famines, which would worsen the convulsions that shake them" ("After the collapse of the Eastern bloc, destabilisation and chaos", International Review no. 61)
Two years later, we wrote: "In order to loosen the financial strangulation of the ex-USSR, the G7 agreed to a year's delay in the repayment of interest on the Soviet debt, which now stands at $80 billion. But this will be like putting plaster on a wooden leg because in any case all the credits just disappear down a huge hole. Two years ago, there were all sorts of illusion floating around about the "new markets" that were being opened up by the collapse of the Stalinist regimes. Today, when one of the expressions of the world economic crisis is a sharp crisis of liquidity, the banks are more and more reluctant to place their capital in this part of the world" (Editorial, International Review no.68)
Against all the interested illusions of the bourgeoisie and its flatterers, the reality of events has thus confirmed what Marxist theory has allowed revolutionaries to foresee. Today, complete disintegration and dreadful poverty are growing at the very gates of "fortress Europe".
The media's attempt to persuade us once the wave of panic at the stock markets has passed, the consequences will be minimal for the real economy internationally, have had little success. This is hardly surprising, since the capitalist's desire to reassure themselves, and above all to hide the gravity of the crisis from the working class, are confronted with the harsh reality of events. Firstly, Russia's creditors have been placed in a difficult situation. The Western banks lent almost $75 billion to Russia. They hold Treasury bonds whose value has fallen by 80%; repayments have been halted for those denominated in dollars. The Western bourgeoisie is also worried lest the other countries Eatern Europe slide into the same nightmare, and they have good reason: Poland, Hungary, and the Czech Republic account between them for 18 times more investment than Russia. At the end of August, the Warsaw stock market fell by 9.5%, while Budapest lost 5.5% - a sign that a capital is already beginning to deset these new financial markets. Moreover, and even more immediately, Russia is drhe agging down with it the other countries of the CIS, whose economies are closely linked to its own. Even if Russia is only a "minor debtor" in the world economy, relative to other regions, its situation is particularly serious given its geopolitical position as a nuclear minefield in the heart of Europe, threatened with a plunge into chaos by its political and financial crisis.
The fact that the Russian debt is small relative to those of South East Asia, or other parts of the world, is poor consolation. Other dangers are looming, notably the threat of a financial crisis in Latin America, which in recent years has been the main recipient of direct foreign investment in "developing countries" (45% of the total in 1997, as opposed to 20% in 1980 and 38% in 1997). The threat of devaluation in Venezuela, the abrupt fall in raw materials prices since the Asian crisis, which has hit the Latin American countries even harder than Russia, a colossal national and foreign debt (Brazil, with the world's seventh highest GDP, has a national debt far greater than Russia's), all go to make Latin America a time bomb which threatens to add to the disaster in Russia and Asia. A time bomb set to go off at the very gates of the world's greatest power the USA.
However, the main threat does not come from the less developed countries, but from the hyper-developed second economic power on the planet: Japan.
The crisis in Japan
Even before disaster hit the Russian economy, in June 1998 n earthquake centered in Tokyo threatened to destabilise the whole world economic system.since 1992, despite seven "recovery plans" which have injected the equivalent of 2-3% ofGDP into the economy every year, and a 50% devaluation of yen in three years which should have upheld the competitiveness of Japanese products on the world market, the Japanese economy have continued to decline. The Japanese state has continuously delayed taking measures to "cure"its banking sector, for fear of confronting the social and economic consequences, in an already fragile situation. Unrecoverable debts now amount to some 15% of the GDP... enough to plunge the Japanese, and so the world economy into a recession without precedent since the great crisis in 1929. Given Japan's inability to get out of the recession, and the government's hesitation to take the necessary counter-measures, the yen has been thetarget of massive speculation, threatening all the currencies of the Far East with a series of devaluations which would trigger a nightmare scenario of deflation. On 17th june 1998, alarm bells rang on the financial markets: the US Federal Reserve gave massive support to a yeh which had begun to slide. However, this only puts the disaster off for later: with the help of the international community, japan was able to put off the day of reckoning, but only at the price of a dizzying rise in debt. The national debt alone is now equivalent to one year's production (100% of GNP)
It is interesting to note at this point, that the same "liberal" economists who once denounced the intervention of the state in the economy, and who have the greatest influence today in the world's great financial institutions and in Western governments, are now crying out for a new and massive injection of public money into the banking sector in order to save it from bankruptcy. Here is the proof that despite all their ideological chatter about "less state intervention", the bourgeoisie's "experts" know very well that the state is the last rampant against economic disaster. When they talk about the "less state", they essentially mean "less welfare state", in other words less social protection (sick pay, unemployment benefit, minimum wage) for the working class, and all their speeches simply mean more and worse attacks on the workers.
