After the fall of the Berlin Wall, the multiplication of wars and genocide quickly cancelled all the speeches about the so-called the new world order that was supposed to result from it. On the other hand, we have to recognise that all the ideological campaigns on democracy and capitalist prosperity met a certain echo and still weigh heavily on the class consciousness of the exploited.
The collapse of the eastern bloc was supposed to open up huge "new markets" and give rise to a new phase of economic development, peace and democracy. During the 1990s, predictions about this so-called economic development were supported by the media barrage about the "emerging countries" like Brazil or the countries of South East Asia. At the end of the 90s the "new economy" took up the baton, supposedly opening a new phase of expansion based on a technological revolution. What has the real story been? It has shown that all these have been false prophecies! After the poorest countries of the third world, which for two or three decades have seen a net fall in their GNP per inhabitant, we saw the fall of the "second world" with the economic collapse of the countries of the eastern bloc, and the bankruptcy of Russia and Brazil in 1998; Japan broke down at the beginning of the 90s and, eight years later, the whole of South East Asia was in serious trouble. The latter, which for a long time had been seen by the ideologues of capitalism as the new pole of development for the 21st century, began to fall by the wayside, along with a whole number of other "intermediate" or "emerging" countries. While the e-economies in the developed countries fell into an e-recession in 2000-2001, the emerging countries became the plunging countries. In these areas, the fragile economies were not capable of rising above debts amounting to tens of percent of the GNP. Thus, after the Mexican debt crisis at the beginning of the 80s, other countries lengthened the list: Brazil, Mexico again in 1994, the South East Asian countries, Russia, Turkey, Argentina, etc. The recession hitting the most developed countries was no longer limited to the old technological sectors (coal, steel, etc), or ones which had already reached their peak (shipbuilding, cars, etc) but the very sectors billed as the spearheads of the "new economy", the "new industrial revolution": computers, Internet, telecommunications, aeronautics, etc. In these branches, there have been hundreds of bankruptcies, restructurings, fusions, take-overs - and hundreds of thousands of redundancies, wage cuts and attacks on working conditions.
Today, with the crash in stock-exchange values in the sector that was supposed to be the key to this new prosperity, and with the recession already displaying its devastating effects, the ideological mystifications of the bourgeoisie about the crisis have begun to be seriously eroded. This is why the bourgeoisie is coming up with all sorts of false explanations about the current difficulties. It is obliged to hide as much as possible the gravity of the sickness affecting its system in order to prevent the proletariat from becoming aware that capitalism has reached a dead-end.
Speculative bubble following the crisis in Asia
Capitalism plunges inexorably into the crisis
As opposed to what the ruling class tells us, the latest dive in the economy is not the product of the collapse of the Twin Towers in the United States, even if that was an exacerbating factor, in particular for certain economic sectors such as air transport or tourism. The slow-down of American growth goes back to the bursting of the internet bubble in March 2000 and the level of economic activity was already weak at the end of summer 2001. As the experts of the OECD emphasised "the economic deceleration which began in the United States in 2000 and spread to other countries has been transformed into a world reflux of economic activity, from which few countries or regions have escaped" (Le Monde, 21 November 2001). The current economic crisis thus has nothing specifically American about it.
OECD GDP growth 1962-2002: Gradual decline of mean growth per decade since the 1960s
The capitalist system has entered its sixth phase of recession since the resurgence of the crisis at the end of the Sixties: 1967, 1970-71, 1974-75, 1980-82, 1991-93 and 2001 -?, without counting the collapse of the South East Asian countries, of Brazil, etc in the years 1997-98. Since the Sixties, each decade has shown a growth rate lower than the preceding one:
1962-69 = 5.2%
1970-79 = 3.5%
1980-89 = 2.8%
1990-99 = 2.6%
2000-02 = 2.2%
In 2002, growth in the Euro zone hardly reached 0.7%, and although the USA stayed at 2.4% this was still a less elevated figure than during the 1990s. As a matter of fact, if we look at the "fundamentals", the US economy has been marking time since 1997, because that was when the rate of profit stopped progressing.
What characterises the current recession, according to the bourgeois commentators' own statements, is the speed and the intensity of its development. The United States, the first economy of the world, very quickly plunged into recession. The fall of the American GDP is faster than at the time of the preceding recession and the aggravation of unemployment has reached a record unequalled since the 1974 crisis. Japan, the second economy of the world, fares no better. Even with negative real interest rates (in Japan, households and enterprises actually gain money by borrowing!) consumption and investment have not picked up. Despite massive revival plans, the Japanese economy has just plunged into recession for the third time. It's the strongest crisis for 20 years and according to the IMF, Japan could, for the first time since the war, go through two consecutive years of contracting economic activity. This latter accounts for 130% of GDP today and should reach 153% in 2003.
