By the Editorial Board
The violent swings on international stock markets signify much more than a passing storm. They are the expression of a deep-going crisis in the world capitalist economy.
Amid scenes of panic, hundreds of billions of dollars in share values were wiped out in a global chain reaction. Wall Street alone lost $660 billion in the space of a few hours on October 27. The losses would have been even greater had trading not been suspended following a record plunge in points on the Dow Jones index.
At its low point, £80 billion was wiped off British shares, as the FTSE fell by more than 9% in London. Notwithstanding the partial recovery in stock prices, the global meltdown has delivered a shattering blow to the myth so assiduously cultivated by capitalist spokesmen that the market is the source of limitless wealth and prosperity. Overnight, millions of people who had invested their life savings on the market, either directly or indirectly through pension funds, were confronted with the prospect of financial ruin.
The swift rebound in market indexes could best be likened to the fever chart of a terminally-ill patient, rather than a return to health.
As one share market after another plunged, economic pundits and capitalist politicians alike, from US Treasury Secretary Robert Rubin on down, tried to dismiss the implications of the crisis with reassurances that the "economic fundamentals remain sound." But soothing platitudes that "all is for the best" dissipate as soon as one actually examines the fundamentals, because it is precisely here that the origins of the crisis lie.
While the violent oscillations in the market are driven by a multitude of short-term factors and psychological motivations, the root causes are to be found in such fundamentals as the global expansion of capital, the integration of financial markets, rising productive capacity and increasing labour productivity, pressures on the rate of profit, and falling commodity prices.
The universal character of the panic and the rapidity with which it circled the globe demonstrated the predominance of the world economy over every national economy, including that of the United States. Nervous commentators in the US, seeking to allay the fears of investors and avert a full-scale collapse, repeatedly asserted that the crisis was really a regional affair, indigenous to Southeast Asia. In fact, the breakdown of the Asian "tiger" economies of Indonesia, Thailand, Malaysia, Hong Kong and South Korea is a sharp expression of the underlying contradictions of the capitalist system on a world scale.
Global capital and the Pacific Rim
The astonishing growth rates of the Pacific Rim economies were the direct product of the increasing predominance of transnational corporations and the movement of globally mobile capital into those regions offering the cheapest labour for capitalist exploitation. These economies developed as export platforms and financial centres for the transnationals. Their crisis poses a profound threat to corporate profits in the centres of world capitalism, above all the US. Indeed, the 1990s has seen a further shift of capital into so-called emerging markets not only in Asia, but also in Latin America and the formerly Stalinist-controlled economies of Eastern Europe and Russia.
The most significant feature of the current stock market turmoil is its deflationary character. Not only have billions in share values been wiped out, but property values are set to plummet throughout Asia, and especially in Hong Kong.
The deflationary trend is evidenced most clearly in the fall in the gold price and the moves by central banks to sell some of their gold stocks. Following the move by the Reserve Bank of Australia to sell gold last July, the decision by Swiss banking authorities to consider selling some of their 1,400 tons of gold sent prices falling, with warnings that they could drop to as low as $250 to the ounce from the present level of around $310.
Contrary to claims that the sell-off of gold signifies its declining importance for the international financial system, its price decline expresses basic tendencies at work in the capitalist economy. Just as the rise in the price of gold in the late 1970s and early 1980s was a reflection of global inflationary tendencies, so the present price decline mirrors the growing momentum of deflationary forces.
These deflationary processes--the downward pressure on asset values, property values and commodity prices--are the outcome of far-reaching changes in the structure of capitalist production. During the post-war boom the primary source of increased profits for major corporations lay in the expansion of sales revenue and production. That is no longer the case. Every corporation today is faced with the imperative of increasing its productivity, cutting costs and reducing prices just to maintain its position in the struggle for markets and profits.
The struggle for increased productivity--the key to cost cutting and profit accumulation--is characterised by two interconnected processes: the globalisation of production to take advantage of the cheapest resources on a world scale and the introduction of new technologies in all areas of manufacturing, banking and services, in order to step up exploitation and slash labour costs through "downsizing."
Each individual corporation is forced to take this road by the competitive pressures of the market. But the cumulative outcome for the world economy as a whole is the development of overcapacity--from the standpoint of capitalist profits, not human needs--and a further intensification of the struggle for markets, forcing still further increases in productivity.
Crisis of overcapacity
So great have been the increases in productivity that there is now a global overcapacity in every major industry. In the car industry, for example, it has been calculated that even if all North American auto production were to shut down, there would still be global excess capacity. In the final analysis, this is what has given rise to the deflationary pressures, expressed so violently on the world stock markets.
