“Wall Street suffered its biggest one-day fall yesterday since the immediate aftermath of the September 11 terrorist attacks, as a day of hefty stock market falls around the world culminated in a late panic sell-off in New York.
The Dow Jones industrial average closed more than 400 points down amid fears that the US and China - the twin locomotives for the global economy - were about to plunge into recession and that the White House might be preparing air strikes against Iran’s nuclear capability”. (Guardian, 28/2/07)
Stock market falls come and go and economic experts have a very short-term vision. On the day this one happened, one US economic guru warned that “this could be the lull before the storm.” Elsewhere Andre Bakhos, president of Princeton Financial Group, said “As the afternoon has progressed, there seems to be a sense of panic among some professional investors …There seems to be just an air of nothing is safe anymore, there’s nowhere to go and people are rotating into bonds as a safe haven.”
Two days later, “Dominic Rossi, head of global equities at Threadneedle Investment Services, summed up the City’s insouciant mood after the biggest tremor in globa/ markets since 9/11: ‘Nothing has happened over the past 48 hours that affects our view of the world and the positive outlook for equity markets’” (Guardian, 1/3/7)
The tremors of 27/2 may not mean an imminent global recession. But they do indeed give us a glimpse of the real underlying state of the world economy.
For years now, we have been told that the American economy is sound, strong, a locomotive for the world. What we haven’t been told is that this ‘recovery’ after the recessions of the 80s has been based on a growing mountain of debt. In other words, the US (and global) economy is actually bankrupt, sunk in a deep crisis of overproduction, but keeps going anyway by creating a vast artificial market, supplemented by creating a casino economy where people are involved in all kinds of artificial jobs. In Britain, for example, the biggest contribution to ‘Gross National Product’ comes from…landlords, an economic category which produces absolutely nothing.
For years now, we have also been told that the startling boom in China shows the way forward. Four consecutive years of growth at 10% or more, a 67% increase in its trade surplus. Surely that proves that Mr Rossi is right to be optimistic about the positive outlook for global capitalism. If China can do it, why not the rest of the world?
Simple: China can do it precisely because the traditionally developed countries can’t. China’s industrialisation is based on the deindustrialisation of America, Britain and major parts of Europe. Vast profits can be made in China because the Chinese working class is paying for this ‘economic miracle’ through monstrous rates of exploitation – low wages, long hours, minimum protection from industrial accidents and pollution. Levels of exploitation that the working class in the central capitalist countries has shown it will not accept, much as the bourgeoisie would like it to.
China has thus served as a willing sponge for all the capital that could no longer be profitably invested in the more established capitalist countries. But despite all the talk of the creation of a ‘new middle class’ and the mushrooming of a ‘consumer culture’ in China, the majority of the Chinese population remain desperately poor and the greater part of Chinese industrial output is geared towards exports. The world is being flooded with cheap Chinese products and the limits to its capacity to absorb them are not hard to spot. If the ‘consumer boom’ in countries like Britain is based on trillions of pounds of domestic debt, what happens when the debts (or the interest on the debts) get called in and people and companies have to stop spending?
This is why there are all the fears about the ‘overheating’ of the Chinese economy. The recent shares slump was sparked off by a trivial incident – the announcement that the government was about to crack down on illegal trading in shares in its economy. But the real nightmare that haunts the bourgeoisie is that the Chinese economy, by ‘overheating’ the machine that spews out this endless line of commodities, is heading for an open crisis of overproduction which would have a devastating effect on the state of the world economy.
In short: the ‘prosperity’ of the world economy is built on sand and the sands are beginning to shift. World capitalism, which has been in decline for nearly a hundred years, has found numerous ways of manipulating its own laws and slowing down its descent into the abyss, but only at the cost of preparing new and even more dangerous convulsions in the future.
It is also highly significant that a second aspect of the recent fall in share prices was a new round of speculation about a possible US attack on Iran. Capitalism’s economic crisis has always pushed the system towards the insane ‘solution’ of war. No doubt the stock markets’ jitters were eased when the Bush administration interrupted its sabre rattling to announce that it would be opening talks with Iran and Syria to find ways of stabilising the situation in Iraq. But as we show in the article in this issue, such diplomatic expedients do not in any way contradict capital’s fundamental drive towards war and self-destruction.
If we add that capitalism’s bloated and unhealthy growth is now unquestionably posing a profound threat to the planetary environment, it is evident that the perspective this system holds in store for us is one of unprecedented catastrophe – economic, military, and ecological.
The bourgeoisie, despite all its optimistic whistling, is well aware that things can only get worse. This is why Gordon Brown has just announced that one million public sector workers in Britain will have their pay rises pegged to below 2%. The casino economy has ‘hidden’ inflation in recent years through the housing boom, but inflationary pressures are building up throughout the economy, and the workers, as ever, are being asked to pay.
In the 1970s, inflation was the price we paid for avoiding recession. In the 1980s, recession was judged a better option. But today, we are faced with the threat of both at the same time. This is why, for example, that great ‘model’ of modernisation and growth, Airbus, has announced thousands of job cuts in France, Germany and Britain. This announcement was greeted with the spontaneous walkout of thousands of workers across France and Germany.
Faced with rising prices, wage cuts, job losses today, faced with the prospect of a cataclysmic future if capitalism is allowed to continue, the only path ahead for the working class across the world is the path of struggle. WR 3/3/7