The intensification of the contradictions of decadent capitalism
In the 19th century, during the ascendant period of capitalism, the net budgetary position of public finance (the difference between income and expenditure) of the six big countries (the US, Japan, Canada, France, GB, Italy) was only occasionally in deficit, primarily due to wars. This balance was otherwise stable and in constant improvement between 1870 and 1910. The contrast is striking in decadence, where the deficit is quasi-permanent except for four years at the end of the Twenties and twenty years between 1950 and 1970. Here again the main reason for this is war, as well as economic crises.
The weight of the national debt expressed as a percentage of the GDP decreases throughout the ascending period. In general it never exceeds 50%. This ratio explodes at the time of the entry into decline, to ebb only during the period 1950-80, but without ever going down below 50%. It then goes up during the years 1980-90.
|The inexorable development of debt|
Balance of budget deficit and GDP
Industrialised countries, ratio gross debt / GDP
This mountain of debts which are accumulating not only in Japan but also in the other developed countries constitutes a real powder keg that could have major destabilising effects in the long term. Thus, a rough estimate of the world debt for the entirety of economic agencies (states, companies, households and banks) oscillates between 200% and 300% of world production. Concretely, that signifies two things. On the one hand, that the system has advanced the monetary equivalent of two to three times the value of world production in order to mitigate its crisis of overproduction; and on the other hand, that it would be necessary to work two to three years for nothing to repay this debt. While such massive debt can still be borne by the more developed economies, it is by contrast about to strangle the "emerging" countries one by one. This phenomenal debt on a world level is historically without precedent and shows what a dead-end the capitalist system has reached - but also reveals its capacity to manipulate the law of value in order to ensure its survival. Although in the recent period, "as the dominant world power, the US has arrogated to itself the right to finance its effort of investment and to support a very vigorous growth of consumption" ("After the euphoria, the hangover", International Review 111), no other country could have allowed itself the commercial deficit which went with growth in the US. "the result was a classic crisis of overproduction which was materialised in a reversal of the profit curve and a slow-down in economic activity in the US, several months before September 11" (ibid.). There is therefore no basis for speculations about a new phase of growth based on a so-called technological revolution. The theoretical speeches about the "new economy", the whole bluff around it, and the recent accounting frauds have seriously put into question the reliability of national accounting, which is the basis for calculating GNP - especially in America. With the scandals around Enron, Andersen, etc, we can see that a good part of the new economy was pure fiction. Hundreds of billions of dollars imputed to the accounts of such enterprises were simply made up and vanished in a flash. This cycle ended with a particularly severe stock market crash in the sector that was supposed to carry the new capitalism to the baptismal font.
The myth of "less state"
"The direct causes of the strengthening of the capitalist state in our epoch express all the difficulties resulting from the definitive loss of correspondence between capitalist relations of production and the development reached by the productive forces" (The Decadence of Capitalism, ICC pamphlet).
We are supposed to believe that with liberalisation and globalisation, states have almost nothing more to say, that they have lost their autonomy to the markets and supranational organs like the IMF, WTO, etc. But when we look at the statistics, it has to be said that despite 20 years of "neo-liberalism", the overall economic weight of the state (more precisely, of the sector referred to as "non profit making", the expenditure of all public administration, including the cost of social security) has in no way diminished. It continues to grow, even if at a slower rhythm, to reach a crest of 45% to 50% for the 30 OECD countries with a low of around 35% for the United States and Japan, and a high of 60% to 70% for the Scandinavian countries. Oscillating at around 10% throughout the ascendant phase of capitalism, the share of the state (ie the non-market sector) in the creation of added value climbs gradually during decadence to almost 50% in 1995 in the OECD countries (source: The World Bank, Report on Development in the World, 1997).
These statistics also reveal the artificial swelling of growth rates in decadence, insofar as national accounting partly counts the same thing twice. In practice, the selling price of products in the market incorporates the taxes that are used to pay national expenditure, namely the cost of non-market services (teaching, social security, public sector personal...). The bourgeois economy calculates the value of these non-market services as being equal to the sum of wages paid to the personnel who provide them. Now, in national accounting, this sum is tacked on to the added value produced in the market sector (the only productive sector), even though it is already included in the selling price of market products (the knock-on effect of taxes and social security contributions on product prices). Consequently, in decadence, the GNP and the growth rate of the GNP inflate artificially insofar as the share of the public expenditure increases with time (from 10% in 1913 to 50% in 1995).
