International Strategy Nº 20
September 2003

After being in trouble for the last few years, the world economy seems to be heading for a cyclical recovery, once again driven by the growth of the American economy. At least, these have been the expectations in the stock markets, which hailed the bold monetary and fiscal measures recently enforced both by governments and central banks. In this article, we take issue with that groundless optimism, charting the fragility of the ongoing recovery. Furthermore, we claim that it will hardly hold out, because the driving forces that put an end to the 1990s boom remain in place, and can gain new impetus in the medium and the long term. In spite of the current 'feel good factor', we insist that, in our view (which might turn out wrong), the onset of the 21st century might be a 'wasted decade for global capitalism'.

Analyzing the 1973-74 recession, which marked the end of the postwar boom, Ernest Mandel held that: ‘In the history of capitalism, each overproduction crisis combines general features flowing from the fundamental contradictions of the capitalist mode of production as such, with particular characteristics that flow from the given historical period of development that this mode of production is going through.' By taking up this method, we can say that the present crisis is a by-product of the following combination. On the one hand, it is a typical crisis of overproduction, which in turn is the result of a consistent fall in the rate of profit in the realm of the American economy -the powerhouse of world capitalism- since 1997. On the other hand, the distinctive features of the present crisis flow from overaccumulation, overborrowing and overspeculation, all of which mark a difference with the crises that occurred after World War II. This particular form derives from the fact that the capitalist offensive of the last few years has torn down many of the constraints that were imposed on capital since the 1929 crack onwards, both in the terrain of production and finance. This process has reinforced some of the most distinctive features of the capitalist mode of production, i.e., its tendency to create homogeneous patterns, either by eliminating or else absorbing old forms of production; an increased internal differentiation, by means of creating distinct areas of operation, particularly that of finance, and last but not least, a tendency to interconnection, which can be seen in the close intertwining of the different areas of world capitalism. That is why the present crisis can be summed up as a crisis of mundialization, and also that of the Anglo-Saxon model, which has become its prevailing form.

A corporate and finance revamping to spur benefits

Before we analyze the crisis of the 'Anglo-Saxon model', let us dwell on the transformations in the sphere of finance and that of the corporations. These originated in the US and Britain and then spread to the rest of the imperialist countries. They were enforced, right from the early 1980s and during the 1990s as a lever to restore the rate of profit of capital, in the wake of its steady fall for most of the 1970s.
The liberalization of finance proceeded by tearing down the barriers separating investment banks, commercial banks and insurance companies, which had been introduced under the New Deal regulations in response to the heavy indebtedness and the speculation frenzy that mushroomed during the 1920s, leading to the 1929 crack and the Big Depression. The climax of this process came in April 1998 when Travelers Insurance, owner of the investment bank Salomon Smith Barney, merged with the Citicorp, a commercial bank. Thus Citigroup was born, becoming then the biggest finance institution within the US. These juggernauts of banking came to life as a result of financial deregulation, and were also the big winners of the day, since they charged high fees for issuing shares and corporate bonds and presided over a wave of mergers and acquisitions.
These changes introduced in the banking system went hand in hand with the promotion of the 'Anglo-Saxon model' or stakeholders' capitalism, which sought to hand power, within the corporations, over to shareholders, with the aim of restructuring them and imposing what came to be known as a 'dictatorship of profitability'. It just sought to tame managers, trying to make them ponder all decisions from the standpoint of their effect on the behavior of the shares on the stock market. Each of them was expected to further 'value creation' (in the sense of stock market value, not in a Marxist sense of value creation through the exploitation of the labor force). And this was meant to be achieved either by means of a hike in the value of shares or else a hike in returns, which thus became the unique goal of the enterprises. In order to tie up managers to the shareholders' desires, the income of the former was then hooked to profit-performance bonds or else to corporate turnover. Managers were given a percentage of shares or a corresponding part of their income in stock options. This corporate model was the form adopted by the bourgeois offensive against labor, smashing the old Fordist model in which the rise of profits and productivity went hand in hand with rising wages, which in turn nourished cooperation between corporate management on one hand, and organized labor, represented by the unions, on the other. The demand for high returns led the corporations, in the name of 'keeping shareholders satisfied' and a 'sound corporate governance' to merge with one another with the aim of cutting down on jobs, wages and whatever hampered corporate profits. This era marked the heyday of 'downsizing', which was the way chosen to implement mass lay-offs.
