[The following appeared as an editorial in the December 22 issue of Inprecor, a fortnightly news bulletin published by the United Secretariat of the Fourth International.]
The situation in the international capitalist economy markedly deteriorated during the second half of 1977. In every imperialist country, economic activity slowed down and unemployment increased, although the phenomenon took three distinct forms:
imperialist a. In the strongest economies-the United States, West Germany, and Japan-industrial production continued to rise, albeit more slowly than in the first half of the year and, above all, at a lower rate than the one forecast by various "experts" and governments in 1976. In West Germany, new orders were down by 7.2% between the second and third quarters of 1977. (Wirtschaftnotizen der Commerzbank.)
b. In a number of imperialist countriesnotably Britain, Canada, and the
Netherlands-industrial production virtually stagnated.
c. Certain others experienced an actual decline in industrial production. This was the case in France (where a tendency of stabilization appeared at the end of the year), Italy, Belgium, Sweden, and Australia. In Sweden, the fall in industrial production was 5% between the third quarter of 1976 and the third quarter of 1977.
Total unemployment in the imperialist countries rose from 15.7 million at the end of 1976 to 16.3 million at the end of 1977. The OECD foresees a further rise for 1978. (Le Monde, November 22, 1977.)
However, since the richest countries play a decisive role in defining the overall conjuncture, the stagnation or decline of production in the weaker countries unlikely in the immediate future to pass into a new recession. On the contrary, the slowing of the recovery in Japan and West Germany led their governments to introduce modest "stimuli" during the autumn. Similar steps will almost certainly be taken in the United States early next year at the first sign of a worsening in the conjuncture-whether or not Arthur Burns in replaced as head of the Federal Reserve System.
In these conditions, the most likely prospect for 1978 is a continuation of the limited and faltering upturn of the international capitalist economy: that is to say, an increase rather than a fall of total industrial production. Nevertheless, the rhythm of the upturn will be even slower and more hesitant than it was in the second half of 1977, and disparities between the imperialist countries will remain strong.
We have explained before why the 1973-74 recession was not followed by a new "boom" and why the upturn is of an extremely limited, faltering, and uneven character:!
1. The recovery was triggered by huge budget deficits in the USA, West Germany, and Japan-that is, by a policy of inflationary creation of additional purchasing power. It was thus increased consumer demand (above all for automobiles) that halted the recession and set production going again.
2. This classical recovery policy could not, however, be applied in the weaker imperialist economies, especially those in which an inflation rate well above the average was accompanied by large balanceof-payments deficits. On the contrary, they were led to introduce an "austerity policy," which held down mass consumption levels, stifled any revival of industrial production, and even provoked a further decline.
3. Hence, the upturn did not spread cumulatively at an international level, but developed in a disparate manner. Recovery in the richest imperialist countries—as well as the forced growth of exports at any cost pursued in Japan and West Germany—did not involve a parallel process in the other imperialist economies; indeed, it was itself limited by their stagnation.
4. However, if the upturn was not converted into a "boom" in the USA, West Germany, and Japan, this was essentially for internal, rather than international, reasons. For there was no significant revival of productive investment (that is, activity in Department I), without which the recovery of Department II cannot be sustained.? This was not due to some kind of "shortage of capital." On the contrary, profits are rising sharply in these countries, and the banks offer plentiful and relatively cheap credits. At bottom, the phenomenon results from the huge excess of production capacity (U.S. industry was functioning at only 80% of capacity in autumn 1977) and from the relative stagnation of the "final consumers' market."
