Fears of recession grow

"Typhoon in east Asia--North America and Europe feel barely a breeze. That, in a nutshell, is the official view of the financial crisis that has laid waste what was once the most dynamic part of the world economy. It is a comforting view. It is not implausible. But it is not the only possibility." (Financial Times, 2/1/98.)

Shortly after the October 97 stock exchange crash, Alan Greenspan, head of the US Federal Reserve, delivered a speech at a charity dinner in which he assured the illustrious guests that everything was fine and the US economic performance "impressive". The optimistic declaration of Greenspan, Clinton and others after the crash were entirely predictable. These people imagine that the cause of the crisis is subjective, the mood of investors ("confidence"). What Greenspan's fellow guests did not know is that, even while he was speaking, an aide was surreptitiously passing him updates on the state of the market, so he could judge the effect of his every word! This little detail in itself is sufficient to show the extreme nervousness of the American bourgeoisie. True, the stock exchange later rallied, mainly on the basis of a large number of small investors who were foolishly persuaded to buy shares in a falling market, after the big monopolies had already sold their shares the day before. This rally, however, is of a temporary and unstable character. Further big falls are inevitable.

The fall on Wall Street, despite all the attempts to play it down, was a serious one. Historically, the Dow Jones changes on a daily basis between 1-2 per cent. On Monday 27th October 1997, there was a fall of 7 per cent, the 12th worst fall on record, though less than the spectacular crash of 1987. The rise on Tuesday was 4.7 per cent, quite a steep rise, which did not however recover the ground lost. Despite this fact, US shares are extremely overvalued. This, in itself, is enough to ensure a further and more severe fall in the future, and probably not too far away.

Impressionistic as ever, the so-called "new paradigm" economists promptly decided that the crash was an "over-reaction". There are none so blind as they that will not see! They argued that since only 4 per cent of US exports go to Indonesia, Thailand, Malaysia and the Philippines, the damage would be negligible. The only reason for the crash was that the stock market was over-valued. "It doesn't take much to derail a market that has gone to the moon" said Stephen Roach, chief global economist of Morgan Stanley Dean Witter. (Time magazine, 10/11/97.)

Wall Street decided that the crash was "a market event" that is, something exclusively caused by the over-valuation of shares and nothing to do with the "real economy". Now it is quite true that the mania for buying and selling shares has a dynamic of its own, separate and apart from the real economy. However it is not true that the two things are entirely separate and that one cannot and does not affect the other. Worries about the state of the real economy, under certain conditions, can translate themselves into panic buying or selling on the stock market. Thus, in a perverse logic, when unemployment falls in the USA, shares also fall. This fact is, in itself, a striking confirmation of the fact that the interests of the workers and capitalists are completely antagonistic. News of more jobs is manifestly good for the workers and unemployed, but is taken as bad news by the owners of shares, concerned that less unemployment will lead to upward pressure on wages and (allegedly) prices. The converse is also true. While not every stock market crisis leads to a slump, under certain circumstances, the one can lead (with the delay of a few months) to the other. We will elaborate on this later.

After the initial shock, the capitalists recovered their nerves. On all sides we read reassuring statements. President Clinton reminds us that "the fundamentals of the US economy are sound." "There is no reason to think the US stock market is going to be a bear market" says economist Allen Sinai at Primark Decision Economics, "The US economy is not going to be knocked down by a crisis in Asia." And last but not least Alan Greenspan, the same man who warned twelve months ago against the "irrational exuberance" of the stock market, hastened to soothe the jangling nerves on Wall Street: "Our economy has enjoyed a lengthy period of good economic growth, linked, not co-incidentally, to damped inflation. The Federal Reserve is dedicated to contributing as best it can to prolonging this performance."

It is interesting to compare this comforting observations with the speeches made by all the bourgeois politicians and economists before, during and even after the Great Wall Street Crash of 1929:

"Representatives of thirty-five of the largest wire houses assembled at the offices of Hornblower and Weeks and told the press on departing that the market was 'fundamentally sound' and 'technically in better condition than it has been in months'. It was the unanimous view of those present that the worst had passed. The host firm dispatched a market letter which stated that 'commencing with today's trading the market should start laying the foundation for the constructive advance which we believe will characterise 1930'. Charles E. Mitchell announced that the trouble was 'purely technical' and that 'fundamentals remained unimpaired'." (J.K. Galbraith, The Great Crash 1929, p. 126.)

And again:

"Eugene M. Stevens, the President of the Continental Illinois Bank, said, 'There is nothing in the business situation to justify any nervousness.' Walter Teagle said there had been no 'fundamental change' in the oil business to justify concern; Charles M. Schwab said that the steel business had been making 'fundamental progress' toward stability and added that this 'fundamental sound condition' was responsible for the prosperity of the industry; Samuel Vauclain, Chairman of the Baldwin Locomotive Works, declared that 'fundamentals are sound'; President Hoover said that 'the fundamental business of the country, that is production and distribution of commodities, is on a sound and prosperous basis'." (Ibid., pp. 127-8.)

Galbraith's description of the mood on Wall Street after the initial crash might have been written yesterday:

"Almost everyone believed that the heavenly knuckle-rapping was over and that speculation could be now resumed in earnest. The papers were full of the prospects for next week's market. Stocks, it was agreed, were again cheap and accordingly there would be a heavy rush to buy. Numerous stories from the brokerage houses, some of them possibly inspired, told of a fabulous volume of buying orders which was piling up in anticipation of the opening of the market. In a concerted advertising campaign in Monday's papers, stock market firms urged the wisdom of picking up these bargains promptly. 'We believe', said one house, 'that the investor who purchases securities at this time with the discrimination that is always a condition of prudent investing, may do so with utmost confidence.' On Monday the real disaster began." (Ibid., pp. 128-9.)

The times may have changed, but the system and the mentality of its representatives remain exactly the same! And the effectiveness of this kind of speech-therapy in preventing a slump is about the same of the mumbo-jumbo of the medicine-man in curing cancer. Greenspan, evidently forgetting his earlier warnings, now claimed that the fall in share prices was "a salutary event". This overlooks the fact that one year ago when he first issued his warning about "irrational exuberance", the Dow Jones index had reached the record 5,000 mark. Before the present crash it had passed 8,000. But even now it stands at well over 7,000. This still defies the economic laws of gravity. Further buying will push it still higher, preparing the way for further, even more catastrophic falls. Greenspan is evidently aware of this, but, under the given circumstances, clearly believes that discretion is the better part of valour.

