GATT / UNITED STATES US economy: the point of no return? THE economic crisis in the USA has gone beyond the point of the collapse of this or that medium-sized bank, a loss by this or that big firm, or the oft-described problems of the USA in finding outlets for its capital, which, since the 1950s has played an absolutely dominant role on the world market. The withering of the US economy has reached a point which recalls the defeat of British industry as it drifted away behind American competition before, during and after the First World War. WINFRIED WOI S*
WINFRIED WOLF* T HERE are three remaining sectors where the US economy has until now had a head start over Japanese and West European competition: aerospace, armaments and the financial sector. At the end of November 1991, the USA listened to an announcement in blank amazement: the second biggest aircraft manufacturer in the USA and the world McDonnell Douglas was to sell 40% of its commercial aircraft sector to the Taiwanese firm Taiwan Aerospace Corp. For the past half century McDonnell Douglas world market share of passenger aircraft has averaged 23%. In recent years, however, its share has been falling (the current figure being 17%).
It is above all competition from the European Airbus, nursed along by more than 100bn marks in tax money, that has put pressure on the company on the US market. As if to underline this defeat, on December 5, 1991, the renowned 64-year old airline company Pan Am announced bankruptcy.
Japanese chips at heart of
Gulf War
As far as the armaments industry is concerned, sales representatives of Japanese firms have been pointing out after the Gulf War that the heart of this operation, just as much as all the new US hightec weapons was of Japanese origin: chips. In the sector of semiconductor production, the USA had already had to surrender its leading position to Japan in the 1980s.. Now, in the new crisis, leading US electronics firms have been announcing losses and massive layoffs. IBM alone was to shed 25,000 jobs before the end of 1992. The American Telephone and Telegraph (AT&T) and its computer offshoot NCR reduced their workforce by 14,000.
Finally, in the finance sector, the USA lost its leading position to Japan in the 1980s. This is the sphere where the greatest danger is presented to the US economy. Until the beginning of the 1980s, the hit-list of the biggest banks was led by the US, now only one US company — Citicorp — is to be found amongst the world's top 30 lending institutions. Two of the country's biggest banks, Bank America and Chase Manhattan, have come close to bankruptcy in the past five years.
### Biggest ever insurance collapse
April 1991 saw the biggest ever collapse in the insurance sector when the State of California had to take over the Executive Life Insurance Company. The firm had been playing around with junk bonds. The same fate has overtaken an entire branch of the finance sector, the US Savings and Loans. As we have pointed out before: "what the S & L crisis amounts to is that some 3,000 savings institutions, as a result of irresponsible, but legally encouraged speculation, have been in reality bankrupt since 1989, with the state assuming the huge burden of underwriting the deposits.
"The cost which is falling to the already over-indebted US state from the collapse of this branch of the US savings' system is rising from year to year. Starting at $100bn, since 1991 it has reached "at least $500bn".
The result of this debacle is so horrendous that Bill Seidman, the President of the Federal Deposit Insurance Corp. (FDIC), the insurance fund responsible for underwriting the lost savings, resigned. In his view, the US government has failed to grasp the seriousness of the S&L crisis and is running the risk of an even greater
*This article first appeared in the December 19, 1991, 7 issue of Sozialistische Zeitung, paper of the German
United Socialist Party (VSP).
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not soon begin to counteract the recessive tendencies, the politicians could once again begin to erect trade barriers — just as happened in the Great Depression
(1929-32)".
We would not be living under capitalism, with its impressive capacity for ideological production, if the condition of the world's leading economy did not give rise to a new theory of crisis. According to the latest, we are seeing in the USA a "W-
Recession". That is, after the start of the recession in 1990 - following the first downward stroke of the letter "W" - there was a slight upturn in spring 1991 - the first upward stroke of the same letter
— to be followed in summer 1991 by a new plunge into crisis. The theory assumes that we will go on to see the completion of the "W" with a sharp upward rise. Another equally convincing theory is that the recession is shaped like the small
Greek "eta" (h)...
