Open Recession, Monetary Crisis: Economic disaster at the heart of the industrialized world

Summer 1992 has brought with it an avalanche of announcements and disturbing occurrences, which paint a particularly black picture of the international economic situation. The bourgeoisie has promised time and time again, and in a variety of forms, that the recovery of economic growth is on the horizon. They clutch at the smallest indices that are apparently positive in order to justify their optimism. But facts are stubborn; they promptly step forward to set the record straight. Evidently the recovery is somewhat scatterbrained; it has managed to miss every appointment it has been given. As early as the summer of 1991, one year ago now, President Bush and his team felt confident enough to announce the end of the recession: in autumn 1991 American production fell and the illusion was swept away. Then in spring 1992, their hand forced by the electoral campaign, they played out the same scene again: once more reality sprang forward to sound the death knell of such a hope. After two years of playing the same old refrain about the recovery while the economic situation internationally continues to worsen, it has all begun to wear a bit thin. Summer 1992 has proved deadly for any illusions in the recovery.

A deadly summer for illusions in the recovery

It is not just that growth has failed to take off again, but that production has actually experienced another collapse. Following a disastrous year in 1991, the American bourgeoisie declared victory at the end of the third quarter of 1992 when growth rose to an annual rate of 2.7 %. They were a bit premature in doing this and were rapidly forced to change their tune when a pathetic 1.4 % growth was registered for the second quarter, which promised negative figures for the end of the year. Nor is it only the USA, which is after all the foremost economic power in the world, which is unable to re-launch its economy. It is now the turn of Germany and Japan, which up till now have been presented as real capitalist success stories, to be pulled down into the mire of recession. In West Germany, GDP dropped 0.5% in the second quarter of 1992; from June 1991 to June 1992, industrial production fell by 5.7%. In Japan, from July 1991 to July 1992, steel production fell by 11.5 % and production of motor vehicles by 7.2%. The situation is the same in every industrialized country; since the middle of 1990 Britain, for example, has been experiencing its longest recession since the war. There no longer exists on the entire geographic map of capitalism, a single haven of prosperity, a single "model" of a healthy national capital. Its inability to turn up any example of a place where things are going well shows that the ruling class has no solution.

The fact that the heart of the world economy has plummeted into recession weakens the whole system, and growing tensions are tearing at the very fabric of capitalist economic organization. Instability is gaining the upper hand over the financial and monetary system. This summer the stock exchanges, the banks and the dollar - classic symbols of capitalism - have been caught right in the eye of the storm.

The Kabuto-Cho, the Tokyo stock exchange, which overtook Wall Street in importance at its pinnacle in 1989, reached a low point in August, when the Nikkei, its main index of value, fell by 69 % relative to its glory days, returning to its 1986 levels. Its years of speculation are over and hundreds of millions of dollars have evaporated. Following in its footsteps, the stock exchanges of London, Frankfurt and Paris have lost 10 % to 20 % since the beginning of the year. The banks and insurance companies which fed speculation in the 1980s are having to carry the can: profits are in free fall, losses are accumulating and bankruptcies are proliferating throughout the world. Lloyds, which is of such repute and which handles the world's shipping insurance, is on the brink of bankruptcy. The downward movement of King dollar accelerated over the summer and reached its lowest level in relation to the Deutschmark since the latter was created in 1945, thereby shaking the equilibrium of the international money markets. King dollar and speculation on the stock-exchange - symbols of the strength and triumph of capitalism, according to the euphoric propaganda of the 1980s - have become instead symbols of its bankruptcy.

The most savage attacks since the Second World War

But the ever-deepening crisis is more than the abstract economic indices and dramatic episodes in the life of capitalist institutions which fill the pages of the newspapers. It is lived every day by the exploited who suffer increasing pauperization under the repeated blows of austerity programs.

