Andrew Kilmister updates the year ago, business pundits like A George Soros and politicians like Bill Clinton spoke of the world economy being in its most dangerous situation for 50 years.
After a year of turmoil in East and South East Asia. the collapse of the Kussian roupanic resulting from the bankruptcy of the US 'hedge fund' LongTerm Capital Management put the stability of the world financial system in qucstion. But in recent months the media and many economists have begun to talk of a new era of prosperity based on low inflation and steady growth. Does this mean that the world cconomic crisis is over and that capitalism has solved its economic problems? To answer this question, we need to look at some of the general features of capitalism as a system Capitalist economies are continually prone to crises resulting from their basic instability and unplanned nature. But these crises do not simply mean that the Rather, crises can actually perform a positive function for capital; wiping out unprofitable companies and speculative ventures and laying the foundations for future growth. However, such temporary resolutions of a crisis do not alter the fundamental nature of the system. The contradictions and problems which gave rise to the initial crisis can be suppressed for a while but are likely to reoccur in new forms. How such developments are then resolved, either in the interests of labour or of capital cannot be predicted abstractly in advance. It depends upon the strength of class struggle and the quality of the leadership and activity of both the working class and the capitalist class.
Viewing the world economy from this perspective can help us to understand the developments of the last year. Some of the most dangerous features of the economic situation a year ago have been staved off by governments and international institutions like the IMF. But in doing so they have created new tensions and difficulties which are likely to determine the struggles of the next twelve months.
In past issues of Socialist Outlook we nave lookca at tarce main, microck ing aspects of the world economic crisis: the stagnation in japan. the bubble economy in the USA and the crisis in tae micraadonat maancias system.
These three questions remain crucial today.
The Japanese economy continues to grow very slowly if at all. It is true that so far the impact of this on the rest of the world economy has been relatively small, compared to what might have been expected from prolonged stagnation in such a large This is for two reasons. First, Japan's imports of goods and services have always been fairly limited. So, slow growth has not meant a massive cutback in sales to the country. Second, the Japanese government nas been able to avold a massive recession and financial meltdown which would have meant the large-scale withdrawal of funds tor investment from the Us and Europe But it has only managed to do this through a huge expansion of government spending. The Japanese government budget deficit now stands at 6 per cent of GDP, twice the level of the Maastricht criteria for the EU economies.
This is bound to mean fewer funds flowing from Japan to the rest of the world as Japanese capital invests at home in government bonds.
From a more long-term perspective, while Japanese manufacturers like Nissan are restructuring aggressively and real wages have fallen by around 7 per cent this year, the structural changes which free marketeers have argued for in Japanese services, agriculture and finance have not proceeded very far. Japan remains a significant drag on world growth.
The US economy bas now become central to the immediate prospects for capitalism. Ironically, despite all the talk of 'globalisation, economic activity is becoming ever more polarised with growth centred in a few "favoured' areas -Japan in the 1980s, South East Asia in the first half of the 1990s and the US today.
Half of the increase in world imports over the last year went to just one economy, the USA. But it is important not to be taken in by exaggerated accounts of an economic miracle in the US. As American Marxist Robert Brenner has shown, US growth has been lower in the 1990s than in the 1980s, and was lower in the 1980s than in the 1970s.
Despite a recent upturn in productivity growth in manufacturing US productivity growth remains generally slower than in els and real wages are growing very slowly after falling through the 1980s. Even low unemployment rates look less impressive when compared against the dramatic rise in tac prison populadon Perhaps most seriously, while the US government is running a budget surplus, public borrowing has been replaced by an explosion of private borrowing, with corporate debt doubling as a percentage of GDP in the last two years and net household borrowing and personal bankruptcy This borrowing has fuelled a dramatic stock market boom and an increasing balance of payments deficit. US capitalism is gambling heavily on the belief that information technology related industries will fundamentally reshape production in a wiac range of arcas - maance, tac nicara and leisure industries, retailing - and that the USA will have a decisive lead over its It would be wrong to ignore the way in which the USA has been able to achieve a competitive edge over Western Europe and Japan in a number of fast growing new areas.
