The world economic situation in 1985 In the last two years the capitalist economy has undergone a new burst of activity. Beginning in the United States, the recovery has now extended to other imperialist countries as well as to some semi-industrialised countries in South East Asia and Latin America.
However, the upturn is uneven in scope and pattern. Even the origins of the recovery in the United States are linked to the federal budget deficit, which is in itself a factor of future potential crises.
The crisis of international finance takes on a new light when looked at from the point of view of the massive debts of the main capitalist countries. The fundamental elements of a structural crisis of the market economy are still the determining factor in the development of the international economic situation. It is within this framework that the following article looks at the state of the world economy in the different sectors (in the imperialist countries, in the dependent capitalist countries and in the towards the Third World countries. But this phenomenon only partially explains the sensational reversal of the trend. Indeed, the trend also reflects a real takeoff of competitive national industrial branches of the semi-industrialized countries such as steel, shipbuilding, garment and toys, electronic components and even the petrochemicals industry. It is interesting to note that a book has just appeared which deals with the issue of multinationals originating in so-called Third World countries, that is to say, controlled by Brazilian, Indian, South Korean and Hong Kong finance capital without any influence or any significant share in those multinationals by imperialist countries. (2) We have drawn attention to this phenomenon on several occasions.
Thus, the economic recovery in the United States gradually spread to the entire capitalist economy, first Japan and West Germany, then the other imperialist powers, then the semi-industrialized countries of Asia, and finally, beginning in 1984, towards the semi-industrialized countries of Latin America and some other countries.
Nevertheless, the current recovery is even more partial and temporary than the recovery of 1976-1979. It has not made it possible to eliminate any of the structural causes that have caused a long term depression of the international capitalist economy since the end of the 1960s and the early 1970s. No restructuration nor expansion of the world market (not to mention an expansion comparable to that of the 1950-1970 period), nor fundamental reorganization of the labour and surplus value production process, nor fundamental alteration of the social relationship of forces (a radical rise of the rate of surplus value) that could enable capital to provide an expansion comparable to that of the post-World War Two years or of the pre-World War One years, has taken place.
Quite the contrary, the recovery has not prevented two fundamental features of the long depression from emerging despite the current upsurge in production:
- There is a persistent lack of productive investments and therefore a net drop of the medium- and long-term rate of growth, which demonstrates that none of
Third World exports to the US
(billion US dollars) 1981 1982 1983 1984 (*) 35.0 36.8 45.7 55.0 the "new" industrial branches (including micro-chips and robotics) have developed to the extent where they could substitute 1. See International Viewpoint, No 58, 30 July 1984, an article entitled 'An economic upturn coupled with a financial crisis, by E. Mandel.
A collection of writings edited by Lall and entitled Les multinationales originaires du tiers monde Presses Universitaires de France.
International Viewpoint 22 April 1985 bureaucratised workers states). Ernest MANDEL
As 1985 begins, the world economic situation continues to be characterized by an economic recovery in the imperialist countries and the main semi-industrialised countries. (1) In all these countries, industrial production, foreign trade and the national income are on the rise. The table below confirms these trends.
1984 growth in Gross National
Product (GNP) in relation to 1983
USA 6.7%
Japan 5.8%
West Germany 2.5%
Canada 4.3%
Italy 3.0%
Britain 2.0%
France 1.7%
Australia 6.2%
All imperialist countires 4.7%
All Latin America 2.6% including Brazil 3.5% including Mexico 3.8% *
South Korea 7.5%
Taiwan 8.5%
Hong Kong 8.0%
Singapore 8.0%
India (industrial production) 5.5%
* Certain sources give 1%.
The mechanism of this recovery is also clear. After a very sharp decline of production in the auto and construction industry in the USA (disproportionate to the rest of the economy, two sectors that taken together with the sectors which they stimulate directly represent some 40% of industrial activity, during 100 tre was vigorous span 1980-1982, there was a vigorous expansion of these sectors beginning in 1983. This led to a generalized recovery of industrial production in the United States. This recovery was mainly stimulated by the enormous deficit of the public budget (over 200 billion US dollars per year for four years now engineered by the Reagan administ-
22 ration and fostered by the sharp upward zoom of military expenditures.
