IF WAR did not dominate the media headlines something nearly as frightening would - fear of economic slump. This is despite chancellor Gordon Brown's repeated boast that his pro-business measures meant there could be no return to 'boom and bust'.
The last week has seen incredible volatility in the world's stock markets - the measure of the market value of the world's great companies. On Wednesday of last week they were valued at exactly half the figure they were in March 2000. On both sides of the Atlantic, a number of these firms face the threat of outright bankruptcy - and their workers of mass sackings.
This is true of the giant US airline Air America and the steel firm Corus that took over from British Steel just four years ago where 25,000 jobs are now at risk. More than 500,000 people lost their jobs in the US last month. The Financial Times writes of Europe, 'The outlook for the continent's largest manufacturing companies has rarely seemed bleaker.
'Across the continent each country's flagship engineering companies are seeing the same scramble to sell assets and fend off creditors as afflicted BT, France Telecom, Deutsch Telecom and KPN of the Netherlands.' The war is adding to the crisis. But the war is not the main cause of the deepening economic chaos - and it will not come to an end if Iraqi resistance collapses and the multinationals can once again toast each other in cheap oil. The last US land war against Iraq was over within days and the price of oil rapidly fell back to its previous level. Economic crisis persisted for another year in the US, for three more years in Britain and never came to an end in Japan.
The origins of the economic crisis lie in the absurdity of capitalism. All through history human beings have had to cooperate with each other to wrest a livelihood out of nature. Technological advance over the last two or three centuries should have made this task easier than ever.
But the means of making a livelihood - the 'means of production' - are in the hands of small minorities of very wealthy people organised as companies, or sometimes as state bureaucracies. They measure their success by their ability to make profits in competition with each other. No one is allowed to get more than the minimum livelihood without working for them.
When profits seem easy to make, they behave like pigs at a trough. Each firm tries to get the biggest share of these by investing in the most technologically advanced equipment.
Each devours raw materials. Each urges its workers to raise productivity, while telling them it cannot afford more than the most minimal wage increases. Each promises the rich they can make ever greater sums of money if they invest their money in its latest scheme.
This is the boom. It is always accompanied by speeches by politicians and newspaper articles boasting that capitalism has overcome its old tendency to crisis. This was the atmosphere in 1929, under the Heath government in 1973, during Thatcher's government in the late 1980s and as the new millennium began. On each occasion, the boom began turning to bust within months. The reason was simple enough. Firms were simultaneously turning out massively more output and curbing workers' wages and the ability of people to buy that output. Firms could not just pay their workers enough so that they can buy more goods as that ate into the profits and the competitiveness of the company.
The only way the boom could keep going was if the firms bought an ever greater share of the output in new plant and equipment. They were only prepared to do that if they were able to make even bigger profits. The moment any event, however small, put these profits in question, the whole house of cards collapsed.
From at least 1997 onwards, major firms were lying and exaggerating their profits by a third or more. They would see their share prices rise and the rich pour money into their coffers. Speculation and fraud flourished. Enron and WorldCom are the best known examples of this. But there was scarcely a major firm that did not join in.
Huge amounts of wealth were wasted on supposedly profitable investments that no one would ever need. No less than $1,000 billion dollars was wasted by firms as they built communications systems which would never be more than 10 percent utilised. Once a crisis starts, the market has a logic of its own that makes things worse. Firms try to protect their profits by sacking some workers and making others work harder for the same or lower wages.
This means there is less money to buy the products of other firms, encouraging them in turn to sack their workers. In effect workers are told they have to consume less because 'too much' is being produced!
This has been happening for two years already, in the US, Europe and Japan. It has been happening on a very large scale in manufacturing industry in Britain. In Britain and the US the immediate impact of the crisis has been counteracted by people building up greater amounts of personal debt. In Britain, rising house prices encouraged many people to do so.
Now fear of the future is causing people to panic over their debts. There are signs that spending in the shops is beginning to fall and there are widespread prophesies of a collapse in house prices. Faced with a crisis, mainstream economists and politicians pour out messages that can only make the crisis worse.
'Modernisation' is the cry of New Labour, meaning working more with fewer people for less. 'Cut public expenditure' is the cry of the Tories, meaning the state providing less of a market for the output of workers in other industries.
How will the slump affect workers?
YOU CAN never tell how severe any capitalist crisis will be. What happens depends in part on the completely irrational hopes and fears of capitalists - what the pro-capitalist economist Keynes called their 'herd instincts'. If the war is short, they may think it is possible to make profits by investing again. That might even lead to a brief period of economic recovery, before another crisis develops.
But they might panic and withdraw investments so as to speculate in something like gold. In that case the crisis will deepen. The crisis can also deepen if giant firms or banks are shown to be much deeper in debt than they have been pretending. This is especially likely because of the huge scale of speculation through the 'derivatives' market (a form of crude gambling), which has more than doubled in the last five years.
The US economy is dependent on massive borrowing from the rest of the world. If fear of the impact of war leads to a fall in the value of the dollar, then this money could flood out of the US. This is a possible outcome, but by no means a certain one.
You will already be suffering from the crisis if you work for firms like Corus or BT. If you have spent years doling out money for an occupational pension, watch out. Firms which took a holiday from paying into such funds in the late 1990s bet the money collected from their workers on the stock exchange.
Now it is falling, one after another is trying to welch on their commitment to pay the pensions they owe.
The crisis and war on Iraq
THE ECONOMIC crisis is being made worse by the war. But it is a product of the same system as the war. Each of the giant firms that dominates the world economy is linked to a greater or lesser extent to a major state.
The powerful states like the US, Japan, France, Britain or Germany will do their utmost to open up markets and win contracts for their firms in other countries. When crises erupt, the state becomes a powerful mechanism for trying to protect its major firms against the impact.
The US state intervened five years ago to stop the huge derivatives speculator Long Term Capital Management collapsing. The Japanese state is currently doing its best to stop the country's banks going bust. There is even talk of nationalising them. The Bush administration in the US has shown that it will forget its own 'free market' ideology to protect major US firms. It has imposed controls on imports of steel from abroad - one of the things damaging Corus. It can only get away with such things if it can be a dominating influence in world negotiations over trade and finance.
The hardcore group around Bush of Rumsfeld, Wolfowitz, Cheney and Richard Perle believe it has one card to play that the other powers do not - overwhelming military might.
They see waging a succession of wars on the weak powers they refer to as 'rogue states' and the 'axis of evil' as a way of showing who's boss not only to the poorer countries of the world, but also to big capitalists of Europe, Japan, Russia and China.
Chris Harman is the author of Economics of the Madhouse, available from Bookmarks for £3.50. Phone 020 7637 1848.