2. "Department I" refers to industries producing means of production (machinery, raw materials, and so on), while "Department II" refers to industries producing consumer goods.—IP
5. Vigorous pursuit of recovery simply through the expansion of Department I has also proved to be an unrealistic course. In conditions of limited upturn, a low growth rate of the economy, strict application of rationalization policies by big capital, and development of the third technological revolution (semi-automation) entail a rise, and not a fall, in unemployment. The lack of a marked rise in consumer demand is also attributable to the persistence of inflation at an only slightly reduced rate and to the "austerity policies" applied by most imperialist governments. Even in the United States retail sales for October 1977 were, in money terms, only 10% higher than in the same month of 1976, even though the cost of living had meanwhile risen by 6%. The volume of consumption therefore increased by less than 4%, and in September it had even shown an absolute decline.
6. The character of the upturn also varies greatly from sector to sector. Thus, important branches like the steel industry, shipbuilding, and synthetic fibers sank into a veritable depression at the very moment of the upturn, and excess capacity is now such that there is little chance of rapid recovery. This unevenness is another reason for the complete absence of cumulative effect and naturally weighs on the general development of the conjuncture.
Paradoxically, in those dependent and underdeveloped capitalist countries that have undergone the greatest industrialization (above all, Brazil, South Korea, Hong Kong, and Iran), the upturn in industrial production following the recession has been more vigorous than in the imperialist countries. Thus, in Brazil gross national product rose by 8% in 1976 and 6% in 1977; in South Korea by 14% in 1976 and 10% in 1977; in Hong Kong by 16% in 1976 and 8% in 1977; and in Iran by 12% in 1976 and 9.5% in 1977 Characteristically, however, the 1977
growth rates are in each case lower than the 1976 ones, and a further slowdown is anticipated for 1978.
All these factors come together to once again determine a fall in the prices of raw materials like iron and steel, copper and zinc, synthetic fibers, as well as the majority of agricultural products. The price of cotton fell by 33% between autumn 1976 and autumn 1977. The stock market is similarly depressed because speculators anticipate a slowing of the upturn or even the onset of a recession in 1979.
In these conditions, interimperialist rivalry can only become more acute. The relative export successes of certain dependent capitalist countries are due to the fact that wages in the sectors involved are much lower than the average paid in the corresponding industrial branch in the imperialist countries, while the technology employed is often quite similar. Such exports therefore deal a very sharp blow to these branches of industry, and the imperialist countries react protectionist measures, vigorous with which go by various names but ultimately involve artificial limitation of imports.
This trade war is by no means restricted to rivalry between imperialist and dependent capitalist countries. To a more and more intense degree, it also rages among the imperialist countries themselves. In response to the spectacular successes of Japanese automobiles and color television exporters on the U.S. market, the American bourgeoisie has adopted energetic protectionist measures, which are also designed to limit steel imports from capitalist Europe and Japan.
Furthermore, the American and European capitalists are exerting joint pressure on Japan to liberalize its own imports, since the Japanese trade surplus for 1977 could be higher than 10 billion dollars. The rise in the dollar value of the yen (17% since January 1977) has been provoked both by international speculation and by U.S. pressure (the fall of the dollar), and it should force Japanese imperialism into making important concessions.
The most disturbing short-term consequence for the international capitalist economy is the fact that, for the first time since 1975, world trade has contracted during the third quarter of 1977 under the combined impact of all these protectionist measures. (This is a fall in relation to the second quarter of this year, and not yet in relation to the third quarter of 1976.) According to the latest statistics of the International Monetary Fund, the imports and exports of OECD member-countries (that is, of the imperialist countries as a whole) have evolved as follows:
Imports
Exports
(in billions of constant dollars) 1976
144.7
3rd quarter
155.7
1977 2nd quarter
182.8
170.7
166.3
3rd quarter
155.3
This downturn has affected the imperialist powers in different ways:
1977 Exports (in billions of constant dollars) 2nd quarter
3rd quarter
United States
31.6
28.7
West Germany
28.8
28.3
Japan
19.7
20.6
16.7
France
14.6
Britain
14.2
14.6
Thus, the United States and France have suffered most from the contraction of world trade.
