Economic Crisis, War and Revolution




Contents   Appendix


Economic Crisis, War and Revolution


Synchronised Sinking

Recession and War

Worldwide Impact

US in Shambles

Japan : Dark Clouds Sans Silverlining

Europe Limping Along

Russia, CIS, & East Europe : United we fall

East Asia gets pneumonia as America Sneezes

Some Backward Countries in deep Trouble

India : Stagnation Continues



It was Sept. 7. Four days before the attack on Washington and New York. Shock waves shook the entire financial system as the US government released its figures for August 2001. The GDP growth rate in the second quarter was just 0.2%, in spite of seven successive cuts in interest rates, a big infusion of government spending, and a huge tax rebate. There was a gigantic loss of 8 lakh jobs in the manufacturing sector in just two months of July and August, taking the unemployment rate (official) to 4.9% compared to 4.5% a month earlier. While it was still reeling under the shock of these figures, came the attack at the very heart of the US’s mighty financial/military empire. Shock turned to disaster. $90 billion lost in crumbling skyscrapers; $10 billion lost by US airlines alone due to two days closure; billions more lost by insurance companies; huge losses to the US’s financial sector due to a week’s closure of transactions, and due to the closure of Wall Street for 4 days — the first time since World War I; and 1% being written off the US GDP due to the entire country being in a state of paralysis for at least two days. The closure of Wall Street for four days led to a loss of $330million to the four major merchant banks (Morgan Stanley, Merill Lynch, Goldman Sachs and Lehman Bros). Within 10 days of the attack, Wall Street fell 15% and the IT (Information Technology) Nasdaq index fell 17%, and US airlines announced over one lakh lay-offs. That week witnessed the worst fall in US stock market history, with share values eroded by $1.4 trillion (one trillion is 1000 billion). The Japanese Nikkei stock index too fell to a 17 year low.

Synchronised Sinking

The US is not the only economy to be hit by the recession. What we are seeing is that drop in the world economy is occurring simultaneously in the three major blocks : continental Europe, The US and Japan, or what one observer acerbically brands as the syncronised sinking. 1 The second biggest economy in the world, Japan, whose economy has been in a state of stagnation for over a decade, was in its worst ever post-war recession, well before the attack. Germany, the third biggest economy in the world, was also in a severe crisis. Its growth projections for this year were the lowest amongst the 11 other euro-zone countries. In mid August itself, official data revealed that unemployment had been rising for the seventh consecutive month. The report added, "a record number of firms are implementing severe austerity measures to combat the ravages of falling profits and recessionary conditions".

These three largest economies account for over 60% of world output. When the ripples in the tiny S.E. Asian economies in 1997 could create tidal waves worldwide; one can well imagine the impact of recession in the three major economies of the world. In fact, a recession in just the US, which alone accounts for 29%of world output, can send the world economy into a tailspin. In fact, today, except for the Chinese (which has also seen a slowdown) and Russian (which just saw some growth last year after a decade of collapse) there is barely a single economy in the world that is not in a state of stagnation, some of which, like Turkey, Indonesia and Argentina, are in a state of total collapse. Since the start of 2000, share prices have plummeted by 29% liquidating more than $11 trillion* of wealth ¾ wiping out one-third of global wealth (EPW; Nov.10, 2001) According to the FTSE All-World Dollar Index, in the year to Aug.20, 2001, world industrial output has dropped 6.5%. This index, based on nine industrial and financial sectors, have shown a massive drop : US ( -13%); Canada (-19%); UK (-16%); Japan (-15%); Argentina (-26%); Brazil (-28%); Colombia (-27%); Turkey (-45%).

A recession is said to exist if the growth rate of GDP* of a country turns negative for two consecutive quarters (3-month periods). At the global level if GDP growth rate drops below 2.5% the world economy is said to be in recession. The recession in the 1970s was precipitated by the overnight hike in oil prices — the oil shock. The ‘crisis’ in the S.E. Asian economies in 1997, was no real ‘crisis’ but an attack on those economies by the FIIs. These, together with the other disturbances, were short-lived troughs within the general slowdown in the world economy since the 1970s. With globalisation and the gigantic growth of the speculative economy, frequent crashes and partial recoveries are inevitable. In the years 1975, 1982 and 1991, which were years of recession, global GDP grew by 1.9%, 1.2% and 1.4% respectively. The investment bank, J.P. Morgan, predicts a global growth rate in the current year of 1.6%.

But, the current recession is unlike the earlier three. This has not been caused by just one or two factors, but is the result of the endemic weakness within the bourgeois system itself, to which has been added the volatility of artificially boosted financial and infotech bubbles*. The crash is likely to be far deeper and far more devastating in its impact. The current recession is a classic case of the crisis of overproduction. This has been combined with the bursting of the financial (stock-market, debt market, real estate, etc) and infotech bubbles. The two combined, make a devastating mix.

Look at the crisis of over production. Demand has been drying up, leading to cuts in production and mass retrenchment. This is further reducing demand, resulting in over-production and burgeoning stocks, intensifying the crisis. This is clearly visible in Japan, the US, Germany and all other stagnant economies, since the last one year.

Together with this, the slackening of industrial production led to risky and speculative finance capital investments of huge quantities in the stock market*, debt market*, real estate, IT sector, etc. As much of this market capitalisation was speculative, with little real business, actual profits or commensurate returns, most of these bubbles burst. The balloon can be stretched to a certain extent, anything beyond it, it will burst. This is what happened first in Japan, now in the US.

Since Sept.11 the downturn in the economies of the world has got aggravated. In early December 2001, it was announced that the American economy was in recession since March of that year. The OECD has predicted the worst growth rate in 18 years (since 1982) for its member countries. Its 30 members are expected to grow by just 1% this year and 1.2% in 2002. It also predicts that for many countries, like the EU countries, the situation next year could even be worse than the current year. World trade growth in the first half of 2001 fell to as low as 1%, compared to 12.5% in the same period last year.

Through October and November 2001, daily reports continued to appear of TNCs retrenching their employees. Motorola, the US telecom mammoth, laid off a further 7,000 in November, taking the years total to 32,000 — 26% of its work force. It faces its first operating loss in 45 years. The bankruptcy of Enron, the largest corporate crash in history, is a further indication of the depth of the crisis. The French telecom giant, Alcatel, announced a third quarter (July to Sept.) loss of $507 million and retrenchment of 10,000 workers. Deutche Bank, Germany’s biggest bank, announced further job cuts of 4,500, taking the years’ total to over 7,000. Airlines throughout the world have suffered losses of about $12 billion this year and retrenched 2 lakh employees. Lately, the Belgian airlines, Sabena, closed down, while the Swiss and Scandinavian airlines reported huge losses and job cuts. Unemployment in the US jumped by as much as half a percentage point in just one month, taking it to 5.4% in October. During the couple of months to Nov.2001, 93,000 internet-related jobs alone were lost. The IMF has estimated that by the end of next year 26 million people will lose their jobs throughout the world.

Worst affected by the recession are countries of the third world that have little or no social security system*. In just the past two months agricultural prices have dropped by about 5%, which will hit farmers in the third world the hardest. The World Bank has said that as a direct result of the ‘slowdown’ 40,000 children worldwide will die from disease and malnutrition and 10 million more people will fall below the bank’s extreme poverty line of $1 a day. Already major countries like Turkey, Argentina and Indonesia are facing its worst economic crisis in post world war two history.

