Ernest Mandel

The second postwar world recession

What prospects for a solution to the economic crisis

(7 June 1982)

From International Viewpoint, No. 8, 7 June 1982, pp. 17–26.
Marked up by Einde O’Callaghan for the Marxists’ Internet Archive.

Like the 1974–75 recession, the present one began in the United States, where there was a net decline in industrial production and in employment over the first half of 1980.

After some fluctuations, which were wrongly called “recovery” by most experts, this decline accelerated again, beginning in the third quarter of 1981. It will doubtless continue for most, if not all, of 1982.

Between July 1981 and February 1982, industrial production decreased by more than 10%. The extent of the 1980–82 recession in the United States becomes clear above all in the light of the evolution of the rates of utilization of installed productive capacity, that is, the growth in the rates of excess capacity (see Table 1).

At the beginning of 1982, orders for durable goods received by manufacturers in the imperialist countries were 7% lower than they were in January 1981, which represents a drop of 15% in real terms.

In West Germany, the decline in industrial production began in early 1980, almost at the same time as it did in the United States. This drop continued throughout 1980 and 1981, and stopped only at the beginning of 1982.

In France, industrial production declined throughout almost all 1980 and during the first half of 1981. A slight upturn occurred during the second half of 1981 and at the beginning of 1982. But it is not clear, given the effects of the American recession, if it will continue through 1982.

While Japan has been less hard hit by the recession than its major competitors, it nonetheless experienced a decline in industrial production in the second quarter of 1981. Production dropped again in the first quarter of 1982.

Rate of Utilization of Productive Capacity
in Manufacturing Industry
in the United States.

August 1980


December 1980


August 1981


September 1981


October 1981


November 1981


December 1981


January 1982


(Sources: Successive issues of Business Week up to March 8, 1982.)

In Italy, industrial production began to decline in the second quarter of 1980; this decline continued throughout 1981 and into 1982.

In Canada, industrial production went into decline in the second half of 1979. This recession continued throughout 1980. While industrial production showed an upturn during the first half of 1981, it went into a decline again in the second half of 1981, which continued into the first half of 1982.

The synchronization of this recession throughout the capitalist world is highlighted by the fact that nearly all the smaller imperialist powers were caught up in the decline of industrial production.

Industrial production dropped for the first time in Austria (in 1981, production declined by 2%; at the start of 1982, there were 150,000 unemployed). Likewise, declines occurred in Belgium (in 1980 and in 1981), in Denmark and Norway (1981), in the Netherlands (in 1980 and in 1981), in Sweden (1981), and in Switzerland (1982).

The only imperialist power that seems to have escaped the recession this time is Australia, where the economy was buoyed up by a “raw materials boom.” But in view of the drop in the prices of these raw materials that sharpened in 1981 and the beginning of 1982, it is possible that Australia also will be hit by the recession sometime in 1982.

The experts were wrong again in predicting a general upturn in 1982. In view of the worsening of the recession in the United States, there is no question of this. The question that is posed is the opposite. Will the American recession deepen the downturn in most imperialist countries, thereby provoking a worsening of the economic situation internationally? Will its effects be limited to “spoiling” or delaying upturns in other imperialist countries? In any case, a general upturn is unlikely before the fourth quarter of 1982 or the beginning of 1983.

Like the recession of 1974–75, the 1980–82 recession has hit hardest the automobile industry, the building industry, steel, and petrochemicals. It has revealed the existence of excess capacities in these sectors, which have been increased by the appearance of new centers of production and exporting to the world market.

The engineering sector has suffered less from the crisis. Many sub-branches have continued to prosper. It should be noted, however, that even a pace-setting branch, such as the semiconductors and microprocessors industry has been affected by the recession. In the United States, its turnover dropped during 1981. (Sunday Times, February 28, 1982)

In a general way, the onset and continuation of the recession reflect a decline in the average rate of profit, combined with a fall in productive investment. The monetary (deflationist) policy practiced by most imperialist governments has aggravated the downturn but did not cause it.

The shrinking of the internal market that has accompanied the decline in production, employment, and incomes of “final consumers” (adjusted or not for slight fluctuations in the rate of savings) in almost all the imperialist countries has not necessarily gone hand in hand everywhere with a shrinking of foreign outlets, although there was a 1% drop in the volume of world trade in 1981.

Some imperialist powers, in the first place Japan and in the second West Germany (starting in the third quarter of 1981), have increased their share of world exports at the expense of their competitors, thereby compensating for the stagnation or downturn of internal demand. Others, in particular France, are trying to regain a part of the internal market that they lost to competitors in recent years. But it is not yet certain that they will succeed.

Like the 1974–75 recession, the present one has stimulated the search for substitute markets. Over the last business cycle, this function was mainly filled by the OPEC countries and the so-called socialist ones, as well as a series of semi-colonial countries. These markets were largely financed by loans, except in the case of the OPEC countries.

In this recession, the crisis of the capitalist world economy is coinciding with the emergence of the inherent crisis of the economies of the post-capitalist countries, as well as with a sensational turnabout in the evolution of oil prices and in the balances of payments of the OPEC countries.

Under the combined impact of the recession and long-term effects of the search for alternative energy sources (oil outside the OPEC countries, natural gas, coal, nuclear energy, the beginnings of solar energy, etc.), the excessive increases in the price of oil had an easily predictable result.

A drop in OPEC’s share of total world exports (to less than 50%) has been accompanied by a general oil glut, leading to a drop in prices and production (to 50% lower than the historical maximum). The total demand for oil will undoubtedly drop by 7% more in 1982. The per barrel price in Rotterdam dropped from 42 dollars at the start of 1981 to 28 dollars at the end of February 1981.

