German Capitalism Runs Out of Steam

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The text below is an extract from a report on the situation in Germany written by Weltrevolution, the ICC's section in that country. Although the article deals with the situation in a single country, it actually reflects the general crisis of capitalism in all countries. Once feted in the bourgeoisie's propaganda as a virtuous example of capitalism's good health, the German economy has now become a symbol of the gravity of the system's downfall.

Now that it is sinking into the worst crisis it's been through since the 1930s, this central pole of world capitalism, which once seemed to be the most solid of all, is tottering. This situation is not only a significant pointer to the seriousness of the current world economic crisis; it is the harbinger of future storms that menace the entire edifice of global capitalism.

The bourgeoisie no longer has any ‘healthy' models to back up the illusion that, in order to get over the crisis, all that's needed is rigorous management. The situation in Germany shows that even the country that distinguished itself by having the most virtuous management of all, a country whose workers were always being praised for their sense of discipline, cannot escape the crisis This also shows the inanity of the bourgeoisie's constant appeals for more rigor. No bourgeois policy can offer a solution to the generalised bankruptcy of the capitalist system. The sacrifices that are everywhere being imposed on the proletariat will not bring a better tomorrow, but only growing misery with no improvement in sight, including in the most industrialised countries.

The brutal acceleration of the crisis

The recession in the USA at the end of the 80s, although eclipsed at the time by the collapse of the eastern bloc and the media celebration of the "victory of the market economy", was not merely of conjunctural but of historic importance. After the final and definitive collapse of the third world and of the eastern bloc, it meant the breakdown of one of the three main motors of the world economy, paralysed by a mountain of debts. 1992, at this level, was another truly historic year, marked by the public and spectacular humbling of the two remaining giants, Japan and Germany. The indebtedness of Germany in the aftermath of unification, while temporarily delivering a specific German boom, has not made it possible to avoid the recession. This means that, like for the US, for Germany this recession is of historic importance. Due to its soaring public debts, Germany no longer has the means to pay its way out of the present slump. Not only has Germany officially entered into recession, but it has failed as a powerhouse for the world economy and in its previous role as a relative pillar of economic stability in Europe. The German bourgeoisie is the latest and most spectacular victim of the explosion of economic chaos and the uncontrollability of the crisis.

The recession in Germany

In relation to the boom of the past three years, the conjuncture literally collapsed in the third quarter of 92. GNP growth, which at the end of 1990 reached a peak of almost 5%, dropped suddenly to around 1%, and is expected to actually fall below minus for the first six months of 1993, despite a predicted 7% growth in the ex-GDR. The orders for investment goods fell by 8% in the last six months. The production of the vital machine tools sectors dropped by 20% in 91 and 25% in 92. Total industrial production fell by 1% last year and is expected to be minus 2% this year. Textile production fell by 12%. The export sector, the traditional motor of the German economy, usually able to lead the way out of each slump, no longer delivers the goods in the face of world wide recession and increased imports. The balance of payments, still plus 57.4 billion dollars in 1989, has for 1992 reached a new record deficit of over 25 billion dollars. The devaluation of the currencies of Britain, Italy, Spain, Portugal, Sweden and Norway in the autumn made German goods there around 15% more expensive overnight. The number of companies going bankrupt increased last year by almost 30%. The car industry is already planning production cuts of at least 7% for this year. The other industrial pillars such as steel, chemicals, electronics and engineering are planning similar reductions. One of the biggest steel and machine producers, Klöckner, is on the verge of bankruptcy. The result is an explosion of redundancies. Volkswagen, expecting a sales reduction of 20% this year, plans to sack every tenth employee: 12,500. Daimler-Benz (Mercedes, AEG, DASA Aerospace) will sack 11,800 this year and cut 40,000 jobs by 1996. Other major job killers: Post-Telecom: 13.500; Veba: 7000; MAN: 4500; Lufthansa: 6000; Siemens: 4000.Thus, the official unemployment figures at the end of 92 read: 3,126,000. That means 6.6% in the west and 13.5% (1.1 million) in the east. On short time work: in the west 649,000; in the east 233,000. In the east FOUR MILLION jobs have been eliminated in the past three years and almost half a million workers are in state employment schemes. And this is just the beginning. Even the official predictions expect 3.5 million unemployed by the end of this year for Germany as a whole. In the ex-GDR, production and services would have to increase by over 100% to even maintain employment at the present rate. Officially, three million homes are lacking just in the big cities, whereas 4.2 million people live from the lowest social benefits (460% more than in 1970). Even semi-official organisations admit that the real number of unemployed will reach 5.5 million this year. And this does not include the 1.7 million in the new eastern provinces in educational, labour creation, short time work and early retirement - an operation which has alone cost 50 billion DM.

