[Militant International Review, No. 49, Autumn 1992, p. 2-5]
The tumultuous events of recent weeks in western Europe will impact on political and economic developments across the globe. They are an important turning point in world perspectives
The shattering of the exchange rate mechanism, and the subsequent events surrounding this, represent a major defeat for capitalism internationally. The exchange rate mechanism (ERM) was set up in 1979 as the precursor of a single currency. It was seen as a further step toward a united Europe, which would lead to a new era of peace and prosperity for its 340 million inhabitants.
True, the prospect of a further development of European integration produced an ambivalent response from its north American and Japanese rivals, grappling with the transformation of world relations after the collapse of Stalinism and the end of the cold war. On the one hand, a Pentagon ‚Defense Planning Guidance‘ document released this February, argued for an American foreign policy „to deter the emergence later in this decade of a global ‚adversarial rival‘ or international coalition“ which would threaten US interests. This included a more integrated Europe. The initial draft, before it was diplomatically re-worded in May. warned, for example, against „the emergence of European-only security arrangements.“ (Financial Times, 26 May 1992).
On the other hand, another section of US strategists, including a group closely linked to the Democratic Party’s presidential candidate, Bill Clinton, has argued that, with „greater economic parity among north America, east Asia and Europe“ causing „a sea change in world trade and finance. we have no choice but to move from what was formerly the hegemony of a single country to collective management by the industrial democracies.“ (The Carnegie Commission, America and the New World, July 1992).
This idea is completely illusory. It is true that the US, while still the pre-eminent capitalist power, has lost, at least economically, the ‚hegemonic‘ position it enjoyed over its capitalist rivals at the end of world war two. But it was the existence of the Soviet Union and the Stalinist states of eastern Europe as a powerful bloc against imperialism that, since 1945, overrode the persisting mutual rivalries of the major capitalist powers. With the collapse of Stalinism that era is over. World relations, including world economic relations, will never be the same again. New inter-imperialist strains have surfaced, and will deepen in the future.
With the collapse of Stalinism, new inter-imperialist strains have surfaced
Nonetheless, a more integrated European Community (EC) was looked to by the US and Japan to handle the exploding crisis in eastern Europe and the former Soviet Union. Despite their fears that it could turn into a protectionist ‚Fortress Europe‘. it was also looked towards to provide a locomotive to help pull the world economy out of its present stagnation.
But now the effective break-up of the ERM and the following antagonisms, especially between the British and German bourgeois, mean in reality the end of the Maastricht treaty. In spite of the majority for the Yes vote in the French referendum, the idea of European monetary and political union is now no longer credible even as a distant aspiration, Notwithstanding the protestations to the contrary, for example at the EC finance ministers meeting at the end of September the more likely prospect now is for a two or three tier Europe, dominated by a ‚Deutschmark zone‘ of Germany, the Benelux countries, and even for a period France. with increasing antagonisms between the various capitalist classes.
While efforts will still be made to patch together the exchange rate mechanism again, and moves to create a single market will continue. these will not prevent the process of increasing national antagonisms becoming more dominant. These events brilliantly confirm the basic ideas of Marxism, represented in Britain by the Militant and the Militant International Review, (MIR) that on a capitalist basis the unification of Europe was ruled out and that the bourgeois cannot overcome the different competitive interests created by the private ownership of the means of production and the existence of the nation state.
Thus, for example, in contrast to the initial euphoria of the capitalist media at the time of Britain’s entry into the ERM in October 1990, in the following issue of the MIR we soberly explained that, while it was „possible on the basis of an economic upswing for the capitalists, like thieves sharing out the swag, to co-operate in lowering tariff barriers. seeking to co-ordinate and harmonise tax, customs duties, laws etc. … once the upswing turns into stagnation, never mind downswing, it will be every man for himself and the devil take the hindmost. The battle … between Britain and France on agriculture,“ we argued, „merely foreshadows future, inevitable conflicts.“ (MIR No.45. p. 6).
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The crisis of the exchange rate mechanism and European integration will impact upon developments in the countries of eastern Europe and the former Soviet Union. But it will not change the direction of the processes in these countries, although it could affect the tempo.
The authority of the ‚market‘ and the western bourgeois has been weakened by these events. It will be less easy now for the IMF, and the ignorant bourgeois economists ‚advising‘ these regimes, to get the same slavish response to their demands from the governments in these countries as they have in the past period. The process to capitalist restoration will continue but the crisis in the west is likely to buttress that wing of the pro-capitalist forces which seeks to move to capitalism by the slower route. In the former Soviet Union it is likely to reinforce the Rutskoi/Volsky Civic Union wing. This means a strengthening of the forces of Russian nationalism in the corridors of power in Moscow.