So, the balance-of-payments surpluses of the OPEC countries began to fall headlong. They went from 100 billion dollars in 1980 to 60 billion in 1981, and may disappear altogether in 1982. (The surplus enjoyed by Saudi Arabia and the Gulf emirates is counterbalanced by the deficits of other states, now including Kuwait.)

So, now this “substitute market” threatens to shrink severely. There still remains East Asia and South East Asia, and above all the classical “substitute market” of rearmament.

Interimperialist Rivalry

While over 1978, 1979, and the first half of 1980, the decline of the dollar enabled U.S. industry to improve its performance somewhat on the world market, the later rise of the dollar stimulated by the high interest rates in the United States has caused a sharp deterioration of the U.S. balance of trade. It has been mainly Japan and West Germany that have profited from this, increasing their share of world trade at the expense of the U.S.

Underlying these fluctuations engendered by monetary instability, is a more fundamental economic fact. Industrial productivity in the United States is continuing to decline relative to that of the United States’ principal competitors.

Attention has been focused on Japan’s economic performance, which many advocates of the capitalist system have seen as heralding a new expansion. The important point here is not so much that the higher rate of growth in Japan in recent years is essentially the effect of a higher rate of profit, which is the result primarily of the fact that for equally productive work, wages in Japan remain lower than in West Europe and the United States. This is to say nothing of the fact that employer and public expenditures for social security are thirty years behind those in Japan’s competitors.

What is essential is to understand that, contrary to appearance, Japan is no exception. It was hit by the present recession in the third quarter of 1980 and in the second quarter of 1981. And it is in danger of being hit again in the second quarter of 1982, as a result of a decline in its exports to the United States, owing to the American recession.

In fact, the boom in Japanese exports is beginning to run out of steam. The automotive industry cannot increase its foreign sales any further. The protectionism stimulated by the recession is beginning to be felt, as well as the difficulty of finding new products for mass consumption, like color TV sets. Japan has gained a large lead in video cassettes, but the market for this product remains limited and cannot play the same role in stimulating an upturn as the products that brought the brightest days of the export boom.

The Japanese economy depends more and more on public spending and a considerable budget deficit, as is indicated by the following comments:

“The Bank of Japan report accords a special attention to the stagnation of exports that has become apparent over recent months. It also points to the stagnation of industrial production ... of private consumption, and construction.” (The Japan Economic Journal, February 23, 1982)

The Common Market has been severely tested by the current recession. The European Monetary System has been subjected to two shocks – the first in October 1981, with the devaluation of the French franc; and the second in February 1982, with the devaluation of the Belgian franc (the Danish krona on both occasions was tied to the currency devalued).

The retreat to “national” solutions has been marked in the steel industry. In the event of a Labour victory in Great Britain, there would be a danger that the country could leave the EEC, which obviously would be much more important than Greece joining the Community.

However, the ability of the Common Market to resist centrifugal tendencies remains strong, owing to the importance that exports to member countries now have for all the component states. What is more, integration in the realm of arms production, both military aircraft and tanks, indicates that on the political level, it is hard to envisage a breakup of the Common Market.

While calling for “a reconquest of the internal market” by French industry, Mitterrand is trying to substitute a “triumvirate” – West Germany, France, Italy – for the “duumvirate.” If this attempt were successful, it would mean a definite consolidation and more cohesiveness against the U.S. and Japan.

The special situation of the U.S. is expressed above all in the contradictions of the Reagan administration’s economic and monetary policy. The Reagan government is in the forefront of the international drive of capital to restore a high rate of profit by means of an austerity policy, that is, by an assault on direct and indirect wages (social expenditures). But it is also in the forefront of the imperialist drive to expand the supreme “substitute market” that arms expenditures represents for a capitalist economy in crisis.

GNP Growth in Percent





Hong Kong








South Korea
























(Far Eastern Economic Review, January 1 and 8; February 19 and 26, 1982)

The austerity policy is being reinforced by the shift from social to military spending. On the other hand, tax breaks for the middle and big bourgeoisie are going hand in hand with a very big boost in military expenditures. This results in a colossal budget deficit, unprecedented in peace time, a hundred billion dollars for the current year, and doubtless still more in the two years ahead.

This is the reason for raising the interest rate by restricting the money supply in the face of strong demand for credit on the part of both private and public sectors. It is also the reason for throttling any chance of an upturn, at least in the short term.

A New “Coprosperity Zone” in East Asia?

Japanese imperialism waged its campaign of conquest in the second world war under the slogan of creating a “coprosperity zone” in East Asia. This slogan was only a cynical cover for the superexploitation to which it subjected the peoples of the occupied countries. It implied that Japanese colonialism – an Asian power – would be more beneficial for the peoples of East Asia than the colonialism of the old European imperialist powers or the United States.

Over the last twenty years, Japanese imperialism seems to have gained by peaceful means, that is, by financial and commercial penetration, most of the objectives that it sought to attain previously by military conquest, and which it lost when it went down in military defeat in 1945.

It has become the leading exporter to almost the whole Pacific area, including Australia. Its operations extend from Mexico to Chile, and have even made a perceptible impact on the west coasts of Canada and the United States. After two decades of such imperialist expansion, something resembling a “coprosperity zone” seems to be emerging in East Asia.

While the average growth rates are declining for the world capitalist economy as a whole, they are increasing for a series of East Asian and Southeast Asian countries. In 1980–82, at a time when almost all the industrialized or semi-industrialized capitalist countries were going through a recession, the East Asian countries and some of those in Southeast Asia have been undergoing a rapid expansion, as is shown by the figures in table 2.

On closer examination, the picture becomes more variegated. South Korea experienced a grave recession in 1980, and it is, of course, the most industrialized of the eight countries mentioned.

In 1981, the textile industry along with other manufacturing industries in Hong Kong were hit by recession, followed by a stock market collapse. (Far Eastern Economic Review, July 29 and October 2, 1981)

The underdeveloped and still essentially agricultural character of countries such as Indonesia and Thailand or the Philippines makes their figures for gross national product and growth scarcely comparable with those for industrialized or semi-industrialized countries.

Moreover, in the Philippines, economic growth has slowed down sharply. The balance-of-payments deficit nearly doubled between 1979 and 1981. The foreign debt rose from 5.5 billion dollars in 1976 to 15.5 billion in 1981, and will doubtless reach 19 billion in 1982. There have been a series of spectacular business failures in the mining and banking sectors (Far Eastern Economic Review, December 11, 1981; September 4, 1981; The Economist, December 12, 1981; the Financial Times, January 21, 1982).

In the case of Taiwan, there has been a full-fledged recession in a series of industries, which has led to massive layoffs (Far Eastern Economic Review, February 26,1982).

However, with all these reservations, it is no less true that in East Asia, economic growth has far exceeded the average elsewhere. This is so notable that it has led authors such as Jacques Attali to see this rise as one of the key factors in a worldwide restructuration of capital. [1]

This recalls an old prediction by Friedrich Engels about a century ago that envisaged a shift in the center of gravity of the world economy away from the Atlantic and toward the Pacific after the penetration of capital into China.

Will the expansion of the capitalist economy in East Asia really become a moving force in the entire international capitalist economy? What is the explanation for such growth in the face of the general recessions of 1974–75 and 1980–82 and in the context of “the long-wave tendency to depression” of the international capitalist economy over the 1970s and 1980s?

The weight of the eight countries mentioned in the world capitalist economy is much too limited for them to be able to alter the overall dynamic. In 1981, their total imports added up to 135 billion dollars, or 6.1% of total world

imports, less than those of Great Britain and Canada combined. Their total gross national products barely exceed that of Italy alone. And it is obvious that neither Italy nor Great Britain could by itself cause a turn in the international conjuncture.

As for the causes of the East Asian boom, there is nothing mysterious about them. They involve the following: the absence of the land question in Hong Kong and Singapore, or its partial resolution in Taiwan and South Korea. The super-exploitation of industrial labor power, made possible by an abundance of labor (exodus from the land, Chinese refugees) and despotic control (the lack of free trade unions, the existence of authoritarian political regimes, bloody repression). And finally, there is the contribution of foreign capital, mainly in the form of bank credits (more than direct investment), which has made possible industrialization in direct competition with the imperialist countries that supply these funds. [2] This is linked to the important role that the state plays in the process of industrialization, which has been the case, moreover, in Mexico, Argentina, and Brazil.

The solution of the agrarian question, however, is only very partial. The result is that the internal market remains very limited, and economic growth is essentially based on exports. Thus, paradoxically, it is not the special spurt of economic growth in East Asia that will impel the world capitalist economy toward a restructuring and a new phase of sustained rapid growth. It is, to the contrary, the long-term growth rate of the world capitalist economy that will decide the fate of the boom in East Asia.

So far, appearances to the contrary, this boom has bolstered production and employment in Western Europe and in the imperialist countries in general, rather than having a harmful effect. At most, there has been a shift of investments and employment from the textile industry, the shoe industry, electronics assembly, watch making, and toys toward the engineering and electrical construction industries and the industry that provides ready-made factories.

But now a turning point has been reached. It is illustrated by the second “multi-fibers accord” which restricted the outlets for the Asian textile industry in Europe. (Far Eastern Economic Review, January 1, 1982; The Economist, December 12, 1981) The chances for filling special niches in the world market are narrowing. It is unlikely that any of the eight countries in question, including South Korea, which for the moment is in the best position, will be able to follow the “Japanese route” to the end. (That is, the path of textiles, assembly industries, steel and shipbuilding, automobiles, machines, and electrical construction; the technologically advanced sectors.)

The cases of the shipbuilding and automotive industries are significant in this respect. South Korea made a big effort to create a powerful shipbuilding industry (its current production is the second largest in the capitalist world). Taiwan is following on its heels.

But in 1981, the whole shipbuilding industry experienced a decline in activity relative to 1980. Total world orders, according to Lloyds Register of Shipping, did not add up to 17 million tons in 1981, as against 19 million in 1980.

At the end of December 1981, the order books contained orders for no more than 35 million tons, as against 37.5 million tons for the end of June 1981.

Thus, the possibilities for new advances by the South Korean and Taiwanese shipbuilding industries are quite limited. (See Table 3.)

Ship Building in Thousands of Tons




South Korea


















West Germany

































(La Libre Belgique, March 2, 1982)

As for the automotive industry, the situation is still clearer. The capacity exists in South Korea to build 280,000 private cars. The government projects the building of a giant factory capable of producing 300,000 more cars. But in 1980, only 58,000 cars came off the assembly lines and this level was scarcely exceeded in 1981. Moreover, the export possibilities are very limited. (Neue Zürcher Zeitung, February 9, 1982)

The Underdeveloped Countries in the Crisis

The second general recession of the world capitalist economy hit the semi-colonial and dependent semi-industrialized countries primarily through the decline in raw materials prices. This fall-off was especially marked in mid-1981, as is shown by the drop in the Moody Index (United States) from 1,140 in February 1981 to 992 at the end of February 1982, and in the Reuter Index (Great Britain) from 1,742 at the end of February 1981 to 1,606 at the end of February 1982. (Neue Zürcher Zeitung, March 5, 1982)

Since the price of gasoline for non-exporting countries has continued to go up as a result of the rise of the dollar, the deficit in the balance of payments of most semi-colonial countries has further worsened. And this trend has not been compensated for by an increase in these countries’ exports of manufactured products (and the income from them).