Over the last few months the increase in redundancies, and therefore of unemployment, at the heart of the industrialized world has accelerated brutally. Unemployment in the OECD countries grew by 7.6% in 1991 to reach 28 million and, according to the forecasts, it is set to overtake 30 million in 1992. It is increasing in every country. In Germany in July 1992, it reached 6 % in the west and 14.6 % in the east, from 5.6% and 13.8% respectively the previous month. In France companies have laid off 26,000 workers in the first quarter, 43,000 in July 1992. In Britain, 300,000 job losses were announced at the end of the year in the construction industry alone. In Italy 100,000 jobs must go in industry in the months to come. In the EEC the official number of people living below the "poverty line" is 53 million; in Spain it is nearly a .quarter of the population; in Italy it is 9 million people or 13.5 % of the population. In the USA 14.2 % of the population is in this situation, 35.7 million people. The average income of American families fell by 5 % in three years!

Traditionally the bourgeoisies of the developed countries take advantage of the summer months, the classic period of demobilization for the working class, to institute their austerity programs. Summer 1992 has been no exception to the rule: in fact it has served as an opportunity for an unprecedented wave of attacks against the living conditions of the exploited. In Italy the wage indexation has been abandoned with the agreement of the unions. Wages in the private sector have been frozen and taxes increased massively; inflation has reached 5.7 %. In Spain, taxes have gone up by 2 % per month and were backdated to the beginning of January. Consequently, wages for September will be cut by 20%! In France unemployment benefit has been reduced, while national insurance contributions for workers who still have jobs have been increased. In Britain and Belgium new austerity packages have brought a reduction in social benefits and an increase in the cost of medical care, etc. This list is by no means exhaustive.

Every aspect of the living conditions of the working class in the developed countries is under the most savage attack since the end of the Second World War.

Recovery is impossible

The ruling class has been waiting for nearly three years for the recovery but has seen no sign of it. Doubt is creeping in and they are getting increasingly worried as the economy slides downhill: a social crisis must inevitably follow. The bourgeois believe that they can exorcise the fear that grips them by constantly asserting that the recovery is around the corner that the recession is like the night that turns into day and that finally, inevitably, the sun of economic growth will appear over the horizon. In other words, they assure us, nothing is out of the ordinary, we must be patient and accept the necessary sacrifices.

It is not the first time since the end of the 60s, when the crisis opened up, that the world economy has experienced periods of open recession. In 1967, in 1970-71, in 1974-75, in 1981-82 the world economy underwent turbulent falls in production. Each time policies for recovery managed to stimulate growth again, each time the economy seemed to emerge from the mire. The bourgeoisie depends upon this optimistic view of things to make us believe that growth will inevitably recover, that it is all part of the normal cycle of the economy. But this is an illusion. The return to growth in the 80s did not reach the whole of the world economy. The economies of the "third world" never reversed the fall in production that they experienced at the beginning of the 80s; they never came out of recession. Meanwhile the countries of the "second world", the ex-eastern bloc, became gradually weaker and their economies finally collapsed at the end of the 80s. The famous recovery of the Reagan period during the 80s was therefore partial, limited and essentially reserved for the countries of the "first world", the most industrialized ones. What we must especially bear in mind is that these successive recoveries were produced by artificial economic policies which constituted so many tricks and distortions of the sacred "law of the market" that the "liberal" economists have turned into an ideological dogma.