To prevent this budget deficit from causing too sharp an increase in inflation, the Reagan administration is trying to attract masses of foreign capital to the United States where it is invested in US public loans. To that end, it must maintain US interest rates at a level several points higher than those of Japan, West Germany, Switzerland and elsewhere. Hence the overvaluation of the dollar in relation to the currencies of other capitalist countries. This overvaluation makes American industrial goods less competitive than those of other capitalist countries. As a result, the latter (especially the imperialist countries and the semi-industrialized countries) have experienced a genuine boom of their exports to the United States. This has led to the unforseen result that the exports of industrial manufactured goods of the Third World to the United States have now surpassed American exports of the same products to the Third World. (See table below)
US exports to the Third World (billion US dollars)
1981 1982 1983 1984 (*)
61.5 54.6 45.3 47.0
(*) provisional figures
Of course, the figures for industrial manufactured goods exported from so-called Third World countries to the USA include everything that is part of the division of labour within multinational corporations of imperialist origin, that is the displacement of the centers of production of some of these multinationals
Industrial manufactured goods
Industrial manufactured goods
for the auto, household appliances and machine industries in the role of fundamental stimulant of production and the market, a role the latter played in the 1940-1970 period (or 1948-1970 in capitalist Europe and Japan).
- There is a continual rise of unemployment which, in the imperialist countries, jumped from 10 million in 1970 to 20 million in 1975, to 30 million in 1980 and to 35 million now. This will probably rise very quickly to 40 million which means that unemployment will directly or indirectly affect some 100 million human beings, if one takes into account the households of the jobless and of those who have been eliminated from the labour market and are no longer counted in the jobless figures.
In this way, contrary to the image of Reagan as creator of jobs which certain neo-liberals are so fond of putting about, it must be said that despite a relative rise in the growth rate of production in the USA, unemployment persists and remains around 7.5% of the labour force. This is without taking into account those who have withdrawn from the jobs market which itself has risen at a rate unknown in a period of growth. The Third World and the crisis
Nor has the problem of the persistent indebtedness of the semicolonial and dependent countries been resolved in any way. It continues to bear down heavily both on the rate of expansion of the world market and on that of the economic growth of these countries themselves, independently of the ups and downs of the economy. At the same time, political instability has continued to grow in these countries. The possibility of explosive social crises shaking them remains more present than ever.
The effects of the economic upturn on the so-called Third World confirm the need for analysis to proceed on the basis of two sub-categories.
On the one hand, the poorest countries, although belatedly dragged down by the economic depression, have gradually experienced genuine cases of economic collapse, with the famine striking countries of the sub-Sahara, Mozambique, Angola, Ethiopia and Bangladesh, and the generalized deprivation of Bolivia, being only the most tragic manifestations but, by no means, the only ones. These countries suffer from the combined effects of a drop in the value of their exports, of an increase in their energy bill, of the disappearance of their outside sources of investment (with loans granted more and more on the sole criteria of short-term or medium-term profitability), and of a collapse of their domestic sources of accumulation, and sometimes even of simple reproduction. As a result, income has stagnated and dropped and per capita income plunged even more sharply. Beyond a certain threshold, that drop becomes cumulative and leads to an absoInternational Viewpoint 22 April 1985 lute drop in the productivity of labour in the subsistence agricultural-food sector, which is in turn made worse by a persistent tendency to extend the commercial agricultural goods export sector in the countryside.
On the other hand, in the dependent semi-industrialized countries, industry was able to start up again after the shock of the 1982-1983 recession in those countries. Even though some sectors, such as household appliances in Mexico, Argentina and Brazil, continue to stagnate at a level below that of the pre-crisis years (which reflects the lowering of the standard of living of the middle classes), these countries have generally not experienced a phenomenon of deindustrialization, even though their industry went through some structural transformations. Some key sectors of industry are even developing at a rapid pace, after reorienting mainly to foreign markets.
However, this economic recovery in the dependent semi-industrialized countries has revealed some distinctive features that differentiate it from the situation of the 1970s:
- There has been a much sharper reduction of the purchasing power of the workers and peasants than in the imperialist countries (except, probably, in South Korea and Taiwan), and therefore a contraction of the domestic market. The recovery is exclusively based on the export boom, particularly towards the United States. Hence the greater vulnerability of these countries to any new recession in the imperialist countries, to any new contraction of the world market.