It is amidst this state of acute crisis that we must view Bush’s war-mongering statements. We must look beyond the mere events of Sept.11, to understand the economic compulsions pushing the US to war. The international media just focus on an aggressive Bush or a ‘terrorist’ Bin Laden; a hawkish US administration or a ‘fanatical’ Islam. Though immediate events may be the trigger, the causes lie far deeper, with the Sept. 11 event acting as a mere catalyst. Well before Sept. 11, the world economy was already into recession, with America being one of the latest victims. It is this that has been fuelling new aggressiveness amongst the major imperialist powers and their agents throughout the world. The economic compulsions pushing the imperialists to aggressive posturing goes deeper than the whims of a Bush or a Blair. This is reflected in, not only the war posturing of the US and Britain, but also of the imperialists ganging up at Doha to push a ‘New Round’ which will have even more disastrous implications for third world economies. It is also reflected in the scramble for Central Asian oil, with the US establishing military bases in 5 CIS* countries, much to the discomfort of, not only Russia, but also its European allies.

But, before taking stock of the extent and nature of the global economic crisis, let us first see the link between the recession and the war posturing of the Bush regime.

Recession and War

In these conditions of recession, war serves four purposes.

First, it helps revive the stagnant market, through a big leap in the sale of arms.

Second, it helps to ferociously attack all backward countries, to enable it to push the burden of the recession on to the backs of the third world countries.

Third, recession intensifies the contention for the dwindling markets, with an economically weakened US superpower, having to flex its military muscle to defend its markets and spheres of influence, from the newly rising imperialist powers, particularly Europe.

And fourth, it acts to divert the attention of the masses from their increasing impoverisation, and as a pretext for introducing fascist measures to ruthlessly suppress the growing discontent of the masses.

First, the crisis of overproduction can to some extent be cushioned, by boosting a stagnant market through a big hike in arms sales. During a demand-induced recession (or crisis of over-production) when demand for commodities dries up, the government boosts demand in the armament-linked sector through war. War profiteering is always known to give huge returns. With this sector thriving many companies gear their production (and new investment) to meet the demands of war. In this way the bourgeoisie seeks to come out of its crisis. This scenario can be seen today in America.

The arms lobby has a large representation in the Bush Cabinet. Though it already has a gigantic budget of $300 billion (plus an additional $30 billion on intelligence), the Bush administration sanctioned an additional $20 billion for its immediate war offensive¸ with promises of much more. Within a fortnight of the attack, the US government hiked defense spending to $344 billion. In addition, the US arbitrarily scrapping the ABM (anti-ballistic missile) Treaty and pushing ahead with the NMD (National Missile Defence) project, in spite of opposition from its allies, is a further indication of the war-plans of the US. Already in the year 2000, a Congressional Research Report, printed in the New York Times, showed that international arms sales grew by 8% to $40 billion; of which the US contracted for $18.6 billion. ‘The Economist’, one of the chief apologists of US/British imperialism, went so far as to state, in its issue after the Sept.11 attack, that war is not necessarily a bad thing in periods of recession. In an article entitled ‘The Wages of War’ in the Sept. 22/29 issue it added: "Government spending, on the other hand, typically shoots up in war time. It is widely credited, during the Second World War, with removing the last vestiges of the Great Depression. It also fuelled booms during the Korean and Vietnam wars. A massive increase in spending on airport security, border controls and a military build-up in America may yet have a similar effect". In other words, the imperialists are already talking of the need for war to pull the economy out of recession!! That is, to put The Economist’s words crudely: mass murder in order to sustain profits.

The second aspect of this recession will mean a big economic offensive against the people and nations of the third world. It will aggressively push its ‘economic reforms’ no matter what the cost to the local people. In recessionary conditions its desperation for markets becomes all the more acute, and like a frenzied mad dog it bites all and sundry if there is not total compliance to its wishes. This was reflected in the manner the imperialists bulldozed the ‘New Round’ on the third world at the WTO Doha meet. It is also reflected in the US’s threats to aggress on other countries (like Iraq, Philippines, Somalia, Sudan, etc) after Afghanistan is finished with.

Such aggressive policies will result in growing resistance from the people of these countries. There will be a growth in the struggles for national liberation against imperialism, particularly US imperialism, and its lackeys. If not led by the proletariat, this may take varied forms, from petty-bourgeois nationalism, to religious and ethnic forms of protest, to spontaneous riots and violent outbursts. The outbreak in Argentina in early December 2001 is an indication of things to come. But, more and more it will take on armed forms, with people having experienced the futility of peaceful methods in the face of monsters and tyrants. Bush’s declaration of war is not just against an Osama Bin Laden, it is a declaration of war against the anti-imperialist people of the world. He shrieked ‘those who are not with us, are against us’. In other words, those who do not prostrate before US imperialism’s economic, political and military demands, can be branded as ‘terrorists’, attacked and killed. What was done in the post-war period through secret, covert operations, the Bush administration now seeks to do openly. They will now not hesitate to attack any third world country that does not fully bow to its wishes.

Third, with recession, the scramble amongst the imperialist powers for markets gets intensified. The only superpower, US imperialism, seeks to maintain its markets, while the up-and-coming imperialist powers, particularly the EU countries, try to displace US markets. Both also scramble for markets once under Soviet imperialist domination and the newly opened Chinese market. Other imperialist powers, like Japan and Russia, also contend. US imperialism, as a weakened economic power (more so with the current recession) must resort to military muscle flexing to keep the other imperialist powers at bay. This will result in growing contention amongst the imperialist powers. This will result in greater protectionism, growing finally into imperialist blocs. At present no rival imperialist power has the military strength anywhere near that of the US. But, as their military prowess develops, it will lead to armed confrontations resulting in a third world war. But, this will take time. For the present, the main source of war will be US imperialism, the number one enemy of the world people. They will use war and the threat of war to maintain and extend their spheres of influence.

Fourthly, with a deepening recession, increasingly fascist methods are being adopted throughout the world giving little space for peaceful opposition. It is the fear of the growing armed opposition that is resulting in the war cry of all the reactionaries to ‘ fight international terrorism’. As it is, the massive anti-globalisation demonstrations in the developed countries are gaining in militancy and strength, making it difficult for the imperialist robber barons to even hold their gatherings. So, after the upsurge of the anti-globalisation demonstrations, from Seattle to Genoa, the WTO ministerial meeting was held in the autocratic princely State of Qatar, where all demonstrations are banned and none given visas to enter the country. Within days of the attack, under the pretext of increasing security, the US, Europe, and most countries throughout the world, including India, have begun further curtailment of civil liberties and a whipping up of a nationalist chauvinist, anti-Islamic, hysteria. This has been particularly loud in America and Britain, which urgently needs to rally the people around their governments’ war offensive. Many countries have already introduced draconian anti-terrorist, anti-immigrant and anti-people fascist laws.

In the aftermath of the Sept.11 attack, the sea-saw statements emanating from Europe and Russia is an indication of the pressures being asserted by the US. Europe too would like to be part of the schemes to further open up third world markets and crush all growing opposition to imperialism — even resort to force in the name of fighting terrorism. But they are not part of the other aspect of the US’s plan to utilize this ‘war’ to also consolidate its geo-political positions and markets throughout the world at the expense of the other imperialist powers.

Already the cracks in the imperialist alliance are visible, with not only Europe, but also Britain opposing the extending of the war beyond Afghanistan. Even in Afghanistan there were open fissures on how the war should be conducted. The US was hesitant to use the services of the EU’s offer of military assistance, in case they demand a share in the Central Asian pie. Besides, under the pretext of the Afghan war, the US has moved swiftly to establish bases in 5 CIS* countries, in an attempt to keep Russia, Europe and China away from the vast oil and gas reserves in Central Asia.

