Boom and bust is back again
By Alex Callinicos
PAUL O'NEILL, the US Treasury Secretary, last week exuded the feelgood conservatism typical of George Bush's administration. "I am an unqualified optimist about the economic potential of the world," he told the Financial Times.
O'Neill predicted that the US economy would grow by more than 3 percent next year thanks to the dynamism of multinational corporations: "The great companies don't make excuses, including excuses about how they didn't do well because the economy was against them or prices were not good-they do well anyway."
But a lot of "great companies" are doing really badly at the minute. Last week more than 100,000 jobs were lost in the global telecommunications, technology, media and manufacturing industries. Moreover, figures published on Friday of last week showed that in the second quarter of this year the US economy grew by a mere 0.7 percent-the lowest rate since 1993.
Back at the end of 2000, when the US economy first began to slow down, a chorus of experts promised that Europe wouldn't be affected. In fact, the impact of the American slowdown on Europe has been much more rapid than in the past.
The British economy grew by only 0.3 percent in the second quarter of 2001. Manufacturing output in continental Europe has fallen for three successive months. Meanwhile in Japan, the second largest economy in the world, industrial production fell at an annual rate of 14 percent in the first quarter and 7 percent in the second quarter.
Since the Asian and Russian financial crashes of 1997-8, it has been the US economy that has kept the world afloat. Booming America sucked in imports from the rest of the world, maintaining growth in the exporting economies. Now there are signs that this process is going into reverse.
US imports fell sharply in May. Among the countries hit hardest by the contraction of the US market are Ireland, Chile, France, Brazil, China, Argentina and Germany.
A fortnight ago Alan Greenspan, chairman of the Federal Reserve Board, the US central bank, warned that slowing national economies were dragging one another down: "The interaction of slowdowns in a number of countries simultaneously has magnified the softening each of the individual countries would have experienced on its own." Greenspan nevertheless expressed confidence that the US was "experiencing only a pause", and that the boom would soon resume. Greenspan has in the past few years lent his support to the idea that a "new economy" has emerged, with information technology making possible a rapid growth in productivity.
But now the evidence of the "productivity miracle" is beginning to dissolve before American political and business leaders' eyes. US government statisticians have revised down estimated growth last year from 5 percent to 4.1 percent.
It looks as if a serious world recession is spreading outwards from the core of global capitalism in the US. In the first quarter of this year American companies cut production because inventories of unsold goods had built up. The pundits expected that once these inventories had been run down the economy would start to grow again. But this hasn't happened.
Without increased spending by state and local governments, the US economy would have shrunk in the second quarter. Investment fell at an annual rate of 13.6 percent, the sharpest fall since the 1982 recession. The driving force in this developing slump is over-investment. At the height of the boom, companies poured money into increasing their productive capacity in the expectation that markets and profits would continue to grow.
As a result, particularly in telecommunications and other high-tech sectors, firms are now saddled with more investment than they can make an acceptable profit on. As their profits are squeezed, bosses are cutting production and investment and laying off workers.
So far consumer spending has held up well in the US and Britain. But this can't carry on indefinitely. If redundancies spread, then people will start spending less in the shops, intensifying the downward spiral in which the world economy is now caught. The cycle of boom and bust, which Gordon Brown swore to abolish, is back with a vengeance.
The bosses will do their best to ensure that it is workers who pay the price of their miscalculations. The anti-capitalist protests at Genoa showed it is possible to challenge this crazy logic.
We must make sure that the spirit of Seattle and Genoa infuses the programmes of action that are needed to defend jobs, wages and services.