- In these countries, industry has now expanded into sectors in which the imperialists already had an excess capacity (petrochemicals industry, automobile industry, electronics, shipbuilding steel), whence arises a risk of harsh protectionist measures of reprisal by the imperialist countries.
- There has been a sudden cut-off of the contribution of foreign capital to industrialization. As a result of the uninterrupted payment of the service of the foreign debt under the conditions imposed by the IMF, there is now a persistent net flight of capital from the Third World to the imperialist countries, a flight which is even further accelerated in the case of private capital going to the United States, Switzerland, Japan, etc. As a result, growth can only sustain itself at the cost of persistent inflation. (see table) Even so, it will be more modest than in pre-crisis years and will be accompanied by rapidly rising unemployment and a drop in the standard of living of the masses (or a 'stabilization' at a much lower level). Only a few semi-industrialized countries in Asia have escaped that tendency until now, but they will probably be hit too during the next recession.
- There is a worsening of the food deficit, fostered by the structural transformation of rural production.
- In some OPEC countries, the fall of the oil rent has likewise induced a shrink-
Inflation rates in 1984
West Germany 2.1% Egypt 15%
Japan 2.1% Chile 16%
South Korea 2.8% Greece 18%
Singapore 2.8% Portugal 26%
Netherlands 3.0% Nigeria 40%
Switzerland 3.2% Philippines 44%
USA 4.5% Turkey 51%
Britain 5.0% Yugoslavia 59%
Hong Kong 5.0% Uruguay 63%
Austria 5.2% Mexico 65%
France 6.9% Peru 104%
India 8.3% Brazil 196%
Italy 9.1% Israel 450%
Hungary 10.0% Argentina 616%
South Africa 12.0% Bolivia 748% ing of the domestic market (and therefore of the capacity to import from the imperialist countries). Thus, in Libya, per capita income fell from 10,000 US dollars to 8,500 US dollars in 1983 and to 7,000 US dollars in 1984. In Nigeria, the fall was even sharper.
The relationship of forces between imperialist powers has changed since the 1980 recession and the 1983 recovery. Inter-imperialist competition has worsened. But, at this time, these two phenomena only appear on a very limited scale. True, the recovery of production and the reabsorption of unemployment have been more accentuated in the United States than among its rivals, greater in Japan than in capitalist Europe, and stronger in West Germany than in the other European countries. But this trend is partially compensated by the fact that the share of the United States in the world market continues to decline in comparison not only to that of Japan, but also to that of West Germany, and that the productivity of industrial labour is stagnating in the United States at a time when it is advancing by leaps and bounds in Japan and capitalist Europe. From 1977 to 1984, productivity of labour in manufacturing industry went up double the amount in West Germany that it did in the United States and three times the amount in France and Japan.
It is quite wrong to consider the rise in the value of the dollar in relation to other imperialist currencies as a 'victory' or a sign of the health of American imperialism. One just has to remember that the value of sterling also went through a similar rise in the 1980-1983 period to understand the lack of seriousness of such hasty judgements. In reality, the ReaganVolcker (president of the US Federal Bank) policy means gambling on the rise of the dollar and sacrifices in a systematic way the interests of industry - and therefore of American finance capital, since finance capital is banking capital invested in industry - to holders of capital. money (speculators and those living on bond and security income). In the long term this orientation cannot be maintained.
It is certain that the persistence of the budget deficit in the United States will result in a rise in the rate of interest which will end up in stifling the recovery and will trigger off a new recession. This is even more shown to be the case since it is accompanied by a growing American trade deficit. The inflow of foreign
23
capital is no longer sufficient to relieve that problem. We are seeing the beginning of a liquidation of imperialism's foreign holdings for the first time since 1913, US foreign holdings being less than the debts it has overseas.
It is furthermore untrue to assert, as the European imperialists and their spokespersons and accomplicies in the workers movement do, that the high rate of interest in the USA is "strangling" or holding up the recovery in Europe. In reality productive investment is stagnating in Europe, not because there is a lack of capital but for structural reasons which have been many times analysed by our movement. In these conditions the inflow of European capital to the USA is a consequence of this stagnation and not a cause.