These transformations underpinned a recovery of the rate of profit, which grew steadily for over 15 years. The watershed came in the 1981-82 period, although for most of the 1980s and the early 1990s this revival of profitability was not accompanied by a corresponding surge in the rate of investment. In contrast with that period of 'neoliberalism', the 1996-2000 cycle remarkably combined a massive swelling of the finance sector with an accelerated expanded reproduction of capital. This has given the lie to those views linking an exorbitant growth of finance to stagnation and parasitism, thus writing off any likely accumulation of capital. The latter gained such momentum that it was unable to uphold the rate of profit expected by investors in a consistent manner. This phenomenon is at the root of the present crisis of overaccumulation, overborrowing and overspeculation, at least to an extent not seen since the crises that preceded World War II.

The rise and decline of the 'Anglo-Saxon model'

In our view, the more flexible and dynamic performance of the finance and corporate system advocated by the 'Anglo-Saxon model', along with the privileged position of the US within international finance are the main sources of the glittering American boom between 1996-2000. These factors enabled the US to attract, at a low cost, non-accumulated surplus value in the form of capital coming from the rest of the world, especially after the South East Asian crisis and those afflicting other peripheral countries in 1997-98. And those two factors also account for the shortcomings and imbalances enshrined within the US economy itself.
In Capital, in a chapter dealing with 'The role of credit in capitalist production', Marx claims that: 'If the credit system appears as the main lever leading to overproduction and overspeculation in the realm of trade, this merely occurs because the inherently elastic process of reproduction is stretched to the limit. And this occurs because the most of social capital ends up being used by those who do not possess it, who consequently dispose of it in way totally different to the manner in which the owner does, who proceeds by cautiously pondering the limits bearing upon his private capital, insofar as he proceeds individually. It flows from here that the valorization of capital relying on the antagonistic nature of capitalist production, allows for a free and actual development to a certain extent only; this is to say, in fact, it becomes a fetter and a barrier inherent to production itself, constantly overcome by the credit system.'
The borrowing and stock market frenzy that mushroomed in the US in the late 1990s took on those features highlighted by Marx as typical of the credit system and joint-stock companies of his time to unprecedented new heights.
Whereas the rate of profit underwent a downturn in the US as from 1997-98, the rate of accumulation grew apace and remained in a high level right until 2000. The source of this remarkable achievement lies in an abundant inflow of credit, particularly the flood of foreign cash that bloated the US after 1997. This development has been charted in a recent survey by Dumenil and Levy, who claim that: 'The revival in investment proceeded along the usual lines, after the 1991-92 recession, right until 1995, but this expansion remained in place in spite of a new fall in the rate of accumulated profit. Investment, then, was actually financed by other sources of borrowing on top of accumulated profit: ‘Investment began to recover, in a rather usual fashion, from the recession of 1991-1992 until 1995, but this expansion was maintained in spite of the new decline of the rate of retained profits. Investment was actually financed by other sources of financing in addition to retained profits (…) After about 10 years of stagnation around 1.3%, the ratio of net investment to the net stock of fixed capital peaked at 4.4% in 2000, a level similar to that maintained between 1963 and 1981. Between 1990 and 1997, the pattern of financing was rather standard, drawing mostly from internal resources (…) The situation changed dramatically after 1997, as internal funds peaked in this year and then declined. After 1997, the contribution of two components increased: (1) New borrowings; (2) Foreign direct investment up to the recession. Thus, the continuation of the boom beyond the limits usually set by profit rates can be explained by a willingness to borrow and the contribution of foreign investors. This is a first important feature of the boom in its latter phase, that is since 1997.’
This dynamics of capitalist accumulation in those years can be seen, significantly, in the high tech sector, the most dynamic branch of the economy. The intertwining of finance and technological innovation stimulated a productive expansion to new, unprecedented heights, well beyond its capacity to yield a rent consistent with the expected levels of dividends by the throng of investors that kept pushing up share prices of high tech companies until they reached exorbitant levels (the Nasdaq bubble). At the end of the cycle, this resulted in a widespread and deep crisis of overaccumulation, overborrowing and overspeculation.
