Stock market crash: A new world situation LE QUOTIDIEN

Socialist Action, Vol. 6, No. 1, January 1988 · scan pp. 7–11 · Ernest Mandel · about 7,251 words

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Noted Marxist economist Ernest Mandel examines the Marxist economist Ernest Mandel examines impact of the Oct. 19, 1987, stock market crash. Evaluating the different links in the world capitalist economy that were undermined and weakened by the crash, Mandel details profound changes in the world situation.

This article, reprinted from the Nov. 23, 1987, issue of International Viewpoint, is based on a talk to a meeting of the Ligue Communiste Révolutionnaire, French section of the Fourth International. The article is slightly abridged for Les Boures mondiales dans la tourmente LE CRASH 5:32 The world situation has undergone a very profound change. The capitalist system suffered a very severe blow on Oct. 19, 1987. This turning point is a genuinely global one. Simultaneously, we are seeing the development of a crisis in the capitalist countries and a particular crisis of the system in those countries dominated by the Soviet bureaucracy.

These two processes taken together are creating a world that has little in common with the one that came into being after 1945, or after Yalta, as is sometimes said.

Stock market vs. "real" economy The first notion that has to be cleared away is the claim that there is a separation between what has happened on the stock market and what is happening in what some commentators call the "real" economy. Supposedly, the stock market was in an unhealthy state, and that is why it experienced a drop; but the real economy is healthy and therefore the economic outlook is not bad. This claim is totally illogical.

To comprehend how illogical this notion is, you only have to look at two key figures in the market losses. In the United States alone, $1.2 trillion was lost in the space of two weeks-that is, more than the Third World debt built up over the last 20 years. In two weeks, stockholders in all the imperialist countries lost $1.6 trillion, which is equivalent to 80% of the national debt of the United States, the richest and most powerful country in the world.

These two figures show that it is totally absurd to believe that this is simply a stock market phenomenon without any impact on the economy.

All the serious economists—not just Marxists, but all those who swear by "the power of positive thinking"— have pointed out that such losses will certainly mean a fall in consumption. The yuppies are going to buy fewer Jaguars and BMWs. That's all right for them, but not for the Jaguar and BMW factories or the workers in those factories. A drop in consumer spending, including on luxuries, is going to be reflected by a drop in employment.

Much than CAMBIE 10O: 313 TacA es 33 ... a boscasa pros osa la do 1930 No y spending, the stock market losses are surely going to lead to a reduction in plant investment. On this question there is another myth that needs to be exploded: the notion that the losses caused by the fall in stock prices are only paper losses-accounting losses-because no one has to sell stocks that have fallen too low.

Leaving aside the fact that a lot of these stocks have been sold, that the losses have been taken, various commentators forget rather easily that these are the stocks of very real industrial, banking, transport, and other firms.

They represent a not insignificant part of the assets of these companies and, as a result of the losses suffered on the stock market, these companies are finding the relationship between their assets and debits upset. This means that their possibilities for getting credit and financial investment have been severely cut back.

These losses indicate it is simply absurd to claim that what is happening on the stock market is detached from what is happening in the real economy. But it is also necessary to examine the other aspect of the problem. Not only does the stock market crash have consequences for the real economy, but the causes of the crash have nothing to do with a purely stock market phenomenon.

Stock prices reach absurd levels It is being said-and this is true in the formal sensethat the immediate cause of the fall in stock market values was the rising rate of interest in the United States in the weeks and months preceding Oct. 19. The average rate went from 7.5% to just over 10%.

There is a rule, to be sure a theoretical one, that the price of stocks on the market is the capitalization of dividends; that is, the incomes of these stocks in comparison with the average interest rate. There is an automatic movement: If interest rates rise, stock prices fall.

It is also true that some stock exchanges, especially Tokyo, Hong Kong and New York, had reached totally absurd and irrational levels. On the New York stock exchange, prices had risen to the point where the average dividend no longer paid more than 2.5% interest. In Tokyo, prices rose to the point where the return on stocks was only 1.5%. These two percentages are lower than what you would get from just depositing your money in a bank.

Continuing to buy stocks in these conditions no longer made any sense from the standpoint of possible returns. It was a purely speculative operation, unrelated to the return on the stocks. So technically you could say that a fallback was inevitable.

Some people have also lightmindedly suggested that the use of computers tended to amplify or accelerate the movement. At a certain moment, the operators no longer saw anything but the screen. The screen said "sell," and so everyone sold. This is a rather facile explanation. The computers could at most amplify a movement that had other causes than the shortsightedness of inexperienced young people employed in buying and selling shares.

First simultaneous crash What is more important is the ultra-rapid internationalization of the crash. This is the first time we have seen a stock market crash in all the capitalist countries at once. In 1929, the crash only hit Wall Street; the other markets were hit only after a certain delay. This time the delay was not even 24 hours in duration.

Fundamentally, there is a question that links the stock market to the real economy, which in turn, links an analysis of the crash to the present capitalist epoch. And here I think Marxists are the only ones who offer more than a superficial analysis.

Since the beginning of the long wave of depression— that is, from 1974 and the start of the first generalized recession in the international capitalist economy since World War II—we have entered into a period characterized by an average growth rate less than half that of the preceding 25 years. This is reflected by a constant rise in unemployment during all the conjunctural ups and downs. In the imperialist countries alone, 40 million people have no jobs.

During this long depressive period, the accumulation of capital has, of course, continued. There is no such thing as a never-ending crisis. There are always periods of recession followed by periods of upturn. We had a recession in 1974-75, and another in 1981-82. We had an upturn after that recession that lasted from 1983 to 1986.

But what strikes observers and analysts who take more than a superficial view, is that during these upturns productive investment in new factories has not followed the cyclical upturns. Here I mean productive investment in the broad sense of the term; not just in manufacturing, but also in tele-communications, transport, electricity, gas, and infra-structure projects. There has been less and less productive investment.

A study has just appeared in Germany that shows that despite the lowering of taxes, despite a sharp increase in profits in 1982-87, productive investments by the big German firms are barely half what they were in the early 1970s.

Crisis of overproduction

There has, thus, been an enormous over-accumulation of capital that has not been invested productively, and the reason for this is simple. Enormous surplus capacity, enormous real or potential overproduction, is weighing down on the market.

There are already many cars, too many (continued on page 8)

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too many electrical appliances, and in these conditions no one is going to play around by adding more enormous factories to those that already exist. I am not talking about small factories or workshops, but factories of the same type and scale as those that were the driving force of the post-World War II economic boom.

The capitalists had hoped (and many ideologues, even in the workers' movement, repeated this hope that new products and new industries such as computers, personal computers, and robotics would take over from cars, electrical appliances, and construction.

This is because these latter industries played the essential role in impelling the post-war expansion. But all you have to do is look at the production and sales figures in the new industries to see the capitalists' problems today. Barely 10% to 15% of homes have personal computers, and only 2% to 3% of jobs have been eliminated by robots.

Over-accumulation of commodities

These new industries and products are not taking up the slack, and in these conditions, combined with the over-accumulation of capital—or more precisely the over-accumulation of commodities and the impossibility of selling them—a good deal of capital remains in liquid or semi-liquid form, seeking to be invested elsewhere than in production (factories, manufacturing, etc.).

In fact, aside from some small dealings, like works of art, there are not a lot of alternatives for investing $100 billion, $200 billion, or $300 billion a year. I say a year because that is the scale. You cannot invest $300 billion a year in Monet or Breughel paintings, or in gold; that is not possible. There is only real estate or the stock market. There are no other outlets for that kind of money. And so the wealth of new capital has been flooding into these areas for many years.

This is what explains the dizzying rise in the price of stocks, land, and housing in most of the world's big cities. These price increases have nothing to do with any economic return or economic rationality. They are simply the result of the fact that enormous capital has flowed into these markets, and through the law of supply and demand prices are shooting up.

Decline of U.S. dominance Another factor in this new situation is the role of the United States. The United States continues to be the world's main market. It alone accounts for almost 40% of the world's imports.

A good part of these liquid or quasi-liquid holdings have flowed to the United States simply because there was no other opening. You certainly won't see the oil sheikhs or the Japanese capitalists investing $300 billion in Norway or Tanzania because there is nothing to buy on that scale in those countries.

But, at the same time, the competitiveness of U.S. industry or, more precisely, the dominance of U.S. imperialism in the capitalist world, has been constantly and irrevocably undermined for more than a decade.