This share having remained quasi-constant (10%) during the course of the ascendant phase, then, if the GNP is over-estimated by 10%, the growth rates during the ascendant phase correctly reflect the reality of the development of the productive sector. In decadence on the other hand, the explosion of the unproductive sector - and particularly between 1960 and 1980 - artificially dopes capitalism's performance. In short, to correctly evaluate real growth in decadence it is necessary to deduct nearly 40% of the current GNP corresponding to the growth of the unproductive sector since 1913!
As for the political weight of the states themselves, it has indeed increased. Today, as throughout the 20th century, state capitalism does not have a precise political colour. In the United States, it is the Republicans (the "right") who are now taking the initiative for a state-supported economic revival and who subsidise the airline and insurance companies. The central power also directly supports such companies through the law of "Chapter 11", which authorises firms to protect themselves from their creditors. The budgetary revival programmed by Bush has led to the federal balance going from a surplus of 2.5% of GNP to a deficit estimated by the IMF at 1.5% of the GNP in 2002, an incomparably higher rate of public spending than the most spendthrift European states. The Federal Reserve Bank, very closely related to the authorities, lowered its interest rates as the recession took shape, in order to contribute to the revival of the economic machine: from 6.5% at the beginning of 2001 to 2% at the end of the year. Among other things this made it possible for heavily indebted households to get their hands on further loans or to renegotiate them. To be coherent, this new orientation meant a fall of the dollar, allowing American products to become more competitive and to regain parts of the global market. In Japan, the banks were re-floated twice by the state and some were even nationalised! In Switzerland, it was the state that organised the gigantic operation of re-floating the national airline company Swissair. Even in Argentina, and with the blessing of the IMF and the World Bank, the government had recourse to a vast public-works programme to try to recreate employment. If in the 19th century the political parties used the state to advance their interests, in decadence it is urgent global and imperialist economic requirements that dictate the policy to be followed and determine the colour of the government in place. This fundamental analysis, developed by the communist left, was amply confirmed throughout 20th century and is more than ever relevant today when the stakes are even higher.
Total state spending as a percent of GDP
The development of military expenditure
It was Engels who at the end of the 19th century anticipated what would be the historical alternative of the phase of decadence: "socialism or barbarism". Rosa Luxemburg developed a number of political and theoretical implications from this and the Communist International defined the characteristics of the new period: "the era of wars and revolutions". Finally, it was the left communists, and in particular the Communist Left of France, who systematised and deepened the place and the significance of war in the ascendance and decadence of capitalism.
Without question one can affirm that, in contrast to the ascendant phase, the decadence of capitalism has been characterised by war in all its forms: world wars, permanent local wars, etc. In this connection, as a very useful historical complement, we cannot resist the temptation to quote extracts by the historian Eric Hobsbawm (1994) in his book The Age of Extremes, who - by means of comparative assessments - masterfully distinguishes the fundamental differences between the "long 19th" and the "short 20th century: "How are we to make sense of the Short Twentieth Century, that is to say of the years from the outbreak of the First World War to the collapse of the USSR which, as we can now see in retrospect, forms a coherent historical period that has now ended? ... in the Short [Twentieth] Century more human beings had been killed or allowed to die by human decision than ever before in history ... it was without doubt the most murderous century of which we have record, both by the scale, frequency and length of the warfare which filled it, barely ceasing for a moment in the 1920s, but also by the unparalleled scale of the human catastrophes it produced, from the greatest famines in history, to systematic genocide. Unlike the ‘long nineteenth century', which seemed, and actually was a period of almost unbroken material, intellectual and moral progress, that is to say of improvement in the conditions of civilised life, there has, since 1914, been a marked regression from the standards then regarded as normal in the developed countries... In the course of the twentieth century, wars have been increasingly waged against the economy and infrastructure of states and against their civilian populations. Since the First World War, the number of civilian casualties in war has been far greater than the number of military casualties in all belligerent countries except the USA. ... In 1914 there had been no major war for a century ... Moreover, most wars involving major powers at all had been comparatively quick... The length of war was measured in months or even (like the 1866 war between Prussia and Austria) in weeks. Between 1871 and 1914 there had been no wars in Europe at all in which the armies of major powers crossed any hostile frontier... There had been no world wars at all... Between 1815 and 1914 no major power fought another outside its immediate region ... All this changed in 1914. In short, 1914 opens the age of massacre. Most non-revolutionary and non-ideological wars of the past had not been waged as struggles to death or total exhaustion... Why, then, was the First World War, waged by the leading powers on both sides as a zero-sum game, i.e., as a war which could only be totally won or totally lost? The reason was that this war, unlike earlier wars, which were typically waged for limited and specifiable objects, was waged for unlimited ends... It was an absurd and self-defeating aim which ruined both victors and vanquished. It drove the defeated into revolution and the victors into bankruptcy and physical exhaustion... Modern warfare involves all citizens and mobilises most of them; it is waged with armaments which require a diversion of the entire economy to produce them, and which are used in unimaginable quantities; it produces untold destruction and utterly dominates and transforms the life of the countries involved in it. Yet all these phenomena belong to the wars only of the twentieth century... Did war advance economic growth? In one sense it plainly did not... About this rising curve of barbarism after 1914 there is, unfortunately, no serious doubt." (our emphases)