The explosion of debt

When Kohl became chancellor in 82, the public debt of 615 billion DM amounted to 39% of GNP, or 10,000 DM per citizen. In the meantime this has reached 21,000 DM per head, over 42% of GNP. And soon it is expected to exceed 50% of GNP, so that each German would have to work six months without wages to pay it back. The state debt has reached 1700 billion, and is expected to exceed 2500 billion by the turn of the century. It took 40 years up until 1990 for the German state to reach the first thousand billion DM of debt. The second thousand billion is expected to be achieved by 1994 or at the latest 1995. Every minute of the year the state takes in 1.4 million DM in taxes and makes 217,000 DM in new debts. And over 100 billion DM have been loaned out by state controlled banks and funds (Kreditanstalt für Wiederaufbau, Deutsche Ausgleichsbank, Berliner Industriebank) to East German companies alone between 89 and 91. Most of this money will never be seen again. 41 billion have gone to the ex-USSR in the same period and are expected to meet the same fate. Thus, overnight, vast financial resources accumulated over decades, and which made Germany not only the most solvent major power but also a principal and valuable money lender on the world markets, have melted away. Major instruments for manipulating the economy have been wasted definitively. And the recession makes all of this all the worse. Every missing growth % costs Bonn 10 billion DM, and the provinces and communes 20 billion DM in income losses through missing tax revenues. At the same time, taxes and social payments have reached record levels. Every second DM earned goes to the state or the social funds. And new taxes are planned: a drastic increase for mineral oil; or a special levy to finance a building boom for the east. And the share of interest payments in the federal budget, which rose from 18% in 1970 to 42% in 1990, is predicted to reach over 50% by 1995.The collapse of the German conjuncture, the shrinking of its markets, its demise as international financier, is a real catastrophe not only for the German but for the world and especially the European economy.

