real economy'. But this is profoundly misleading.
The signs of deep disequilibrium in the capitalist economy always show up first in the monetary sphere or in the stock markets * for these are the most sensitive dicatorsin the economy. In a special four page supplement on the stock market crash JOHN ROSS looks at its driving forces, likely outcome, annd how its development is analysed within Marxist economic theory.
The immediate trigger of the 1987 stock market crash was inter-imperialist competition - itself reflecting vast imbalances in the world capitalist economy which have been deepening since economic recession of 1973-75. Undertying this inter-imperialist competition, however, movements in the rate of profit. If we wish to understand the crash, and its probable consequences, we must therefore start with these basic developments.
Although the rate of profit in the 1143I1 commane recovered since the intense depression of tac mia-1y/us I sull remalns al a historically low level. The net rate of return on fixed capital in manufacturing in thẹ United States was 39 per cent in 1965 and only 9 per cent in 1985. In West Germany it was 22 per cent in 1965 and 13 per cent in 1984. In the UK it was 12 per cent in 1965 and 8 per cent in 1985.
Recovery from the depressed profit rates of the mid-1970s has been accompanied by deepening imbalances in the world economv of which by far the most important is the long term decline of the United States compared to its imperialist rivals. The fundamental features of that decline, prior to Reagan being elected president, are shown in Table 1.
As may be seen the United States inits the position in the world economy declined on every major index during the postwar period. Its share of world exports declined from 22 per cent to I! per cent between 1945 and 1980. Its share of the export of manufactures fell from 20 per share of value added in manufacturing fell from 55 per cent in 1955 to 21 per cent in 1980.
Productivity By the most serious index, the productivity of its economy, the US has continued to stagnate compared to its rivals. From 1973 to 1980 output per labour hour in the US economy grew at only 1 per cent a year compared to 4.2 per cent a year in West Germany and 6.3 per cent a year in Japan.
This situation has not substantially improved Under presidency US productivity has grown at less than half the rate of West Germany and less than a third the rate of Japan.
Throughout the post-war period, continuing under Reagan, it has been the least competitive and productive sectors of the US economy that have boomed. The 'post-industrial society', apologists for Reag aprop hather, is subject a rationalisation of that economic failure. As Anatole Kaletsky and Guy de Jonquieres put it in a recent study of Conomy. employment (in the US) has shrunk total in 1950 to 19 per cent in 1986, while service jobs have expanded from 59 per cent to 75 per cent..: the steady shift from manufacturing to service employment has been largely responsible for the long term stagnation of US income levels ... The service industries have shown miserably low productivity growth for many years.' However under Reagan the rate of growth of the US economy has performed in a way that seems, on the face of it, to defy the economic laws of gravity. With an economy becoming Economy Last year, for per cent a year of 1979-81 the United States.
Understanding the present crash imperialist competition has * sharply exacerbated.
Reagan's be called 'military Keynesianism'. Growth propaganda Table 1 Manufacturing Year 1945 1953 1958 1963 1970 1975 1980 *Constant prices September 1984
HANG ASICAL WRONG
steadily less competitive than its rivals US growth has been more rapid than its major West European rivals and has cut back the lead enjoyed by the Japanese vCal Under example, the US economy grew by 2.4 per cent — compared to 2.2. per cent in Italy, 1.5 per cent in France and 0.8 per cent in West Germany. Only Japan, growing at 2.8 •and Britain, recovering from the catastrophic slump • grew more rapidly than brought about this result is the core of economic interbecome wards by armaments.
There is no technical mystery as to why the US economy has grown rapidly under Reagan. It is a system that might under seen in The driving force of US economic growth has been the huge government budget deficit - the amount by which US government spending exceeds inUS share of exports and world manufacturing value added US share of US share of world exports world export of manufactures Ana Source: Tim Congdon, 'The dollar standard is doomed'. The Times 26 Van M come. This rose from $70 billion in 1980 to $200 billion in 1986, is due to run at $147 billion this year, and scheduled to rise to $170 billion next Keynesian "demand management', reduced to its essentials, government spending increases pull output upwards. The US system may be termed 'military Keynesianism' because the driving force of the government spending nas been armaments - real US military spending has increased by 40 per cent since 1980. The US military budget this year is $300 billion. As the budget deficit is the motor of the expansion the economic growth of the US has been pushed upWhat makes US economic policy specific is the wa the budget deficit has been financed. Under most Keynesian expansions, as Western Europe in the 1950s and 1960s for example, the government covers the difference between expen diture and income by creating -necessary literally printing - money.
US share of world manufacturing value added 25* 22* 21* of $140 billion to a country with foreign debts of $260 billion - the largest debtor state in the world. If the US balance of trade deficit continues at its present rate the US will owe $900 billion abroad by 1990 — eight times the international debt of a country such as Brazil.
Borrowing As the gap between government ex. penditure and income was covered by foreign borrowing there has been no need for the US government to create money and the inflationary consequences of Keynesianism were avoided. It was this foreign borrowing which allowed the specific features of US economic policy under Reagan — a combination of a loose budgetary (fiscal) policy and a tight monetary policy. The result was that the US economy grew rapidly - under the impact of the budget deficit, while at the same time inflation was kept down — helped by the tight monetary policy.