What is certain is that the US government, up against protracted stagnation, and with the danger of a sudden deterioration due to a general financial crash, has very little room for economic manoeuvre.
The US National Bank lowered the discount rate four times between July 1990 and the end of 1991 in order to make credit cheaper for enterprises and individuals.
However, contradicting the standard theories, this has not led to an upturn in consumption and investment.
Deficit reaches record level
The US budget had already in 1990 achieved the record level of $270bn and the deficit for 1991 will be at least $348bn. In 1991, for the first time, the USA spent more on interest payments on this debt than on defence. Further cuts in taxes, as urged by some leading US politicians, may lead to a slight upturn in investments, but they will also increase the budget deficit to an ever more dangerous level.
A series of other leading US economists, including the influential banker Felix Rohatyn are taking the opposite view. Their — not unrealistic - starting point is that the root of the problems of the US economy is to be found in the poor infrastructure, the miserable education system, the increasingly unsatisfactory health service and the inadequate investment aimed at increasing overall productivity.
As a result they urge an overall increase in taxation in order to finance a basic structural upgrading and, instead of a New World Order bring in a "new domestic order" (Felix Rohatyn in The New York Review of Books, November 1991). Such a programme, however, involving as it does taking money from enterprises and private individuals, will first of all deepen the recession - that "cleansing cold shower". * financial disaster.
There was not long to wait before the next glad tidings. In November 1991, the
General Accounting Office (GAO), a kind of finance policy watchdog for the US
Congress, announced that in coming months there might be a further "tide of bankruptcies in the banking sector" and that 35 of the 200 biggest US banks were in danger of collapse (Handelsblatt, November 9, 1991).
The picture of a declining US financial sector can be rounded off with a look at the New York stock market. Here, up to December 1991, the average of the decisive shares (the Dow Jones index) had once again sunk to a level of between 2,00 and 2,900, the uir el af between having melted away. The index is slightly above the level it was at just before the 1987 stock market crash - four years after, and thus de facto no interest. Already in the mid-1980s Wall Street had to surrender its role as the world's leading stock market to Tokyo. Jobs slaughter on Wall Street
And the crisis on Wall Street goes further. Since 1987 45,000 stock market related jobs have gone and a further 40,000 dismissals were announced in 1991. Two of the biggest broking houses, Merrill Lynch and Salomon Brothers, were caught up in spectacular stock market scandals in 1990 and 1991, in the course of which Mr. John Gutfreund, the man who personified the "Golden 80s" whose parties food and drink were specially flown from Paris, found himself scaled down to a Mr. Nobody.
Events such as the fall of Gutfreund or Pan Am — or the fact that Washington's leading bank, the First American, was controlled by the the bank of organized crime, BCCI, and, furthermore, that this latter was closely connected to the CIA, are all symptoms of the decline of empire, result8 ing from the inner decay of American society, offering ironic parallels with the International Viewpoint #223 • March 2, 1992 fall of the Soviet Union.
Underlying all this is the economy.
Over the past five years, the USA has lost whole slices of the world market. The core of US industry, the auto industry, is in deep crisis. General Motors, Ford and
Chrysler turned in the biggest losses in
US history in 1991. Big sectors of the car market have been taken over by imports from Japan and Korea and above all by production from "transplants" of Japanese car companies in the US. In the third quarter of 1991, according to the Wall Street Journal of November 5, 1991, profits of the 631 biggest US industrial enterprises were down 23% on the previous year.
The US government wants to enlarge the economic union of Canada, Mexico and the USA as quickly as possible and set up a broad North and Central American union to oppose the European union. However, by the end of 1991 opposition was developing to this project, above all in Canada and the USA.
The reason is the danger of North American jobs "escaping" to Mexico and the fact that the products of US industry can only to a limited extent if at all hope to compete with products from Mexico. This is only partly a matter of production by Mexican firms undercutting US products in terms of quality and price. Often it is US, Japanese and European firms with sites in Mexico, where they can escape from the established US unions in order to gain market shares in Canada and the USA.