The ruling class is confronted with a crisis of overproduction and the solvent market is too narrow to absorb the over-abundance of goods produced. In order to face up to this contradiction, to sell its products and extend the boundaries of the market, the ruling class has essentially had recourse to a flight into credit. During the 70s, the underdeveloped countries in the peripheries were given more than $1,000 billion of credit, which they used mainly to buy goods produced in the industrialized countries, thus allowing the latter to increase their growth. However by the end of the 70s the most debt-ridden countries in the peripheries were unable to pay their debts: this sounded the death knell for this policy. The periphery of the capitalist world has definitively sunk into the mire. This forced the bourgeoisie to find another solution. The USA, under the Reagan administration, became the outlet for the world's excess production by creating a mass of debt which made that of the under-developed countries look like a trifle. At the end of 1991 the US debt reached the astronomical figure of $10,481 billion internally and $650 billion with other countries. Such a policy was only possible because the USA was the foremost imperialist power in the world and was, at that time, leader of a bloc comprising the principal economic powers. It therefore took advantage of its position to cheat the laws of the market and bend them to its needs by imposing an iron discipline upon its allies. But this policy has its limits. When it was time to pay the bill, the USA, just like the under-developed countries a dozen years before, was found to be insolvent.

So prescribing the credit medicine to cure the ailing capitalist economy comes up against objective limits. This is why the open recession that has been developing at the heart of the most industrialized countries for more than two years now is qualitatively different from previous recessionary periods. The economic stratagems that made recovery possible previously have been proved ineffective.

For the 22nd consecutive time this summer, the Federal Bank of America has lowered the base rate at which it lends to other banks. It has therefore been reduced from 10 % to 3 % since spring 1989. This rate is now less than the rate of inflation. In other words, the real rate of interest is zero or even in negative figures; the state is lending at a loss! However this policy of easy credit has not produced any result either in the USA or in Japan, where the central bank rate is also down to 3%.

The banks that have been so open handed with their loans over the years are confronted with more and more unpaid debts; company bankruptcies proliferate, leaving debts to the tune of billions of dollars. The collapse of speculation on the stock exchange and in construction worsens the situation further for bank balances that are already veering into the red. Losses pile up, bankruptcies in the banking sector proliferate and the coffers are bled dry. In short, the banks can lend no more. Recovery by means of credit is no longer possible - which means, quite simply, that recovery is impossible.

The sole hope for the ruling class is to slow down the decline and limit the damage

The lowering of the discount rate on the dollar or the yen at first served to restore the profit margins of the American and Japanese banks, as they borrowed from the state at this low rate but offered a lending rate to individuals and companies that was somewhat higher. By this means they managed to avoid a too-dramatic increase in the number of bank failures and a catastrophic collapse of the international banking system. But this policy too has its limits. The rate can hardly go down any further. The state is forced more and more to intervene directly to come to the aid of the banks, which have always managed to seem independent from the state. By seeming to be so they have served as a "liberal" cover for state capitalism in a situation where, in fact, the state maintains a very tight control over the credit supply. In the USA, the federal budget has to spend hundreds of billions of dollars to support banks threatened with bankruptcy, and in Japan the state has just bought back the housing stock of the banks most under threat in order to keep them afloat. In fact this is a nationalization of sorts. It is very different from the pseudo-liberal cant of "less state control" which they have drummed into us over the years. More and more the state is forced to intervene openly to save the banks from the bailiffs. A recent example of this is the recovery program set up in Japan: the government has decided to break into its reserves and release $85.4 billion to support the private sector, which is in a very shaky state. But this policy of recovery on the basis of internal consumption is bound to have at the most no more than temporary success. Just as all Germany's expenditure on re-unification has done no more than slow down, and very temporarily at that, the recession in Europe.

