Economic crisis Thirty years of the open crisis of capitalism, II. 1980s

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In the last issue of the International Review we saw how, since 1967, capitalism has confronted the open reappearance of its historic crisis, by developing state intervention in the economy in order to try to slow down and push its worst effects on to the periphery, the weakest sectors of its own national capital and, of course, onto the whole of the working class. We analysed the evolution of the crisis and the response of capitalism in the 1970s. We are now going to look at the development of its evolution during the 1980’s. This analysis will allow us to understand that the state’s policy of “accompanying the crisis in order to  slow it down and spread it out” resolved nothing, nor did it bring about anything but the aggravation of the fundamental contradictions of capitalism.

The crisis of 1980-82

At the 2nd International Congress of the ICC held in 1977[1], we highlighted the way that the expansionist policies employed by capitalism were becoming increasingly less effective and were comng to a dead-end. The oscillations between “recovery” which provoked inflation and sudden slow-downs ending in recession led to what was called “stagflation” (recession and inflation at the same time) and demonstrated capitalism’s serious situation and the insoluble character of these contradictions. The incurable illness of overproduction, in its turn, globally aggravated the imperialist tensions in such a way that in the last years of the decade there was a considerable aggravation of military confrontations and the development of  the arms race at both the nuclear and the convention level[2].

The 1980s began with an open recession that lasted until 1982 and which in many ways was worse than the previous recession in 1974-75: production stagnated (growth rates were negative in Great Britain and the European countries), unemployment grow spectacularly (in 1982, the USA registered in one month alone half a million job losses); industrial production fell in Great Britain in 1982 to the level of 1967 and for the first time since 1945, world trade fell for two consecutive years[3]. This lead to the closure of factories and mass unemployment at levels not seen since 1929. What has been called industrial and agricultural desertification began to develop and has continued ever since. On the one hand, entire regions of old traditional industries saw the systematic closure of factories and mines and unemployment levels shooting towards 30%. This happened in such areas as Manchester, Liverpool or Newcastle in Great Britain, Charleroi in Belgium; the Lorraine in France or Detroit in the United States. On the other hand, in many countries agricultural overproduction was such that governments financed the abandoning of vast areas of agriculture, and aid for farming and fishing was brutally cut causing the increasing ruin of small and medium peasants and unemployment amongst agricultural workers.

However, after 1983, there was an economic recovery, which initially remained, limited to the United States but spread to Europe and Japan from 1984-85. This recovery was basically brought about by the United States’ colossal levels of debt which raised production and progressively allowed the economies of Japan and Western Europe to get onto the bandwagon of growth.

This was the famous “Reaganomics” which at the time was presented as the great solution to the crisis of capitalism. This “solution” was also presented as the return to the “basics of capitalism”. Faced with the “excess” of state intervention which characterised state economic policies during the 1970’s (Keynesianism) and which was called “socialism” or the “proclivity” to socialism, the new economic theoreticians presented themselves as “neo-liberals” and their recipes for “less state”, the “free market”, etc were vaunted far and wide.

In reality, Reaganomics was not a great solution (from 1985, as we will see, it was necessary to pay the price of the USA’s levels of debt) nor was it a supposed “retreat of the state”. What the Reagan government did was to launch a massive rearmament program (under the name “Star Wars”, it made a powerful contribution to bringing its rival bloc to its knees) through the classic recourse to state debt. The famous locomotive was not fuelled by the healthy combustibles of a real expansion of the market but by the adulterated fuel of generalised debt.

The “new” politics of debt.

The only new thing about Reagan’s policy was the form for achieving these levels of debt. During the 1970s, the state was directly responsible for financing the growing deficits in public spending through increasing the monetary mass. This meant that the state supplied the money that the banks needed in order to lend money to businesses, to private borrowers, or to other states. This caused money to depreciate continually and so led to an explosion of inflation.

We have already seen the growing impasse in which the world economy found itself, especially that of America at the end of the 1970s. In order to get out of this episode, in the last two years of the Carter administration, the Chairman of the Federal Reserve, Volker, radically changed credit policy. He closed the taps of monetary emission, this provoked the 1980-82 recession, but simultaneously opened the way for massive financing through the emission of bonds and securities that were constantly renewed in the market. This orientation was taken up and generalised by the Reagan administration and spread throughout the world.

