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Winfried Wolf

Gloomy Outlook for World Capitalist Economy

New International Recession on the Horizon

(25 June 1979)

From Intercontinental Press, Vol. 17 No. 24, 25 June 1879, pp. 630–631.
Transcribed & marked up by Einde O’Callaghan for the Encyclopaedia of Trotskyism On-Line (ETOL).

At the time of the publication of the first French edition of Volume 1 of Capital in 1872, Karl Marx added a passage that is very interesting in regard to what we are going to deal with in this article, a passage not found in the German edition.

“But it is only in the epoch where mechanized industry, having taken root fairly deeply, exercises a preponderant influence over the entire national production; where, because of it, foreign trade begins to take precedence over domestic commerce; where the world market successively incorporates vast lands of the New World (America), Asia, and Australia; where finally the industrial nations entering the fray have become fairly numerous – it is from that period alone that we can date the recurring cycles, whose successive phases encompass years and which always culminate in a generalized crisis, the end of one cycle and the starting-point of another. Up to now the duration of these cycles has been ten or eleven years, but there is no reason to think that this figure is fixed. To the contrary, we can infer from the laws of capitalist production, as we have developed them above, that it is variable and that the period of the cycles will gradually shorten.” (Le Capital: Ed. Sociales, vol. 1, page 456, 1976. Not in English editions)

This passage on international economic cycles, written more than one hundred years ago at the beginning of the industrial revolution, once again testifies to the acuteness of Marx’s analysis. There is not one word that does not apply to reality, particularly to the reality that concerns us today – the late era of capitalism, in the seventh decade of the twentieth century.

The world market is becoming increasingly important to the development of each national cycle. After the end of the long economic boom that followed World War II, we are now witnessing a synchronization of the business cycles and, simultaneously, a deepening of the economic crisis, just like at the time of the economic boom of the first industrial revolution a century ago. The only change is that the cycles are of shorter duration – from five to six years now.
 

Rate ol Exportation: Dependence on the World Market

The existence of a capitalist world market is a reflection of the spread of the division of labor to a world scale: an increasingly large share of national production is no longer traded on the domestic market, but on the world market (for commodities or – but this is only an intermediary – for currency, meaning debit accounts for the importing country and credit accounts for the exporter in equivalent currency).

The phrase by Marx stating that “foreign trade begins to take precedence over domestic commerce” is of course true only for a limited number of small imperialist countries, if we consider strictly the percentages of exports; however, the rate (percentage) of exports – meaning the share of the Gross National Product represented by exports – is very important for the big imperialist powers.

The chart below shows the share of exports in the Gross National Products of the most important imperialist countries:

The United States’ relatively low rate of exports is explained by the extraordinary size of the U.S. domestic market and by the fact that the U.S. is a major economic power. Despite a low rate of exports, it is in fact, and by far, number one on the world market.

The export rate of the big countries of the European Economic Community, which on the whole is more than twice Japan’s' rate, is primarily the result of the existence of the Common Market. For instance, 45% of West Germany’s exports go to the countries of the EEC. The very high export rates of the Benelux countries is explained by the small size of these imperialist countries (and thus the relative constriction of their domestic market). Out of every two florins or francs these countries “earn,” one comes from foreign trade.

Since the end of World War II, major changes have taken place in the imperialist powers’ share of the world market. (See table.)

The following are the consequences of the transformations wrought by the last thirty years on the world market. The biggest loser has been Britain, ancestral home of imperialism, whose share in the world market has been reduced by more than half.

The United States, which emerged from World War II as the victor and as the new major imperialist power, has been steadily losing ground, especially to West Germany and Japan – the countries that were militarily defeated in 1945. These countries have now become direct competitors of U.S. imperialism.

West Germany experienced decisive growth in its export rate in the 1950s and 1960s, while the Japanese export boom continues to this day.

Since World War II there has been no lasting uniform economic cycle on an international scale. This is explained in part by the blows that the war and immediate postwar period dealt to the development of the world market, the effects of which lasted until the beginning of the 1950s.

But the main reason is the long economic boom of the 1950s and 1960s. It was, in fact, the major factor in why there were no real long-lasting crises marked by real drops in production. Instead there were periods of slower growth (for example 1957–58).

Under these conditions, a crisis in one country did not threaten to draw other countries into a dangerous spiral; the lack of synchronization in the unfolding of the cycles was not interrupted by the impact of recessions.

In the second place, this long boom allowed different countries to benefit from the fact that the cycles were not synchronized. For example, if signs of an economic crisis developed in the domestic market of one country, but the boom was continuing internationally, that country could make special efforts to increase its exports to take up the slack.

In this way the non-synchronized character of the economic cycles on an international level was further reinforced, and in particular, the tendencies toward crisis in the domestic market were overcome.