Finally, on 18th September, government and opposition signed a compromise to save the Japanese banking system. Instead of launching a recovery, however, these new measures were greeted with a new slide in the markets - an indication of world financiers' deep distrust in the planet's second economic power, presented for decades as the "model" to follow. Deutsche Bank's chief in Tokyo, Kenneth Courtis - a serious witness if ever there was one, did not mince his words:
"We must reverse the downward trend, which is more serious than at the beginning of the 1970s (plummeting investments and consumption.) We have now entered a phase where new bad debts are being created. Thre is much talk about the banks' bad debts, but none about those of households. With the fall in the value of housing and the rise in unemployment, we are likely to see a growing inability to repay loans guaranteed by mortgages on property held by individuals. These mortgages have reached the fabulous sum of $7,500 billion, while the properties have lost 60% of their value. There is a latent social and political problem (...) there should be no mistake: a large scale purge of the economy is underway... the companies that survive will be incredibly strong. The greatest threat to the world economy since the 1930s is likely to take shape in Japan..." (Le Monde, 23rd September).
Clearly, for the Japanese economy - and for the Japanese working class- the worst is still to come. Workers have already been hard ht by ten years of stadnation, and now recession, and will now have to suffer repeated austerity plans, massive redundancies, and increase exploitation in a context where financial crisis is combined with tha closure of some of the country's most important factories. However, since the working class has not yet digested the ideological defeat it suffered with the collapse of the Eastern bloc, this is not the capitalist's most pressing concern. Much more alarming is the destruction of their illusions and the growing realisation of the catastrophic perspectives for their economy.
Towards a new world recession
We have become used, during previous alerts to hearing comforting declarations from the "specialists", along the lines that "trade in South East Asia is not very important", "Russia's weight in the world economy is small", "the European economy is sustained by the perspective of the Euro", "the fundamentals of the US economy are good". Today, the tone has changed! The mini-crash at the end of August throughout the world's markets has been a reminder that, when a tree's weakest branches break first in the storm, it is because the trunk can no longer draw enough energy from its roots to nourish them. The heart of the problem lies in the central countries, and the stock market professionals have no doubt about it. When every reassuring declaration is immediately given the lie by events, it is no longer possible to hide the truth. More fundamentally, the bourgeoisie now has to prepare public opinion for the painful economic and social consequences of an increasingly inevitable recession: "a world recession has not been banished. The American authorities have judged it necessary to make it known that they are following events closely (...) the probability of a worldwide economic slowdown is not a negligeable one. A large part of Asia is in recession. In the USA, the fall in share is in encouraging households to save more, at the expense of consumption, provoking an economic slowdown" (Le Soir, 2nd September)
The crisis in eastern Asia has already led to massive devaluation of capital, throughthe closure of hundreds of production sites, the devaluation of shares, the bankruptcy of thousands of businesses, and the fall into profound poverty of tens of millions of people: "the most dramatic collapse of a country in the last 50 years" is how the World Bank describes the situation in Indonesia. Moreover, the decline in tha Asian stock markets was triggered by the official announcements of both Korea's and Malaysia's entry into recession in the second quarter of 1998. Together with Japan, Hong Kong, Indonesia, and Thailand, almost the whole of the much vaunted South East Asia region is going down, since even Singaporeis expected to enter recession by the end of the year. Only China and Taiwan are keeping their heads above the water - but for how long? Indeed, the issue in Asia is no longer recession but depression: "Depression is when the fall in production and trade accumulates to such a point that the social foundations of economic activity are undermined. At this point, it becomes impossible to foresee the tendency being reversed, and difficult, if