"Like a snake charmer," wrote Time magazine (10/11/97) "Greenspan talked the market into a catatonic state--or was it that traders were merely exhausted?" Undoubtedly the latter factor was more important than the former. But like primitive savages whose lives are threatened by invisible and incomprehensible forces, the bourgeois is all too ready to believe in miracles. It is true that the present situation has important differences with that of 1929. To say this is to say very little. Every period of capitalism tends to be different from every other period. Having said that, the history of economic cycles and stock market crashes present essentially similar phenomena. If there is a difference today, it is essentially that the level of capitalist development is much higher, far vaster sums of capital are involved, and the potential scale for disaster far greater. The Economist report The World in 1998 points out that:

"By late 1998 the mutual-fund industry will have more funds under management than exist in the entire American banking system--something approaching $4.6 trillion. The mutual-fund sector has over half of its assets in equities and now owns over 20% of America's publicly traded corporate equity, compared with only 2.3% in 1978. About 30m Americans now own equities directly compared with only 3m before the second world war." (My emphasis, AW)

And again:

"The capitalisation of the American equity market has risen to over $9 trillion, or a level equal to 115% of GDP compared with a previous peak of 82% in 1929 and a 60-year moving average of only 48%."

The position of the US stock market has many similarities to the position on the eve of 1929. Share prices on the New York exchange remain extremely over-valued, and there is a very high level of debt. New falls in share prices in the next few months are inevitable. And they will not necessarily end so happily as the last time. Although the current wisdom states that stock exchange crises do not affect the real economy, this is far from the truth. A crisis in the real economy can provoke a stock market crash, but under certain circumstances, the process can work in reverse, as we saw in 1929. The fact that the bourgeoisie managed to avoid a full scale recession after the stock market crash in 1987 has created a false sense of security. The bourgeois economists now take this to be the norm--part of the so-called New Economic Paradigm. They are like the generals who imagined that the second world war would be fought in trenches.

However, this superficial optimism lacks any real base. While it is impossible to predict with any degree of accuracy the ups and downs of the stock exchange, it is perfectly possible to predict the inevitability of new and even more severe crises in the next few months, ending in a serious crash at a certain point. It is extremely doubtful that the appeals for calm--based on allegedly "sound foundations"--will have the same effect on small investors in the event of a serious downturn, when it becomes increasingly clear that the situation is not sound at all. Under such conditions, a stock exchange crash in America would have the most serious consequences for the internal market, and therefore the world market. Investment would suffer a sharp decline, provoking a recession.

How much truth is there in the soothing assurances about the "underlying soundness" of the US economy? The present boom already lasted six and a half years (in the USA). This is quite long by post-war standards. There are some indices that suggest that it still has some life in it. House sales are still growing at the fastest rate for 19 years. The rate of inflation, at 1.4 per cent in the last quarter, is less than half the rate for 1996. Despite the victory of the UPS workers in the Summer and warnings of economists like Stephen Roach of a "worker backlash", wage costs are still being held down, increasing at only 0.8 per cent in the third quarter of 1997, although unemployment has fallen to the lowest level for a generation. Corporate profits remain strong. Third quarter profits exceeded estimates for the 19th consecutive quarter. On the other hand, the government reported that the budget deficit for fiscal year 1997 shrunk to $22.6 billion, the smallest since 1974 and better than expected.

The budget deficit has been reduced partly because of economic growth and higher income from taxes, partly from cuts in welfare spending, affecting the poorest and most deprived sections of American society. It is calculated that capital gains from the mutual-fund sector and stock-option programmes will boost tax receipts by over $100 billion and push the federal tax share of GDP above 20 per cent for only the third time in American history, excluding wartime. This may mean that the Federal budget deficit will be under 0.5 per cent of GDP--one-sixth the proportion of Germany, Britain or France. But behind these glossy images there is a lurking fear. This situation cannot last. Clinton dreams of liquidating the budget deficit altogether, just like his European friends, but a new recession will blow a hole through the whole scheme.

Serious bourgeois economists like Stephen Roach have admitted what Marxists knew all along--that the present boom has been at the expense of the working class--a colossal increase in exploitation generating huge profits at the cost of nervous and physical exhaustion of the workers, toiling long hours in bad conditions for low wages. What Marx described as absolute surplus value: overtime, weekend working, no holidays, two or three jobs, etc. and relative surplus value: intensification of exploitation through relentless pressure, speed-ups, just-in-time production, etc.

This is the secret of the "productivity explosion" that has taken place, and not just in the US. But this has its limits. On the one hand, there is a physical limit: there are only so many hours in the day and the nervous and muscular strength of the worker can only be stretched so far. The unbearable strain placed on workers and their families is stoking up a colossal discontent, frustration and anger which at a certain point must indeed provoke a backlash. The UPS strike was merely an anticipation of this. If the boom is extended for a further period, falling unemployment will inevitably lead to further strikes, as workers strive to win back what they have lost in the last period. This, in turn, will have an effect on profit margins in a tight market where it is not possible to increase prices to any extent. Pressure from cheap imports from Asia will make the situation still worse, inevitably giving rise to increased demands for protectionism from American manufacturers.

In his book The Death of Economics, Paul Ormerod points out the effects of a collapse of stock market values on an economy with a high level of debt:

"Keynes himself, in a paragraph in one of the concluding chapters of the General Theory, recognised the importance of fluctuations in the value of stock markets on consumer spending, particularly at the time in the United States. He argued that, especially if people had borrowed to buy shares, falling stock markets could intensify a recession. But he did not use this argument with sufficient strength in the debate over the Pigovian real balance effect.

"The American economist James Tobin revived this idea ten years or so ago, and Edmond Malinvaud, a distinguished French economist, has recently warned the European Commission of the practical dangers of such an effect in the current circumstances. But in general, theoretical economics has ignored this point, despite its relevance to current circumstances, and in particular to those economies in which debt levels are high relative to incomes. Japan, America and Britain are the major examples.

"The lower the rate of inflation, the worse is the situation for debtors. If inflation becomes negative and the general level of prices falls, the problem becomes even more acute. And it is potentially exacerbated even further in the present day by the fact that the prices of many of the assets which people and companies hold are not, like bank deposits, fixed in money terms. Compared to the 1930s, for example, many more people own houses, the prices of which can go down as well as up." (Paul Ormerod, The Death of Economics, pp. 143-4.)

Even leaving to one side the question of Asia, after six and a half years, the boom in the USA would now probably be nearing its end. Such things as a booming stock exchange, wild optimism, unbridled speculation and consequent over-production are precisely what one would expect to see at the peak of the economic cycle--just before a slump. This point was made many times by Marx. And the most perceptive bourgeois economists also understand it:

"But even if that chain of events never occurs, some analysts believe the US is headed for a recession, or severe slowdown, in 1998, all on its own. If they are right, Monday's plunge may have been the first shot across the proverbial bow, with others to follow. Those who so quickly dismissed the sell-off and are now boasting of buying at the bottom may find they were wrong." (Time magazine, 10/11/97.)

One factor is the level of consumer debt in the USA. According to Ron Reuss, economist at Piper Capital Management, Minneapolis, half the households with less than $50,000 in annual income have non-mortgage debt equal to 24 per cent of their take-home pay--an all-time high. This is already expressing itself in a higher number of bankruptcies and the slow growth in consumer credit, which is now only 5 per cent a year, compared to a more normal figure of 10-15 per cent in a boom. In this and other respects, the present boom, for many workers, already feels more like a recession. Given the high level of consumer debt and the very large number of US citizens who now hold part of their wealth in shares (ten times more than before the war, as we have seen), any sharp drop in share market values can have a major impact on consumer spending, precisely at a moment when the US economy is slowing down (everyone agrees on that) and is faced with a huge influx of cheap imports from Asia, which must affect prices and profit margins, and therefore investment--the fundamental motor force for any real boom. As a matter of fact, the main stimulus for productive investment in the US economy has come from the Information sector, which has already shown itself to be extremely volatile and very vulnerable to stock exchange turbulence. It is a moot question whether the profitablity of the Information industry can survive for long under the new conditions. And given the enormous specific weight of this sector in present-day America (it employs over nine million people--more than steel or automobiles) a slump here would rapidly communicate itself to the rest of the US and world economy.

All the talk about the "soundness" of the US economy overlooks the fundamental question: the effects of world development on the USA. Hugh Johnson, chief investment strategist of the brokerage firm First Albany warns: "It is always wise to take the message of the markets seriously. The message is that the currency crisis in South East Asia will affect not only the economies of South East Asia but also that of the US." The nervousness of a section of the American bourgeoisie was expressed by the Wall Street Journal on the 30th December 1997. After duly noting that the majority of economists were optimistic about the prospects of the American economy, the article points out:

"Still, the pessimists note, forecasters are lousy at predicting economic turning points even in normal times--and are likely to do even worse when the old rules are in flux. Moreover, forecasting models tend to be built on assumptions that people behave rationally, while actual events are often driven by waves of irrationality. Such waves worry the pessimists.

"Still-unknown pieces of the story: how long the crisis will last and how far it will spread among developing countries. It raced from Thailand to Indonesia to South Korea. And nervous speculation has, in recent weeks, circled Hong Kong, Taiwan, China, Russia, Ukraine and Brazil.

"A year ago, investors in the US and elsewhere viewed 'emerging' markets as a hot place to invest. Now, many are getting out, causing currencies to fall and interest rates to rise in a lot of those markets. Another shock, such as a South Korean default, could cause more currency drops and rate increases, pushing up capital costs and slowing growth in much of the developing world. The US economy would be much more powerfully affected because developing countries together absorb about one-fourth of American exports.

"Japan's incipient recession, moreover, will likely deepen, probably reducing the American and European goods sold there. And the woes of Japanese banks, which include six of the world's 10 largest, exacerbate the worries. If Japanese bureaucrats don't handle the problem skilfully--and apprehensive Western officials have little confidence in them--the implications could be enormous.

"The global banking system depends on major banks around the world providing each other with billions of dollars in short-term loans, extended with confidence of quick repayment. A major bank failure in Japan, if mishandled, could disrupt that flow of payments and cause the system to seize up--the financial equivalent of a stroke.

"No one is predicting that disaster, of course. But--from Federal Reserve Chairman Alan Greenspan on down in the US--it stirs deep concern. Jeffrey Shafer, a former Clinton Treasury official, says that if he were still in his old job, 'I would be staying up at night worrying about a major meltdown of banks in Asia, especially in Japan'."

End of the "Asian Model"

The attempts of the bourgeois to shrug off the crisis in Asia verge on the comical. Previously they exaggerated the importance of Asia. Now they try to belittle it. However, the importance of this region is shown by the fact that 60-65% of the growth of world output between 1990 and 1995 came from this area. This was precisely what prevented the world recession of 1990-92 from turning into a depression. To argue that a slump in Asia will have no effect on the world economy is to fly in the face of the facts.

So far, of course, this has not happened. It is not even theoretically excluded that, following the stock market crisis, the US economy might recover somewhat, and the boom could sputter on for another 18 months or two years, although with lower rates of growth. However that would only prepare the way for a new and deeper slump thereafter. However, this "optimistic" scenario is not at all certain. As the months go by, the voices expressing alarm are gathering strength. Even The Economist, that most optimistic mouthpiece of "liberal capitalism", can no longer conceal its deep misgivings about the prospects for the world economy. In the editorial of its 20/12/97 issue, significantly titled Asia and the abyss, it admitted what was already self-evident--that the spread of the crisis to South Korea and Japan had the most serious implications for the entire world:

"But when the story moved north-eastwards to South Korea and Japan it took on a new seriousness. These are two of the world's largest economies which, contrary to popular perception, are also two of the world's largest importers as well as sending their investments all over the globe. A financial calamity there could bring on a worldwide slowdown or even slump. So is one likely? The answer, alas, is that such a calamity can still not be ruled out." (My emphasis, AW.)

It is comical to follow the twists and turns of the bourgeois economists as they struggle to explain away the events in Asia which not long ago they heralded as the "new capitalist dawn". On returning from his negotiations in South Korea, the French director of the IMF Michel Camdessus admitted that "The Asian Model was out of date." Actually, there was never anything new in the wave of investments in South East Asia--or the illusions that flowed from them. In this respect, the bourgeoisie displayed the same childish superstition as those who believe that there is a pot of gold at the end of every rainbow--if only they could find it!

In point of fact, in every period of capitalist development, from the 16th century onwards, capitalism has always opened up new markets, starting with the "discovery" of the New World. The plunder of South America provided the gold and silver which fuelled the initial period of capitalist development in Europe. Subsequently in the 17th and 18th centuries we saw the development of the colonies in Asia, Africa and America and the beginnings of a world division of labour which was intensified in the 19th century with the "opening up" of China (through the pleasant device of the Opium Wars). Engels refers to the exaggerated illusions of the Lancashire cotton manufacturers in the boundless prospects of the China market (which subsequently ended in overproduction and slump). Later we saw the gold rush in California, the development of Australia, Russia and so on.

Marx explained long ago that the bourgeoisie is capable of "solving" its crises, but only at the cost of preparing new and deeper ones in the future. One of the ways in which this was done was precisely by more participation in world trade. The history of the past two decades are a graphic witness to the truth of this observation. In an interview with the Spanish paper El País (1/12/97), Camdessus was asked whether the Asian model, "based on massive exports and the absorbing of foreign investments" which was supposed to be "a paradigm", was finished. His answer was a model of unconscious humour:

"Economic models are not eternal. There are moments in which they are useful and other in which, as the world evolves, they become out of date and have to be abandoned. Unamuno [a Spanish philosopher] used to say that he used his ideas the same as his boots: he used them and then threw them away. We must do the same with economic models."

This amazingly frank, not to say cynical reply, accurately reveals the real attitude of the bourgeoisie to "economic theory" which actually is a lot less useful to them than a good pair of boots! All that the so-called "economic paradigms" reflect is a desperate attempt to latch on to any success--real or imaginary--to re-live the age-old dream of the capitalist class and its ideological representatives--that the boom-slump cycle has finished forever. The propensity for self-delusion is directly related to the dizzy heights reached by the stock-market, profitability, economic growth and other indices which are normally related to the peak of the economic cycle--just before a downturn. Thus, in the words of the proverb, "pride comes before a fall". And also, if it comes to that, "the bigger they come, the harder they fall!"

Camdessus, and the other representatives of the big Western powers to some extent appear to take a perverse pleasure in seeing the collapse of the "Asian model". They appear to believe that they can somehow evade the consequences and, in the process, teach those upstart Easterners a lesson in humility and show them who is boss. The director of the IMF brags about forcing the closure of unprofitable "chaebols" (South Korean industrial monopolies) and Indonesian banks. The arrogance, and at the same time, the blind stupidity of these gentlemen, is really breath-taking. Their "solutions" will inevitably deepen and extend the crisis in Asia. The idea that this will not have serious consequences for the rest of the world economy is sheer madness.

The medicine dished out by the IMF is the same as ever. Loans are given on condition that the entire burden of the crisis is placed squarely on the shoulders of the masses ("austerity"). Growth must slow down, unemployment must grow, factories and banks must close, interest rates must rise, budgets must be balanced, living standards reduced. In exchange, the international boan-sharks dispense their largesse: $4 billion to the Philippines, $10 billion to Indonesia, and a far bigger amount to South Korea, the final sum of which is as yet unclear. In addition, other banks and institutions have lent $17 billion to Thailand, $13 billion to Indonesia, and there is a promise of further "aid" from the USA, Australia, Hong Kong, China, Singapore and others.

The problem is that this "aid" does not come free of charge. All will have to be paid back with interest. The payments will be extracted over a period from the workers, peasants and middle class, thus exacerbating all the social tensions and creating an explosive situation in one country after another. Already there have been street demonstrations in Thailand, composed not only of workers but of middle-class people and even some businessmen. The situation in South Korea, with its powerful working class, is particularly explosive. And Indonesia, where the crisis of the economy is inseparably linked to the corrupt dictatorship of the hated Suharto clique, was in any case long overdue for revolutionary developments.

The aid promised by Japan and China is not disinterested. They are terrified that the economic crisis in Asia will bring them crashing down. These fears are not exaggerated. And a serious crash in Japan and China would swiftly cause a shock-wave through the whole world economic and financial system. More than 40% of Japan's exports goes to Asia. To make matters worse, the banking system in both Japan and China is weighed down with colossal bad debts. The motor-force of China's growth in the last year has been exports, also mainly to Asia. The risk of a collapse in China and Japan is therefore very serious.

In common with the majority of the strategists of capital, Camdessus considers that the crisis in Asia will not necessarily cause a world-wide slump. The world economy, he insists, is still growing at an annual rate of 4 per cent. The effects of the present crisis in Asia might reduce the rate of growth in the USA by 1.2 or 1.3 per cent. This means that in any event (and by the most optimistic prognosis) the world economy will slow down next year, with a consequent rise in unemployment and fall in demand. In Asia this will be severe. If we add to this the effects of further cuts in public spending in Europe in preparation for EMU, the picture does not look very hopeful. And all this is, in any event, predicated on certain suppositions: if the Japanese take the necessary measures to reform their financial system, if the crisis does not spread to China, if the masses in Asia are prepared to accept deep cuts in their living standards with the necessary Confucian resignation, if there is not a further collapse on the heavily over-valued US stock exchange, if the American workers do not take advantage of full employment to strike for higher wages… These are a very great number of "ifs" upon which to base such a confident prognosis!

In The Economist editorial already mentioned, open scepticism is expressed in the capacity of the Japanese bourgeoisie to solve the crisis of its financial sector:

"On December 17th Japan's prime minister, Ryutaro Hashimoto, did announce a 2 trillion yen ($16 billion) cut in income taxes, plus an 850 billion yen cut in corporate taxes. But this will apply only for one year, and merely reverses the fiscal tightening his government enforced last spring. News has also emerged of a plan to issue 10 trillion-worth of yens of government bonds to finance bank rescues. Yet the plan is vague, with no details of how the rescues will work nor whether more money will be made available if it turns out to be needed. Mr Hashimoto says his aim is to stop the economic troubles 'originating in Japan from causing global depression'. That is a fine aim, and his plan was a step in the right direction. But the risk remains of a Japanese collapse, which worsens the broader Asian collapse, and then causes a worldwide recession."

The IMF decides

Following the orders of the IMF, that organ par excellence of world imperialism the government of Thailand announced on the 8th December 1997 the closure of 56 of the 58 most indebted banks in that country, which jointly amount to a "black hole" of some $35 billion. This is part of a package, in exchange for which Thailand is to receive some $17.2 billion in "aid" from the said organisation. The crisis of the Thai banking system is not at all exceptional. During periods of boom speculation abounds, as investors are gripped by the illusion that the price of shares, land, etc. is destined to rise forever. This is the common characteristic of every boom since the 17th century. It is a disease which affects not only the unscrupulous and dishonest stock-exchange sharks, but also the most respectable bankers. All plunge with gay abandon into the turbulent sea of speculation, ignoring the (admittedly few) voices of caution. This is the real psychological basis for the "new economic paradigm" which, on close inspection, proves not to be new at all, but as old as the hills--or rather, as the history of banks and stock exchanges.

During the years of the "speculation bubble" of the 1980s and 1990s, banks and other firms in Thailand, Japan and other Asian economies with lots of cash to spare looked round for a projectable field of investment and found it in the property market. This is also not new. Witness the "Florida land speculation" that preceded the crash of 1929 in the USA. At the time it seemed like a good idea. (But then it always does!). Here was easy money to be made without going to the bothersome risk and trouble of investing in productive activities such as industry! Land and property prices rose like the foam from a bottle of Champaigne. And kept on rising. Until they fell, that is.

At a certain point in the capitalist cycle, in a classical dialectical form, everything turns into its opposite. Precisely those elements that fed the boom, pushing the economy onwards and upwards, now become the source of its discomforture. The property boom that fed upon the economic expansion and in turn spurred it on, now actually placed the entire economies of countries like Japan and Thailand in danger. The same was true of credit which everyone seeks in a boom, but which, Karl Marx explained, and Mr Micawber knew only too well, eventually leads to levels of debt which deepen the crisis and make a recovery ever more difficult. Now it becomes all too obvious. Public debt, private debt, corporate debt--all hang like a millstone round the neck of the economy and threaten to drag it down.

In Thailand, the first of the tigers to succumb to the concerted attacks of the "speculators" (i.e. the big monopolies), who scented blood, the weakness of the highly indebted banking sector was undoubtedly one of the prime factors that set the whole disastrous chain of events in motion. Suddenly "confidence" collapses. Someone, or some group, decides that the whole structure is unsound and begins to sell. And sell. And sell. This is a classical development, seen in every cycle, and not at all the result of Thai or Asian peculiarities. Later on we shall see the same phenomena in the USA and Europe.

Despite the all-too-common prejudice that says that a stock market crisis has no effect in the "real economy", this is far from the truth. On Monday the 8th of December the Thai government dispatched 400 police to the commercial centre of Bangkok to prevent any incident that might occur. Their fears were well grounded, since the government had announced a series of measures which would leave some 20,000 workers in this sector redundant. In fact, this is only the tip of a very big iceberg of social distress already caused by the crisis in Thailand. No fewer than two million workers have already lost their jobs since the beginning of the crisis in Thailand in June 1997. Incidentally, many of the latest victims are highly-qualified professional people, as admitted by the ex-vice president of one of the companies closed by the government, Sampong Sawasdipahdi:

"Now it's no longer a question of factory workers. Now those laid off include the most qualified workers in the country." (El País, 9/12/97.)

Naturally, the markets applauded the Thai government's "decisiveness" in carrying out the dictates of the IMF. The Thai stock exchange rose by 3 per cent on hearing the news. This is quite typical of the behaviour of stock markets everywhere, as we have already underlined. When workers are laid off and vicious attacks on living standards of the Thai people are announced, the market applauds. For anyone with eyes to see or a brain to understand, this proves conclusively that the interests of the "market"--that is, the big monopolies are as diametrically opposed to the interest of the workers and the mass of the people. As the crisis develops, this fact will be increasingly burned into the consciousness of the masses.

The pain in Thailand is very real, extending far beyond the limits of the working class, into the petty bourgeoisie and other social layers who imagined that they were immune to the crisis of capitalism. And the results? The so-called "benefits" are very small and largely imaginary. The baht "stabilised" at around 41.60 for one US dollar. This was seen as a victory, but nevertheless still represented a loss of 60 per cent since the 2nd of July. As for the Bangkok stock exchange, it has registered a loss of more than 78 per cent of its values since that date.

Of course, the bankers never lose. In an effort to calm the shaky nerves of investors, the Central Bank of South Korea agreed to hand over 476 billion wons ($355m) in emergency credits to the commercial banks and finance houses threatened with collapse. Here the black hole in the financial system is so profound that the initial "aid" of the IMF ($5.5bn) simply evaporated like a drop of water on a hot stove. The won sank to a new minimum level of 1,342.40 per US dollar. The Seoul stock exchange fell further.

In Indonesia, in early December the government announced the fusion of a number of big banks, after the closure on November 1st of 16 private banks, considered to be insolvent. The matter does not end here, since it is widely believed that a number of other major banks are also insolvent.

South Korea and Japan

In a desperate effort to shore up the South Korean economy, the IMF agreed to a huge loan, but as usual imposed draconian terms. It demanded a slowing-down of the economy to between 2.7 and 2.8 per cent--a disaster for South Korea which was growing at a rate of 6 per cent this year-- and an increase in the interest rate to 18-20 per cent, a measure that would lead, to use the current euphemism, to "radical corporate restructuring" that is, widespread factory closures and massive unemployment in a country where mass unemployment had disappeared and where a safety-net for the unemployed is practically non-existent.

The size of the IMF loan was at first stated to be $15-$20 bn. But it was clear from the beginning that this figure was hopelessly inadequate to meet the real needs of the South Korean economy. Unofficially, the figure of $60 billion was mentioned. This would already be bigger than the amount offered to Mexico in 1995, but even this sum will not be enough to solve the problem. The scale of the economic disaster in South Korea is only now beginning to emerge as new figures reveal the depth of the collapse.

Despite the huge scale of the attempted "rescue" it is not at all certain that the IMF measures will have the desired effect of "re-establishing confidence" and encourage foreign banks to resume lending to Korea. The devastating social effects of these measures are not in doubt. They will produce political instability on a scale not seen for decades, placing the prospect of revolutionary movements of the masses on the order of the day. This is hardly an ideal scenario for big foreign investments!

Having swallowed the bitter medicine presented by the IMF, South Korea waited for the verdict of "the market". This did not take very long to reveal itself. After an initial recovery, the won plunged a further 18 per cent on December 30th, following heavy dollar buying by debt-burdened Korean companies.

The general instability in the region necessarily found its reflection in the Tokyo stock exchange. The Nikkei index lost 292.91 points in early December, on the announcement that new estimates place the growth of Japan's GDP at zero, not only for 1998, but also for 1999. In real terms (excluding inflation) the Japanese economy only grew by a miserable 0.5 per cent in 1997. These figures are all the more catastrophic when we recall that Japan, the second largest economy in the world, was not long ago the power-house of the world economy, with a growth rate that sometimes even surpassed that of the USSR in its period of 10 per cent annual growth in the 1950s and early 1960s. Now, to all effects and purposes, Japan has been in recession for the best part of a decade, with no end in sight. On the contrary. The prospect of a serious collapse in Japan is staring the bourgeois in the face.

The speculative activity at the height of the boom is inevitably accompanied by a large element of fraud, sharp practices, embezzlement and downright larceny. In the period of upswing, these practices go unnoticed, and their perpetrators are even lauded as heroes of financial enterprise. In the moment of truth, however, when prices begin to fall, these frauds begin to emerge. An early warning was the collapse of the old and respected firm, Barings Bank. Now in Japan it emerges that a large slice of the banking system is in the pocket of a Mafia known as the sokaiya, not your ordinary street hoodlums, but elegant and discreet men of business in sombre suits. The activity of these groups began to take off in the years of the "Japanese bubble", during the 1980s and early part of the 1990s. One of these gangsters, Ryuichi Koike managed to amass a fortune of 12.4 billion yens ($95.3 million) out of the principal Japanese financial companies plus a further 11.7 billion yens ($89.9 million) in exchange for keeping quiet about it. Mr Koike was arrested for his activities, but rapidly let out on bail. As a result of his goings-on, four of Japan's most important finance houses collapsed (Nomura, Nikho, Daiwa and later on Yamaichi Securities), as well as the Dai-Ichi Kangyo bank. Unlike ordinary citizens who from time to time fall into the clutches of the law, the likes of Koike cannot expect long gaol sentences. After expressing public remorse for their evil deeds, they will all be treated with exceptional magnanimity by the judges and allowed to go free to continue their careers undisturbed.

Crisis in China

Confronted with the crisis of the Asian "tigers", the West seeks to comfort itself with the idea that China may steer clear of trouble. So far, this seems to be the case. However, upon closer examination, the basis for such hopes appears to be extremely fragile.

President Jiang Zemin repeats every day the assertion that the Chinese economy is solid and immune against the crisis that is shaking the rest of Asia. Long ago Galbraith explained that in a crisis the authorities resort to a kind of ritual incantation which they hope will have the effect of steadying the market. The author of the best-known work on the 1929 crash also points out that these incantations rarely have any real effect whatever. It is the same as Clinton's repeated assurances that in the USA "the fundamentals are sound". Exactly the same words were repeated over and over again by politicians, economists and bankers before, during and even after the 1929 crash.

However, the Beijing authorities are well aware that events in the rest of Asia will certainly have an effect on China in the not-too-distant future. To begin with, two elements have directly spurred China's spectacular growth in the recent past--foreign investment and exports. Both of these will be affected by the present crisis. Foreign investors will certainly prefer to set up businesses in those countries which have devalued their currencies rather than China, where, so far at least, Beijing is resisting a new devaluation of the yuan, which would put in jeopardy the link between the Hong Kong dollar and the US dollar.

It is not generally realised that it was the devaluation of the Chinese yuan in 1994 that gave a huge boost to Chinese export which probably detonated the present crisis in Asia, aggravating the problem of over-production in Asia's saturated markets. Now the tables have been turned. China's products are now 40% more expensive than those of Malaysia, and up to 60% dearer than those of Indonesia. This will inevitably mean that Chin's export drive to Asia, one of the main motor-forces of its development over the past 18 years, will decelerate rapidly over the next months, unless China also devalues, something which, for the present, it has refused to do.

The idea that China can somehow isolate itself from the Asian crisis flies in the face of the policy that has been adopted by the leadership of Jiang Zemin and Ziang Rongji. The old reactionary idea of autarky ("socialism in one country") was abandoned after the death of Mao. The fate of China--as of Russia-- is directly bound up with the world economy. So far, participation on world markets has benefited China (though certainly not Russia!). But now the other side of the coin has been revealed. The crisis in Asia will hit China hard. This, in turn, will intensify all the social contradictions in China and with them the struggle between different wings of the bureaucracy. Thus far, the pro-capitalist wing of Ziang Rongji has made all the running. But as the crisis deepens, that can change.

The rapid growth of production in China has led to the appearance of over-production as The Economist's report The World in 1998 points out:

"The problems [of Asia] will be exacerbated because China now has a huge glut of manufacturing capacity, ranging from cars to petrochemicals and colour televisions. Much of it is inefficient, and the Chinese government will be stepping up its programme to streamline the worst hit--the state sector. Hence China will become even more competitive." (p. 76.)

Another report points out that:

"China, which accumulated at the end of last year (1996) $360 bns in stocks, is snowed under with unsold or unsaleable articles, ranging from textile fabrics of poor quality to apparatuses made to a 30 year-old design, produced in factories from the Maoist period which not even the Chinese want." (El País, 9/12/97.)

The Economist (22/11/97) stated that "Many enterprises at village and local level suffer from an excess of products on the market." Incidentally, this refers, not to the state sector, but to the "collectivised" sector that accounts to no less than two-fifths of non-agricultural production. And the same article warns: "The biggest threat is a banking crisis which could make the one in South East Asia look like a gentle breeze."

It is estimated that bad debts to Chinese banks amount to the equivalent of 30 per cent of GDP. This, by the way, is twice the level of South East Asia. True, the Chinese economy continues to grow, but the rate of growth is already falling, and will fall still further in the next months.

"This crisis has taught China a great lesson," explains Gordon Cheung, professor of economics in the Chinese University of Hong Kong. "It has shown its leaders that they cannot proceed with a rapid opening of their market without previously adapting their local enterprises. They have realised that the opening must be gradual and accompanied with measures of restructuring of the economy." (El País, 29/12/97.)

In the same article, however, the Hong Kong-based economist, Valérie Brunschwig draws an interesting comparison between China and the other South East Asian economies, showing that the points of similarity are much more significant than the differences:

"This realisation on the part of the Chines leadership is all the sharper because, in many respects, China displays the same perversions as the Asian economies now openly in crisis: industrial saturation, a corrupt Administration, the mixing-up of business and politics, building projects interrupted before completion, a paralysed banking system, dubious credits to the value of between 30 and 37.5 trillions, etc." (El País, 29/12/97, my emphasis, AW.)

Certain things flow from all this. The same article quotes Professor Lau Siu-kai, director of the Institute of South East Asian Studies at the Chinese University of Hong Kong as saying:

"The ruling circle is perfectly aware that it will be incapable of solving the crisis which is affecting China so much: and it is alarmed to see how the International Monetary Fund (IMF) and, therefore, the Western powers, once again taking control of these economies, which they see as a loss of autonomy and sovereignty."

These words are of tremendous importance in assessing the dimensions of the present crisis, not only in an economic, but in a political, and even a military sense. China is a great power, not only on an Asian but on a world scale. Not for nothing did Napoleon remark about China "when this giant awakes, the whole world will tremble."

In contrast to Russia, where the collapse of Stalinism and the attempt to move in the direction of capitalism has been accompanied by an unprecedented collapse of the productive forces, the Chinese bureaucracy has kept a firm grip on power while permitting the development of elements of capitalism in certain areas near the coast, and participating on the world market, thus gaining valuable access to foreign capital and modern technology. This has permitted a high level of growth and aroused high expectations among a layer of the population. This is the material base upon which the pro-capitalist wing of the bureaucracy has strengthened its position. However, there is another side to the picture.

The development of capitalist tendencies has led to a rapid increase in inequality, between the ruling élite and the masses, between towns and countryside, between coastal regions and mainland. Social tensions have expressed themselves in a wave of strikes, demonstrations and peasant protests. There is a huge number of unemployed, maybe 150 million who have drifted from rural poverty to seek employment in the cities of the booming coastal areas. There is brutal exploitation of factory workers in the private sector. Corruption abounds. Moreover, the imperialists are exerting remorseless pressure on Beijing to privatise the state-owed industries. This would lead to an explosion of unemployment and social unrest. A section of the bureaucracy, frightened of the consequences, is reluctant to proceed any further on the road of "reform". The recent 15th Party Congress spelled victory for the pro-capitalist wing. But the developing crisis can put the whole process into reverse.

The fears of the ruling élite were revealed by the decision to postpone the convertibility of the yuan until the year 2,000. But the real test is still to come. The planned closure of state enterprises mean that 1.2 million textile workers will be made redundant in the next three years, 600,000 of them in the next year. The chemical industry is to sack a further 400,000 in 1998. But if the economic climate worsens, all these plans can come to nothing. Social explosions, strikes in the towns and uprisings in the villages, in addition to an aggravation of ethnic tensions (Sinkiang, Tibet, Mongolia) can precipitate a split in the ruling élite in which the success of the pro-capitalist wing is not at all guaranteed. After all, the Chinese bureaucracy have a ghastly example of what the movement towards capitalism has meant for Russia! A deep slump on a world scale would mean that all bets are cancelled.

Even if the pro-capitalist tendency were to succeed, it would not be on the basis of a pro-Western, docile, weak semi-colony as a 100 years ago. For some time, China has been quietly acquiring a formidable supply of arms, mainly from Russia. China has already waged war against Vietnam, and has territorial claims against other Asian nations. In the context of economic crisis and a struggle for markets in Asia, further wars are not ruled out. On the other hand, the tensions between China and the USA which are already coming to the surface. Thus, from being a potential market and factor for stability for American and world capitalism, China will become a new and powerful element for instability in Asia and on a world scale.

A global crisis in the making

In a curious about-turn in comparison to previous positions, the bourgeois economists now try to minimise the role of Asia in the world economy, pointing out that the GDP of Asia represents only 13 per cent of the most industrialised capitalist economies (the "Group of 7"). However, this argument deliberately understates the effects on a highly-integrated world economy of a serious recession in one of its component parts. The speed with which the stock exchange panic spread from Asia to Latin America, Eastern Europe, Russia, the USA and Europe is a warning. The fact that the stock markets of the USA and Europe subsequently staged a rally (how long for is another question) does not alter the fact that the advent of "globalisation" which was presented by some as the final solution to the capitalist crisis now presents another very different face. It means that the conditions are being created for a slump of truly gigantic proportions in the next period on a world scale.

As we have explained, it is simply not true that the stock exchange crisis has no effect in the real economy. To begin with, the prices (in dollars) of the exports from Asia has automatically fallen in relation to prices in Europe and the USA, thus automatically giving them an advantage on world markets. If we add to this the fact that the very fact of devaluation (which means a corresponding rise in the price of imports) plus the rise in interest rates, forced upon these countries in an attempt to defend the value of their currencies, means a sharp reduction in living standards and a corresponding fall in domestic demand. On top of all this, these economies have an urgent need to obtain foreign currency to pay their debts. The only way to do this is by exporting. One does not have to be a genius to see that the only market than can (in theory) absorb all these low-priced exports from Asia is the USA (and, to a lesser extent, Western Europe).

The produce of Asian industry was already highly competitive before this. There are huge quantities of cars, television sets, computer chips, shoes and textile which cannot be absorbed by the Asian market and which are seeking an outlet. This contains the seed of a very serious problem. What worries the strategists of capital is not so much the stock exchange crisis, or even the existence of over-production or the threat of a recession. What worries them most of all is the threat of protectionism. In point of fact, this has already appeared in the form of competitive devaluations in Asia. Let us recall that this was one of the main methods of protectionism in the 1930s. This is what turned the slump of 1929-33 into a world depression which persisted right up to world war two.

In Capital, Marx describes world trade as "the basis and the vital element of capitalist production." (Marx, Capital, vol. 3, p. 109.) One of the main motor-forces of the period of capitalist upswing of 1948-74 was the unprecedented growth of world trade. However, the figures show that world trade in the recent period has not had the same effect in promoting growth and productive investment as it did previously. So far, however, there has been no return to the kind of ferocious protectionism we saw between the two world wars. Such a development would shatter the delicate fabric of world trade which was created over decades since 1945. It would have the most catastrophic effects on the world economy. And there are already clear warning signs that protectionist tendencies are emerging, not only in Asia, but in the USA.

Not long ago, President Clinton went to Congress to request permission to proceed with the so-called "Fast Track" agreement to develop free trade. In a humiliating defeat, his proposal was thrown out by a majority of both Republicans and Democrats. What does this mean? Clearly a big section of the US bourgeois were worried about the effects of a massive inflow of cheap foreign imports even before the crisis of the stock exchange. They are preparing for a ferocious struggle for markets in the coming period.

In previous articles and documents we have pointed to the tendency towards the creation of regional trading blocks. The USA dominates Canada and Mexico through the NAFTA agreement. Clinton wanted to expand this to the rest of Latin America, starting with Chile. He recently visited Brazil and Argentina, clearly intending to prepare the way for this. Brazil and Argentina are the main forces involved in a trading block called Mercosur. But since the stock market crisis, the existence of Mercosur itself is in danger. The crisis in Asia immediately caused a similar crisis in Brazil, where the government was forced to raise interest rates and introduce austerity measures. Even so, it is probable that the Brazilian real will have to be devalued. This will have calamitous effects for Argentina, which sends the largest part of its exports to Brazil. Since the Argentine peso is tied to a fixed exchange rate to the US dollar, devaluation is ruled out. The only option open to it would be the introduction of protectionist measures which would mean the break-up of Mercosur.

The fact of globalisation, the high degree of interpenetration, means that one factor rapidly affects another. Cause becomes effect, and effect cause. The losses suffered by foreign banks in Asia now means that the cost of credit to that area will increase. The bankers are demanding a hefty surcharge to lend money there. And not only to Asia, but to Eastern Europe, Russia and "emerging markets" in general. Surprisingly, the banks worse affected are not Japanese. A study by the French economist W.I. Carr shows that over the last three years the bulk of foreign funds present in Thailand, Indonesia and South Korea (the countries in that region which have had the greatest recourse to foreign capital). European banks accounted for 27 per cent (30 per cent in Thailand), as against 25% from US banks and 22 per cent from Japanese banks.

The tightening of the credit screw will undoubtedly make the crisis in Asia deeper still, giving rise to further indebtedness, factory closures and falling demand. However, the central problem remains that of overproduction ("overcapacity"). Valerie Brunschwig writes from Hong Kong: "But beyond the mechanism linked to currency devaluations, the extent of the contagion will depend, above all, on the degree of excess capacity of the Asian economies and their ability to dump their excess product at low prices in Europe and the United States. How many Korean and Indonesian vehicles, how many tons of steel from Thailand and Korea, tons of cement and plastics from Thailand, how may televisions and electrodomestic appliances from the People's Republic of China, or how many microchip from Korea or Taiwan are waiting to find buyers?" (El País, 1/12/97.)