So, also, the attack on Afghanistan is not merely about Osama Bin Laden and his forces. No doubt, this is one aspect — to crush Islamic opposition to imperialism. But three other factors are operating in the US’s military plans. First, given Afghanistan’s enormous strategic importance, particularly as the gateway to the oil/gas rich Central Asia, it seeks to establish a docile government. Second, through this military action it seeks to gain the initiative over the other imperialist powers lurking in the region. Third, it is also a warning to other third world countries to fall in line or else face possible attack. In fact, the attack on Afghanistan satisfies both the arms and petroleum lobbies, which have a large presence in Bush’s cabinet.

Afghanistan holds the key to the transport of the vast oil and gas reserves in Central Asia, for which there is acute competition between the US, Europe and Russia. In fact, a year ago, France went so far as to invite the Taliban for talks. Dealing with the Taliban would have given the French companies a head start in building a pipeline across the country to bring Central Asia’s gas and oil to South Asia. As ‘The Economist’ reported, 2 "the potential rewards are enormous". Both Turkmenistan and Uzbekistan are desperate for collaborations and outlets for their huge reserves. ‘The Economist’ added, "this places America in a quandary. If its relations with Iran do not rapidly improve, and its faltering attempts to pipe Central Asian oil and gas westwards through the Caucasus collapse, a trans-Afghan pipeline may become its best hope of countering the Russian, Chinese, and Iranian influence in Central Asia".

So, the attack on Afghanistan has a twin purpose — first to stamp out an important source of Islamic opposition to the US imperialists; second, to create a docile Afghan government that will open the gates to the treasures of Central Asia. And with these war manoeuvres, the US can also successfully checkmate France’s attempts at gaining a head start in the region, and flush out Russian and Chinese influence in the region, through sheer muscle power.

With the growing recesssionary conditions such scrambles for markets and sources of raw materials will get ever more fierce. And it will be the US that will be the chief source of war, to threaten, bully, browbeat and force countries to accept its dictates.

Now, to understand fully the implications of the dangerous war situation being provoked by the US there is need to understand the depths of the impending recession, not only in the US, but throughout the world.

Worldwide Impact

The downturn in the world economy began by March 2000. In the year ending March 31, 2001 stock markets* fell everywhere and over the year $10 trillion (1 trillion = 1000 billion) was wiped off global share values* — equivalent to America’s annual output or 30% of the world GDP — of which $4 trillion was the loss suffered in the US alone 3 Of this the US economy lost $5 trillion in market capitalisation. India lost $40 billion. The table 4 on next page gives a picture of the drop in the market capitalization* in some of the major countries of the world.

By March 2001 itself Japan’s Nikkei index was at its lowest level in 26 years having lost 70% of its value since 1989. America’s Nasdaq index saw a 60% loss in the one year to March 2001. Germany’s Nemax index fell 67% to Dec.2000, and the UK’s Techmark index fell by 57% in the same period 5.

Market Capitalization ($ billions)


March 2000

March 2001

 Loss (%)




- 65.1

US (Nasdaq)




































Hong Kong




The figures mentioned in the above chart are till March 2001. After that the stock markets have either declined or remained stagnant. Then came the further crash after the Sept. 11 attack. Within the fortnight all the major stock exchanges fell in value by as much as 10% to 20%. It was the biggest sustained drop since the great depression. What is more, unlike the earlier falls during the past three decades, the current drop continued much longer. Though there has been some recovery since, the Dow Jones is well below the peak figure of over 11,000.

The following chart (printed in the Business Standard) gives a picture of the extent of the devastation:



Stock index Number*

% Change

On Sept. 5, 2000

 On Sept. 27, 2001

Since Sep.5, 2001

Dow Jones Industrial Average



- 15

Nasdaq Comp.



- 17

Britain(FTSE 100)



- 11

Germany (Dax)



- 18

France (SBF-250)



- 15




- 09




- 19

S. Korea



- 14




- 19




- 16

Now, if we turn to other indicators, it has been estimated that in the second quarter of this year (April to June 2001) the combined GDPs of the major economies of America, the Euro Area and Japan fell for the first time since 1990. But, at that time growth was relatively brisk in the East Asian countries. This time, they too are in serious trouble, with industrial production having dropped by as much as 10% or more over the past year 6. It will be the first time since 1973 that the two major economies of the world — accounting for 47% of the world GDP — are simultaneously in recession.

In addition, the growth in volume of world trade in the last year slowed to around 4% compared to 13% in the previous year — the sharpest decline since 1975. In fact, the US has, defacto, been exporting its current depression to third world countries as its huge drop in imports has already had a disastrous impact on those countries dependent on the US for a market. Globalisation has increased this dependence enormously. Today, American imports amount to 6%of the rest of the world’s GDP, compared to just 3% in 1990. In the second quarter of this year the growth of American imports dropped to minus 10%, compared to a growth rate of 20% in the same period last year. One can well imagine the impact of such a huge drop in imports, particularly on the countries of East Asia, which are heavily dependent on exports to the US.

By December 2000 itself it was clear that a crisis of overproduction was deepening. World manufacturing capacity was around 60% — the lowest since the 1960s 7. Global industrial production fell at an annual rate of 6% in the first half of 2001, the sharpest dive in two decades. The crisis in the steel sector illustrated the malaise. Huge stocks, crashing prices and a collapse in earnings, have dominated steel production worldwide.

Notwithstanding the daily propagation of the so-called American boom, this period of globalisation has been witness to a series of crises. The volatility in the capitalist system has increased enormously. During this decade of globalisation, the world’s second largest economy, Japan, stagnated throughout, with an average growth rate of just 1%; the third largest economy in the world, Germany, has been limping along with an average growth rate of 1.5% through the 1990s; Russia, the CIS*and much of East Europe have been in continuous recession for much of the period; there was the stock market crash of 1987 and the ‘savings and loan’ crises in the USA in 1992 & 1994; there was the 1995 crash of the Mexican economy; then there was the 1997 crash in S.E.Asia followed by the even more disastrous crash in Russia and CIS* countries in 1998; the crash in Brazil in 1999; and, since the last year we have been witnessing the total collapse of the Turkish and Argentinean economies. One must see the oncoming recession in this background.

Not only that, the entire hype of the great advantages of globalisation is a gigantic hoax. As the Monthly Review brought out 8 "the expansion of the 1990s is the slowest in the post war era………. The rate of growth of national output since the recovery and expansion began in 1991 is about half the rate for the 1950-73 period…….. Whereas US GDP grew by more than 52% during the eight-year expansion from 1961 to 1969, it has increased only half that much in the eight years since 1991. By any post war comparison, the performance of the US economy — and with it the world economy — in the 1990s has been remarkably anaemic".

The following table 9 brings this out lucidly:

Average Annual growth rate of real GDP in the OECD countries


 Growth rate (%)

1960 to 73


1973 to 79


1979 to 89


1989 to 99


In other words, the growth rates in the major 24 developed countries was at its lowest in the period of globalisation. The MR article adds: "for all the euphoric talk of the ‘new economy’, for all the extravagant claims for new technologies and globalising markets, then, the world capitalist economy in the 1990s has been characterized by poor rates of growth in output, productivity and average incomes ……… For the mass of humankind outside the core areas of the world economy, the overall pattern has been one of retrogression: declining living standards, dramatic increases in social inequality, pauperisation of large sections of the population. We are dealing, in short, with systemic problems that plague global capitalism as a whole, not mere discrete failings of a specific model".