Thus, after the passage of the Telecommunications Act, Salomon helped 81 telecoms companies raise some $190 billion in debt and equity, much more than they could sensibly invest, therefore giving fresh impetus to expansion and to a subsequent overcapacity. By spring 2000, at the apex of the stock market's ascent, the market capitalization of the telecoms companies (the value of their outstanding shares) had reached a staggering $2.7 trillion, or close to 15 per cent of the total for all US non-financial corporations - this despite the fact that they produced less than 3 per cent of the country's GDP. With such a huge amount of assets worth of guarantees, the telephone companies were in a position so as to borrow as much as they wanted. According to Robert Brenner: ‘Between 1996 and 2000 they took on $800 billion in bank debt and issued an additional $450 billion in bonds. On this basis, they were able to increase investment over this period in real terms (i.e. measured in 1996 dollars) at an annual average rate of more than 15 per cent, and to create 331,000 jobs. The outcome was a sheer productive overcapacity. In the words of Brenner: ‘In 2000 no fewer than six US companies were building new, mutually competitive, nationwide fibre-optic networks. Hundreds more were laying down local lines and several were also competing on sub-oceanic links. All told, 39 million miles of fibre-optic line now criss-cross the US, enough to circle the globe 1566 times. The unavoidable by-product has been a mountainous glut: the utilization rate of telecom networks hovers today at a disastrously low 2.5-3 per cent, that of undersea cable at just 13 per cent. There could hardly be clearer evidence that the market - and especially the market for finance - does not know best. The consequence was an amassing of sunk capital that could not but weigh on the rate of return for the foreseeable future…’Since telecommunications accounted for a disproportionate share of capital accumulation during that period, their decline also troubled its suppliers from other branches of the high tech industry, who are afflicted by the same disease of overaccumulation. In other words, the existence of idle equipment and capacity is part and parcel of a more general crisis engulfing the high tech sector in the main, especially the branches of computers, semiconductors and telephone operators. Thus, in August 2001, the rate of utilization of productive capacity was around 76.2%. -an all time low after the 1982 recession. This has hit high tech industries the hardest -the rate of utilization of capacity fell from 88% in 1995 to 63.4% in 2001.
In conclusion, this picture shows that during the 1990s, particularly towards the end of that decade, the US were in a position so as to cushion the contradictions unleashed by the period inaugurated with the end of the postwar boom in the early 1970s, by launching a humongous expansion. But its very nature exacerbated, at one and the same time, long term contradictions, a development that has been confirmed by the data furnished above.
The close intertwining of the US finance system and its overliquidity in the heart of the productive system -boosted by the flood of low cost capital from abroad- exacerbated a glut of goods that no longer represent socially needed labor, a tendency inherent to the credit system itself. In the words of Ernest Mandel: 'At the beginning of industrial capitalism, each capitalist was able to check very quickly whether the labour-time expended to produce his commodities was socially-necessary labour-time or not. It was enough to go to the market-place and there look for buyers of these goods at their price of production. When trade and credit insert themselves between the industrialist and the consumer, the former begins by realising automatically the value of his commodities. But thereafter he is unaware whether or not they will find a real outlet, whether they will find an "ultimate consumer". Long after he has already spent the money representing the value of the commodities produced, it may turn out that the latter are unsaleable, not really representing socially necessary labour-time. The slump is then unavoidable. Credit tends to postpone the slump while making it more violent when at last it comes.'
In other words, the 'Anglo-Saxon model' has stretched the tendency to the squandering of the productive forces to its very limit, thus deepening a prevailing trait of the capitalist mode of production in the imperialist epoch.
The overaccumulation of capital, the liberalization of finance and the 'Anglo-Saxon model' all have nurtured, in turn, a new development: the managers of the corporations grew immensely rich, a trend that ran not only against the interest of workers but also that of share-holders themselves. These just sought to subordinate the former to their interests through a stakeholders' variety of capitalism. Thus, according to the The Economist: 'Many of the corporate scandals that have rocked the US in recent years reflect a brazenly criminal wrongdoing (...) The currently ongoing scandal is not a question of breaking the law, it boils down to the fact that CEOs have grown accustomed to indulging themselves as if they were the real owners, even though they do not run any of the risks entailed by property ownership, whereas the actual owners, the shareholders of the corresponding companies, have let them have their way.'
Managers have just been riding the gravy train for too long, a picture that clearly flows from the following figures. According to Fortune, annual real income in 1970 stood at 1.3 million dollars (measured in current values) for the top 100 CEOs, about 39 times as much as the average worker. Around the late 1990s, however, the average income for the Fortune top 100 was 37.5 million dollars -1,000 times as much as the average wage of ordinary workers.
This remarkable 'expropriation of the expropriators' has come about as a result of a collusion between accounting firms, investment banks, the architects of the new finance engineering and the top managers in the corporations, all of them responsible for the 'transparency' that both Anglo-Saxon capitalism and its quarterly balance sheets trumpeted. This form of capitalism mimics, on a wider scale, the features that Marx traced of the joint-stock companies of his time: 'It constitutes the abolition of the capitalist mode of production within the capitalist mode of production itself, and is therefore a contradiction in terms, one that prima facie appears as a mere point of inflexion towards a new form of production. It appears then, to our senses too, as such a contradiction. In some spheres, a monopoly is introduced, and by doing so it calls forth the intervention of the state. It nurtures a new aristocracy of finance, a new kind of parasites in the shape of schemers, fundraisers and merely nominal managers; a whole system of fraud and deceit with regards to fund-raising, shares and their negotiation. It is private production deprived of the control of private property'. (our emphasis)
This very same contradiction has recently led The Economist to claim that 'we are confronted with a stakeholders' capitalism that suffers from a vacuum of property', and even 'we are faced with a widespread and open abuse of capitalism, by the capitalists themselves'. Then, they add: 'the main danger against the success of capitalism are the very same people that one might consider as its most fervent advocates: the CEOs, the owners of the corporations and the policymakers who tirelessly insist that they are pro-business'.

