IT HAS been a dismal opening to 2003 for world capitalism. The Christmas respite has been followed by the release of one set of economic statistics after another all pointing to a deepening of the world economic crisis, even to the possibility of a severe downturn in the US and, with it, the world economy.
It was the fall in stock markets which grabbed the main headlines. Stocks have now been falling for three years. So steep has been the drop during this bear market that the Economist estimates that, measured in terms of the ratio of share wealth to Gross Domestic Product, this has been the biggest fall in history.
Over the last twelve months the FTSE fell by 24%, the German DAX index dropped 44%, the NASDAQ was down around 40% and the Dow Jones by 18%. Commenting on these gloomy figures Albert Edwards of the Dresdner Kleinwort bank said "there is a crisis unfolding as badly as the Great Depression. The economy doesn't feel like it but in a year or so it may do so".
The concern of the capitalists is that the collapse of share values could end in a severe economic recession. They are haunted by the spectre of Japan which entered recession when the economic bubble of hugely inflated property prices burst at the end of the 1980s. Despite successive efforts to stimulate the economy with Keynsian spending packages it has bumped along the bottom ever since. In the last few years it is sunk into a deflationary situation of prices falling in real terms and seemingly inescapable recession.
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While manufacturing in the United States, like Britain, went into recession over a year ago this has not yet led to a full blown recession across the
capitalist world. Rather the economies of the major countries have teetered on the brink of recession but have been kept at least partially afloat by the
willingness of the US consumer to spend money by going ever further into debt. It is estimated that during 2002 the US generated 52% of the increase in world demand.
For a period people in the US borrowed against the value of shares. When shares fell they continued to borrow against house prices which, as in Britain, continued to rise. Now there indications that the housing bubble has reached its peak. The consumer boom is now likely to come to an end. According to the Conference Board, a New York business research group, US consumer confidence has stumbled to a nine year low.
The US is in economically poor shape to enter a recession. Not only is it saddled with huge personal debt making it difficult to raise money by borrowing from its citizens it also has a huge public debt and a growing current account deficit with the rest of the world. The private sector debts, those of the big corporations, have been slightly reduced but only by cutbacks and bankruptcies. Last year saw five of the eight biggest bankruptcies in US history involving some $375 of assets. The hole caused by all this debt has in recent years been filled by an influx of money from abroad as other countries and foreign companies have bought US assets or invested in the dollar. This has kept the dollar strong despite the domestic economic statistics that should have seen it fall.
Now this too seems about to end. The dollar lost 9.6% of its value last year and foreign direct investment by private companies collapsed, down from $308 billion in 2000 to $14 billion in 2002. Only money pumped in by foreign governments especially the Japanese government has prevented a precipitous fall of the dollar.
The world economy has been kept out of recession during the 1990s by unsustainable factors which now appear to have largely run their course. The concern of the capitalists is that there will be a heavy price to pay for the exuberance of the 1990s and that the entire world economy will follow Japan into a prolonged 1930s style period of deflation and recession.
This is the backcloth against which Bush is preparing to go to war against Iraq. The central aim of the war is now the seizure of the Iraqi oil fields with the aim of breaking OPEC, pumping cheap Iraqi oil onto the world market and forcing other countries to lower their prices and provide a lifeline of cheap oil to the ailing capitalist economy. But on the other hand if the war lasts more than a few months oil prices are expected to rise to $40 or more a barrel, a rise that could trigger and deepen a recession.
Economic crisis, political turmoil and war; this is the real face of capitalism. It is now time to build a new movement of the working class internationally to provide a socialist alternative.
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