The much-hyped boom of the 1990s was, in essence, a boom for an excessively small class of elite. Even in the US, which has gained the maximum from globalisation, it benefited only the richest of the American population, bypassing, not only the workers, but also the bulk of the middle classes. According to a report,10 the fruits of economic growth in the last few decades in the US "were enjoyed by a surprisingly small part of the population, the top 20%, and particularly the richest 1%. Living conditions of the middle classes stagnated in the 1990s". The real earnings of US production workers dropped by 14% in the private sector between 1973 and 1995. It is these worsening living conditions, which are at the root of the new upsurge of people’s movements against globalisation.

Globalisation has also given unheard of wealth to a handful of billionaires, with disparities between the rich and the poor reaching unbelievable levels. It is this concentration of wealth in the hands of the top strata of society that has been much propagated as the success of globalisation. The festering rot was deep, but this was masked by the glamour and glitter of the top 10 to 20%. As the 1999 UNDP’s Human Development Report says: "the income gap between the richest fifth of the population and the poorest fifth stood at 3:1 in 1820, 11:1 in 1913, 30:1 in 1970, 60:1 in 1990 and 86:1 by 1997. In 1997, the top 20%, living mostly in high income countries, earned 86% of world GDP and the bottom 20% just 1%11. In 1850 today’s rich countries accounted for 35% of the world’s total income. By the 1980s they accounted for 68%. The difference between the per-capita incomes of the poor and rich countries increased from 70% in the 1850s to more than 1000% in the 1980s. Between 1989 and 1996 the number of billionaires increased from 157 to 447. The net wealth of the 10 richest persons is one-and-a-half times the total incomes of all the Least Developed Countries*. (Economic Times; Dec.11, 2001)

Now, with the current recession, the rot is coming to the surface. The glitter of hi-tech pomp is fading. The glamour of TV, Internet and vulgar consumerism can no longer mask the deep gangrenous infestations eating into the very vitals of this so-called globalised system. Pop culture is being replaced by war culture. Fake talk of human rights and democracy are being replaced by naked calls to war, to kill (capture ‘dead or alive’), to anti-Islamic ‘crusades’, and to strangulate even the limited sovereignty of countries in the name of ‘those who are not with us are against us’. In this period of recession, the fascist claws of reaction around the world are coming out into the open with its xenophobic hysteria. And, together with all this, the brutality of this system continues to take an enormous toll of, not only the peoples of Asia, Africa, Latin America, Russia, CIS, East Europe and the Middle East, but also of the working class of the developed countries.

So, globalisation has never been the great boon to society as propagated. Even by their own standards it has been sick, fraught with volatility and crises, and anaemic from the very start. Its inbuilt weaknesses have now come to the fore, and are threatening devastation not seen since World War II. Now, let us take a look at the depth of the crisis in the major economies of the world, to get a better understanding what this oncoming recession means to the oppressed masses in India and worldwide.

US in Shambles

In the year 2000 itself, GDP growth rate* in the US halved to 2.5% compared to 5% in 1999. As a result of falling share prices, the net worth of American households fell in the year 2000 for the first time since records have been kept 55 years ago. By end 2000 certain economists were already predicting a severe crash of the US economy. In an article of Dec. 2000 entitled, USA : Making of a Crash 12, Fredric Clairmont brought out the gravity of the situation, when he said: "by all indicators the US economy is on the skids: tumbling stock markets the drop in personal incomes, vastly diminished consumer confidence and lower consumption. Debt loaded balance sheets have become the nightmare of Corporate America as US non-financial corporate debt is surging with unprecedented velocity, already engulfing 45% of GDP." He predicted  "the grim rumblings  of one of the  worst economic collapses in the making since the end of the Second World War".

The US economy entered the current year, amidst a drastic fall in the Stock Exchange, falling corporate profits, increasing unemployment and reduced consumption expenditure, and spiralling debts of both the government and of the private citizen. There appeared no positive sign from any sector that could work to revive it. Already, by Dec.2000, according to ‘The Economist’ (Jan.6, 2001), manufacturing activity fell to its lowest since April 1991, the end of the previous recession. In the second half of 2000, 36,000 dot com employees lost their jobs; there were 5 lakh lay-offs in Nov.2000, with General Motors laying off 15,000, Whirlpool 6,300 and Aetna 5,000.

Well before the Sept. 11 attack there was already talk of the economy going into recession. Even after the massive dose of funds pushed into the consumer’s hands (the interest reductions alone gave an extra $6.5 billion to consumers on their credit card expenditure) and the resulting increase in consumer spending by 2.5%, the growth rate dropped to as low as 0.2% in the second quarter of the year. All economic indicators dropped drastically: industrial production fell again in July for the tenth consecutive month — the longest period of decline since 1983; corporate profitability was down 12% and corporate defaults were soaring; the use of industrial capacity at 77.4% was the lowest since 1983; and the stock exchange dropped a further 8% in the first six months of the year. 13

Layoff announcements reached such levels not seen since the 1980s. In June, Business Week reported that claims for jobless benefits had risen over the 4-lakh mark, "a level usually associated with recession". By end August, US jobless was at a nine-year high reaching 4.9% of the population. 14 The job cuts continued apace. Big layoffs were taking place in the automobiles sector, IT sector and even in the financial services sector. Ford and General Motors temporarily closed down their US plants, as did other motorcar plants. Ford retrenched 5000 more white-collar workers. The steel industry was in the doldrums, with 18 firms having gone bankrupt, including two of America’s biggest producers, LTV and Bethlehem steel. Plagued by over-capacity, steel prices slipped to a 20-year low. AOL Time Warner announced a 7.5% job cut reducing staff by 1,200. Over-and-above the 25,000 jobs lost since the beginning of the year in the investment banking firms, Citigroup announced another 3.500 job losses, and Morgan Chase and Goldman Sachs announced plans for big operational cuts. The internet sector alone lost jobs over 1 lakh in 2001 i.e. 2.5 times to the last year figure.

Corporate profits have been falling at a dramatic speed. In the first quarter of 2001, the S&P’s top 500 companies showed a drop of 6.1%; in the second quarter profits fell by 17.3%. Profits in the technology segment fell by 40% in the first quarter, and was expected to drop by 60% in the second quarter. Overall profits of major companies are expected to drop by 8% this year. In the second quarter, companies’ capital spending plummeted by an (annualized) 13.6%, its biggest drop since the 1982 recession.

It was under these desperate circumstances that the Bush administration came out with its monetarist medicine to boost domestic spending and spur new investment. In unprecedented measures, the government reduced interest rates 8 times in every month from January to September 2001, thereby reducing the interest rates by over half from 6.5% to 3%. This was supposed to spur corporate investment by reducing the cost of capital. This was also meant to boost consumption through the availability of cheap credit ¾ the bulk of US consumers purchase on credit cards and through instalment payments on which interest is charged; a reduction in interest rates makes credit and instalment payment cheaper, encouraging expenditure. In addition to this, they decided on a $1.3 trillion tax rebate of which $38 billion was refunded in the current year, with the sole purpose of further boosting consumption expenditure. 14

Yet, in spite of such drastic measures (where the tax cuts alone amount to boosting the GDP by half percent) the economy has not recovered; on the contrary it went into an even deeper depression. The third quarter (July to Sept.) corporate profits reported were the worst in a decade. So, for example, both Kodak and Intel reported a 77% drop in third quarter profits. In spite of all the money pumped in and nine consecutive cuts in interest rates, third quarter results showed that the US’s economy contracted by 0.4%*.

