the Voice of
The Communist League of Revolutionary Workers–Internationalist
“The emancipation of the working class will only be achieved by the working class itself.”
— Karl Marx
the Voice of
The Communist League of Revolutionary Workers–Internationalist
“The emancipation of the working class will only be achieved by the working class itself.”
— Karl Marx
Feb 9, 1996
Although the economic situation both worldwide and in the United States has not undergone major changes in recent years, it has nonetheless continued to deteriorate. There has been no catastrophic collapse; but neither has the economy gotten out of the basic stagnation, especially in production, which has marked it for more than a quarter of a century.
The most tangible manifestation of this long-lasting deterioration in the economic situation is the world-wide increase in unemployment. Accompanied by reductions in or elimination of social programs and declines in public services, this has meant a fall in the standard of living of the working class and a rapid increase in poverty, even in the richest imperialist countries. Obviously, in the underdeveloped countries, the situation is much worse.
The material economy has literally been stifled by a hypertrophied development of the financial sector. Because production no longer yielded a sufficiently high level of profit, the capitalists themselves sought out other areas for investment, thus increasing the supply of capital. At the same time, the growing borrowing requirements of all the states increasingly fueled the demand for capital.
Since the beginning of the crisis, all the states have used their budgets to supplement the failing capitalist market. Even the poorest states had to join the spending race, since exports, on which those countries so desperately depend, continued to fall. And in order to spend, these states had to resort to credit from the beginning.
But public finances ended up going into the red everywhere. Even the richest imperialist countries have had to resort more and more massively to borrowing. Over the past twenty years, public debt has been the main pillar of the economy.
Initially, public debt was a consequence of the economic crisis; in the course of time, however, it has become one of its principle causes. Today, ever increasing masses of capital continue to be drained into the financial sector to handle the growing debt. Thus, even though the rate of profit in production has been restored to what it was, or even better than what it was before the crisis, capital is not flowing into productive activity. There is an ever widening divergence between finance and production.
The stagnation in production is visible in every official statistic of any significance. Of course, these statistics are only approximate. Even unemployment statistics, which refer to something very concrete, include large distortions. More abstract measurements, such as the GDP (Gross Domestic Product) which is supposed to represent production of goods and services, are certainly more questionable. Nonetheless, these figures do indicate relative trends, and the trends they indicate are significant. Over the course of the economic crisis, the average unemployment rate in the industrialized countries has doubled. In the U.S. it has increased by 40%; in Japan it has increased by 60%; in Britain it has tripled; in France it has quadrupled. In the U.S. over the last decade the full rate, including workers forced to work part time and those who have given up looking for a job, was 10.1%. It was 7.3% in Japan, 12.3% in Britain, and 12.7% in France.
Average economic growth has slowed down everywhere. Productive investment, while it has fluctuated, has never returned to its pre-1970 level.
"Helping business to invest" - this was the watchword of almost every government in the decade following the start of the first serious recession in production in 1974. While the amount of money the states distributed under this pretext increased considerably, productive investment did not. In the U.S., for example, the growth in new capital investment from 1973 to 1984 was less than half of what it had been from 1960 to 1973. In France, during the four year period from 1981 through 1984, the total amount of government aid to investment doubled, but the average level of corporate investment declined. The financial generosity of the state served only to help business boost its profits.To the extent there was new investment in production during this first phase of the crisis, it did not come from the capitalists. Not wanting to gamble on a new upturn in the market for material goods, they were searching for other ways to reestablish their earlier rate of profit. In one form or another, the new investment came from the government. In countries like France, with a large nationalized sector, the bulk of productive investment in this first phase of the crisis was made by nationalized companies. In the U.S., where the state used government contracts for goods and services to subsidize the corporations, it came in the form of new orders, especially for military goods and for highway construction.
