Jan 1, 2002
The following article was largely excerpted and translated from a text appearing in the December 2001 issue of Lutte de Classe, the political organ of Lutte Ouvrière, the French Trotskyist organization, with which we share political agreement. The text had been adopted by Lutte Ouvrière in its recent yearly congress.
The economic recession and the decline in industrial production in the United States with inevitable consequences for the entire international economy put a halt to the ridiculous announcements that the American economy had arrived at a new stage, one without crises. Call it "new" all you want, the capitalist economy cannot function without more or less serious crises. It is significant that the sectors of the so-called "new economy" (telecommunications, Internet, computer and software producers, etc.) were the first to suffer from a "classical" crisis of so-called "overproduction even if speculation amplified the rapid increase in stock prices in these sectors as well as their present decline. This sector underwent an incredible drop in stock prices on Wall Street, including a collapse of stock prices of the "new economy" stars. Share prices of companies such as Yahoo! or the electronic bookshop Amazon.com fell by 80% to 90%, compared to the highest price at which they traded. But behind the stock exchange crash in this sector there was a noticeable decline in production of computer and communication equipment. Companies such as Philips or Siemens initiated massive lay-offs, while many small or middle-sized companies the "start ups" so dear to the new economy writers disappeared without a trace, except for disappointed shareholders and a mountain of debt.
During the nineties, the rapidly developing market for mobile phones, computers, computer components or the "net economy" attracted increasing amounts of capital, much of which was invested in the means of production. Many old companies converted to this type of manufacturing, while new companies were set up and quickly made money. Equipment investments resulted in increased productivity in this sector, and this led complacent economists to extend what happened in this sector to the entire economy, speaking about a "technological revolution" which was supposed to have brought with it such a growth in productivity that it opened a new ascending era for capitalism.
Soaring profits or even just hopes for future profits in companies like Amazon.com attracted capital searching for purely financial placements. Increasing demand for these stocks drove up the price of these companies' shares. In the technological sector in the United States, from 1995 onwards, share prices rose almost five times as quickly as did profits, thus greatly inflating the ordinary financial bubble.
However, the unlimited capacities of production came up against the limitations of the capitalist market. The "new" economy had not been vaccinated against the old diseases of the capitalist economy. Despite the halt in the market's expansion, large companies continued to wage commercial wars, each one hoping to come out on top. The crisis was inevitable. The financial bubble, which continued to grow for a while through increasing indebtedness, finally burst.
The most spectacular aspects of the present day situation is the constant wide fluctuation in prices on the stock exchange. Even with some recent appreciation in the numbers, these frequent somersaults are situated on a line which is trending downward.
The NASDAQ stock exchange index, on which technology shares are concentrated and which was hit the hardest, fell from 5,049 in early March 2000 to 1,654 in mid-October 2001, a decrease of 67%. The index of the top 30 stocks on the New York exchange (the Dow Jones Industrials) began its fall in January 2000, when it stood at 11,730; by mid-October 2001, it was down to 9,189.
Having created fictitious wealth, stock market speculation then destroyed it along with some people's aspirations of becoming very wealthy, very quickly. People who had speculated on computing, biotechnology, and other stock exchange miracles which were expensive in comparison to their profits and dividends, but which appreciated rapidly in price saw their holdings go down the drain as prices collapsed. This does not mean that every financial group which speculated lost money. On the stock exchange lottery, it is possible to win by betting on a drop in values or even by provoking them. In any case, the stock exchange crisis which hit was inevitable and necessary; its role in the capitalist economy is to slow down the speculative excitement and the dispersion of capital, to clean out the market, to enable the most powerful players to recoup their stakes and to re-centralize capital.
This is not the first crisis to have affected stock exchange values since the beginning of their upturn in 1983. Just in the ten years between the Gulf War in 1991 to the events of September 11th 2001, there have been six periods during which stock exchange indexes varied more than 40% including the Asian crisis in 1997 and the collapse of Long Term Capital Management funds.
Stock exchange speculation is not walled off from the productive economy. In fact, they constitute different facets of the same capitalist economy. Speculators' euphoria or fears invariably have an effect on the entire economy. Last year's drop in stock exchange share prices reflected the recession in the real-life economy, but the drop in share prices in turn aggravated the recession. Although the stock exchange is a privileged arena for speculation, at the same time it plays a necessary role for the functioning of the capitalist economy. It is a market that determines how money capital will be appropriated, and how it will be distributed among the different sectors of the economy. Considerable volatility on the stock exchange, sudden fluctuations in share prices all this hinders the financing of productive investments at reasonable prices. The increasing saturation of the market for goods and services played a major role in slowing down investment in this current recession. But the somersaults on the stock exchange accentuated the slowdown. The policy carried out for months by the U.S. Federal Reserve Bank to lower interest rates failed to prevent the stock market from aggravating the recession.
The recession in the U.S. economy is clearly written in the figures for industrial production. From June 2000 to December 2001, industrial production declined by 7.1%, and it has dropped every month for the last 15 months. According to the Federal Reserve, the last time there was a decline of even 12 consecutive months began in November 1944 and lasted until October 1945. The rate of capacity utilization in industry has today fallen to 74.4%, its lowest level since the early 1980s.
These declines began well before the attacks of September the 11th. The manufacturing of computers, semi- conductors and other items linked to hi-technology was not the only sector to take a dive before September 11. So did the aerospace industry and the airline industry, although the bosses of these sectors certainly rushed to place the blame on September 11, as did the insurance companies in order to receive government aid and extra subsidies. The American auto industry also began to slow down production, and Chrysler was announcing jobs cuts more than a year ago, in November 2000. United States exports decreased, as did overseas investments.
In turn, the slowing down of the economic activity of the U.S. and other industrialized countries led to a severe drop in the price of raw materials.
This is the fourth period of recession to hit the American economy in the last 30 years. At this point, no one knows whether this one will last longer or be more severe than previous ones.
The exceptional length of the expansion phase of the U.S. economy, which began toward the end of 1991 and which ended last year, engendered many myths about a "technological revolution" which had breathed new life into capitalism.
In fact, despite its length, the American expansion was not exceptional. The increase in the American Gross Domestic Product (GDP) remained lower than in the sixties. (The GDP is a vague concept which conceals a great deal, but it can be used at least to give a comparative approximation of the economy's evolution.) The rate of investment in production, after having decreased and then stagnated for a long time, finally increased between 1992 and 2000, resulting in increased productivity. But this increased investment and, especially, increased productivity were limited essentially to the new technology sectors computers, semi-conductors, electronic chips, networks, mobile telephones, and so on. The increase in productivity in these sectors translated into significant price reductions (or, in the case of computers, more powerful machines for the same price). But this was not the case in other areas of the economy where expenditure for computer equipment increased investment but not productivity figures. Even in the United States, high technology products represent only 8% of all economic activity.
The only areas in which figures were higher in the nineties than in the sixties were those of profits and the stock exchange. But this is exactly the problem: the gap between the limited growth of the productive economy and the ballooning of the stock exchange is one of the main sources of tension today.
The so-called "American economic miracle" of 1992 to 2000 was based mainly on two factors.
The first, which concerns the entire worldwide capitalist economy, is the worsening exploitation of the working class. The increase in exploitation manifested itself in a number of ways, ranging from the general decrease in the portion that wages represented in the national income to the spread of contingent jobs (part-time, temporary, etc.); the decrease in social benefits and benefits attached to jobs; not to mention a severe speed-up in the pace of work. Decreases in a wide range of public services previously assured by the state also led, indirectly, to increased exploitation. The worsening of exploitation was made possible by the deterioration in the overall relationship of forces between the capitalist bourgeoisie and the working class, to the detriment of the working class.
The second factor is inherent to the United States: it also expresses a relationship of forces, but this one, between imperialism and the under-developed countries and, related to this, between American imperialism and its competitors in Europe and Japan. What is today improperly called "globalization" is generalized deregulation; suppression of obstacles hindering the circulation and investment of capital; privatization of public sectors; increasing integration of third world countries into the worldwide imperialist system, including those which had at one time attempted to jump start an economic development through state management of the economy protected by the monopoly of foreign trade. This "globalization" benefits mainly the largest multinational trusts, the majority of them American. Furthermore, American economic power goes hand in hand with the role played by the dollar in worldwide trade and finance, which enables the U.S. to finance its own expansion with foreign capital.