After the Sept. 11th attack, there was a leap in the number of layoffs. The airlines have already retrenched over one lakh; Boeing announced a 30% cut, laying off 30,000; Honeywell announced a 12,000 cut, tourism and hotels were announcing big cuts, as was insurance, banks and the entire IT and telecom sector. As the New York Times reported "six days ago (i.e. before Sept. 11) the economy seemed to be at best stagnant. Now, as a result of last week alone, many experts believe that it is already contracting, perhaps by as much as an annual rate of 1%". 15

After the Sept. 11 attack on the US, to prevent a further slide in the economy, the Bush Administration came out with a massive Marshal Plan-type* package to try and prevent a recession. Within two days it injected $70.2 billion into the system by buying government securities and arranged a $50 billion swap with the European Central Bank. It pushed through a $40 billion spending bill — half of it for war on ‘terrorism’ and half for relief work. In addition, it has planned a $15 billion bailout package for the crisis-ridden US Airline industry.16 Together with all this, at the international plane, the ECB and a number of Central Banks immediately pumped in $80 billion to prevent any bank defaults; and 13 countries simultaneously reduced their interest rates.

In spite of all attempts to boost the economy, layoffs continued, consumer confidence fell further and investment continued to stagnate. In the month of October the huge layoffs continued, and there were numerous reports of a drop in corporate profits. Sears Roebuck cut 22% of its workforce, Bank of America 7.5% of its investment branch, Kodak cut 10%, the huge entertainment industry has cut 10% of its 1999 peak, and Merrill Lynch announced cuts of 15% of its worldwide workforce. This is just some of those reported; daily reports appear of US companies laying off workers. In October 4,68,000 jobs were lost, and in November it was 3,31,000. Together, this constituted the sharpest decline in 20 years. With all other efforts of revival having so far failed, Bush’s war cry can be an attempted solution of last resort. No doubt, other compulsions are also there, but an attempt at economic revival through war is one factor. With the crisis deepening, in end October, the US government announced yet another $100 billion stimulus package plus a further half percent cut in interest rates (the third cut since Sept.11), bringing it down to 2% — the lowest since 1961. More important, it placed its highest ever order for defence equipment — of hundreds of the latest fighter jets worth roughly $300 billion with Lockheed Martin. Deliveries of these are expected from 2006. No wonder it was defence stocks that were doing the best on the American stock exchange.

Yet, there is no sign of a recovery. In fact, in end November the US witnessed the biggest bankruptcy in corporate history. Enron, placed 18th on the Fortune-500 listing (i.e. the 18th largest company in the world, and the 7th largest in the US) crashed. With a market capitalisation of $80 billion earlier, its value fell to a mere $220 million by end Nov.2001. Its share prices dropped from roughly $90 to 26 cents (i.e. $0.26). corporate bankruptcies for the year 2001 are expected to be over $120 billion.

What then is the genesis of this recession in the USA?

There are multiple factors precipitating this recession. Primarily, it is a classic case of the crisis of overproduction. This has been aggravated by the huge infusion of debt, financing both investment and speculation. With demand drying up and the real economy in a state of atrophy, the speculative bubbles began to burst one after another. A debt dependent economy has a snowballing effect once the tempo of growth cannot be maintained.

The crisis of overproduction is a necessary aspect of capitalism from which the capitalist can never escape. It arises from the inbuilt contradiction within capitalism, where maximization of profit and accumulation of capital can only take place through increased exploitation of the masses generally, and workers in particular. But, the more the exploitation, the less is people’s purchasing power, resulting in shrinkage of the market. So, as accumulation proceeds apace and with it production of commodities necessarily grows, the market for this does not grow proportionately resulting in a crisis of overproduction.

In the early 1990s, taking advantage of the setback to communism and people’s movements, US big capital launched an offensive against the people throughout the world. This resulted in enormous profits to the TNCs and the mass impoverisation of the masses throughout the world and even in the US. Real wages in the US has been declining for more than 20 years, taking them to the 1987 levels, which itself was below 1967’s. This resulted in the enormous accumulation of capital but stagnant markets. An article in the summer 1998 issue of Foreign Policy reported that the income of the poorest 20% of US households has declined steadily since the 1970s, while the income of the richest quintile has increased by 15%, and the income of the top 1%, by more than 100%.

A look at the Fortune 500 listings indicates clearly that the market for commodities has not been growing. Whereas profits have been huge, sales have been stagnant, particularly of US TNCs. Throughout the 1990s these huge surpluses were used to buy up other companies in a wave of Mergers and Acquisitions unprecedented in the history of capitalism. Each acquisition was followed by a ‘rationalisation’ package, which entailed the displacement of thousands of workers. So, with these M & As, though profits skyrocketed due to greater productivity (particularly through the large investments made in the IT sector), markets did not increase due to displacement of labour, reduction in social security and a drop in general working conditions (outsourcing, contracting, etc.). Though part of these lacunae was made up by a gigantic rise in salaries of the officer class, and particularly the top one percent, it could in no way balance the market shrinkage caused by the huge drop in purchasing power of the masses worldwide. Besides M & As, vast amounts of the surplus went in speculative activities, creating the financial and infotech bubbles*. With markets not growing, little of the surplus went into creating new production. With impoverisation reaching unimaginable levels, and capital accumulation continuing at a frenzied pace, a crisis of overproduction was inevitable. With the returns on investment being much higher in the service sector (particularly financial) vast amounts of new capital generated found their way into the so-called ICE (information, communication & entertainment) sectors. The share of GDP generated from the service sector in the US increased from 64% in 1980 to 74% in 1999.

The pace of Acquisitions has its limits, and the froth of speculative profits can exist only on the base of the productivity economy. Once the base becomes shaky the bubbles in the froth begin to burst. This was the situation that hit Japan a decade back; it is what began hitting the US economy from mid-2000. The cycle of dropping consumer demand, rising stocks, increasing layoffs and reduced corporate profits has been pulling the US economy down since a year-and-a-half. The Bush administration has sought to revive it by increasing consumer demand by continuous cuts in interest rates and a massive tax rebate — but, so far, this has been ineffective. After the Sept.11 attack it has, in addition, sought a Marshal-Plan* type infusion of funds, together with war expenditure. It is yet to be seen what impact this has on the economy.

Now, to look at the second aspect — the financial bubble, built around gigantic quantities of debt (mostly bonds and equity shares)*. There is no aspect of the US economy that is not laden with massive amounts of debt. The Public Debt*, the Corporate Debt, the Trade Debt (called Current Account Deficit — CAD)* and even the Household Debt, have all reached astronomical levels. These have been built on the basis of the confidence gained by: a strong dollar, high interest rates, and the rise of an exceedingly powerful banking industry which has grown to mammoth size through 8,000 M & As (in the 1980-98 period) involving $2.4 trillion in acquired assets. As a result money from all parts of the world have been flowing into the US economy.

According to the Federal Reserve Board’s data the aggregate outstanding public debt grew from $1,028 billion in 1964 to $25,679 billion in 1999 — an annual compound rate of 9.6% which far outstrips the growth of GDP. This amounted to more than half the world’s outstanding public debt. The total foreign holdings of US financial assets (stocks, treasury and corporate bonds) is over $ 42 trillion*. It is this vast infusion of funds that resulted in a rate of market capitalization in the 1994-99 period faster than that of even the 1925-29 boom. If we look at the domestic business financial sector’s debt, it rose from $53 billion in 1964 to over $7.6 trillion in 1999 — a 144-fold increase. In the foreign trade sector, the CAD grew nearly ten-fold over the 8 years from -$48 in 1992 to -$420 billion in 2000 — i.e. 4% of the GDP. 17 This huge deficit requires an annual injection of $500 billion to sustain it.