The mechanism of “financial engineering” was as follows. On the one hand, the state issued bonds and securities in order to finance its enormous and ever growing deficits which were subscribed to by the financial markets (banks, business and individuals). On the other hand, it pushed the banks to search for loans in the financial markets, and at the same time to issue bonds and securities and to carry out successive expansions of capital (issuing of shares). It was a question of a highly speculative mechanism which tried to exploit the development of a growing mass of fictitious capital (idle surplus value incapable of being invested in new capital).

In this way, the weight of private funds became more important than public funds in the financing of debt (public and private).

The financing of public debt in the USA

 in billions of dollars





















(Global Development Finance)

This does not mean that there was a lessening of the weight of the state (as the “liberals” proclaim), but rather there was a reply to the increasing needs of financing (and particularly immediate liquidity) which meant a massive mobilisation of all the available disposable capital.

This supposedly “liberal” and “monetarist” policy meant that the rest of the world economy financed the famous US locomotive. Japanese capitalism especially, with its enormous trade surplus, bought massive amounts of Treasury bonds and securities, as well as the different issues by companies in this country. The result was that the United States, which since 1914 had been the world’s main creditor, from 1985 was converted into a net debtor and, from 1988, it became the world’s main debtor. Another consequence was that from the end of the 80s, Japanese banks held almost 50% of American property shares. Finally this form of indebtedness meant that “while in the period 1980-82 the industrialised countries poured $49,000 million more than they received into the so-called developing countries, in the period 1983-89 the latter supplied to the former $242,000 million more” ( Prometeo no 16, organ of Battaglia Communista, article “A new phase in the capitalist crisis”, December 1998).

The method used for repay the interest and principle on the issued bonds was the issuing of new bonds and securities. This meant increasing levels of debt and the risk of borrowers not subscribing to new issues. In order to continue to attract investors there were regular re-appropriations of dollars through various artificial revaluations of foreign exchange rates. The result of this was that, on the one hand, an enormous flood of dollars entered the world economy and, on the other hand, the USA developed a gigantic trade deficit that year after year broke new records. The majority of the industrialised countries more or less followed the same policy: using money as an instrument for attracting capital.

All of this encouraged a tendency which was to deepen throughout the 90s: the complete adulteration and manipulation of money. The classic function of money under capitalism was to be the measure of value and standard of price, in order to do this the money of the different states had to be backed by a minimal proportion of precious metals[4]. These reserves of noble metals tended to reflect the growth and development of the wealth of a country, this also tended to reflected through the price of its money.

We have already seen in the previous article how capitalism throughout the 20th century has abandoned these reserves and this has meant that money has circulated without any equivalent, with all the risks that entails. Nonetheless, the 80s constituted a real qualitative leap towards the abyss: the phenomenon, already serious, of money being completely separated from a counter-part in gold or silver, worsened throughout the decade. This was joined: firstly by the game of appreciation/depreciation in order to attract capital which caused tremendous speculation in these and, secondly; the increasingly systematic recourse to “competitive devaluation”: ie, the lowering of the price of money by decree with the aim of helping exports.

The pillars of this “new” economic policy were, on the one hand, the constant snowballing of the massive emission of bonds and securities, and, on the other, the incoherent manipulation of money by means of a sophisticated and complicated “financial system” which in reality was the work of the whole state and the large financial institutions (banks, savings banks and investment companies, which have very close links with the state). In appearance it was a “liberal” and “non-interventionist” mechanism, in practice it was a typical construction of Western state capitalism, which is to say a management based on the combination of the sectors dominated by private and state capital.

This policy was presented as the magic potion capable of bringing about economic growth without inflation. In the 70s, capitalism had found itself confronted by the insoluble dilemma of inflation or recession, now, whatever their political colouring (“socialist”, “leftist” or “centre”), governments converted to the “neo-liberal” and “monetarist” credo, and proclaimed that capitalism had overcome this dilemma and that inflation had been reduced to levels of 2 to 5% without harming economic growth.

This policy of the “struggle against inflation” and of supposed “growth without inflation” was based on the following means:

1. The elimination of “surplus” industrial and agricultural productive capacity which led to the closure of numerous industrial installations and massive lay-offs.