This revival of aggressive protectionism and economic nationalism, accompanied by frantic monetary manipulation, has an important corollary: namely, the more and more pronounced disarray of an international monetary system that has never recovered from the collapse of the Bretton Woods Agreements and the end of the goldconvertibility of the dollar.
According to every indication, the enormous U.S. balance-of-payments deficit fuels the depreciation of the dollar. Whereas the imperialist central banks are forced to more and more reluctantly accept these devalued dollars as a reserve currency, the private capitalists increasingly steer clear of this imitation money. A growing portion of European and Japanese foreign trade is already being conducted in stronger currencies.
Of course, this deficit stems in part from the increase in U.S. oil imports: the weapon of oil price rises, which was supposed to improve the competitive position of U.S. imperialism against its European and Japanese rivals, has turned out to be a boomerang. But it is also the result of a rate ofinflation that is higher in the USA than in West Germany or Switzerland, and of the widening gap between U.S. industrial productivity and the levels attained in Japan and West Europe. This lag is due especially to the obsolescence of industrial equipment in several important branches of U.S. industry, most evidently in steel production:
"The problem of inefficient plant is not confined to the steel industry, as much U.S industrial plant is old and technologically obsolete. According to the most recent government surveys-at the end of 1976- the average U.S business reported that 16% of its plant and equipment was at least 20 years old and 11% of its facilities were technologically outmoded. The situation varied from industry to industry. Heavy goods manufacturers reported that 20% of their capacity was installed in 1956 or earlier and nearly half of all railway rolling stock dates back to that time. By comparison, aerospace manufacturers reported only 6% of their machinery and plants were 20 years old." (Far Eastern Economic Review,
11 November 1977.)
What is the significance of the pumppriming measures taken in West Germany, Japan, and the United States in recent weeks, or to be taken in coming weeks in other countries, no doubt including France? What will be the impact of the simultaneous rise in international liquid assets following the 1977 U.S. trade deficit of more than $30 billion? Rather than the growth of industrial production, these factors will above all stimulate a new acceleration of inflation, which, despite the somewhat lower rate of the past couple of years, continues to exist everywhere except in Switzerland. If prices do start to run away in 1978, then the inevitable monetary restrictions will threaten to precipitate a new recession before its time is due-perhaps even before the end of the year. Otherwise, it will occur "naturally" the following year.
A final point needs to be stressed. The working class is currently facing a universal employers' offensive, which rests on a growing reserve army of labor, fear of unemployment, different types of austerity policy," and the almost invariable support given by the Socialist Party and Communist Party leaderships to the freezing or reduction of real wages. (The French Communist Party is the only exception at the moment, but we should expect a turn if the Union of the Left wins the elections.) Despite all this, the working class of the imperialist countries has resisted the concerted attack in a remarkable manner. Where it initially retreated through surprise, disorientation, or lack of an overall alternative policy (as was the case in Britain and West Germany, it began to fight back in 1977 and had some success in recovering lost ground. Elsewhere-for example, in Italy, Spain, and France-loss of purchasing power has been marginal or nil, bearing no relation to the needs and designs of big capital. The struggle for employment has proved more difficult. But continuing unemployment everywhere breeds rank-and-file tradeunion discontent, and even indignation, which will eventually lead to energetic responses of a political and anticapitalist nature.
Thus, the bourgeoisie has not achieved the "rectification" it expected from the crisis-neither in the economic nor in social and political fields. The relationship of forces has not shifted fundamentally to its advantage. The prospects are those of intensification of the class struggle, rather than restabilization of capitalism. The "good old days" of consistent expansion in a climate of social peace have come to an end. It is up to the workers, facing a capitalist regime in marked disarray, to draw all the necessary conclusions from the situation.
Notes
1. See Ernest Mandel: "A Hesitant, Uneven, and Inflationary Upturn," Inprecor, No. 61/62, November 11, 1976, p. 3, or Intercontinental Press, November 29, 1976, p. 1700.