Even during the expansion phase of the current cycle when profits and, to a lesser extent, investments were growing only part of the capital accumulated was transformed into productive capital.
Despite the dynamic expansion of the market for computers and mobile telephones, those markets were not large enough to absorb the enormous quantities of money capital which they accumulated over 20 years. Money capital was on a never-ending search for new areas in which it could be placed: rushing from stock exchange crashes, to monetary crisis; from waves of property speculation to financing of mergers and acquisitions. The "new" economy opened the door for much wider speculation, especially in the stock exchange. From the viewpoint of capitalism, this was a success at least for a time.
In order to finance future development and obtain patents, and urged on by the relentless competition between each other, telecommunications companies went considerably into debt. The race for mergers born of the desire to operate on a "worldwide scale" and to obtain the monopoly position that went with this drove them to take out more and more loans, which in turn increased the overall indebtedness of the economy.
The movement of mergers and acquisitions between corporations from different nations, which amounted to the record sum of 1.27 trillion dollars in 2000, was mainly a speculative movement. Some companies used their accumulated capital to buy up each other; others took advantage of the fictitious upward revaluation of their capital on the ballooning stock exchange to buy other companies, including ones larger than themselves. One of the consequences of the fall in the stock exchange was to slow down this latter tendency.
Other debts were incurred by the small and middle bourgeoisie who, counting on future stock exchange profits, lived beyond their means. Consumption apparently was one of the main motors of expansion in the United States. The disappearance of illusions in the stock exchange threatens to make this motor seize up. Will Bush's call for "economic patriotism" make up for stock exchange losses it's not so sure.
Even when the "new economy" was at its height, the accumulation of capital continued to take on an essentially financial form, aggravating the hypertrophy of the financial sphere.
Marx discussed in his day the way in which finance capital feeds on industrial capital. (For Marx, industrial capital was "the only mode of existence of capital in which its function consists not only of appropriating surplus value, but equally in creating it." ) Whether directly or by means of the State and the public debt, this tapping of the wealth created in industry results in a totally parasitic social layer of rentiers, that is, stockholders.
With imperialism, the parasitism of finance capital took on incomparably larger proportions.
Lenin (in Imperialism: The Highest Stage of Capitalism) wrote that one of the fundamental characteristics of imperialism was that it inevitably led to "an immense accumulation of money capital in a few countries." Furthermore, this accumulation of money capital was the basis of an "extraordinary growth of a class, or rather, of a stratum of rentiers, i.e., people who live by clipping coupons' [that is, from the dividends paid by their shares of stock], people who take no part in any enterprise whatever, whose profession is idleness."
The uninterrupted inflation of the financial sphere since the seventies, a consequence of the stagnation of the capitalist economy, has become a major factor aggravating the stagnation. Not only does this inflated financial sphere benefit from the increasing exploitation of the working class; it also contributes to stifling economic development.
The Marxist critique of capitalism is not limited to denouncing exploitation and pauperization. Capitalism developed since its beginnings on these bases; but this did not prevent Marx and Engels from emphasizing the immense role the bourgeoisie played in capitalism's ascending phase: "The bourgeoisie cannot exist without constantly revolutionizing the instruments of production, and thereby the relations of production, and with them the whole relations of society." ("The Communist Manifesto")
Capitalism has not had this same capacity to "revolutionize" the productive forces for a long time now. Just the opposite: it has become a brake on the development of the productive forces, and it is an essential conservative factor in the sphere of social relations. Of course, science and technology have continued to make progress, even though strongly marked by the predominance of private interests, by competition, patents etc. But technical progress is not enough to give an increasingly parasitic capitalist economy the capacity to significantly increase the productive forces. From the use of nuclear energy to the militarization of space, there are many illustrations of capitalism's tendency to transform major inventions not into a means to increase the productive forces, but into a means of destruction.
Certainly, cyclical variations, inherent in the capitalist organization of the economy at every stage in its development, have always been an obstacle in the development of the productive forces. But it is the imperialist character, predominantly financial, of the capitalist economy today which is the main obstacle to a new era of rapid growth of the productive forces.
When Lenin or Trotsky described imperialism as the "senile age of the capitalist organization of the economy," they were not expressing a moral judgment. They were pointing out that, from the viewpoint of developing the productive forces, capitalism had come to the end of the line.
