World in recession

1. THE THEORY OF BREAKDOWN

The beginning of the 'eighties sees world capitalism slide into its second general recession since 1945. The years of faltering recovery since 1974-75 are over; already weak, the system takes one more step into ruin. But why is there a recession? Recessions can take different forms - too many goods chasing too few buyers, the under-utilisation of capacity or a series of bank crashes, for example. But the basic force behind them is the crisis of profitability. As the system grows and capital accumulates, the rate of profit on capital invested tends to fall. To survive, capitalists are forced to raise their productivity and cheapen the commodities they produce. Now, this process increases the rate of surplusvalue, because each worker makes more profit for his employer than before. But because productivity rises are brought about by the mechanisation of the labour process, the extra profits created have to be measured over a still larger increase in the value of means of production. In other words, because productivity rises lead to the displacement of workers - the only source of surplus-value - by machines, the mass of profits declines in relation to the total capital outlaid. This tendency for the rate of profit to fall has an important consequence. At a certain stage of the accumulation process the amount of profits available is not sufficient to fund investment of the scale required to continue production. A crisis sets in.

The capitalist crisis arises directly out of the contradictions inherent in the system of capitalist production. It is not the result of natural causes, 'wage militancy' or misguided policies on the part of the ruling class. Over the past decade bourgeois economists in all the major capitalist countries have noted a trend for profit rates to fall. They have also noted the underlying stitution of machinery pointed out two years ago: 'over the past 20 years or so there has been a steady shift from labour to capital in the ratio of industrial inputs'.!

Marx called the tendency of the rate of profit to fall the most important law of the capitalist economy. However, to explain the crisis capitalism faces today we must works itself out in practice. Marx's analysis itself allows us to do this. It not only enables us to understand the root cause of capitalist breakdown; it also enables us to assess vital features of the world economy today - the cyclical growth of capitalist production, the uneven impact of the crisis in different countries and so on.

In the following paragraphs we set out the basic tools needed to make such an assessment.

Holding off the final reckoning In Capital, Marx sets out a number of factors which can impede or even temporarily reverse the fall in the rate of profit.? The bourgeoisie can increase its profits at the 3 expense of workers by extending the working day, intensifying work, employing women and children and driving down wages below the value of labour-power. These methods boost the rate of profit because they increase the production of surplus-value without increasing investment in the means of production to the same degree. The presentday attacks on the living standards and working conditions of the proletariat show how the capitalists are trying to bring these counter-crisis measures into effect.

Another factor which slows the fall in the rate of profit is the cheapening of the elements of constant capital.

This happens when productivity increases reduce the value materials capitalists have to and raw i the machinery + This factor has, however, only a short-term effect.

buy. What Marx called the organic composition of capital will still tend to rise (and thus prompt a fall in profitability), because the capitalists are forced to deploy an ever greater mass of constant capital.

Producing cheap and/or synthetic raw materials and reducing the price of energy is one method of cutting the cost of constant capital. It is an important method because as productivity increases the value of raw materials comes The Economist, 25 August 1979, p61.

1 K Marx, Capital, Vol 3, Lawrence & Wishart (L&W), 1974, 2 chapter 14 (all references to Capital are to this edition). Here we only consider the counteracting influences most relevant to today's crisis. In the next sections we show their current role.

3 This enables the capitalist to spread the costs of reproducing labour-power over the whole family. The level of the extra wages paid rises proportionately less than the extra work done.

Between 1959 and 1978 the proportion of women employed in the workforce in Britain rose from 33 percent to 41 per cent. Similar trends are evident for other countries too (Lloyds Bank Review, January 1980). The employers are also able to employ women under more exploitative conditions, with lower pay, fewer benefits, more short-time employment, etc.

4 In a period of crisis, the elements of constant capital can also become depreciated as companies go bankrupt and their assets are sold at knock-down prices. If machinery, raw materials or plant retains its use-value, this will be of benefit to the capitalists buying. The Financial Times noted that: Thousands of tonnes of second-hand factory machinery are being sold weekly at auctions and through private sales as a result of factory closures in Britain' (27 December 1980). Purchasers of these depreciated capital goods included capitalists from South Africa, Israel, West Germany, France and Italy. One dealer alone sold an average of 300 tonnes of machinery a week overseas. Total exports are estimated at several thousand tonnes 5 K Marx, Theories of surplus-value, Part 3, L&W, 1972, pp366-67.

to make up a growing proportion of the value of commodities and thus has a growing impact on the rate of profit.® Two more forces which can act as a counter-tendency to the fall in the rate of profit are international trade and the export of capital. On the side of imports, trade allows a country to obtain machinery, raw materials and means of subsistence at a price lower than that at which they are produced domestically. This reduces the cost of the elements of constant capital and the cost of maintaining the working class. On the side of exports, trade allows capitalists to overcome the barriers of the national market. If the domestic market slumps or does not grow fast enough, the expansion of production can be maintained through exports. In addition, when an advanced capitalist country trades with a backward one, the higher productivity of the former can lead to further profits? This is one reason why, over the past 30 years, the imperialist economies have increased their dependence on exports. The export of capital acquires a particular significance once domestic profit rates begin to fall. Capitalists invest abroad to secure a rate of return which is higher than that available at home. Overseas investment opens up new sources of labour and markets, and allows access to raw materials. It also allows the capitalists to secure more favourable conditions for production. Capital exports do not raise the rate of profit at home, but they do increase the mass of profits available to the capitalist class and, through this, curb the tendency towards stagnation.

These counter-tendencies to the fall in the rate of profit ensure that this fall operates as a tendency as capital accumulates. The rate of profit still declines, but the decline is temporarily checked through their operation. At this point we must also consider another modifying influence on the declining rate of profit: the role of credit in capitalist production. Borrowing time Through the extension of credit capital can go on accumulating beyond that point at which existing levels of profitability would otherwise dictate a halt.° Capitalists can borrow funds through the banks and other agencies to help them overcome what appear as temporary difficulties - 'cash-flow problems' and the like. In this way they can keep production going. They can borrow money to finance further investment and so expand output, in a situation when the underlying conditions of profitability do not warrant this. They can stimulate consumer demand through the provision of hire purchase facilities and other forms of capacity is credit, and so ensure that idle production utilised. Fixed costs are then spread over a greater output so that costs of production are reduced.

Credit spurs investment, which in turn raises productivity. The mass of profits is thus increased growth encouraged. Because large firms are better placed to obtain it than small ones, credit also promotes the centralisation of capital into fewer hands. This allows the bigger is to consolidate their operations and so stay in capitalists business. 'finance capital' reveals the The concept everincreasing importance of the role of credit. Lenin explained it as follows: "The concentration of production; the monopolies arising therefrom; the merging or coalescence of the finance capital and such is the content of this term rise of banks with industry - such is the history of the Alongside the accumulation of capital goes the concentration and centralisation of production. But with accumand banking system develops ulation, the credit becoming in turn an important factor in the growth of industry. As Marx explained, in its first stages the credit the humble assistant of drawing into the hands of individual or invisible threads, the money resources which lie scattered over the surface of society, in larger or smaller amounts; but it soon becomes a new and terrible weapon in the battle of competition and is finally transformed into an enormous social mechanism for the centralisation of capitals'.12 By accelerating the development of large-scale industry, credit becomes a major force in the socialisation of production and the transformation of capitalism into monopoly capitalism. The term 'finance capital' therefore refers not to banks alone, but to the integration of banking capital with industrial capital.

Finance capital is an essential feature of imperialism.

That banking operations are more tied up with industrial ones than ever before is strikingly evident today. Big turnovers of several billion corporations, with annual dollars and enormous financial resources, are now closely intertwined with the credit system. Many have set up finance arms of their own: these issue long-term bonds and organise the borrowing of many millions of dollars.13 In the USA, a 'commercial paper' market has been established in which companies lend their surplus cash directly to other companies for short periods of time, thus cutting out financial institutions altogether. The commercial paper outstanding at the end of 1979 totalled $115 billion. 14 While industry gets into banking, the banks get into industry. Banks not only provide industry with gigantic loans but also take an active part in the running of it.

Banking and financial institutions have developed a number of special skills with which to service industry: they now organise mergers and takeovers, finance international trade and lease capital equipment. It is true that, with the exception of West Germany, important bank shareholdings in industry are still rare; but recently there has emerged a trend for banks to convert long-term loans to ailing com- Thus when an interpanies into equity stakes in them.

national consortium of banks recently put together rescue packages for Chrysler and Massey-Ferguson they also took part-ownership of the two companies.

Like capitalist production, the credit system operates on an international scale. The West's idle money is centralised through the banks and put to use as the bourgeoisie sees fit. The growth of credit on an international level serves to bind each area of the world more tightly together.

Through the international extension of credit the imperialists open up new markets and accelerate the pace of capital investment; the relations of dependence between debtor nations and the banks are consolidated, and the fortunes of each particular national capital have a more direct influence on the health of the whole system.

Both nationally and internationally, however, credit can only postpone or mitigate the capitalist crisis. It cannot solve it. By lubricating the mechanisms of accumulation, credit merely ensures that capitalism's fundamental problem - lack of profitability - is exposed more forcefully, in the form of monetary or financial crises. Bourgeois comdiagnose accelerating inflation, massive government debts and the burgeoning growth of the money but these are only as capitalism's basic malaise, symptoms. Credit is and will remain vital to the propping but it cannot delay indefinitely the measures required to restore the rate of profit.

From all that we have said so far it should be clear that the path the capitalist crisis takes will not be one of unmit- 4

decline. There will be numerous variations on the igated the course which downward trend. Much depends on capitalist competition takes. It is to this question that we now turn. Dog eats dog Competition is the interaction of one capitalist with another in the market. Marx calls it the 'essential locomotive force' does not of the capitalist economy, which, however, establish the laws of that economy, 'but is rather their executor' 16 Competition compels each capitalist to follow the inexorable logic of the system - to cut costs, raise productivity or make workers redundant - just in order to survive. Since the industrial capitalist experiences the crisis through the effects of competition, it appears to him that he can escape it if only he can remain competitive. His problems seem to derive from the efforts of his rivals to increase their share of the market, perhaps by using 'unfair practices'. Even if he has an inkling of the general illness gripping world capitalism his only practical course of action is to strengthen his competitive position. Thus the objective dictates of the system imposed on the individual capitalist are experienced as a matter of subjective choice.

The capitalist believes he can win if, through a higher level of investment, he can raise productivity and hence also the rate of profit earned. Despite the increase in the organic composition of capital this entails, a level of productivity above the market average will enable him to undercut his rivals, gain a higher market share, and thus temporarily secure a surplus-profit. The trouble is, however, that competition will in turn force his rivals to invest too. His advantage will disappear, his higher organic composition will become a general one and he and all his competitors the rate of profit 1 She consequences of a general decline in will have to face individual capitalist's efforts to steal a Though the march on his rivals are ultimately self-defeating, this apparent avenue of escape will always seem open. Because they resort to it capitalists soon find themselves in difficulties.

First, overcapacity builds up so that production cannot be run profitably. Second, and as a result of this, a still more Capital, Vol 3, pp108-9. A boom or a slump in the level of 6 commodity prices (that is, the prices of minerals and agricultural commodities) modifies the tendency of the rate of profit to fall. Here we are talking of price fluctuations, not necessarily changes in value. The peculiar conditions under which primary commodities are produced and the generally unstable nature of capitalist growth together ensure that such prices fluctuate sharply. Moreover, the speculation that engulfs the markets at a time of crisis will also exacerbate price fluctuations. Between 1972 and 1974, the IMF index of commodity prices (1970=100) rose from making the fall of manufacturing profitability in that period particularly steep. Over the next three years the index grew at the same rate as OECD consumer prices, contributing to a 5 partial recovery (figures from IMF, International Financial Statistics). For the more general effect and role of oil price rises in the capitalist crisis, see Who's over the barrel?, the next step, No 8, November/December 1980.

This is because, faced with less local competition, prices of commodities exported into these markets can be higher than those in more developed economies.