The increased antagonisms between the western European bourgeois will also weaken their ability to intervene in the conflicts to their east. Under cover of this crisis in the west the nationalist forces in the east will feel confident to pursue their aims more determinedly. The overall result then in eastern Europe and the former Soviet Union of these events will be to tend to increase national conflicts and increase the antagonisms between the different wings of the various regimes.
Of course the other effect will be to increase the questioning of the ‚market‘ and capitalism among the best layers of the working class and youth in the former Stalinist countries. The Los Angeles riots showed that US capitalism had serious problems at home. The problems of European integration will show that capitalism in western Europe and worldwide is wracked by fundamental contradictions. It further weakens the ideological offensive of the bourgeois on a world scale, and this includes eastern Europe and the former Soviet Union.
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The prospects for world economic growth have been damaged by the crisis around the exchange rate mechanism, The increased currency instability weakens investment, especially international investment. At the same time these events have reduced the prospect of agreement on the current General Agreement on Tariffs and Trade (GATT) talks. This round of talks, which started in December 1986, have been deadlocked. Disputes have flared between the US and the EC on agricultural subsidies in particular, which have been maintained by the capitalists in the past for social reasons, to balance the rural areas against the industrial areas, With the European governments, especially France and Germany, weakened, it will be less likely that they will be prepared to force sacrifices on their farmers to placate the US government. This unwillingness will be strengthened by Bush’s recent electoral promise to hand out an extra $1bn to US farmers. The US pressure on Germany to lower its interest rates to provide a market for US exports will further poison the atmosphere.
Faced with the breaking down of the world trading system of GATT in the recent period, regional trading blocs have begun to form in Europe, north America and south east Asia. The battle between these trading blocs is set to worsen but at the same time these blocs themselves will be increasingly convulsed by internal conflicts. Ratification of the North American Free Trade Agreement is proving difficult. Antagonisms are increasing in south cast Asia. Now the European bloc is riven with the accusations, currency instability and competitive devaluations which have recently exploded to the surface.
The short-term economic prospects have been worsened by these recent developments in Europe. Even before. the outlook was not good. In the USA. In August retail sales, industrial production and capacity utilisation all fell by 0.5%. Growth in the second quarter of 1992 was less than half the growth in the first quarter. Increasingly it looks as if the US economy is set to move into a ‚triple dip‘.
Japan, according to the Financial Times, „may be on the verge of its worst recession for almost 20 years.“ (22 September 1992). GDP growth was only 0.2% in the second quarter of this year. Moreover this prognosis was made after the government spending package of 10.7 trillion yen (£43bn). announced in August. „Many private sector economists.“ reported the Financial Times, „believe the economy faces such serious problems – overcapacity in manufacturing, huge bad debts which could disable the banking system and stagnant private consumption – that it will fall further unless the government takes additional action.“
The British economy remains in recession, the German economy is grinding to a halt: its GDP fell 0.5% in the second quarter of this year. Its high interest rates have a deflationary effect throughout Europe. as do the attempts to cut budget deficits in Greece, Italy, Sweden and most of the major European economies. In France industrial production fell by 0.4% in June. The world economy is therefore in danger of entering recession on a worldwide scale.
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The question posed is – where is growth to come from for this to be averted? Marx spoke of two ‚departments‘ of production: ‚department one‘ being the production of the means of production, and ‚department two‘ being the production of the means of consumption. Little prospect of growth can be anticipated from department one, the means of production. Overcapacity exists worldwide: the market is not there for major investment in this area. On top of this a severe crisis of profitability is now sweeping world capitalism from Japan to the US to Europe. In the post war period in the US, at this point in the recovery stage in the capitalist cycle of boom and slump. Corporate profits would have been recovering at a rate of 32.2% on average. In the present ‚recovery‘ the rate is 4.3%. This crisis of profitability. added to the lack of markets, cuts across growth coming from the development of the means of production.
Department two, the means of consumption, provides no basis for growth either in the immediate future. Unemployment in the OECD countries has risen from 25m to 30m in the past two years. Reeling under the massive debts piled up in the 1980s, the working class and middle classes, the source of the major portion of consumption, either cannot make ends meet or put any surplus they may have into paying off debts or saving against an uncertain future.
On top of this the falling price of assets, especially houses, after the rise in these prices in the 1980s. further cuts into spending power. In California in the 1980s the combined book value of homes rose by $1bn every 48 hours Now these are falling and with them the ability of their owners to consume. This is a phenomenon which is taking place worldwide.
The 1980s boom has resulted in a massive build-up in the debt of governments, corporations and consumers, This fuelled the 1982-90 boom. In the US, for example, public and private debt reached 197% of GDP. As Marx explained. credit allows capitalism temporarily to go further than its own limits. But now this massive debt build-up drags like a dead weight on the world economy and pulls world capitalism back toward its limits. In the 1980s the debt crisis of the ex-colonial countries surfaced. Now in the 1990s the debt crisis of the advanced capitalist countries is added onto this.
