Alejandro Ramos suggested that listmembers might be interested in the
following article that I (Andrew Kliman) recently wrote. A slightly edited
version appears in the November 1997 issue of *News & Letters* (p. 1), under
the title "Globalized capital in crisis." Since the article has already
appeared in print, I believe that one may circulate it without violatating
list protocol. It must be credited to "News & Letters" and carry my byline.
***********************
The financial crisis spreading throughout Southeast Asia sent shock waves
throughout the world last month. Mounting fear among investors caused stock
prices to plummet by 10.4 0n Hong Kong on Oct. 23, which in turn sparked
large declines in stock markets throughout the world. The Dow Jones index
fell by 13% before rebounding partially.
It is too soon to predict the effect of the stock market plunge on the real
economy in the U.S. and globally. Nevertheless, the plunge has created space
for a sober assessment of its current condition.
Nothing seems able to pull capitalism out of its 24-year-long slump.
Worldwide growth of GNP per capita, which averaged 2.8% between 1965 and 1973,
has since fallen continually to 1.3% between 1973 and 1980, 1.2 0n the 1980s,
and 0.5% between 1990 and 1995.
When production grows only modestly, it is now typically "jobless growth,"
since technological revolutions are steadily lowering labor requirements.
Western Europe's unemployment rate, which averaged 2.7 0n the decade
preceding 1973, has therefore risen steadily, averaging 9.6 0n the first half
of the 1990s. That rates in the U.S. and Britain are somewhat lower is due
largely to policies that encourage jobless workers to drop out of the labor
force rather than seek work.
What keeps the world economy afloat for now is an ever-growing mountain of
debt. The ratio of U.S. government debt to GDP jumped by 57% between 1980 and
1994. The other technologically advanced nations have, on average,
experienced the same surge in debt/GDP ratios. Personal debt in the U.S. now
stands at a whopping 910f after-tax income, up from 65 0n 1980, as working
people struggle to maintain their standards of living in the face of declining
real wages.
In the absence of a new boom, the current rate of spending is unsustainable.
Personal bankruptcies in the U.S. are spiraling upward; defaults on credit
card borrowing alone will total nearly $10 billion this year, up from about $3
billion in 1994. The plunge in stock prices has only increased the threat of
bankruptcies.
Coupled with the looming prospect of deflation –- a general fall in prices –
this upsurge in indebtedness threatens to turn the next recession into a
depression. By lowering incomes, profits, and tax revenues, deflation raises
the real burden of debt that borrowers must repay –- if they still can.
Technological advances, worldwide stagnation and falling wages, and fierce
competition are already causing wholesale prices to fall in the U.S., Germany,
Japan, and elsewhere.
With the U.S. inflation rate now dropping even as the economy grows, a
downturn in the economy could well pull retail prices down. With the U.S.
inflation rate now dropping even as the economy grows, a downturn in the
economy could well pull retail prices down. The prospect of rising wages in
the wake of the UPS and Bay Area BART victories could also lead the Federal
Reserve to counterattack with deflationary policies, though the stock market
drop makes that option less probable in the immediate future.
Imperialist power relations, especially the sharply falling export prices and
onerous debt repayment burdens that Third World countries face, ensure that
their masses are the ones to suffer the most from the global slump. Thus,
from 1985 to 1995, their GNP per capita fell by an average of 1.10er year*
in Black Africa, and 0.3 0n the Middle East and North Africa, while rising a
paltry 0.3 0n Latin America.
Likewise, per capita food production has stagnated in Latin America and the
Middle East, and has fallen by a shocking 25 0n Africa, leading to persistent
hunger and starvation. Nearly one-third of the people in the Third World, 1.3
billion persons, live on the equivalent of less than $1 per day. About
one-third of workers in the Third World, 700 million persons, are either
unemployed or counted as "underemployed," i.e., engaged in activities such as
scavenging in city dumps or hawking a few foodstuffs or handicrafts.
The main exceptions to this malaise had been the economies of Southeast Asia.
With its emergence as a manufacturing exporter, and with the world's fastest
growing per capita GNP between 1985 and 1995, Thailand had widely been
expected to become the fifth "Asian tiger" economy. Indonesia's and
Malaysia's industrialization and fast growth led to widespread perceptions of
them, too, as up-and-coming "Asian miracles." Due to their openness to
foreign capital and minimal regulation, these countries were regularly touted
by neoliberal policymakers and pundits as models for other Third World and
Eastern European countries to emulate.
Now the Southeast Asian bubble has burst. On July 2, Thailand surrendered to
speculators' attacks on its currency, allowing it to fall in value. A wave of
currency depreciations elsewhere in the region followed. The currencies of
Thailand and Indonesia have fallen by about 35% against the dollar; those of
Malaysia and the Philippines, about 25%. Finance capital has fled the region,
partly due to lenders' fears that, by making foreign debt more costly to repay
and perhaps lowering export earnings, the depreciations have increased the
risk of default.
Three years ago, Latin America experienced a similar flight of capital after
Mexico allowed the peso to depreciate. Stability was restored only after the
U.S. organized a $50 billion rescue package so that Mexico could repay its
creditors, in return for the imposition on its masses of drastic austerity
measures -– cuts in social services and tax increases –- meant to ensure that
debt repayment becomes the country's top priority. After a brief and partial
recovery in the early 1990s from a decade of depression, the lot of Mexican
workers and peasants has once more worsened significantly.
