crunch for the workers' the capitalist world. Firstly, 1980s. Western economies in crisis many movement a halt. Worse, there may be a major financial collapse. The basic reason for this is that the 1980s "boom' failed to radically raise the rate of profit and stimulate productive investment. merce in the US is now lower than at any time since the Second World War - lower than at the start of the period of stagnation in the late 1960s, and lower than when the Reagan boom the sharp The average rate of profit of industry and com- This failure was first signalled in the 1987 downturn in autumn 1989. It has been con- IN DEPTH and by stock market collapse, began. ing. The workers' movement needs squeeze. A severe recession is com- to politically prepare itself to resist bursting. In Britain, the entry into (ERM) of the European Monetary 1980s world capitalist economy is The speculative bubble of the the Exchange Rate Mechanism System will further tighten the the coming onslaught, argues A world recession is now JAMIE GOUGH.
The imperialist govern- ments have also tightened their monetary policies com- petitively. The US and the UK, with large deficits to finance, have raised interest rates to finance them and to stop their currencies from non-deficit countries, especially Japan and W.Germany, raised their interest rates in retaliation, so as to prevent their curren- cies slipping and inflation being 'exported' to them. slipping. HIKES TAX HATE HIKES •HATE TAX IF YOU HON thing, obvious capital's was built on a tion is how severe it will in production as such but in a certainty; the only ques- ing: the 'boom' of the fictitious (debt), and the 'boom' itself encouraged money. This is not surpris- the creation of more fic- not mystifying most are of of be. The problems pyramid money forms 1980s that
profit, had run far ahead of the production of profit. And this problem in turn rests on the The result has been a spiral All these mechanisms, however, represent one fun- damental problem: that debt creation, the claim on future central generator of capitalist crises: produc- tive investment depends on the rate of profit, and the rate of profit depends on productive The rise in interest rates has crucified the Debt creation of rising interest rates. firmed by the collapse of the Tokyo stock ex- change since the beginning of 1990; it fell 35% before the Gulf crisis started (and has fal- len a further 25% since then). These falls were due to a recognition that the performance of the productive economy was not living up to the value of stocks and shares, which are based on the speculative estimate of future + Bush reneges on his promise and loses popularity Y historical standards, due above all to histori- cally low rates of profit. In consequence, there was a great excess of money capital which of purposes: to corporations to tide them over low profits; to individuals to spend; to could not find profitable, productive invest- ment outlets. These were loaned for a variety stocks, values in the in- During the 1980s the vestment, though very vari- able by country, was low by world rate of productive in- bonds and property. flated values of titious
neo-colonial countries strapped with high debt incurred in the early 1980s. It has also con- tributed to a slow down in the imperialist countries. US and British output are now not growing at all, and Japanese growth in output Meanwhile, a central problem, the US The deficit reduction agreed on 30 September, in spite of requiring Bush to junk his pledge of substantial. It knocks $50bn off the deficit for the coming year (which is the only part of the agreement budget deficit, has gone from bad to worse. Page 25 is at the low level of 4 per cent. no tax rises, does nothing debt creation, in order to prevent a big impact the move which, in his recent confession, The first reaction of the imperialist govern- ments to the 1987 crash was to cushion it: they eased monetary policy, in effect allowing more on the productive economy. In Britain this was Nigel Lawson said that he regretted. But since 1988 monetary policy has been progressively tightened, interest rates have increased, and the debt-propelled economy has ground to a 1987 crash productive profits. SOCIALIST OUTLOOK no 28, November 1990 economy to finance its enormous balance of speculators for 'leveraged buyouts' of corpora- parently "safe as houses' operations; to the US payments deficit with the rest of the world: and to the US government to finance its great- ly expanded military spending and huge budget deficit. The ratio of world debt to world annual production is now probably sible for the 'successes' of the capitalist This growth mechanism is now grinding to tions; to property developers for their ap larger than it has ever been. This was respon- economy, such as they were, in the 1980s.
tive investment. But in the next few years, as in the last to be a problem more than a perialist powers have had to ments in order to bankrupt the Soviet Union and propel it towards Gorbachevism. They would have to invest massively, with no prospect of substantial returns, in tion. In the short term, this is few, Eastern Europe is likely The US and the other im- spend massively on arma- order to further the push towards capitalist restora- solution. IN DEPTH in the last two months is The Federal Reserve, the US central bank, has that means anything; but the expected deficit has risen by $75 billion andcurrently stands at $250. With the likely to rise to $300bn. said that it will lower in- terest rates as a 'reward' for the agreement. If it does so, it will not be a statement of confidence but rather the reverse: an attempt to moderate recession coming alone,
contributing further to the upward pressure on interest rates, as loan capital is used ing a big-time borrower on The Gulf crisis has merely put the icing on this recessionary cake. The size and duration of the oil price rise will affect the severity of presently unpredictable. But the Gulf crisis is Whatever government policy is adopted, the coming world recession will hit Britain particularly hard. This is because Britain to finance German reunifica- tion, and Germany is becom- emphatically not to blame for the recession. Thatcher's failure the world recession, in a way the international markets. Japanese investors watch numbers plummet on streetside quote board mechanism typical of capitalist recessions. In expansionary periods, debt is cumulatively whose value in turn is inflated by debt creation and expansion. In recessions, this goes into cumulative reverse: declining asset values cut In 1929, the US banking system worked in much the same way that the Japanese one does now, and this was responsible for severity of that crash. Now, as then, a decline of the stock created on the basis of collateral of assets, debt which creates further decline in produc- signals the recession: speculative values and debt are contracting sharply. Many corpora- tions which took on huge debts, especially but not only through high return - high risk 'junk bonds', are unable to meet interest repayments as their real profits decline. There have been The Australian buccaneer capitalists like Bond, Elliot and now Murdoch, with their vast debts, are coming unstuck. As commercial rents and property prices collapse, many some major bankruptcies in the US. tainly lead to a further the recession, and a move which would cer- But it is not only stagnating output that increase in US inflation.
