Welcome
to the global economy at the eve of the 21th century, the most absurd
environment humanity has ever lived in
.
You
live in Japan, and you wonder how the capital of the second largest economy on
earth, which used to be praised and feared for its fabulous efficiency, has
lost two thirds of its stock-value in less than a decade. Where did that
“value” go to? You wonder how Japanese banks, not so long ago seen as the
strongest of the world, wound up with more than a trillion dollars in bad
debts. You wonder why brand new factories are being closed, why unsold goods
are piling up in the warehouses, why all the desperate measures taken by the
government fail to lift the economy from its slump.
You
live in neighbouring Indonesia, one of the fastest growing economies on earth
just a while ago, and you hear the president on the radio ask you to eat less
rice because of acute shortages, but you have no rice to eat. You’re hungry,
and they tell you it’s all the fault of the Chinese, so let’s go kill them. And
if we find no Chinese, we’ll kill
Catholics or witches. It won’t fill your belly, but it will let you vent your
rage in a safer way than when you demand food from the government, because then
the army will shoot you.
Or
you live in South-Korea and fight with your fellow workers at Hyundai against
massive layoffs and are attacked by the army, on the orders of your new leader,
the ‘compassionate’ Kim Dae Jung. Yet despite this violence, despite the
steeply risen unemployment and inflation, you praise yourself lucky that you
don’t live in the “communist” North, where up to 3 millions were killed by
hunger in the last 3 years, where a recent UN-study found 62% of all children
stunted because of malnutrition, and where government-help comes in the form of
what is officialy called “substitute-food”, consisting of dried leaves and
straw, ground into an indigestible powder.
Conditions
are only marginally better if you live north from there, in the vast interior
of China. Here, the state calls itself “communist” too, the economy is supposed
to produce for the needs of the people, not for profit. Yet while hunger and
poverty are rampant, more than 15 million Chinese workers were laid off in the
last two years because of.. overproduction.
But
your misery could be bleaker still, if you live in neighbouring Russia, where
production has fallen at a breathtaking pace, where a third of the population
now must survive on less than 32 dollars a month, where many millions are not
only hungry but also shivering from cold, despite Russia’s enormous oil-, gas-
and coal reserves. Capital is rushing to the exits and while the ruble has
plunged, it still is so scarce that much of what remains of the economy has
reverted to barter (trading in kind).
You
have not witnessed any financial crisis recently, if you live in one of the 80
poorest countries of the world. With an average year-income of 350 dollar per
person in 1997, these economies have become so marginalized in the global
production chain, that there is hardly any money left to flee. Nor is there any
coming in. While East Africa suffered a massive outflow of capital, during the
first half of 1998, capital inflow to that region was still six times greater
than that to Sub-Saharan Africa. There is no profit to be made, so these
countries are written of, abandoned to disease, hunger, despair, civil war. So
if you live in Congo, you may wonder what became of all that jubilant talk on
“African Renewal”. And you may also wonder what the armies six neighbouring
countries are coming to fight for in a land of plundered resources and
collapsing infrastructure. You ask yourself why so many regions in the
continent are literally drenched in blood, why they want to kill you because
you’re tall enough to pass for a Tutsi. Or if you live further south, in the
‘new’ South Africa, you may wonder why ‘the good shepherd’ Mandela has recently
decided to spend 5 billion dollars on war ships, submarines and fighter jets,
while the official unemployment-rate of 33% is an understatement and the only
things growing in the country are the shanty-towns. Still, your fate could be a
thousand times worse if you’re being crushed between murderous gangs of Serbian police and Albanian thugs in Kosovo,
or between the economic warfare of the West and the brutal scheming of your
local dictator in Iraq, both equally indifferent to the millions who die from
hunger and disease as a result of their ruthless power-games.
Sadly,
the list of countries where living conditions move from bad to horrible, goes
on and on. If you live in Western Europe or North America, you may think,
looking at the rest of the world, that as bad many things are at home, they
could be a lot worse. You heard about ‘Asian contagion’ and pray for it to stay
away, you watch the stock markets gyrate wildly and pray for them to settle.
You see the signs of a gathering storm and wonder what you can do to protect
yourself, while the media fill your ears with sleezy tales about the sexlife of
the US-president and the British cabinet.
Never
has there been such an abundance of commodities, including food products,
despite the incentives given to farmers in the most developed countries to
produce less. There is enough available to provide every human being with at
least 2700 calories a day. Yet never before have so many died from hunger -30
million a year, according to the latest UN-estimate- while one third of the
human race suffers from anaemia due to malnutrition. Never before have there
been so many basic needs unfulfilled, yet never before has there been so much
global overcapacity of productive forces. On a global scale, more and more
factories must be closed or used below capacity. The same is true for human
capital: a third of the global workforce -more than 1 billion people- is thrown
out of work, according to the 1998 World Employment Report of the UN’s
International Labor Office. Never before was there so much money floating
around -close to 2 trillion of dollars are now being traded daily for sheer
speculative profits- yet half of the world’s population must survive on less
than 2 dollar a day. Never before was it easier to provide material security to
everyone -to satisfy all the world’s sanitation and food requirements would
cost only 13 billion dollar, roughly the same amount as what is spent each year
in the US and the European Union on perfume- yet never before are so many
living in insecurity, in constant worries about tomorrow.