Economic chaos, state capitalism, and economic policy

We could hardly find better examples of the growing uncontrollability of the world economic crisis than the way in which the economically most powerful bourgeoisie in Europe is more and more obliged to act in a way which only worsens the crisis or which is in contradiction to its own dearest principles. One example is the inflationist policy of public debt, not least to finance unproductive consumption, coupled with a constant increase of money in circulation - a policy which took on spectacular forms with the economic and monetary union with the GDR and which has been going on ever since. The yearly price index increase, traditionally one of the lowest of all the main industrial countries, is presently tending to be one of the highest. Hovering between 4 and 5%, the ceiling on this has only been maintained to date by the ruthless anti-inflationist interest rates policy of the Bundesbank. The headlong plunge into ever greater debts is itself a grave break with the previous policy of at least keeping debts within certain boundaries. The classical German anti-inflationist policies of the last forty years (both the goal of price stability and the relative autonomy of the Bundesbank are written into the constitution) reflect not only immediate economic interests but an entire political "philosophy", born not only of the experiences of the great inflation of 1923 and the economic disaster of 1929, but of the traditional leanings of the German "national character" towards order, stability and security. Whereas in Anglo-Saxon countries high interest rates are usually considered the main barrier to economic expansion, the "German school" declares that enterprises with good chances of profits will never be put off by interests rates, but rather by inflation. Equally, the fanatical pursuit of a policy of a "hard Deutsche Mark" is theoretically underlined by the idea that the advantages of devaluation (for exports) are always wiped out by the resulting inflation (through more expensive imports). It's thus far more significant of the loss of control when Germany of all countries today pursues such inflationary policies.The same goes for the eruptions in the EMS, which is a true catastrophe for German interests. Stable currency relations are crucial for German industry, since not only the big but even most of the smaller companies not only export mainly to other EC countries but conduct at least part of their production there. Without this stability, any price calculation becomes impossible, and life even more of a lottery than usual. At this level the EMS was really a success, not least in making Germany to quite a large extent independent of the fluctuations and manipulations of the Dollar. But even the Bundesbank with its still gigantic currency reserves was helpless in face of the speculative movement of 500 to 1000 billion dollars per day on the currency markets.As a world wide operating economic power, Germany has most to lose from the financial, monetary and commodity markets becoming ever-more fragile. And yet it finds itself obliged to conduct a national economic policy which daily hacks away at the foundations of these markets.

Unification and the role of the state

Whether in the US with Clinton, in Japan, or with the proposals of Delors in the EC, the policies of a more open and brutal state intervention through the financing of public works and infrastructure programmes, to some extent ignoring real market demands, is coming to the foreground in all industrial countries. This is coupled with an ideological shift away from the laissez-faire mystifications of the 80s, which were particularly developed in the Anglo-Saxon countries under Reagan and Thatcher. These policies are not a solution or even a medium-term palliative; they are merely a sign that the bourgeoisie is not planning to commit suicide and is prepared to postpone a greater catastrophe even if it means that when it comes it will be even worse. The level both of debts and of overproduction prohibit any real stimulation of the capitalist economy. Where these policies lead to is perfectly illustrated by the country which for political reasons was obliged to first initiate such schemes: Germany, with its reconstruction programmes for the east, transferring several hundred billion DM to its eastern provinces per year. The result today is: debt explosion, tendency to inflation, squandering of reserves, balance of payments deficit, and finally recession.But while Germany was the forerunner in all this, the goals and motivations of this policy is not identical to that in the US or Japan, where perhaps the main consideration is to stop the dive in economic activity. We should not lose sight of the fact that the main goal of this policy has been political (unification, stabilisation, the enlarging of the power of the German state etc). This gives such an economic policy a different dynamic from, say, that of the US under Clinton. On the one hand it implies that some investments can prove politically "profitable" even if giving immediate economic losses. But on the other hand it also means that the German bourgeoisie cannot simply stop and reverse policies if this operation proves too expensive, which is precisely the case. This is an operation where there is no turning back any more, even in face of the danger of bankruptcy. At the economic level the bourgeoisie badly miscalculated the costs of unification. It underestimated both the general costs and the degree of dilapidation of East German industry. And it didn't expect such a rapid collapse of the eastern export markets of the ex-GDR. Since then the strategy has changed. The territory of the ex-GDR must be made into a platform for conquering western markets. This of course is only possible if it acquires real competitive advantages over its rivals, in particular in the EC. The three pillars of this strategy are the following:

- A STATE INFRASTRUCTURE PROGRAMME: in an epoch in which production methods and technologies are becoming increasingly uniform, infrastructure (transport, communications etc) constitute a potentially decisive competitive advantage. There can be no doubt about the determination of the German bourgeoisie to equip its eastern provinces with the most modern infrastructure in Europe, that this programme is advancing in giant steps, and that it will be completed by the end of the century if German capital does not go bust beforehand;

- LOW WAGES: according to the wage agreements signed, eastern wages will soon reach western levels. However the unions have now reached an unofficial agreement according to which wages under the norm can be paid in enterprises struggling for survival (the case for 80% of them!)