I will give one figure to show how rapid this decline has been. Between 1981 and 1986, the U.S. share of world exports dropped from 20% to 13.8%. Never before in the history of capitalism has there been such a rapid decline. If you look at Britain's decline, it stretches over several decades. Such a decline in five years is extraordinary. Of course, Reagan's policies are responsible for part of this, but it is still extraordinary.

Here we are at the center of an analysis of both the structure and cause of the stock market crash. This situation means, and this is the contradiction, that foreign capital was rushed to the United States at the very moment that a permanent deficit set into the U.S balance of trade. The United States is importing more and exporting less. (Of course you have to keep a sense of proportion. A country like France, for example, would be very happy to have the U.S. export figures.)

Taken together, this flow of capital into the United States and the growing U.S. trade deficit led inevitably to two results: The first was the continuing decline of the value of the dollar against other currencies. Once again, this was inevitable. The United States needs more yen, marks. Swiss francs, and Dutch guilders-even a few French and Belgian francs-to pay for their imports. Thus, the demand for foreign currencies rises more sharply than the demand for dollars-and the dollar drops.

The United States has to attract foreign capital and accomplish this with a national currency of declining value. So, they had to set interest rates substantially higher than those obtained in Tokyo, in Frankfurt, in Zurich, or Amsterdam. In fact, U.S. interests rates include what you could call an insurance premium against a devaluation of the dollar to the order of 3% to 4%.

It is well known that those who had the most to gain from these movements of reorientation, of restructuring B SOCIALIST ACTION JANUARY 1988 of international capitalism, are Japanese finance capitalists who export capital to the United States. They are doing this at the rate of $140 billion to $150 billion a year—nearly $12 billion a month!

Such a volume of capital exports has never been seen before in the history of capitalism, even at the peak of the British empire. In August of this year, however, this figure fell abruptly by 90%, from $12 billion to $1.1 billion. This produced a panic on Wall Street and in Washington, D.C.

The Japanese might not continue to cover the deficit in the American balance of trade. They began to withdraw from the New York stock exchange. As a result of this Japanese withdrawal, interests rates were pushed from 7% to 7.5%. This, in turn, caused a panic where stock prices on Wall Street collapsed.

Here you can see how the purely technical mechanism of the stock market is linked not only to the structural features of late capitalism, but to the shift in the inter-imperialist relationship of forces, with all its consequences.

The fall of the dollar The fall of the dollar has sometimes been presented as a sort of conspiracy by U.S. imperialism to punish its partners and competitors and to reestablish its balance of trade. From a purely technical point of view, the results are not convincing.

It is true that when the dollar drops, exports become cheaper. But it is also true that imports become more expensive. While the effect on imports, notably oil imports, into the United States is immediate, the effect on exports comes only in the medium term-and sometimes recedes altogether to a distant horizon.

The effect can be the opposite of that intended. The trade deficit can increase despite the fall in the dollar. That happened in August and September, and frightened the market specialists, the speculators. This is one of the psychological explanations for the Oct. 19 drop in stock prices.

However, there is a more important, more structural aspect than this formal one. When the dollar declines, exports are stimulated, but at the same time all the real assets in the United States-factories, stock, land, buildings—become cheaper for foreign capitalists. Japanese, German, Swiss or Dutch capitalists today can spend 40% less than they did two years ago to buy the same factories, stock, land, or buildings in the United States.

Therefore, any plot by U.S. imperialism to just let the dollar fall would mean they were following a half-witted policy of deliberately selling off their assets to foreign capitalists. I don't believe that, especially not in the epoch of imperialism.

Nor do I think that there has been a deliberate U.S. policy of facilitating the purchase by foreign capitalists, not only of factories producing needles or sewing machines, but also missiles and even components for nuclear missiles. Why should they do that? They would have to be totally crazy to do such a thing. Moreover, they are not doing it.

Where the U.S. draws the line The proof of this is that the Japanese managed to buy the biggest bank in the United States. It is the first time in the 20th century that such a thing has happened. But when they wanted to buy Fairchild, which is one of the high-tech arms and electronics factories, the U.S. administration said no, we will not tolerate that, we are in the age of imperialism, not of laissez-faire when governments took no interest in the way factories were used.