This
insecurity reached the very center of the global economy in a big way by the
end of the summer of 1998. When the financial turmoil which started in
South-East Asia and which Clinton called “just a bump on the road to global
prosperity”, pushed Japan into recession and brought Russia to bankruptcy and
Brazil and other countries close to it, as we predicted in IP # 34, the
capitalist class around the world came close to sheer panic. Capital moved
nervously around in search of safe havens, stock markets and currencies
plunged, even the Dow Jones took a dive. “Is Global Collapse at hand?” the New
York Times asked (9/1/98); “The Crash of ’99?” a Newsweek-cover blared.
IMF-director Camdessus called the situation “dangerous”, an adjective he never
used before (earlier past summer, he declared there was no crisis in Russia)
and even the dour US Treasury secretary Rubin conceded, “the number of
countries experiencing difficulties at once is something we have not seen
before”. Never in the past half century, the capitalist class had sounded so
pessimistic. “The whole tone has changed, for everyone”, observed Jeffrey
Garten, the dean of the Yale School of Management,” a few months ago, people
were talking about seeing the light at the end of the tunnel. Now the only hope
is keeping the world economy from total deterioration. And you get a sense that
this all now truly left to Adam Smith’s invisible hand -it’s beyond any
country’s ability, any institution’s ability, to control.”(1) The Wall Street
Journal agreed: “What makes the crisis so unnerving is that there is no clear
solution in sight -no financial firebreak that governments or international
financial institutions can construct to slow the spread.”(2)
Was
the crisis unstoppable? In IP # 34, we wrote that we “don’t think that the
underlying contradictions have deepened yet to the point of making this
inevitable.” Yet most capitalists can’t see the underlying contradictions of
their system, and a danger one feels but can’t see, is all the more
terrorizing. As the economist Peter Bernstein noted about the fears of
capital-owners: “There is a sense that people really don’t understand what
makes the world work, and they don’t know what to do about it.”(3)
But
the panic abated as quickly as it started. On november 18, the New York Times
noted: “Here in Washington, there is little talk of ‘global economic meltdown’,
the chilling phrase whispered just a few weeks ago in the hallways of the
Treasury, the White House and, just down the street, the International Monetary
Fund.” The Dow Jones resumed its upward course, the outflow of capital from
countries like Brazil was temporarily stemmed, investors even returned to
South-Korea and Thailand, eager to believe that Asia had hit bottom and could
only rise now. No magic had produced this turnabout. The American Federal
Reserve and most European central banks had lowered interest-rates, Japan
increased its deficit-spending with yet another giant stimulus-package and
Brazil was “rescued” with 42 billion dollar worth of loans from the IMF and
others (which didn’t prevent its currency from sharply devaluating later on).
In other words, credit was cheapened, more ‘strong’ money was created. So it
was that simple!
The
effect, as well as the intent, was of course mainly psychological. The frayed
nerves of capital-owners were soothed but clearer heads realised that the
improvement in the global financial climate was an illusion. “Things have
gotten worse, that’s what’s changed”, remarked one economist.(4) That these
measures were effective, at least in the short term, only proved that
capital-owners, shifting from euphoria to panic and back to euphoria, still
“don’t understand what makes the world work” but are desperate to believe that
their chief gurus,Tietmeyer and Greenspan, understand and will always be able
to postpone the inevitable.
But
if the creation of more money can be the solution, than the lack of it must
have been the problem. That is an assumption that defies credibility. Between
1980 and 1992, the financial assets of the OECD-countries (developed capital)
grew twice as fast as their combined GDP and since then, they grew three times
as fast. There is no lack of financial capital in the world, quite the
contrary, and it’s ready and eager to invest, provided that the investment will
make its value grow. That is where the problem lies. Behind the global
financial crisis, there is a global crisis of profit. It is not for any
specific situation that provokes financial turmoil that “no governments or
financial institutions” have solutions. It’s the crisis of profit that is truly
insoluble. Because it is caused by something that is really “beyond any
country’s ability, any institution’s ability to control”, and not solved, but
caused by “Adam Smith’s invisible hand”: the conflict between production forces
and relations of production.
This
conflict becomes more and more obvious. The productive forces have become
enormously productive and could, technically, quite easily meet most material needs of humanity. But more
and more countries are sinking into depression and the majority of the world
population is living in misery and despair, because this awesome productivity,
this capacity to produce ever more with less labor power, makes it impossible
for capitalism to create the profit-rate and the markets which it needs to
prosper.
For
capitalists, this is impossible to understand. For them, it seems clear that
profit grows when you produce more of what’s desired cheaper. Therefore, as
long as productivity rises, profits should do too. And the market grows
automatically, classic bourgeois economy teaches, as long as what is produced
is what those who have purchasing power desire. So only partial overproduction
is temporarily possible, because when it appears, “Adam Smith’s invisible hand”
(the free market) guides capital away from saturated markets to those where
demand is growing. If production increases, so does wealth, as long as buyers
and sellers can meet each other unhindred.