Between 1960 and 1970, the growth of industrial production 8 averaged 6.1 per cent a year; that of exports, 8.7 per cent a year (World Bank, World development report, 1980). See the next section for the role of trade during the seventies.

Capital, Vol 3, p441. 9 The process of centralisation - mergers, takeovers within a 10 single industry and across industries - has been evident throughout the post-war period. This process assumed greater importance in the late 'sixties when the first manifestation of the world crisis became evident. For a useful bourgeois account see L Hannah & J A Kay, Concentration in modern industry, Mac- "Imperialism, the highest stage of capitalism', Collected Works, Vol 22, p226.

12 Capital, Vol 1, p587. For example, Lonrho International Finance NV recently organised a multicurrency medium-term loan with a number banks worth 270 million French francs (see advertisement in The Economist, 24 January 1981). Likewise GMAC Overseas Finance Corporation NV, a credit subsidiary of General Motors, issued a US$100m bond to seven international banks (see advertisement in the Financial Times, 5 February 1981). Where big corporations are sufficiently profitable, they may even act as net lenders to the money markets. Volkswagen of West Germany, with annual world sales of DM30bn and a workforce of 240 000 in several countries, is a good example. A Financial Times reporter commented that such is the strength of the VW balance sheet that in some respects it looks more like a bank than a manufacturing company' (19 May 1980). VW hasloaned DM4.6bn to banks and has funded no less than 97 per cent of its DM3.1bn investment programme from its own resources.

The Economist, 29 November 1980.

The Economist, 20 December 1980.

K Marx, Grundrisse, Pelican, 1973, p552.

Capital, Vol 3, pp264-5. In the second part of SWP theoretician Chris Harman's recent meandering minimum opus on crisis theory, we find the assertion that the crisis can reduce or destroy the pressure for the organic composition of capital to rise' (International Socialism, series 2, No 11, Winter 1981, p45). As a result, 'a quite modest rise in the rate of exploitation may be sufficient to offset the downward tendency of the rate of profit' (ibid, p46). This is nonsense. Of course the crisis will see investment fall off and the elements of constant capital cheapened. But competition forces every capitalist to raise his organic composition so as to improve productivity and survive on the market. As for "modest' rises in the rate of exploitation, they are the exception, not the rule. In West Germany, for instance, the proportion of investment that is 'capital deepening' (that is, which involves introducing new techniques) rather than 'capital widening' (that is, which involves simply expanding production) has risen from 10 per cent in 1970 to over 40 per cent in 1980 (The Economist, 8 November 1980, Survey of the West German economy, p26). In other words, the capitalists can only hang on today by putting through massive increases in exploitation. Harman also uses his considerable eclectic powers to give yet another rationale for the SWP's theory that arms spending can stave off the crisis. Using the latest revisionist interpretations of Marx's analysis of the formation of an average rate of profit, he derives the absurd result that a higher organic composition of capital in the arms sector will actually raise the rate of profit (ibid, p55). Again, he argues that though arms production is, because it is funded through taxation on private industry, a drain on surplus-value, it does not harm the rate of profit. The capitalists, it seems, still 'possess' their surplus-value once they have handed it over (ibid p59). Brilliant! Perhaps Harman would like to tell them how tanks and bombs - which is how their money ends up can be converted back into productive capital. For a critique of the SWP's "Permanent Arms Economy' theory, see Disarming the working class, the next step, No 6, August 1980.

national capital has over 'sixties to the mid 'seventies.

World market rivalry experienced different growth Germany, France and Italy its started from a higher level.

Table 1 UK

USA

Canada Japan West Germany France Italy Table 2 (per cent) UK

USA

Canada Japan West Germany France Italy weights in OECD industrial production intense competitive struggle begins as each capitalist strives to pass the burden of the losses onto others.

The pressure of competition limits the room for manoeuvre each capitalist has in relation to his rivals. It also impresses upon every capitalist the need to take measures against the working class. The superiority one particular looking at the scope of imperialist competition today. We begin by a review of the period spanning from the early Table 1 shows how different major imperialist powers capitalist collapse gathered speed. Britain and the USA had the lowest rate of growth of output and productivity in manufacturing industry, while Japan had the highest. West although West Germany's appears the lowest of the three, Output and productivity growth in manufacturing industry, 1960-73 (per cent per year) Output 3.0 4.9 5.9 12.0 5.3 5.9 6.1 Source: Bank of England Quarterly Bulletin, March 1979 Uneven rates of growth have had two consequences: a change in the relative economic weight of each country in the world economy and a change in its share of international trade. Table 2 shows that the importance British American industry had for the West declined markedly between 1963 and 1975. Though the USA remains by far the largest producer, Japan and West Germany began to challenge it in this role. Moreover by 1975, the industrial output of the EEC exceeded that of the USA.

Shares of OECD industrial production, 1963-75 1963 7.4 44.4 3.0 5.3 8.5 5.0 3.5 Source: National Institute Economic Review, taken from relative Table 3 shows how divergent rates of productivity growth and hence international competitiveness resulted in a redistribution in shares of world trade. The shares of as the tendency towards also had high growth rates; Productivity 3.6 3.4 4.0 8.8 5.0 5.6 5.2 1970 1975 5.6 6.4 43.3 34.9 3.6 3.7 15.5 11.9 13.2 13.5 6.0 7.9 4.9 4.4 Table 3 (per cent) UK

USA

Japan West Germany France Italy Table 4 UK

USA

Japan West Germany* France Italy* 1980 were good. Table 5 UK

USA

Japan West Germany France Italy 6 Britain and the USA declined while those of Japan and West Germany rose. In 1973, West Germany's share in manufacturing exports topped America's.

Shares of world exports of manufactures, 1960-73 1960 16.5 21.6 6.9 19.3 9.6 5.1 Source: National Institute Economic Review Underlying these developments were differential rates of profitability. Those countries which enjoyed higher rates of profit could sustain a higher rate of growth; though all experienced a fall in the rate of profit, those able to gain a competitive advantage on their rivals suffered least.

Britain had one of the lowest levels of profitability on average, while Japan and West Germany stayed ahead.

Rates of profit for industrial and commercial companies in the main imperialist countries, 1960-75 1960 1965 1970 14.2 11.8 8.7 9.9 13.7 8.1 22.7 19.7 15.3 23.4 16.5 15.6 11.9 11.1 9.9 11.0 7.9 8.6 Source: A Glyn & J Harrison, The British economic disaster, Pluto, *Note: not strictly comparable to other figures The rate of profit is closely related to the rate of investment: higher profits allow more investment to be financed, and increased investment can raise profits by improving competitiveness. Table 5 shows how the pattern of rates of investment in the imperialist world mirrored that of profitability: Britain and the USA's performances were sluggish, while those of Japan and West Germany Gross domestic investment as proportion of GDP in the major imperialist countries (per cent) 1960 19 18 34 27 24 24 Source: World Bank, World Development Report, 1979 1965 1973 13.9 9.3 20.3 16.2 9.4 12.6 19.1 21.9 8.8 9.6 6.7 6.6 1973 1975 7.2 3.5 8.6 6.9 9.5 14.7 12.1 9.1 10.2 4.1 0.8 4.5 1977 19 18 32 22 24 21

How the state props up the system The bourgeois state represents the general interest of the capitalist class and enforces this interest in the realm of In the epoch of imperialism the interventionist role of the state increases and comes to play a decisive role in maintaining the conditions necessary for capital accumulation. State intervention in industry subsidies for ailing firms, the restructuring of particular sectors, nationalisation, credit for export - is a direct to the obstacles that capital encounters in the The form and objectives of state intervention depend on the particular phase of accumulation. However, at a time of crisis, the state assumes a more direct role in the economy than ever before. Three important spheres of state intervention can be distinguished: support for industry, coercion of the working class and the defence of the national bourgeoisie against its imperial- Support for industry was widespread before the onset of the crisis. However, over the past decade or so more and more industries have become dependent on state support.20 one of the weakest imperialist powers, four major industries were partly or wholly nationalised: steel (through the founding of the British Steel Corporation, 1968), cars (British Leyland, 1975), shipbuilding (British 1977) and aeroplanes (British Aerospace, Shipbuilders, 1977). Internationally, too, extensive rationalisations and investment in new capacity have taken place under the guiding hand of the state. The state has also been active in encouraging the establishment of new industries. In every imperialist country today, the state has embarked on a programme of investment in the electronics industry.

The coercion of the working class is made necessary because the capitalist crisis generates social upheaval.

Millions of workers are made redundant and those at work are exploited still further; so the state is compelled to step in and discipline the working class. The judiciary, police and the army are directed to smash workers' Every effort is made to weaken the working class organisationally and ideologically.

The defence of the national bourgeoisie against its imperialist rivals becomes an urgent task for the state too; but it is the pressure of world competition that determines how the state will move. In the early stages of the crisis the state concentrates on refining trade policy - boosting exports of commodities while erecting barriers to imports.

as the competitive struggle intensifies, it uses more overtly aggressive, less internationally "acceptable' measures to protect the national capital. The mouthpiece of the British industrial bourgeoisie, the Confederation of British Industry, shows the way things are going: 'In the 'eighties the competition for trade will be so severe and our problems of industrial regeneration in Britain so difficult that we must urge Government to make the trade consequences a "first charge" on every foreign policy decision they ponder. As such it may well outweigh diplomatic and UN considerations and those of a domestic political nature. This should be reflected also in the Ministerial time and effort devoted by the Government as a whole to trade promotion.... See Table 11 on overcapacity levels and Section 2 on com- 19 For a discussion of the bourgeois state see F Richards, 'Revisionthe state, Revolutionary Communist ism, Imperialism and A useful international summary of the forms of state intervention is provided in the survey The state in the market', The Economist, 30 December 1978.

21 CBI, International trade policy for the 1980s, August 1980.

2. THE COLLAPSE NOW

To understand the extent of the crisis today we must see how the capitalist world recovered from the 1974-75 recession. That recession was the worst experienced by the West in the post-war period. Every capitalist power was affected: production and investment slumped, inflation and unemployment rates rose dramatically and international trade fell. When an upturn followed, it proved very partial in character. Despite the renewed growth of production, the symptoms of crisis persisted. All the key indicators showed that the world economy was in a worse state than in the years prior to 1974. The recession was no mere passing phenomenon. After 1974-75 a number of existing traits of the world economy began to be accentuated as capital sought an exit from its crisis. Both national and international credit expanded, reliance on trade increased, and the export of capital became more frenzied. Below we show how these developments helped to sustain a mild recovery over the years 1975-79 — and how, by lifting the accumulation of capital to a higher level, they merely made the contradictions of We discuss each development separately, though there are many interconnections. The aim is not to give a history of the 1974-79 period, but to provide the basis for explaining the crisis today. We focus upon the major imperialist countries, which together account for more than half the world's economic output and trade and which are the decisive factors in the world today.

Either a borrower or a lender be Both private and state credit have played an important role in counteracting capitalist stagnation. This applies equally to national and international credit.

(a) National credit expansion The country in which national credit expansion has been most significant is the USA. The American economy rallied remarkably after the 1973-74 recession - industrial production rose by nearly 30 per cent and unemployment fell 1975-79; but it did so largely through credit. As the OECD put it in 1980, 'borrowing to finance both housebuilding and consumption has been on an impressive scale'.2 Between 1975 and 1978, mortgage debt rose 54 per cent to $750 billion, consumer instalment debt by 49 per cent to $300 billion and corporate debt by 36 per cent to more than $1 trillion (a trillion is a million million). At the same time total US government borrowing rose 47 per cent to $825 billion. Total private and public sector debt soared from $2.5 trillion in 1974 to a colossal $3.9 trillion in 1978.3 By comparison, America's GNP stood at 82 1 trillion that same year. The enormous rise in America's debt reveals how superficial its industrial upswing has been. That most of the rise has occurred in consumer or government debt rather than in borrowing for See the Editorial in Revolutionary Communist Papers, No 6, 1 June 1980. Economic Outlook, July 1980.