Developing overcapacity in the electronics and consumer durables industries, which have been an essential part of the expansion of the "tiger" economies in Southeast Asia, provided one of the sparks for the currency crisis in Thailand. From Thailand the financial crisis rapidly spread to Indonesia, Malaysia and the Philippines, which likewise face increased competition in global markets.
The so-called tiger economies have been hit hard by the rapid expansion of production in China. Capital inflow into China has seen foreign reserves rise from $21 billion in 1994 to $126 billion today, with the growth of exports to the US giving China a balance of trade surplus even greater than that of Japan. But this rapid expansion, and the integration of China into the global economy, have added to the instability of world capitalism. Non-performing loans in Chinese banks may total as much as $200 billion, one-quarter of all outstanding loans.
The World Bank has warned that the Chinese banking system faces a "major insolvency." Fear of just such a crisis was one of the motivating factors behind the sell-off on Wall Street when the Hong Kong stock market plunged.
Overcapacity and fears of a banking crisis are by no means the only factors at work in the crisis of the Southeast Asian economies. A crucial component in the emergence of deflationary and recessionary tendencies world-wide has been the continuing stagnation of the Japanese economy. A sharp decline in stock and property values since 1989 has left Japanese banks with tens of billions of dollars of bad debts and non-performing loans. The continuing slump in the Japanese economy has had a major impact on the economies of Southeast Asia. Over the past several years the flow of capital from Japan into other Asian stock markets has been reversed, with Japanese financial institutions withdrawing billions in order to maintain solvency at home.
The economic boom throughout the Southeast Asian region has come to a shuddering halt, with recession predicted for at least several years ahead. Whole industries are now under a cloud and millions of workers are faced with permanent unemployment.
Class battles ahead
The scene is set for major class battles. The working class has grown throughout Southeast Asia over the past decade. In Thailand demonstrations and protests have already taken place against the imposition of IMF-dictated measures, while the growing wave of strikes and protests in Indonesia will intensify as international capital imposes its ruthless demands.
In fact, growing working class resistance to the austerity policies of international capital played no small role in the build-up of pressures that led to the stock market panic. The past two years have seen a wave of strikes and protests in Europe, militant actions in Latin America and signs, such as the UPS strike, of mounting opposition in the American working class. The very week of the stock market meltdown, 125,000 teachers struck in Ontario in defiance of anti-strike laws to oppose the budget-cutting plans of the provincial government.
These struggles merely anticipate the upheavals that will inevitably arise as capitalist economies all over the world sink into recession, wiping out jobs and threatening workers with pauperisation.
The experiences of the past few days should be the cause for sober reflection by workers everywhere. The mantra of the apologists of capitalism is that the market is the only possible, and indeed, the highest form of economic and social organisation. But the credibility of these assertions has been torn to shreds. Once again the enormously wasteful and irrational tendencies inherent within the capitalist system have been revealed.
The past 100 years have been marked by the greatest advances in science and technology in human history. Yet at the end of the twentieth century, billions of people all over the world--in the so-called developing and advanced countries alike--are hurled into poverty, unemployment and insecurity by economic processes over which they have no control.
Savings held ransom to stock markets
More than ever before, the living conditions of workers and their families in the advanced capitalist countries are tied to the stock markets. In Britain there are some 9 million small private share holders. However, the future livelihoods of many employees and pensioners are tied into the stock markets through occupational pension schemes which now encompass some 50 percent of the workforce.
In the aftermath of the 1987 crash, the bourgeoisie was able to deflect attention from the mounting crisis of capitalism by seizing on the collapse of the East European Stalinist regimes and the Soviet Union to trumpet the "triumph of the market." But, as the International Committee of the Fourth International explained at the time, the collapse of the Stalinist regimes signified the break-up of the entire post-war capitalist order.
That analysis has been verified. Within the space of a decade world stock markets have experienced two major crises, not to speak of the bond crisis of 1994, the Mexican crisis of 1994-95 and the continuing slump of the world's second biggest economy, Japan.
For serious-minded workers, students and intellectuals these recent events must sound a warning: the basic contradictions of the capitalist system which have brought such devastation throughout this century are reaching a new peak of intensity.
Tens of millions of people are learning the hard way that they live in a world where nothing is secure. The effects of the latest turmoil will begin to work themselves through the psychology of masses of ordinary people, in the form of a growing resentment and bitterness towards the manipulation and false promises of the market. This will contribute to a change in the political mood--and an increasing openness to a socialist critique and an alternative to capitalism.
The critical task is the development of an independent political movement of the international working class that directly challenges the domination of the market and sets as its goal the reconstruction of the world economy in the interests of human need, not private profit. That is the perspective of the Socialist Equality Party.
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