Neither of them expected this social order to survive so long, nor that its "senile age" would last much longer than its youth, during which it had been "the first to show what human activity can bring about; it has accomplished wonders."
Trotsky lived long enough to witness part of the price humanity had to pay for capitalism's survival: the "Great" Depression of 1929, fascism and Nazism, the Second World War and, more indirectly, the bureaucratic degeneration of the first workers state.
Even the "glorious three decades" after the end of World War II, which are now regarded as the lost golden age of post-war capitalism, were not at all glorious for society. If the lot of the working class improved, it was only by comparison to its greatly reduced standard of living that had prevailed during the Depression and the war. Moreover, this post-war period was not marked by the rapid economic growth described by capitalism's apologists, for whom the growth of the GDP equals a growth in the productive forces. In fact, the GDP includes the "incidental" expenses of the capitalist economy including arms expenditures and the other costs of militarism, not to mention various by-products of drug trafficking and organized crime.
The first part of the so-called "glorious three decades" was the immediate post-war period during which the reconstruction of the destroyed industrial apparatus opened up a vast market to capital for awhile. But the period from 1945 to 1951-52 could hardly be described as one of real growth in the productive forces. "Reconstruction" was just that: the rebuilding of the productive forces destroyed by the imperialist war. The bourgeoisie, in particular that of Western Europe, played on the disorientation of the working class resulting from its defeats prior to the war, the war itself and in particular the betrayals of the Social Democracy and Stalinism, in order to muzzle the workers. Using the pretext that it was necessary for "everyone" to sacrifice in order to reconstruct what had been destroyed, the bourgeoisie imposed dreadful working conditions and wages on the workers.
But it was, above all, the intervention of the state in the economy that made capitalism seem dynamic in the post- war period, especially in France, Great Britain and also in Germany. These states took charge of everything that did not engender an immediate profit but was nonetheless necessary for the functioning of the whole capitalist economy. The states were the ones that underwrote large investment. In the case of France, not only were the necessary energy resources (coal, electricity, gas etc.) nationalized, but so were all the transportation infrastructures, the railways and the highway network. The states also took charge of developing future infrastructures: the telephone and broadcasting networks.
Not only did the different states in Europe play a major role in preserving the fundamental interests of the bourgeoisie, they also ensured that the bourgeoisie would make profit. By taking over the least profitable sectors of the economy, the states enabled the bourgeoisie to concentrate on the most profitable ones. Moreover, the nationalized sector has served as a goldmine for private companies. In many West European countries, the state was even so helpful as to take over the banks, providing the bourgeoisie with low-cost loans, at the same time offering them any number of possibilities for outright frauds, which are still far from being paid off.
In addition to giving enormous subsidies and orders for goods and services to private companies, the state, in effect, "nationalized" a large part of the cost of capitalist production, while leaving the profits to the capitalists.
Even the post war "social reforms" in France or the "Social Welfare State" in the Anglo-Saxon countries benefitted the capitalist class. While coming to the aid of people tossed aside by the capitalist economy (unemployed, retired and sick people), they also helped maintain a certain level of consumption.
It was a favorable period for the bourgeoisie. Each bourgeoisie was backed by its own state, and the secondary imperialist states were backed by the United States. Certainly, imposing the dollar as the instrument for payments throughout the world's economy and as the international reserve currency, the United States benefitted itself first of all. But the recovery in international trade which could not have happened without such an instrument benefitted all the imperialist powers to a greater or lesser extent.
The role of the arms race in maintaining a relatively high growth rate should not be underestimated. In the period between the end of World War II and the collapse of the USSR, spending on the military increased spectacularly. We can't begin to estimate the impact of the Korean War or the Vietnam War on the GDP of the United States not to mention "Star Wars," which, fortunately, did not involve military operations but did allow NASA to inject hundreds of billions of dollars into the U.S. economy.
Even in this fabled period of economic growth and "prosperity," there was only a small and weak genuine development of the productive forces. In bourgeois statistics, military spending and the arms race are counted on the positive side of the ledger, contributing to inflate the GDP's growth rate. But for Rosa Luxemburg, Lenin or Bukharin, who witnessed a similar situation during a previous "golden age" of capitalism (just before World War I), the rapid expansion of military production expressed the rottenness of capitalism, not a recovery of its vitality.