The mundialization of production by multinational corporations

In the last few decades, the internationalization of the economy has made significant break-throughs, which are different from those in other periods of capitalist boom -which have been typical of the capitalist mode of production since its beginnings. This advance can be seen in the growing international centralization of capital, driven by the wave of mergers and acquisitions and the growth of world trade, which has grown much faster than production -especially that between branches of a same corporation. It has also been boosted by direct foreign investment coming from the main countries and flowing into those in the periphery, in a process that reflects a heightened competitive fight among the big corporations, as well as a tendency to the relocation of capital.
Right at the heart of this new wave of internationalization of the economy is the mundialization of production fueled by the multinational corporations. This trend has been gaining momentum since the 1970s, and it was designed as a lever to offset the tendency of the rate of profit to fall. It has become a distinctive feature that bears enormous importance for the world economy today. This can be seen in the increase of foreign direct investment (FDI). According to a report released by the UN Conference on Trade and Development, the global stock of FDI grew more than times between 1980 and 2002, reaching up to 7.1 trillion dollars.
A new division of labor has been fashioned by the strategy presiding over the production of big corporations, bringing about a more widespread rule of the law of value across the world. The enhanced influence of multinational corporations, above all in the field of production of manufactured goods, has also spread to other fields, such as the services, resulting in the creation of world prices in more and more branches of the economy.
This is different from 'classical imperialism', which integrated those countries in the capitalist periphery into the world economy as suppliers and producers of raw materials for the metropolitan centers. It is also different from the expansion of multinational corporations during the boom, which opened their branches in closed markets. The novelty here is that their 'specialization' in the production of commodities goes hand in hand with the integration of a whole number of peripheral countries into the circuit of world manufacturing, a drive presided over by multinational corporations and boosted by the massive reduction in transport and communication costs.
We must point out the advocates of 'globalization' claim have been proved wrong in one important regard. In fact, they have postulated that the increased internationalization of production in big industry would apparently overrule national borders and bridge the gap in productivity levels and wages between different countries, but it has happened otherwise. Actually, multinational corporations in their push to cut the cost of the labor force and reap corporate superprofits have just widened those gaps. The reckless competition put up by those countries in the periphery to the effect of drawing in foreign capital by bringing in low wages, lower taxes on capital, an almost non-existent social provision and no environmental regulations are proof positive of this.
As a result of this trend, a new division of labor has emerged, one in which certain countries (especially the advanced ones) tend to concentrate complex labor and technology, whereas other semicolonial countries depend on an intensive use of the labor force. There is even a third sector of countries that basically are reservoirs of working population, such as Africa, which have no chance of becoming integrated into production whatsoever. In other words, capitalist accumulation has led, in the last few decades, to an internationalization of surplus value creation within the realm of manufacture, followed by an ensuing internationalization of the purchase of the labor force input. This new development within the world economy has empowered corporations around the globe to get corporate superprofits, unrestricted access for their products in new markets, push down the price of raw materials and uphold their monopoly on technology.
The giant leap in mundialization was boosted, in the last decade, by the massive geographical expansion of capitalist accumulation, which has also taken over new branches. Geographically, this trend consolidated itself at the expense of old forms of production in most countries of the periphery, which either died out or suffered a massive retreat, especially the 'import-substitution pattern' and the bureaucratically planned economies of the so-called 'socialist' countries. Their productivity started to lag well behind as competition sharpened up. But this geographical expansion went hand in hand with new fields of action for capital and its valorization, a process clearly seen in the massive wave of privatization that swept over most countries of the globe. This drive entailed a generalized commoditization of the fields of education, culture, the pension system and health care, to name just the most significant areas.
These trends have underpinned a recovery of the rate of profit and boosted the spread of capital. But, alongside these beneficial effects for capitalist accumulation as a whole, they have also tended to boost a glut of goods and capital and bloated markets. The glut comes down to the transformations in the finance system, which put global corporations in a position to issue their own stocks and shares, overcoming the barriers entailed by the banks, the main business intermediaries. Another factor is the quickest spread of products, processes and innovations. From the standpoint of realizing the value of commodities, the extinction of old forms of production has deprived capitalism of regions able to absorb the glut of goods coming from the overaccumulation and overproduction reigning in the metropolitan countries when the downturn comes. This can be seen in the turn to exports by the dependent countries, which has been the main pattern at the heart of the present global capitalist accumulation in the last few decades. China is a most vivid example of this: Chinese exports accounted for 75% of total growth back in 2002. In turn, by imposing a common pattern for profit in all countries, the classical contradictions of capitalism have been reinforced, because the anticyclic mechanisms traditionally operating on a national or regional level have been eroded -e.g. the European Pact of Stability that curtails the control of European governments over monetary and fiscal policies right when recession has set in. These elements related to both supply and demand are a structural factor aggravating the current economic crisis engulfing the world. Along with the overaccumulation within the US economy, these tendencies are to blame for the deflationary tendencies at work on a world scale.
Lastly, the main stumbling block in the road towards mundialization is the ever widening gap between rich and poor nations, the bourgeoisie and the proletariat, between booming and declining regions. This picture validates the postulates on imperialism, which Trotsky charted as follows: ‘By drawing the countries economically closer to one another and leveling out their stages of development, capitalism, however, operates by methods of its own, that is to say, by anarchistic methods which constantly undermine its own work, set one country against another, and one branch of industry against another, developing some parts of world economy while hampering and throwing back the development of others. Only the correlation of these two fundamental tendencies—both of which arise from the nature of capitalism—explains to us the living texture of the historical process.’
‘Imperialism, thanks to the universality, penetrability, and mobility and the break-neck speed of the formation of finance capital as the driving force of imperialism, lends vigor to both these tendencies. Imperialism links up incomparably more rapidly and more deeply the individual national and continental units into a single entity, bringing them into the closest and most vital dependence upon each other and rendering their economic methods, social forms, and levels of development more identical. At the same time, it attains this "goal" by such antagonistic methods, such tiger-leaps, and such raids upon backward countries and areas that the unification and leveling of world economy which it has effected, is upset by it even more violently and convulsively than in the preceding epochs.’ The present thrust to mundialization, boosted by profit-hungry multinational corporations, has not done away with the uneven development of countries, regions and economic branches typical of capital's expansion in the imperialist epoch; quite on the contrary it has been massively reinforced.

A cyclic recovery heralding new troubles ahead

We have charted the structural tendencies that unraveled the unstable equilibrium achieved in the 1990s, which might anticipate, if they should grow stronger, a systemic crisis for world capitalism. The virtuous circle of the American economy between 1996-2000 is gone for good, and there is no chance of making it come back in its full splendor, while both the 'Anglo-Saxon model' and the thrust to mundialization keep running out of steam. Given this bleak picture, the continued over-reliance of the world economy on the US market is bound to fuel tensions and creates new troubles in the foreseeable future.
The outlook of a shrinking world economy in the next period ahead leads us to wonder about the share of burden that each of the three imperialist blocs will be ready to bear. Also, it remains to be seen how much those countries in the capitalist periphery will have to put up with in the dire years ahead.
Right now, we can see the following moves and measures impinging upon the core of the world imperialist system, seriously affecting the powerhouse of growth in the last few years -the US economy- and its links with other regions of our planet.
On one hand, the US is witnessing a big-scale intervention by both the administration and the Federal Reserve in order to ameliorate the downturn by means of an expansive fiscal and monetary policy. For example, in the last three years, budget has gone from a 1% surplus of the GDP in the year 2000 to a deficit that will stand at an estimated 4% for this fiscal year. Interest rates, in turn, have fallen some 5,5 points in the meantime, with its present levels at their lowest since 1958. Loans at one 1% can be borrowed right now, ushering in a period that some economists have branded 'an era of cheap money'. The low interest rates charged to business objectively prevent the crisis from cleaning off the economy, at a time when it is overwhelmed by a suffocating overaccumulation. Richard Bernstein, CEO of the US Merrill Lynch was quoted by the Financial Times as saying: 'Easy access of the companies to fresh loans to clean up their balance sheets could delay a vital adjustment of the economy by propping up weak companies and a deflationary overcapacity. He points to the chips' branch as one with typical excess capacity being propped up by incoming cheap borrowing. Similar arguments can be made about the car and aerospace industries. If he is right, without a painful string of bankruptcies and job cuts that should correct the unhealthy distribution of capital in the late 1990s, both the prices and profits will continue to fall.'
In other words, the artificially continued existence of the 'credit bubble' means that the economic woes will remain in place , with a growing risk for the finance system, which policymakers set out to bail out, since the increased levels of liquidity can only lead to still more massive debts. An article put out in the last issue of the magazine 'The Pulse of Capitalism' voices concern in this regard. A parallel is drawn between the Japanese slump of the 1990s and the present position of the US. The common traits featured are the following: ‘One great similarity is the role that debt played, first in underwriting the boom and then hampering any recovery.' In the case of Japan, the article says, Japanese officials were mostly concerned by the health of the banking system and the size of bad loans, which amounted to some 362 billion dollars, the equivalent to 8% of the GDP. And they add: ‘The U.S. has not experienced such a massive financial collapse, but the ingredients are there. During the past five years, total credit market debt has grown an amazing $10,452 billion or 49% whereas GDP has increased $2,127.2 billion or 26%. These disparate rates of growth cannot continue, yet the economy cannot thrive without continued debt growth. Eventually we may well face debt default problems just as severe as Japan's.’