Controlling your own arms industry is no trifling matter for imperialists in the world we are living in. The conclusion that flows from this is that the investment of gol foreign capital in factories is still largely blocked, not by the market but by the intervention of the U.S. government. So, this enormous mass of capital floods into financial instruments, the stock market, and real estate.

In Los Angeles, the second largest city in the United States, 75% of the big buildings are today foreign-owned. And that is only a sign of the times if the Americans let the dollar fall. This trend is growing and threatens to produce fundamental shakeups in the structure of monopoly capital on an international scale.

De-industrialization and restructuring To characterize the policies of Prime Minister Thatcher and President Reagan, people have talked about a wholesale de-industrialization of Great Britain and the United States. But this characterization is both premature and superficial.

In the epoch of imperialism, de-industrialization carried all the way means a loss of military and economic power. What if you let your missiles be built in South Korea or Taiwan? Can you see the United States depending on a socially and politically unstable South Korea?

So, this trend must be reversed. And the enormous devaluation, the enormous loss of value of finance capital since Oct. 19 marks the beginning of this restructuring. The pendulum is going to swing back, and it is no secret to say that this will be accomplished by political changes.

A certain political personnel have conducted this deindustrialization and offered this windfall for speculators. But another political personnel is going to carry out a policy leading in the opposite direction.

In the United States, the Republicans are going to lose the upcoming elections. I think, without claiming to be a prophet, that the right is going to lose the presidential elections in France. For the same reason, I think that if there were elections in England today, Thatcher would lose them, and that social-democracy, with its semi:.. While inflation has been on the decline for the seven years, it is inevitably going to rise again, the United States... And it is going spread to countries of the Third World... and to the weaker capitalist countries, like France, Italy, and Britain." et crash

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ional capitalism, are Japanese finance ho export capital to the United States. They is at the rate of $140 billion to $150 billion ry $12 billion a month! lume of capital exports has never been seen e history of capitalism, even at the peak of impire. In August of this year, however, this Ibruptly by 90%, from $12 billion to $1.1 s produced a panic on Wall Street and in , D.C. lese might not continue to cover the deficit in in balance of trade. They began to withdraw ew York stock exchange. As a result of this thdrawal, interests rates were pushed from 7% is, in turn, caused a panic where stock prices eet collapsed.

can see how the purely technical mechanism ‹ market is linked not only to the structural late capitalism, but to the shift in the inter: relationship of forces, with all its The fall of the dollar if the dollar has sometimes been presented as inspiracy by U.S. imperialism to punish its I competitors and to reestablish its balance of a purely technical point of view, the results 'incing.

that when the dollar drops, exports become it it is also true that imports become more expensive. While the effect on imports, notably oil imports, into the United States is immediate, the effect on exports comes only in the medium term-and sometimes recedes altogether to a distant horizon.

However, there is a more important, more structural aspect than this formal one. When the dollar declines, exports are stimulated, but at the same time all the real assets in the United States-factories, stock, land, buildings-become cheaper for foreign capitalists. Japanese, German, Swiss or Dutch capitalists today can spend 40% less than they did two years ago to buy the same factories, stock, land, or buildings in the United States.

Controlling your own arms industry is no trifling matter for imperialists in the world we are living in. The conclusion that flows from this is that the investment of foreign capital in factories is still largely blocked, not by the market but by the intervention of the U.S. government. So, this enormous mass of capital floods into financial instruments, the stock market, and real estate.

In the United States, the Republicans are going to lose the upcoming elections. I think, without claiming to be a prophet, that the right is going to lose the presidential elections in France. For the same reason, I think that if there were elections in England today, Thatcher would lose them, and that social-democracy, with its semiliberal allies, those who embody the neo-Keynesian policy, are generally going to rise again.

After 10 years of misadventures of an all-out free enterprise offensive, the neo-free enterprisers are on the ropes today. In history, there has rarely been a shift in the dominant ideology of the ruling class as fast as the one we have seen in the last two weeks.

Great admirers of market forces?

On the front page of the Oct. 26, 1987, International Herald Tribune, there was an article reprinted from the New York Times. The article started with the following extraordinary phrase, which a month ago no social-democrat would have even dared to write:

"The world risks being thrown into a grave depression; everything depends on whether the uncontrollable forces of the market will throw us into chaos or whether reasoned and reasonable intervention by governments will get us out of this impasse." These words are the classical statist credo in a period of crisis. Where is faith in the market?