So
goes their theory but reality refuses to conform to it. Only Marx’s analysis
makes it possible to understand why. Because it makes clear that all profit is
surplus value, unpaid labor power, so the more technified the production forces
become, indeed the more productive they are, the less surplus value and thus
profit they relatively yield (even though the more technified capital obtains a
competitive advantage and thus a higher profit in the market). It makes clear
that the growth of society’s purchasing power and thus its demand, is
emprisoned by the overall growth of exchange value in production, by the
creation of surplus value, which is declining relatively because of the same
technification which makes its output ever greater. It makes it clear,
therefore, that the more technified and productive the forces of production
become, the more supply overshoots the demand for productive consumption. It
also makes clear that the capitalist production process is a cycle of value (in
which consumption must recycle the value of production back to the production
process, for it to continue) and that, therefore, a rise of improductive consumption
(of commodities like arms and luxuries that take value out of the cycle and
don’t lead to the creation of new value) provides no solution to the
market-problem. It further explains why the crisis of profit does not merely
lead to a capitalism that learns to operate with less profit, but inevitably
sends the system into a series of financial shocks that ultimately cause a
breakdown of production.
The
more dismal the outlook on profits becomes, the more interruptions occur in the
cycle of value because of the growing incentive for the capital-owner to store
his value in financial assets, rather than risking it on productive investment.
Instead of returning into the productive cycle, more and more value is taken
out, with the inevitable result that even less new value, hence less profit, is
created. On the one hand, on a global scale, more and more productive capital
finds it impossible to attract investment, while at the same time its
capital-needs steeply rise because of the increasing technification of
production and the intense global competition. That means that a growing number
of companies worldwide goes belly up and economic desertification spreads. The
weakest, most undercapitalized are the first to keel over but even the stronger
must consolidate and merge or borrow heavily to survive (since 1996, borrowing
by non-financial companies in the US had doubled to $ 360 billion
annualy). On the other hand, the
growing demand for financial assets jacks up their prices and diminishes the
demand for, and thus the prices of, all other commodities. So while on the
financial markets, the “value” of stocks, bonds, etc. balloons into highly
explosive bubbles, in the real economy, the growing gap between rising
productive capacity and flagging demand, creates mounting deflationary
pressure, which further erodes profits. This further incites capital-owners to
seek refuge in financial assets, driving up their prices even more. But money
has value only because it is the universal commodity, exchangeable into all
others. When other commodities lose their value, so must money. Stocks and
other financial assets are, directly or indirectly, claims on future profits.
When these fail to materialize, it becomes clear that the emperor is naked and
the bubble must burst.
But
when money’s value is in a free fall, it can no longer function as a means of
payment. “The chain of payment breaks at a hundred places”, Marx wrote, and the
production process becomes paralyzed. As long as the financial collapses are
limited to the periphery, stronger money keeps greasing the global economic
machine. Even in the most affected countries, the breakdown is contained with
outside help. And there where the prospects or profit are so dismal that no
faith in the currency can be maintained, stronger outside money still provides
a way to measure and to store value, and thus to keep some commodity-production
going. As for the strongest countries, the effect of the financial turmoil in
the periphery is even beneficial, at least at first: capital from around the
world flows to the safety of American and Western European financial assets,
boosting their ‘value’, transferring surplus value and thus purchasing power
from the periphery to the center.
But
since nothing can be done against the underlying causes of the global
profit-crisis, it can only worsen and move from the periphery to the center.
There too, the gap between the booming financial market and the real economy,
increasingly threatened by deflation, between shrinking profits and the growing
claims of financial capital on them, becomes untenable.
Sooner
or later the point will come when the last bubbles, the dollar- and
Euro-bubbles, will burst. With no strong currencies left anymore to throw into
the breach, the breakdown will take unprecedented proportions.
The
main way in which capitalism has historically succeeded in temporarily
overcoming its contradictions (aside from partially destroying itself in global
depression and war) has been the extension of the world market. That’s why the
aftermath of world war I, when such an extension did not occur, was a period of
global stagnation, while the aftermath of world war II, when capitalism
reorganised itself on a global scale, was one of massive growth. The expansion
of its playing field not only widened the market of developed capitalism in
general. It also allowed it to invade markets where the market-value of
commodities was determined by the higher production-costs of less developed and
thus more labor-intensive capitals, and thus to rake in surplus-profits. It
also gave it more access to cheap labor power and thus to more surplus value
and profit.
But
the market-expansion that is needed grows ever faster, the more technified the
production-methods become. Not only because the production capacity grows
rapidly, and producing under the capacity raises production costs and thus
reduces profits; but even more so because mass production contains ever less
labor time and thus value, so that ever more of it must be sold to realise the
same surplus value. So every expansion phase reaches the point when the growth
of the market can’t keep pace with the growth of the productive forces. Surplus
profits dwindle, the average rate of profit declines again, overproduction
reappears.
The
post-war expansion phase reached this limit at the end of the ‘60’s. Since
then, developed capitalism has played several variations on themes of Keynes to
keep the sputtering machine going. But first, stepped-up monetary expansion
brought the world to the brink of hyper-inflation, then an orgy of
deficit-spending raised debts to crushing levels, without preventing the
deepening of the crisis on a global scale.