In other words, the fiscal and monetary regulations mentioned above can only put off the day of reckoning for some time. If we take into account that 2004 is the year when Bush will bid for re-election at home, this is a very likely scenario. The most optimistic strand of commentators is forecasting a growth of the US economy that will snap the world economy out of its present mire. But this 'postboom boom', like some analysts have branded a likely frail revival of the economy that would come in after the demise of the 1996-2000 boom, will only be made possible at the expense of a further disruption of the US's economic and financial set up, which means undermining more and more the foundations of the economy. The troubles are likely to remain: the lowest savings rate in US history, record levels of consumers' debt and the biggest current account deficit ever seen.
On an international scale, the dollar has undergone a steady devaluation in the last few months, in a move that shows the US is willing to find a way out of its crisis that runs against its imperialist rivals. However, Japan's refusal -recently joined by Europe- to allow a significant rise in the value of their currencies due to the harsh economic and social costs involved, and the enhanced American competitiveness that it would entail, seems to have jeopardized, for now, any attempt at reaching a much needed stabilization of the world economy.
The resistance to put up with the new realities of the economy is reflected by the widening gap between real and potential production -an index of the amount of equipment lying idle- in the OCDE member countries: it has risen from 0.4% in 2001 to 1.2% in 2002 and a higher 1.8% in 2003. From this, we get the following picture of the position of the three imperialist blocs: for the fifth time in its twelve year-long stagnation, the Japanese economy is heading for a short-term recovery. However, there is no indication that it is in a position so as to override the tendencies that have plunged its economy into a serious depression. In turn, 2003 has been the year in which the European economy plunged into recession as well. Meanwhile, the American economy, for the first time since the stock market collapse in early 2000, has started to grow at a squalid 1,7% per year. This period includes a mild recession in the three first quarters of 2001 and an unusually weak recovery for the next seven quarters. The poor impetus of the present upturn is clear in the fact that it is the weakest compared to the average of the eight previous post-recession periods of the American economy in the last fifty years. And this in spite of the fact that today there are powerful monetary and fiscal stimuli being implemented to help the economy pick up steam. The most similar recovery is that which followed the recession of the early 1990s. Worse still, compared to the notorious 'jobless recovery' of the past decade, the present upturn fares much worse when it comes to job creation and corporate investment. It has been the only one that has seen consumers' expenditure continuously on the rise, and that even during the short recession of 2001. This flagrant contradiction between jobs and investment on one hand, and consumption that grows beyond all desirable limits on the other, will hardly hold out over time.
The deadlock between what the economy dictates and the political obstacles against it, in the main imperialist countries, is postponing a solution for the crisis miring the world economy, therefore enhancing the chances for a non-traumatic solution to it.
This means that all the fundamental imbalances within the international economy will remain in place, in an economy already over-reliant on the US market. The extent of this dependence can be observed in the sources of development of the world economy during the seven year-period ranging from 1995 to 2002. According to recent data, the US accounted for 96% of the accumulated growth in the world's GDP, which amounts to three times as much the US's economy share of 33% of the global economy. Today, that pre-eminent role played by the US is coming under fire, due to the strong imbalances we have mentioned above. In turn, the feeble growth of domestic demand in Europe and Japan prevents them from becoming an alternative powerhouse to the US. This fault line running through the international economy of today is reflected in a dangerously high current account deficit of the US, which has already reached an astonishing 7% of the GDP. Never before has the world been faced with the task of bankrolling such a massive financial burden!
Such humongous current account deficit will only get worse if the present fiscal and monetary measures designed to help the economy pick up steam fail miserably. And this is just a likely scenario due to the overaccumulation and overcapacity already bloating the economy. If this is not the case, and policymakers along with technocrats succeed in kick starting the economic cycle, the need to bankroll such astronomical debt (which might jump to a 3 billion dollars a day) might force Americans to give some concessions to foreign capital, be it through an increase in the dividends of the Treasury Bonds or else by pushing ahead with a cut in the price of shares. In the words of the top boss at Morgan Stanley, Stephen Roach: 'I don't see an easy way out of the imperatives dictated by a global rebalancing. This will proceed either by a fundamental shift in the currency market or else a crisis in international finance (...) The more the world eschews the imperatives dictated by a cut in America's deficit, the bigger the chance of a flight of all assets in dollars.'