not pointless to adopt the classic measures for recovery. Many of the Asian countries are in this situation today, to the point that the entire region is under threat" (Le Monde Diplomatique, September 1998). If we combine the economic difficulties in the central countries with the recession with the world's second economy - Japan - and througout South East Asia, adding on the deflationary effects of the crash in Russia on the countries of Easter Europe and Latin America (in particular the fall in raw material prices, notably oil), then we end up with an inevitable contraction of the world market which will be the basis for a new international recession. Indeed, the IMF has already included substantial deflationary effects in its own forecasts: the crisis will cut 2% off world growth rates compared to 1997 (4.7%), while the main blow will come in 1999. The third millennium, which was supposed to open on the definitive victory of capitalism and the new world order, seems likely to begin with zero gowth!
Continuity and limitations of palliative measures
For more than 30 years, the plunge into ever-increasing debt, and the diversion of the crisis' most devastating effects onto the periphery, has made it possible for the international bourgeoisie to put of the day of reckoning. This policy, which is still in extensive use today, is showing more and more signs of exhaustion. The new financial order which has progressively replaced the post-war Bretton Woods agreement "today appears extremely costly. The rich countries (USA, European Union, Japan) have benefited from it, while the small ones have been easily submerged by even a modest capital inflow" (John Llwellyn, global chief economist at Lehman Brothers, London). It is proving more and more difficult to contain the most devastating effects of the crisis on the margins of the international economic system. The economic decline and upheavals are so great that their repercussions will be inevitably be felt in the most powerful countries. After the bankruptcy of the Third World, the Eastern bloc, and South East Asia, the world's second largest economy - Japan - is swaying. This is no longer a matter of the periphery: one of the three poles at the very heart of the system is infected. Another unmistakable sign of the exhaustion of palliative measures is the growing inability of international institutions like theIMF and the World Bank - set up to avoid the repetition of events like 1929 - to extinguish the fires that burst out ever more frequently in the four corners of the world. This is expressed concretely in financial circles by uncertainty as to the IMF's status as "lender of last resort". The markets mumur that the IMF no longer has the resources to play the part of fireman: "Apart from anything else, the latest repercussions of the Russian crisis have shown that the IMF was no longer inclined - no according to some - to systemically play the fireman. The decision last week of the IMF and the G7 group of industrialised countries not to provide extra financial support for Russia can be considered fundamental for future policies of investment in the emerging countries (...) Translation: nothing says that the IMF will intervene financially to extinguish a potential crisis in Latin America or elsewhere. This is not going to reassure investors" (Agence France Presse, Le Soir, 25th August). Increasingly, like the drifting African economy, the bourgeoisie h s no choice but to abandon whole sectors of its world economy, in order to isolate the most gangrened parts and preserve a minimum of stability on a smaller foundation. This is one of the main reasons for the acceleration in the creation of regional economic groupings (European Community, NAFTA, etc). Just as, since 1995m the bourgeoisie in the developed countries has worked to renew the credibility of its trades unions to try to control the workers; struggles to come, so the Euro represents an effort t o resist the financial and monetary tremors to come, while working to stabilise whatever stiil works in the world economy. It is in this sense that the European bourgeoisie describes the Euro as a shield. A cynical calculation has begun to be worked out: international capitalism establishes a balance sheet comparing the cost of the measures needed to rescue a country or region, and the consequences of a bankruptcy if nothing were done. In the future, there is thus no guarantee that the IMF will function as "lender of last resort". This uncertainty is starving a so-called "emerging" countries of the capital on which they had built their "prosperity", thus rendering hypothetical any economic recovery.