Business Week, 16 October 1978.

3 7

investment purposes confirms that the USA has been accumulating IOUs rather than accumulating capital.4 Credit has helped raise US production levels but has done little for overall productivity. Between 1974 and 1979 US productivity grew at an average rate of merely 0.1 per cent On the other hand inflation rose continually from 1976 onwards, eventually reaching record highs. The underlying decline of US competitiveness also registered in unprecedentedly large trade deficits. Today, when IOUs fall due, many firms find themselves unable to meet their debts.

Last year, for instance, bankruptcies in the USA reached The main effect of the USA's credit-based boom was not on the structure of US capitalism, but on its relations with the rest of the world economy. Exports to the USA multiplied rapidly and foreign capital flooded in to take advantage of the growing domestic market.

National credit expansion has not been confined to the USA. While the Labour Government was busy cutting public expenditure in Britain, consumer credit here more than doubled from the end of 1976 to a total of £7.8 billion at the end of 1979. In West Germany, consumer credit rose by 80 per cent to DM93.2 billion over the same period, and government debts rose from 24.5 per cent to 29.4 per cent of GNP between 1975 and 1979, totalling some DM450 billion in 1980?

We should remember, however, that countries more reliant on imports than the USA run higher risks than it does when they expand their credit. They do not have the same room to manoeuvre as the USA, and cannot therefore give rein to credit in the (b) International credit expansion The international credit markets have grown prodigiously over the past decade. In particular the Euromarkets have widened from $150 billion in 1971 to nearly $1200 billion in 1979.8 For governments, large corporations and banks they represent one of the few sources of readily available A major reason for the flourishing of the Euromarkets has been that OPEC deposited its dollar-denominated oil revenues, or 'petrodollars', with Western banks, which in turn have lent them out via the Euromarkets to countries facing balance of payments deficits. After the 1973-74 oil price increases the Euromarkets were used as the main mechanism for recycling' petrodollars to indebted nations in general and near-bankrupt backward capitalist countries in particular. The principal effect of this was to allow backward capitalist countries to maintain or increase imports of Western commodities. As a result the decline in Western exports slowed down and the impact of the recession was 'Recycling' is, however, no solution to the West's problems. For the West to loan money to backward capitalist countries so that they will have enough to buy its goods is patently self-defeating. What has happened is that the burden of debt has begun to weigh down on backward capitalist countries more heavily than ever - especially for the 'middle-income' states which make up significant markets for imperialist exports. For these countries external public debts rose on average from 10.8 to 17.6 per cent of GNP between 1970 and 1978. Today merely paying interest on that debt takes up a large proportion of these nations' export earnings. In 1978 the ratio of debt service charges to export earnings was more than 30 per cent in Peru and nearly 60 per cent in Mexico.

Backward capitalist countries cannot go on like this, and nor can their Last year OPEC's surplus revenues were estimated at 8 some $120 billion, and the trade deficit of non-oil ucing developing countries' at about $70 billion i,Prod.

revenues cannot be recycled into deficits as before. Their clients faced with mountains of debt, Western banks are reluctant to go on lending funds out and so risk a default.

sums involved are vast and the consequences of a banking crash devastating. According to a recent survey on world banking, the underdeveloped countries now figure as 'one of the greatest single difficulties facing international banks today' 12 No wonder that, to protect their loans, the imperialist banks are moving towards imposing 'political' safeguards of a markedly colonial character.

Buy cheap, sell dear Trade has become crucial for the imperialists in the crisis; indeed the house-trained economists of each capitalist country look to exports as a means of overcoming the stagnation of their domestic economies. 14 Between 1970 and 1978, the exports of the 18 leading capitalist countries grew at an annual rate of 5.7 per cent, while industrial output increased at only 3.4 per cent.15 As a result there was a marked increase in the ratio of trade to GDP. Table 6 shows this. Even the relatively self-sufficient US economy has become more dependent on trade and thus more vulnerable to changes in the world economy.

Table 6 Trade as a proportion of GDP (per cent) 1978 1968 UK 21 29

USA

10 25 Canada 21 Japan 10 10 West Germany 21 26 France 14 20 16 24 Italy Source: Bank for International Settlements, 50th Annual Report, 1 April 1979-31 March 1980 Naturally enough, exports have been attracted to countries whose markets have been growing fastest. Thus between 1975 and 1977 exports to the USA more than doubled in dollar terms to $207 billion and the fraction of total OECD imports accounted for by the USA also increased.' But, since the first oil price rises in 1973, the most significant new export market has been OPEC: its imports have on average been rising by more than 20 per cent a year. Table 7 shows how the share of exports going to OPEC has doubled for most industrialised countries over the past few years. Taken together, the OPEC countries now comprise Britain's biggest single export market. It is not surprising that the imperialists show themselves so concerned about political stability in the Middle East. Not only their oil interests, but a considerable portion of their trade is at risk there. OPEC has not been alone in boosting Western exports.

In contrast to the 'sixties, when they took an ever-declining share of industrial country exports, the backward capitalist economies have come into their own as vital markets for imperialist commodities. Table 8 shows this clearly.

Table 7 UK

USA

Canada Japan West Germany France Italy Seven major countries Total OECD 1980 Table 8 share of total exports)

NORTH AMERICAN EXPORTS

To Western Europe & Japan To developing countries

JAPANESE EXPORTS

To North America & Western Europe To developing countries

WESTERN EUROPEAN EXPORTS

To North America & Japan To developing countries Carving up the world tries is paralleled by 1977-79.2, these five group they are exchange reserves to finance this.

Exports to OPEC as percentage of total exports18 1972-73 1978 12.1 6.0 5.3 11.6 1.2 2.9 14.6 7.1 3.3 8.6 4.7 8.2 5.4 12.6 4.7 10.5 4.1 9.3 Source: OECD, Economic outlook, December 1979 & December Importance of developing countries as markets for the manufactured exports of industrial countries (per cent Source: GATT, International Trade 1978/79, Geneva, 1979 The growing importance of exports for the imperialist coun the emergence blocs. Here the EEC is a case in point. More than half of exports from EEC countries go to other member Seven of Britain's top ten export markets are other EEC countries: having taken 36 percent of British exports in 1976, they took 42 per cent in 1980.20 For West Germany, Britain's largest trading partner, the figures are more striking still. All of its top five export markets are and the proportion of its exports has risen from 42 to 46 percent, Since the EEC has to import 90 percent of its raw materials it maintains strong links with backward capitalist countries. Through the Lomé Convention, it has trade and aid pacts with 57 African, Caribbean and Pacific states the so-called ACP countries, most of which are in Africa.

In addition the EEC has special trade agreements with the Association of South East Asian countries (ASEAN - Indonesia, Malaysia, the Philippines, Singapore and Thailand) and with Latin America in order to boost exports in general and capital goods exports in particular.

Japan and the surrounding countries in South East Asia and the Pacific form another important trading bloc. As a growing faster than the economies of Europe and North America, and they are becoming more integrated - though Japanese hegemony is undisputed.

Japan's neighbours conduct 30-40 per cent of their trade with it and have taken to holding yen in their foreign 1979 1980 (first half) 8.0 8.8 8.3 7.6 2.4 2.6 13.1 14.9 6.1 6.2 7.7 8.5 10.8 11.9 7.5 7.3 8.1 8.5 1973 1978 29 26 24 32 47 44 42 46 11 9 20 15 22 Japan can, as a con- 4 and inflation have got worse: Period*: Average annual growth in consumer credit, per cent Average annual GNP growth, per cent Average unemployent rate, per cent Average annual increase in consumer prices, per cent * (O) denotes which quarter The Economist, 26 July 1980.

5 ber, 1980. 7 Times, 23 September 1980.

8 9 The Banker, July 1980. World Bank, op cit. indicators, June 1981. 13 March 1981. The Times, 27 June 1980. 9 sequence, now afford to price almost a quarter of its exports in yen, as opposed to the once-unrivalled Us dollar; before 1973 the proportion was little over 10 per cent.24 The US economy is becoming more and more impervious to the stimulus of credit. Though consumer credit has grown faster, GNP growth has been sluggish and both unemployment 1961(Q1) 9.6 4.6 4.7 2.5 Source: OECD, United States, November 1979 Central Statistical Office (CSO), Financial Statistics, Septem- OECD, Main economic indicators, September 1980; Financial Morgan Guaranty Trust Company, World financial markets, October 1980. In the Euromarkets banks money outside its country of origin. The term most commonly refers to transactions in US dollars that are carried out in the main financial centres of Europe. However a number of other currencies are also used in this way, although the dollar accounts for some three-quarters of the total business, and bank activity in other centres like Hong Kong and the Cayman Islands is also inclued. In 1979, Euromarket credit extended to industrial countries amounted to $2.7bn; that extended to developing countries $48.0bn. The main reasons for the growth of the Euromarket are that banking operations are left relatively unregulated in it and that capitalists can use it to bypass restrictions on domestic borrowing.

Bank lending has been concentrated on a relatively small number of countries. In recent years about 70 per cent of the total has gone to Mexico, Brazil, Argentina, Peru, the Philippines and South Korea. See The Banker, July 1980.

World Bank, World development report, 1980.

Financial Times, 11 May 1981.

Western bankers welcomed the military takeover of Turkey in September 1980 precisely because it promised such safeguards.

Increases in repression in debt-ridden countries such as Zaire, Peru and South Korea were greeted with equal enthusiasm.

See for example The Economist, 16 August 1980.

The US economy's dependence on trade, like that of its rivals, has increased up to the present day. See OECD, Main economic British Business, 5 December 1980.

The share of exports to OPEC fell in 1979, mainly as a result of the revolution in Iran, and then recovered. In 1980, 10.1 per cent of total UK exports went to OPEC.

In 1979, the EEC accounted for 35 per cent of world trade; 54 per cent of this figure was intra-EEC trade. British Business, CSO, Overseas trade statistics of the UK, 1980.

France and Britain, the main imperialist powers involved in Africa, account for the largest shares of EEC exports to the ACP countries. For an account of the Lomé Convention, see The Economist, 27 October 1979.

Euromoney, September 1980.

1971(Q1) 1975(Q1) -1969(03) -1973(Q2) - 1979(Q1) 13.3 14.5 5.0 5.1 7.1 5.5 5.1 7.2 deposit and lend

Trade war The imperialist powers' increased dependence on trade has led to greater tensions in the world market. Since domestic markets cannot by themselves support accumulation, the impetus to try to cut into overseas markets grows. At the same time the pressure on competitive industries in every country to compete has sent inefficient national industries to the wall and has helped form a new international division of labour at their expense. It is capitalists in these national industries who have been most vociferous in calling on their governments to 'control' foreign imports.

In the USA a 'trigger price' system protects the domestic industry from much cheaper imports of steel from the EEC and especially Japan, South Korea and Brazil.25 For its part, the EEC operates an extensive system of quotas (the Multi-Fibre Arrangements) on textiles exported to it from the 'new industrial countries' of Taiwan, South Korea, Kong and so on. It also protects its agricultural the infamous Common Agricultural Policy system of tariffs. And, as if this was not enough, EEC chemicals producers have been protesting about 'unfair competition' from US chemical imports. Still, the EEC and the USA have one thing in common: both have forced Japan to limit its car exports - 'voluntarily, of The struggle to hold or increase market shares has become fierce. Indeed imperialist companies have shown themselves prepared to trade at a loss so as to maintain their slice of the world market. For example: in 1980 Imperial Chemical Industries, Britain's second largest exporter, increased its exports by five per cent at the same time as it reported an extraordinary slump in profits.

Trade war today is not only a matter of government protection against imports. In every imperialist country the state has taken an active role in the export field too.

