Chris Harman


Thinking it through

(October 1996)

From Socialist Review, No.201, October 1996.
Copyright © Socialist Review.
Copied with thanks from the Socialist Review Archive at
Marked up by Einde O’Callaghan for the Marxists’ Internet Archive.

‘In July the economic talk was of a booming economy. Before the summer holidays the economy was, by common consent, set for lift-off. We return to find feeble growth ...’

That was William Keegan writing in the Observer early last month, and neatly summing up the bewilderment facing conventional commentators as they try to decipher the ‘economic recovery’ Britain has meant to be experiencing for four years now.

Again and again they have insisted that the recession is well and truly over, that the enforced devaluation of sterling, on Black Wednesday 1992, has done wonders for exports, that all the conditions are present for at least a short period of rapid economic growth. They express bewilderment that the mass of people still do not appreciate this and won’t tune into the ‘feelgood factor’, as economic growth in reality limps along at about 1.5 percent a year and manufacturing industry slips back into recession for months at a time.

The confusion is not confined to Britain. In Germany growth predictions for this year have fallen from an official forecast of 2.5 percent a year ago down to 0.5 or at most 0.75 percent. The French economy contracted by 0.4 percent in the second quarter of this year. And figures which seemed to show a sudden jump in the four year long Japanese recession in the first quarter of this year have since been shown to be a blip, with expected growth down to 1.7 percent for the second half of this year and a 7 percent fall in the value of shares on the Tokyo stock exchange since June.

The conventional wisdom holds that the success stories of the 1990s have been, on the one hand, the US and on the other, the east Asian tigers.

But even here the optimism of a year ago is increasingly tinged with worries. There has been more growth in the US than in Europe or Japan. It has not, however, been at anything like the level known in previous booms. Annual growth at the present is about 2.5 percent, and whenever any indicator suggests it might accelerate, the markets get jittery. By contrast during booms in the 1960s growth was more than 6 percent and between 1982 and 1989 it averaged 3.75 percent.

The Washington think tank, the Economic Policy Institute, says that ‘job loss was as common in the 1991-3 recovery as it had been in the 1981-3 recession’. In the east Asian economies, also, economic growth is beset with problems which are ignored by those who laud them so much in the west. South Korea is by far the most important of the established ‘tigers’ (although its total output is still only about a third of the British figure). Its president, Kim Young Sam, warns that ‘the national economy is in trouble’.

Growth is still above 6 percent. But this is much less than the 10 percent Korean businesses became accustomed to in the 1980s, leading to talk of ‘recession’ and ‘excess capacity’. Exports have been badly hit by what is happening in the rest of the world and the trade deficit is expected to grow to $20 billion this year. The price of the country’s biggest single export item, computer chips, has fallen by more than 50 percent since the beginning of the year as a result of global overproduction, threatening enormous damage to the chaebols (giant firms) who invested heavily in producing them. The Financial Times can report, ‘Institutional investors have already expressed concerns about Daewoo’s high gearing ratio of 300 percent, with some suggesting that a capital shortage affecting Korea’s fourth largest group could result in a financial crisis for the country.’

Finally, things are looking dodgy in China too. Three years ago the government was terrified as inflation approached 30 percent in the major cities and tried to rein in investment. Now, as this year’s growth is expected to be down to 6 percent or lower, as against 10 percent last year, there are fears it has gone too far. At the same time, it faces the problem, as one Hong Kong economic commentator puts it, that ‘since the second half of 1995, the world market has been saturated with cheap Chinese products ... The question is how much can it absorb’. Unsold goods are piling up in Chinese warehouses, with some estimates suggesting that bulging inventories might account for 5 percent of Gross National Product.

The global picture is still different from that in 1990-1, when all the major western economies were in full blooded recession.

Today there is usually not contraction, but low growth or stagnation. To that extent, talk of ‘recovery’ is technically correct. But it is recovery that is a million miles from the ‘booms’ that usually followed recessions in the past.

This time it is recovery with few new jobs, and with growing insecurity and stagnating or falling living standards for workers. It is also recovery that does not inspire the capitalists themselves with enough confidence in the future to translate profits into the investment necessary to give the economy a further boost.

This faces governments almost everywhere with a dilemma. A stagnating or slowly growing economy means low tax revenue, high social security spending and, consequently, budget deficits of well over 3 percent.

They are half tempted to try boosting economic growth by cutting taxes, so increasing the budget deficit, but worry that fear of inflation might further dent business confidence. At the same time, they are committed in theory to reducing budget deficits in pursuit of lower inflation (and, in Europe, the Maastricht criteria), but again hesitate about doing so out of fear of popular discontent and of pushing the economy into all out slump that can only make the deficit worse.

The result is inevitably the volatility of mood described by Keegan at the top of society, a volatility which accompanies a growing bitterness at the base. It is a combination which provides ideological openings for opponents of the system, even if the bitterness itself does not crystallise out as successful struggle.

Last updated on 21 December 2009