Are we facing
years of economic growth and improvements in living standards or are
there economic contradictions that will lead to international crisis?
The US is the lynchpin of the world economy and over the last decades
there has been a marked shift from productive to finance capitalism,
including speculation. In the US, 30-40% of corporate profits are now
accounted for by finance companies compared to 10-15% in the 1950-1960s.
Capitalist neo-liberal policies gave a particular impetus to finance
capital and speculation. A policy of very low interest rates also made
investment and speculation very cheap. Borrowing, strong consumer spending
and massive investment in the property market (which increased house
prices and people’s assets and therefore the capacity for further
borrowing) have been critical to sustaining the US economy.
The US economy and its huge demand for goods has been key to the emergence
of the Chinese economy over the last decade. While there has been a
development of the Chinese market, or parts of it, overall it is limited
with 900 million people still living in poverty conditions. The average
manufacturing wage in China is 50 cents (US dollars) an hour. Currently
China does not have the basis to maintain its own growth levels or be
a motor for the world economy based on such a domestic market. But this
growth in the US, on which China has been dependent, hides the decline
in American manufacturing and the emergence of serious economic contradictions.
Sucking in cheaper imports, particularly from China and Asia, an ever-growing
trade deficit has been created in the US. Simply, America is facing
a form of insolvency, as it is consuming far more than it is producing.
It has been able to sustain its economy and consumption on the basis
of consumer spending through borrowing money and indebtedness has reached
unprecedented levels.
Reflecting how crucial US growth is to China, South East Asia and Japan,
these countries have acted to maintain the US economy by re-cycling
the money from their trade surpluses with the US back into America.
This money in turn has been used to fuel the economy in the form of
cheap credit to companies and individuals.
Consumer spending on the basis of inflated property values or indebtedness,
created many new service jobs to replace the more traditional manufacturing
ones lost. Superficially it can seem as if the US economy is successfully
moving forward. But just as a person cannot go ever deeper into debt
without a reckoning, neither can an economy. US big business can only
re-develop its economic competitiveness either by serious investment
including research and development (which they have not done in decades)
or by attacking the wages and conditions of the US working class in
an unprecedented way.
The relative reduction in the demand for US produced goods should have
resulted in a much more serious decline in the value of the dollar over
recent years. That hasn’t happened because of the massive flows
of capital into the US, which were used to boost demand and plug the
trade gap.
The stock market fluctuations in May were linked to nervousness about
further interest rate rises in the US. Inflation is increasing and there
are fears that significant increases in interest rates (the cost of
money) will increase indebtedness and cut across consumer spending,
which could pull the US economy down and hit global growth.
But the problems are deep rooted. The reality of economic decline in
the US means that the downward pressure on the dollar will continue.
Even with a so-called "managed decline", the real weaknesses
of the economy will emerge and recession, including high levels of unemployment
and major attacks on the working class, would follow in the US.
China, Japan and the other states in south east Asia, which facilitated
and benefited from the growth in America, would also be decisively knocked
back. So too would Europe, as its exports would also become more expensive.
It would also have to further raise its own interest rates to compete
with the US, which would be another factor choking off growth and pushing
the European economy towards recession.
To a degree, the effects of the weakness of demand in the capitalist
market (which has been worsened by neo-liberal policies) and prospects
of economic recession have been held in abeyance by the unprecedented
extension of credit and speculation. But the countries that particularly
overstretched themselves by relying on massive indebtedness, and that
includes Britain and Ireland, can be particularly hard hit when economic
reality hits.