This "age of massacres" inaugurated by the First World War and contrasting so clearly with the long and much less murderous 19th century, is further attested by the relatively low level of military expenditure in world production throughout the ascendant phase of capitalism, and by its powerful growth in the ensuing period. From 2% of world production in 1860, to 2.5% in 1913, it rose to 7.2% in 1938, reached around 8.4% in the 60s and again went up to about 10% at the height of the cold war at the end of the 80s (sources: Paul Bairoch for world production and the SIPRI for military expenditure). The particularity of armaments is that, unlike machinery or consumer goods, they can't be consumed in a productive manner (they can only rust or destroy other forces of production). They thus correspond to a sterilisation of capital. To the 40% growth of unproductive expenditure in the period of decadence, we thus have to add another 6% corresponding to the relative increase in military expenditure...which gives us a world production overvalued at nearly 50%. This gives a rather more accurate picture of the great performance of capitalism in the 20th century and shows the contrast with the "almost unbroken material, intellectual and moral progress" of the long 19th century.
The future remains in the hands of the working class
What is absolutely certain it is that with the development of the recession at the international level the bourgeoisie will impose a new and violent degradation of the living standards of the working class. Under the pretext of a state of war and in the name of the higher interests of the nation, the American bourgeoisie is carrying out the austerity measures it had already long envisaged, since they were necessitated by a recession which had been underway for a year: massive lay-offs, increased production rates, emergency regulations in the name of anti-terrorism which are used as a testing ground for the maintenance of social order, etc. After the collapse of the eastern bloc, the arms race slowed down for a few years but took off again in the mid-90s. September 11 has made it possible to justify an even greater development of armaments. The military expenditure of the USA represents 37% of world spending on arms, which is rising in all countries. All over the world, unemployment levels are on the rise even though the bourgeoisie has managed to partly conceal their real extent by introducing all kinds of insecure jobs and by gross manipulation of the statistics. Everywhere in Europe, the budgets are revised downwards and new austerity measures are programmed. In the name of so-called budgetary stability, which has nothing to do with the proletariat, the European bourgeoisie is re-examining the question of retirement (lowering pension rates and lengthening working life are on the agenda) and new measures are planned to remove "the brakes on the development of growth", as the experts of the OECD say euphemistically. They talk about "attenuating rigidities" and "making work more available" by making it far more precarious and reducing all the social benefits (unemployment, health care, various allowances, etc.). With the fall in the stock exchange, the use of pension funds for capital investment is revealed for what it is: another trick to despoil working class incomes. In Japan, the state has planned to restructure 40% of public organisations: 17 will close and 45 others will be privatised. Lastly, while these new attacks come to hit the proletariat in the heart of world capitalism, poverty develops in a breathtaking way on the periphery of capitalism. The situation of the "emerging" countries is significant for this reason, especially countries such as Argentina, Venezuela and Brazil. In Argentina the average income per inhabitant has been divided in three over the last three years. The debacle is greater than what befell the US in the 30s. Turkey and Russia are not far behind.
Faced with this situation of economic dead-end, social chaos and increasing misery, the working class has only one answer: the massive development of struggles on its own class terrain in all countries. Because no "democratic alternative", no change of government, no other policy can bring any other remedy for the fatal disease of capitalism. The generalisation and the unification of the combat of the world proletariat, towards the overthrow of capitalism - this is the only alternative able to take society out of this dead end. Rarely in history has it been so evident that you cannot fight the effects of the capitalist crisis without destroying capitalism itself. The level of decomposition reached by the system, the grave consequences of its very existence, are such that the question of going beyond capitalism will more and more appear as the only realistic way out for the exploited. The future remains in the hands of the working class.
December 2002: extracts from the report on the economic crisis adopted by the 15th Congress of the ICC
- "Growth in GNP: (1962-2001"): OECD
- The ratio between the budgetary balance and the GNP (in percentage of GNP): Paul Mason and Michael Muss: "Long term tendencies in budget deficits and debts", working documents of the IMF 95/128 (December 1995)
- Alternatives Economiques : "L'etat de l'economie 2003"
- Maddison: "L'economie mondiale 1820-1992", OECD, and "Deux siecles de revolution industrielle", Pluriel H 8413