If we turn to household spending we find that here too the debt has risen dangerously in the last few years. Personal borrowings have leapt from 26% of personal income in 1985 to 34% in 2000. As a result the household saving ratio, as a percentage of disposable income has dropped from 8% in 1990 to less than -0.8% today — a post-war low, similar to the depression year of 1933. 21 In other words, people are spending more than they earn, leaving a huge yearly deficit of $247 billion. A booming stock market (giving an illusion of wealth) and a relatively low unemployment rate aroused confidence for such profligate expenditure that fuelled the huge consumer expenditure, which created a demand for not only American goods, but also imports from all over the world. This confidence now lies shattered due to the fall in stock prices and the rise in unemployment, and will strongly impact future purchasing ability.

These huge debts need to be continuously serviced, and all the factors that facilitated the massive infusion of funds are now reversed — a weakened dollar, low interest rates, a declining stock market, and a shaky financial sector. This has resulted in the bursting of the bubble and the artificially created boom.

In addition there has been a huge crash in the infotech bubble*, which was the backbone of the so-called ‘new economy’. An example of this bubble was reflected in the rise and fall in value of the dot com stock. To take an example, Yahoo’s share price dropped from $237 to $15; Lycos from $109 to $11.25. 18 There has also been a massive slowdown in the computer hardware industry and the other factors of the ‘new economy’; i.e. in the communications, entertainment, and tourism sectors. Tourism, the largest industry in the world, has been the worst hit after the Sept.11 attack.

So, to sum up, the present recessionary-type conditions in the US economy is the result of a combination of a crisis of overproduction together with a bursting of the bubble in the financial and infotech sectors of the economy. The causes are deep-rooted and all encompassing and not the result of just one or two factors. It is for this reason that recovery (even if partial) will not be that easy as it was with the other downturns in the past three decades.

Japan: Dark Clouds Sans Silverlining

Japan is already in deep recession, the worst in the post-war period. This recession comes on top of a decade long period of stagnation, which has witnessed four recessions. There is not a single economic indicator that is positive. It is estimated that Japan’s GDP growth will drop by as much as 5% this year. Already, in the second quarter, industrial production dropped at an annualised rate of 17%.19 Unemployment has skyrocketed to 5.3% from just 2% a few years back. It is at its highest in the post world war II period. Yet, layoffs continue to rise at a frightening pace. In end August, the three major electronics manufacturers, Hitachi, Toshiba and Fujitsu announced layoffs of 20,000 each. All these giant electronic companies are showing huge losses.

Bankruptcies continue at an enormous rate. In October last year Japan’s 12th largest life insurance company, Chiyoda Mutual, went bankrupt with a debt of $27 billion. This was the biggest bankruptcy since World War II. Three months earlier, a departmental store, Sogo, collapsed with debts of roughly $18 billion. In the first eight months of the year 2000 12,625 companies went bankrupt — a rise of 30% compared to the same period in the previous year. 20 Bankruptcies continue to rise. In the first six months of the current year debt accumulated by Japanese corporate bankruptcies totalled $58 billion, hitting the second highest total since the end of World War II.

Japan’s public debt has skyrocketed over the past decade from 55%of GDP to 130% of GDP today. It is now a massive $5 trillion. 21. It has the highest ratio of public debt to GDP in peacetime. Its fiscal deficit has jumped from a surplus of 3% of GDP in 1991, to a deficit of 7% in 2000. Corporate debt is already 97% of GDP. Land prices dropped 5% in the year 2000, the 10th consecutive year of decline. The stock market index has been continuously falling, and in just the 2 months from mid-July to mid-Sept. it dropped 18% to reach its lowest level since 1983. Even the value of the Yen dropped by 7.2% in the first 7 months of this year.

The stagnation in the economy has been so deep that prices have been dropping by 2% yearly — i.e. instead of the normal inflation, there is a deflation of 2% annually. This is the first bad case of deflation of a big economy since the 1930s.

The crisis in the Japanese economy has also resulted in a decline in its control over world markets, even in its own backyard in S.E.Asia. Japan’s FDI around the world has fallen by 36% in the past decade, while that in S.E. Asia has halved. Though FDI investment in China has doubled the absolute quantum is relatively small compared to what it had in East Asia.

Japan’s boom and crash ‘bubble economy’ was an extreme case of what is today unfolding in America. Its massive growth in the pre-1989 period was fuelled by speculative mania in real estate and the stock market. Values reached dizzying heights. For example, the lands of the Imperial Palace in Tokyo were worth more than the entire real estate of California. By 1987, Japan alone accounted for 45%of the world’s market capitalization (compared to the then US’s 30%). But since the bubble burst in 1989, its financial sector was crippled with bad debts to the tune of Y 35 trillion ($300 billion). Though the bulk of this had to be written off, these bad debts are continuously being generated and are now 6% of the GDP. To meet these gigantic payments the Japanese govt. continues its frantic borrowings, being the world’s biggest borrower. Its gross borrowings in 2001 will be $560 billion — twice as much as the US. 22

The crisis of the Japanese economy is so acute, that in this decade of stagnation, it is estimated that $8 trillion of the country’s assets have been wiped out — an amount comparable only to the amount destroyed in Russia after Yeltsin’s neo-liberal coup!! Even with an interest rate reduced to about zero percent and enormous funds pumped into the economy by the government, there is yet no sign of recovery.

Europe: Limping Along

Though not as drastically hit as Japan and America, the EU is also facing a severe slowdown. Some estimates put the growth in the Euro area in the second quarter of this year at close to zero. Forecasts put the growth rate for the entire EU in the current year at a maximum of 1.9% compared to an average of 2.7% over the past four years. 23 A number of TNCs are laying off workers in thousands. The European Central Bank (ECB) has also cut interest rates three times this year, bringing it down to 4%, in a bid to revive the economy.

Amongst all the Euro zone countries Germany, which accounts for one-third of its GDP, has been the worst hit. In the second quarter of the current year GDP growth rate was zero; industrial output grew by just 1.1%; and inflation reached 3.5%, the highest since 1993. 24 In Germany unemployment has gone over the psychological barrier of 4 million and continues to rise as major and minor companies are reducing staff. Most predict that the German economy will not grow by more than 1% this year. The slowdown in Germany has seriously impacted neighbouring countries, which depend on Germany for much of their exports. Poland, the Czech Republic and Austria each send over one-third of their exports to Germany.

In Britain, manufacturing slipped into recession this year by falling for two consecutive quarters, while total industrial production fell by 2.2% compared to the same period last year. Total output of financial services in the city of London dropped from 4.6%of GDP in 2000 to 1.6% this year. It has been estimated that nearly one-and-a-half lakh jobs will be lost in the city of London alone by the end of next year.

Of the other EU countries, Italy’s GDP fell by an annualised rate of 0.5%; that of the Netherlands was zero, and France’s economy had also slowed.25

After the Sept. 11 attack the index fell sharply on all the European stock exchanges, with London’s falling to a three year low.

Through the 1990s though Europe’s growth rate has been somewhat sluggish, it has not had that type of volatility as witnessed in America and Japan. If America goes into recession, which seems most likely, it will pull the entire world’s economies down with it, including that of Europe. Though it may not be that badly devastated, it does not have the strength to act as a counterbalance to recession in America. It too is likely to be badly hit.