It is because the capitalists are looking for mainly non-productive investment that they export their capital to the USA. The moment they fear a new fall in the dollar, fostered by the inflation which is already higher in the USA than in Japan and many European countries, this tendency will be reversed without bringing with it any sort of boom in productive investments in Europe. In the bureaucratised workers states
By and large the bureaucratised workers states - with the exception of Poland - have overcome in 1984 the accumul. ated effects of their own internal contradictions and the repercussions of the international capitalist economic crisis on their economies. Industrial production has grown in 1984 and this will doubtlessly be maintained in 1985. (see table) The scope of the fluctuations their economies have gone through has been determined by the degree of their integration in the international capitalist economy in the 1975-1982 cycle. These fluctuations have been stronger in Poland, Hungary and Czechoslovakia than in the German Democratic Republic (GDR) Bulgaria or Rumania and especially less than in the USSR and in China, which import and export only a small part of their national product. Alongside the recovery there has been a reduction in their borrowing from capitalist countries and an alleviation (sometimes very limited) of the weight of the foreign debt, as well as a reorientation of foreign trade through increasing proportion of trade between all the workers states.
Nevertheless, in the workers states too, the recovery is modest and has not caused production to resume a cruising speed comparable to the average of the 1960s or 1970s, not to mention that of the 1950s. This slowdown of long-term growth is not mainly due to the effects of the long economic depression of the international capitalist economy. It is the product of internal contradictions of the bureaucratised workers states themselves. Among these contradictions, we should mention the increased resistence 24
Industrial production To ductriol nanduation (annual variation) 1980 1981 1982 1983 1984
USSR +3.6 +3.4 +2.9 +4.0 +4.4*
GDR +4.7 +4.7 +3.2 +4.1 +4.4
Czechoslovakia +3.5 +2.1 +1.1 +2.7 +2.6
Poland 0 -10.8 -2.1 +6.7 +3.4**
Hungary -2.8 +2.0 +2.5 -1.0 +1.5
Rumania +6.5 +2.9 +1.1 +4.8 +7.0
Bulgaria +4.2 +4.8 +4.6 +4.6 +3.8
These figures do not include the building sector, in 1981 and 1982 Poland, Hungary and Czechoslovakia all suffered substantial declines in their construction industry.
*This is an official figure challenged by
Western experts who trim it to 3.5-4%. ** a level still lower than 1980. of the working class. This appears particularly in the following:
- The continual rise in the volume of 'frozen' , incomplete investments, and its corollary, the fall of the additional production to new investments ratio.
•- The inability to implement a coherent reform of the super-centralised system of planning without stimulating at the same time the 'parallel" sector of the economy, corruption, etc.
- The persistent lag in the applications of micro-chip and computerisation technology.
- The persistent crisis of cereal production and the continuing dependence on cereal imports from the imperialist countries that flows from it. The 1984 crop was about 170 million tons as against 190 million tons in 1983. The deficit that will have to be covered by imports from the capitalist countries stands at 50 million tons for this year.
Thus, the growth rate of the Gross Domestic Product of the USSR, according to the official statement by Gosplan, has gone from 3.1% in 1983 to 2.6% in 1984, largely as a result of the stagnation in agricultural production, for which the plan had envisaged an increase of 7.6%; and to the fall in oil production which has gone back to 1982 levels.
The People's Republic of China has, on the other hand, undergone an increase in agricultural and industrial production, due for the most part to NEP type economic policies. (3) These policies have been falsely seen by some as implying a return to capitalism. There is no question of this. But it is true that such policies have accentuated social inequalities in the countryside as well as in the towns and that they will inevitably produce an accumulation of social tension.
Despite the stringent measures imposed by the IMF on the most highly indebted independent countries - and the recession unleashed by these measures in 19821983 - the overall foreign debt of the Third World to imperialist countries did not diminish much in 1984, at a time of economic recovery. Both the overal! volume of the debt and the ratio between these yearly services and the yearly income from exports (yearly foreign currency revenue), continued to rise in 1984. See table on Third World debts, p 25.
Any reduction of that debt would moreover lead to a severe contraction of the exports of imperialist countries to the Third World, because it could only arise as a result of a major surplus in the balance of trade in the Third World with imperialism.