This scenario of a collapse of the dollar and all assets in that currency (which, as we have seen, remains a possibility both in the medium and long term) would radically alter the whole political and geopolitical scenario of the world. For some analysts, like André Gunder Frank, the dollar 'is virtually a paper tiger, it is currency printed on a paper whose value has come to rely solely on worldwide acceptance and trust, which might decline or else be denied overnight and make it loss half of its value or more. Apart from slashing consumption and investment in America, as well as the wealth expressed in that currency, any decline of the dollar would seriously hamper the ability of the US to uphold and deploy its military machine. On the other hand, a military disaster would in turn weaken the trust in the dollar even further, pushing its value down further.' Hence, the importance, for the US, of being up to the challenge mounted to its offensive by the guerrilla warfare in Iraq. For us, the turning point might be brought about by domestic savings turning positively to the red, which would make the US totally dependent, for investment, on the rest of the world.
Given the presently high political and geopolitical tensions fueled by the unilateral course pursued by the US, which is stoking up the flames of unrest among the bourgeoisie of rival imperialist and semicolonial countries alike, and also among the masses of the entire world, such dire economic outlook would only make things still worse. There are dangers looming ahead for capitalism as a whole as a result of the present economic woes. The Economist puts it this way: 'When such excesses have occurred in the past, there was a political backlash drawing upon the anger of the people, as it happened under the administrations of Teddy Roosevelt and Woodrow Wilson back in the 1900s. [This remains very likely today], even in spite of the fact that the popularity of the notoriously pro-business President George Bush is running high, thanks to the war on terrorism and Saddam Hussein. The danger is often expressed as an over-reaction to excesses, of a period of excessive regulations on capital. That danger does exist; but the worst chances are that the anger in the face of capitalist abuse might tip the balance of domestic policy in the direction of protectionism, as a wrong way to help the weak and the vulnerable, and nourish the suspicions of both the markets and business.'
An inchoate form of protectionism has been on the rise lately, namely the bilateral agreements on free trade (FTAs). Two Columbia University professors have claimed that: 'We are witnessing what is possibly the biggest rift separating economists and policymakers since the postwar period. Unfortunately, the economists were right. The signature of an abusive amount of bilateral agreements is posing a mortal threat to the system of multilateral trade. And they point that one of the reasons for this lies in the bilateral agreements that are undermining the fundamental principle of the World Trade Organization (WTO), i.e., that the lowest tariff charged to one member should be made extensive to all members (the MFN or most favored nation rule). While it is true that the architects of the WTO/GATT (General Agreement of Trade and Tariffs) left out those areas of free trade not liable for MFN enforcement, they surely did not envisage that a proliferation of such agreements would fragment the trade system. Towards the end of last year, 250 FTAs have been enrolled at the WTO. If those currently being negotiated are clinched, the amount will be near 300. The outcome of this is a 'spaghetti bowl' of regulations, arbitrary definitions of origin of the products and a bewildering array of tariffs, depending on the source. And the very same authors have pointed out that whereas the Europeans started to walk down this road, the Americans are now following suit, exploiting their hegemonic power and the privilege of preferential access to their multibillion domestic market.'
Worse still, during the recent standoff over Iraq, the bitter acrimony hovering over the imperialist relations, particularly those between France, Germany and the US, led to economic threats being heard on both sides on the Atlantic. Many people claim that the recent fall of the dollar that has driven the European economy against the wall, mainly that of Germany, was a retaliation of the US aimed against the latter and France due their vehement opposition to the war. In turn, China's take over on world's trade is used as a scapegoat by the main countries for the troubles they are going through. This is the case with Japan, the standardbearer of the campaigns against China within the international system and a firm advocate of an immediate appreciation of the Chinese currency. More and more American lobby groups are joining in this campaign too. The harsh declarations recently made by the Secretary of the US Treasury, Mr, John Snow, before his official visit to Beijing, in which he urged the Chinese authorities to go for the free flotation of their currency, in such a way so that 'American firms would not be put in a disadvantageous position', just stoked up the flames of the dispute.
Will these be the opening salvos of an open trade and political war leading to a new fragmentation of world trade? Will we see a re-run of the closed and hostile trade blocs, which transformed the 1929 crack into the big depression of the 1930s?
We just do not know for sure. The closer integration of the world economy in the last few decades and the lessons drawn by the bourgeoisie worldwide out of that economic catastrophe are major countervailing factors. And this in spite of the embittered political and geopolitical relations between the big powers, which have of late hampered the effectiveness of international coordination policies. Let us bear in mind that these were an essential element to re-establish a temporary capitalist balance in the wake of the crisis of the 1970s. All in all, the increasing political thunders hovering on the economic links among the various nations in the face of the troubles embedded in the world economy show that new dangers are looming ahead for the political economy of the world system.