About
a decade ago, a new expansion-phase, globalisation, gave developed capitalism a
new leash on life. Again, global markets were widened. Again, developed capital
made big surplus-profits by competing with technologically weaker capitals. New
information-technology had such a global impact on the production process that
it generated a new relative scarcity on the market, which rewarded suppliers
with huge profits. And the new technology, in combination with the political
climate after the fall of the Russian empire, allowed for greater access to
cheap labor than ever before, which also created a strong downward pressure on
the wages in the most developed countries, and thereby increased the rate of
exploitation and thus profits.
Already
in 1996, the second phase of globalisation, in which the negative impact
overwhelms the benefits for capital, began. First and most obviously, the
expansion it made possible, lead to global overcapacity. In more and more
sectors, the market couldn’t keep up with the bulging production forces. A
growing number of capitalists faced the choice of going bankrupt or selling
their output at any cost, that is, under their value. As a result, a tidal wave
of deflation is building.
Secondly,
the surplus profits of developed capital that resulted from competing with more
backward capital on the world market, gradually disappear. When capitals with
advanced technology (high organic composition) and others with more
labor-intensive production methods (low organic composition) compete on the
same market, the market-value and -price is determined by the average value of
their commodities. Since the commodities of the first are made with much less
labor, their value is way under the average which determines the price, so they
yield a big surplus-profit, on top of the normal profit (the surplus value
capitalists steal from their own workers). But this doesn’t last. From its
beginning, globalisation was a process
of expulsion as well as of integration. While selective areas (in South-East
Asia, Latin America and Eastern Europe) gained a place in the ‘global assembly
line’, larger zones, amongst which almost all of Africa, where wiped of the
economic world map. Likewise, it bankrupted or marginalized countless capitals
with a low organic composition. Not only because these were increasingly unable
to compete on cost, but also because technology transforms the content of the
market, the kind of commodities that are in demand, so that backward capitals
are excluded from it.
As
a result, in the second phase of globalisation, most markets become so
thorougly dominated by highly developed capitals, that the marginalized
capitals of low organic composition are no longer a factor in the formation of
the average market-value. All markets become global markets, and prices on the
global markets are increasingly shaped by competition between developed
capitals alone. Consequently, surplus-profits disappear for developed capital,
and the general rate of profit, more global than ever because of the free
global flow of capitals, must go down, because the average way of producing
requires less labor power and hence yields less surplus profit relatively. This
generalisation of high tech production methods also weakens the profit-boosting
effect of the greater accessibility of cheap labor which globalisation made
possible.
The
collapse began in South-East Asia, where the gap between the expectations
generated by the first phase of globalisation, and the grim reality of its
second phase settling in, was the widest.
From there it spread and we can plainly see it move towards the center.
A
new phase of expansion seems impossible now. Capitalism is truly marching
deeper into a deadend street. Worsening overcapacity, and a falling general
rate of profit are inevitable. While this process will not be one of linear
decline, the overall trend will be one of capital fleeing more and more areas
where deflation is killing off profits, creating an economic desertification
which will shrink markets for the stronger capitals too.
We
emphasized it before: economic scarcity was the hallmark of the historical
conditions in which capitalism grew up. While capitalism has developed and
transformed the world’s productive forces in such a way that they tend to
create abundance, this is absolutely incompatible with its relations of
production and consumption. Capitalism needs scarcity relative to demand to
survive, yet its own productive forces tend to destroy it
.
Now
more than ever. In the global economy, most things can be produced much more
abundantly than they can be sold, hence the inevitable build-up of deflation.
Only capitals that remain constantly capable to create a new relative scarcity,
can hope to withstand the tide. They can do so, by constantly developing new
technology that drives production costs under the global average and thus
yields a surplus profit, by constantly developing new, desirable commodities
that meet a global demand, by destroying enough competitors to create a
monopolistic or cartel-like market-domination, giving them more control over
prices, or by creating artificial scarcity through giant marketing campaigns.
All of these require money, in ever greater quantities. The capital investments
and overhead costs needed to survive, grow rapidly. This has caused an
investment boom of sorts in the strongest countries in recent years, but one
that was not caused by the expansion of their markets but by the fear of losing
competivity. In the US, for instance, investment grew 70 percent faster than
sales over the past three years. This produced short term growth and long term
overcapacity. Even the biggest of companies must now increasingly join forces
to survive, spurring a global concentration of capital. Company-mergers, which
accelerated already in the ‘80’s, are now taking place at an astonishing pace.
In the last 3 years, merger-deals totaled more than 5 trillion dollar (half of
it in ’98 alone), more than in the entire previous decade. There are now
several sectors where only a handful of companies remain world wide. In civil airplane
production, there are in essence just two left (Boeing and Airbus). With size
being increasingly the key to profitability, the treshold of capital formation
becomes ever harder to reach, just as Marx predicted. This phenomenon too,
explains the demobilisation of productive forces that goes on on a global scale
and the contraction of the global market as a result of it, as well as the
downwards pull on the generate rate of profit, even as the masters of the last
unsaturated markets of the world continue to rake in surplus profits.