But so far there is little hard evidence that these new industries will lead to the kind of major transformations which will justify current US share prices.
A s yet, the productivity increases which have been achieved in the US seem to result more from outsourcing, downsizing and an assault on working practices than from a significant technological breakthrough.
If the gamble of US capital doesn't win out and share prices fall significantly, then given the extent to which share ownership has become more important there over the last decade, a US recession becomes a real possibility. And with the US accounting for such a large proportion of international demand the effects of this would be felt internationally.
Over the last year a key strategic objective for international capital has been to avoid a simultaneous end to the US bubble and a further crisis in the international financial markets. The aim has been to cool down the US economy before the next round of currency crises in the 'emerging markets'.
However, this has been difficult to achieve as money has flowed out of Asia, Russia and Latin America encouraging the US financial boom. Nonetheless, up until now the markets have been stabilised temporarily.
The biggest challenge for the US government and the IMF has been the crisis in Brazil. By managing the immediate situation quite cleverly, allowing a controlled devaluation backed up by a massive IMF package, they managed to avoid both the panic seen earlier in Indonesia and South Korea and a strong impact from Brazil on the US stock market.
But in the longer term the effects are not so favourable. Ine Brazilian economy remains stagnant and the impact of the IMF programme has been to undercut dramancany support for tac cardoso government, a key clement in the neo-liberal offensive in Latin America.
Further, events in Brazil have thrown a number of other South American coun tries into economic turmoil and have caused major problems in the Mercosur tradine block of Brazil, Argentina, Paraguay and Uruguay. T he most important destination for imperialist investment capital remains China. Asain. In the short-term the USA and IMF have managed to stabilise the situation. China has not devalued the yuan and, while growth has slowed, it remains reasonably strong.
But the weight of bad debts in the Chinese banking system is occomas more and more widely recognised, as are other potential barriers to successful capitalist exploitation there - labour unrest, ecological destruction, regional imbalances. In the rest of Asia, declines in output nave largely ccasco and stock markets are rising. Countries like South Korea are now running large balance of payments surpluses. But as The Economist bemoaned last month, there has been relatively little fundamental restructuring in East and South East Asia as a result of the crisis of 1997 and the opening up to foreign capital in limited. As yet the most ambitious neo-liberal projects remain unfulfilled.
The other key project of international capital over the last year is of course the Buro. Up until now the EU economics. particularly Germany, and the Euro have been weaker than was expected.
this is a satisfactory development for US capital; a strong dollar has kept inflation down in the USA while the US has been able to use its importance in immediate economic developments as a sions in the World Trade Organisation (WTO) and other forums.
But again, in the longer term the relative weakness of the Euro can be a source of instability as European capital flows into the US and feeds financial speculation there.
Uver loc last scar the potential nisht. mare for capitalism of the coming together of crises in Japan, the USA and the international markets has been avoided, his has meant that the economic situation has appeared more stable than many thought possible a year ago. But this stability masks the continuation of many of the old tensions and contradictions in new forms. Japan continues to be close to recession.
The US cconomic unturn has become significantly more speculative over the last two years, as the world economy has become more dependent on it.
Much of Latin America, China and other regions remain vulnerable to currency and financial crises. The neo beral offensive has not yet been able to transform the East and South Bast Asian economies.
• see capitalism as having restorca global cconomic stability a long-term basis would be as much of an error as to believe that cach particulár aspect of global cconomic crisis will autoitself into a generalised crisis of the system.
But if instability is inevitable under capitalism, te outcome of suca mustaouty ls not.
That depends on the response of the working class to economic crisis. The successes of international capitai over the last weakness of resistance to its strategies in a number of key countries.
The strengthening of such resistance will be the key factor which decides what the outcome of the global economic crisis over the next twelve months will be.
Yakarta stuck into a trade unionist, 1998