A renewed onslaught against organized labor

Whatever the outcome of the present recession and its disparate effects on the main countries that make up the world system, one thing is clear: the different strands of the imperialist bourgeoisie are using it to unleash a new offensive against labor. The growth in unemployment is a malaise affecting each one of the imperialist countries. The increase in unemployment has gone hand in hand with attacks on the real and indirect wages of workers, with major reforms being implemented in the pension system.
In the US, the rate of unemployment has gone up to above 6% in the last few months, after an average 4% for the duration of the year 2000. The economic hardships have virtually frozen any real increase in wages, which had been rising in the last phases of the 1990s boom. That was the first period of a sustained wage rise above inflation ever since the 1960s. In the words of the journal In These Times: 'In the last two and half years there has been a qualitative change in the labor market. The country has left behind a time when jobs were relatively abundant and the wages rose for most of the workers; now labor has to try hard to find even those jobs paying the lowest wages. For most of the workers, the wages now hardly keep up with inflation, and with employers either cutting down or eliminating health care provision altogether, even those at work are often far worse off than they were just two years ago.'
In Europe, the main thrust of the bosses' offensive has been a coordinated attack by the governments in a number of countries, on the state-funded pension system. 'Reforms' have been introduced, which have pushed the retirement age up while seeking to lay the foundations for the creation of pension funds. This last move would mean more juicy businesses for the banks and financial quarters who are eager to lay hands onto the indirect wages accumulated by millions of wage-earners, a move that would put stock markets into a bullish mood since there would be an aggregated demand of stocks. In the US, a place where that system is more developed, the low interest rates there are trimming down the dividends yielded by pension funds and other personal savings. The businesses have renounced on the commitments and goals set out during the bullish market of the last few decades. In the present economic circumstances, they entail additional overcharges on their revenues, thus giving rise to uncertainty as to the effective amount that workers will get paid once they retire. In turn, many companies are laying off workers just before they have full rights over their pensions (or else they push ahead with a merger for that purpose). On top of that, the nasty drops in the stock markets in the last few years have cut down the value of pension funds, with many workers being forced to postpone retirement or else put up with diminished funds after a whole life of contributions. As Michel Husson correctly points out: 'The bourgeois 'reforms' of the pensions are a win-win option. If the wage-earners want, and can afford, to work for a longer period of time, this keeps up the pressure exerted by joblessness, mainly on the youth; if they retire at the same age than before the 'reform' was brought in, they have to put up with a reduced pension, and the value of the labor force is consequently reduced as well. All in all, the pension 'reforms', introduced with the pretext of a technical adjustment responding to inexorable demographic changes, represent indeed an unprecedented offensive against the position of all wage-earners.'
This onslaught against the pension system might be complemented, in the US, with the attempted privatization of social security and the Medicare, which would allow the state to write off any commitments to funding, handing over this profitable branch of business to private capital. If the bourgeoisie gets away with this and 'convinces' the workers of the advantages entailed by such measure, the magnitude of the sum involved might open up, at least for the banks and other agencies within the finance sector, an alternative source of 'goldilocks' businesses in the style of those at the heyday of the 1990s.
Confronted with this bourgeois offensive, the proletariat has so far failed to deliver a bold response, giving up on significant gains due to the fear of bigger losses. The leaders of the unions have led it to this position of resignation. It has also failed to overcome the limits imposed by the union bureaucracy, as it was the case with the French, Austrian and German workers recently.
The aggravation of the capitalist crisis might change the mood of the grassroots and lead to more radical responses by organized labor against the bourgeois offensive. However, we have to stay away from any objectivist view predicated on the basis of economistic determinism. Trotsky said: '(...) the effects of a given crisis on the course of the working class movement are not so unilateral, at least not so much as some simpletons would have it. The political effects of a crisis (not only the scope of its influence but also its direction) are determined by the whole political situation and by those developments preceding and unfolding during the crisis itself. Especially important in this regard are the battles, the successes or the failures of the working class itself, before the crisis breaks out. Under a specific set of conditions, a crisis might give a powerful impetus to the revolutionary activity of the toiling masses; under a different set of circumstances it might completely paralyze the offensive of the proletariat and, should the crisis last for too long, with workers enduring too many losses, this could severely weaken both the potential offensive and defensive power of the class itself'. This last scenario is what we have seen in the last twenty years of rampant neoliberal offensive. It set in the wake of the defeat and derailment of the labor and mass upsurge of 1968-76 and the ensuing retreat and atomization of the ranks of the working class. Then, overcoming the present division within the ranks of the workers, getting rid of the union bureaucracy and building a revolutionary leadership able to assimilate the present lessons from the ongoing combats are the key tasks of the day. It should also be able to draw upon the historical record of the world proletariat. In this way, the new working class shaped after the defeats of the last few decades will be able to seize upon the opportunity provided by the crisis of capital and switch to the offensive.