In the post-World-War-II period, the continuous growth in some countries prompted a number of economists to declare at that time that capitalism had rid itself of economic crises altogether and had entered a new era (even though the United States suffered through a series of recessions during the same period).
We know what happened: recessions were avoided in Europe only through intervention by the states, financed by issuing ever more money. And this led to inflation, currency depreciation, devaluation and successive monetary crises the last of which, in 1971, swept away the international monetary system set up after World War II, setting in motion a series of recessions which hit the major countries over the next two decades.
An evaluation of the productive forces must not be limited to the imperialist countries but should take into account the whole world. The accumulation of wealth in the imperialist countries has been paid for by keeping the Third World in a state of "underdevelopment."
The evolution of world capitalism towards increasing domination by finance has aggravated things. A few formerly underdeveloped countries may have benefitted from their integration into the world imperialist system (without, however, the laboring classes in these countries enjoyed an improvement in their situation). But not only has the gap between the rich countries and the majority of Third World countries continued to grow, these countries have been increasingly impoverished in real terms. Financial domination of the economy has a horrendous impact on Third World countries one which much not be underestimated.
During colonial times, the direct plundering of these countries by imperialism sometimes implied the building of basic infrastructures be it only to transport raw materials to the Western industries which transformed them.
Things are different in the age of usurer capital. Many poor countries are bled white in order to pay back, with high interest, loans their dictators borrowed to buy arms to suppress the population or to finance prestigious construction totally useless for the population. For the poor populations of the world, what progress have they gained from the domination by finance capital? Only this: to have the chains and whips that came with forced labor replaced by the invisible but equally catastrophic chains of usury.
According to the World Bank, "the emerging countries' total debt has tripled since the early 80s, reaching 2.17 trillion dollars in 1997. That year, interest charges reached some 250 billion dollars, which is almost as much as the total debt owed by the 15 most indebted countries in the early 80s."
With the end of the so-called period of prosperity, the big majority of the poor countries find themselves more indebted and impoverished than ever before. They are now threatened by a recession which would be incredibly more costly.
The so-called "Asian crisis" of 1997-1998 did not lead to a generalized crash of the world's stockmarkets. Speculators (that is, first and foremost, the big companies in the imperialist countries) got out of it with only an icy dip. From imperialism's point of view, the crisis may have been benign, but it drastically affected the economy of many countries in Southeast Asia. In countries like Indonesia, millions of workers, thrown out of work, were reduced to misery.
The recession that now has started in the United States, and which threatens to spread to Europe, may remain a weak one; it nonetheless has already entailed plant closings (like the ones at Moulinex or Phillips or Ford). But in semi-developed countries like Brazil, Argentina, Mexico or South Korea, which are to a large extent integrated in the imperialist economy, the recession threatens to transform itself into a genuine crisis, involving catastrophic conditions for the laboring masses. The mere hiccups of capitalist economy in the imperialist countries mean that millions of poor people around the world will be thrown back from poverty into misery.
The hypocritical declarations about possible debt moratoriums change nothing in a situation where three billion men and women live on less than two dollars a day; where a billion people have no access to drinkable water; and almost 800 million people suffer from hunger. By themselves, these facts refute the lies of bourgeois economists about the growth of humanity's productive forces.
This is the situation which is maintained by the imperialist powers, through diplomatic and, if need be, military means. This is the ground which favors the development of ethnic wars, conflicts between armed gangs as well as terrorism.
The whole set of changes, referred to as "globalization," has vastly increased the parasitic character of big capital. Even in periods of so-called economic expansion, productive forces are developed only in relation to the needs of those who can pay, not to satisfy the needs of society as a whole; their full development is permanently kept in check. Facing a recession, capitalism's only "solution" is to shut down plants, to condemn more and more workers to unemployment and to aggravate the already miserable conditions in poor countries.
It is necessary to rid society of the dictatorship of the big industrial and financial groups, suppressing private property in the big means of production. This would remove the foundation on which a parasitic capitalist class rests; it would allow the anarchy brought about by competition to be overcome. It would pave the way for the conscious and democratic organization of the economy according to a rational plan. This is the communist program, the proletarian revolutionary program the only one which opens up a perspective for the whole of society.