The growing recession in the United States
has the potential to start the most serious decline in the world economy in
decades. The largest economy in the world now joins the second largest, Japan,
in serious economic difficulty. The economic crisis is no longer confined to
outbreaks in South East Asia, Brazil and Russia, as it was in 1997-98, but
threatens to engulf the very heartland of advanced capitalism.
The mounting US recession is already flowing on to all its imperialist
allies and neo-colonial client-states. Lower consumer spending in the US is
reducing demand for the goods and services exported by other countries. Economic
growth predictions among the rich OECD countries has been revised down from 4
percent in the last decade to 2.5 percent.
For the third world, accounting for a mere 18% of world exports and
already suffering from acute overproduction of raw materials since the late 1970s,
further recession will be devastating. Here, 3 billion people struggle in harsh
agrarian conditions or sweatshops for $US2 a day; another 1.5 billion toil on
less than $US1 a day. In sub-Saharan Africa and the other least developed
countries, income per capita has dropped since 1970. The gap between the poorest 20 percent of the world’s population and the
richest 20 percent has increased from 30 times in 1960 to 74 times in 1997. The
wealth of the world’s 225 richest individuals is equal to the annual income of
the poorest 47 percent of the entire world’s population.
Within the United States itself, the income of the poorest 20% decreased
10% between 1977 and 1999, while the incomes of the richest 20% have grown 40%.
During the ‘80s, the number of families living below the poverty threshold
increased 60% in the United Kingdom and 40% in the Netherlands.
The United States’ difficulties are the
latest symptom of a prolonged crisis of overproduction that has been haunting
global capitalism for the last three decades. Overproduction is a testimony to
the productive power of capitalism. In the pursuit of profit capitalists invest
in ever-more productive technologies, enabling workers to produce increasing
amounts of goods and services for the same effort. Greater productivity leads
to greater profits and heightened competition among capitalists, generating
further drive for increased productivity and ever-larger productive capacity.
As capital grows, however, fewer and fewer
workers are needed to produce the same quantity of goods and services. The
accumulation of capital reduces the demand for labour. The productive power of
capital outstrips the ability of workers to consume the goods produced.
In the car industry, for example, manufacturers
are currently able to produce some 75 million vehicles per year. But sales only
reached less than 56 million units in 1999. Hence there is overcapacity of
about 20 million vehicles per year.
A crisis of overproduction emerges as the
capitalists are unable to profitably accumulate if society cannot afford to
consume the goods and services produced. In such crises, profits fall sharply,
capitalists slow or cease production, many go bankrupt, workers are laid off,
the reduced activity and wage payments further reducing demand for goods and
services. A crisis of overproduction can quickly spiral into a severe
depression.
The last major depression was in the 1930s. The severity of that
depression taught capitalists the importance of consumer demand. Since that
time capitalist governments have gone to great effort to increase government
spending (particularly military spending) and make it easier for consumers to
borrow money so as to stimulate consumer demand whenever overproduction
problems have emerged (often called ‘Keynesianism’). But the accumulation of
capital continually pushes the problem of overproduction to the fore.
Since the late 1960s the major capitalist governments around the world
have been grappling with a long crisis of overproduction, generally described
as an ‘unexplained slowdown in productivity growth’. This crisis has repeatedly
emerged in unexpected international monetary crises. Economic crises first
appear as financial crises because the slowdown in profitable productive activity
forces smaller capitalists into ‘adventurous channels – speculation, fraudulent
credit, fraudulent stocks’ (Marx, Capital Vol 3, Chp 15).
The oil price rises of the 1970s, the third world debt crisis of the
1980s, the competitive devaluations among the US, Japan and Europe in the
1980s, the trade conflicts among these blocks in the late 1980s, the 1987
sharemarket crash, the 1994-95 collapse of the
Mexican peso and the 1997 Asian economic crisis have all been symptoms
of the ‘adventurous channels’ of capital in the face of the prolonged
overproduction crisis.
The crisis has been prolonged because each of these financial crises has
been met by increasingly large government demand stimulation. While the British
and US governments may have been practicing restrictive monetarist policies at
home during the 1980s, at the same time they were heavily involved with other
capitalist governments in internationally coordinated efforts to stimulate
world consumption to stop these financial crises spreading. But while these
efforts have warded off a severe world depression to date, because of the
pressure of capital to accumulate and increase productivity, the pressure of
overproduction continues to mount.
The current United States difficulties are the outcome of the US
government’s attempts to prevent the 1997-98 Asian economic crisis from
spreading. The US Federal Reserve Bank reduced interest rates at the time of
the crisis to make it easier for firms and consumers to borrow and thereby
stimulating consumer spending. The problem was that this also encouraged
further financial adventure – stimulating widespread investments on the US
sharemarket, particularly in highly speculative internet companies. The value
of shares on the New York stock exchange at their peak in March 2000 were 3.3
times its level in 1994, while corporate after-tax profits were stagnant. The
bubble of the sharemarket boom eventually burst and share prices fell rapidly.
Between April 2000 and April 2001, some $US4 trillion in stock-market value
evaporated.
What makes the unfolding US recession potentially so serious is that
many US firms and households borrowed heavily to fund even greater purchases on
the booming sharemarket. The 500 largest companies owe 116% of the value of
their shares and US households owe 97% of their disposable income, the greatest
percentage of debt in postwar US history. Because the shares purchased with
this borrowing can no longer be sold for their purchase price, firms and
households have serious difficulties meeting their debt obligations. This is
severely restricting consumer spending in the US, the world’s largest economy,
at the same time as a similar debt crisis (borrowing for property speculation)
plagues Japan, the world’s second largest economy.
Desperate to ward off crisis the US and Japanese governments have been
dramatically cutting interest rates to make borrowing more manageable. But
Japan has already cut interest rates to zero, with little effect and the US is
not far behind. Japan is now facing even more severe problems of deflation as
consumer prices fall in the face of collapsed demand. This simply compounds
problems for borrowers, who must still meet their repayments on undeflated
debts. Despite the best efforts of capitalist governments to stimulate demand,
the world economy has not been closer to serious depression since the 1930s. #