Volume 2, No. 11, November 2001

(This article will be printed in two parts. The first part, which is printed here, gives a picture of the world economic crisis in the wake of the Sept. 11 attacks and what it entails for the world people. The second part, which will be printed in the December issue, will give the details of the extent of the recession in the USA and all other major economies of the world—Editor.)
 

It was Sept. 7. Four days before the attack. Shock waves shook the entire financial system as the US government released its figures for August 2001: GDP growth rates in the second quarter was just 0.2%, in spite of seven successive cuts in interest rates, a big infusion of government spending, and a huge tax rebate; a gigantic 8 lakh jobs lost in the manufacturing sector in just the one month of August, taking the unemployment rate (official) to 4.9% compared to 4.5% a month earlier. And while it was still reeling under the shock of these figures, came the attack at the very heart of the US’s mighty financial/military empire. Shock turned to disaster. Billions lost in crumbling skyscrapers; $10 billion lost by US airlines due to two days closure and drop in passengers caused by fear; billions more lost by insurance companies; huge losses to the US’s financial sector due to a week’s closure of transactions with the major bankers, brokers, etc. having to shift their offices from the collapsed buildings, and due to the closure of Wall Street for 4 days — the first time since World War I; and 1% being written off the US GDP due to the entire country being in a state of paralysis for at least two days. Within 10 days of the attack, Wall Street fell 15% and the IT Nasdaq index fell 17%, and US airlines announced over one lakh lay-offs.

The second biggest economy in the world, Japan, whose economy has been in a state of stagnation for over a decade, was in its worst ever post-war recession, well before the attack. The third biggest economy in the world, Germany, was also in a severe crisis. Its growth projections for this year was the lowest amongst the 11 other euro-zone countries. In mid August itself, official data revealed that unemployment had been rising for the 7th consecutive month. The report added that "a record number of firms are implementing severe austerity measures to combat the ravages of falling profits and recessionary conditions".

These three largest economies account for over 60% of world output. When the ripples in the tiny S.E. Asian economies in 1997 could create tidal waves worldwide, one can well imagine the impact of recession in the three major economies of the world. In fact, a recession in just the US, which alone accounts for 29%of world output, can send the world economy into a tailspin. In fact, today, except for the Chinese economy (which has also seen a slowdown) there is barely a single economy in the world that is not in a state of stagnation, some of which, like Turkey and Argentina, are in a state of collapse.

For the last two to three months much of the media has been making panicky statements of a possible worldwide recession. This magazine too warned of such a danger in its August issue. Since then the situation has deteriorated drastically.

A recession is said to exist if the GDP growth rate of a country turns negative for two consecutive quarters (3-month periods). At the global level if GDP growth rate drops below 2.5% the world economy is said to be in recession. The recession in the 1970s was precipitated by the overnight hike in oil prices — the oil shock. The ‘crisis’ in the S.E. Asian economies in 1997, was no real ‘crisis’ but an attack on those economies by the FIIs. These, together with the other disturbances, were short-lived troughs within the general slowdown in the world economy since the 1970s. With globalisation and the gigantic growth of the speculative economy, frequent crashes and partial recoveries are inevitable. In the years 1975, 1982 and 1991, which were years of recession, global GDP grew by 1.9%, 1.2% and 1.4% respectively. The investment bank, J.P. Morgan, predicts a global growth rate in the current year of 1.6%.

If we first look at the crisis of over production, demand has been drying up, leading to cuts in production and mass retrenchment. This is further reducing demand, intensifying the crisis. This is clearly visible in Japan, the US, Germany and all other stagnant economies, since the last one year.

Together with this, there is the bursting of the artificially inflated financial balloon. Blown up with huge debts, deficits, high-risk financial transactions in the trillions, and an IT sector bloated with gigantic market capitalization but little business or profit — the balloon finally burst. The balloon can be stretched to a certain extent, anything beyond it, it will burst. This is what happened first in Japan, now in the US.

It is amidst this state of acute crisis that we must view Bush’s war-mongering statements. We must look beyond the mere events of Sept.11, to understand the economic compulsions pushing the US to war. So, before taking stock of the extent and nature of the economic crisis, let us first see the link between the impending recession and the war posturing of the Bush regime.