Despite their laissez-faire philosophy, the Thatcher and Reagan administrations have thrown their weight behind their exporters. In 1979-80, Britain's Export Credit Guarantees Department underwrote loans to the tune of £500 million. France and Japan have also made a speciality of offeritely dim developport side lings awhich they Things have come to such a pass that, earlier this year, the USA's Export-Import Bank agreed to finance bids by Kaiser Engineers Inc and Motorola Inc for projects in the Ivory Coast in a clear attempt to beat off tenders made by private but state-aided 28 There now exists an export credit war, one French firms. which has suspended free trade for good. The Financial Times has been moved to complain: 'Companies no longer compete freely for overseas capital project contracts. The whole market has become hopelessly distorted by government intervention and subsidy' Capital export Britain and the USA have been, and still are, the imperialist powers with the most capital investments abroad. UK total private investment overseas amounted to just over £34 billion at the send of 1979; that for the USA amounted to $193 billion. Although smaller in absolute terms, Britain's investments abroad are larger when compared to investment Same is true of Britain's annual outflow of GNP. The Both countries rely heavily on the profits they make abroad. In 1979 overseas profits accounted for at least a 10 third of the overall profits of most of the top 100 US multinational corporations and banks.32 US corporations alone made $37.8 billion profits from overseas investments.33 IBM makes well over half its total profits outside America, while all of the profits of Ford and General Motors came from overseas operations last year, such was the crisis these companies met with at their US plants. In the case of Britain, repatriated profits from direct investments overseas (excluding those made by oil companies) amounted to £769 million in 1979 and total profits to £2.5 billion - not bad against a figure for gross trading profits made in Britain of £19.6 billion. Overseas investments do not just bring in profits. They also stimulate the export of commodities. Nearly 30 per cent of Britain's exports, for instance, are made to overseas subsidiaries of British companies.

These figures in capital exports indicate the structural weakness of British and US imperialism. But, since the late 'sixties, the limited scope for domestic accumulation in West Germany and Japan has also forced these countries to increase their foreign investments. Between 1965 and 1971 the value of overseas investment rose at an annual rate of 29.4 per cent for Japan and 22.8 percent for $7.3 billion West Germany to reach $4.5 billion and In 1979, net capital investment abroad from respectively. West Germany rose by DM8.4 billion to a total of DM61.6 A similar pattern can be discerned in relation to Japan: estimated at $31 billion in 1979, total foreign investment there is expected to rise to $79 billion by 1985.38 The emergence of West Germany and Japan as major capital exporters reflects the growing shift in the balance of world economic power.

The changing balance The relative declıne of Britain and the USA can be seen in other ways too. First, these two countries are importing capital faster than they are exporting it (although the absolute size of capital exports is still greater). Foreign investors have been quick to take advantage of the growth in the US market since 1974, as Table 9 shows, and West German gand especially Japanese capital exports have shot up. Table 9 Foreign direct investment stock in the USA (Sm at year-end) 1974 1978 % growth 28.3 UK 7370 5744 Canada 5136 6166 20.1 Japan 345 2688 679.1 West Germany 1535 3191 107.9 France 1139 1939 70.2 Netherlands 4698 9767 107.9 Switzerland 1949 2844 45.9 Others 4598 6866 49.3 Total 25144 40831 62.4 Source: S Young & N Hood, 'Recent patterns of foreign direct investment by British multinational enterprises in the United States', National Westminster Bank Quarterly Review, May 1980 The form taken by each country's overseas investments indicates how the balance of world economic power is changing. While West German and Japanese firms tend to

establish new points of production and so come to represent a direct challenge to their competitors, British investment in the USA, at least, has been of a less dynamic type, proceeding largely through acquisitions of and mergers with US companies rather than through the construction of new 40 plant or the expansion of existing subsidiaries.

More and more of Britain's overseas investment goes into non-industrial projects. Table 10 shows that direct investment by banks and insurance companies, like portfolio investment (the purchase of overseas equities and securities), is increasing faster than direct investment by industrial and commercial companies. Unable to compete in world markets, British imperialism is reduced to playing a wholly parasitic role. Table 10 UK private sector external assets (Em at year-end) % growth 1977 1978 1979 Direct investment* 11.5 14800 15800 16500 UK banks direct investment 1152 1341 1897 64.7 Oil companies' net assets 3550 3900 5250 47.9 abroad Insurance companies' direct investment in USA 595 610 710 19.3 Portfolio investment 6900 8050 9500 37.7 Other 156 267 Total 26995 29855 34125 26.4 Source: Bank of England Quarterly Bulletin, June 1980 *Note: By industrial and commercial companies; excludes oil insurance and banking companies.

At the end of October 1979, the British Government abolished exchange controls. Purchases of overseas shares and bonds by UK financial institutions increased dramatically. The total capital outflow was estimated at about £2 billion, most of which took the form of portfolio investment. In 1979, earnings from direct investments in banking and insurance and from portfolio investment overseas amounted to £928 million, compared to £804 million If this goes on, Britain will soon be doing little more than what Lenin described as 'clipping coupons'.

The growing power of Japan and West Germany is also visible in the international capital market. Parallel to the emergence of regional trading blocs, distinct financial spheres of influence have begun to develop For most of the post-war period the USA held the dominant position in international finance. The bulk of world trade was priced in dollars; the dollar formed the basic asset of the foreign exchange reserves of the world's central banks, and was the most common currency for denominating international loans and bond issues in. This worked to the benefit of US imperialism, for the purchase of dollars by foreign governments and corporations helped its balance of payments deficits, while foreign acceptance of dollars allowed it to buy up plant abroad with ease. However, because of the downward trajectory of US imperialism, a new situation has taken shape in the 42 Declining US competitiveness and world financial sphere. rising balance of payments deficits, by weakening the value of the dollar in foreign exchange markets, have led other countries to look for alternative ways of holding their wealth and settling their accounts. One has been to use gold.43 The other has been to use the yen and the Deutsche 11 25 The Economist, 12 July 1980.

26 Financial Times, 27 February 1981.

27 Midland Bank Review, Autumn 1980.

28 Business Week, 19 January 1981.

29 Financial Times, 15 May 1981.

Bank of England, Quarterly Bulletin, June 1980; US Depart- 30 ment of Commerce, Survey of Current Business (SCB), August British Business, 1 February 1980.

31 32 Business Week, 12 March 1979.

33 34 CSO, UK balance of payments, 1980.

Bank of England, Quarterly Bulletin, March 1980. Most foreign 35 investment from the USA and Britain is located in other developed capitalist countries. However, for the USA the proportion in backward countries has risen from 21.2 per cent in 1975 to 24.8 per cent in 1979. The reason is not hard to see: in 1979 the rate of return on US investments in backward capitalist countries was 28.9 per cent, while that on US investments in the developed economies was 18.9 per cent. In the case of Britain, about 20 per cent of overseas capital is located in developing countries and some 20 percent of overseas profits 36C Palloix, "The self expansion of capital on a world scale", Union of radical political economists, Vol 9, No 2, USA, Summer 1977. 37 Calculated from Monthly report of the Deutsche Bundesbank, April 1980 and November 1980.

38 Business Week, 16 June 1980.

39 Capital flows abroad to attract a higher rate of return. This does not imply that the overall rate of profit in a capitalexporting country has to be less than that which obtains in the country to which capital flows. We have to look at the situation for individual branches of industry and the firms concerned. A Japanese electronics company, for instance, may secure a better return on investment in the US market than at home simply because it is more competitive there.

40 See S Young & N Hood, Recent patterns of foreign direct investment by British multinational enterprises in the United States', National Westminster Bank Quarterly Bulletin, May Figures calculated from CSO, UK balance of payments, 1980.

We are talking of the decline of Britain, a senile imperialist power. David Reed of the Revolutionary Communist Group, however, prefers to exaggerate the size of banking capital to prove the absurd thesis that British imperialism is gaining in strength (Fight Racism! Fight imperialism!, No 6, September/ October 1980). He notes that in 1979 UK banks had overseas assets worth £135.5bn and declared that this sum 'dwarfs all other investment abroad'. But what kind of investment' is this? £121bn was made up of foreign currency advances and overdrafts. For the banks these assets are balanced by liabilities, that is deposits. Although banks earn interest according to the volume of lending, they must also pay interest on deposits so total loans cannot be compared with the assets of an industrial company. In fact through credit operations banks can multiply the size of their assets without any real in crease of the capital on which they are based. Banks today often lend 30 times the value of their market capitalisation! Reed also confuses Britain's role as an international financial centre with the strength of British banking. Over 80 per cent of the assets overseas to which he refers were advanced by foreign banks in Britain (mainly in the City of London) not by British banks!

Between 1974 and 1979 the percentage of international loans denominated in dollars fell from 78 per cent to 63 per cent; the percentage of gross international bond issues denominated in dollars fell from 63 per cent to 42 per cent. Only the massive growth of the overall market prevented a glut of unwanted dollars and a major crisis in the financial sphere. (Federal Reserve Bank of New York, Quarterly Review, Summer 1980.)

See 'Behind the dollar's demise, the next step, No 2, January

Mark, even though the dollar is still the main currency for foreign exchange reserves.44 Both Japan and West Germany relaxed restrictions on the international use of their currencies during 1980. While still anxious that speculation in the yen and the DM might destabilise their economies, balance of payments deficits consequent on dearer oil forced them to make a move.

Their rulers realised that extra overseas currency holdings could finance these deficits - and allow capital exports to go on surging ahead too. Thus the yen is now the second most important investment currency - after the dollar for the deployment of surplus OPEC revenues. So much money has poured into Japan in the form of yen deposits and purchases of bonds and equities that Japan had little difficulty in financing its $15 billion deficit in 1980.45 The lines of division in the international capital markets reflect and reinforce the spheres of influence of the imperialist powers. London is the main centre of the Euromarket and receives the largest share of OPE revenues (in dollars), relending these to other markets and other The US national market and the Caribbean offshore market, from where many US banks operate also, are the main sources of loans to Latin America; banks in Japan are the most important for financing trade in Asia; and the credit markets in Europe, particularly London and West Germany, are the main lenders to the Comecon Bottoming out? The forces brought into play to counteract the recession after 1975 have had only a limited effect. The expansion of credit, the growth of trade and the rise in capital exports have not prevented a further recession beginning in 1980.

In fact it is the use of precisely these safety valves of the past that has brought on the crisis of today.

Credit cannot play the same counter-crisis role that it did before. The bourgeoisie has recognised that, though levels. 48an foster investment, this tends to depress profit Moreover credit encourages prices to rise. The OECD Secretariat, which up to 1978 called on the major imperialist powers to embark on a 'concerted reflationary action programme, now stresses that the reduction of inflation is 'top priority'.

The capitalist system cannot survive without credit.

But the bourgeoisie is now interest rates to restore financial stability than in stimulating production artificially. This is reflected in the shift 'supply-side economics, an approach which emphasises the need to reorganise industry and which scorns credit expansion. Thus the OECD Secretariat notes the 'growing body of opinion' which is of the view that, in its current form, state intervention in industrialised economies may have weakened their responsiveness to changes in aggregate demand'. It calls on governments to improve working of markets' and to encourage 'economic agents' to accept 'changes in work and, perhaps, life styles (sic)'.

In other words, it advises the capitalists that the only way they will save their system is to cut state expenditure, jack up the rate of exploitation in the factories and get wider and wider layers of the working class accustomed to a new way of living - unemployment.

The bourgeoisie must curb the growth of credit if it is to avoid financial instability. A default on loan repayments, an adverse movement of interest rates, a major loss on the foreign exchange and commodity markets - any of these mishaps could precipitate economic collapse. Today central bankers lead anxious lives, concerned that they are overextending their loans (particularly to unstable backward deals capitalist countries) and worried about the shady other members of the 'financial community' get into to make a quick profit. The state is always ready to step in, but the gigantic sums of money required of it make regaining control in a financial scare harder and harder.

While the expansion of credit in the past decade has made a major financial crash more likely. the international integration of the world economy established by trade and capital export over the same period has raised the intensity of competition to unheard of levels. The destruction of national industries is now on the cards as world imperialism tries to gear up for a new round of capital accumulation. For the capitalists the problem presents itself as surplus capacity - capacity which must be eliminated if profitability is to be restored. Table 11 shows how the dimensions of that problem have grown.

Table 11 Manufacturing industry capacity utilisation rates?

(per cent) 1980 Average Average 1979 042 1974-78 02 Q2 Q4 1964-73 32.0 44.0 38.0 30.0 15.0 UK 45.0 77.9 79.2

USA

85.5 80.5 85.9 84.4 87.0 84.5 84.6 84.3 79.5 79.9 Canada 92.3 92.7 Japan 92.6 84.9 - 86.4 80.0 85.6 84.5 83.8 78.6 West Germany 81.8 83.0 80.0 France 84.8 82.7 81.9 73.0 78.5 73.2 75.2 77.6 76.6 Italy Source: OECD, Main economic indicators, May 1981 and Economic Outlook, July 1980 Notes: 1. Each country's utilisation rate is defined difterently so the series cannot be compared.

2. The figure for Japan is for the third quarter of 1979.

Later figures are not published, but the operating rate for manufacturing industry fell by 6 per cent between Decem- December 1980. Japan Economic Journal, ber 1979 and 27 January and 26 May 1981.

How fast surplus capacity can be got rid of depends on how much profitable areas for investment are available.

Surplus capacity has been destroyed most effectively in Japan, the most dynamic of the imperialist powers. Between 1976 and 1979, Japan reduced shipbuilding capacity 35 per cent, sending 37 medium-sized yards into liquidation. Meanwhile, assisted by state loans, capital has moved into new and lucrative sectors such as electronics. 2 Where capitalists hang on to outdated technology, as US automotive firms have, competition exacts a severe price. In 1980, Japan for the first time surpassed the USA as the world's leading car manufacturer, US car output fell back to 1959 levels, the major US motor corporations racked up combined losses of $3.7 billion within nine months and imports rose to new peaks.

hand, vigorous rationalisation can pay dividends: it is this that has enabled the USA to emerge as an important exporter of textiles, and to challenge EEC chemicals on their home ground and in third 54 markets. Cutting capacity and rationalising industry are, however, not merely technical questions. They go hand in hand with the process of disciplining the working class to accept unemployment and low wages. Unemployment in the 12

since 1978. Table 12 1976 UK

USA

Canada Japan West Germany France Italy Source: British Business, 5 June 1981 European Monetary System.

46 47 ment during its crisis last year.

48 world's seven major imperialist powers has leapt from 14 million to 17 million over the last year, and even optimistic forecasters do not see a recovery generating many jobs. As for wages, these have generally been on a downward trend Real earnings in manufacturing industry (per cent change on previous year) 1977 1978 -5.6 6.2 0.2 2.2 2.8 0.8 6.5 2.5 -1.8 2.1 3.0 -0.5 1.1 3.7 2.8 4.5 3.2 3.9 4.1 9.5 4.0 Note: 1. Calculated by deducting consumer price increase from increase in nominal hourly earnings.

Declining living standards are only a prelude to a more thorough offensive against the proletariat. Whether the individual capitalist wins or loses the competitive struggle, it is the working class which has to suffer.

44 After the Second World War sterling used to be a major reserve currency; but by the mid 'seventies, in step with the decline of British capitalism, its use as a reserve asset had dropped to negligible proportions. Recently, now that the sterling exchange rate is buoyed up by exports of oil, it had made a minor comeback and is one of the currencies into which reserve assets have come to be diversified. Over the past couple of years, the growth of a diversified reserve asset system has brought about what bourgeois commentators call an 'interest-rate war'. Each imperialist power now uses interest rate increases relative to its competitors to attract flows of money capital. Matters soon get out of hand, as a recent chain of events shows. As US interest rates rocketed at the end of 1980, money capital flowed into America and drove up the dollar's exchange rate against other currencies. The DM, in particular, was hit badly, and in January 1981 West Germany chalked up a $2.5 bn current account deficit as the cost of oil imports rose in DM terms. Bonn therefore set about raising domestic interest rates at once, so as to strengthen its currency. France and Switzerland followed suit so that interest rate levels rose to near-record highs. See Business Week, 23 March 1981. Interest wars add another element of uncertainty to the ledger books of capitalism. High interest rates depress the level of investment in productive capital and slow economic growth. As exchange rates fluctuate in response, trade patterns are overturned. In the face of phenomena it has no power to control the international bourgeoisie becomes more and more desperate.

The Banker, November 1980. We have noted the growing role of the yen in trade in South East Asia; we should also observe that the DM is the cornerstone of the EEC currency bloc, the London is also the main channel through which OPEC countries are buying shares in the Tokyo stock exchange, underlining the importance of the City of London as a world financial centre. See the Financial Times, 12 January 1981.

See Amex Bank Review, 21 July 1980. Petrobras, the Brazilian state oil company, is arranging with Citibank, the major US international bank, to borrow money on the US commercial paper market: see the Financial Times, 28 October 1980. West Germany led the field in extending credit to the Polish govern- Between 1973 and 1980 investment in the USA's traditional manufacturing sector rose 4.8 per cent in real terms, yet profit- 1979 1980 2.2 -0.2 -2.7 -4.9 -0.3 0.1 3.8 0.0 1.1 0.0 2,3 1.4 4.2 1.3 49 50 Ibid. 51 52 53 uary 1981. 54 structure of US industry.

55 1981.

3. BRITAIN - THE END?

World War. Some facturing are at an the three million mark soon.

Table 13 Employment in: Manufacturing (% change) Other production industries (% change) Other industries & services (% change) All industries & services (% change) Registered unemployment (% change) 2 Financial Times, 1 June 1981.

13 ability fell. Over the same period the amount of output brought by each new unit of investment shrunk by 38 percent, and, in high technology industries, output per dollar of new investment fell by 9 per cent. See Business Week, 1 June 1981.

Economic Outlook, December 1980.

In 1974, the Bank of England had to extend a lifeboat' loan to secondary British banks to prevent panic spreading about their capacity to meet liabilities following a slump in property values and stock market prices. Likewise, in 1980 the US Federal Reserve Bank had to organise the rescue of First Pennsylvania, a major US bank, after it had incurred massive losses due to fluctuations in interest rates.

Financial Times, 29 October 1980.

Financial Times, 31 December 1980; Business Week, 12 Jan- See the survey 'America's restructured economy' in Business Week, 1 June 1981 for a general account of the changes in the Part of the process of winning the competitive struggle is to rearm. Both the USA and Britain have embarked on a major rearmament programme to help compensate for their declining economic power. The Pentagon plans to spend an enormous $1 500bn over the next six years, and in 1981-82 British imperialism will fork out £12.3bn. In both cases the in creased expenditure will be offset by cuts in other spending programmes, especially social services. See The Times, 15 June and 18 June British capitalism is in its worst crisis since the Second sharper than the slump of 1929-31.- Profit rates in manulevels have plummeted and there is no upturn in sight.

Things are so bad that the bourgeoisie now finds comfort in the fact that the rate of decline is slowing down?

13 shows how the impact of the current recession on employment has been worse than that made by the 1974- 75 one. Official unemployment levels are bound to exceed Meanwhile, the Conservative Government is under attack from all sides. From the CBI, the employers' organisation, whose director general last year threatened a 'bare knuckle fight' with the Government to make it see sense over economic policy. From the TUC, which, warning darkly of 'violence in the streets' if unemployment is How the bosses cut jobs in 1975 & 1980 in Great Britain ('000, in September each year) Last recession 1974 1975 7280 7750 (-6.1) 1980 1970 (-0.5) 12710 12970 (+2.0) 22440 22220 (-0.1) 620 1100 (+77.4) Source: Bank of England Quarterly Bulletin, March 1981 Financial Times, 5 January 1981.

judge the 1979-80 recession as even all-time low, output and investment Table This recession 1980 1979 7040 6490 (-7.8) 1940 1880 -3.0) 13460 13330 -0.9) 22440 21710 (-3.3) 1330 1950 (+47.2)

allowed to rise further, has proposed reflation to the tune of £6 billion to salvage Britain from the 'mad monetarism' of the Tories. From 364 academic economists, including five ex-chief advisers to the Treasury, who earlier this year wrote to the Chancellor, Sir Geoffrey Howe, blaming the Government for exacerbating the recession. And yet all the attacks only revolve around different methods of achieving a common goal: the rescue of British capital from oblivion.

Below we investigate the material circumstances that force the Tories to do what they do. Then we can explain not only the significance of the present attacks on the but also why the 'alternative' plans offered the reformists cannot rescue workers from further redundancies and wage cuts. First we sum up the important Glimmers of hope The capitalist experiences the crisis through the effects of competition, not as a result of the contradictions of the system itself. In Britain today almost everything is either too low', or too high'. On the low side are productivity, competitiveness, profitability and investment. The employers unceasingly complain of restrictive trade union practices and unwillingness to accept new technology as factors keeping productivity low and making British goods uncompetitive. Conargue, profitability is weak and capital available for investment scarce.

On the high side are wages, public spending, taxation, inflation and interest rates. Wages are too high in relation to productivity; public spending is 'more than the country can afford' and needs excessive taxation levels to finance it. The result of all this is inflation, which lowers the competitiveness of British industry further. And, if this were not enough, interest rates are being driven up to record levels by government borrowing so that company finances come under more pressure.

But to make things more complicated, in the first half of 1981 the exchange rate of the pound was both too low and too high. It was too low in relation to the dollar, which had been pushed up on the foreign exchange markets by soaring US interest rates - the pound fell below $2 and thus raised the costs of imported raw materials (priced in terms of dollars). And it was too high in relation to the currencies of Britain's other trade rivals, because North Sea oil production had boosted the value of the pound. Thus the situation in which both imported raw materials and exported finished products looked expensive.

Index of British industrial production (1975=100) 1979 March 1981 98.7 112.6 Total all industries All industries 89.1 (excluding N Sea oil & gas) 104.3 86.9 104.2 Total manufacturing Of which: 79.0 104.4 Metal manufacture (ferrous) 99.3 67.0 Motor vehicles 107.6 104.0 Food, drink & tobacco 103 117.4 Chemicals, etc 100.0 77.0 Textiles, leather & clothing Source: British business, 29 May 1981 High here, low there, British capitalism is in a mess.

Table 14 shows how total industrial production levels are now 1.3 per cent below those of 1975, the lowest point of the last recession. Were it not for North Sea oil and gas they would be 10 per cent down on 1975.

This is an important point and one worth going into further. The depth of the crisis British capitalism is going through has been masked by North Sea oil and gas production; not only in such a way as to make data on industrial output appear more 'hopeful' to the capitalists, but in other ways too. First, the rising mass of profits made by North Sea enterprises draws attention away from the falling rate of return notched up by manufacturing industry. Despite the small size of the offshore sector in the British economy as a whole, it accounted for one quarter of total net operating profits in 1979.3 In other words, Britain's swift emergence as an oil producer helps compensate the capitalists for its fast-approaching demise as a manufacturing power Second, the existence of indigenous supplies of oil that Britain is better insulated from the adverse effects of rising oil prices than other major imperialist nations. As a consequence, its balance of trade is not so easily sent into the red. Moreover indigenous oil production is big enough to allow Britain to fulfil its own needs and still sell millions of barrels to its neighbours. Last year, for instance, oil exports formed more than 12 per cent of total a sizable black entry in the balance of trade. In fact Britain is now the most important oil producer in Western Europe - an advantage it can turn to good account when dealing with other EEC countries (though the West German capitalists merely chuckle about British manu- Thatcher is aware that Britain's oil exports to them are a useful card in dealing with Helmut Schmidt on issues such as the EEC's Common Agricultural Policy).

Third, and last: oil wealth gives the British state more room to manoeuvre not only abroad, but at home as well.

Chancellor Geoffrey Howe upped taxation on oil company profits in his November 1980 mini-Budget to help cover the escalating public sector borrowing requirement, and has siphoned off more oil revenues this year so as to be in a position to grant additional aid to the rest of industry.