Faced with worldwide economic stagnation at best, the bourgeois internationally are abandoning Monetarism and moving to a semi-Keynesian position. The Japanese government. because of their budget surplus. are the most capable of carrying out this policy. But even Japan is expected to have a shortfall by the end of the year and may be forced to issue bonds to pay for its spending programme, which will take money from elsewhere in the economy. Nonetheless, albeit to a lesser extent, the capitalists internationally are now beginning to consider some increase in state spending. for example Clinton’s plans in the US. An increasingly vocal wing of the capitalists and their media internationally calls for such measures.
Such state spending will be mainly on infrastructure. And given the budget deficits that exist in most countries, it will be accompanied by a massive onslaught on public spending on services, public sector pay and jobs This is leading to huge conflicts in the public sector, as has been seen in Canada, Greece, Germany and now Italy. Battles loom in the public sector in Britain. including in the key arena of local government. (See article on pages 6-11) This attack on the public sector will tend to negate the spending programme on the infrastructure and, when taken with the other factors outlined above and the defence cuts flowing from the collapse of Stalinism, the overall economic effects will tend to be deflationary.
The short-term perspective for the world economy, therefore, is stagnation at best. such as that experienced over the past six to twelve months, or, perhaps somewhat more likely, a net fall in world output which could last for some time.
It could not be ruled out that this could develop into a world slump. In fact. this is less likely. as the bourgeois would move to prop up the financial institutions and revert to the printing press to avert this, albeit at the cost of an explosion in inflation. But one qualification that should be put on this is that, if protectionism exploded out of control, then this could put more serious economic possibilities more firmly on the agenda.
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The events of the past weeks in western Europe are set to have very significant political effects It is clear that after the Reagan-Thatcher 1980s the pendulum has begun to swing back on a world scale. The ending of the illusion of unifying Europe, the shattering of ‚capitalism with a human face‘ in Sweden and Germany, the prolonged economic stagnation, the terminal condition of the Bush presidency, the broken authority of the Major government after just 160 days: all are signs of the slipping away of the 1980s era of capitalist triumphalism and the beginning of anew turbulent period.
The prolonged boom from 1982-90, the collapse of Stalinism, and the victory of imperialism in the Gulf war, combined to enable the bourgeois to launch a powerful ideological offensive. The recent events have dealt this offensive a serious blow, At first among the most combative sections of the working class and youth, and then as events proceed, more widely, the working class will begin to seek an alternative to capitalism.
In Europe severe convulsions are on the agenda. The explosive struggles in Greece, with three general strikes in three weeks and street fighting with the police, are an indication of the intensity of the class battles that will increasingly unfold. The crisis of Italian capitalism is not only economic but also one of the corruption and paralysis of the state. In a sign of things to come internationally, in the longer term, the government has sought Bonapartist emergency powers to deal with the crisis.
In all twelve countries of the EC, and in fact throughout most of western Europe, practically every government has been severely weakened by the recent events. Yet from this position of political weakness they are moving to step up their attacks on the working class. The perception of workers that these governments are vulnerable […] strength to their resistance and […] classes. But into these processes must be added the role of the leaders of the mass reformist organisations, the workers‘ parties – Labour, Socialist and Communist ~ and the trade unions. As the economic crisis deepens the reformist leaders have moved further to the right, holding out their arms to prop up capitalism. Increasingly the bourgeois are being forced to rest upon the mass reformist leaders. In Sweden the leaders of the opposition Social Democrats, backed by the trade union federation, the LO, actually entered into an agreement with the Thatcherite government of premier Bildt to help carry through the cuts.
The severity of the crisis. with the abject capitulation of the reformist leaders and the smallness of the forces of Marxism may, as in Sweden now, result in illusions developing among sections of the working class that the collaboration of their leaders with the capitalists is the only alternative. But such attitudes will not last long in the face of the unfolding attacks. At first in those sectors most directly affected by the cuts, and then gradually spreading throughout the working class, resistance will surface.
The deepening of the crisis and the capitulation of the reformist leaders will increase the tensions between the working class and its leadership. As the process unfolds new splits will take place and opposition currents emerge within these organisations. In some countries new organisations can be thrown up in which the ideas of Marxism can find a significant echo.
Rank-and-file opposition movements will develop in the unions and the workplaces. In the unions themselves at a certain stage new figures will step forward to take a stand under pressure of the rank-and-file, and in some cases under the fear of the advances of the forces of Marxism. The deepening crisis of capitalism is accompanied by the deepening crisis of reformism. In this situation. with clear principles. a clear programme. and flexible tactics, Militant and our international co-thinkers. can make great gains in the events that lie ahead.
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