The 1966–67 West German recession is undoubtedly the best example of what we have just said. The West German recession took place at a time when other countries such as Japan, France, Britain, and Italy were experiencing major growth. This meant their domestic markets could be targets for an export drive, in this pase carried out by Germany.

West Germany was able to overcome its recession through exporting, and 1968 and 1969 saw the beginning of the new German boom.

Since the end of the 1960s, however, the tendency has been for the cycles of recession to become more uniform as a result of growing tendencies toward crisis in all the countries. A first international recession took place in 1971 – West Germany was not yet hit. Then in 1974 the cycle of economic crisis spread to such a large extent, with all the imperialist countries experiencing the crisis at the same time, in a synchronized manner, that all avenues of escape were blocked.

And today we are witnessing the unfolding of the most serious crisis the capitalist world has experienced since 1929. Seventeen million persons are officially listed as unemployed in the U.S., Japan, Australia, and Western Europe alone. Since 1974, it appears that no country has been able to really pull out of the vicious circle imperialism is suffering from. A first year of boom in 1976 was followed nearly everywhere by a slight slowdown in growth in 1977 (in general the boom was slowed by the lack of strong consumer demand).

In 1978 there was a recovery in comparison with the previous two years.

1979 seems to be the year of a turning point. Some countries are already beginning a downturn. Others, like Japan and, in part, West Germany, are experiencing their last year of recovery. Let us, therefore, take a specific look at the various countries and their situation in 1979.

The boom in the American economy is undoubtedly already over. As a result of profits (so far still real) and the permanent inflation that continues to rise at an annual rate of 10%, there is a growing tendency for the unions and the working class to stand up to Carter’s wage policy. While unemployment has fallen, it is holding steady at 5.8%. Predictions regarding the date of the next crisis differ only as to whether it will begin in 1979 or 1980. According to Citibank, the most probable date is late 1979.

In France, for now, there is no chance of a more extensive recovery, despite the victory of the bourgeois parties in the March 1978 elections. France is also seeing a rise in profits, but the French capitalists are not inclined to invest. Meanwhile, the rate of inflation has again reached double digits (more than 10%), and we can soon expect to see political and economic remedies applied to the situation.

The official number of unemployed in France is 1.4 million (the real figure is closer to 1.8 million). Despite the recovery, this is a historic record for unemployment! New threats of massive layoffs are looming; moreover a large number of factories are occupied by the workers. Under these conditions one can easily understand why the bosses in France do not foresee anything good happening and are already more or less awaiting the next crisis.

The Italian economic situation presents the same overall picture. Until the end of 1978 the recovery was quite restrained. Nevertheless, a slight improvement is expected in 1979. But inflation has already reached a rate of 13% (the highest in the EEC), and runs a strong risk of going from a trot to a gallop. The opposition of the trade unions and especially the working class to the austerity policy and growing unemployment (1.6 million people), as well as the political instability stemming from the elections, all point to the recovery coming to an end in 1979 in this country as well.

The British economy experienced a small measure of growth in 1978, the first it has seen since the crisis began. This growth is primarily the result of a significant reduction in real wages. The number of unemployed (1.4 million) is, as elsewhere, very high for a period of economic recovery. The inflation rate is climbing, having just reached 10%. The offensive of the British working class earlier this year showed that whether there is a Labour or Conservative government, it is not possible, in the short run, for capitalism to impose the “radical cure” it needs.

All that British capitalism can do is sit back and wait for the arrival of the crisis stemming from the state of the world market, which will undoubtedly hit the British Isles.

Japan is about the only country that does not completely fall into the same framework. In the past three years it has seen appreciable growth rates. In 1979 it is continuing to experience real growth of the same magnitude. Even the inflation rate remains low (around 4%).

In terms of unemployment, however, Japan falls into what is now the normal pattern. There are 1.3 million people officially on the unemployed rolls, and up to now there has not been a real decline in unemployment. On the contrary, there has been a large increase in the number of overtime hours, which in fact serves to replace the groups of “special” (temporary) workers.

To summarize and conclude, we can say the following: there are very strong reasons to believe that a new international recession is on the horizon. It may emerge toward the end of 1979 in some countries and in 1980 in others. In the meantime the policies of the various imperialist countries, especially the United States, could be decisive at a time when they again find themselves on the horns of a dilemma. If they try to stop inflation (by raising interest rates and cutting public expenditures) they will plunge headlong into recession. If they allow the economy to roll along or even pick up steam (through new programs for recovery, or belated programs, as in West Germany) inflation will get stronger and attempts to apply the brakes will become even more risky.

Whichever scenario is chosen, the international cycle of economic crisis is moving very rapidly toward the next big crisis, with the workers movement inheriting nothing from the boom except record levels of unemployment left over from the previous crisis.

 
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