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Crisis at core of the system

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Issue 1764

Crisis at core of the system

By Chris Harman

“THE WORST global slowdown for a quarter of a century.” “A slowdown of a kind not seen since the 1980s.” “The seventh big recession in the last 120 years.” These were just some of last week’s descriptions of what is happening to the world economy by mainstream commentators.

They were from Gerard Baker in the Financial Times, Bill Martin of stockbrokers Philips & Drew in the Observer, and veteran broadcaster Alistair Cooke on Radio 4. The giant US economy is experiencing a recession that could turn into a full-blown slump. More than three quarters of a million jobs have disappeared and more sackings take place every day.

The world’s second biggest economy, Japan, is in an even worse state. Unemployment doubled in the 1990s as it stumbled from crisis to crisis. It is now back in recession. The situation in Europe’s biggest economy, Germany, is only marginally better. The country is on the verge of recession, with predictions that unemployed will rise to five million.

In Britain chancellor Gordon Brown continues to claim there will be “no return to boom and bust”. But hundreds of thousands of jobs have already been destroyed in manufacturing. Mainstream estimates for economic growth this year have fallen from nearly 3 percent to around 1 percent. And last month the number of people with jobs fell by 30,000-something obscured by the official headline unemployment figures. This is before we’ve felt the full impact of what is happening in the US, Germany and Japan.

The US government, the head of its Federal Reserve Bank, Alan Greenspan, and numerous media commentators are claiming that the present crisis is not all that deep. They say cuts in US interest rates and the enormous tax rebates Bush is giving to the US rich will produce a new economic upturn in a few months time. It is possible, although unlikely, that these measures will postpone an immediate deepening of the crisis.

They can stop a collapse in spending on consumer goods in the US and protect the markets for some industries. The massive planned spending on the Star Wars system can keep the big defence contractors working. But such measures cannot solve the fundamental problems. The US boom of the late 1990s was based on massively exaggerated predictions of big business profits.

They assumed US workers could indefinitely be made to work harder and longer for lower wages, as happened through most of the 1990s. They also rested on companies inflating their published profits by about a third from 1997 onwards, so as make their share prices soar. Now harsh truths are hitting the US and foreign capitalists who have invested in the US.

There are limits beyond which you cannot extend the working year or force workers to work any harder. And the need for firms to pay their bills is making them reveal their true profit levels. These levels are too low to prompt them to undertake the new investment needed to bring the crisis to an end.

Argentina gripped by economic meltdown

ONE OF the countries worst hit by the developing crisis has been Argentina. It used to be the most prosperous country in Latin America. Business Week now describes it as “close to an economic meltdown”. Unemployment has shot up to over 17 percent. Employers are slashing wages by up to 30 percent.

The government is cutting pensions and public sector pay by 15 percent. Thousands of small businesses have collapsed, leaving formerly prosperous members of the middle class with no livelihood. Two families in five have dropped into absolute poverty.

A decade ago Argentina’s government went further than virtually any other in embracing neo-liberalism.

It privatised all industry. It even tied its currency completely to the dollar. The economy grew for seven years as financiers poured money into the country in pursuit of high profits. But for the last three years they have been pulling their money. That has left the government unable to pay the interest it owes and the country’s wage bill.

There has been a panic in international financial circles about the country “defaulting” on its debts-stopping payments on them. This would be serious for the world’s banks-the country accounts for a fifth of all loans to “emerging” economies. That was why the International Monetary Fund (IMF) agreed last week to lend the government more money.

As with past IMF packages, this might mean the financiers get their interest payment but it is not going to solve the problems facing workers and the impoverished middle classes. Nor is it going to stop the spread of the crisis to other countries. Brazil and Uruguay have already been hit. Mexico has gone into recession. Ecuador and Peru have never recovered from the impact of the Asian crisis three years ago.

The Financial Times is telling financial institutions not to invest in such places. They should “wait”, it writes, “for the glimmer of recovery in the industrial world before committing to emerging markets.”

Such advice gives the lie to a report produced by the World Bank in the run up to its meeting in four weeks time. It claims countries that have embraced neo-liberalism in the last decade are “beginning to catch up with the rich countries”. In fact the crisis means they are beginning to fall further behind.

No wonder financial analyst Bill Martin warns his big business readers, “More effective than any anti-capitalist protest, America’s hard landing is likely to call into question the future of globalisation.”

Resistance: follow this example

THE MEDIA and mainstream politicians speak of economic crises as if they are inevitable natural disasters. We cannot do anything about them, they say, except tighten our belts until they pass (although you rarely see them tighten their belts). But the only thing that makes crisis inevitable is the capitalist organisation of production.

It is based on rival groups of capitalists competing to make the biggest profits. When for some reason the profits are not as large as they want, they shut whole industries. That means there is no market for many of the things being produced. There is the absurdity of absurdities, a crisis of overproduction in which millions of people suffer while the material goods that could overcome their suffering go to waste.

There is no need for anyone to simply put up with this state of affairs. Argentina’s workers are setting an example to the mass of people everywhere in the world on how to respond. Every week thousands of unemployed people are blockading the roads. The education system is shut by strikes.

There have been repeated one-day and two-day general strikes. These protests are making it very difficult for the government to continue placating big business and the international financiers. They begin to raise the central question of who runs the economy and in whose interest.

If working people controlled the major centres of production and ran them through a system of democratic planning for human need and not for profit, crisis would be seen as a relic of a prehistoric past. Today there exists an anti-capitalist movement with supporters in every part of the globe.

It has to carry the message about an alternative to the system to people everywhere who are being threatened by the spreading economic crisis.

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