2. The drastic cutting of subsidies to industry and agriculture that also brought with it unemployment and closures.

3. The pressure to reduce costs and to increase productivity meant in reality a masked and gradual deflation based on brutal attacks against the working class of the central countries and a permanent lowering of the price of raw materials

4. The pushing of the inflationary effects onto the most peripheral countries, through mechanisms of monetary pressure and, especially, through the devaluation of the dollar. Thus, in Brazil, Argentina, Bolivia etc, there were explosions of hyperinflation leading to price increases reaching 30% a day!

5. Above all, the repaying debts with new debts. The financing of debt went from the issuing of paper money to it being carried out by the issuing of bonds (state bonds and securities, business shares etc), which led to the slowing down of the long-term effects of inflation. The debts contracted through the issue of bonds were repaid through new issues. These bonds were the objects of unstoppable speculation. The over-valuation of their price (this over-valuation was complemented by the manipulation of the price of money) meant that the underlying enormous inflationary pressures were delayed to a future date.

Measure (4) did not resolve inflation but simply changed its location (pushing it onto the weakest countries). Measure (5) may have delayed inflation until the future but at the cost of stoking up its counter-part: the bomb of monetary and financial instability and disorder.

As for measures (1) and (3) these may have reduced inflation in the short-term but their consequences will be much more serious in the medium to long-term. In fact, these measures constitute a hidden deflation, that is, a methodical and organised reduction by the state of real productive capacity. As we underlined in International Review no59 “This production may correspond to goods that are really made, but it’s not a production of values (...) capitalism hasn’t grown richer. On the contrary, it has grown poorer” (5).

The process of industrial and agricultural desertification; the enormous reduction in costs, lay-offs and general impoverishment of the working class, was methodically and systematically carried out by all governments throughout the 1980s and this has seen a major escalation in the 1990s which has taken the form of a hidden and permanent deflation. While 1929 produced a brutal and open deflation, in the 80s capitalism unleashed a hitherto unknown tendency: controlled and planned deflation, a form of gradual and methodical demolition of the bases of capitalist accumulation, a state of slow but irreversible de-accumulation.

The cutting of costs, the elimination of obsolete, and uncompetitive sectors, the gigantic growth of productivity were not symptoms in themselves of the growth and development of capitalism. It is certain that these phenomena accompanied the phases of capitalism’s development in the 19th Century. However, then they had meaning because they were at the service of the extension and broadening of the capitalist relations of production and the growth and formation of the world market. Their function in the 80s correspondent to a diametrically opposed aim: to protect from overproduction and their results are counter-productive, making it even worse.

For this reason, if these policies of “competitive deflation”, as the economists modestly call them, in the short-term reduce the bases of inflation, in the medium to long term they will reinforce and stimulate them, since the reduction of the basis of the reproduction of global capital can only be compensated for, on the one hand, by an always increasing  mass of debt, and on the other, unproductive spending (armaments, state, financial and commercial bureaucracy). As we said in the Report on the Economic Crisis to our 12th International Congress: “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: the 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” (International Review. No 92).

Therefore, in reality, the only thing that has sustained the fall in inflation during the 80s and 90s has been the systematic postponing of debt through the merry-go-round of the issuing of new debts which have replaced the previous ones and the explosion of global inflation in the increasingly numerous weakest countries.

All of this was illustrated clearly by the debt crisis that exploded from 1982 in the Third World countries (Brazil, Argentina, Mexico, Nigeria etc). These states who had fed their expansion in the 70s through enormous debts (see the first part of this article) threatened to declare themselves bankrupt. The most important countries reacted rapidly and came to their “aid” with plans for debt “reconstruction” (the Brady Plan) or through direct intervention by the International Monetary Fund. In reality, what they were seeking to do was to avoid a brutal collapse of these states which would have destabilised all of the world economic system.

The remedies that were employed were a copy of the “new policy of debt”:

- The application of brutal plans for deflation under the direct control of the IMF and the World Bank that meant terrible attacks on the working class and the whole population. Those countries that in the 70s had lived the dream of “development” woke up to find themselves in a nightmare of generalised poverty from which they could not escape.

- The conversion of the loans in the National Debt into bonds that carried very high interest rates (10 to 20% more than the world average) and formidable speculation in them. The debt did not disappear: it was transformed into deferred debt. Far from the debt of the Third World countries falling it grew vertiginously throughout the 80s and 90s.




At the level of the productive apparatus:

Crisis in traditional industries such as mining, textiles and railways, although subsequently there would be a strong expansion.


Chronic crisis in sectors that continued to fall through the 90s and furthermore crisis in “modern” sectors such as white goods, automobiles, electronic.