That North Sea oil is often seen as a curse, helps raise the exchange rate for sterling, is testimony to in the face of the weakness of British manufacturing competition on the world market. This fact also brings out the utopian character of schemes to divert oil revenues into investment elsewhere. Why should capitalists throw good money after bad and put their bright North Sea profits in dismal mainland factories?"

'Black gold' east of Scotland cannot disguise the truth: the central problem for the British bourgeoisie is industry.

Average productivity is lower in Britain than in rival coun tries because of lower investment levels; and investment has been lower because of lower profit rates.

industry has come under more pressure in the competitive struggle and the fall in profits has been exacerbated. It is the failure of industry to accumulate profits sufficiently rapidly that has made state expenditure on the social services - which is financed by taxing - such a target for bourgeois invective.® Industry, it seems, cannot grow fast enough either to employ workers in productive labour, or to finance their employment in unproductive positions: it consigns them to the dole queue, where they trouble the Exchequer for benefits. Likewise, it is capitalists in industry who stoke the fires of inflation by trying to restore their profit margins with higher prices.

The British bourgeoisie cannot go on in the old way.

Helped by the state, it must force through a radical restructuring of capitalist production. Two obstacles stand 14

in the way: resistance from the working class, and the plans of its rivals on the world market. On the former front, at least, it is moderately pleased with its progress. The rate of exploitation has, as increases in real take-home pay have failed to keep pace with productivity rises, been climbing More important, the past two years have for some time. seen major retreats by the labour movement. The Financial Times recently felt confident enough to note that the rate of growth of wages had 'fallen substantially'; 'many com- 'are reporting major breakthroughs in improving working practices and manning levels'. But even this is not enough. As far as lasting changes are concerned 'the evidence', ', the Financial Times admits, 'is not conclusive 1° In the following sections we look at the 'evidence' and explain both the bourgeoisie's hopes for recovery and the tasks facing the working class.

Lights going out Over the past decade, as competition in the world market industrial employment has slumped. More than 700 000 jobs were lost in manufacturing industry between 1974 and 1979, and during the past two years the shake-out has accelerated. One report forecasts that in mechanical engineering, one of British capitalism's between October last year and December this 2 Vanished largest industrial sectors, 180 000 jobs will have same time, company liquidations have reached record levels: 1980 saw 6891 firms go bust and the first quarter of 1981 witnessed a further 2514.12 But it is important to look beneath the aggregate figures. The pressure of the crisis has forced a sharp differentiation between those sectors of industry which can compete and those which cannot. The former can try to sustain themselves in the domestic market or to push sales overseas, while the latter not only find themselves progressively cut out of the action abroad but also come under Sectoral statistics on import penetration and the ratio of exports to total sales give an indication of what has been Sectors in which the import share rose and the export ratio fell over the period June 1978 to June 1980 included mechanical and electrical engineering, clothing, footwear and vehicles. In the chemicals, instrument engineering and textiles sectors, the rising share of imports was offset to some extent by increased exports. Only in the food and drink sector did import penetration fall and even here the export ratio remained constant.

When we go a little deeper into particular industries prospect looks even more dire. Take vehicles, a sector in which import penetration grew from 35 to 41 per cent, 1978-80, while export ratios fell from 44 to 42 per cent: here the structural problems are directly evident on the shop floor. For all the euphoria over British Leyland's Mini Metro, the much-publicised introduction of robot technology at Longbridge has not secured Sir Michael Edwardes the productivity increases he requires. More jobs will have to be lost 4 and hundreds more robots installed before British car producers can match their rivals in Japan.

In March 1977, Japanese industry operated 14 000 robots, motor manufacturing, while 35 per cent of which were in Britain soldiered on with 185.15 With figures like this on his desk each morning, who can doubt that Edwardes is determined to crush all working class opposition to his plans to eliminate 'overmanning'? Likewise the management of Ford UK, gains little comfort from the fact that it is marginally better placed on the market than BL. It is equally backward in productivity terms and has been trying to enforce a disciplinary code against strike action.

BL, Ford UK, the vehicles sector and indeed the whole of British industry must become leaner' - this is the adjective now in vogue among bourgeois economists. And the Tories encourage the process. Weaker companies must British Business, 3 October 1980.

British Business, 23 January 1981.

of profit for industrial and commercial In 1980, the rate companies, outside the North Sea sector, fell to its lowest ever level: 2 per cent (Bank of England, Quarterly Bulletin, June 1981). However, the labour movement's 'alternative planners' fully understand the British capitalist's difficulties. Len Murray, TUC general secretary, when unveiling the labour bureaucracy rescue plan for Britain in The Times conceded that Greater profitability is needed in industry, as part of our expanding economy, but' - and here comes the working class' bit with workers receiving their just proportion of the wealth produced' (3 February 1981). Exactly what is the just prop ortion' is no doubt open to negotiation. We know the bosses will win on these grounds because the TUC has fundamentally the same aim. Even more radical versions of the alternative strategy embrace the bourgeoisie's difficulties as legitimate concerns for the labour movement.

See F Blackaby, ed, Deindustrialisation, Heinemann, 1979, p247 for comparative investment levels from 1960-75.

See Table 4 above on relative profit rates.

Employment in manufacturing has been on a declining trend since the early 'sixties. The effect of the rising organic composition of capital in industry has been to expel labour more quickly than accumulation can reabsorb it, despite the expanding scale of the latter. The shift in the pattern of employment towards services unproductive of profit for the bourgeoisie is a clear sign of capitalism's problems. See the employment survey in The Economist, 3 January 1981, for a useful review of the The CSO's Economic Trends, Annual Supplement 1980, shows that real personal disposable income per head rose by 25.3 per cent between 1965 and 1975 and by 11.4 per cent between 1975 and 1979. Over the same periods, industrial productivity rose by 29.5 per cent and 17.6 percent, that is, more rapidly.

In other words, the value of the means of subsistence commanded by wages paid fell and the exploitation of the working class rose - despite the increased number of use-values workers could afford. Marx's theory of capital accumulation leads us to expect this. For Andrew Glyn of the Labour Party's Militant things are differ- Tendency and John Harrison, however, ent. In The British economic disaster, Pluto Press, 1980, they contend that the rate of profit falls because of workers' wage demands. This is, of course, exactly what the Militant's beloved Labour Movement, in the person of Len Murray, etc, wants to hear. See the next step, No 10, February 1981, for a review of Glyn and Harrison's revisionist best-seller.

Financial Times, 3 June 1981.

of the Engineering Employers Federation See the report quoted in The Times, 23 February 1981.

British Business, 17 April 1981.

Following information from trade tables in British Business, *20 000 more Leyland jobs to go' reported the Daily Express, 5 March 1981, following the Government's decision to approve an extra £990m aid for BL over the 1981-83 period.

Financial Times, 29 October 1980. So impressed is BL with Japanese technology that it has fixed up a joint-venture with Honda to produce a new saloon car, the Triumph Acclaim, with Japanese tooling. See The Times, 28 February 1981.

16 See 'Ford: the fatal flaw", the next step, No 10, February 1981.

be weeded out and the rest must boost their ability to compete by raising productivity and cutting costs, so the Government looks on as hundreds of firms go to the wall.

This is why it has been reluctant to bail the bankrupt out.

Every sector of industry is affected by high interest rates and a high value of sterling. But even if the Government could control these, it would hesitate to do so. The same conditions that threaten extinction for some companies provide others with an opportunity for profitable rational- The Tories have no choice but to bare industry to the full blast of the recession. Besides, the steady stream of workers onto the unemployment register gives the bosses magic powers to enforce cuts in real wages, speed-up, changes in work practices, attacks on union organisation and victimisations. Putting more than half a million manufacturing workers on short-time does the same.* It is, for instance, not a shock to learn that shift-working and other "savings' made at the expense of the working class are on the increase in these conditions;18 nor was it a surprise when the CBI, confident about its relations with the labour movement, but anxious about its prospects in the face of international competition, junked a detailed document on the implementation of new technology it had drawn up 19 with the TUC. The bourgeoisie knows that if British capitalism is to be 'regenerated' it must be on their terms.

Redundancies brought about by new technology are not for negotiation. Mass unemployment is the result of the destruction of capital in the unprofitable sections of industry and the rationalisation of capital in the profitable areas. It is also a precondition for changing the balance of class forces and ensuring workers will accept the higher levels of exploitation that newly invested capital demands. Every closure, every sacking is not a side-effect of Tory mismanagement, but part of capital's grander designs.

Banking on industry The more manufacturing has slumped, the more the banks have boomed. Money-lending is just about the only growth 'industry' British capitalism has got: in 1979, for instance, Barclays and National Westminster emerged as the first and second most profitable banks in the world, and Midlands and Lloyds were also in the top 10.2° Given record interest rates, the banks have been eager to lend; and given, too, that much of industry is running into massive losses, they have had plenty of customers.

21 But in fact the relationship between the banks and industry goes further than this. British manufacturing companies money they need from their sales revenues. But to fund new investments - and to maintain operations when a crisis sets in, they have to go to external sources of finance. Bank borrowing accounts for around 60 per cent of this external finance (relatively little is obtained through issuing shares on the stock exchange); and it is on the increase. Whereas short-term overdrafts used to be by far the most common form of borrowing, today medium and long-term loans of up to 10 years make up 40 per cent of total bank advances The banks exact a price for their favours: interest. And when company demand for loans increases sharply, as it did in 1979, the rate of interest goes through the roof. Two years ago nearly a quarter of all the profits made by industrial and commercial concerns went on interest payments; 16 by the first half of 1980, a third did.?2 There is little love lost between industrialists and bankers these days. All the same, because the banks know that they cannot live on interest when no profits are being produced, they forced to use their resources to help industry out in ways other than through direct loans.

One way they have adopted is to lease capital equipment to industry. Equipment leasing first took off in the early to mid-seventies, partly because of a favourable change in tax laws but mainly because the banks had cash, industry did not; and soon enough the clearing banks became Britain's main equipment lessors, through a variety of methods (hire purchase, etc). Since then the Big Four banks have taken on £1 billion of new business in 1980 alone.

In fact the proportion of manufacturing investment in plant, machinery and vehicles financed by leasing has risen from almost nothing. in 1970 to 13.7 per cent (£2.4 billion) in 1979. The banks now lend out all kinds of hardware to ındustry. In some cases the assets are worth £10 millior Here is a striking example of how capital has had to modify its operations to sustain accumulation. Without this new role of the banks, British industry would be in even worse shape than it is at present.

More recently, and more important still, the banks and the other financial institutions have been buying up industrial shareholdings and converting loans into equity at a furious rate. For some time now British companies have had money channelled to them through building societies, life insurance companies and pension funds; today these financial institutions own more than half the shares listed on the London Stock Exchange (so much for the virile entrepreneur! 25 But a more significant development has emerged in the banks' purchase of company shares specifically for counter-crisis reasons.

We have already mentioned the international rescue of Massey-Ferguson and how banking consortia took a stake in the company. In Britain this trend was particularly marked.

Towards the end of 1980, Barclays and the Midland Bank, prompted by the Government, converted a loan to Massey- Ferguson (UK) worth no less than £250 million into a shareholding.26 Nor was this an isolated incident. Early in March 1981 the banks took a similarly "constructive' attitude towards Stone-Platt, the tottering engineering and textile machinery group. The Bank of England acted as overseer in a remarkable deal involving the company's financial adviser, Hill Samuel, Equity Capital for Industry, (a City of London body set up by institutional investors) and the Finance Corporation for Industry - an outfit run by the clearing banks - and the Bank of England. It was agreed that Stone-Platt's share capital would be doubled by issuing 40 million special new shares, ECI and FCI to take 12 million, and underwrite the issue of the rest with Hill Samuel; and that four UK clearing banks would also provide £40 million borrowing facilities for the company's UK operations. Needless to say, these financial manoeuvres have not left production at Stone-Platt untouched. Redundancies have already gone through as capacity has been cut and assets sold off. Both bankers and industrialists are united in demanding that the "breathing space' afforded by the former's 'generosity' should be the occasion for a return to profitability - at the expense of the workforce.