If
things were left to Adam Smith’s invisible hand, the world would already have
sunk into global recession by now. Not just into a “normal downturn of the
business cycle”, but in a contraction directly resulting from the exacerbation
of capitalism’s contradictions, from the exhaustion of the counter-acting
effects of the first phase of globalisation. In other words, into a recession
that could easily slide into a fullblown global depression. The capitalist
class of course is trying to prevent this, but is has not discovered any new
ideas or methods to do so. In essence, no bourgeois economist since Keynes ever
has. So it must do what it tried in the past to postpone the inevitable:
increase deficit-spending, cheapen credit by lowering interest-rates etc. As a
result, left-leaning politicians, whose ideologies are more in tune with the
tasks of the hour for capitalism, have come to power in most central countries.
Toothy-grinned salesmen like Clinton, Blair, Schroder en Jospin, who try to
present their warmed-up Keynesianism as
a new ‘third way’ between the free market-dogmas of the right and the now
old-fashioned statism of their own political tradition
.
But
the ‘third way’ offers no way out of deadend-street. There’s nothing new about
it; indeed, not even the name is new. Capitalist ideologues of the past have
used the term more than once when disillusion in the myths of both right and
left made them look for a new packaging.
But
the rise in profits which many developed capitals enjoyed in the first phase of
globalisation increased tax-revenues,
and thereby lessened the problem of the rising public debt in several
countries, especially the US. This gives them some room to manoeuver when it
becomes imperative to increase deficit-spending again, to force the
reproduction process when the free market is dangerously interrupting it
because of falling profits.
But not very much. All countries still carry
huge debt-burdens and cannot afford to let them swell like they did in the
‘80’s. Not only would they be forced to spend ever more on interest-payments
and consequently have less to stimulate the economy, but they also would risk a
loss of financial capital’s confidence in their currency and in all assets denominated
in their currency, and thus to provoke the financial havoc which they seek to
prevent in the first place.
Likewise,
the policy of lowering interest rates becomes increasingly impotent. Just look
at Japan, where the lowest interest rates in the financial history of the world
(beating the previous record of 1,125 % in Genova in 1619) cannot stop the
recession from worsening. Long-term interest rates have tumbled to 1,07 % while
some short-term rates have even slid below zero. In other words, in stead of
having to pay interest, some borrowers are being paid to borrow! Because this
is absurd and yet making sense in the Japanese context, it has been nicknamed
“Zen-banking”.
Deflation
is both cause and effect here, but mainly cause. Because of the enormous
overcapacity of Japan’s domestic industry on its contracting home-market, and
because of deflationary pressure coming
from its Asian trading partners, prices of most commodities have been falling
for several years now. Meanwhile, Japan’s export-industry remains quite
competitive on the world market and continues to rake in trade surpluses with
the rest of the world. The repatriation of these revenues implies that other
currencies are exchanged into yens, which keeps the exchange-rate of the yen
relatively high. The relative strength of the currency reinforces the
deflation-trend (because expressed in yen, the prices of the devalorising
commodities, especially those from Japan’s neighbours, are even lower) and
pulls down interest rates (because money already increases in value relative to
commodities, given the latter’s devalorisation). Meanwhile, the Japansese
Central Bank is pushing the rates down too, to stimulate the economy with cheap
credit. But the outlook on profits is so dismal in the Japanese economy that
there is very little appetite to invest, despite the cheap credit. So instead
of investing productively, capital-owners seek refuge in the relative safety of
government-bonds, even when those yield nothing and even when they must pay a
slight negative interest for the privilege of lending to the state.
So
the government receives money for free, but it’s not doing the economy much
good. Neither has the more than 800 billion dollar worth of stimulus-measures
which Japan had taken since 1992, over and above its normal budget, done more
than pain-killers do for a cancer-patient. But it has inflated its public debt
and made its deficit the largest of all developed countries, which will limit
its capacity to react when the shit hits the fan.
In
contrast to the US and the EC, Japan doesn’t have the advantage of a large home
market. That is the main reason why it has developed a double economy; one
large scale, very efficient and competitive, but wholly dependant on export;
the other and larger one, more backward, more labor-intensive, serving the
domestic market. The latter cannot survive without protection, so Japan cannot
open its gates without letting in a devastating depression. Because of
overcapacity, all measures that have been taken since the Japanese bubble burst
in 1990, have failed. So Japan must try to increase its export, but its Asian
markets (which bought 40% of its export) has contracted sharply. Moreover, its
past success is now an obstacle for expansion. When a multinational like Nissan
launched an export-offensive recently, it discovered that it was mainly
competing with itself: its raised exports forced a decline of production in
Nissan-plants in Tennessee and Northeast-England.
What
will happen when global recession yanks away the sole pillar supporting the
Japanese economy, its trade-surpluses? The reason for the yen’s strength would
disappear and it would fall, and all yen-denominated assets with it. This would
raise deflationary pressure on other countries and trigger another round of
devaluations in Asia and elsewhere. It’s ailing bank sector, with its more than
100 trillion Yen in bad loans, would start to collapse. To stem the panic, the
Central Bank would have to use its foreign reserves. That would mean selling
dollar-assets, at a time when the recession would already shake America’s
financial markets. With Japan a seller instead of a buyer of dollar-assets and
profits shrinking together with the global market, the stock market would
crash.