Russia, CIS & East Europe: United We Fall

Ever since the collapse of the state capitalist economies a decade back these economies have been in a state of chronic sickness. The EBRD (European Bank for Reconstruction & Development) reported that only Poland and Slovania were close to regaining what was lost during the 1990s. Till 1996, for East Europe as a whole, GDP was still 15% below 1989 levels. 26

Russia is in a chronic state of atrophy. GDP in Russia has fallen by over 40% since 1989.27 All business has been taken over by the mafia. Capital flight continues unabated, estimated to reach a gigantic $25 billion in the current year. The Rouble has little value, and estimates indicate that about 75% of all business transactions are carried out without using money — either through barter or by mutual non-payment. The black economy continues to be half the GDP. Russian made civil goods accounts for less than 1% of world markets (US is 36%, Japan 30%). Russia’s GNP is ten times smaller than that of the US. Its per capita annual GDP at $3,500 is five times smaller than the average of the G-7 countries. Though Russia saw some growth last year due to the hike in oil prices, this year the growth rate has already dropped by half. 28 Besides, inflation, which was under reasonable control for the last two years, has once again risen to 25% this year. Last year’s growth of about 8% is unlikely to sustain as its fundamentals are shaky due to the devastation of the past decade.

If Russia is in a bad state the CIS countries are in an even worse condition. A large part of the population of these countries is living in a state of acute poverty and even starvation. The expectancy of life has dropped by 5 years. Instances of TB and hepatitis have doubled since 1990. Ukraine has seen the collapse of its living standards since 1991. In a country like Moldova, half the population lives on a yearly income of $220, compared to $2,000 in 1992. In these countries the average monthly wage varies from $25 in Azerbaijan, $30 in Armenia, $40 in Kyrgyzstan, $60 in Uzbekistan; and even in countries like Bulgaria and Romania it was $70 and $90 respectively.29 A large part of the population of the CIS and East Europe has migrated to the West, and were forced to takeup manual jobs and also as prostitutes, etc.

These countries have been in an acute state of crisis and recession for the last decade, a world economic downturn can only push them deeper into the morass.

East Asia gets Pneumonia as America Sneezes

With the East Asian economies totally dependent on exports, mostly to America and Japan, these economies have been acutely hit by the downturn in these countries. Real GDP turned negative in the first two quarters of this year in Singapore, Taiwan and Thailand. Singapore’s production fell by 11%in the year to May 2001. In the second quarter of 2001 Singapore’s growth rate in GDP fell to minus 10.1%. Exports from East Asia declined by 10% over the past year, compared to a growth of 30% in early 2000. Even China’s exports have slowed from 40% to 4% over the past year.30 Many stock markets fell by over 30% in the year 2000. It is estimated that unemployment will leap by 12% in the current year.

The following table 31 gives a picture of the projected fall in GDP growth rates for the current year:

Change in GDP (%)




S. Korea









Hong Kong















The ‘Asian Tigers’, the ‘Asian Miracle’, the ‘emerging economies’ much propagated as the model for third world countries, was nothing but sweat shops for American (and to a lesser extent, Japan) TNCs. Their ‘boom’ in the 1990s was nothing but part of the American IT boom, with these countries manufacturing components for the US IT giants. Then came the 1997 economic war on these countries by US TNCs and the financial tycoons. The huge devaluations that resulted from these attacks, meant that export prices in dollar terms dropped by more than half, giving windfall profits to the US PC manufactures. Though exports boomed again, the terms of trade were extremely unfavourable to these countries. Besides, through the devastation of these countries, domestic consumption dropped, making these countries even more dependent on exports. So, for example, S. Korea’s exports of goods and services jumped from 30% of GDP in 1996 to 45% of GDP last year; Thailand’s rose from 39% to 66%. 32 Quite obviously they are at present far more vulnerable to international fluctuations in the economy than ever before, particularly that of the US.

The following table 33 gives a picture of the extent to which these countries are dependent on exports, particularly those of electronic goods:



Exports (total) as % of GDP (2000)

 Electronic Exports As % of total exports (2000)



















S. Korea






With such massive dependence on exports to the US (Japan accounts for 13%), the slump in the US IT sector since last year, has hit East Asian economies severely. In May 2001electronic production in the US was down a huge 35.5% compared to the same month last year. The impact on East Asian manufacturers of such a drastic fall, who have been used to galloping increases (for the last 20 years spending on IT in the US has grown at two to three times the rate of the economy), can well be imagined. In addition, the US TNCs have sought to push the impact of the recession on to these component manufactures, by forcibly reducing rates of the goods purchased. To take an example, the price of standard 64-megabyte RAM chip dropped 90% from $8.9 to $0.9 between June 2000 and July 2001.

So, these ‘tigers’ will be seriously affected by an American recession.

Some Backward Countries in Deep Trouble

Though severely damaged, the above-mentioned economies are not the worst to be hit. The two ideal models of IMF structural adjustments, Argentina and Turkey, are in the midst of their worst ever crisis in modern history. Argentina is the third largest economy in Latin America, and Turkey is the largest in the Middle-East region. Both have been the most faithful lackeys of the US, implementing all IMF/World Bank stipulations with a fervour that made their Western bosses ecstatic. Both have recently received gigantic IMF bailouts; but their crisis persists, nay deepens. Caught in the quicksand of recession, both are also sucking their neighbours into the vortex.

Argentina, which has faced a capital flight of $80 billion, finds its currency {which is pegged (1peso=1dollar) to the dollar} in a state of collapse. For a decade the dollar has been fully convertible (on capital account) with the peso, and the Central Bank is therefore unable to print pesos unless it has dollars to back it. As a result there is no cash in the country, and so the local authorities have resorted to issuing another paper note, called ‘pataconeses’ to pay salaries. As this has no legal tender, the dollar regime has, de facto, pushed the country into the dark ages of a barter system. Argentina has now been in recession for three successive years.

But, in Latin America, Argentina is not alone in a state of crisis. Mexico has a zero growth rate in the current year, compared to 7% last year. With 80% of its exports going to the US, the crisis can only deepen. Brazil, the largest economy in the region, also went into recession in the third quarter of this year. Brazil’s currency has lost 22% in the first six months of this year. This, in spite of Central Bank intervention and interest hikes. Chile’s peso is also falling, and Uruguay is already in recession. Rarely in the past decade have the prospects for Latin America’s economies seemed so threatening. In fact, entire Latin America is already in recession.

In Turkey, where its currency is not thus pegged, the Turkish Lira has recently lost 50% of its value with respect to the dollar. In the first six months of this year six lakhs lost their jobs; unemployment is now at 42%; hundreds of businesses have been going bankrupt and inflation is at 65%.

The plight of the people of these countries has been turned into a nightmare.

India: Stagnation Continues

The Indian economy has been in stagnation for three years now; and, each year the crisis has only been deepening. Predicting a bleak future for Indian industry the CMIE (Centre for Monitoring the Indian Economy) has revised its forecast for industrial growth for 2001 from 4.5% to 3.5%. In the first half of the year the Index for Industrial Production showed a mere 2.3% growth. In fact, during the entire period of globalisation, growth rates have fallen compared to the earlier decade. The average annual growth rate in the index of industrial production was 7.8% between 1980/81 and 1990/91, that slumped to 6% between 1992/93 and 1999/2000. The corresponding figures for food grains are 2.9% and 2%, and for non-food grains 4.3% and 2.4%. Thanks to low purchasing power over 50% of spending is towards food items.

Even the most industrialised state of the country, Mahrashtra, presents a bleak picture. The leader of the opposition stated in the Vidhan Sabha said that while only 5% of the population wallows in wealth, 95% are out on the limb; and that 60% of the big industrial units and 80% of the smaller units in the State have downed shutters. Even if somewhat exaggerated, it is an indication of the plight of Indian industry and manufacturing. Proposals to set up new industries have come to a virtual standstill, with SICOM receiving applications worth only Rs.200 crores.

If such is the plight of the most developed State, one can imagine the situation in the rest of the country. Unemployment is skyrocketing, the rural economy is in the doldrums, agricultural prices have crashed due to cheep imports, and even the much hyped service sector is in decline. Middle-class savings have been vanishing with the drop in interest of PFs and even the collapse of such blue chip mutual funds as the UTI. Besides, a very small elite, the rest of the country faces a bleak future, with the decline intensifying each day.


So, wherever we look in the world we see nothing but countries hurtling towards economic devastation. The situation appears to be getting from bad to worse. According to a recent estimate by the ‘Centre for Economic and Business Research’, 34 the GDP may fall next year by as much as 2.2%. Morgan Stanley has predicted a global growth rate of just 1.25% for the coming year.

In the early 1990s the imperialists were euphoric, portraying the setback to communism as the ‘end of history ¾ i.e. capitalism forever. The hype over the long American ‘boom’ of the 1990s, built on the blood and loot of the backward countries and the American masses, was portrayed as the ‘end of the business cycle’. Both have turned out to be shallow hoaxes with the present recession, and the growing people’s movements against globalisation and war.

What then would a recession of such magnitude mean for the world’s people?

It would mean, first and foremost, a great danger of growing fascism and wars. Second, it will mean heightened contention between the major imperialist powers. Third, it will mean greater domination and loot of third world countries. And fourth, it means great revolutionary potential for the oppressed masses of the world.

Since the last few years, we have seen a growth in the fascist forces throughout the world, with many right-wing governments themselves introducing fascist measures and promoting fascist organizations. This can clearly be seen in Europe. Also, in Japan the new prime minister has for the first time openly paid homage to the fascist’s war memorial of those killed in WWII. In the US, the Bush administration, even before Sept. 11, had openly been pushing the most reactionary policies regarding militarism, Zionism, ecology, and on numerous other issues.

After the Sept. 11 attacks, both the US and British rulers, together with their media, have gone crazy, whipping a maniacal war hysteria, jingoism and racist paranoia. Attacks on non-whites, particularly Muslims, have been encouraged, and have been taking place on a wide scale, with even the police taking part. Not only has Bush been speaking like a Hitler, but also even Blair has outdone the extreme right-wing Tories in his xenophobic statements. British tabloids and TV have been whipping up panic and have carried massive footage glorifying the war preparations and the Afghan war. The message sort to be portrayed was: the good civilized west versus the Islamic beasts! Immediately civil liberties are being curtailed, and the police are being equipped with draconian powers, normally seen only in the third world countries. It is portrayed as a clash of civilizations, much similar to what the old colonialists said.

The US has threatened a long war — first Afghanistan, then Iraq, and then anyone who does not bow before the almighty. It is not just a war against terrorism (i.e. mass discontent of the masses), but also a war to grab, seize and maintain markets, in a fanatical drive to overcome the recession. Its WAR, besides being against pockets of resistance, has the twin purpose of browbeating third world countries into greater servility to US dictates, and also of keeping the other imperialist powers out of its spheres of influence. As has already been mentioned all these factors can be seen in the war unfolding in and around Afghanistan.

It is not surprising that therefore the contention between the US and EU is growing, both in the economic and political spheres. Trade wars over agricultural commodities continue. In Dec. 2001 the European commission blocked the biggest ever industrial merger between two US giants ¾ General Electric & Honeywell ¾ which had already been approved in America. France’s media giant, Vivendi, the least exposed to the world-advertising slump, has been buying over a number of American companies. Besides, in the political sphere, not only have many European countries opposed the US extending the war to Iraq and other countries, but so also has Britain. There have also been conflicts on how to conduct the war in Afghanistan and on the NMD.

In this period of recession, the most affected will be the masses throughout the world. Unemployment will skyrocket, the agrarian economy will crash, social security will be further cut with govt. spending being geared to war and sustaining a monolithic fascist state, and millions more will be pushed to death by hunger, starvation and disease. And in the name of war and national chauvinism, all civil liberties, trade union rights, and rights to free speech and movement, will be ruthlessly curbed. Xenophobia, racial hatred, and communal passions will be incited, creating rivers of blood, sprouting from the springs of frenzy. And, together with all this inhumanity there will be wars — imperialist sponsored wars, fascist wars, wars that kill, maim and slaughter lakhs for the sole purpose of enhancing profits of a microscopic few.

But, all is not that bleak. Amidst this ocean of horror, the masses will rise against their tormentors. They will more easily take to arms, as in war/fascist conditions any other form of struggle will look increasingly futile. Oppression breeds revolt. Intense oppression will result in gigantic revolts.

Where Maoists forces exist they will lead these revolts and take it forward towards the seizure of power. Where they do not exist they will get formed, as it is only they who wield the political and organisational ability to take on the fascists, and it is only they who have a real alternative to the crumbling, degenerate and inhuman system. Besides, with this ruthless offensive of imperialism, vast sections of the masses will be drawn into this struggle, opening up the scope for the widest possible front against US imperialist aggression and all the lackeys that ally with them.

The increasing exploitation and oppression in these times of recession will catalyse the revolutionary process, by drawing in the vast masses into the great historical movement for a just order. Besides, in these conditions of economic crisis, the dogfights amongst the reactionaries will intensify as they scramble for their shares in the diminishing cake. This, together with the greater contention amongst the imperialist powers, will facilitate greater mobility and speedier advance for the revolutionary forces, through an astute handling of the contradictions within the enemy camp.

The present situation, though fraught with grave dangers, is opening up avenues for great advances in the revolutionary movement. There is urgent need to build the widest front against the fascists and the US imperialist sponsored war effort, under the leadership of the proletariat. What Com. Mao said in 1970 is once again relevant today: "people of the world unite, defeat US imperialism and all its running dogs".




1. Frederick F Clairmont, EPW, Nov.10, 2001

2. The Economist; Sept. 20, 2000

3. Economic Times; April 16, 2001

4. Economic Times; March 31, 2001

5. Economic and Political Weekly (EPW) Dec. 16, 2000

6. The Economist; Aug. 18, 2001

7. EPW; Dec. 16, 2000

8. Monthly Review; July/Aug 1999: "The present as history…….." by David McNally

9. A Glimpse of Class Struggle in Norway; AKP

10. Survey by Milken Institute Review

11. EPW; June 9, 2001

12. EPW; Dec.16, 2001

13. Business Standard; Aug.20, Aug.30, 2001 & The Hindu; Sept. 20, 2001

14. Business Standard; Aug.30, 2001

15. The New York Times as printed in the Sept.20, 2001 issue of The Hindu

16. Outlook; Sept.24, 2001

17. EPW; Dec.16, 2000

18. ibid

19. The Economist; Aug.18, 2001

20. The Economist; Oct.14, 2000

21. EPW; April 28, 2001

22. ibid

23. The Hindu; Aug.13, 2001

24. The Economist; June 30, 2001

25. The Economist; Aug.18, 2001

26. EPW; June 30, 2001

27. EPW; Jan.27, 2001

28. ibid

29. The Economist; Sept.23, 2000

30. The Economist; July 7, 2001

31. Far Eastern Economic Review; Sept.6, 2001

32. The Economist; July 7, 2001

33. Far Eastern Economic Review; July 26, 2001

34. Business Standard; Sept.25, 2001.




Contents   Appendix


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