Stone-Platt is part of a pattern. The biggest engineering company in Scotland, Weir, has arranged with its bankers that £10 million of loans be converted into preference shares. Likewise, BPC, the newspaper firm is about to have a to million overdraft with National Westminster turned 28 It is developments like these that into preference shares. have allowed the Government to ignore the recommen-

dations ex-Labour Prime Minister Sir Harold Wilson and several senior trade unionists made in an officially-sanctioned report on financial institutions drawn up in June 1980 - that it create a £2 billion industrial investment fund (£1 billion to come from the financial institutions and £1 billion from North Sea oil revenues) to help regenerate 29 Grateful as it is to such labour move- British industry. ment dignitaries for their advice on how best to go about the job of attacking the working class, the bourgeoisie prefers to do business its way: firmer, faster and altogether more ruthlessly. The fact that BPC's lash-up with National Westminster has been accompanied by a vicious management offensive against the company's workforce reinforces the point. Spend, cut, spend Throughout the post-war period, state expenditure in Britain played a key role in sustaining the accumulation of capital. Since the mid 'seventies, however, it has come to be seen as one of the major causes of the crisis. Not only is it, as we have noted, financed by taxation on profits - profits that are already inadequate - but it can only be sustained by borrowing, which tends to force interest rates up. Morewhen inflation and unemployment rise, it quickly gets out of control: costs spiral and demands for benefits multiply. So it has to be cut back.

The snag with this is that a number of important sectors of private capital need continued state orders to stay in business. State spending cannot, therefore, be reduced indiscriminately; it must be in such a way as to suit private capital. It may even be raised in some cases to do this. To see what is going on we must look at it not only in aggregate, but also in detail.

Table 15 shows how the Labour Government managed to reduce the overall share of public spending in GNP to below 50 per cent - before, that is, the worsening crisis of 1979 pushed it up again. General government current & capital expenditure as a percentage of GNP (at factor cost) % GNP (Em) Expenditure (Em) 94,725 54.5 51,653 1975 52.0 112,550 58,471 1976 126,157 49.0 61,807 1977 49.6 144,962 71.852 1978 163,936 51.8 84,906 1979 Source: CSO, National Income and expenditure, 1980 The cuts Labour implemented were mainly on the side of social services, and then on 'capital' rather than 'current' expenditure items - that is, on buildings and equipment rather than on benefits, jobs and wages. Closing schools and hospitals and cutting back council house programmes was the easiest option, and one Labour seized with alacrity. 30 while private capital was happy to go lucrative business with the National Coal Board, BSC and other nationalised concerns for plant (and equally to go on buying coal, steel and other basic industrial inputs at subsidised rates), it found the situation in the rest of the public sector pretty intolerable. While on the one hand it saw local authority construction contracts become scarce, on the other it saw expenditure on teachers, nurses and direct labour organisations - and civil servants - rise to new heights and appear as an awful burden on its profits. It felt, therefore, that public expenditure needed 'redirecting' This is what the Tories, private capital's most direct have been trying to do. It isn't easy: representatives, current spending takes up 70 per cent of total public expenditure and has proved hard to cut. But Thatcher has no choice in the matter. Stung by what it experiences as high prices for state-produced energy, angry that it has been 17 In March 1981, 510 000 workers were on short-time, losing an average of 13.3 hours per week each. Some 64 700 of these were in the motor vehicles sector. See Employment Gazette, See the report in The Times, 25 September 1980. Even before unemployment reached the two million mark it put the employed working class under pressure. See West Midlands bosses find they have the upper hand", Financial Times, 9 July 1980, for a description of the bourgeoisie's successes in the engineering factories around Coventry and Birmingham, cities ravaged Financial Times. 16 October 1980.

Investors Chronicle, 18 July 1980.

Notably much of industry, but also many of Britain's local authorities have had recourse to the banks. Early this year dozens of local authorities found themselves owing the banks untold millions, as high interest rates began to take their toll.

The reformists' hatred of the banks reached a new pitch but this didn't prevent Labour councils from putting up rates and rents and cutting jobs to pay their bills. Even 'left-wing' coun cils saw the need to balance the books.

Bank of England, Quarterly Bulletin, September and December Barclays bank claims to have lent out £250m-£300m to recession-hit manufacturing industry. It would not have done this, it says, in 'normal' circumstances. See The Times, 6 March 1981.

Bank of England, Quarterly Bulletin, September 1980. Leasing is still on the increase: between 1979 and 1980, the volume of went up while the volume of manufacturing industry's direct investment fell. See British Business, 25 May the past two decades the financial institutions have amassed enormous sums of money. Between 1957 and 1978, building society assets rose sixteen-fold to f40bn and those of life insurance and pension fund companies moved from f7bn to £69 bn. Three-quarters of the cash that flows into the latter institutions is channelled into public sector or company securities. See The Economist, 28 June 1980. More than two years ago, The Economist expressed its alarm about the growth of a 'private corporate state' run by 'anonymous financial gargantuans' - building societies and the like. The paper revealed how managers of occupational pension funds, controlling assets worth over £20bn, were using the money taken from parent employees to buy shares in it or give it loans to bail it out in time of difficulty: the paper concluded that what was needed to control such activities was. ..more disclosure of information. See The Economist, 4 November 1978.

The Times, 21 October 1980.

Financial Times, 13 March 1981.

The Economist, 4 April 1981.

The Economist, 28 June 1980 Labour's cuts in capital spending are brought out sharply by the following figures showing the real reduction in spending (Em at 1978 survey prices) 1978-79 % cut 1974-75 505 42 878 Education 23 681 522

NHS

2065 18 2506 Local authority housing Source: Public expenditure white paper, February 1979 17

exposed to the rigours of the recession in a way that town halls and health and education authorities have not, private capital has been calling more and more hotly for a major offensive against current expenditure. And although schools and hospitals are still being closed down, and the Government has taken the extraordinary step of halting all new council house building, there is now little room for significant extra capital cuts.

Controlling current expenditure is made all the more rising unemployment levels, social security payments grow automatically. Between 1974-75 and 1980-81, the share of this item in total expenditure rose from 20 to 27 per cent. 31 The campaign against current expenditure will have a devastating effect on working class living standards. First, the real value of welfare benefits is to be reduced by not raising them in line with inflation and by phasing out earnbenefit. This will impoverish ings-related unemployment the sick and unemployed. 32 on local authority and civil service wage bills that have been announced will tend to make employers cut real wages and force through redundancies as never before. While the Government can already claim to have reversed the trend of rising local authority employment by shedding 57 000 jobs there in the year to June 1980, this is but a beginning. 33 Overall, however, the crisis has brought about a change in the composition of state expenditure as well as an absolute increase in it - despite the fact that 'mad monetarists' are now at the helm. In November 1980, for instance, the Tory Cabinet had an internal wrangle over the control of public spending as a whole and the size of further cuts necessary to get its much-vaunted Medium-Term Financial Strategy "back on target'. Major reductions were threatened: that necessary to bring public sector borrowing down to manageable levels was estimated at £2 billion. But eventually cuts of only £1 billion were announced; The Times commented, these were 'more than offset' by an increase of £620 million in the external financing limits of the nationalised industries (to cover losses and fund investment) and £510 million in other policy measures (£52 million for industrial aid. £245 million for special employment schemes Again, Howe's March 1981 Budget failed to cut spending in real terms. General taxation was raised and a £400 million levy on profits was imposed on the banks so that the Treasury would have more money to parcel out to industry. Nor was this the whole story. To finance extra spending on defence, 'law and order' and still more capitalism in one piece, the burden of measures to keep cuts was pushed onto the working class and expenditure on housing and education slashed.

Prospects for recovery We have never pretended that industry could make the transition from where it was to where it needs to be without some transitional help. There is a popular myth - peddled by some leading commentators - that the Government attempted to jump overnight to a complete hands-off policy of non-intervention...."

The revival of a decaying imperialist power such as Britain does not occur automatically, especially in a period of world crisis and ferocious rivalry in the international market. That is why in the background of every bourgeois commentator's picture of economic recovery we find the capitalist state. In rationalising industry, disciplining the new investment, working class, attempting to encourage capital and safepromoting exports of commodities and 18 guarding the nation's interests overseas, the state plays a In their first year of office, the Tories gave little sign of having any 'industrial strategy'. The overriding priority was to make the capitalists see the futility of giving in to double-figure wage demands; little was done to counteract the effects of the crisis on profitability. But since late last year a more interventionist mood has prevailed in Whitehall.

Industrial aid provides one example of the Government's change in tack. Whereas total aid to industry fell to £1060 million in 1979-80, it was expected to rise to €1510 million in 1980-81.36 Though part of the extra funds spent have gone towards staving off the effects of much has been the recession on nationalised industries, Sir Keith Joseph has allocated to plant modernisation.

specifically increased 'technological' aid: in 1980 Dunlop was given £6.1 million to upgrade one of its factories and the National Enterprise Board was allowed an extra £25 million to set up a microchip plant in South Wales. Early this year Joseph agreed to encourage the use of industrial robots by giving firms buying them a 25 per cent subsidy; and he gave ICL, Britain's largest computer firm, a loan guarantee of £200 million - plus £4 million extra to cover research and development costs. 38 Since then Thatcher has personally authorised the expenditure of £80 million on a Government-sponsored campaign to promote research and investment in 'information technology' among ignorant British industrialists. 39 productivity: private capital cannot be left to its own Another aspect of the Tories' covert industrial strategy has been the 'denationalisation' of certain sectors of stateowned industry. Here they have sold shares or have broken the legal monopoly on production to open up potentially profitable areas of investment for private capital. Almost every industry is affected. Private concerns can now compete with British Telecom in selling telephone exchange equipment and telephones; the British Gas Corporation's showrooms are up for grabs; factories generating electricity for their own use can now sell it; British Rail is handing over its hotels to the private sector; half of British Aerospace's shares have been sold to frenzied stock market buyers, and BSC has formed a joint company with GN, integrating its modern rod mills at Cardiff and Scunthorpe with the component giant's new Cardiff steelworks. Furthermore, shares in NEB companies like Fairey, Ferranti and ICL have been auctioned off. 40 Apart from direct/technological aid to industry and denationalisation, the Tories are toying with the idea of using state procurement policy to galvanise private capital into becoming more efficient. John Marshall, Industry Under-Secretary, has explained that the Government wants 'the full weight' of public sector purchasing to be used to 'help make British industry more competitive'.41 words, the £22 billion or so spent each year by central government, local authorities and nationalised industries on direct purchasing (that is excluding salaries, etc) will not only be guided by a more coherent 'Buy British' policy (a policy of which ICL, for instance, has been an important beneficiary, having got a £35-40 million contract from the Inland Revenue for computers in the face of stiff international competition) 42 state contracts will also be used as a weapon with which to compel firms to improve the quality and design of the products they sell.

As we have already pointed out, Government plans to cut expenditure have been thwarted by the demand for funds coming from the nationalised industries. Just about every one has had its external financing limit increased over the past year. But here too we find an element of countercrisis strategy. Sir Keith Joseph, in the speech cited above,

spelled it out clearly: Please note particularly that taxpayers' money is not being spent to keep BSC and BL as they were, but to slim them and make them viable. He boasted that BSC shed 52 000 jobs in one year - nearly a third of its workforce - and BL also got rid of a third of its employees, 57 000, over the past three years. The slimming down operation extends to each state run industry.

The Times recently commented that British Rail's success in getting approval to what could be a 2700 million investment programme would mean a loss of 14 000 jobs.43 These massive investments are indispensible for the survival of British capitalism. Industry cannot be run without an adequate transport and telecommunications network, nor without the basic 'utilities' such as gas and electricity. But the Government is making sure that it imposes 'the most stringent provisions on increased efficiency and higher productivity'.

Whether the bourgeois state relies on new technology, selling off public sector assets, purchasing policy or a more dynamic nationalised sector to encourage capitalist regeneration, the real conditions are prepared by mass unemployment. Unemployment for industry In May 1981 the UK unemployment rate was 10.4 per cent.