How
deep? Would the entire bubble burst? These are questions we cannot answer. That
the next global recession will be deep, and devastating for the whole world
economy, seems certain. That it would become a global depression is not, but it
certainly will bring the world closer to it.
It is possible that European capital would
weather the next storm better than the US, because it has not yet developed the
same dependency on a continuous capital-influx from Japan and elsewhere. Yet it
wants to. The dollar’s role as the currency of the world, the position of
dollar-assets as the safe haven for capital everywhere, have allowed the
US-economy over the past decades to buy much more from the rest of the world
than it sells to it with relative impunity. It has fueled a steady demand for
its assets, thereby raising their price, creating billions upon billions of
extra-purchasing power for its possessors. In short, it has created a
continuous transfer of value from around the world to American capital, making
it richer and enabling it to soften class contradictions
.
For
the first time since the dollar-world was created in Bretton Woods at the
conclusion of the second world war, there is now an alternative international
currency, the Euro. Wether it will be able to threaten the dollar’s position
remains to be seen. But with profit-prospects darkening everywhere, the
question where capital from around the world will seek shelter from the storm,
becomes of primordial importance to the US and Europe. Who will occupy the
upper deck on the Titanic? The rivalry and friction between both will likely
grow. The defense of the strength of their currencies will be essential in that
struggle.
But
what can a state do when depression sets in and its currency and financial
assets are sinking, so that it can neither increase deficit-spending nor
increase the money suply without risking a hyper-inflation which would only
accelerate the depression?
That
may be the impossible situation in which even the most powerful countries find
themselves in the future. It is also the situation Russia is in right now.
The
depression whch Russia currently suffers is often blamed on the incompetence of
its leaders, on their “lack of experience with capitalist management”. But
that’s rubbish. Of course there is incompetence, but even the most competent of
leaders could change little to the fact that, with the exception of some
military hardware and other products of what remains of its military-industrial
complex, there is an oversupply on the world market of everything which Russian
capital can sell to the rest of the world, from oil and gas and labor power to
steel and even gold, and that most of it can be produced either more cheaply or
of higher quality elsewhere.
It
was lack of profit which forced Russian capital to give up its Stalinist mode
of control and its imperialist aspirations at the end of the ‘80’s, but its
situation has grown steadily worse ever since. Its integration in the global
economy has transformed Russia in an exporter of mostly raw materials and an
importer of finished goods and foods, making thousands of existing factories,
unable to compete with foreign capital, superfluous. State-subsidies and
foreign credit did slow the pace of economic devastation but also lead to steep
inflation and a buildup of debt, forcing the state to gradually abandon its
subsidies, which accelerated the contraction of the economy. This worsened the
already dismal profit-perspectives. Consequently, the foreign capital that came
in, did not go into productive investment but simply into debt-creation, taking
advantage of the high rates which the Russian central bank and private banks
had to pay even on short term loans, to get any capital at all (on balance,
much more capital has left Russia in the last decade than came in, as has
become the case for backward countries in general. Rather than being helped by
them, it is capital from the underdeveloped countries that is helping to prop
up the value of the capital of the highly developed ones).
The
spread of deflation, which affects raw material-prices first, hit Russia hard.
Especially the drop in oil-prices last year, caused its export earnings to drop
sharply. It became clear that Russia
would become increasingly unable to service its debts, so capital rushed to the
exit. The huge demand to exchange rubles for dollars inevitably caused the
ruble to fall, devaluating it with 63 %.
So
the Russian state found itself in a situation which gives developed capitals a
hint of their own future. Despite the depression, it can’t do much to force the
reproduction process to continue, for fear that its currency would fall so
steeply that it couldn’t function anymore as a measure of value nor as a store
of value, which would accelerate the breakdown. It can’t borrow anymore, since
it was forced to default in its debt. And it can’t lower interest rates nor
simply print more money to service its debts and stimulate the economy without
causing hyper-inflation. The private banks, half of which are in the red, are
seeing the loans they extended earlier go bad and cannot find any new customers
at the high interest rates they’re forced to charge. As a result, credit in
Russia has shrunk to 7 % of the (itself shrunk) GDP, as compared to 111% in
Germany.
The
ruble has lost two thirds of its purchasing power but because hyper-inflation
has so far been avoided, it still can measure and store value. But it’s
increasingly deficient in money’s third function: there isn’t enough of it
around to make the circulation of commodities possible. And there can’t be,
unless another huge chunk of the profit-scarce economy is forced into
bankrupcy.
It’s
a tribute to the ingenuity of the Russians (and their experience from Stalinist
times) that the reproduction process goes on despite this. That production and
circulation, although severely shrunk, are not paralyzed. That unemployment,
although much larger than the official figure of 8,5 million, is not yet
growing uncontrollably. That all this hasn’t happened yet, is because the
majority of Russian companies, private and public, have decided to ignore the
fact that they’re all sitting on a mountain of unpaid bills and have run out of
money to pay each other, their workers, their taxes, and to carry on their exchanges
in kind (barter). A survey of 210 of
the biggest companies in Russia last year showed that more than 70% of their
receipts were non-monetary. Complicated chains of production-swaps, often
involving dozens of companies, many of which technically bankrupt, have come in
the place of money-exchanges. Similarly, workers are uncreasingly paid in kind,
which can be whatever. Even the government, if it pays it employees at all,
uses whatever it receives in lieu of taxes for that purpose. In Voronezh for
instance, teachers were paid by the local governemt in gravestones, which was
seen as a good deal because it was at least something for which was always in demand.
