There is a debate going on among establishment economists over the recession that hit the US last year. Many of them claim that it is already over. Alan Greenspan, chairman of the Federal Reserve board (the US central bank), told a Senate committee last month that economic activity was 'beginning to firm'.
Like Greenspan, many of those who say the recession is over talked up the speculative boom of the 1990s. They claimed it represented the emergence of a 'new economy' that, thanks to information technology, had escaped the cycle of boom and slump that had afflicted capitalism for the past two centuries. Now, this talk looks pretty silly. But this doesn't mean that one can just dismiss out of hand the idea that a recovery has begun.
After all, the whole point of saying that economic activity under capitalism is cyclical is to acknowledge that it goes down-and up. Karl Marx, who was one of the first people to discover this cycle, argued that permanent slumps are impossible.
Essentially recessions happen because capitalists' investments grow more quickly than the profits they can make from them. The rate of return on their investments-what Marx called the general rate of profit-falls until they stop investing and precipitate the economy into slump. But recessions release forces that start to push the rate of profit back up again.
Firms go bankrupt, allowing their more efficient rivals to buy up their plant and equipment cheap. Unemployment rises, weakening workers' bargaining position, and putting them under pressure to accept lower wages and worse conditions.
Eventually these mechanisms increase the rate of profit to a level where capitalists decide that it is worth their while to start investing again. The whole infernal cycle of boom and slump then starts up again.
The important question, then, is whether or not the US economy has reached this point yet. It seems doubtful. As the Financial Times pointed out recently, far from abolishing the business cycle, 'new technology has instead generated the cyclical extremes'. Euphoria about information technology in the late 1990s encouraged firms to sink huge investments into expanding their productive capacity.
Investment in telecommunications rose between 1997 and 2000 by about 20 percent in the US and 50 percent in Western Europe. But profits did not rise quickly enough to match. The result was massive over-investment.
According to one estimate, about $1,000 billion-£690 billion-was wasted in the global telecommunications industry over the past four years. Over-investment is a classic feature of speculative booms. So is large-scale swindling, legal and illegal.
Enron's accounting scams turn out to be just the tip of the iceberg. It has emerged that many telecom firms were swapping capacity in an effort to make them look more profitable. The problem is that it takes time for the effects of this over-investment to be wiped out.
An economist at the International Monetary Fund has predicted that 'economic activity would not recover until past investment 'mistakes' had been corrected'. It doesn't look as if that's happened yet.
The British business press is full of stories about the crisis of the telecom companies which were set up as rivals to BT at the height of the boom. The three top 'alternative carriers'-Energis, Colt, and Thus-had a combined stock market value of almost £46 billion at their peak in 2000. By the end of last week this had shrunk to less than £800 million.
Will Hutton wrote in last Sunday's Observer, 'The financial losses, waste and emerging cases of massive fraud in the wake of the telecoms bubble, with almost nothing to show for it in terms of technological innovation, are among the great calamities of industrial policy ever witnessed.' Nor is the problem confined to telecoms.
According to the Financial Times, 'In information technology generally, the legacy of past over-investment is everywhere. Scott McNealy, the chief executive of Sun Microsystems, has said he is having to compete against his own products sold off as bankrupt stock, at as little as 10 percent of list price.'
The boosters of US capitalism should consider the plight of Japan. More that ten years after the collapse of the speculative 'bubble economy' of the 1980s the Japanese banks are still loaded down with bad loans. Output and prices continue to fall.
The depression that grips the world's second biggest economy is a major problem for global capitalism. But it may also be an awful warning of what lies ahead for the US itself.
Alex Callinicos is the author of The Revolutionary Ideas of Karl Marx and a contributor to Marxism and the New Imperialism. Both are available from Bookmarks, the socialist bookshop-phone 020 7637 1848 www.bookmarks.uk.com