Fear of competition from
Mexico
This situation is telling: the industry of the mighty USA is frightened of competition from Mexico. There exists in the USA, according to Business Week (December 16, 1991), "fertile soil for a protectionist campaign 'America First!')." This economics' magazine considers that "if the world's economies do
End of an illusion GROWTH having fallen for three successive quarters, it was announced on February 18, 1992 that Germany was officially in recession. However German interest rates are not to be cut, according to officials. This answers "no" to what has been the decisive question for Germany and to a large extent for the whole of the world economy in the last few months: could the German economy continue to succeed to be an island free from the whirlpool of a world recession? The hope had been that Germany could play a role of locomotive and bring the recession to an end first in the EEC and that the stabilization in Europe would then send positive signals to the two other economic centres of North America and Japan. However this has turned out to be wishful thinking. WINFRIED WOLF*
GERMANY for West German business. But the advantages would have been of a more relative kind since a significant part of the Austrian economy is already under the control of German capital, so that for firms such as Siemens, Daimler and BMW such a policy would have been partly cannibalistic.
But this would be a zero sum game for the West. Insofar as the German economy grew at the expense of the Austrian, the Austrian economy would slip down the ladder of the Western world market.
The ex-GDR is quite another matter. This economy was almost completely turned towards the East. In this sphere it was at once the economy with the highest level of productive forces and the site of a series of key industries which were decisive for the existence of the whole Comecon bloc (for example, Robotron for computers or Zeiss-Jena for the military and space travel sector). The loss of East Germany was thus one of the decisive blows, if not the decisive one, against the Soviet economy. We can explain this in mirror image: if from one year to the next Japan disappeared as a motor force for Western industry and, for example, Japanese semi-conductor technology was no longer available, this would have enormous effects on the West, especially if, as was the case in the East in 1989/90, there was already a critically delicate economic situation.
The "divided conjuncture" is most apparent in the social sector. The number of those officially out of work in West Germany fell from 2.2 million at the start of 1990 to 1.62 million in November 1991. Simultaneously, unemployment in the East rose from an estimated 200,000 at the start of 1990 to 1.03 million in
November 1991. The number of those on short-time was 204,000 in the West at the end of 1991 when in the newly obtained issue of Sozialistische Zeitung, the paper of the Ger- *This article first appeared in the December 19, 1991, 9 man United Socialist Party (VSP). March 2, 1992 • #223 International Viewpoint
T HE least that one could say by the middle of December 1991 was that the boom in Germany ended in summer 1991. Since then the German economy has in reality been in decline — the official figures being misleading since they use a false reference point. To be sure, the West German GNP for the second quarter of 1991 was 4.8% up on the previous year and 2.5% up in the third. However the reference is made deceptive because of the high growth rate in the second half of 1990 and the start of 1991. If the comparison is made with the immediately preceding quarter, then the GNP and industrial production have been falling since the second quarter of 1991.
In the second quarter it fell by 0.5% compared with the first and by something similar in the third quarter compared to the second (Süddeutsche Zeitung, December 16, 1991). Almost everything suggests that this is not some short term setback on the lines of 1986/7, but the beginning of a crisis.
It is not out of habit that I have written West Germany. The Federal Republic's statisticians permits themselves the trick of only giving the figures for the economic development of the former Federal Republic (West Germany); for East Germany there are only estimates. Thus there are no all-German figures. This is inadmissible on two scientific grounds. Firstly, a united currency zone has existed now for over 18 months; the West German mark was introduced before political unification or the all-German elections. It is thus simply wrong to claim that essential economic data for East Germany cannot be collected. All turnover, investments and consumption are accounted in Dmarks and are statistically determinable.
Secondly, this way of presenting things therefore amounts to falsification since a significant part of West German economic growth is at the expense of East Germany. On the one hand, because the destruction of the economy of the former GDR means the creation of a big new market for the West German economy, due to the high consumer potential of its population after the 1:1 exchange of the D-mark for the DDR-mark and the high savings levels in the East. On the other, West German economic growth is indebted to East Germany in a very direct sense: every month, some 10,000 people move from East to West Germany where most of them find work.