Latin America has been hit much harder by the present recession than by the one in 1974–75. In fact, industrial production has declined in all the major countries, with the exception of Mexico. In Brazil, it dropped by 10% in 1980 and by another 5% in the first half of 1981. Despite a strong increase in exports, the official unemployment rate reached 9% in the Rio region and 8% in the Sao Paulo region, to say nothing of the extent of unofficial and hidden unemployment, which is considerably higher.

The situation is worse in Argentina, where the 1981 figures are expected to show a 15% decline in industrial production. The official unemployment rate reached 13%, which again is far less than the truth. According to the magazine Realidad Economica, internal consumption has dropped by more than 20% since 1975.

In Chile, the output of the manufacturing industry is estimated to have dropped by 3 to 4% in 1981, while the rate of registered unemployment in Greater Santiago is estimated to have reached 13.5%. (Neue Zürcher Zeitung, February 12, 1982)

The situation in Mexico, which had benefited from an exceptional oil boom, has been better. Industrial growth continued in 1980 and 1982, although at a slower rate in the second year. Nonetheless, the acceleration of inflation, combined with a very high exchange rate for the peso, produced both an enormous deficit in the balance of payments (which went from 1.6 billion dollars in 1977 to 4.9 billion dollars in 1979 to 11 billion dollars in 1981) and a jump in the foreign debt of the public sector, which increased by 16 billion dollars in 1981 alone. The government has been forced to react by devaluing the peso (which will increase inflation) and slowing down investment (which will increase unemployment), since with the world oil glut and the drop in prices, Mexico oil revenues are on the way down.

India was hit by the recession in 1980. The situation improved somewhat in 1981, especially as regards production of food and energy (coal and electricity). But the economic difficulties have forced Mrs. Indira Gandhi’s government to make a 180 degree turn with respect to its strategy for long-term growth. India applied to the Asian Development Bank for a very high loan (on the order of two billion dollars).

For those Black African countries that do not export oil, the economic situation is continuing to develop in a disastrous way. This goes not only for the countries of the sub-Sahara belt, as well as Zaire, Tanzania, and Zambia, but also for the former Portuguese colonies (where Portuguese advisors and investors are increasingly in evidence) and Ghana.

The economy of Ghana is in ruins. Raw materials production is being diverted toward the black market. The country can no longer pay for essential imports. Mining and industrial production is coming to a standstill because of the lack of spare parts. On the black market, the national currency, the cedi, has dropped to 80 per pound sterling, whereas the legal rate is 5 cedi to the pound sterling.

The Effect of the Post-Capitalist Economies on the World Capitalist Conjuncture

In previous studies [3], we have examined primarily the effect of the world economic conjuncture on the economy of the workers states. Now, it is interesting to look at this question from the opposite point of view – the effect of the economic evolution in the USSR, in Eastern Europe, and in the People’s Republic of China on the international capitalist economy.

The 1980–82 recession confirmed in general the structural difference between the capitalist and the post-capitalist sectors of the world economy, as well as the different dynamics that flow from them.

With the exception of Poland, which in any case has been hit by a crisis of underproduction and not overproduction, all the workers states have continued to experience growth in their industrial production, while the industrialized and semi-industrialized capitalist countries have suffered declines in their production.

At the same time, most workers states have shown a long-term tendency to declining growth rates, accompanied by a severe crisis of agriculture and food supply to the population. This slowdown is a result of intrinsic weaknesses in the economy of these countries, that is, the more and more ineffective functioning of the bureaucratic system of management, aggravated by the indirect effects of the capitalist crisis. [4]

In the 1970s, East-West trade played the role of an additional safety valve for the world capitalist economy, with the expansion of exports to the workers states attenuating somewhat the tendency to stagnation or even decline in exports among capitalist countries. Like “aid to the third world,” the bank credits financing East-West trade represent more a subsidy to the export industries of the imperialist countries than economic aid to Moscow, Peking, or the “people’s democracies.”

However, because of the interaction between the capitalist economic crisis and the slowdown in growth for specific reasons in the workers states, the expansion of East-West trade has run up against a more and more insurmountable barrier – the growing indebtedness of the East European countries, their great difficulty even in keeping up payments, and the threat of default that is beginning to hang over them. As a result of this, the rate of expansion of East-West trade is going to slow down. Even a reversal in the trend toward expansion cannot be excluded.

In the case of the post-capitalist economy most “integrated” into the world market, that of Yugoslavia, such a reversal seems to have already begun. For several years, trade with COMECON has been playing a larger and larger part in the Yugoslav economy.

For the moment, however, at the beginning of the present recession, the outlets in the East have still played the role of a “substitute market” for the economy of the imperialist countries, as is indicated by Table 4.

Exports to the USSR in 1980
(in billions of dollars)


Absolute Figures
in billions of dollars


Percent of
1979 figures




West Germany


















(Financial Times, December 31, 1981)

The very different reactions by the imperialist countries to General Jaruzelski’s crackdown can be easily understood in the light of these figures. This is especially true if you also take into consideration of the expansion of Japanese exports to the People’s Republic of China, which are expected to total 10 billion dollars in 1982. [5]

However, the risks of unmanageable indebtedness are growing. With the exception of the USSR, all the countries concerned are already beyond the danger point where servicing on the debt absorbs more than 20% of their normal income in Western currencies. If the present tendency were to continue, the total indebtedness of these countries, which has already grown from 7 billion dollars in 1975 to 70 billion in 1980, will reach 123–140 billion in 1985, according to the Wharton Econometric Forecasting Associates. (Neue Zürcher Zeitung, February 10, 1982) So there will be slowing in the expansion of East-West trade, despite the Siberian natural gas agreement.