The ruling class is attempting to limit the damage and slow down the plunge into disaster. In a situation in which the markets are tight, as are their diminishing assets, the lack of credit, the search for competitivity through more and more draconian austerity programs in order to increase exports, has become the refrain of every state -. The world market is tom apart by commercial war were anything goes, where each state uses every means at its disposal to ensure its outlets. The policy of the USA illustrates this tendency particularly well; its fist brought down hard on the table at the GATT negotiations; the creation of a privileged and protected market with Mexico and Canada, who have been persuaded as much through coercion as incentives; the artificial lowering of the dollar to give a shot in the arm to exports. However, this out-and-out commercial war can only aggravate the situation further and destabilize the world market even more. Moreover, this progression towards destabilization has been further aggravated by the disappearance of the eastern bloc. Without it, the discipline that the USA used to impose upon its erstwhile imperialist partners, who are at the same time its main economic rivals, has been shot to pieces. The tendency is towards everyone for himself. The dollar's recent adventures are a good illustration of this reality. The American policy of keeping the dollar low has reached the limit imposed by the German policy of high interest rates because, faced with the risk that inflation will explode in the wake of re-unification, Germany is playing its own card. The result is that the Mark has attracted an enormous amount of speculation internationally against the American currency, and in the general rush, the central banks have had immense difficulty maintaining sufficient stability to prevent an uncontrollable collapse of the dollar. The whole of the international monetary system is tottering. The Finnish mark has had to free itself from the European Monetary System, while the Italian lira and the English pound are in turmoil and are having great difficulty staying in. This warning shot is a clear indication of the turbulence to come. Occurrences in the economy during the summer of 1992 show that the perspective is certainly not towards the recovery of world growth. It is rather towards an accelerated plunge into recession, towards the brutal collapse of the whole economic and financial apparatus of capitalism world-wide.

Disaster at the heart of the industrialized world

It is indicative of the seriousness of the crisis that it is now the great capitals at the industrialized heart of the system that is experiencing the full blast of the open recession. The economic collapse of the eastern countries brought about the demise of the Russian imperialist bloc. Contrary to all the propaganda put about at the time, this was not proof of the futility of communism, because the Stalinist regimes had nothing to do with communism. It was the death agony of an under-developed part of world capitalism. This bankruptcy of • capitalism in the east was a manifestation of the insurmountable contradictions which eat away at the capitalist economy, whatever form the latter takes. Ten years after the economic collapse of the under-developed countries of the periphery, the economic bankruptcy of the eastern countries heralded the worsening of the effects of the crisis at the heart of the world's most developed industrial nations. It is here that the bulk of world production is concentrated (more than 80% in the OECD countries), and it is here that the insurmountable contradictions of the capitalist economy are crystallized most acutely. The fact that the effects of the crisis have been creeping from the peripheries towards the center for more than twenty years shows that the most developed countries are less and less able to throw back its effects upon the economically weakest states. Like a boomerang, it has returned to ravage the epicenter where it originates. This development of the crisis shows the future that lies in store -for capitalism. Just as the countries of the ex-eastern bloc see taking shape the specter of economic disaster comparable with that of Africa and Latin America, the same horrifying future also threatens the rich industrialized countries.

The ruling class obviously cannot acknowledge that the development of the crisis is a journey towards disaster. It has to believe in the immortality of its own system. But this self-delusion is constrained by the urgent need to conceal, as much as it can, the reality of the crisis from the exploited of the whole world. The exploiting class must hide its impotence from itself and from those it exploits, under pain of revealing to the whole world that its historic mission was finished long ago and that the continuance of its power can only lead the whole of humanity into a barbarism that is even more terrible. For all workers the wretched reality of the effects of the crisis, effects that they feel to their very core, is a powerful stimulus to reflect and understand the situation more clearly. The stab of misery which becomes more agonizing every day can only impel the proletariat to show its discontent more openly, to express its combativity through struggles for the defense of its living conditions. This is why a constant theme of the bourgeoisie's propaganda, for the twenty odd years that the crisis has been developing, has been to conceal the fact that this crisis is insoluble within the framework of the capitalist economy.

But reality is ever-present and it sweeps away illusions and eats away at lies. History exposes those who thought that Reaganomics had enabled them to definitively bring the crisis to heel. It exposes those who have made shameless use of the collapse of the Russian imperialist bloc to declaim about the futility of the marxist critique of capitalism, and to pretend that this system is the only viable one, the only path humanity can take. The ever more disastrous bankruptcy of capitalism raises, and will continue to raise all the more urgently, the need for the working class to put forward its own solution: the communist revolution.

JJ, 14.9.92