Excluding school leavers, more than 2.5 million people were out of work. They are not only used by the bourgeoisie as a means of controlling those workers who still have jobs; they are used directly in the process of restructuring capital. This becomes clear if we look at the Government's regional aid schemes, and in particular at its so-called 'enterprise zones'. In certain areas, designated enterprise zones, the Tories have arranged things so that businesses will be liable for less taxation and rates than elsewhere, and that they will generally be free from 'government interference' To qualify as an enterprise zone, an area must have a high local unemployment level and offer good investment prospects', that is, offer no trade union problems. Eleven such zones have been set up in run-down urban areas, the Government something in the region of €100 million. 45 the state-backed Likewise, to attract new capital, Welsh Development Agency has built 103 factories in Wales in advance of definite commitments on the part of companies to invest; 23 are planned at Shotton, where closures by BSC have caused thousands of redundancies. 46 High local unemployment rates, sometimes twice the national average or even more, are a signal to the bourexploitation necessary to boost profitability. a Companies shut down, or communities disintegrate, regional aid is made available and then the capitalist vultures home in.

The Financial Times recently tabulated a dozen examples of this pattern: most involved overseas companies, and all 31 The Times, 24 September 1980.

32 In 1979 benefits for the unemployed reached their lowest level compared with average earnings since the beginning of the "seventies. Their real value fell below 1974 levels.

Times, 12 December 1980. 33 Between 1974 and 1979, private sector employment fell by 574 000, while employment in central government rose by 223 000, and in local government by 236 000. See Economic Trends, November 1980. In other words, were it not for the 19 expansion of the unproductive services, unemployment under Labour would have been almost half a million higher than it was. There is no doubt that the Tories have a big job on their hands. But there is also no doubt that they are determined to do it, as can be seen from their penalties on local authority 'overspending. See the article "Cut spending or lose f450m Heseltine tells councils, The Times, 3 June 1981.

34 The Times, 25 November 1980.

35 Industry Minister Sir Keith Joseph in a speech on government and industry, reported in British Business, 17 April 1981.

36 British Business, 6 March 1981.

37 The Times, 11 February 1981.

38 The Times, 20 March 1981. In an editorial on the same day, The Times commented: In the mixed economy at a time of prolonged and severe recession it is difficult to pursue a coherent industrial policy of non-intervention. Too true. ICL has been backed by the state since its formation in 1968, and Labour's NEB once held a 25 per cent share in the company.

In 1979, ICL's shares were sold to the private sector; but the firm found itself back in the arms of the Treasury.

39 The Times, 29 May 1981. The proposed merger of the NEB and the National Research Development Corporation into a new body called British Technology is part of the same trend.

40 Increases in gas and. electricity prices and in telephone charges - despite the fact that the relevant supply organisations have been making a profit - are also part of the denationalisation drive. The intention is both to cut the overall financing deficits run up by the nationalised sector (and so force through economies), and also to make it less competitive with respect to private capital. As is the case with higher transport fares and new NHS fees, the result is that the cost of living gets harder for the working class to bear.

41 British Business, 3 October 1980.

42 The Economist, 25 October 1980. Britain is not the only country to organise state purchasing on patriotic lines. See The Economist, 17 January 1981. Somewhat blunting the edge of radical Labour Party criticism on arms expenditure, former Defence Minister Francis Pym has also promised that 70 per cent of the £5bn cost of Trident will be spent in Britain. See The Times, 29 October 1980.

43 The Times, 18 June 1981. The same month, British Telecom's external financing limit was raised by a further £200m. The alternative strategy for Times has now developed its own rescuing British capitalism. While standing fast against spending more money on public sector wages - by giving in to the Civil - it calls for a programme of public sector Servants' strike capital investment to pull the economy out of recession. See editorial in The Times, 16 June 1981.

44 It is well known that these figures understate the real level of unemployment because they leave many women and several categories of the unemployed out of consideration. See The big lie: unemployment statistics, the next step, No 7, October 1980. Financial Times, 7 July 1980 and 6 February 1981.

45 46 British Business, 5 December 1980.

In February 1981, when the UK unemployment rate (exluding 47 school leavers) was 9.5 per cent, local unemployment rates in the following areas were: % 12.4 Birmingham Consett 23.8 Corby 21.5 Coventry 13.2 Ebbw Vale 17.9 Hartlepool 17.8 Irvine 21.1 Liverpool 16.2 Manchester 10.3 Mexborough 18.1 North Lanarkshire 18.3 Shotton 16.0 Wolverhampton 13.1 Wrexham 17.4 Source: Employment Gazette, April 1981

announced in the space of two months.48 Yet even rapidfire investment like this will not stop local unemployment from rising. Capital continues to get rid of jobs at existing plants, and makes people work so hard at new ones that employment creation is minimal.

One final development to take account of here is the emergence of that unlikely saviour of British capitalism, the 'small businessman'. Not simply a figure of Tory mythology, he too is a product of the restructuring process.

The praises sung to him are, on the one hand, an indictment of the inability of large corporations to be sufficiently flexible to meet the demands of the market. On the other, they reflect capitalism's need to develop a healthier group companies. Entrepreneurs unhindered by of competitive trade union obstacles or government will be able to adapt to changes in the market with vigour. Of course, small businessmen will not appear without the help of subsidies from the state; at present, indeed, they are going bankrupt by the thousand. But, as one journal has noted, 'the small firms sector is the only sector which, in manufacturing, is showing a net tendency to increase employment'.49 In addition, Britain's export base appears to be becoming more decentralised: while in 1975 259 companies were responsible for 66 per cent of UK visible exports, by 1978 the figure had increased to 337.50 It is not surprising, therefore, that Howe's March 1981 Budget contained measures granting new businesses tax relief on the first £10 000 they invest, nor that these measures have since been made still more 'helpful' to small capitalists.51 Fighting for surviva British capitalism is trying to put its house in order by any means possible. Each tactic it adopts demands that it crush opposition from the working class. Each also intensifies the battle with its rivals on the world market. It must fight for survival internationally too.

No longer is the demand for import controls the special preserve of the defenders of British capitalism in the labour bureaucracy; nor is it confined to the beleaguered capitalists in the textile and clothing industries. Over the past year calls for import controls - 'planned trade' - have grown in stridency. The chairman of British Shipbuilders 'something done' about the Japanese to protect 'European' and a London Chamber of Commerce and Industry poll has shown that 59 per cent of companies want selective import controls. Meanhigh street shops and supermarkers are more and more festooned with Union Jacks and certificates of British origin, and advertisements placed by British manufacturers take an unashamedly aggressive stance towards their foreign For the moment the state is against obvious controls on imports, apart from those the EEC as a whole imposes; instead, it concentrates on taking action against 'unfair' trading practices. Not only does it fear too quick a slide into trade war, it appreciates that foreign competition is a useful weapon for British industry. Besides, industry needs imports because they are often cheaper. A recent Government White Paper on the development of trade policy puts in reaching decisions on UK trade policy, the government had to balance the different interests involved: those of manufacturers, both as sellers of finished products and as users of intermediate products, and those of consumers in being able to buy both domestic and imported products at competitive prices, In individual cases, this balancing might come down for or against protective action.

20 On the side of exports, Britain has to strive for competitiveness with the other imperialist powers since its export markets are concentrated in their economies.

it must push into other markets too, particularly those in backward capitalist countries. BL is stepping up vehicle exports to Africa, and expected £125 million sales there in 1980.54 Earlier this year, GEC concluded the largest single export order won by British industry, a £550 million deal for a power station for Hong Kong.

called it 'the outcome of a remarkable degree of coordination between Government, industry and the banks the sort of "Great Britain Incorporated" effort which is frequently extolled by industry commentators as the only way to win major export orders but all to infrequently in Britain' 55 'Great Britain Incorporated' is indeed pushing ahead, led by the state. Apart from Britain's foreign 'aid' programmes, which brought in £275 million of tied exports in government ministers are helping British businessmen win contracts in markets all across the world. Thatcher can hardly step off a plane without informing the potential clients of the merits of British products and services.

But commodity exports are not enough. Since domestic profit rates are falling, the export of capital is on the ascent. Pilkingtons, the glass manufacturer, is only one example. Why? Because the company made a loss of £12.1 million in 1980 on its British operations, compared to a £24.1 million profit in 1979. At the same time profits on overseas investments more than doubled to £60.3 million This is a general trend. In 1980, British direct investment overseas rose by £2881 million and overseas earnings 58 Portfolio investment on it went up to £2645 million.

abroad by banks and financial institutions has also risen to record levels: there was an outflow of more than £4 billion during the 15 months up to March 1981.59 investing in industry, British capitalists are taking out insurance on its collapse. As Sir Raymond Pennock of the CBI has noted, North Sea oil 'provides the means by which the UK can invest abroad and so in turn provide some assurance of continued income from abroad in the future when our oil revenues decline' 60 When it comes to insurance, the bourgeoisie is realistic.

At home it is determined to secure the conditions for profitable production by oppressing the working class.

Abroad it looks for other lucrative sources of revenue. It goes beyond narrowly 'economic' considerations, however, and attempts to make sure it can back up its aims with the force of arms. That's why, in line with more measures to 'keep the peace' at home - greater police powers, and a bigger police force, legal restrictions on trade unions, the Nationality Act for blacks - we see the state preparing to assert itself abroad as well. British imperialism is not rearming just because the Tories are warmongers, but because rearmament is what any power in a hostile world must do.

The Government is not intransigent in its dealings with the Irish republican hunger strikers just because it is made up of outrageous reactionaries, but because it knows that any challenge to British supremacy cannot be tolerated today.

Conclusion Our analysis has shown that the current world recession is considerably more grave than that of 1974-75 and that more and more of the capitalists' escape routes are being blocked off. This is particularly true of the British capital-

ists. They are being driven to try ever more bizarre approaches to get out of the crisis they face, from working with machine tools that are only borrowed to buying up banks on Wall Street. At the moment the bourgeoisie has had some success in making the working class pay for its problems and in setting about the restructuring of capital. 61 This is mainly because workers have yet to be convinced that the recession is, we have demonstrated, capital's fault, not theirs.

has not really understood this point. It makes ritual references to the 'contradictions of the system', but in practice it puts the crisis down to a few evil monopolists, bankers Our analysis has shown that the crisis is not about personnel. It is about a decrepit and historically transient mode of production. Until socialists begin to get this point across - in all its complexity - that mode of production may still survive. But workers will not.

Financial Times, 3 March 1981 The Banker, November 1980. Some Tory MPs have even lobbied for the creation of a Ministerial post responsible for small businesses. See the Financial Times, 13 October 1980. Even big capital is interested in small firms as a means to promote industrial regeneration. Nine major banks and companies, including Barclays, Midland, BP, Shell, IBM and GEC, have recently got together to form a body known as the London Enterprise Agency in order to encourage the growth of small companies.

See the Financial Times, 30 December 1980.

British Business, 8 August 1980.

50 The Times, 5 June 1981. 51 Reported in British Business, 29 May 1981.

52 53 Britain's top 10 markets in 1980 were as follows: 1980 value (Ebillion) Country Federal Republic of Germany 5.1 4.5 United States 3.8 Netherlands France 3.6 2.6 Irish Republic 2.3 Belgium/Luxembourg 2.0 Switzerland 1.9 Italy 1.6 Sweden 1.2 Spain Source: British Business, 13 March 1981 54 Financial Times, 21 October 1980.

55 Financial Times, 31 March 1981.

Financial Times, 28 October 1980.

56 The Times, 13 June 1981. 57 58 Economic Trends, March 1981.

59 Financial Times, 10 June 1981.

CBI, Investment abroad and jobs at home, November 1980.

60 Bank of England's recent Quarterly Bulletin (June 1981) 61 The bones about what it still demands from British makes no workers: much higher productivity and 'negligible' wage increases for a number of years' to boost British competitiveness.

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