The bankruptcy of capitalism
Not so long ago, the term "emerging countries' made the world's capitalists tremble with excitement, as they desperately searched the world market for new terrain for the accumulation of capital. They were the icing on the cake for the hired hacks who presented them as the proof of capitalism's youth, discovering a "second wind" in these regions. Today, the term immediately evokes stock exchange panic and the fear that some "far-off" region should infet the central countries with a new crisis.
But the crisis does not come from this part of the world in particular. It is not a crisis of "youthful countries" but a crisis senility, of a system that entered its decadence more tha 80 years ago, and which has been confronting its insoluble contradictions ever since: the impossibility of finding ever more solvent markets for goods produced in order to ensure the continued accumulation of capital. Two world wars, and destructive open crisis like the present one, that has lasted for thirty years, have been the price. To keep going, the system has constantly cheated with its own laws. And the main "cheat" has been the plunge into ever more fantastic levels of debt.
The absurdity of the rusian situation, whre both banks and the state only survived at the cost of an exponential increase in debt, which forced them to go further into debt just to pay the interest on debts already contracted, is not a "Russian" madness. The entire world economy has survived for decades at the cost of the same absurd flight into debt, because this is the only answer it has to its contracdictions, the only answer it has to its contradictions, the only means of artificially creating new markets for capital and commodities. The whole world sytem is built on an enormous and increasingly fragile house of cards. The massive loans and investments in the "emerging" countries, themselves financed by other loans, have been no more than a means to push the system's explosive contradictions from the centre to the periphery. The repeated stock market crashes - 1987, 1989, 1997, 1998 - express the increasing extnt of capitalism's collapse. The question this raises is not why we are in such a brutal recession, but why it has not come much earlier. The only answer is: because the bourgeoisie worldwide has done everything to put off the day of reckoning by cheating with its own laws. And today, Marxism once again makes no distinction between the experts of "liberalism" and the advocates of "stricter financial and economic control". None of them can rescue an economic system whose contradictions are exploding despite all its cheating. Only Marxism has shown the bankruptcyof capitalism to be inevitable, making this understanding a weapon in the struggle of the exploited.
And when the bill has to be paid, when the fragile financial system cracks, t hen the fundamental contradictions are once again in control: we see the plunge into recession, the explosion of unemployment, strings of bankruptcies, of companies and whole industrial sectors. In a few months, in Thailand and Indonesia for example, the crisis plunged tens of millions deep in poverty. The bourgeoisie itself hs been forced to recognise this reality - which shows just how serious the situation is. Nor is this restricted to the so-called "emerging" countries. The recession is coming to all the central countries of capitalism. The highest levels of debt are owed, not by countries like Russia or Brazil, but by the very heart of capitalism: Japan and the USA. Following two quarters of negative growth, Japan is now officially in recession, and its GDP is expected to fall by 1.5% for 1998. Britain, presented not so long ago, alongside the US, as a model of economic "dynamism" has been forced by the threat of inflation to plan a "cooling" of the economy, and a "rapid rise in unemployment" (according to Liberation of 13th August). Redundancies are already proliferating in manufacturing (100,000 lay-offs out of 1.8 months).
Asia presents us with the perspective for the world capitalist economy. Despite all the "rescue" plans designed to return these countries to health and restore their vigour, we have seen the recession make itself at home, forming huge pockets of poverty and famine.
Capitalism has no solution to its crisis, which in return has no solution within this system. This is why the only solution to the barbarism and poverty that it imposes on humanity, is its overthrow by the working class. Thanks to its concentration and its historic experience, the proletariat at the very heart of capitalism, and in Europe notably, bears a decisive responsibility towards its class brothers in the rest of the world.
1 We should point out that the IMF's annual general meeting in October 1997 considered that the next major country "at risk" could well be Turkey. So much for the lucidity of the bourgeoisie's most qualified "experts"!