The states intervened in the economy, trying to correct the laws of the capitalist market in favor of the capitalists. Whatever else this did, it resulted in drastically increasing budget deficits and massive borrowing by the states. The debts of states around the world, including of their semi-public bodies, have reached astronomical levels. By 1995, the public debt of the seven richest imperialist countries represented 72% of their domestic product, almost twice what it had been fifteen years ago. In the United States, the figure reached 71% of GDP in 1994, and almost certainly more today.
Debt now feeds on itself. The governments in these countries have begun to borrow more money - just to keep up the payments on their existing debt. And the burden of this debt repayment is taking up an increasing share of the state budget; in some countries it has become the main item in the budget. In the U.S., interest on the debt is the second largest item after military spending. This does not take into account Social Security, which is supposed to have its own self-contained budget, although this is increasingly a fiction, as the federal treasury uses the surplus in social security to fund the deficit in its regular accounts.
The barriers to the free circulation of capital, which the states themselves had previously erected to protect their own domestic capitalists, have been coming down, in some cases even quite suddenly. Of course, the big corporations, which wanted the freedom to move their capital anywhere in the world, pushed for this dismantling. But even more important in this regard were the states themselves (especially the USA), which needed to attract foreign capital to fund their debts.
As each country tried to make its own financial system as attractive as possible to foreign capital, the range of financial instruments mushroomed. Today there are some two hundred different types of financial instruments, some of which have only the most remote and indirect relationship to the real economy.
While some of these instruments were created by banks and other financial agencies, or even by corporations or individual billionaires, the bulk of the paper used in the financial system has been supplied by the states themselves in the diverse forms of debt they recognize. In 1993, for example, two-thirds of the world’s stock of shares, bonds and other forms of promissory notes were state debt certificates. These debt certificates together with national currencies are the main support for the speculation which has dominated the financial markets.
The debt of the poor countries has become the main means by which imperialist big capital plunders them. Public debt of the rich countries has become the main instrument for the domination of financial capital over productive capital.
The increase in the mass of financial instruments has been fueled, in the final analysis, by increasing corporate profits, that is, by increasing amounts of surplus value stolen from the working class.
Regardless of the growing importance of finance, the restoration of the rate of profit to its pre-crisis level and even beyond did not come from the financial sector. The restoration of profit levels has been achieved in every country by means of a considerable reduction of the share of the national income which goes to the working class. The wage bill (both direct and indirect) has been considerably reduced.
In the United States, where the gap between the richest and the poorest is much larger than in any other industrial country, this gap is the largest it has been in the post-war period. Real wages have been falling since 1979. Since 1987, the only people to have seen their real wages increase are those with post-graduate or professional degrees.
Overall, even as profit generated in the productive sphere has increased, the portion of it which is plowed back into production is significantly less than it was before the crisis. And for the most part, it is not oriented toward increasing production as investment is during economic expansion, but only toward reducing labor costs.
By 1989, industrial corporations were investing as big a share of their available resources in financial instruments as in production. Only ten years earlier, financial "investments" had been only one seventh that of productive investment. The speed at which this trend developed suggests that today, five years later, financial instruments must be taking the major share of these corporations financial resources.
The financial departments of many large companies have become fully-fledged banks, speculating in the currency exchange markets, buying and selling state debt certificates and returning more to these companies than do their productive activities. There are even companies which have abandoned all productive activity in favor of speculation.
The domination of finance over industry and the periodic swelling of finance by speculation are as old as imperialism. Over the past few years, however, this trend has taken on unprecedented importance. Big capital increasingly lives off the interest obtained from usurious loans it makes, mainly to the state, without going to the trouble of confronting the risks of the market. In the era of triumphant "liberal capitalism", big business is becoming increasingly parasitic. The states take on the risks associated with production and finance profits, while they make the population pay in one fashion or another.
The earliest phase of the crisis is now a thing of the past. Over their head in debt, with continually growing budget deficits, all the states are trying desperately to balance their budgets. This does not prevent them, of course, from continuing to finance profits. But it does mean, they are looking to reduce other expenditures.