Of
course, this excerts a heavy toll. Barter is difficult, very awkward and
inefficient. Every swap must be negociated and commodities make all sorts of
costly detours before reaching their final consumers. The waste in resources
and time is enormous. Just think of all the time that must be spent in
organising the exchanges (Splav, a valve-producing company in Novgorod has 50
executives who do nothing else) not to mention the millions of hours workers
must spend to sell and swap their ‘wages’ before they obtain the basic
necessities. It’s funny and sad at the same time, to think about the absurd ways
capitalism is forcing people to find to survive -if they can- when all these
worries could disappear by producing for the purpose of satisfying what they
need, liberating their energies to embrace, finally, real freedom.
Meanwhile,
the Russian GDP has shrunk with 42,5% in the last 9 years. Wages, for as much
as they’re paid, have lost more than
60% of their purchasing power. Entire sectors are in ruins. Steel consumption,
for instance has dropped from 970 pound per capita to 265 pound , as the
productiond of trucks has fallen with 80%, of refrigerators with 60% etc. With
their domestic market decimated, with the EC imposing quota on Russian steel
and the US threatening to do the same, the remaining steel factories are all
facing bankruptcy. The policeman of Western financial capital, the IMF, demands
that all these unprofitable plants are closed, as a condition for new loans.
“We can’t do that”, said a director of the Magnitogorsk Metal Works. “There
would be a huge social explosion. That’s what everyone is afraid of.”(5)
All
indicators show a steep rise of bleak misery in Russia, with no hope for
improvement in sight. Not just the indicators on economic activity, but on all
aspects of life. The average-lifespan is falling, diseases caused by environmental
destruction are on the rise, the suicide-rate of children has doubled in the
last decade, millions of homeless (amongst which two million kids) roam the
streets and countryside, hunger is spreading, crime and corruption are rampant
.
The
many spectacular stories in the press on how Russia has become a cesspool of
government corruption and a gangsters’paradise, often put the blame on Russion
particularities, just like they explain the wars in the Balkans by “ancient
ethnic hatreds” and the bloodshed in Africa by “the persistence of tribalism”.
The implicit message is: “rest assured, it can’t happen here, in the civilised
world”. Well, think again.
Of
course history has left a vast reservoir of ethnic and cultural division, of
racism, fear of otherness and scapegoating of minorities. Not in the least in
Western Europe and America. But there is also a huge reservoir of interethnic
cooperation, of human brotherhood and working class solidarity. The important
question is under which conditions and by which social forces, by which
classes, are these reservoirs tapped. Historical experience shows that
gangsterism, corruption, racism and mass murder are not a sign of a lack of
penetration of capitalist civilisation. At the contrary, no civilisation generated
so much of it, not even in a relative sense, as capitalism.
Morality
has never been the driving force of capitalism: profit has. And when conditions
become such that profit cannot be obtained by conventional means, it will be
sought after by any means possible. Thus this barbarism is not an aberation but
the normal way of behaving for decadent capitalism when it sinks into crisis.
That’s why crime and corruption are spreading like wildfire in most of the
world. That’s why every inch of land is fought over in the Balkans. That’s why
India and Pakistan test nuclear weapons while organizing pogroms against
religious minorities. That’s why in Africa states are fracturing and bloodbaths
have become too frequent to mention them all on the evening news.
Contrary
to what some dogmatics, mired in the past, still believe, these conflicts are
not primarily confrontations by proxy between the big powers. The
profit-potential of most of Africa has become far too low for them to care very
much. And besides, the mining and other interests they still have there, would
be far better served by stability than by the turmoil that now surrounds them.
So it’s rather despite than because of the big powers, or more because of their
disinterest than because of their interest, that Africa is plagued by endemic
war.
The
imperialism we see there, comes from local states and fractions of splintering
states. The bloodshed is the product of the economic breakdown of capitalism
there, which creates the necessary ingredients:
---a
capitalist class and its state and hangers-on, which see the economic base of
their profits and power dwindle so that fights break out over the shrinking pie
in which the most ruthless and violence-prone (and often also the most
irrational, the most likely to believe their own lies) amongst them are brought
to the fore;
---alienated
masses, so thoroughly robbed of all hope, that they can be mobilised for the
former’s purposes with genocidal, scapegoating rethoric.
One
shudders to think of the mass death and destruction that becomes possible when
the economic breakdown reaches the most developed areas of capitalism. Let’s
forget any illusions in the good nature of the ruling class there and remember
the productivity of the technological means at their disposal. As history has
shown, death too can be mass-produced.
But
there is this other vast historical reservoir, of brotherhood, of hunger for a
real human community, of working class solidarity and determination. So the big
question is: why isn’t the working class revolting?