economies. It is this that constitutes the failure of Thatcherism. Contrary to what is often thought on the left, Thatcher could not have recreated long term sustained accumulation and high profitability in Britain; such was and is impossible without a renewed long boom of the world economy. What Thatcher might have done would have been to have raised Britain's competitiveness relative to its major The indices of the failure are well-known. Output, taken over the whole period since widening trade and balance of payments 1979, has risen much slower than the OECD average. There have been large and ever- Investment in fixed capacity only weakest of the rivals. In this she has failed. market feeds through to a decline in bank change during 1990, unlike the 1987 crash of the US and European stock markets, will thus debt creation and speculation in the 1980s was undertaken 'unwise' lending, having ploughed into dodgy 'fashions' like junk bonds and property. The soaring stock markets, which a little while ago were cited as indices of economy'. The decline of the Tokyo stock ex- have a direct and severe impact on the real Bourgeois commentators, with their typical wisdom after the event, are now telling us that 'excessive'. The banks are berated for having capitalism's newly-found health, are now criticised for their 'unreality'. This capitalist thus directly hitting the economy worldwide. are in massive crisis mainly as a result of defaults; the bankruptcy of one or more major property companies are in big trouble. The Savings and Loan Associations in the US, the rough equivalent of British building societies, property loans going sour. The US govern- ment cannot politically afford to let them go bankrupt, and is having to bail them out at a cost now estimated as between $600bn and $1,000bn (roughly the size of Britain's GNP!). Not only many small US banks, but even majors like Chase Manhattan, are in severe difficulties, as a result of Third World loans, the collapse in property prices (itself a product of the S&L crisis), junk bonds and corporate US banks, and the merger of others, is now But the most worrying contraction is in thought likely.
reached its 1979 level in 1989. Research and Development (R&D) expenditure has been stagnant here while it has been rising rapidly in other imperialist countries. Costs of labour power per unit of output are rising faster than the OECD average. And now we see the Many on the left thought that British capitalism would improve its competitive position through the Tories' and employers The capitalist class seemed to have had big sification of work, in an increase in the rate of labour productivity, in wage stagnation or successive defeats of the labour movement. economic successes particularly in the inten- SOCIALIST OUTLOOK no 28, November 1990 highest inflation rate of the major countries. speculation and debt arose inevitably out of "self-criticism' underlies the 'new moral tone of the 1990s'. But as we have seen, the the excess of money capital and the underly- It is ironic, but to some extent logical, that the bursting of the 1980s capitalist bubble should coincide with the breakthrough in capitalist encroachment in Eastern Europe. In the very long term, if capitalism is restored not only in East Germany but more widely in Eastern Europe, this may offer a 'fix' to the long crisis of world capitalism, by absorbing excess money capital into profitable, produc- ing weakness of the productive economy. Burst bubble rise interest rates but also by a contraction of Japan. In the 1980s Tokyo was the major source of loan finance to the world. Now this source is being choked off not only by a steep the banks' capital base. In order to ensure a minimal degree of security, capitalist govern- ments allow banks to create debt only up to a In Japan, banks are, fairly reasonably, al- lowed to count stocks, shares and property in their real assets. As these have collapsed in value, so the banks' allowed lending has con- tracted. This is not some technical quirk, but a Collapse in value certain multiple of their real assets. Page 26
policy as such. It has effectively handed this to try to cut down national govemments' in- Labour's economic policy now amounts to: don't cut taxes any more; spend more on tax concessions for R&D, and transport infrastructure. At the best of times this programme would be extremely limited. British investment in these areas is vastly be- hind the OECD average. Moreover, it is not enough to have a change in government policy in these areas; private firms would have to radically change their strategies in order to use skilled labour power, to un- dertake R&D themselves and to use it profitably. Just as Harold Wilson failed in 1964-6 to inject over to the EC, and the EC's policy is largely dustrial policies. training, for deflation. We should recall that this is not Deutschmark. This halts the softening of 'discipline' which has occurred in the last year Given that British inflation is currently three times the ERM average, and will remain the force on the British economy - in itself an ad- mission of the failure of "monetarism', ac- cording to which the money supply was seen as the crucial lever. In the next few years entry into the ERM is thus essentially a mechanism The ERM will maintain sterling at more- with the 10 per cent devaluation of sterling. value against IN DEPTH only Thatcher's policy but Kinnock's. current ing class, and (since the mid-1980s) in a big reduction in the ratio of state spending to modern ones, are not revived as simply as human capacities and endurance. In itself it is not the solution to capitalist competitiveness; if it were, India would be the world's leading wage cuts for a large part of the manual work- that. Intensification of work by itself can only raise productivity within the limits set by especially economics, Intensification of labour is Exploitation enables management's hence a dynamic of and capitalist economy. capitalist to rule changes ability But GNP. fast