It is in the realm of agriculture that the interlocking between the international capitalist economy (with its two “subsectors”!) and the economies of the post-capitalist countries is most marked, and where the effects are most complex. The East European countries, especially the USSR, are suffering from disastrous forms of underproduction. While in 1970–74, the USSR produced an annual average of 190 million tons of cereals, this year production will not reach 165 million, almost 60 million less than planned for! Livestock herds (and therefore meat production) have remained practically stagnant since 1977, at around 155 million head. This is primarily the result of the lack of livestock feeds.

In the United States, on the other hand, there is overproduction, and the threat of price collapses if exports to the East European countries were to stop, which has not happened. Even with these grain deliveries, the Reagan administration has decided on a drastic reduction of acres sown in order to “maintain prices.”

Now, the threat of scarcities is looming for the poorest countries of the Third World, and this is being accompanied by the threat of Washington that it will cut off food aid to governments that do not submit to its diktats. “The grain weapon” is being used cynically (like that of gold) to counterbalance the political weight of the semi-colonial countries.

Immired in its so-called peaceful coexistence policy, and dependent itself on capitalist food shipments, the Soviet bureaucracy have essentially let the imperialists get away with this, resting content with a few verbal protests.

Inflation Is Far from Being Overcome

Since before the 1980–82 recession, almost all capitalist governments have been applying a deflationary policy. While this did not cause the downturn, it certainly has aggravated it. The excuse was that priority had to be given to fighting inflation. This choice – “better massive unemployment than inflation” – is a class choice, despite all the preaching of experts that increased inflation will result in the long run in more unemployment than that presently registered. But the results are there to be seen. Deflation has aggravated the recession; and it has by no means overcome inflation.

The failure of the monetarist policy is particularly glaring everywhere that governments have striven to put all their weight to bear to reduce the much-talked- about “volume of money” (which becomes more and more difficult to define, if it has not become something incomprehensible altogether).

The truculent preachers of such policies waste their breath in proclaiming that you have to give them time to work. Nothing is happening. Despite the recession, despite the slowdown in the growth of the money supply, the prices continue to rise. And if the phenomena of overproduction are unquestionably slowing down inflation, it remains at a higher level than before the recession of 1974–75 (see Table 5).

The general tendency is clear. Except for Japan, in the second half of 1981 (after three half-years of recession) inflation was higher than it was in the second half of 1975.

There is, moreover, a very clear threat of a new acceleration of inflation in the second half of 1982. Such an acceleration will be fueled, on the one hand, by the policies of moderate stimulation to which the Schmidt cabinet in West Germany and the Mitterrand regime in France have resigned themselves. And the Thatcher government, and even the Reagan administration may soon follow in their footsteps for electoral reasons. Such an acceleration will be fueled also by the enormous budget deficit in the U.S.

Consumer Price Increases by Half Years

(percent by comparison with the preceding period in annual rates,
adjusted for seasonal variations.)


















(whole year)

























West Germany








































































































(Sources: Perspectives Economiques de l’OCDE, No. 30, December 1981, p. 156 for all figures except those for the second half of 1981, which come from Economie Européenne, No 2, February 1982, and from The Economist of February 27, 1982)

It is not surprising that in such conditions experts and politicians seeking a new miracle cure for recession, are raising the possibility of a return to the gold standard. What a blessing it would be to go back to an “automatic mechanism” that would assure monetary stability for and against everyone! But what price would have to be paid for this in terms of the disorganization of international trade, or even in an aggravation of the depressive economic trend? No one would really dare take this road, despite the fact that a committee has been set up to study it in the American administration and the fact that Reagan himself is supposed to have agreed to this scheme, supported by the advocates of “supply-side economics,” Laffer and Company. [6]

The Dangers of a Collapse of the Credit System

Despite the application of a deflationary policy by practically all the governments of the imperialist countries, with the exception of France, the merry-go-round of indebtedness continues to spin at a more and more dizzying rate. As we have often noted, this avalanche of debt has its origin in the debts of firms and households much more than in public debt. This is shown graphically by the following table published in the December 1981 issue of the American magazine Monthly Review, which is edited by Paul Sweezy (Table 6).

Cumulative Debt of the Non-Financial Sector in the United States
(in billions of dollars)











1980 by
with 1950

Public authorities





+   340%

Private sector











+   861%

(Source: Various Flow of Funds Accounts bulletins published by the Federal Reserve Board.)

These figures show a snowball effect that has terrifying implications for the future of the capitalist system. Between 1960 and 1970, private debt doubled. On this basis, there was a 90% growth in the GNP. Between 1970 and 1980, private debt tripled. But the GNP growth was slightly less than it was in the preceding decade.

It has to be understood that this avalanche of debt is generated not only by small and middle-sized companies as well as households. It is also being generated by a welter of big companies, including most of the most imposing “multinationals.” Everyone knows about the cases of Chrysler, International Harvester, and Massey-Ferguson, whose survival depends increasingly on bank credits that are more and more out of proportion to the assets of these virtually bankrupt trusts.

Chrysler’s losses mount up to 2,2 billion dollars just for 1980 and 1981! On the day that Freddie Laker’s difficulties came to light, we learned that his company, which is a “little fish” in airline traffic, had half a billion dollars in debts.

There is another case to liven up the story. It is the example of Ludwig, considered one of the world’s five richest men, who launched a gigantic enterprise to open up the Amazon to agriculture in Brazil. He threw in the sponge, leaving debts of 200 million dollars.

But there are a whole series of other giant firms that have accumulated enormous debts and are now on the brink of bankruptcy. [7]

When the dangers are evoked of a bank crash setting up a chain reaction leading to the collapse of the international credit system, what people generally think of is the default of the big borrowers in the “Third World” or the so-called socialist countries. In fact, Zaire is presently in default. If Poland is not in the same situation, this is not only because of advances from COMECON but also and primarily because of the intervention of the U.S. treasury, which has paid the interest coming due for a series of bank loans that the bureaucracy did not honor. This was an attempt to prevent a declaration of bankruptcy, which would have forced banks – above all, West German and Austrian ones – to write off enormous losses, with unpredictable results.

