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The Bank of England's fourth cut in interest rates this year was prompted by government figures showing manufacturing in sharp decline, with 35,000 jobs lost in the last week alone. However, this measure is unlikely to prevent the onset of a global recession in capitalism, as Per Olsson argues:
World Economy: Here comes the slump
Capitalist commentators have suddenly woken up to the fact that a global capitalist crisis, a recession or slump, is looming. The rich and the capitalist class will hope to escape it by making the working class and middle classes pay for the crisis.
But the fact that the crisis is setting in at the same time as an anti-capitalist mood is gaining momentum, will have profound effect on the political outlook of workers and young people. A socialist revival is on the agenda.
The British economy is sliding down. Manufacturing is already in recession. In the year to March, 148,000 jobs were lost and now the pace has picked up.
The economic slowdown in manufacturing has started to spread to the service sector. But according to Chancellor Gordon Brown everything is fine and somehow British capitalism can weather the storm.
The slowdown in the US had an immediate effect on Europe, particularly on German exports. German manufacturing orders since March have fallen at their fastest rate for over five years.
A global crisis
THIS CRISIS is the first synchronised global downturn. The three main capitalist countries - US, Japan and Germany - are going down together, while the rest of the world slides after. "It looks like the downside of globalisation could be globalised slump", warned the London Evening Standard [30 July].
The present global downturn represents a new phase in what has become a drawn out process of crisis, which began in East Asia in 1997. But the processes towards worldwide recession have accelerated in the course of this year.
There is no major capitalist power that can act as a locomotive to economic growth and pull the rest of the world along. Japanese capitalism is mired in a slump as the country is entering its second decade of stagnation. The US economy is hardly growing at all. The world's financial system is walking a tightrope at the moment.
The situation is different to 1997 - 1998, when the US could act as an engine of growth for the rest of the world. Then, the US economy was growing at an annual rate of 4% to 5%.
The US economy expanded at a 0.7% annual rate in the second quarter of this year, the lowest growth rate for eight years. Manufacturing output in the US has fallen for 12 months in a row, investment dropped 13.5% at an annual rate last quarter. Corporate America's profit is plunging and unemployment is on the rise again. Even further interest rate cuts will do little to change the situation, given the level of overcapacity and lack of demand in the economy
US capitalism is now paying the ultimate price of living beyond its means - a record current account deficit and the creation of a dangerous debt trap.
While the US economy was growing, huge imbalances were created in the world economy and the US has become totally dependent on the will of foreign speculators to finance its deficits.
But the capital inflow to the US could overnight turn into an outflow as the slowdown starts to deflate the Wall Street bubble. This in turn would throw the value of the dollar into reverse causing panic across the world - "the meltdown scenario" as The Guardian called it [30 July].
It is almost impossible to predict the speed and the depth of the impending global crisis of capitalism. The downturn has not yet spread to all the main sectors of the economy and consumers are still spending.
It is, in fact, the consumers, who are keeping the economy going in the US and, for example, Britain. But this cannot continue for any length of time because of the enormous amount of personal debt accumulated.
Further job losses, low or no growth in disposable income and falling household wealth as the stock market declines will mean that households will have to cut back and some will start saving again.
However, global trade has slowed at its sharpest rate for 25 years in the course of this year and world industrial production is falling in absolute terms. This is bound to affect other sectors of the economy as growth in national income stagnates.
The "new economy'?
GLOBALISATION, INSTEAD of giving way to a "new economy", has bred a "classical" crisis of capitalism expressed in overcapacity and overproduction.
And while the capitalist commentators may be able to describe what is happening, they are not able to give an explanation why. It is the madness of the market and the production for profit which cause the crisis. It is "over-investment", overcapacity and overproduction in relation to profit, not need. Capitalism is a system of production for profit.
It was Karl Marx who explained how the over-accumulation of capital, fuelled by credit expansion, leading to a fall of profit was "the main lever of overproduction and over-speculation". (Capital Vol.3)
Modern capitalism not only faces the problem of a profit squeeze, but also the problem of the limits set by the market. Ultimately, goods produced have to be sold in order to make a profit. But who is going to buy all the goods when the buying power of workers is increasingly squeezed and the public sector has been slashed?
Furthermore, why should capitalists invest when they can, with existing capacity, already produce more than can be absorbed by the market? It is an unsolvable capitalist equation, which is why the system develops through ebbs and flows, periods of growth and periods of recession and stagnation.
It was not accidental that the dot.com bubble was the first to burst, because most of those companies never generated any profit. However, the bursting of the dot.com bubble was a prelude to a crisis in the whole hi-tech sector, including telecommunications, which was the most dynamic sector of capitalism in the 1990s.
It will take years to reduce the amount of overcapacity that exists, for example, in the hi-tech sector and millions of jobs will be lost. The telecom industry has already cut 293,000 jobs worldwide so far this year, mostly in the last quarter. A further 54,000 have gone from related component suppliers.
The mass redundancies, company bankruptcies, savage public spending cuts and financial meltdown affecting Argentina and Turkey - sparking new mass upheavals - has delivered a dire warning of what happens when the crisis starts to hit.
These countries give an illustration of the ferocious class battles that lie ahead when workers and the poor are forced to take to the streets in order to protect their jobs, income and future.
In The Socialist 10 August 2001: