BY GIANNI RIGACCI
It is incontestable that the first half of the 1970s represented a cleavage in the evolution of the world economy: we then entered into what some economists defined as a long wave of stagnation. Nonetheless, since about the mid-1990s, we can note in an increasing number of regions of the world the signs of a solid and constant growth, justifying a debate on whether the long wave of stagnation is henceforth over and a new wave of expansion is underway.
Ernest Mandel advanced some interpretative hypotheses on the transition from one phase to another. According to him, the normal mechanisms of the capitalist system determine the phases of stagnation. Attempts to maintain an acceptable level of profit can put off the day of reckoning, as can state intervention to support demand, but not avoid it.
On the other hand, a long expansionary wave can stem from exogenous factors, outside of the normal functioning of the system. It can happen following a sudden enlargement of the world market, the discovery of new sources of raw materials, a defeat of the working class allowing a significant increase in the rate of surplus value, or even wars and revolutions.
Experience seems to have confirmed these hypotheses. Since in the last decade there have been numerous changes in the functioning of the world economy, an analysis of these changes can help us respond to the question that we posed at the beginning of this article.
Let's begin with developments in the three economic zones representing 50% of world GNP.
In the US, since the first months of 1991 there has been a phase of uninterrupted expansion which is statistically the longest in the history of the country. Since 1994 there have been rates of growth comparable to those of the exceptional 1960s. In the course of the six last years GNP has grown by 25.3%, a very significant growth even if one takes account of the fact that in the 1990s the population has grown by 10%. For this year, record growth is again predicted (more than 5%).
It should be noted, moreover, that military expenditure no longer plays a role of impulsion: it is, rather, the debts of both individuals and companies, which have reached 140% of GNP and grow by 7.5% a year. As to the foreign trade deficit, it has reached 4% of the GNP.
Similar rates of growth, even if less significant, have been recorded by the economies close to that of the US, like those of Canada and Great Britain.
1994 also marked a turning point as far as western Europe was concerned: after the negative results of 1993, there was over a six year period an overall growth of 14%. According to the predictions, the year 2000 should mark the beginning of a more accentuated growth (up from 2.3% to an average of 3.4-3.5%).
Finally, the situation of Japan continues to be difficult with growth equivalent to half of European growth (1998 having been a year of crisis).
The three zones are moving at different speeds: sustained growth in the United States, uncertain growth in Europe (it should increase this year then slow up in 2001), stagnation in Japan — a tableau characterised, then, more by the exceptional evolution of the economy of the United States than by indisputable signs of the start of a new long wave of expansion.
According to a fairly widespread opinion, credit
for this phase of US expansion belongs to the "new economy", a neologism which grips the imagination, but is not without ambiguity. It is worth stressing that when we refer to the "new economy", we are not just talking about the companies on the Nasdaq index in New York. Certainly, all these companies are part of it, but more generally, at least according to Business Week, the "new economy" is constituted by everything that has allowed the United States to realise its spectacular growth, nearly 4% a year since 1994, with a rate of unemployment down from 6% to 4% and inflation at 1.9 % in 1999 (the lowest rate for 34 years).
In other words, according to Business Week, the "new economy" is nothing other than the predisposition to massive investment in the information technology sector, the restructuring of the financial market, the impulse to cut costs and increase flexibility on the part of government and companies.
We should also try to understand why this evolution of the "new economy" has until now benefited the US, whereas it has become a reference model for the whole world.
Whether or not it depends on the "new economy", one of the striking features of the economy of the United States resides in the fact that the gross private fixed investment has grown by 8.5% a year since 1992. In the same period, Japan has experienced a negative evolution and Europe has registered an annual growth of around 3%.
According to reliable sources, 30% of US investment concerns information technology. It is interesting moreover to note that the rate of growth of investment is clearly superior to the rate of growth of GNP.
This massive injection of technological innovation has resulted in a significant increase in productivity: from +1% in 1991 to nearly 3% a year since 1996 (average rate of growth in Europe in the course of the decade: 2%).
One could, nonetheless, question the accuracy of this average given that, while in certain sectors the increases in productivity are evident, while in others it is difficult to see them. For example, in the computers and microchips sector (around half a million employees) the value of the average annual product per employee went from US$157,000 in 1995 to US$443,000 in 2000. Good results have been recorded also in telecommunications and banks and still more so in stock market services, whereas in health (11 million employees) and catering (12 million employees) there is no growth, and the same is true of the software, insurance, pharmaceutical products, transport, education and travel sectors.
Direct foreign investments on a world scale went from an average of $90 billion in the 1980s to $363 billion in the 1990s. They reached $460 billion in 1997, $646 billion in 1988, $839 billion in 1999. This constant progression has constituted one of the most significant phenomena of our times.
Ninety-six percent of these investments came from industrialised countries, and three quarters go towards industrialised countries (above all through mergers and acquisitions). Nearly a third of this capital flowed towards the US. It is, then, the country which has most stimulated the free circulation of capital which draws the greatest benefits from it.
World trade has, since the 1990s, experienced annual rates of growth clearly superior to those of the preceding decade: 6.3% against 4.2% in the 1980s. If we consider the expansionary long waves of the past, we can note that there has never been such a significant growth, with the exception of the period between 1945 and 1975, when world trade grew by 9.4% a year.
It should be stressed that growth has been particularly notable in the second part of the decade which has just ended: 6.8%, despite the negative effects of the Asian crisis. It goes without saying that the US has been the motor of this process.
It was in the 1990s that the US market played the decisive role in the world economy: whereas in the 1980s US imports had grown by 5.5% a year, in the 1990s they grew by 9.1%. Exports have also increased, but less notably.
This extraordinary growth has been realised through growing indebtedness: the foreign debt of the US reached $1500 billion at the end of last year, to which we should add another $450 billion at the end of this year.
What's the cause of this increasing indebtedness? Investment and consumption increased throughout the decade — and continue to do so — at higher rates than the increase in GNP. One could recall that in the mid-1980s the US also had an exceptional foreign debt, even though it was smaller than that of today. At the time, the capital which came from abroad was used to purchase state bonds at a time when Reagan had opted for a policy of high public debt. A fall in the value of the dollar inevitably followed.
The difference with today resides in the fact that now the state budget is nearly balanced and the capital coming from abroad is used for the purchase of companies and other activities, thus posing no immediate danger to the stability of the dollar. It is true that it amounts all the same to debt, but there have been more than a few occasions in history when debts have created more problems for creditors than for debtors.
In the 1990s the cumulative trade deficit of the US reached $1730 billion. In the course of the last seven years internal private consumption increased at a rate of 4%, against 1.5% on average in Europe and Japan. Households spent even more than they earned: their debt henceforth exceeded the value of GNP. It's interesting to note that among the G7 countries the sum of public debt and private debt is nearly equivalent in five countries whereas it is notably higher in Japan and Canada.
The unrelenting growth in the value of shares provides some food for thought. Let us first note that the value of companies quoted on the stock exchange has grown by three times in the space of five years. It seems that this phenomenon has come to a halt after the stock market crisis of last April.
Secondly, despite this, the capitalisation/profits ratio remains unsustainable. In the US this relation was at 17 in 1995 and it is now at 33, whereas in Europe it was 14 and is today 27 (thus fairly close to that of the US). These figures push numerous specialists to predict an inevitable crash in the future.
In any case, the figures we have given demand a supplementary reflection. In fact, most companies do not pay dividends, but repurchase shares, thus ensuring to the shareholders the profits on what is known as the capital gain, that is, the increased value of a share in relation to its price of purchase.
Such operations make sense because, in most countries, taxes on dividends are very much higher than those on capital gains. This is a legal way of dodging taxes, to which 60 to 70% of US companies resort (and now also the Europeans).
So far as the financial situation in the US is concerned, we must take into account some changes that have taken place in recent years. First, we should draw attention to the role played by pension funds, which dispose of an enormous mass of capital: $7210 billion at the end of last June, giving them first place among institutional investors. Figuring out the behaviour of the pension funds is thus decisive if we want to understand what could happen in the next period in the world's stock markets.
It might be thought that these funds represent a factor of stability in the markets, given their volatile nature. If, on the other hand, we think that they are in search of the maximum profit and hence represent a destabilising factor, it's a wholly different affair. For our part, we think that they tend to assume a stabilising role but at the same time contain a multiple of detonators susceptible of exploding.
Secondly, let's look at the activity of the Federal Reserve (the US central bank). Certainly, the US economy is the most controlled in the world, just as the financial markets are the least imperfect of the world. However, being in the best shape to forecast the coming storms is not the same thing as avoiding them. An adequate policy and behaviour is needed. Indeed, the interventions of the Federal Reserve, on a number of occasions critical, indicate that it fixes political axes and applies them empirically, playing a stabilising role in a market influenced by any number of passing whims.
This policy of the Federal Reserve — it would undoubtedly be better to say: of the US government — is applied, in the final instance, on a global level. The US has used up to 3% of its GNP to meet the challenge of the financial crises which have occurred on a number of occasions in the 1980s and 1990s (in fact, through a socialisation of losses and a privatisation of profits): Finland used 9% of its GNP, Sweden 4%, Norway 2%, France 1.5%, not to mention Japan where it was for some years up to 10% of GNP.
We can say that up until now the Chinese market, the Russian market or that of the countries of eastern Europe have not constituted a significant outlet for the products of the industrialised countries. It is true that Chinese imports have grown notably in the 1990s (from $50 billion to $150 billion), but exports also increased (from $60 billion to $180 billion). Result: China enjoys a large trade surplus. As to Russia and other countries of eastern Europe, they have rather registered a slowing up in their trade. Conclusion: the countries of the former Soviet bloc and China remain, on the whole, marginal in relation to the world economy.
As for the Asian crisis, it should be said that the precepts of the International Monetary Fund (reduction of consumption, growth of exports with the aim of obtaining the resources necessary to meet debts) have produced results for a period: in the space of two years the crisis has been overcome. In particular, the devaluation of currencies throughout the region, with the exception of Hong Kong dollar, has favoured exports while simultaneously restricting imports, primarily in the areas of infrastructures and investments.
Is it necessary to point out that the resolution of the crisis is not due to the application of IMF policies? It was possible because the US and, to a lesser extent, Europe have allowed the countries concerned to realise an improvement of their trade balance of $100 billion within the space of a year. Nonetheless, the living conditions of the peoples concerned have considerably deteriorated, even if the increase in exports has allowed a limitation in the loss of jobs.
It should not be forgotten, moreover, that the situation remains very critical in a country like Indonesia, that the budgets of all the countries concerned show some extremely heavy liabilities and that numerous companies will face almost insurmountable difficulties.
It is undoubtedly true that in the 1990s a redistribution of income to the detriment of labour has taken place in all the industrialised countries. In Italy, for example, the share of income going to labour (including the self-employed) reached 70% of GNP in the 1970s. It fell systematically subsequently. The lowest point was reached in 1996: 58% (a small increase occurred after that date). According to a study by the Bank of Italy, in the course of the last decade, the monthly net remunerations of workers fell by 8.7%. According to a trade union study, over the same period the retired suffered losses going from 7 billion lira to 22 billion lira.
As for the US, hourly wages only started to increase again in 1996, attaining a cumulative growth of 2.2% by the end of the decade.
If we recall that meanwhile GNP [in the US] grew by around 30%, it is obvious that there was a boom in investment and the stock market (and, quite naturally, profits). The gulf between rich and poor grew as a consequence.
Based on the preceding, the situation seems to us sufficiently clear:
1. The capitalist system has not overcome its long wave of stagnation. Only the US economy has experienced rates of growth which allow us to envisage a new wave of expansion. However, we cannot advance the hypothesis of a new wave of generalised expansion as long as the Japanese crisis continues and the European upturn remains precarious; the exceptional rates of growth of the US economy are linked to the exceptional role that the US plays on a world scale, not only from a military point of view, but also on the political and economic levels.
It is true that, in the area of consumer goods as well as investment goods, the US is henceforth completely dependent on abroad, but their superiority in the area of new technologies is today unarguable.
The strength of the dollar is undoubtedly the most obvious index of the exceptional role of the US (as they say, a strong currency helps to import deflation while transferring inflation abroad).
2. The world economic system as a whole, which finances the growth of the US, depends at the same time on the positive results of this country's economy. The deficit of its trade balance will exceed $400 billion this year. It's hardly considered as a problem at the moment. This is a luxury no other country can allow itself.
3. This central role of the US determines a situation where any eventual disorder in its economy constitutes an ever-present danger for the world economy as a whole. What will happen in the world if the speculative stock-market bubble bursts, or if the dollar crashes, or if the government in Washington brakes in its trade deficit and/or its carefree tendency to run up a foreign debt? How will the other countries react?
For sure, as long as surplus value is maintained at current levels, the situation can continue. But as the US economist Paul Krugman says (and as good sense would also suggest), when a phenomena cannot last for ever, at a given moment it must stop. So sooner or later it will stop, even if those who produce surplus value continue to accept being expropriated at the current level without reacting.
If the Federal Reserve succeeds in pulling off a soft landing of the US economy, the counter-blows could without doubt be limited. If it does not succeed, it would be a disaster.
[Gianni Rigacci is secretary of the Party of Communist Refoundation (PRC) in Tuscany (Italy) and a member of the national political committee of the PRC as well as its national scientific committee. From <International_Viewpoint@compuserve.com>.]