This time, however, fear among investors has only intensified, although the
IMF has tried to contain the crisis by offering similar packages of aid in
return for austerity to Thailand, the Philippines, and Indonesia. In part,
the fear stems from the hesitancy of some Southeast Asian rulers to "restore
confidence," that is, to give up hopes of becoming major economic powers and
instead to restructure their economies into debt repayment machines.
At the IMF/World Bank meeting in late September, some of them threatened to
slow or even reverse the liberalization -– deregulation and openness to
foreign capital -- of their economies. Most extreme has been Malaysia's Prime
Minister Mahathir. Though he had eagerly welcomed foreign capital into his
country during its boom phase, he has now blamed its crisis on everyone from
currency speculators to Jews, and has tried unsuccessfully to curb currency
trading.
The ultimate impact of the crisis on the masses in Southeast Asia is
uncertain, because the worst is yet to come. In Thailand, for instance,
austerity measures are only now beginning to be implemented. Moreover, many
loans have still not come due, loans which are in severe danger of default
because they must be repaid in foreign currencies which are now more expensive
and because they are backed by assets now worth less. Bankruptcies and
financial collapse may ultimately lower employment by as much as 8% to 12%.
Angry Thais have started to fight back. On Oct. 17, popular outcry forced the
government to rescind a hike in the gasoline tax it had imposed in order to
qualify for the $17.2 billion IMF aid package. Four days later, several
thousand workers, youth, and businesspeople demonstrated, calling for the
resignation of Prime Minister Chavalit.
Now that the Southeast Asian "miracle" has soured, at least for the present,
the experts who had heralded these countries' liberalization now blame them
for the crises they face. Yet the deeper determinants of the crises are the
vicissitudes of the capitalist world market in which they are ensnared. Their
manufacturing industries boomed because their sweatshops exploited the
cheapest labor-power and thus produced at lowest cost. In 1994, however,
China decided to challenge them in the "race to the bottom" and undercut them
by means of a 35 urrency devaluation and other measures that have lowered
its export prices by 25%.
At the same time, five years of stagnation in the world's second largest
economy, Japan, has caused the yen to depreciate against the dollar. This led
the dollar-linked currencies of Southeast Asia to surge in value, which made
their exports even more expensive.
What had fueled the growth of these economies, however, was not only their
feverish exporting; they had become dependent on a massive influx of foreign,
especially Japanese, capital. The lion's share of this investment was not
direct investment in production and trade, but short-term "hot money" loans,
payable in foreign currency. Thus, the Southeast Asian economies achieved
their rapid growth by exposing themselves to substantial risks. Crisis
awaited them if capital inflow were to cease and if depreciation of their
currencies were to raise their real debt burden -- risks that have now turned
into realities.
A similar fate may be awaiting much of Eastern Europe. Several of its nations
depend at least as much on foreign loans, and have currencies at least as
overvalued, as did Mexico or Thailand. The deepening crisis has also begun to
make financiers wary of investing in the other "emerging markets." Given its
100 million displaced peasants and another 50 million workers who will be
downsized from state industries, capital flight or even a slowing of foreign
investment into China could create an explosive situation there.
The continuing financial crises have exposed the weaknesses in the capitalist
world economy as a whole. Currency crises are made possible by the absence of
a stable world money since the U.S. abandoned the Bretton Woods gold exchange
standard in 1971. This situation in turn stems from the decline in U.S.
economic and political hegemony, and rising inflation, during the Vietnam War,
which led to its inability to guarantee the dollar as a "good as gold" money.
Moreover, although falling transportation and telecommunications costs have
permitted increasing globalization of capitalist competition, the fierceness
of this competition -– over market shares, but especially over scarce capital
-- stems from the quarter-century-long slump in the world economy. As Karl
Marx pointed out, "it is the fall in the profit rate that provokes the
competitive struggle between capitals, and not the reverse" (*Capital*, Vol.
III, Vintage, 1981, p. 365).
Hence the source of the global economic crises is not "globalization" per se,
as some of its foes in the labor bureaucracy and deep ecology tendencies
contend. The crises are crises of capitalism, the imperialist tentacles of
which have been multiplied and extended by means of high technology. Both
theory and the experience of the state-capitalist countries that called
themselves "Communist" show that it is impossible to place capital under
either local control or the control of an individual nation-state. Capital's
very nature is to self-expand by means of unpaid labor, subordinating
everything with which it comes into contact to its inhuman logic.
Those on the left who concur with President Clinton's pronouncement in Sao
Paolo last month that "Globalization is irreversible" are, however, equally
mistaken. It is true that capital seeks to produce at minimum cost, and is
thus attracted to low-wage, repressive countries that give it freedom from
workplace safety, child labor, environmental and other regulations. Yet the
flight of investment from apartheid South Africa in the wake of the struggle
against it in the 1970s and 1980s, and from Mexico in the wake of the
Zapatista rebellion since 1994, also demonstrate that capital is repelled by
such challenges to its freedom.
Working people thus face the dilemma of submitting to the bosses' dictates or
fighting and risking unemployment. This dilemma is now being played out on a
global scale, yet it is as old as capitalism itself. Now, as always, the only
way to escape the vortex of the world market is to put an end to the inhuman
logic of value production and thereby enable freely associated individuals to
bring production under their conscious and planned control.