- POLITICAL INVESTMENTS: the previous economic policy towards the east has been: the state creates the infrastructure and conditions, the employers make the investments. However the employers have not done so, for reasons to do with what is pleased to call itself "the market economy". The result: nobody wanted to buy the GDR's industry, which for the most part has completely disappeared in what has been the fastest and most spectacular deindustrialisation in history. In the end the state will have to pay directly for long term investments which private investors are shying away from.

The attacks against the working class

The whole policy of the Kohl government was to achieve unification without too brutally attacking the population, in order not to discourage national enthusiasm. The recipe was thus indebtedness instead of massive attacks against the workers. Even the special taxes levied on wages ("solidarity with the east") were lifted this year. Unification at the beginning meant special taxes and levies, certain cuts in the west, but at the same time economic boom, relative drops in unemployment in the west, etc. Now we are at a veritable and dramatic turning point in the situation. The unification boom has been caught up by the world recession. And the debts have become so gigantic that they threaten not only German stability, but that of the whole world. Via high interest rates in particular, these debts are undermining the monetary and other stabilisation systems in Europe on which Germany itself depends so much. So, while evidently the piling up of debt won't stop, the time has come where the whole population, especially the working class, must pay in a direct and brutal manner through massive, frontal and generalised attacks. This already began on the wage front in 1992 where generally wage agreements under inflation could be pushed through due to the manoeuvre of the public sector strike. This wage attack will continue and intensify, since the unions never cease pledging their willingness to display moderation and responsibility on this front. The second front is of course the explosion of unemployment, short time work, and mass redundancies, including and especially in the key sectors of industry. This has been going on for three years in the east, but is a dramatically new development in the west. But job cuts and "special sacrifices" are being prepared in the public sector too. Last but not least the government has prepared a giant programme of cuts in the social services. We do not to date know the details of this package. Rumours leaked out say that there will be a 3% cut to begin with in all services such as unemployment benefits, social payments, in money to support people to pay for their flat, children's benefits etc.Without yet knowing all the details, we can be sure that 1993 will bring a qualitative change in the conditions of the proletariat, a storm of attacks unprecedented since the war, connected not only to unification but to the world recession, and on a scale at least tendentially comparable to that being suffered in other western European countries.

The conditions of the workers in the East

At the level of sackings and unemployment, the workers of what used to be East Germany have been hit harder than any other sector of the west European proletariat in the past three years. In fact, the ejection of over four million persons out of the production process in such a short space of time, and in relation to a total population of 17 million, exceeds even the dimensions of the world economic crisis after 1929. This has been coupled with a process of absolute pauperisation (especially for the old and the sick etc), of lumpenisation (especially among youth) and of a general sense of insecurity.For those who still have a job or are in training, there has been a relative increase in income, in line with the policy of unification, which aimed at bringing wages in the east onto a par with wages in the west. But these increases have only come to a limited number of workers (mainly men, on condition that they're not young, old or sick), and they fall well short of equalisation. In real terms, it has been estimated that wage levels in the east are still about half those in the west. What's more, the bosses have just announced that it won't be respecting the increases envisaged in the contracts signed with the unions last year, because the economy is in such a mess. Four years after the fall of the Berlin Wall, the workers of the ex-GDR are still underpaid foreigners in ‘their own' country.As it has often been in the history of decadent capitalism, Germany is one of the focal points for the explosion of the contradictions that are tearing world capitalism apart. The ‘healthiest' economy on the planet is now being subjected to the devastating winds of the world recession, to uncontrolled debt, to a growing loss of control over the economic machinery, to international financial and monetary anarchy. And, as in all countries, the ruling class responds by strengthening the role of its state machine and by making unprecedented attacks on the working class.Leaving aside all the specificities due to unification, the problem in Germany isn't a German problem. It's the problem of the bankruptcy of world capitalism. Weltrevolution, March '93.