fail to inject the white hot heat of technology' into an uninterested British industry, Kinnock would elected, would not get the oppor- "knowledge' into the economy. Kinnock, However, of production organisa- tion and technology. But this requires also a high rate of invest- ment, and this has not been forthcoming. The intensification
Page 27 "not spending what we don't have"). As long as the recession lasts, probably 3-4 years, there will therefore be no money for him to spend on 'knowledge infrastructures'. His big government, just as much as another Thatcher sion and the renewed assault on the working debt crisis has yet taken its major casualties, City pundits were predicting an increase of unemployment by up to 1.5 million in the next two years. Really savage wage cuts in major parts of the economy are on the cards, in the style of the huge wage reductions enforced in the US during the 1980s. The welfare state will be subjected to another slashing, despite self for this onslaught. But resistance cannot be just national in scope. A world recession will mean attacks on the working class worldwide. Each country's capitalists en- courage workers to compete with other countries to further these attacks. We must build an international workers' response to an programme. The recession will cut government tax revenue and raise its spending on unemploy- ment benefit. In spite of a total government debt lower than at any time since 1914, Kinnock will not borrow for fear of fur- ther raising interest rates and also in order not to undermine City confidence (as he puts it The effect of all this is that a Kinnock government, would preside over a sharp reces- class that this involves. Even before the entry into the ERM, and before the international The labour movement needs to prepare it- idea will not even get off the ground. Renewed assault Kinnock's "big idea' of education. international crisis. before. Labour has no substantial industrial strongly deflationary. It puts much greater backs in output and capacity; or they cut their willing to do by cutting wages. For workers this means rising unemployment or The scenario is made worse by the interest rate cut, which will tend to worsen the balance of payments. In fact, it is quite likely that the interest rate will have to rise again, in order to deal with the balance of payments and to stop Thatcher and Major's calculation appears to be that the current reduction in the interest rate will pave the way for an early election before the British and world recessions really get nasty. They are also going to worsen the ting capacity and cutting wages, will do noth- ing for what we have seen are the real weak- Now that Britain is in the ERM and Major has lowered interest rates a little, Labour's economic policy looks even thinner than cost and profit pressures on British producers. Either they succumb to these pressures by cut- costs, which under present conditions they are sterling from falling below its minimum al- recession. But the effects of the recession, cut- Kinnock prepares for war higher for the foreseeable future, Interest rates Darman: American budget director. A Bush 'yes' man wage cuts, but probably both. nesses of British capitalism. lowed rate in the ERM. only SOCIALIST OUTLOOK no 28. November 1990 entry into the ERM is a sion in expanding markets, or R&D. Rather, it 'niche markets'. Yet to be competitive with, sible for Thatcher's failure to build the kind of actively cooperative industrial relations that ness. Moreover, the success in cutting public expenditure and in privatising has caused an ever-worsening shortage of infrastructure and damaging profits. Capitalist economies cannot revive themselves merely by attacking the working class, though that this certainly attempt to deal with short term problems. Even if it succeeded in its aims, it would do nothing the address the underlying failure. A minor aim is to enable a small cut in interest rates, as sterling receives extra support from other ERM goverments, and thus both ness of the coming recession. The major aim is to replace monetary targets with the ex- change rate of sterling as the 'disciplining' has retreated into its most profitable existing for example, France and Germany, let alone Japan, British industry needs to be constantly This conservatism is also partly respon underpin German and Japanese competitive- skilled labour power which is now severely necessary; capitalism is much more contradic- mollify some voters and moderate the sharp- advancing into new product areas. and the average rate of profit. But these have been insufficient to capacity, have enabled a substantial rise in average productivity tempt capital into in- tion processes, expan- of backward work, and the scrap vesting in new produc- Thatcher's tory than that. ping
carrot it has to offer the East is getting ever smaller and the stick it can threaten with ever of Eastern Europe? Isn't it a fact that im- ments there, making it less likely that any of tions in the deformed workers' states will be Well, yes and no. Yes, objectively im- perialism is strengthened by these trends; but at the same time it has been hit as hard by economic crisis as the East. The financial restraints imposed by the combination of the existing economic crisis, the looming Third World debt crisis and the Gulf mean that the perialism has a stranglehold over develop- the social gains of nationalised property rela-