Socialist Action /November 1999
The Global Bubble Grows
By NAT WEINSTEIN
Few serious economists agree with the claims in the mass media that Japan,
Southeast Asia, and Brazil (and the world) have really recovered from the
crisis that swept across the globe starting in Japan at the beginning of
the 1990s. In fact, the bursting of Japan's economic bubble was in reality
the first major break in global economic equilibrium, and Japan's decade-long
recession now serves as a major drag on the world economy and a harbinger
of the much bigger bust still to come.
Moreover, every measure that succeeds in delaying the inevitable is like
piling sandbags on dikes to contain an overflowing river. But the higher
the economic flood is allowed to rise, the more destructive will it be when
the flood of unsold goods and unrepayable debts breaks through the artificial
barriers erected by those charged with maintaining a relatively stable global
capitalist economy.
A short news item, given no special significance by its author or his
editors, appeared in the financial section of the Oct. 6, 1999, New York
Times. But intentionally or not, it points straight at why postponing the
inevitable collapse of the global economy makes it increasingly more destructive
in the end. A single sentence from this report, which tells of a marked
increase in sales of industrial robots, illustrates how the global economy
works:
"In the first half of 1999, motor vehicle manufacturers' orders
[for industrial robots] surged 101 percent worldwide, and 214 percent in
North America, compared with the same period in 1998."
This seemingly routine news item points to the heart of the problem faced
by global capitalism. The booming market for industrial robots reflects
the general trend toward the replacement of human labor by machines. In
other words, more robots mean fewer workers-both relatively and absolutely.
Thus, the longer this process continues, the greater is the productive
capacity of the world economy, and the fewer workers there are to buy the
mounting supplies of goods. Consequently, the bottom line is clear: the
longer the expansion of the productive forces continues, the greater will
be the number of surplus factories, surplus goods and, last but not least,
surplus workers.
And despite the drumbeat of assurances by capitalism's molders of public
opinion that the boom-bust cycles of capitalist production have been abolished
and replaced by more or less gentle upturns and downturns, the facts, as
we shall see, point in a quite different direction.
"Share prices are absolutely crazy"
We will let well-known leading capitalist economists tell in their own
words what is, for them, an alarming story of what the future holds for
global capitalism.
Following are extracts from a piece titled "Like All Bubbles, This
Will Burst" appearing in the October 1999 issue of Socialist Appeal,
a small British periodical:
On Wall Street shares have gone through the roof. "Oh yes, share
prices are absolutely crazy," declares Prof. Tim Congdon, managing
director of Lombard Street Research.
While it took the bench mark Dow Jones index 88 years from its launch
in 1896 to crawl permanently past 1000, it has needed only another 15 years
to sprint from 1000 to 10,000. In the Nineties alone, the longest bull run
in history, the market has more than trebled!
With a price-earnings ratio of more than 35 times and an income yield
of just 1 percent, Congdon says, Wall Street "is not just expensive:
it has never been remotely like this before."
The "price-earnings ratio" measures a stock's dividends (profits
per share) as a percentage of its price. The significance of the extraordinarily
low rate of profit is explained by what economists have dubbed a "bubble
economy." It designates an economy in which stocks keep rising in price
not because dividends (real profits) are higher, but only because investors
believe stocks will keep rising in price indefinitely!
Thus, while dividends are in most cases today well below the average
profit rate, the rise in stock prices has for an unusually long period resulted
in a higher than normal rate of profit when the stock is sold. But, the
rising price of stocks is more and more based on an incredible and unsustainable
expansion of credit.
The extent of speculative investment is reflected in such previously
unknown practices as lower-middle-class investors borrowing on their credit
cards to finance speculation in stocks. Thus credit-card debt has also reached
dangerously-unsustainable heights. It doesn't take an overly-vivid imagination
to see the catastrophic results when the bubble bursts.
The article goes on to cite other capitalist authorities speaking in
the same vein. The following, reflecting the views of two well-known bourgeois
economic experts, is typical:
It is a classical bubble, agrees Prof J. K. Galbraith, author of "A
Short History of Financial Euphoria." "When you hear it being
said that we've entered a new era of permanent prosperity with prices of
financial instruments reflecting that happy fact, you should take cover",
says Galbraith. "Let us not assume the age of slump, recession, depression,
is past."
Incredibly, this view is now shared by the extreme right-wing monetarist
Milton Friedman, who believes that the world is on the verge of a new 1929
crash. In an interview with Germany's Handelsblatt newspaper, he says that
the U.S. stock market exhibits uncanny parallels to the market of the 1920s
before the Great Crash of 1929, as well as similarities to the Japanese
market in the 1980s before the collapse there....
If this turns out to be true, then the United States will experience
a deep collapse of the stock market. That would be a true danger for the
continuation of the unusual economic expansion of the past nine years.
But why can't bourgeois economic experts stop the horde of capitalist
lemmings from rushing blindly to the edge of the cliff?