However much the Western economists seek to deny or minimise the problem, it remains present like a black cloud threatening the current burst of sunshine. We have already given the figures for over-capacity in China. Brunschwig relates the position in other Asian countries, beginning with "the gigantic surpluses of cement in Thailand and, in general, all building materials, from steel to ceramics, in a country where all building work is paralysed." True, the surplus of textiles in Thailand has been reduced, but only because competition from Vietnam, the Philippines and Laos has forced the closure of a large number of Thai textile factories. Such lessons will not be lost on the US Congress and the EU when the Asian tigers seek to dump their cheap produce. They understand only too well that competitive devaluation is a means of exporting unemployment. To believe that US manufacturers and their spokesmen in Congress will merely sit back with arms folded while this goes on is, to put it mildly, a bit naive.

"More worrying," continues Brunschwig, "are the mountains of surplus products in South Korea, which continues to churm out goods with no outlet in order to keep workers employed in jobs for life. 'In South Korea, in almost every sector of productive activity, they have no idea what to do with their unsold products,' says Russel Napier, head of strategy for Crédit Lyonnnais Securities Asia in Hong Kong. It matters little whether we are talking about chemicals, steel, plastics, automobiles, ships, or even computers, semi-conductors or electrical goods for the general public. And the economist concludes: 'Since they have a vital necessity to sell, they will shatter the price system to flood Europe and the USA with their products'." (Ibid.)

The huge excess of petrochemical products in Korea, Thailand and Singapore can lead to a rapid fall of between 15 and 20 per cent of world plastic prices, according to Janet Yound, chemical analyst of Salomon Brothers in Hong Kong. Here we have the "other face" of globalisation something predicted by Marx over a hundred years ago. In its insatiable greed for profit, the capitalist class is constantly seeking new markets, outlets for investment and sources of raw materials. The creation of the world market is the inevitable result of the fact that the development of the productive forces has long since outgrown the narrow limits of private property and the nation state. Whoever does not grasp this fundamental fact will forever be incapable of understanding the most decisive phenomena which are taking place on a world scale. Participation on the world market is now a necessary condition for capitalist production. Even a giant like the United States is compelled to participate in the world economy on a scale unprecedented in the last hundred years, when it first erupted on the scene of world history with the Spanish-American War of 1898. Ten years ago, only the equivalent of 6 per cent of US GDP was devoted to exports. This has now been increased to 13 per cent--quite a staggering increase in only a decade--and the American bourgeoisie would like to increase this figure to 20 per cent by the end of the decade.

This fact, in and of itself, is a graphic illustration of the process predicted by Karl Marx. He pointed out that, by means of participation in world trade, the capitalist system could, for a time, alleviate its problems, developing new markets and (in part) combatting the tendency of the rate of profit to fall. Big profits can be obtained for a time by this means, and crises can be postponed or allieviated (the Asian market, as we have explained, had the effect of softening the effects of the recession of 1990-92 and prevented it from turning into a 1930s-style depression). But this was achieved only at the cost of preparing even deeper crises on a far vaster scale in the future.

While it is true that the degree of interpenetration of the different capitalist economies on the world market has reached hitherto undreamed-of levels, this does not at all signify that the contradictions between them have been removed. On the contrary, it means that they have been exarcebated to the nth degree and provided with a gigantic field than ever before on which to manifest themselves. The natural impulse of capitalism to push aside all barriers that stand in the way of extracting surplus value has been manifest in every period of capitalism from the blood-stained chapter of primtive acumulation, passing through the enslavement of the colonies to the school of "free trade" to the modern epoch of imperialism and monopoly capitalism. The extreme nature of the antagonisms generated by the epoch of capitalist decay was revealed in two horrific world wars. Nowadays, the advent of nuclear weapons (and even more horrific methods of chemical and bacteriological warfare which have not attracted so much attention), war between the major powers as a means of resolving these antagonisms is ruled out (though not "small" wars, like the Gulf War).

The scene is therefore set for the most violent and cataclysmic crises of the world economy, which will put in the shade the crises of the past. This is turn will completely destroy the relative equilibrium which has characterised both world trade, world relations and also the relations between the classes since the end of world war two. We have entered into the unchartered waters of the most disturbed period in the history of capitalism. This is what fills the most intelligent representactives of the ruling class with deep foreboding.

The grim warnings of the billionaire speculator George Soros are not the produce of imagination or caprice. Like an Old Testament prophet, Soros warns the bourgeoisie of the dire consequences if they do not see the light, and cease their blind lusting after the God Mammon. The problem is that Soros can offer no real alternative. This is the common feature of all the "left" bourgeois economists such as Galbraith. They advise the bourgeois to regulate their system, not realising that planning and capitalism are two mutually exclusive concepts. Although it is true that, for temporary periods during an economic upswing when markets are plentiful, the big monopolies and capitalist states may reach a "gentleman's agreement", to share out the spoils, this immediately breaks down when (as at the present) there is ferocious competition for scarce markets. Thus, all such proposals remain pious wishes. The predominant economic "theory" (if it can be dignified with that name) asserts just the opposite: that the "market", left to itself, will sort everything out--sooner or later. This is merely the ideological expression of the age-old obsession with the bourgeois with making easy, short-term profits, and to hell with the consequences. Anything that interferes with this must be ruthlessly destroyed.

The untrammelled rule of Capital in the form of the big banks and monopolies has never been seen in such a clear almost laboratory form as at present. By making a bonfire of all controls and regulations, especially in the last decade, by mass privatisations and the looting of the state, vast and uncontrollable forces have been unleashed which at any time can bring the whole unstable edifice crashing down. All the warnings fall on deaf ears. There is nothing new in this. As old Hegel once remarked--the only lesson one can draw from history is this--that no-one has ever learnt anything from history. At any rate this is absolutely true of the bourgeois, as the history of every crisis shows.

We will leave the last word to that most august mouthpiece of British capitalism, the Financial Times, which finishes its editorial of the second of Jaunuary with a sombre warning:

"A cheerful tale can still be told for North America and the EU. Perhaps it is the most likely one. Bun uncertainties are now huge. This crisis can spread, not just to other emerging economies, but more deeply in Japan and it can break out in other advanced countries. The timing of such typhoons can never be predicted. But nobody looking at today's financial picture can be sure one will not strike, more centrally, in 1998." (Financial Times, 2/1/98.)