- RSW 02 Page 5 -
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I was going to start this article by saying that the eyes of the 'international community' (the world's rich people) are fixed on Wall Street - that as long as the American Stock Market holds, the current world economic crisis will not develop into a full blown international recession. But I caught the radio news while having breakfast in a Totterdown cafe and the first item was a major slide on Wall Street (nearly 6% drop, 2nd biggest in history - ed). Many people can remember where they were when they heard that Princess Di died. I remember where I was when the stock market crashed.
If Wall Street crashes (as many observers believe it will), what will happen next? Several things in quick succession. Someone said to me once that to be involved in British politics during the miners strike was as if someone had suddenly turned the lights on. Events were so fast moving and the battle so desperate that relationships and interests that had previously been hidden or confused were suddenly naked and clear. Similarly, if you want to understand the world economy better, now is the time to take notice.
The first thing that will happen if Wall Street crashes will be 'the flight to quality'. Capitalists and others who have speculated on the great bull run in shares will try to get out of the market and put their money where its value will not be eroded. The two destinations of frightened money will be the Government bonds of countries with low inflation risks and strong, stable domestic systems. Three candidates are obvious - the US, Germany and Switzerland. Money flooding into these bonds will boost these currencies putting increased pressure on all other currencies trying to shadow them. The EMU will be put under intense pressure. And the US will be threatened by a flood of cheap imports.
The second consequence of a crash of the US stock market is that consumer confidence within the US will collapse. The US market is so high precisely because more people than ever have sunk their savings in it. The savings of middle class America are riding on Wall Street as they were in the 1920's. If the market goes, then these savings will be savagely cut. People will stop spending freely. The housing market will fall and discretionary consumer items (expensive clothes, luxury cars) will stop being bought.
The third consequence of a crash will be that all businesses will review their production plans. Expansion plans will be axed. Production plans will be cut. Unprofitable businesses will be ruthlessly closed.
During the coming months there will be much media comment on economic events - some very good - some just whistling in the wind (i.e. of the 'there is no need to panic' variety). Two key facts must be remembered - capitalism is not a conspiracy in the sense that the ruling class does not control the economic system. They have the economic power and profit from the way the system is organised - but it is a monster beyond their control. And secondly - capitalism is not a zero-sum game. If there is a recession in Japan that is not always good news for America. In a crisis - the whole system begins to grind to a halt like an airport in heavy snow.
As the world recession gathers momentum, unemployment will climb and company profits will crash. A world stock market crash on the scale of 1987 will guarantee this - stock markets are infallible leading indicators of profitability and output when they fall by 30%. Think back to 1982-83 or 1990-92 to remember what happens. The economic tensions lead to political tensions within nation states and between nation states. The banking systems begin to fail under the strain. The banks act like the control rooms of capitalism - as the system breaks down panic breaks out in the control room as smoke rises from the levers and dials.
How bad will things get? Will Hutton, editor of the Observer and leading economic pundit, was saying recently that 'real catastrophe' was a distinct possibility. He was calling for the creation of a world central bank able to issue billions of dollars to flood the world with spending power. The radical nature of this suggestion underlines the severity of the situation. The world economy emerged from the last two world recessions on the back of economic, technological and political developments:- the expansion of South East Asia, the adoption of the new Japanese production methods, the new technologies of IT and the collapse of the Communist bloc. There is no equivalent hope for capitalism on the horizon at present. The great fear for capitalists is that world recession would lead into depression on the scale of the 30's when world trade collapsed by 2/3rds, US unemployment rose to 25% in one year and the ruling classes of the world fell apart into impotent, squabbling national elites. It was only the Second World War that saved capitalism, by dramatically re-configuring the balance of power internationally and forcing through massive technical change. Even the most ruthless ruling class would be reluctant to embark on another world war, given that the power of nuclear weapons would threaten its own annihilation.
What are we to do in the face of recession? We have to learn the lessons of how we have survived past recessions and we must take this opportunity to understand capitalism better. We must look after each other - solidarity is key as always. We must not allow ourselves to be divided - particularly across national borders or between those who are working and those who are not. Recent initiatives that have stressed autonomy and collective creativity - that mean a crisis of capitalism is not a crisis for the people - must be developed - from LETS schemes to dance culture to Reclaim The Streets. Internationally, the survival of Cuba gives hope that alternatives to capitalism are possible. We must work out the best way to deal with oppression and the agents of the state - whether to try to fight them or to laugh at them. Above all we must see that capitalist crisis is not our crisis, that the system is not our system and that we should not be frightened or upset about the crisis of a system that has produced the holocaust, burnt the rain forests and runs on fear and poverty.
- RSW 02 Page 5 -
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