In these conditions of recession, war serves four purposes. First, it helps revive the stagnant market, through a big leap in the sale of arms. Second, it helps to ferociously attack all backward countries, to enable it to push the burden of the recession on to the backs of the third world countries. Third, recession intensifies the contention for the dwindling markets, with an economically weakened US superpower, having to flex its military muscle to defend its markets and spheres of influence, from the newly rising imperialist powers, particularly those in Europe. And fourth, it acts to divert the attention of the masses from their increasing impoverisation, and as a pretext for introducing fascist measures to ruthlessly suppress the growing discontent of the masses.

Let us then look at the four aspects that push the US establishment towards war.

First, the crisis of overproduction can to some extent be cushioned, by boosting a stagnant market through a big hike in arms sails. The arms lobby has a large representation in the Bush Cabinet. Though it already has a gigantic budget of $300 billion (plus an additional $30 billion on intelligence), the Bush administration sanctioned an additional $20 billion for its immediate war offensive¸ with promises of much more. Within a fortnight of the attack, the US government hiked defense spending to $344 billion. ‘The Economist’, one of the chief apologists of US/British imperialism, went so far as to state, in its issue after the Sept.11 attack, that war is not necessarily a bad thing in periods of recession. In an article entitled ‘The Wages of War’ in the Sept. 22/29 issue it added: "Government spending, on the other hand, typically shoots up in war time. It is widely credited, during the Second World War, with removing the last vestiges of the Great Depression. It also fuelled booms during the Korean and Vietnam wars. A massive increase in spending on airport security, border controls and a military build-up in America may yet have a similar effect". In other words, the imperialists are already talking of the need for war to pull the economy out of recession!! That is, to put The Economist’s words crudely: mass murder in order to sustain profits.

The second aspect of this recession will mean a big economic offensive against the people and nations of the third world. It will aggressively push its ‘economic reforms’ no matter what the cost to the local people. In recessionary conditions its desperation for markets becomes all the more acute, and like a frenzied mad dog it bites all and sundry if there is not total compliance to its wishes. Such aggressive policies will result in growing resistance from the people of these countries. There will be a growth in the struggles for national liberation against imperialism, particularly US imperialism, and its lackeys. If not led by the proletariat, this may take varied forms, from petty-bourgeois nationalism, to religious and ethnic forms of protest. But, more and more it will take on armed forms, with people having experienced the futility of peaceful methods in the face of monsters and tyrants. Bush’s declaration of war is not just against an Osama Bin Laden, it is a declaration of war against the anti-imperialist people of the world. He shrieked ‘those who are not with us, are against us’. In other words, those who do not prostrate before US imperialism’s economic, political and military demands, can be branded as ‘terrorists’, attacked and killed. What was done in the post-war period through secret, covert operations, the Bush administration now seeks to do openly. They will now not hesitate to attack any third world country that does not fully bow to its wishes.

Third, with recession, the scramble amongst the imperialist powers for markets gets intensified. The only superpower, US imperialism, seeks to maintain its markets, while the up-and-coming imperialist powers, particularly the EU countries, try to displace US markets. Both also scramble for markets once under Soviet imperialist domination and the newly opened Chinese market. Other imperialist powers, like Japan and Russia, also contend. US imperialism, as a weakened economic power (more so with the current recession) must resort to military muscle flexing to keep the other imperialist powers at bay. This will result in growing contention amongst the imperialist powers. This will result in greater protectionism, growing finally into imperialist blocs. At present no rival imperialist power has the military strength anywhere near that of the US. But, as their military prowess develops, it will lead to armed confrontations resulting in a third world war. But, this will take time. For the present, the main source of war will be US imperialism, the number one enemy of the world people. They will use war and the threat of war to maintain and extend their spheres of influence.

Fourthly, with a deepening recession, increasingly fascist methods are being adopted throughout the world giving little space for peaceful opposition. It is the fear of this growing armed opposition that is resulting in the war cry of all the reactionaries to ‘ fight international terrorism’. As it is, the massive anti-globalisation demonstrations in the developed countries are gaining in militancy and strength, making it difficult for the imperialist robber barons to even hold their gatherings. Within days of the attack, under the pretext of increasing security, the US, Europe, and most countries throughout the world, including India, have begun further curtailment of civil liberties and a whipping up of a nationalist chauvinist, anti-Islamic, hysteria. This has been particularly loud in America and Britain, which urgently needs to rally the people around their governments’ war offensive.