However, the facts have to be faced. The dangers of a banking crash come not only from these sources. Potential “bad debtors” also exist in the Western countries. In this category must be put all those big firms that have recklessly run up huge debts and have been severely hit now by the increase in the interest rates.

In fact, for big businesses as a whole, Business Week has calculated that the ratio between debt charges and profits before taxes has declined dangerously from 5.5 in 1979 to 4.2 in 1981. It is presently negative for the automotive industry and the airlines. It is only 2 for the building societies and building material firms. (Business Week, March 1, 1982)

In total, the big American companies have run up 73 billion dollars more in debts in the last 18 months. The charges will be particularly heavy in 1982. And they will have to be paid out of sharply declining profits.

The case of savings banks specializing in mortgages is well known. They were on the brink of bankruptcy in the United States, caught between the anvil of the decline in building starts and the hammer of the rising interest rates. Less well known is the actual collapse of “wildcat” private banks in Turkey, which cost small private savers a hundred million dollars. [8]

The paradox is that in a period of economic crisis, the power of finance capital, often exercised directly by banks, is growing inordinately. This is because many firms are operating at a loss and can only survive if the banks grant them credit. But, the least that can be said, is that those making these decisions – often on the basis of inadequate or arbitrary criteria – have not shown great discernment in recent years!

The ease with which the big banks have granted loans to dubious debtors is owing entirely to a profit squeeze. That is, the banks want to take advantage of the high interest rates by loaning the abundant funds that they are getting from the OPEC countries, the central banks, the pension funds, and other investment institutions. But the result of the slowdown in productive investments is an insufficiency of solvent demand for investment capital.

So, it is this combination of the potential insolvency of big foreign debtors, big imperialist firms, and the weakest parts of the banking system itself that is keeping the threat of a major banking crash suspended like the Sword of Damocles over the world capitalist economy:

“The world’s export credit agencies are getting near breaking point. A rash of claims from unpaid exporters and private banks is fast outstripping their cash reserves. So far in 1982, claims are running on average 20% higher than in the 1981 financial year.

“The crash last week of Laker Airways in Britain will force America’s Export-Import Bank to fork out more than 150 million dollars, since it guaranteed to stand behind loans for Laker’s purchase of five McDonnell Douglas DC-10s ...

“Last year’s trickle of claims against Poland could soon turn into a flood. Since January, West Germany’s Hermes, France’s Coface and Austria’s Österreichische Kontrollbank (OKB) have each paid out more than 75 million dollars on claims made against Poland ...

“Laker’s collapse, and the possibility of worse defaults yet to come from Poland and among American airlines, forest product companies, farm machinery makers and others, have jolted western governments into doing something about their export banks’ sickly finances.” (The Pole in the taxpayer’s pocket, The Economist, February 13, 1982.)

The Growth of Structural Unemployment and Its Consequences

The second general recession of the world capitalist economy has markedly increased the scope of unemployment and its social consequences. To give an idea of the scale of the problem involved, it can be said that roughly the number of unemployed in the imperialist countries has gone from 10 million at the time of the 1970 recession to 20 million in the 1974–75 recession to 30 million in the present one.

The official figures are the following (table 7).



Number of Unemployed


Rate of Unemployment




10.0 million

  7.5  %

  9.0  %

West Germany

2.0 million

  5.0  %

  6.0  %


2.2 million


  9.0  %


3.1 million

10.5  %

12,0  %


1.3 million




2.1 million

  7.5  %

  8.5  %


1.0 million

  7.5  %


Other OECD Countries

4.5 million


10.5  %

Several factors combine to explain this constant rise of unemployment. The first and most serious is the general and long-term slowing down of economic growth. Moreover, this slowdown coincides with a pronounced speedup in technological innovation, that is, a constant increase in the average productivity of labor. Fewer and fewer working hours are needed to produce a volume of goods and services that is stagnating, declining, or increasing only very slowly. The result of this is that while the number of jobless rises sharply in phases of recession, it does not fall back to previous levels in periods of upturn, so long as the recovery remains only moderate. This produces another phenomenon, that is, the correlation between productive investments and the creation of jobs is broken, since a lot of this investment is going into restructuration, which eliminates rather than creates jobs.

So, the consequences are clear. There is a pool of permanent unemployed that grows from recession to recession. And this trend is not about to be reversed.

To this must be added another phenomenon that makes the jobs outlook particularly grim for the remainder of the 1980s. In the preceding decades, which were strongly marked by the tendency to semi-automation in industry and industrialization in agriculture, there was an explosion of new jobs in the so-called tertiary or service sector, which were as well paid as others in general. At least this was true in the imperialist countries (the explosion of “tertiary” sector jobs in the semi-colonial countries reflected rather concealed unemployment).

Now the advances in the electronics industry, which has gone into the stage of micro-processors, will bring major job losses in this “tertiary” sector. This goes not only for the banks, the insurance companies, and the accounting and sales departments of the big firms. This also goes for public administration, and even teaching and some sectors of the health services.

Thus, far from compensating for the job losses in material production, the growth of the “tertiary” sector will in turn become a source of unemployment. This development seems already to have begun.

Finally, there is a demographic factor that should be mentioned. The results of the postwar baby-boom have gone beyond education, including the university level, and are being profoundly felt on the “labor market.” The number of youth looking for work is rising sharply, and in many countries has passed the number of annual retirements.

Therefore, it is necessary to create additional jobs to maintain a given level of unemployment. In a period of depression, this can only increase the extent of unemployment.