It is, therefore, more than likely that, by the time the next recession strikes, with the concomittant drop in Third World exports to the metropolises, phenomena of insolvency comparable to those that occurred in 1982 and 1983 will recur. They will worsen the crisis of the international banking system, particularly in the United States itself, because they come with the indebtedness of the capitalist corporations which is growing heavier every year, as well as a dangerous swelling of the public debt. The total debt owed in dollars has now reached the fantastic figure of 7 trillion US dollars.
Share of debts * (in billion dollars) 1974 1985
American public debt 543 1,573
Third World public debt 250 810
Public debt in other countries 100 400
Company debts 900 2,600
Household debts in USA 670 1,830
Total 2,500 7,100 * approximate figures
The indebtedness of American small farmers combined with the rise in interest rates has led to a disastrous situation in this area, which would merit a separate study. (4)
It is also important to look at the structural aspect of this phenomenon of massive debts within the international capitalist economy, a point which we have often made in the past. It represents a progressive strengthening of the hold of the finance sector, to give it its correct name, that is the speculators, as opposed to the industrial sector, within capital as a whole. (5) The following table demonstrates very clearly this development. (6)
Share of total profits in the USA
Industrial Capital engaged in circCapital ulation (including ground rent)
1950 50% 40 %
1965 42 % 40 %
1975 32 % 47%
1983 22.9 % 58,2 % 3. Inspired by the policy adopted by Lenin in the Soviet Union in March 1921, which was know as the New Economic Policy, the Chinese leaders have adopted a strategy of encouraging private agricultural production. As a result, a layer of rich peasants has developed in the countryside. The policy, which is mirrored in the towns with one of the development of a private commercial sector, has important consequences in terms of aggravating social conflict and differentiation. 4. See International Viewpoint, No 72, 25 March 1985. 5. John Ross has already drawn attention to this phenomenon in Great Britain in his excellent book, Thatcher and Friends, Pluto Press, London 1983. Recently, a Dutch left-wing economist, Kees van der Pijl, has had to apply a similar analysis to all the imperialist countries in his book, The making of an Atlantic ruling class, Verso Publications, London, 1984.
Figures published in The making of an Atlantic ruling class.
International Viewpoint 22 April 1985
Overall debt of Third World * countries (in billion US dollars)
1977 1979 1980 1981 1982 1983 327 469 559 650 741 782 including debt to private banks: 161 240 276 326 379 413
Yearly service on the debt of the 39.8 39.8 75.4 89.6 109.3 124.1 117.7 75.4 89.6 109.3 percentage of export revenues 15.1% 19.0% 17.4% 20.2% 24.4% 22.1% and for the main indebted countries ** 17% 35.7% 40.0% 52.0% 61.6% 53.3% 35.7% 40.0% 52.0% 61.6% 53.3% *except oil producing Middle-eastern countries
1984
1985 (forecast)
827
863
460
469 same countries
121.3
142.9
23.0%
21.5%
55.1%
65.7%
** Brazil, Mexico, Argentina, Indonesia, South Korea, Venezuela and the Philippines.
It is necessary to guard against extrapolating any pattern from these figures but the evidence is undeniable. Deindustrialisation of the United States is inconceivable for big capital. It would imply, not only establishing the production of electronic gadgets or video cassettes overseas, but also the production of aeroplanes International Viewpoint 22 April 1985 and rockets and computers. This would be disastrous for US military strength abroad.
Moreover, recent progress towards semi-automation has meant that it is now more 'profitable' to produce textiles in Switzerland and the USA because of the reduction in wage costs within the productive process.
Nevertheless, everything that has happened since the start of the current depression which is known as the long wave of denression is reflected in part in wave of depression, is reflected in part in the temporary preponderance of parasites and speculators within the Anglo-Saxon capitalist system. This is reflected most noticeably in the fact that company mergers in the oil sector - which never means any increase in oil production — are financed by tens of thousands of billions of dollars' worth of credit whilst hundreds of thousands of small productive farmers in the USA and abroad are driven to bankruptcy because they cannot get credit.
All this data can be summarised by putting forward the forecast that a new recession of the international capitalist economy around the year 1986, coming with a worsening of the crisis of the international credit system and a grave social and economic crisis in the dependent countries, and perhaps, with a one or one and a half year time lag, the beginning of a recession in the USA, will occur. The next recession will strike the USA and Japan more violently than the European countries and will probably be of greater magnitude than the previous one in Japan.
192 25