USA: Problems in the world’s engine room
THE USA has serious problems. It spends more on its armed forces than the rest of the planet put together and the military are the biggest employer – even in peacetime.
Who pays for this? Not the rich.
President Bush has made big reductions in tax but no less than 43% of the cuts made have gone to the wealthiest 1% of Americans, although the $75 billion cost of the first 30 days of war knocked Bush’s tax cuts plan on the head for a while!
Bush’s largesse to people who can hardly spend any more was at the expense of $700 million from public housing repairs, $200 million from training programmes from dislocated (sacked) workers.
Real wages in the US are now 12% lower than they were in 1973 and half the working population has no pension provision.
l1.7 million workers lost their jobs in the USA between March 2001 and October 2001 – 725,000 of them lost their health insurance.
Workers are paying for these economic problems. The downturn plus fears of war and of pandemics have reduced demand for air travel so much that the bosses are asking the unions for more ‘givebacks’ ie more cuts in living standards. Tourism is predicted to remain in the doldrums until 2005 at the least.
Why The World’s Bosses Stopped Investing
THE WORLD economy faces a growing capitalist crisis which could last a long time. This would have particularly been the case if the bloody war in Iraq had proved very protracted.
But the problems aren’t just those of war and its economic costs – they could just speed up the process of stagnation in the world’s economy.
Before the war started Stephen Roach, chief economist with Morgan Stanley warned that post-war, US President Bush (and, he could have said, imperialism): “will still have to cope with persistent post-bubbles excesses, deflationary risks, anaemic national saving, exploding budget deficits and massive current gaps. Victory in Iraq changes none of that”.
The 1991 Gulf War was fought as the world economy was recovering from a relatively short recession. Europe’s economies were growing, mainly due to the boom following Germany’s reunification. Asia’s and Latin America’s economies were also growing in the early 1990s.
Recently the USA has been the lone engine of world capitalism. To keep up this role and spark off a global recovery, the US economy needs to expand at an annual rate of at least 3% to 3.5%. But many forecasters now expect US GDP growth of only 1% to1.5% (at annual rate) in the first half of 2003.
Meanwhile the capitalist triumphalism of the early 1990s has been replaced by an anti-capitalist mood which has turned into mass anger against Bush’s and Blair’s war on Iraq. What’s more the “international community” as Blair calls it, is ridden by splits. This rift will inevitably spill over from politics into economics.
Manufacturing crisis
THE BIG three trading countries/blocs ,USA, European Union and Japan, together produce 72% of the world’s output – and all three of them are in trouble.
In Britain economic growth is at its lowest level since just after the September 2001 attacks, while the figures for trading conditions and consumer spending have not been as miserable as this for over a decade.
The Chartered Institute for Purchasing and Supply’s index of manufacturing sank for the fourth month running. The Institute says that firms are hit by falling demand and by “the higher costs of production caused by the spiralling cost of oil. They are running down stocks in an attempt to protect profit margins.”
This sharp contraction put Britain’s manufacturing back in recession. In the US too the index of ‘factory activity’ is slipping faster than expected. British firms are not going to invest and commit themselves to new business with such worries about the global economy.
Consumer caution
IT’S NOT just the war – the economic situation is making people more wary as consumers. All the ‘never to be repeated’ money-off offers have been repeated more often than The Great Escape but to less and less avail. Shops are emptier as worries such as spiralling household debts, keeping up with mortgages etc. take their toll on economic confidence.
The bosses’ CBI confirms this in a recent survey, 41% of firms reported a decline in sales up to March compared to only 28% who announced an increase. This produced headlines such as “The end of the consumer boom?’ It was certainly the weakest performance since July 1992 shortly before Britain left the exchange rate mechanism.
Meanwhile, the US economy has also only been rescued by continued consumer spending which is based on debt. Personal indebtedness went up from 106% of disposal income ten years ago to a record level of 131% in 2002. There now seem to be signs that US consumer spending is slowing down.
Brown’s hopes of kick-starting capitalist investment neglects the fact that capitalist firms invest for the highest profits not Britain’s “long-term interests”. Corporate profits have not been as low as this as a proportion of gross domestic product since 1992.
The world economy is suffering from huge over-capacity especially in industries like cars – the world motor industry can still produce far more cars than it can sell at a profit. Such factors have led the capitalists to invest 12.4% less in Britain’s economy, the steepest decline for three decades.
It’s the capitalist class who refuse to invest unless they get huge profits but who will Brown expect to pay for the economic problems this causes? The working class through lost jobs and cut wages and reduced public services. Clearly this will increase the demand for both regime change and system change in Britain and other capitalist countries.
