World economy still in the dumps

Wednesday, March 18, 1992 - 10:00

By Maxine Durand

The world economy is currently experiencing a sluggishness which is giving increasing cause for concern. A recent editorial in the Economist, while attempting to be reassuring, was nevertheless entitled "Free fall?".

It is well known that economic forecasts record fluctuations which are likely to be even more important than the economic phenomena themselves. Thus, after having doubted the onset of a new recession in the United States in the mid-1980s, then having proclaimed that the crisis was over towards the end of the decade, economists tried to convince themselves that a recovery, which has yet to appear, was imminent.

The Organisation for Economic Cooperation and Development (OECD) has had to revise its forecasts downwards. Growth in 1991 was very slow: 1.1% for the capitalist world as a whole, with unemployment rising by 3.4 million in a year. The OECD predicted that the situation would be a bit better in 1992, with a growth-rate of 2.2% and, as usual, it claims that the following year should be even better, with growth at 3.3%.

But in reality no perspective of harmonious growth of the world capitalist economy can be seen. As L'Expansion has written, "the recovery, if it occurs, will be fragile and lacking in vigour: the economies of the big industrial countries are beginning a detoxification cure".

A debate is closed

This morose state of affairs provides several lessons. In the first place it ends the debate which opened around the rather good economic performances recorded between 1988 and 1990.

These could be explained in one of two ways. The optimists thought that liberal policies would bear fruit. "Structural adjustments" had sufficiently cleaned up economies which could finally attain a rhythm of growth similar to that before the crisis.

But this period could also be interpreted as a simple phase of replacement of investments — a conjunctural upturn. The current downturn shows that the latter interpretation was correct. The turnaround dates from before the Gulf War, and its date varies amongst different countries. It can be dated at mid-1988 for the United Kingdom, from mid-1989 for the United States and from the end of 1989 for France and Italy.

The second feature of the current phase appears in the table, which shows that the big countries are beginning to evolve in different ways. This unequal development helps explain how the world economy has been able to avoid a generalised third recession in which all the economies would shrink at the same time.

If we examine closely the evolution of each of the big countries, we notice that the economic year 1991 laid to rest three illusions. A liberal illusion to begin with: it is striking to note that the slowdown is particularly noticeable for the United Kingdom and the USA, to the point that we can speak of a true recession.

The countries of triumphant liberalism have therefore reached their limits. They now have much more limited perspectives, and the days when they were an example to others are over.

The myth of 1992

The second illusion which has been shattered by economic reality is that of the formation of a big European market. The myth of 1992 had been promulgated by the Brussels technocrats who promised at least 2 million new jobs.

In 1991 the number of jobs in the European Economic Community stagnated while the unemployment level went from 8.9% to 9.3% of the active population.

The abolition of customs is not in and of itself the bearer of a new dynamic of accumulation, which is determined by factors lying elsewhere.

A third economic myth has just been exploded. The reunification of Germany and the general opening up of the markets in the east was supposed to give capitalism the breathing space it needed to overcome the crisis. This too was a disappointment: the reunification was more costly than anticipated, and German growth, after having powerfully advanced in 1990, is now slowing down.

The balance of payments worsened, and the result was a rising rate of interest, which speaks volumes on the coordination of monetary policies which has been talked about so much over the last few months.

The supposedly open markets in the east continue to collapse. During the first half of 1991 industrial production declined by 29% in Bulgaria, 14% in Czechoslovakia, 17% in Hungary, 9% in Poland and 17% in Romania. In the ex-Soviet Union, the national product declined by around 12% over the same period.

Explaining the downturn

How can this downturn on the international level be explained? It should be seen as essentially the effect of various contradictions which have until now been contained. The most fundamental is the following: the restabilisation of profits realised during the decade that has just ended could not be accompanied by a sufficient dynamic of market openings. The growth of demand rested on various mechanisms, at least two of which are reaching their limits.

The growing imbalance of the distribution of income to the detriment of wage earners cannot be indefinitely deepened. In the same way, the tendency towards generalised indebtedness which has helped to maintain the level of demand, especially in the United States, can no longer be prolonged. Capitalism is therefore in the process of rediscovering the famous contradiction between profits and outlets.

Another element that must be considered involves the reduction of financial imbalances on a world level. The growth of the 1980s was supported by an imbalance between the three great financial powers. The growing US deficit was financed by Japanese and German trade surpluses. This imbalance is now being reduced, since the US deficit and the German budget surplus are declining while the Japanese budget surplus continues to grow.

Another striking feature of the current conjuncture consists of the reduction of the margins of manoeuvre in terms of economic policy. Here also the effects of the free market decade are strongly felt.

The current recession in the United States is certainly less serious than that at the beginning of the 1980s, but is lasting longer, much longer than had been predicted.

A budgetary boost would permit the economy to start up again, but that has been made impossible by the weight of the already accumulated public debt. The same reasoning applies to the United Kingdom and France.

'Inflationary tension'

Finally, a last factor marks this conjuncture which the bourgeois economists have baptised "inflationary tensions". In reality it goes back to the maintenance of a minimal relation of forces between workers and employees.

Any revival of growth which is too hectic is immediately accompanied by an "over-rapid" growth in wages, to which the employers respond by raising prices. This phenomenon contributes to explaining the slowing up of the German and Japanese economies, which has, moreover, only just begun.

In Japan inflation went from 0% in 1987 to 4% by the end of 1990. This is not much, but it adds up to a very clear symptom of too strong a tension on the labour market. It does not signal a collapse, but rather a progressive bogging down of the accumulation of capital on a worldwide scale.

The current conjuncture therefore illustrates perfectly the idea that capitalism has not really emerged from the crisis and that it has not found sufficiently stable mechanisms to assure its dynamism.

The expedients it is therefore using to maintain this dynamism tend to be less and less efficient, and more and more costly. [From International Viewpoint.]

From GLW issue 48