The growth of structural unemployment over a long period – in reality since 1970 in the imperialist countries – has finally begun to fray the much talked about “security net” that the neo-Keynesian economists and politicians, as well as the reformist trade-unionists think should guarantee the “well being” of all the West.

During the 1974–75 recession and in the subsequent years of economic recovery, the “heavy battalions” of the working class in the imperialist countries remained well protected as regards unemployment, buying power, and social security.

The effects of the crisis fell with full force only on the weakest layers of the working class, which were left poorly defended by the workers movement as a whole – the immigrant workers, women, youth, men and women workers in small enterprises and sectors in clear structural decline.

However, as the depression has persisted and as structural unemployment has worsened, the effects of the crisis are coming to strike at the very heart of the working class – adult, married, male workers with children, with average and above- average skills, working in the big plants.

Over the past two years, the bosses and the bourgeois state have deliberately provoked tests of strength in the main bastions of the working class – FIAT in Turin; Chrysler and General Motors in the United States; British Leyland in Great Britain; the Walloon steel industry in Belgium; the Ruhr steel industry in West Germany; and the steel industry in Lorraine in France.

The capitalists are counting on the long-term effects of unemployment, on the fear of unemployment, on the disarray of the workers in the face of the lack of perspectives and the successive capitulations of the union leaderships immired in class collaboration, to strike a major blow and structurally weaken the workers movement. That is, they want to deprive it at least of the additional power that twenty years of expansion and full employment have given it.

This austerity offensive is directed primarily at achieving the following objectives. Maintaining a high level of unemployment in order to force the workers to accept stricter discipline and additional exploitation (more intense labor, speedups, manifold “rationalizations,” etc.). Carrying through direct cuts in real wages (wage contracts involving lower pay; elimination or “greater flexibility” of sliding scale mechanisms). Cutbacks in social spending, including unemployment benefits. Massive “shifting” of public spending to military expenditures or subsidies to the bosses. The Reagan budget is symbolic in this regard. But similar operations, albeit more moderate, are taking shape in almost all the imperialist countries.

The working class is resisting and defending itself, but it has undeniably suffered some defeats, especially in the United States, in Japan, in Britain, and in Spain. The impact of unemployment, combined with the lack on the part of the trade-union leaderships of any overall anti-capitalist strategy for responding to the crisis, makes a counter-attack difficult.

Such a fightback, however, is essential if the workers are to prevent the bosses’ offensive from going into its final phase – the attempt to break some unions (e.g. PATCO in the United States), to severely restrict trade-union rights, and even democratic rights in general.

The present crisis will be a grave and prolonged one. The increase in the rate of exploitation necessary to surmount it in a capitalist way would be considerable. A working class that maintained essentially intact its organized strength and democratic rights would not allow the capitalists to inflict such super-exploitation on it.

Therefore, powerful class battles will go on for a long time before either capital or labor can decisively alter the present relationship of forces. The capitalists would have to break the organized strength of the working class. The working class would have to solve its crisis of leadership.

We Are Still Far from a Worldwide Restructuring of the Capitalist Economy

The long-term economic depression in which the world capitalist economy has sunk since 1967–68 is expressed primarily by a long-term decline in the average profit rate. This is obviously an irregular and not a linear decline. The business cycle continues throughout the long wave of depression, just as it did during the long wave of expansion. We have gone through periods of economic recovery (1971–72, 1976–78) after phases of recession, as in 1970, or 1974–75 and 1980–82. A new upturn, albeit moderate, is probable in 1983.

But over and above these ups and downs, the growth rate remains clearly lower than it was in 1948–68 in West Europe and Japan, and in the period 1940–68 in the United States. The fundamental cause of this decline lies in the fact that the average profit rate has dropped too low, combined with the relative stagnation of the market (the slowdown in the expansion of world trade, the stagnation in demand by the “final consumers”).

In order to get out of this decline – that is, to achieve a much longer economic upturn than the present short, hesitant, and very modest ones – to get out of the impasse in which world capitalism has been caught for more than ten years, a fundamental restructuring is necessary. This would have to change substantially what some have called “the conditions of accumulation” and others “the modes (or models) of regulation,” and what we call more generally the social framework in which the capitalist mode of production operates. [9] This concept embraces both external factors (the geographic environment, the area of operation of capitalism, that is, today essentially the relations with the non-capitalist sectors of the world economy), as well as internal factors that have a certain autonomy in the present situation, because they are relatively rigid products of the past development of the system. The economic and sociopolitical relationships of forces between capital and labor in the imperialist mother countries are the most important internal factors in the capitalist environment.

The efforts of capital to carry out a restructuring that would enable it to escape from the long depression have so far been classed by analysts in the following three categories:

  1. A new international division of labor, with the transfer of the plants of relatively labor intensive industries to semi-colonial and semi-industrialized dependent countries. [10] The creation of “free export zones” is part of this restructuring effort. The most important of these “free zones” is undoubtedly Mexico, just across the United States border. The big U.S. automotive trusts dream of transferring a major part of their production there. But there are other such zones, especially in Asia, including the People’s Republic of China, where the joint ventures with foreign capital that are being set up are worthy of note.

    I have already indicated the obstacles that the continuation of this transfer is running into, especially in Latin America and East Asia, as a result of the stagnation of the world market itself. The grave crisis that is hitting the automotive industry in Brazil and Argentina, where production is falling sharply, and the difficulties in the takeoff of automotive production in South Korea (where current production was far below productive capacity in 1981) are symbolic of such obstacles. It is scarcely possible to talk about a real restructuring in this respect.
  2. The emergence of an unregulated jobs sector and a “parallel economy,” as well as an expansion of “part-time” work in the main capitalist countries themselves. In the semi-colonial countries, this is of course a well-known phenomenon that has been studied for a long time.

