THE WORLD economy is on the verge of a major recession. That was the bleak message last week as 100,000 workers on both sides of the Atlantic lost their jobs and the stock exchange plunged downwards.
Spokespeople for big business are putting the blame on the suicide hijackers' destruction of the World Trade Centre on 11 September. It certainly precipitated the fall in the US stock exchange last week. But it cannot explain the scale of the economic crisis.
This was already apparent on 10 September, when the Financial Times carried a report of the meeting of top European industrialists in Italy. It said: 'European business leaders are scared. For all the brave words and fine talk that the worst may soon be over, industrialists did little to disguise their overriding pessimism.'
'The financial markets have gone out of control,' said a Paris-based investment banker. Giovanni Agnelli, the honorary chairman of Fiat, said industry could forget the international recovery for the time being and face the reality of a slowdown instead.
The Financial Times had reported on the crisis in the telecoms industry a few days before (see last week's Socialist Worker). The industry had written off a massive $1,000 billion wasted investment. That is enough to pay off the total debt of the world's 40 poorest countries four times over.
Workers in the industry were already paying the price, with more than half a million redundancies in firms like GEC Marconi, Motorola and Viasystems in Britain. Bosses in Britain's £20 billion plastics and rubber industry warned that it was facing a crisis because of the economic downturn and a growing list of plant closures by big manufacturing customers.
Lives have already been wrecked by hundreds of thousands of job losses in manufacturing over the last four years. The root cause of the crisis does not lie with the terrorist attacks, but with the old capitalist absurdity of boom and bust. Capitalists right across the world believed until only just over a year ago that they could make massive profits by pouring money into the US stock exchange and the telecoms and dot.com industries.
The result was massive overproduction. Now they are reacting to this by cutting back and sacking workers. The result is to reduce the market for other goods, so that the crisis spreads through the whole of industry.
For the first half of this year the scale of the crisis was concealed because many people continued to buy consumer goods. They paid for them by increasing their level of borrowing through credit cards and other loans.
The borrowing was bound to stop at some point, as people began to realise how heavily they were in debt. That point has come in the US with the panic since the destruction of the World Trade Centre.
Many of the biggest US firms have used the panic to go public about how badly they were really doing beforehand. As the Observer Business section reported last Sunday: 'It was clear from the hundreds of profit warnings that corporate America had decided to announce all the bad news at once.'
Bad to worse
WHILE MOST of the focus has been on the US, the Japanese economy has been going from bad to worse. Electronics manufacturers, including Hitachi, Fujitsu and Toshiba, were already preparing to cut tens of thousands of jobs at the beginning of this month. Car companies wanted to get rid of 140,000 workers over the next four years.
NTT, the telecommunications group, is breaking with a tradition of lifetime employment and asking 110,000 employees to transfer to new subsidiaries. Now the major banks are in deep trouble following the bankruptcy of a major retail firm, Mycal, with liabilities of Y1,390 billion ($11.8 billion). Ryoji Musha, chief strategist at Deutsche Bank, warns that the banking sector is teetering on the brink of a meltdown.
He believes that 'the only way out of Japan's predicament is the partial and temporary nationalisation of all the country's major banks.'
Shares collapse leads to misery
THE DEEPENING economic crisis has seen a massive drop in share prices. It is this which most concerns many of the world's rich, because it means an immediate fall in their total wealth. The drops have been enormous. Last week the Dow Jones index of the US's biggest firms fell by around 13 percent in four days, with a small bounce back on Monday.
There has been a total fall of 30 percent since the beginning of last year. The Financial Times pointed out that there have only been four falls on a greater scale in the last century, most notably between 1929 and 1932 when the Dow Jones fell by 89 percent.
You cannot read a wider industrial slump from a fall in stock exchanges. Such a slump happened after 1929, but it did not happen after the outbreak of World War Two, when the Dow Jones fell by 40 percent. A fall of 45 percent in 1973-4 was accompanied by economic crisis, but on a much smaller scale than in the 1930s.
And the famous crash of October 1987, when shares lost about a third of their value in a week, was followed by two more years of economic boom. A stock exchange is a place where the rich speculate on shares in companies that already exist.
It doesn't produce anything itself, and is parasitic on the real world of production and exploitation. The impact of any crash depends on what is happening there. Today that wider economy is in trouble because years of pouring money into certain industries while trying to hold wages down and lying about profit levels has led to massive overproduction.
But the stock exchange crash can feed back into that wider economy, making the crisis even worse. Giant firms will have based their calculations on assumptions of stock exchange profits that will not be forthcoming-and they will now try to make their workers pay for the losses they incur.
Use billions to stop job losses
OPPOSITION TO state intervention and subsidies has for years been the rallying cry of financiers and industrialists. This has translated into the neo-liberal policies pushed by the bosses' organisations and embraced with such enthusiasm by Tony Blair.
Now that a slump threatens, their position has shifted. Giant firms in the US and Britain, most notably in the air transport industry (see page 9), are suddenly demanding state assistance. The US government has forked out $40 billion for the rebuilding of the Wall Street area in New York and $15 billion for the airline companies. There are some left of centre economic writers who see this shift as a great step forward.
They claim it marks a return to a time when state intervention made capitalism operate in the interests of workers as well as big business. In reality, there was never such a golden age.
However, the point at present is that the money is not used to help workers, but to enable firms to proceed with rationalisation packages that involve huge levels of redundancy.
But the massive sums of money being thrown about should convince people that we do not simply have to sit back and accept job losses. If billions can be used to keep the profits flowing for firms like Virgin and BA, they could be used to stop any job losses. In any firm threatening the sack, workers should demand: