By Doug Lorimer
Since the early 1970s, the world capitalist system has been in a long economic downturn, a period of decelerating economic growth tending toward stagnation. Since 1975, in contrast to the preceding 30 years, the downturns in the business cycle have become longer and deeper and the upturns shorter and more feeble.
There is no automatic mechanism for overcoming this situation and launching a new long wave of capitalist expansion. To bring about the conditions for such a sustained expansionary wave, the capitalist class has to reverse the gains in real wages, working conditions and social welfare made by the working class in the developed capitalist countries during the long wave of capitalist expansion that followed World War II.
In the first generalised recession in 1974-75 and in the years immediately after, the capitalist rulers responded with limited austerity measures combined with the use of the Keynesian policies that had been used to ameliorate recessions during the postwar "long boom".
The inadequacy of these policies became obvious with the second generalised recession at the beginning of the 1980s. This led to a turn by the capitalist rulers toward the adoption of neo-liberal policies of deregulating financial markets and exchange rate controls, privatisation of government businesses and utilities, and an intensification of the austerity drive, centred on suppressing wage demands by institutionally weakening the trade unions and eroding the social welfare system built up in the postwar years.
Neo-liberal failure
The outbreak of the third generalised recession in 1990 demonstrated the failure of neo-liberal economic policies. However, this was obscured by two factors:
1. The turn in 1989-90 by the ruling bureaucracies in Eastern Europe and the USSR toward the restoration of capitalist market economies made it possible for the capitalist rulers of the First World to triumphantly proclaim "free market" capitalism as the ultimate form of human social organisation, the "end of history".
2. The high growth rates that were recorded in the US and a number of other imperialist countries at the beginning of the recovery from the 1990-91 recession.
The economic depression in the ex-Soviet bloc countries that has followed their embracing of neo-liberal "free market" economic policies, and the inability of neo-liberal policies to sustain high growth rates as the recovery in the imperialist countries has progressed has caused the capitalist triumphalism of the early '90s to evaporate almost as fast as it emerged.
The US economy is now growing at a modest rate of 2.5% and because of its debt burden is unable to play the role of "locomotive" for the world capitalist economy. The other two major capitalist economies — Japan and Germany — do not command enough of the gross world product to play this role. Japan accounts for 16% of gross world product while Germany accounts for only 11%. The US accounts for 25%. Moreover, both of these countries are in serious economic difficulties. Germany's projected growth rate for this year is a feeble 0.75%. Japan has still not recovered from the recession of the early 1990s, despite doubling its export surplus between 1991 and 1994. By 1995, Japan's industrial production was 3% below where it had been in 1992.
Pressure of US competition
While the traditional post-World War II US economic locomotive may not be running today, the US economy is exerting increased competitive pressures on all the other imperialist countries. The US rulers have been more successful in imposing austerity on their workers than their imperialist competitors in Western Europe and Japan and have, as a consequence, clawed their economy back to the position of being the world's most competitive. This has been achieved by (1) weakening the power of US trade unions so that firms employing non-unionised workers no longer feel any pressure to raise wages to match unionised pay rates, and (2) by employers "downsizing" their work forces, i.e., by sacking workers and rehiring them at substantially lower wages.
In the late 1980s and early 1990s, two waves of corporate "downsizing" swept the US economy, eliminating 2.5 million jobs. In contrast to the 1980-81 recession, companies announced permanent reductions in their work forces rather than temporary lay-offs and targeted white-collar and managerial jobs rather than blue-collar jobs.
In the 1980-81 recession, three blue-collar workers were laid off for every white-collar worker. In the 1990-91 recession, the ratio was down to two to one. In the late 1980s, in a non-recessionary period, 35% of those being sacked were managers, 39% were clerical and sales workers, and only 19% were blue-collar workers. This trend resumed during the second wave of "downsizings" as the recovery from the recession began. Announced "downsizings" soared to 600,000 in 1993, hit a one-month record of 104,000 in January 1994, falling slightly to 516,000 for the whole of 1994, and accelerated to 600,000 in 1995.
Downsizing was a technique for reducing wages without having to cope with the problems of a discontented work force that had just had its pay cut. High-waged workers were fired at major firms and low-waged replacements were hired at smaller supplier firms. Downsizing with outsourcing of work to smaller supplier firms allowed major firms to push for soft productivity gains from the workers who remained (using fear of dismissal to force cooperation) while simultaneously reducing real wages for the majority of workers in the particular industry.
This process has led to dramatic economic consequences for those who were "downsized". In the first wave, 12% ended up exiting the labour market altogether, and 17% remained unemployed two years later. Of the 71% who were re-employed, 31% took a wage reduction of 25% or more, 32% had their wages reduced by 1-25% and only 37% have found jobs at no loss in wages. In studies of RJR Nabisco's lay-offs, 72% eventually found work but at wages averaging only 47% of what they had previously been paid.
In the second wave of downsizings, even those who kept their jobs often found that to do so they were forced to take large pay cuts. The largest retail clothing chain in Boston, for example, forced all its clerks to accept a 40% pay cut in 1993 even though it was making good profits.
Changing work force
In the process of downsizing, US firms are developing a contingent work force composed of involuntary part-timers, temporary workers, limited-contract workers and previously laid off "self-employed" consultants, all of whom work for wages far below what they had previously been paid.
While the official unemployment rate in the US was 5.7% (about 7.5 million people) in late 1995, when these are added together with those actually looking for full-time work but who do not meet the tests for being actively in the labour market (another 5-6 million) and the involuntary part-timers who want full-time work (about 4.5 million) the real unemployment rate jumps to about 14%.
In addition, there are 8.1 million US workers in temporary jobs, 2 million who do work "on call" and 8.3 million nominally self-employed contractors (many of them being downsized professionals who call themselves consultants rather than admit they are unemployed). All together the number of workers who are looking for permanent, full-time employment in the US amounts to 35 million — 27% of the labour force.
The two waves of downsizing have sharply accelerated the long-term decline in real wages that 80% of US workers have experienced since the onset of the long economic downturn. Between 1973 and 1994, the real per capita GDP in the US rose by 33%, yet over the same period real hourly wages fell 14% and real weekly wages fell by 19% for non-supervisory workers. In 1994 and 1995 the pace of decline accelerated, with real wages falling at a 2.3% a year rate. By 1994 real wages were back to where they were in the late 1950s. On current trends, by the end of the century average real wages in the US will be back to where they were in 1950.
In the 1970s and '80s the sharp fall in real wages was not reflected in similar falls in household incomes, as more and more married women entered paid employment and female wage rates rose from 41% to 72% those of men between 1968 and 1993. Between 1973 and 1992, while the real wages of 60% of male full-time workers declined by an average of 21%, the income of the bottom 60% of households fell by only 6%. By the mid-1990s, however, female real-wage rates had started to fall for all but college-educated women.
Intensified austerity
While average wages for medium skill workers in the rest of the imperialist countries were below those of the US in the 1970s, today the situation has largely been reversed, making companies operating in the US the most cost competitive in the world. This exerts an enormous pressure on employers in other imperialist countries to "Americanise" the structure of their labour force.
However, the capitalist rulers in other imperialist countries face considerable obstacles to pursuing a process of downsizing. Firstly, the trade union movement is nowhere as weak as it was in the US at the end of the 1980s. In Britain, for example, while union membership has more than halved since 1979, it is still a third higher than in the US. In Japan and Germany, there was little change in union membership throughout the '80s.
Secondly, social legislation in Western Europe makes it very expensive for employers to fire workers, and the systems of universal social welfare in these countries tend to reduce competition among employed and unemployed workers. Consequently, throughout the '80s job losses in Western Europe have been much lower than in the US..
Paradoxically, the result of these differences between the US and most of its imperialist competitors is that the latter have official unemployment rates that are usually double those of the US. In the 25 years from 1973 to 1994, no nett jobs growth occurred in Western Europe, as employers there simply stopped expanding jobs. Over the same period, by contrast, 38 million nett new jobs were created in the US. Most of this growth was concentrated in the service sector, where wages in the US are on average one third lower than in manufacturing and far below those found in unionised industries like auto, steel, or machine tool.
The greater obstacles faced by the capitalist rulers in Western Europe to "Americanising" the structure of their work forces means that, faced by stiffening US competition, they cannot avoid sharply intensifying their austerity drives in the years ahead. It is this increased pressure from US competition, and the deadlines set in the Maastricht treaty for European Monetary Union in 1999, that are forcing the western European rulers to weaken their labour movements significantly by imposing sharp cutbacks to social welfare benefits. But this means risking big explosions of working-class and popular resistance, which — as we saw in Italy and in France last December — can revive working-class solidarity and strengthen the union movement, making the task of driving through the austerity measures even more difficult.
[This article is based on a report to the National Committee of the Democratic Socialist Party.]