After Oct. 19, there was official intervention by the Canadian and U.S. governments to save some big brokerage houses. In Canada, the biggest risked losing $1 billion French francs. Finally there was a compromise, with a part of these losses being absorbed by the Bank of England.

This is how much the climate changed within the space of a few days. The creed of the market economy, the free enterprise virtues of egoism and "enrich yourselves," all dissipated, and the singers of its praises went back to their Keynesian and neo-Keynesian amours, supplicating governments and public authorities, as General de Gaulle once said, to "do their duty."

Budget deficit

But there is a glaring contradiction in this appeal for public intervention, a painfully obvious basic absurdity. All the governments in the imperialist world are raging at the United States, demanding that it put a stop to its deficit spending.

Meanwhile the United States, as monetarist as it is, and as conservative as Mr. Reagan is, was the first to apply a neo-Keynesian policy of expanding global demand to get out of the 1980-82 recession. In fact, budget deficits are the most classical form of neoKeynesianism—deficit spending, increasing demand or the volume of money, it all comes down to the same thing.

Obviously, you can argue about how this deficit spending is allotted. Here the neo-conservatives get their due through military spending and gifts to the rich through tax reform. Spending on public works has been cut back. Today, half of the bridges in the United States are no longer safe because there has been no investment in public works for years.

In the area of social spending, they have been more careful about medical insurance, which is as sacrosanct in the United States as it is in Europe. Aside from Medicare and Medicaid, however, they have slashed social spending, as have conservatives throughout the world.

Debt-laden South America (Total foreign debt of some South American countries, in billions ) 32.4 1210110 10.3 10.6 UN Economic Commasson for Lama Amunico. IMarion Economerne Foracaorag A980 SKiL SURE PLING But overall, espec military budget, there 1 the volume of money. upturn, from which all the swollen American only capital, but espec These goods are not a lesser extent Italian, also commodities f industrialized Third W a degree), South Kore these countries have a United States.

Thi One of the least undi of the way the capitali question of the Third' be repaid; no one d onerous service on ti countries concerned imperialist countries.

Where else would t means that by insisti United States, the Inte World Bank are insi! balance of trade incre: says, "that's it, the marvelous mechanisn capitalist economy a fr the last five years will If there is no long States, the American ‹ will shrink. That wil German expansion. payments by South K and so on. And reces States to all the capita Wor This is inevitably : will be a recession unc 82 recession. Becaus decline for the last fi going to rise again, at also in Japan and Ger States. And from the to all the countries o high inflation will be weaker capitalist col Britain.

There are a whole : government has doi nonsense. It wanted tr halt the fall in the sto but in order to do this if you inflate the mone money, obviously yo rate will go up again.

The Japanese have American paper, and U.S. Treasury Bonds be another issue of T

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liberal allies, those who embody the neo-Keynesian policy, are generally going to rise again.

Great admirers of market forces?

"The world risks being thrown into a grave depression; everything depends on whether the uncontrollable forces of the market will throw us into chaos or whether reasoned and reasonable intervention by governments Will get us out of this impasse." These words are the classical statist credo in a period of crisis. Where is faith in the market?

Budget deficit

Meanwhile the United States, as monetarist as it is, and as conservative as Mr. Reagan is, was the first to apply a neo-Keynesian policy of expanding global demand to get out of the 1980-82 recession. In fact, in the decline for the last five to at yoing to spread to all budget deficits are the most classical form of neoKeynesianism-deficit spending, increasing demand or the volume of money, it all comes down to the same thing.

Debt-laden South America (Total foreign debt of some South American countries, in billions )

32.4 AB 2.7 4.3 6,2 10310 10.3 10.6 Paraguay in Bolivia Uruguay Ecuador Colombia Peru Chile Venanual Argentl. Brazil UN Econome Commation for Lata Amarica. VMarion Economale forec rating ARRo SURE, THE DOW'S BIC PLUNCE SCARED ME.

But overall, especially in view of the expanding military budget, there has been an increase in demand, in the volume of money. This produced both the economic upturn, from which all capitalist countries benefited, and the swollen American domestic market that attracted not only capital, but especially commodities.