    Some stress above all the sociopolitical import of this development, the conscious attempt by capital to decentralize labor while it itself is becoming more centralized. Others – more correctly in my opinion – attribute this development mainly to the spontaneous reaction of the jobless to the persistence of unemployment, as well as the struggle of small capitalists to escape ruin in a period of crisis.

    Whatever aspect is stressed, this phenomenon is a particular manifestation of a more general development – the drive of capital to lower “labor costs” by pushing down direct and indirect wages. Such a drive is a feature of any period of crisis or recession. Nine times out of ten, unregulated jobs involve the total elimination of social security payments and markedly lower nominal wages.

    In a nutshell, what such unregulated employment involves is the super-exploitation of labor, which is being reintroduced into the imperialist countries, where it declined during the postwar boom.

    In some cases, such as the Paris garment industry, which exploits the precarious situation of undocumented immigrant workers, capitalist competition is bringing back into the imperialist countries themselves the working conditions and wages of dependent semi-industrialized countries.

    A similar phenomenon is developing in some industries in the United States, with regard to Mexican and Puerto Rican workers.

    However, again, this phenomenon remains marginal in the economies of the imperialist countries and in world capitalist production as a whole. It probably involves no more than 5% of production in the imperialist countries. So, again, it is impossible in this respect to talk about a “restructuration” of capital in the real sense of the word.
  3. A massive devaluation of capital through a credit squeeze and the strangling of inflation. The objective expression of this massive devaluation and the scarcity of capital that it is supposed to lead to is said to be the appearance, after long years of “negative real interest rates” (that is rates of interest below that of inflation), of a “positive real rate of interest” fluctuating around 4%. In fact, this explains the persistence of high interest rates in the U.S., since the inflation rate remains higher than 10%.

This argument is not very convincing, at least so far. Despite all the intentions proclaimed by the monetarists, and the efforts of Mrs. Thatcher and Ronald Reagan, such a devaluation is far from having been achieved. There has not been a massive drop in the prices of commodities (finished goods), and the decline of raw materials prices remains modest. The prices of “refugee values” (gold, diamonds, art objects, etc.) are a bit higher, but they remain linked nonetheless to the fluctuations in the inflation rate in the United States.

Bankruptcies are hitting primarily the small and middle-sized enterprises. The White Elephants, that is, the big trusts operating at a loss, are continuing to be massively subsidized by the banking system and the government authorities. In this respect also, no real “restructuration” is in sight.

There remains a more important trend that in the long term could be decisive – a new technological revolution based on microprocessors, industrial and domestic robot mechanisms, electrical cars, and solar energy. This would represent, in general, passage from semi- automation to a stage of more complete automation.

From the technological standpoint, these products have reached the point where they could begin to be produced on a large scale. [11] But the decisive question, from the standpoint of the logic of the capitalist, remains producing them with a high enough profit for a large enough market. There’s the rub. The obstacles represented today by an insufficient average profit rate, the existence of excess capacity, and the stagnation of the market seem likely to delay this technological revolution, that is, the massive application of these innovations, for a long time. Most serious commentators talk about this as a possibility for the end of the twentieth century or the beginning of the twenty-first.

However, in the meantime, the persistence of unemployment and depression and the acceleration of the bourgeoisie’s course toward austerity and remilitarization put the focus on the big social battles that are going hand in hand with the long economic depression, battles between the working class and the bourgeoisie, and between the anti-imperialist forces and imperialism.

On the outcome of these struggles depends not only the “solution” (a capitalist or a socialist one) of the crisis. The very fate of humanity depends on this outcome, since the capitalist “solution” involves the threat of nuclear world war.

* * *


1. Attali, Jacques, Les trois mondes, Paris, Fayard, 1981.

2. See the studies of Patrick Tissier published in Critique de économie politique (New Series, No. 14, January–March 1981).

3. See the special economic issues of Inprecor (French), January 17, 1980, and February 16, 1981 (respectively double issues No. 67–68 and 94–95).

4. See my articles on the situation in Rumania in Inprecor (French), December 7, 1981, and February 22, 1982.

5. The press (Neue Zürcher Zeitung of September 11, 1981 and Le Monde of February 21, 1982) have reported the sale by American businessmen of microcomputers for Soviet war planes, as well as the fabrication in the USSR – with U.S. technology – of the miniaturized bad bearings essential for the guidance system in U.S. MIRV missiles! This is how private special interests can be pursued at the expense of general class interests within the American bourgeoisie.

6. On the discussions concerning a return to the gold standard, see Business Week of December 7, 1981, and February 8, 1982; and Neue Zürcher Zeitung of January 31, 1982.

7. The Thyssen trust in West Germany declared a loss of 150 million dollars. The Japanese Trust Mitsui has seen its profits drop from 15 billion yen in 1980 to 1.5 billion in 1981.

8. Le Monde, January 13, 1982.

9. On this subject, see the following: David Gordon, Stages of Accumulation and Long Economic Cycles in The Political Economy of the World System, Beverly Hills, 1980; Michel Aglietta, Regulation et crises du Capitalisme, Paris, 1976; Ernest Mandel, Long Waves of Capitalist Development, Cambridge, 1980.

10. Frobel, Heinrichs, Kreye, Die neue internationale Arbeitsteilung, Rowohlt, 1977. One could also cite the example of synthetic fibers. West Europe’s share of world production fell between 1978 and 1981 from 29.5% to 20.7% ; that of the U.S. from 29.7% to 26%; that of Japan from 15.7% to 12.0%; while “the rest of the world” rose from 25% to 40.6%.

11. On the new technologies and their diffusion, see W. Wolf and P. Bartelheimer in Internationale, Frankfurt, March 1979.

Last updated on 22 January 2020