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'ONE BY one, economies around the world are stumbling,' warned the normally enthusiastically pro-market Economist magazine this week. Most serious commentators now fear that the world is heading for a major slump.
Issue 1766

‘ONE BY one, economies around the world are stumbling,’ warned the normally enthusiastically pro-market Economist magazine this week. Most serious commentators now fear that the world is heading for a major slump.

The Economist spells out how ‘from Japan and Taiwan to Mexico and Brazil, GDP [output] is already shrinking. Global industrial production fell at an annual rate of 6 percent in the first half of 2001. The picture may soon look even worse.

‘Welcome to the first global recession of the 21st century. Nowhere is safe.’ The scale of the recession threatened in Britain was underlined last week by the dramatic collapse of Marconi.

This is no two-bit outfit but a giant firm which, under its earlier name of GEC, has for decades been at the heart of British industry.

GEC sold off some of its defence business, changed its name to Marconi, and spent billions expanding into manufacturing telecom equipment. The company was worth a huge £35 billion a year ago. But the global telecom equipment market has collapsed in recent months. The entire firm was valued at just £800 million last week.

For decades the firm was regarded as one of the safest possible investments, one of the ‘blue chip’ companies central to British capitalism. In a humiliating move, its debts and bonds were last week officially given ‘junk status’ on the finance markets.

Marconi’s debts run to over £4 billion, over five times what the entire company is now worth.

The company had already made a loss of some £5 billion, the biggest ever loss by a British corporation. The scale of the collapse is so great that some of the fat cats at Marconi were forced to resign last week.

Chief executive Lord Simpson and chairman Roger Hurn were pushed out by other fat cats and City institutions furious at the scale of the losses. Simpson will not suffer much as a result. He is set to pocket a £1 million payoff and another £800,000 special bonus payment.

Marconi workers will get no such consideration. Even before last week’s dramatic collapse 10,000 workers were set to lose their jobs at plants around Britain, from Poole to Coventry and Merseyside. Now thousands more could be thrown on the dole.

‘We’re all facing ruin,’ said one worker at the firm’s Liverpool plant. Some 1,800 workers and their families are now worrying about their futures.

‘It’s not fair. They screw up and get a multi-million pound payoff. We have redundancy hanging over us. People here feel absolutely betrayed.’

Shipyard walkout

WORKERS AT the giant BAe shipyard at Scotstoun on Clydeside gave a glimpse of how to fight the threat of job cuts and closures last week. Over 1,200 workers at the yard walked out for 24 hours after an angry mass meeting.

Bosses are threatening 1,000 job cuts at the firm’s Scotstoun yard and at its Govan yard, also on the Clyde. BAe is also threatening 150 job cuts at its shipyard in Barrow-in-Furness. Union leaders’ response to last week’s strike was dismal.

The AEEU union’s Scottish leader, Danny Carrigan, told workers that their action ‘could undermine the long term objective of securing shipbuilding on the Clyde’. Workers should ignore such suicidal advice. Instead protest strikes need to be turned into serious action if the threat of jobs cuts and closures at BAe, and elsewhere, are to be successfully fought.

‘Blind panic in markets’

THE CRISIS is widening. British Airways last week warned of 1,800 job cuts, and then days later announced another 2,000 planned job cuts. Car components maker Unipart last week announced some 450 jobs could go at its plants in Oxfordshire.

Manufacturing industry in Britain has been in recession for months. The Financial Times last week reported that manufacturing output in Britain fell in the last three months at the fastest rate for a decade. The recession is already spreading to services.

The impact of collapses like Marconi on banks could deepen the crisis in services, as could the fall in world share prices. The value of shares around the world went on the slide last week as speculators worried that the global economy could be heading for a sharp recession. ‘There is panic in the market. It is feeding on itself,’ said one London speculator, as the FTSE 100 index of shares in leading British companies fell to its lowest level for three years last week.

Similar collapses hit stock markets in Germany, France, Spain, Japan and the US. In the US share prices slid on news that 113,000 jobs were axed in manufacturing last month alone.

Blind panic is leading some commentators to fear the world could be heading for what the Economist says may be the worst slump ‘since the 1930s’. Their fears may be exaggerated, but one thing is certain. The bosses’ system is in trouble, and it is workers and the poor who will pay unless we fight.

Boom to bust

THE Marconi/GEC collapse is the most dramatic event in an immense crisis that is ripping through one of the world’s key manufacturing industries-telecom equipment. As the Financial Times argued last week, ‘Forget the bursting of the bubble. For all its headline appeal, its importance was negligible compared with the related frenzy in the telecommunications industry.’

As we explain on page 8, what has happened is a classic example of the boom to bust cycle built into capitalism. Hoping to cash in on the expansion of new technologies like mobile phones and the internet, rival capitalist corporations all invested and borrowed huge amounts.

They all grossly overestimated the amount of new business and profits there were to be had. When that became clear the boom turned rapidly to bust. In the last few months mobile phone firms like Motorola have all slashed thousands of jobs. So too have giant firms making computers, such as Compaq and HP, and those making equipment needed to transmit internet and other telecom traffic, such as Lucent.

The crisis has been made worse by the mind-boggling scale of debt the telecom firms have built up. As the Financial Times pointed out, just the INCREASE in telecom firms’ debt ‘over the last three years’ has been greater ‘than the UK government accumulated over two centuries’.

Banks and financiers who rushed to lend these vast sums are now in a blind panic that they may not get their money back. The crisis is likely to spread to banks and other finance institutions. The Observer this week predicted at least 20,000 job losses in the City of London in the coming month.

That could have a dramatic impact elsewhere. Many of the giant new office blocks still being built at a furious pace in London are for the expanding banks and other financial companies. Now that expansion is in doubt. The result could be half-built empty shells littering the skyline, and thousands of construction workers thrown on the dole.

Blair’s fat cat

THE MARCONI collapse should be acutely embarrassing for Tony Blair. Blair made Marconi boss George Simpson a lord just months after New Labour came to office in 1997. He is one of Blair’s favourite businessmen. Blair loved Simpson’s plans to ditch the firm’s ‘old’ industrial image and expand into the ‘new’ industries linked with the internet.

The Guardian described the whole plan, which led to last week’s Marconi fiasco, as ‘Lord Simpson’s thoroughly Blairite project’. That ‘project’ now lies in ruins.

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