These goods are not only Japanese and German, and to a lesser extent Italian, French, British, and Belgian, but also commodities from a whole series of semiindustrialized Third World countries—Brazil, Mexico (to a degree), South Korea, Taiwan, Hong Kong. Today, all these countries have a balance of trade surplus with the United States.

Third World debt

One of the least understood and most irrational aspects of the way the capitalist economy functions today is the question of the Third World debt, a debt that will never be repaid; no one disputes that. But even the very onerous service on this debt can only be paid if the countries concerned have a trade surplus with the imperialist countries.

Where else would they get the dollars to pay it? This means that by insisting that the interest be paid, the United States, the International Monetary Fund and the World Bank are insisting that the deficit in the U.S. balance of trade increase. But if today the United States says, "that's it, the deficit has to end," the whole marvelous mechanism that has kept the international capitalist economy a fraction of an inch above water over the last five years will grind to a halt, and it will sink.

If there is no longer a budget deficit in the United States, the American domestic market and U.S. imports will shrink. That will mean an end to Japanese and German expansion. It will mean an end to interest payments by South Korea, Mexico, Brazil, Argentina, and so on. And recession will spread from the United States to all the capitalist countries.

Worldwide recession

This is inevitably going to happen in 1988. And it will be a recession under worse conditions than the 198082 recession. Because while inflation has been on the decline for the last five to seven years, it is inevitably going to rise again, at least in the United States. Perhaps also in Japan and Germany, but certainly in the United States. And from the United States it is going to spread to all the countries of the Third World, where already high inflation will be accentuated. It will also reach the weaker capitalist countries such as France, Italy, and Britain.

There are a whole series of reasons for this. The U.S. government has done something that is economic nonsense. It wanted to lower interest rates at any cost to halt the fall in the stock exchange. It had some success, but in order to do this it inflated the monetary mass. And if you inflate the monetary mass with an already devalued money, obviously you revive inflation, and the interest rate will go up again.

The Japanese have already virtually stopped buying American paper, and in particular, they stopped buying U.S. Treasury Bonds in August. This month there will be another issue of Treasury Bonds, and if the Japanese COOPERATION FROM THE EUROPEANS AND A BIT OF LEADERSHIP FROM THI PRESIDENT AND CONGRESS ARE ALL THE MARKET NGEDE SELL EVERYTHING. prove reluctant to buy them, interest rates will go back up by a point, two points, or more. When the rate of inflation is already 5%, you can see the results that will ensue, in addition to higher prices for imports. The two will combine.

The question is posed of replacing a U.S. budget deficit with a German and Japanese expansion to avert an international recession. This does not seem very realistic for two reasons.

First of all, Germany's domestic market has a population of 60 to 65 million. This cannot replace the market of 240 million in the United States. Germany cannot import the same volume as the United States from Brazil, South Korea, Taiwan, and Mexico. The second reason is that Germany and Japan have themselves experienced a parallel evolution, and their productive investments have been very, very limited, even in Japan.

With an eye toward quick profits, the big Japanese firms have practiced financial investment and speculation at the expense of production. The last big wave of investments was in color TVs. They flooded the world with these gadgets, but now that is over. There is no equivalent new impulse. So, they have thrown themselves into financial operations. In these conditions, the Japanese domestic market, with wages 40% lower than in Europe, cannot absorb a major volume of commodities.

No authority over capital But there is a deeper reason for this insoluble problem, and that is the internationalization of capital, of speculation and the stock exchanges. Underlying this are big international firms producing on a world scale independent of each other. There is no supreme arbiter that has the power to impose its authority worldwide over capitalism.

Capital continues to be politically and militarily fragmented into states with varying degrees of independence from each other. This reflects fundamentally private property, competition and the use of the state by factions of capital organized nationally to defend their own particular interests.

We are watching a tragic spectacle for the capitalist world. They shout wildly that we are all in the same boat, but they prefer that their neighbors fall into the water tafore them! This is what has dominated the international monetary and political scene since the beginning of the long depression.

This is true even in Europe, where it is clear that the only solution for the European capitalists is finishing the reconstruction of a European economy and transforming the European currency unit (ECU) into a real currency. This is the only solution for averting a grave recession. But even for the German and French, who are ready to have a common army and to pool together a few miserable thousand million dollars; the watchword remains "Yes, but.."