At the financial level:

The speculation that provoked the crash was very recent (from the beginning of 1928) and was relatively new.


Speculation had been developing since 1980 and there had been a series of precedents in the previous decade (eg. Petrodollars)

At the level of crisis of overproduction:

After several years of growth it appeared from 1929 onwards.


The crisis preceded the crash and had lasted intermittently for 20 years.

At the level of state capitalist policies:

State intervention was very limited before the crash: widespread from 1933 onwards, it managed to thwart crisis and to restart production.


State intervention was massive and systematic from the 30s and had had recourse to numerous measures from 1970 which had only episodically restarted production.

The palliative of armaments:

Massive war production deferred the crisis after 1934.


Over-armament developed from 1945 and in the 80s it underwent a gigantic acceleration but as a means for palliating and deferring the crisis it was already worn-out.


The crash of 1987

From 1985, the American locomotive began to run out of steam. Growth rates fell slowly, but inexorably and this was gradually transmitted to the European countries. Politicians and economists talked about a “soft landing”, that is to say they tried to put a break on the mechanism of debt that lay behind an increasingly uncontrollable speculation. The dollar, after years of revaluation, underwent a brutal devaluation: falling by more than 50% between 1985 and 1987. This momentarily eased the American deficit and brought about a reduction in the payment of interest on this debt, but the counter-part was the brutal 27% fall of the New York stock exchange in October 1987.

This figure was quantitatively less than the fall recorded in 1929 (more than 30%), however a comparative table of the situations in 1987 and 1929 allows one to understand that in 1987 the problems were much worse (see the bottom of this page).

The stock market crisis of 1987 meant a brutal purging of the speculative bubble that had fed the reactivation of the economy by Reaganomics. Since then, this reactivation has drained away. In the last half of the 80s we saw rates of growth between 1% and 3%: in effect, stagnation. But at the same time, the decade ended with the collapse of Russia and its satellites in the Eastern bloc, a phenomenon that although it had its roots in the particularities of these regimes was fundamentally a consequence of the brutal aggravation of the world economic crisis.

Along with the collapse of the Russian imperialist bloc a very dangerous tendency appeared from 1987: the instability of the whole of the world financial system, which was to lead to increasingly frequent tremors that demonstrate its growing fragility and vulnerability.

General balance sheet of the 1980s

We are going to draw some conclusions about the whole of the decade; as with the previous article these will concern the evolution of the economy as much as the situation of the working class. A comparison with the 1970s reveals a serious decline.

Evolution of the economic situation

1. Levels of growth in production reached their peak in 1984: 4.9%. The average for the period was 3.4%, whilst that for the previous decade was 4.1%.

2. There was an severe contraction of the industrial and agricultural apparatus. This was a new phenomenon after 1945 which affected the main industrialised countries. The following table which refers to three central countries (Germany, Great Britain and the USA) demonstrates a fall in industry and mining and a growing displacement towards unproductive and speculative sectors.

Evolution of production by sectors between 1974 and 1987 (%)


















Trade & catering




Finance & insurance





(source OECD)

3. The majority of productive sectors suffered a fall in their levels of production. This could be seen as much in cutting edge sectors (cars, electronics, white goods) as in the “tradition-al” sectors (shipyards, engineering, tex-tiles, mining). Thus, for example, levels of car production in 1987 were the same as in 1978.

4. The situation in agriculture was disastrous:

 - The countries of the East and the 3rd World were obliged for the first time since 1945 to import basic foodstuffs.

 - The European Union decided to leave 20 million hectares fallow.

5. Production did grow in information technology, telecommunications, and electronics, nevertheless, this growth did not compensate for the fall in heavy industry and agriculture.

6. The periods of recovery did not affect the whole of the world economy; they were also short and accompanied by periods of stagnation (for example, between 1987 and 1989).

 - The recovery in the USA during the period 1983-85 was high but  between 1986-89 it was well below the average of 1970.

 - The recoveries were weaker (a global situation of semi-stagnation) in all the countries of Western Europe except in Germany.

 - A good number of Third World countries were uncoupled from the train of growth and fell into stagnation.

 - The countries of the East suffered an almost general stagnation during the whole of the decade (except Hungary and Czechoslovakia).