In order to pay the interest on their debt, states all over the world are selling off their assets, i.e. privatizing state-owned companies.
Certainly, nationalization within the capitalist economy has never been more than a "crutch for capital", a way for states to provide investment in sectors which were unprofitable but nevertheless necessary for the profitable functioning of private companies. But privatization will have consequences on the economy of many countries.
By setting up a more or less comprehensive nationalized sector, many underdeveloped countries (not only those which some people called socialist) sought to protect themselves from excessive control by imperialism. The sale of their state-owned companies necessarily will lead to de-industrialization, since private capital will maintain or develop production only when it is sufficiently profitable, and not even always then.
In the imperialist countries, states are giving up the means they once had to regulate, at least partly, the capitalist economy. By selling off nationalized companies, by privatizing whole sectors of public services, these states are leaving the field completely free for the blind forces of the market. Of course, these states will still intervene in the economy to help the capitalists. But their aid will not be counterbalanced by any control over the economy.
Already, the form of this state intervention has changed. Less and less do the states make up for insufficient demand of stagnant markets with their own orders; less and less do they foot the bill for a share of productive expenditure. Today they simply subsidize profits directly.
The evolution of state intervention in France illustrates the problem. In the first period of the crisis, most help to the bosses took the form of state financing of investment or research expenditure, or else assistance in selling products on export markets. But the trend during the past few years has been toward outright gifts, designed to boost companies finances and increase their available capital.
In the United States, those gifts were created in great measure through changes in the tax codes. Starting in 1978, a series of income tax "reforms" on the federal, state and local levels in the United States increased the share of taxes paid by the working class majority of the population, while they have significantly decreased the share paid by the wealthy and by the corporations. For example, the tax reform of 1986, which was heralded as a way to "restore fairness", after the reforms of 1978 and 1981 proved to be outright handouts to the wealthy and to their corporations, in reality made the tax system more unfair. The corporations ended up paying less than they would have under the previous code; moreover, they increasingly made use of older provisions about operating losses and interest they paid on their debt to avoid over three-quarters of their actual tax obligation. At the same time, individuals earning over a half a million dollars a year ended up paying 30% less than before the 1986 "reform". Those in the middle brackets received a small decrease in federal taxes, more than compensated for by increases in social security and the most regressive forms of state and local taxes.
Less and less are the states funding public services to support private capital. In the United States, the reduction in money devoted to highway construction, for example, means a reduction in orders for a whole range of products and services. In all the imperialist countries, the trend is toward cutbacks in public services, selling off those sectors which are profitable to private buyers, devoting less and less state funding to what remains.
What is more, the difference between public services and the private sector is currently being done away with. Everything must either become competitive or die. In countries like France, with a much larger public sector, the change is really striking. For example, the SNCF (national railway company) has been told it must become profitable even though it is responsible not only for building all its own infrastructure but for making this infrastructure available to private companies. In a country like the United States, with its much smaller public sector, there is nonetheless a similar development. The post office, for example, has been transformed from a government agency into an "autonomous public" company which cannot run a deficit, but which must still provide cheap mail services for business. Even prisons are being turned over to the private sector. Overall, there is less investment in public services - or even disinvestment.
The worldwide erosion of social welfare benefits, in countries where they exist, is a particularly serious aspect of this trend. The drive toward “profitability” for social welfare, pensions, health care and, in many countries, education, is having disastrous consequences for the poorest layers of the population.
All this represents a considerable regression for society; and by aggravating the economic stagnation and unemployment, it lays the groundwork for still further regression.
Only two years ago, the volume of international money transactions devoted to financial operations was fifty times greater than the volume of money devoted to the circulation of goods. Today, the ratio is eighty to one! But a mode of functioning driven by usurious profit cannot go on forever. All profits, even those yielded by the financial sphere, come in the final analysis from the surplus value extracted in production. By stifling production, finance is preparing the ruin of the whole economy.