The combination of rapid growth and low inflation was claimed apologists for Reagan as 'getting the best ot both worlds. and as a masterpiece of economic management'. In reality the mechanism was simple it ar borrows than $400 billion from abroad then, before it has to start repaying the loans, it will enjoy prosperity. Propelled by gigantic inflows of capital - primarily from Japan but also from Western Europe -the US economy boomed. Japan and Western Europe financed the rapid growth of the US economy. Rivals It cannot be said that the United States' rivals were exactly enthralled by this situation. In Western Europe, in particular, there have been complaints for years that the US was sucking capital out of Europe and holding back the growth of the West European economies. : Indeed throughout Reagan years the US economy has grown more rapidly than its West Euro pean allies despite the fact that the latter were more rapidly increasing the productivity their economies However for a period the United State rivals were prepared to accept this situation — first because they had no choice and secondly because of its side effects on the US balance of payments.
High interest rates necessary to suck loans into the United States drastically raised the exchange rate of the dollar. This mechanism was even for a time self-reinforcing as funds moved into the dollar in the expectation that it would The years acterise mento vale 1980-84 saw the greatest overvaluation of the dollar in history.
However as the dollar exchange rate increased so US goods became less compchuve on michalolal Malach and imports into the United States became cheaper compared to domestic production. The high exchange rate of the dollar therefore produced the se cond great imbalance the US economy alongside the budget deficit — a balance of pavments dericit now running at $170 billion a year. West European and Japanese goods wert consequently, highly competitive in the US and the expansion of their exports led to growth in their own economies Last year, for ‚example the British trade sury has to the United Sates post trade surplus to the United States. Germany Japan vastly greater surpluses.
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«The market had reasserted itself as an impersona and while that is the way markets are supposed to Socialist Action 6 Nov 1987 In a sense the capital flows functioned as export subsidies. The flow of capital into the United States kept up the value of the dollar and this sucked exports from the countries lending funds to the United States into the US economy. This was a system which operated to the advantage of the United States, allowing it to expand its own economy, but was tolerable for Ine capital exporting COULICO. The problem is that this mechanism could not last. Even the most substantial imports of capital could not compensate indefinitely for the stagnation of productivity in the United States. In order to bring capital into the US interest rates had to be raised to higher and higher levels - threatening a US recession. The continuous trade deficit could not be sustained indefinitely. At some point, as with any system based on borrowing, the mechanism would have to stop.
Rivals The decisive threat for the United States rivals was a devaluation of the dollar - which would devalue the dollar holdings of Japan and West Germany and make their goods less competitive in the US market. Devaluation of the dollar, in essence, would rob the capital exporting states of a large part of their loans to the US while simultaneously putting the trade squeeze on them.
Shamoon the Observer described very accurately the mechanism that began to operate as the dollar slid -over the last two years it has lost 40 per cent of its value against other currencies: interest rates woria wide welc wastig because the American authorities were finding it difficult to attract the $20 billion or so per month at their bill and bond auctions (to finance the budget deticit).
Participants at previous auctions, including the Japanese, were tired of seeing their contributions depreciate under a weak dollar, so the prospects for interest rates were also bleak. Interest rates were rising, pivoting around American rates so as to disguise the fact that the US dollar was under the microscope.' Recession Fear of rising interest rates, which would spark a recession, was one of the chief mechanisms which ignited the Wall Street crash. The other was the fact that the United States was not getting its own way over how to escape from the situation it found itself in States, naturally, has no intention of picking up the bill for its policies over the last seven years.On the contrary it is intent that as much as possible of the bill will be picked up by its rivals.
The way the United States wanted the crisis resolved was clear. It demanded Japan and West Germany, its main rivals, expand their economies by interest rate cuts, tax reductions, and removal of tarrifs in areas such as agriculture and finarice. If this is done US exports will be. sucked into the West Japanese economies and the US balance of payments crisis will be overcome at the expense of its rivals. Needless to say the Japan and West Germany do not want this. It would mean they would finance the United States out of its crisis and the international relation of forces would shift in favour of the United States.
Tunneno sulla would be politically destabilising in both Western Europe and Japan. The United States, in particular, wants Japan and the EEC to ease agricultural protectionism to aid its balance of payments. As US agriculture is far more efficient than its Japanese and European rivals this would result in a vast expansion of US farm exports and major farm closures in Western Europe and Japan. This would undermine the main electoral base of the West European and Japanese conservative parties.
Javall want the United States to overcome the crisis by the US cutting its budget deficit via increased taxes — that is through cutting the living standards of US workers. Japanese and West German imperialists, would pay for the crisis.
- for the United Problem sion and crushing.
Eliminating German for any politician attempting it ycals Japan development this fight will •SCE Far from Germany was altered the situation since the great crash of 1929.
$15.7 billion, deficit of $184 billion.
ing interest rates.
"Panic At this point sheer panic shows that and West Germany instead That way the US working class, not the The political problem is that this would be as deeply politically destabilising in the United States as would recesthe farmers be in Western Europe and Japan. Unpaid imports into the United States are at present averaging $600 for every person in the the balance of payments deficit exclusively at the cost of the US working class would mean cutting their real expenditure by that much - a drastic fall in the US standard of living guaranteed to result in electoral disaster What took place therefore was a fight between the imperialists over who is going to pick up the bill for the last seven West: Germany demanding that the United States pay and the United States demanding West. Germany and Japan pay. Whoever wins the international balance of economic forces shift in its favoUr October it looked as though West Germany and Japan were winning.
lowering interest rates West increasing them essence stating that it was not going to fund the US out of its crisis by expanding the West German market and sucking in United States imports. But West German imperialism's action in defending itself - the enure development getting out of hand and the most fundamental mechanisms of the
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THE CRISI