7. Japan and Germany managed to maintain levels of acceptable growth from 1983. This growth was higher than the average and permitted enormous trade surpluses which transformed them into important financial creditors. However, these levels of growth were not as high as in the two previous decades.

Average annual growth of GDP in Japan









 (source: OECD)


8. The price of raw materials fell throughout the whole decade (save the period 1987-88). This allowed the industrialised countries to alleviate the underlying weight of inflation at the cost of the “Third World” countries (producers of raw materials) that progressively collapsed into total stagnation.

9. Armaments production under went its most important historical growth: between 1980-1988 it grow by 41% in the USA according to official figures. This growth means, as the Communist Left had already demonstrated, terminally weakening the economy. This is proved by American capital: at the same time as it was unceasingly increasing its share of world armaments production; the share of its exports in the world trade of important sectors fell, as can be seen from the following table:

% of exports in world trade





Machine tools










10. Debt underwent a brutal explosion as much at the quantitative level as the qualitative:

 At the quantitative level:

 - In the “Third World”, it grew in an uncontrollable way:

 The total debt in millions of $ of the underdeveloped countries









 (source the World Bank)

 - it took off spectacularly in the USA:

 The total debt in $ of the USA









 (source OECD)


- however, it was moderate in Japan and Germany.


At the qualitative level:

- the USA became a debtor country in 1985 after being a creditor for 71 years;

- in 1988, the United States was transformed into the most indebted country on the planet not only quantitatively but also qualitatively. This can be clearly seen from the fact that, while Mexico’s foreign debt represented 9 months of its GDP and Brazil’s 6 months, in the USA it represented 2 years of GDP!

- in the industrialised countries, the weight interest payments on loans represented on average 19% of the state budget.


11. The financial apparatus, which had previously been relatively stable and healthy, from 1987 became to suffering increasingly server storms:

 - Significant banking collapses, the most serious of which was that of the  Savings and Loans banks in American in 1988 with debts of $500,000 million.

 - A succession of stock exchange crashes began in 1987: in 1989 there was another crash, though it was less serious due to state measures which immediately stopped trading when prices fell by 10%.

 - Speculation took on a spectacular form. In Japan, for example, excessive property  speculation caused a crash in 1989 whose consequences have been felt ever since.

The situation of the working class

1. We have seen the worst wave of unemployment since 1945. Unemployment rose brutally in the industrialised countries:

The number of unemployed in the 24 countries of the OECD






 (source: OECD)

2. The appearance in the industrialised countries of a tendency towards under-employment (temporary, part-time and precarious work) while in the “Third World” under-employment became generalised.

3. From 1985 the governments of the industrialised countries adopted measures which encouraged  temporary contracts under the pretext of “the struggle against unemployment”. In this way by 1990, temporary contracts effected 8% of the workforce in the OECD, while permanent jobs were declining.

4. Nominal wages grow very modestly (the average in the OECD countries between 1980-88 was 3%) and did not compensate for inflation despite its very low level.

5. Social spending (social security systems, housing subsidies, health, education, etc) suffered its first important cuts.

This decline in the living conditions of the working class was dramatic in the “underdeveloped” countries and serious in the industrialised countries. In the latter it was not as smooth or slow as in the previous decade despite the fact that governments, in order to avoid the unification of the struggles, organised the attacks in a gradual and planned way in order to avert them being too sudden and generalised.

However, for the first time since 1945 capitalism was incapable of increasing the total work force: the number of wage earners grew at a rate lower than the increase in the world population. In 1990 the International Labour  Organisation put forward a figure of 800 million unemployed. This clearly shows the aggravation in capitalism’s crisis and thoroughly exposes the lying discourse of the bourgeoisie about the recovery of the economy.



[1] See International Review no 11 “From the crisis to the war economy”, Report on the world economic situation of the 2nd Congress.

[2] The decade closed with the invasion of Afghanistan which led to a long and destructive war.

[3] See International Review no 26.

[4]Just as every country needs a reserve fund for its internal circulation, so too it requires one for circulation in the world market. The functions of hoards, therefore, arise in part out of the function of money as medium of payments and circulation internally, and in part out of its function as a world money” (Marx: Capital Vol 1 Part 1 chapter 3 page 243 -Penguin Books 1979-) Marx is more specific a bit further on that “Countries with developed bourgeois production limit the hoards concentrated in the strong rooms of the banks to the minimum required for the performance of their specific functions”.

Report on the Crisis from the 8th International Congress.


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