In the aftermath of the Sept.11 attack, the sea-saw statements emanating from Europe and Russia is an indication of the pressures being asserted by the US and its puppy, Britain. Europe too would like to be part of the schemes to further open up third world markets and crush all growing opposition to imperialism — even resort to force in the name of fighting terrorism. But they are not part of the other aspect of the US’s plan to utilize this ‘war’ to also consolidate its geo-political positions and markets throughout the world at the expense of the other imperialist powers.

For example, the attack on Afghanistan is not merely about Osama Bin Laden and his forces. No doubt, this is one aspect — to crush Islamic opposition to imperialism. But three other factors are operating in the US’s military plans. First, given Afghanistan’s enormous strategic importance, particularly as the gateway to the oil/gas rich Central Asia, it seeks to establish a docile government. Second, through this military action it seeks to gain the initiative over the other imperialist powers lurking in the region. Third, it is also a warning to other third world countries to fall in line or else face possible attack. In fact, the attack on Afghanistan satisfies both the arms and petroleum lobbies, which have a large presence in Bush’s cabinet.

Afghanistan holds the key to the transport of the vast oil and gas reserves in Central Asia, for which there is acute competition between the US, Europe and Russia. In fact, a year ago, France went so far as to invite the Taliban for talks. Dealing with the Taliban would have given the French companies a head start in building a pipeline across the country to bring Central Asia’s gas and oil to South Asia. As ‘The Economist’ reported, (1) "the potential rewards are enormous". Both Turkmenistan and Uzbekistan are desperate for collaborations and outlets for their huge reserves. ‘The Economist’ added, "this places America in a quandary. If its relations with Iran do not rapidly improve, and its faltering attempts to pipe Central Asian oil and gas westwards through the Caucasus collapse, a trans-Afghan pipeline may become its best hope of countering the Russian, Chinese, and Iranian influence in Central Asia".

So, the attack on Afghanistan has a twin purpose — first to stamp out an important source of Islamic opposition to the US imperialists; second, to create a docile Afghan government that will open the gates to the treasures of Central Asia. And with these war maneuvers, the US can also successfully checkmate France’s attempts at gaining a head start in the region, and flush out Russian and Chinese influence in the region, through sheer muscle power.

With the growing recesssionary conditions such scrambles for markets and sources of raw materials will get ever more fierce. And it will be the US that will be the chief source of war, to threaten, bully, browbeat and force countries to accept its dictates.

Now, to understand fully the implications of the dangerous war situation being provoked by the US there is need to understand the depths of the impending recession, not only in the US, but throughout the world.

The downturn in the world economy began in mid-2000. In the year ending March 31, 2001 stock markets fell everywhere and over the year $10 trillion (1 trillion = 1000 billion) was wiped off global share values — equivalent to America’s annual output — of which $4 trillion was the loss suffered in the US alone (2). The following table (3) gives a picture of the drop in the market capitalization in some of the major countries of the world:

Market Capitalisation ($ billions)

By March 2001 itself Japan’s Nikkei index was at its lowest level in 26 years having lost 70% of its value since 1989. America’s Nasdaq index saw a 60% loss in the one year to March 2001. Germany’s Nemax index fell 67% to Dec.2000, and the UK’s Techmark index fell by 57% in the same period (4).

The figures mentioned in the above chart are till March this year. After that the stock markets have either declined or remained stagnant. Then came the further crash after the Sept. 11 attack. Within the fortnight all the major stock exchanges fell in value by as much as 10% to 20%. It was the biggest sustained drop since the great depression. What is more, unlike the earlier falls during the past three decades, when recoveries were normally quick (even if partial), in the present case, till date, there has been barely any recovery.

The following chart (printed in the Business Standard) gives a picture of the extent of the devastation:

Now, if we turn to other indicators, it has been estimated that in the second quarter of this year (April to June 2001) the combined GDPs of the major economies of America, the Euro Area and Japan fell for the first time since 1990. But, at that time growth was relatively brisk in the East Asian countries. This time, they too are in serious trouble, with industrial production having dropped by as much as 10% or more over the past year (5). It will be the first time since 1973 that the two major economies of the world — accounting for 47% of the world GDP — will simultaneously go into recession.

In addition, the growth in volume of world trade in the last year slowed to around 4% compared to 13% in the previous year — the sharpest decline since 1975. In fact, the US has, defacto, been exporting its current depression to third world countries as its huge drop in imports has already had a disastrous impact on those countries dependent on the US for a market. Globalisation has increased this dependence enormously. Today, American imports amount to 6%of the rest of the world’s GDP, compared to just 3% in 1990. In the second quarter of this year the growth of American imports dropped to minus 10%, compared to a growth rate of 20% in the same period last year. One can well imagine the impact of such a huge drop in imports, particularly on the countries of East Asia, which are heavily dependent on exports to the US.

By December 2000 itself it was clear that a crisis of overproduction was deepening. World manufacturing capacity was around 60% — the lowest since 1960s (6). Global industrial production fell at an annual rate of 6% in the first half of this year, the sharpest dive in two decades. The crisis in the steel sector illustrated the malaise. Huge stocks, crashing prices and a collapse in earnings, has dominated steel production worldwide.

Notwithstanding the daily propagation of the so-called American boom, this period of globalisation has been witness to a series of crises. The volatility in the capitalist system has increased enormously. During this decade of globalisation, the world’s second largest economy, Japan, stagnated throughout, with an average growth rate of just 1%; the third largest economy in the world, Germany, has been limping along with an average growth rate of 1.5% through the 1990s; Russia, the CIS and much of East Europe have been in continuous recession for much of the period; there was the stock market crash of 1987 and the ‘savings and loan’ crises in the USA in 1992 & 1994; there was the 1995 crash of the Mexican economy; then there was the 1997 crash in S.E.Asia followed by the even more disastrous crash in Russia, CIS countries in 1998; the crash in Brazil in 1999; and, since the last year we have been witnessing the total collapse of the Turkish and Argentinean economies. One must see the oncoming recession in this background.

Not only that, the entire hype of the great advantages of globalisation is a gigantic hoax. As the Monthly Review brought out (7) "the expansion of the 1990s is the slowest in the post war era………. The rate of growth of national output since the recovery and expansion began in 1991, is about half the rate for the 1950-73 period…….. Whereas US GDP grew by more than 52% during the eight-year expansion from 1961 to 1969, it has increased only half that much in the eight years since 1991. By any post war comparison, the performance of the US economy — and with it the world economy — in the 1990s has been remarkably anemic".

The following table (8) brings this out lucidly:

In other words, the growth rates in the major 24 developed countries was at its lowest in the period of globalisation. The MR article adds: "for all the euphoric talk of the ‘new economy’, for all the extravagant claims for new technologies and globalising markets, then, the world capitalist economy in the 1990s has been characterized by poor rates of growth in output, productivity and average incomes ……… For the mass of humankind outside the core areas of the world economy, the overall pattern has been one of retrogression: declining living standards, dramatic increases in social inequality, pauperization of large sections of the population. We are dealing, in short, with systemic problems that plague global capitalism as a whole, not mere discrete failings of a specific model".

Globalisation has also given unheard of wealth to a handful of billionaires, with disparities between the rich and the poor reaching unbelievable levels. It is this concentration of wealth in the hands of the top strata of society that has been much propagated as the success of globalisation. The festering rot was deep, but this was masked by the glamour and glitter of the top 10 to 20%. As the 1999 UNDP’s Human Development Report says: "the income gap between the richest fifth of the population and the poorest fifth stood at 3:1 in 1820, 11:1 in 1913, 30:1 in 1970, 60:1 in 1990 and 86:1 by 1997. In 1997, the top 20%, living mostly in high income countries, earned 86% of world GDP and the bottom 20% just 1%"(10).

Now, with the current recession, the rot is coming to the surface. The glitter of hi-tech pomp is fading. The glamour of TV, Internet and vulgar consumerism can no longer mask the deep gangrenous infestations eating into the very vitals of this so-called globalised system. Pop culture is being replaced by war culture. Fake talk of human rights and democracy are being replaced by naked calls to war, to kill (capture ‘dead or alive’), to anti-Islamic ‘crusades’, and to strangulate even the limited sovereignty of countries in the name of ‘those who are not with us are against us’. In this period of recession, the fascist claws of reaction around the world are coming out into the open with its xenophobic hysteria. And, together with all this, the brutality of this system continues to take an enormous toll of, not only the peoples of Asia, Africa, Latin America, Russia, CIS, East Europe and the Middle East, but also of the working class of the developed countries.

So, globalisation has never been the great boon to society as propagated. Even by their own standards it has been sick, fraught with volatility and crises, and anemic from the very start. Its inbuilt weaknesses have now come to the fore, and are threatening devastation not seen since World War II. Now, let us take a look at the depth of the crisis in the major economies of the world, to get a better understanding what this oncoming recession means to the oppressed masses in India and worldwide.

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