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The Global Economy Goes Bust Again

The September 11 terrorist attack on civilians in the US has heightened fears of an imploding world economy. But even before that, it was already collapsing under its own weight because of its deep-seated problems.

By sandra nicolas
Bulatlat.com

If capitalism were of the sort that collapses on its own accord now would be as good a time as any. It’s the most recent bust of capitalism’s economic roller-coaster and 2001 is turning out to be the worst year for the world economy in at least two decades.

One country after another is falling into recession. When global output fell between April and June, it was the world economy’s first quarter of negative growth in 20 years. There are more poor and unemployed people now than ever before and the number of sick, hungry and ill-educated are growing.

Against the best efforts of the world’s powers-that-be, social and political unrest is spreading and people’s movements are again taking root. Even last Tuesday’s terrorist attack can be seen as one of the more extreme and ghoulish spasms of a poverty-stricken system in crisis.

But didn’t “globalization” finally get the world economy off to its most powerful expansion in modern history?

Actually, no. True, the past few years have been giddy for the world’s handful of big capitalists and financial barons. The opening up of new trade frontiers and the dizzy rush of debt and investments, speculative or otherwise, is a heady mix. But with capitalism and its chronic crisis of overproduction there’s always a sensational slump in the making.

As the world sinks

Which is what the world’s fast sinking into now, resuming a drop that started in 1997 and was momentarily held off by the speculative bubble of 1999 and early 2000.

Since last year, the International Monetary Fund (IMF) has been slashing its forecasts for 2001 global growth every time its World Economic Outlook comes out. The 2000 autumn edition forecast of 4.2% was lowered to 3.2% in April then again to 2.7% in September. The rich-country club Organization for Economic Cooperation and Development (OECD) meanwhile has said that the world economy will be lucky to grow by 2% in 2001. Global growth in 2000 was 4.1%.

Unlike the last downturn a decade ago, the current crisis cuts across all the biggest industrial powers. In 1991, the United States was in recession but Japan and Germany were growing; in 1993, Japan slipped into recession but the US recovery was under way. This time around, the US, Japan and Europe – some 65 % of world gross domestic product (GDP) – are all slumping at the same time.

US second quarter GDP growth was a paltry 0.2%, the lowest in eight years for the world’s biggest economy. Japan, the world’s number two, has been limping for almost a decade and is well into its recession; its GDP fell 3.2% in the second quarter. Europe’s was virtually zero and Germany, its largest economy, has ground to a halt.

In Asia and Latin America countries like Singapore, Taiwan, Argentina, Brazil and Mexico have also slipped into recession.

What has so far passed for explanations by mainstream economics no more than restate the obvious: “because production is declining;” “consumer spending is down;” “falling profits;” “the investment or stock market bubble;” and “the new economy bust.” But then, one is driven to ask, how did these come about in the first place?

The chronic crisis of overproduction

Mainstream economics has somehow seen fit to take the boom-and-bust cycle as some kind of inescapable law of economics. But that’s only partially true. First pointed out in Marxist political economy, the boom-and-bust cycle really is inescapable – under capitalism, that is. (Which economic system by the way, crisis-ridden as it is, isn’t the last word although why is another story.)

In any case, the basic problem is that, under capitalism, decisions are made according to what’s privately profitable rather than what’s socially desirable or necessary.

Private profits will be had aplenty if society’s elite, by virtue of their monopoly of capital, squeeze the working people for all they’re worth. This however leaves the mass of working people with little with which to purchase much of anything. Yet at the same time, capitalists keep pouring investments into their businesses to expand production in the quest for future profits.

Consider how there is, on one hand, massive production on a scale unheard of in human history. From big-ticket high-tech and luxury items to military arsenals bursting with hardware, from a host of basically useless consumer products to overflowing food warehouses. Surely the world’s productive forces are enough to provide for everyone’s needs?

But on the other hand, incongruously, there is poverty and deprivation on an astonishing scale. The United Nations Development Program (UNDP) estimates that some 4.3 billion of the world’s 6 billion or so people still live on US$ 2 or less a day. Likewise, the International Labor Organization (ILO) reported earlier this year that one-third of the world’s labor force of three billion “are either unemployed, underemployed in terms of seeking more work or earn less than is needed to keep their families out of poverty.”

It’s this fundamental imbalance in capitalism – the gap between what’s produced and the people’s capacity to buy – that sets the stage for jarring readjustments. Hence the recurring busts. It will always, cyclically, get to the point that so many goods and services have been produced and yet lie unsold that it becomes absurd to produce or invest any more.

The limits to debt or speculation will have been reached and it will no longer be possible to conceal how industries are awash with excess capacity and inventories. Production, investments and profits all seize up and the widespread destruction of productive forces follows. Plants shut down and workers are laid off on a massive scale.

Gloomy times

Global industrial production already shrank 6% in the first half of 2001. The US’s has fallen for ten consecutive months, the longest period of decline since 1983, and was 3.2% down in the year to July. Japan’s fell at an annual rate of 15.0% in the second quarter. For a time it was thought – or hoped – that Europe would escape the crisis. But industrial production there contracted in the first and second quarter of the year.

US and Japanese business investment dropped by 15% and 18% respectively in the second quarter. In the US, big companies' profits fell by 67% in the second quarter compared with a year before, the largest fall for more than a decade.

It’s been similarly gloomy outside the major powers with Brazil, Argentina, Mexico, Singapore, Taiwan and Malaysia already experiencing drastically shrinking industrial production. In several East Asian economies, it’s already fallen by 10% or more since last year.

Massive layoffs have resulted. Japan’s official unemployment rate of 5% in July is its highest in the post-war era. The US’s jobless rate, fed by the 271,000 workers who lost their jobs in the second quarter, continues to rise and the 4.9% it hit in August is the worst in four years. Germany’s unemployment rate has been rising for seven months and July’s 9.4% is already higher than during the 1982 slump.

At the forefront of ailing industries is the absurdly hyped information and communications technology sector whose biggest companies, according to various newspaper reports, announced at least 116,000 job losses worldwide.

The world’s not big enough

Tensions worldwide can only increase as the industrial powers stick to the protectionist and mercantilist guns they never really put aside even at the height of globalization hype. The defense of economic territories has become ever more important as their economies slow and unemployment rises.

The US maintains its agricultural and export subsidies and has already exercised anti-dumping measures and raised tariffs on apparel and lumber. Europe is standing firm on its agricultural support schemes of domestic and export subsidies and limited market access. Japan never bothered to even make it seem like it was going through the motions of dismantling its agricultural trade barriers and controls on foreign investment.

Things between the US and Europe are getting particularly bitter (as if either would have ever conceded to completely open up to the other). Various commercial conflicts – trade disputes, issues of tax policies, agricultural and aircraft subsidies – are already being fought through litigation. Matters are already spilling over into environmental and energy issues.

The major powers also continue to strive consolidate their territorial niches in the global economy. The US has launched intensive negotiations to create a Free Trade Area of the Americas (FTAA). The European Union (EU) is expanding into Eastern Europe and the Mediterranean. In Asia there are already serious intergovernmental studies for an East Asia Free Trade Area.

Yet through this all, the rich countries concede little of their markets and remain tightly shut against neocolonial exports. At the same time they are aggressive in pushing for liberalization in services, brought into the Uruguay Round but in which little has so far been achieved.

It’s no coincidence that there are burgeoning people’s movements to challenge globalization and the domination of modern day imperialism. In these troubled times, therein lies the hope. Bulatlat.com

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