Even this absolutely necessary unification will not take place in a period of crisis. On the contrary, (continued on page 10)

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... Crash (continued from page competition, contradictions and inter-imperialist rivalry sharpens. I am not saying that the Common Market is going to collapse, but the status quo will remain. They will be unable to take the big step they need to, if only to avoid a grave recession.

How bad will it be?

So, I will end with three questions. The first is the scope of this recession, a recession that is inevitable because of everything that has happened over recent years. It will probably come at the beginning of 1988. But the time is not so important. We are concerned with general trends, not with making predictions.

Will this inevitable recession be more or less of the same type as the 1974-75 one, or the 1980-82 one, or will it be much graver? It is still too early to answer this question. The chain of the capitalist economy has broken at its weakest link: the stock markets.

Two other links are now threatened. The first are a series of brokerage houses and commercial banks that immersed themselves in stock market speculation on a grand scale and have over-drafts of tens of millions of dollars, which governments or central banks may or may not bail out. Probably, they will be bailed out, although it is hard to tell to what extent. That will be decided in the coming weeks.

The other weak link is a series of countries successive phases of recession, stagnation, and new recession.

The second question is the social consequences of all this. For the vast majority of working people this is the question of social security, the finances of which are in a bad state in every country. This is the cumulative result of 15 years of depression and mass unemployment.

Social upheaval

There has been an attempt to straighten this out, because the capitalists, to say nothing of the reformists, know perfectly well that this is where the most explosive material lies, where the masses might fight back the hardest. These social programs were the most important gains for working people, especially health insurance and pensions.

But if the finances totally break down, if state resources shrink because of the recession, I think that this link is going to be threatened. I am not necessarily saying that it is going to break, but there is a direct connection between the economic and social crisis.

Today, there are 31 to 32 million officially registered unemployed in the imperialist countries. The real figure, cited by the BIT (International Work Bureau) is nearly 40 million.

We have to realize that together with the families of the unemployed, this represents nearly 100 million people just in the world's richest countries. If this figure increases by 10% or 15% in the coming recession, we are not so far from a grave crisis, despite social security and despite unemployment insurance.

Worldwide impoverishment

hours in the Soviet Union are wasted. Second: There are four times more tractors in the USSR than in the United States, but the USSR produces less wheat than the United States. This leads to constant shortages that force the Soviet Union to spend billions of dollars each year importing wheat from capitalist countries.

These two figures suffice to prove that the crisis is specific to this regime. However, the theoreticians who claim capitalism has been restored or that state capitalism exists in the Soviet Union are at a loss to explain this: Stock markets have collapsed in all the capitalist countries, but not in Moscow or Peking. There's another economy there, that's clear. Anyone who cannot see this is denying reality. These economies are not playing the same game, according to the same rules, in the same structure.

This does not mean that the USSR's is a perfect economy that functions well. It has its own crisis, its own problems. The Soviet leaders are more or less powerless to deal with them. They are completely disoriented and there will be no big changes. This year, the growth rate of Soviet industry has fallen below the level it had reached in Brezhnev's last year.

There is alot of noise-which is good; there has been a good deal of openness, which is even better; and some glasnost, which is insufficient. But little has really changed and nobody predicts real changes in the months and years ahead.

Soviet and American workers to center stage So what do we mean when we say that the world situation has profoundly changed? As I said, we have

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considerations of style and space. isiderations of style

¡PANICO EN NEW YORK, TOKIO Y EN LONDRES!

Death of the Bull

"You cannot invest $300 billion a year in Monet or Breughel paintings, or in gold; that is not possible There is only real estate or the stock market."

66 While inflation has been seven years, it is inevitably

the United States... And it is go countries of the Third World...: countries, like France, Italy, an

›u cannot invest $300 ion a year in Monet or 'ughel paintings, or in 1; that is not possible. e is only real estate or the stock market."

Paraguay Fe Bolivia Uruguay Ecuador Colombia Peru Venen Asanll Brazi

the decline for the loing to rise again,

.. and to the weaker capitalist and Britain."

BUT, HEY, SOME PROGRESS ON THE TRADE DEFICIT, A LITTLE