There are two reasons for this. In the first place, the most sophisticated
bourgeois economists know that what goes up must come down. That's why they
would like very much to stop a catastrophe by precipitating a mild recession-what
they call a "soft landing"-rather than allow the stock market
to rise to higher levels of what they euphemistically call "over-valuation,"
with the increased likelihood of a "hard landing."
That's what Federal Reserve Chairman Alan Greenspan tried to do in December
1996 with his warning about an unjustified rise in stock prices due to "irrational
exuberance."
But it didn't work. Average stock prices since then have nearly doubled.
It now appears that Greenspan and others in charge of avoiding a stock market
crash realize that it will take a far more urgently phrased warning to let
some air out of the bubble. But they fear that such an action could trigger
a panicky rush by stockholders to unload their stocks in the hope that they
can get out while the getting is good.
In fact, when the October 1997 Asian crisis sent stock prices tumbling
around the world-with the Dow Jones dropping 554 points in one scary day-capitalism's
decision makers stopped worrying about the bubble economy and did everything
they could to reinflate stock prices. In other words, they had no choice
since their worst fears threatened to materialize. But to the extent it
was partially successful, their efforts will prove entirely counter-productive
and be worse in the end.
Then again, in August 1998, those charged with defending the American
and world economy from being dragged under by the collapsing Russian ruble,
threw good money after bad in a desperate attempt to rescue the ruble from
collapsing. (Of course, the billions of dollars lent to Russia did not in
anyway help the Russian economy or hurt imperialism's loan sharks since
it all went to pay off the same sharks-with U.S. taxpayers footing the bill
and/or adding to the national debt!)
Thus, when the Russian economy collapsed, sending shock waves around
the world, some of those in charge might well have concluded that a "soft
landing" may no longer be possible!
Decline in manufacturing jobs
Further evidence suggesting that the world economy has gone beyond the
point of no return was registered in an Oct. 9, 1999, New York Times report
by Louis Uchitelle, one of that newspaper's popularizers of capitalist economic
policies.
He wrote: "Over the last 18 months manufacturing employment has
shrunk by 532,000 jobs, to 18.4 million. To keep production up with fewer
workers, companies have resorted to labor-saving technology and equipment,
as well as overtime for the remaining people." (Emphasis added.)
The part about the decline in manufacturing jobs, however, is far more
significant than Uchitelle lets on. What he leaves unsaid is that this latest
decline in manufacturing jobs is not new and is, in fact, a long-term trend
that has two very bad components. To appreciate its significance, one first
needs to know that while the rate of unemployment has allegedly "declined"
to what is touted to be "an unusually low 4.2 percent," industrial
jobs continue to disappear.
However, the real state of the eroding economy becomes apparent when
the nature of the old jobs lost and the new jobs gained is made known.
In a recent study commissioned by the AFL-CIO, it was found that between
1984 and 1997 the 30 fastest-growing sectors of the economy-including hotels,
child care, finance, retail trade, and airlines-added 26 million new jobs.
But only one in 20 of those newly employed workers joined unions. The study
also showed that in eight mass production industries with the greatest job
loss, including steel and auto, four-fifths of the 2.1 million jobs lost
belonged to union members in heavily organized industries having much higher
average wages and benefits.
This shift of jobs out of manufacturing and into the financial, commercial,
and service sector of the economy has far more drastic consequences than
the bare statistics would indicate. It means that while much higher paid,
full-time industrial jobs have been permanently disappearing, they are being
replaced by much lower paid jobs-a major portion of which are even lower
paid part-time jobs.
Thus both the quality and quantity of available full-time jobs are in
decline, and the working class considered as a whole receives less total
wages and is therefore only able to buy a smaller portion of the total gross
national product
That's bad enough, but the steady increase in the financial and commercial
superstructure of the economy, caused in part by the decline of employment
in its industrial base, contributes heavily to the tendency of the average
rate of profit to fall.
While the financial/commercial sector appears to contribute to the production
of surplus value, this sector of the economy only accelerates the realization
of surplus value, which is not the same as adding to the total surplus value
produced. The fact is that only human labor involved in the production of
commodities creates surplus value.1
But because capital invested in all sectors of the economy have an equal
claim on the total surplus value, profits are distributed equally to those
enterprises that produce surplus value as well as to those that don't. Thus
the rate of profit tends to fall.
But this tendency is not manifested gradually. On the contrary, quantitative
changes building up beneath the surface of the global marketplace tend to
be expressed in sudden sharp qualitative changes. Consequently, as competition
in the world marketplace intensifies, and the least efficient enterprises
are driven into bankruptcy, the rate of profit may be maintained by such
means as expanding credit and expanding the supply of paper dollars.
But the rate of profit must sooner or later fall. And the longer it is
postponed, the more precipitous will be the fall in the average rate of
profit.
1 Commodity production, of course, includes the labor involved in mining,
agriculture, transportation, telecommunication, warehousing, etc., all of
which contribute to the production of commodities and the creation of surplus
value-the source of all profits.
Socialist Action /November 1999 |