The excessive swelling of financial activities makes the world economy subject to unpredictable fits and starts. In just the last two years, there has been a succession of crises: a collapse of the bond market at the beginning of 1994; a new collapse of the Mexican economy; the fall of the dollar; successive attacks on several European currencies; the virtual bankruptcy of big banks in a number of countries following losses in real estate or monetary speculation; this had an especially severe impact in Japan where a number of large financial institutions were affected. These different crises were not all linked to each other, but they all reflect the growing instability of the economy on the global level.
State resources are tiny compared to the mass of capital which speculators can move as they gamble on the devaluation or revaluation of a currency. Already by 1984, the combined currency reserves of the central banks of the seven richest imperialist countries represented scarcely more than the amount circulated in a single day on the foreign exchange markets! Ten years later, those central reserves were only one-seventh of the amount traded in one day. In other words, the central banks, even if they did pool their resources, haven’t the means to stop a speculative run against a currency. They can only pick up the bill for the damage ... and pay out the profits to the lucky speculators.
A large number of financial operators even have enough money to let them speculate with certainty. That is, solely through their own intervention they can practically force a nation’s currency to be devalued or revalued. Included among these operators are the pension funds whose financial resources rival those of the state; companies which specialize in monetary speculation (using not only their own money but also that of many of the largest corporations); and many of the large corporations acting for themselves.
The money markets have been "globalized" almost as completely as they could be. Nonetheless, national currencies continue to exist. This contradiction has turned exchange operations into one of the most important sources of financial profit. The capitalist economy has been incapable of developing an international currency which enjoys the confidence of the whole capitalist world; and this aggravates the fragility of the system and constitutes a brake on the international circulation of material goods, and therefore on their production.
Similarly, although the economy itself has been "internationalized," the international economy remains stifled by national frameworks.
It’s true there have been a growing number of international trade agreements, like those which set up the World Trade Organization in January 1995. But they simply ratify what has already happened in fact: the second- ranking imperialist powers are losing their zones of influence, including the protectionist barriers which survived well beyond the end of colonial domination; the former Soviet bloc countries are losing their relative isolation, that is protection from, the world market. And all of these changes benefit the most powerful imperialist country, the United States.
International trade agreements and the international organizations they set up are not aimed at rationally organizing production and distribution on a worldwide scale. They are not even able, contrary to the claims made for them, of protecting those countries which the capitalist markets are pushing to the brink of ruin. They simply confirm the existing balance of power.
Even if the crisis of the capitalist economy continues under the same form it has had for the past twenty years; even if it manages to avoid a
sudden collapse like the one of 1929 - and this is by no means certain - this crisis already represents a considerable regression for society. In the richer countries of Europe and North America or in Japan, living conditions for tens of millions of people have already been reduced to those of the poor countries. In the countries of Eastern Europe, the working populations may have been freed - at least temporarily - from dictatorial regimes, but they have been robbed of social welfare benefits and driven into unemployment. The poor countries were already at such a low level, that it was difficult to imagine that they could regress even further. And yet they did.
Even in its periods of expansion, capitalism developed the economy irrationally, unsuited to the real needs of the population; at the same time, it aggravated the inequalities between the bourgeoisie and the laboring classes; and those between the imperialist countries and the poor countries. For several decades, however, capitalism has not even been developing the economy. It has been ruining it.
If this is not bankruptcy, then what is? The market economy needs to be replaced by another economic and social system, one which would abolish private ownership of the means of production; which would organize production and distribution according to needs and not according to profit; which would set up planning on a local, regional and international level, under the control of society.
This still constitutes the major task of our era. It has not changed; it is simply more pressing today that it was when Marx formulated it in the communist program and when the Russian proletariat attempted to make it a concrete reality. Today there is an incomparably greater discrepancy between the immense possibilities on a worldwide scale for humanity to "give to each according to his or her needs" and the tremendous waste whereby capitalism squanders these possibilities and even turns them against society.