It’s
true that there are class struggles going on, that the ruling class isn’t free
to do what it pleases and often must tread carefully for fear of provoking
social outbursts. It’s also true that history shows that class anger has a way
of building up subterreanously, to errupt after a long period of apparent
calmth with the sudden, gigantic force of a volcano. But given the level of
misery the working class is suffering internationally, given the certainty that
this misery will become much worse as long as capitalism survives, in whatever
clothing, given the real possibility for the working class to transform the
world, to transform us all from victims into free human beings, why hasn’t this
happened already? Or at the very least, it’s fair to ask, why isn’t the working
class resisting much harder what’s being done do it?
A
correspondent of a Belgian newspaper put this very question to the workers of a
tire factory in Voronezh (Russia), who, for the last three years, received
their wages in the form of tires, which they have to sell for themselves to
survive. He summarized their answers as follows: “What has the revolution of
1917 yielded? Only destruction and misery. What would be the result of a new
revolution? At most that other thieves would come to power. So it’s like the
weather: all you can do about it, is to stay inside.”(6)
These
workers have a vantage point that shows many things clearly to them, which are
obfuscated for many workers elsewhere. They know they’re exploited; they don’t
need a complex explanation on surplus value to prove it. Their wages are,
literally, just a fraction of what they produce. They know that their situation
will not be improved by a change of personnel at the top; that they will not be
helped by supporting one party over the other. They know that the question of
how to struggle for their immediate interests inevitably poses the question of
the broader perspectives, of the
direction of society, of revolution.
The
question they pose to us is valid: what guarantee is there, that the revolution which we advocate, would not just
bring other thieves to power? That the pain which this struggle inevitably
would cause, would be the birthpangs of a truly new society, of real freedom,
and not just yet another round of suffering in vain?
If
there is no clear answer to this question, is it not indeed quite logical to
look at the forces of economic and social destruction unleashed by the crisis
of capitalism as some kind of natural disaster and to seek shelter inside?
Isn’t that what most people are doing all over the world, trying to escape
inside, seeking refuge into the cozy niche of family-life, or of professional
or cultural interests, or of a church-community, or in obsessions with sports
or TV or other drugs, or whatever, while hoping that, at some point in the
future, the “weather” will somehow improve?
But
in reality, it’s the other way around. It’s not the economic environment that
defies human control like the forces of nature, but it’s the “natural”
disasters that are in fact man-made, just like the economic ones. Last year’s
inundations in China for instance, would not have afflicted 250 million people
and killed at least 10 000 of them, were it not for the reclamation of lakes
and the enormous silt-accumulations resulting from pollution and erosion,
caused by the profit-hunger of Chinese capitalism.
But
“to stay inside” will offer less and less shelter. ‘Natural’ disasters,
poverty, misery and bloodshed will all increase together with the collapse of
the economy, as long as the capitalist system is not overthrown. There simply
is no alternative.
The
answers of the Russia workers quoted above do reflect a maturation of
consciousness: indeed, workers everywhere must realize like the workers of
Voronezh, that the question before them is not how to protect their living and
working conditions within the present world order, that the struggle for their
interests leads straight to the question of revolution. As we have pointed out
in recent issues of IP, some struggles in the most developed countries such as
France and Belgium, have shown in the past years signs of an encouraging growth
of awareness of and reflection on the broader perspectives of the struggle.
This must be stimulated
.
The
answers of the workers in Voronezh also show the main obstacles to that
maturation:
---the
pervertion of the communist project resulting from the bitter defeat of the
Russion revolution, the equation of the working class revolution with the
experience of Stalinist rule, which
both the ideologies of the right and those of the left, in some form or
another, continuously solidify;
---the
difficulty of imagining, in the conditions of alienation and segmentation and
atomisation which capitalism’s ideology and social structures create today, a
real world community in which the exploitation of men by men is truly ended.
The
working class will only overthrow capitalism when it becomes convinced that it
must do so, and when it becomes convinced that it can do so, that it can indeed
take control over the global economy which only turns because it makes it turn,
and use its vast potential to meet the needs of mankind and open a reign of
freedom from want, freedom from exploitation, freedom from domination. In other
words, it will only stop capitalism in its lethal tracks if it becomes
convinced of the necessity and the possibility of real communism.
Revolutionary
minorities cannot simply inject those ideas in their class. In terms of
propagandistic means, we are no match for the forces of capitalism. The
communist project can only take hold of the class through the interaction
between the worsening capitalist context and the growing recognition by the
working class of its own potential. Our role as revolutionaries in this process,
is in the first place to articulate, and thereby to clarify, what the class as
a whole is already beginning to understand intuitively.
We
won’t be able to do so, if we’re not aware of our own lack of clarity, if we
are content to intervene in class struggles with formulaic slogans. We must
join forces to make revolutionary theory the razor sharp weapon our class needs
to succeed, the world needs to survive.
Sander
1/23/99
_____________________________________________________
NOTES:
1.
New York Times, september 5 1998
2.The
Wall Street Journal, august 24 1998
3.
Peter Bernstein in The New York Times, august 31 1998
4.
William Fleckenstein in The Wall Street Journal, november24 1998
5.
Sergei Nosov in The New York Times, november 8 1998
6.
De Morgen, august 22 1998.
[from
Internationalist Perspective #35, summer 1999]