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Nigel Harris

Crisis and the core of the world system

(Autumn 1980)

From International Socialism 2 : 10, Autumn 1980, pp.&nbso;24–50.
Transcribed by Marven James Scott, with thanks to the Lipman-Miliband Trust.
Marked up by Einde O’ Callaghan for the Encyclopaedia of Trotskyism On-Line (ETOL).

The world economy is a topic more frequently mentioned than clearly identified. [1] Almost all writers on the subject, left and right, are preoccupied with a particular national interest or group of interests – the interests of the predominant political form of power, the State, or a group of States (“the Third World”). The statistical information is likewise governed by the relationship of particular States to the world system. As a result, we lack a properly founded independent view of the system. By default, the world economy becomes no more than the external transactions, as officially recorded, of the some 140 States of the world. The external transactions are big enough, binding States together in an elaborate net of interactions, a $1,000 billion [2] per year flow of commodities, $300 or $400 billions worth of services, and the vast arena of financial flows. It is a miracle of collective and capitalist ingenuity, the more miraculous because it is without a guiding centre. Yet it is still only the external relationships, treating States as if they were somehow independent economic islands instead of corks on the wave, as much preoccupied with governing the domestic changes induced independently by external influences as with direct external dealings.

States are not an adequate basis for dealing with the system for many reasons. Their power is severely circumscribed; they are not the starting point for autonomous action, and, much of the time, are merely reactive. They are not comparable with each other. Each is a unique configuration of activities, with an appropriately unique relationship to the world system. Some are giants with major influence abroad, some Lilliputian. More importantly, they are only partially in control; only partially influential over the activities undertaken within their frontiers.

None of the active participants in the world economy is much wiser. Geniuses they may be in their little corner, but outside it, they are reduced to guesses and hunches about why things happen exactly as they do. Explaining the weather, well known for not being foolproof, is by comparison child’s play. Unlike the weather, the perception of world capitalism is dominated overwhelmingly by a fog of unseen interests, of empty moralizing, of taking credit or blaming others for incidentally caused accidents. The decline of the pound sterling in 1976 led to the Indian Rupee being permitted to float upwards, so wiping out any price advantage in the black market for foreign exchange; but Mrs Gandhi claimed it as a victory for her mild campaign against currency speculators! The result of the conflict of interests of the dominant classes of the world is confusion, a confusion that incidentally protects the existing status quo from critical scrutiny, protects States, and in particular, the core of the world system, the advanced capitalist powers: the 24 members of the OECD (Organisation for Economic Co-operation and Development, the club of the advanced capitalist States), and within that, the most powerful seven countries. It is this group and its experience since the first major postwar economic crisis of 1973–74 that is the concern of this article – but we are obliged to deal with States rather than “the system”.

The importance of an independent view of the world system is precisely because the period of crisis since 1974 is marked by increasing contradiction between the world political system, territorial units governed by States, and the world economy, as well as the contradiction between States as they struggle to defend control of their domestic territories and their areas of external domination.

It is not a stable conflict, nor one that increases at the same pace. It varies in essence with the fluctuations in world economic activity, but each State can rise and fall relative to others on apparently quite accidental grounds. The central contradiction is at its most dangerous with a sharp downturn – the years between 1973 and 1975 in the first instance, and now, 1980–82. At such times, each ruling class is to a greater or lesser degree tempted to secure its domestic political survival by reducing or rupturing some of its links with the world system – it tries to purchase political survival at the cost of economic survival. To break down some of the links is to damage severely the world economy and so drive down even further the State which makes the first move. The medicine can be worse than the original illness. But ruling classes move in this direction precisely in desperation, calculating that it is better to keep power than feed their population.

The fabric of the world system at the moment creaks; there are small tears under the strain of the rivalries of the dominant powers, but none of the major States dares begin a process that can destroy them. Nonetheless, we can already dimly perceive the forms of the warring blocs that could emerge – a dollar zone, a rouble zone, a yen zone, and a squabbling deutsche mark zone, with the rest of the world, victims of war, grouped loosely around each, the prizes over which the warlords fight. To reach such a stage would be catastrophe, an Orwellian 1984 nightmare where the interests of States had been secured at the cost of the livelihood of humanity and with the permanent threat of war.

Surviving last time round

The period of stagnation, interspersed by “recessions”, is governed by the low level of the world profit rate. This low level does not rule out patterns of high growth for some participants, but it entails for most, a slow or rapid deterioration.

To restore the world profit rate and so world investment, requires a massive collapse of capital values – the destruction of production units, the writing off of the great overhang of domestic and international debt, and, what would be involved in this, a wave of bankruptcies. Today it cannot be done since the political consequences of permitting the bankruptcy of the now very large units of capital would jeopardize the position of many existing States (and, where elections are held, wipe out particular party contenders for leadership of the local ruling class).

In the period since the first major downturn, the first crisis of the profit rate in the current period, 1974–75, the central problem has been made worse rather than alleviated by the actions of States. Despite the sharp reduction in some sectors of production – for example, in European steel (particularly the British Steel Corporation), or European and Japanese shipbuilding – world productive capacity has continued to be expanded. This arises not merely because the planned investment of the 1960s comes on stream in the 1970s, but also because none of the existing producers can trust the others to cut capacity, so that to do so oneself becomes an act of unilateral self-destruction. Furthermore, the investment that has taken place is “capital deepening”; that is, it expands capacity while radically reducing employment (existing capacity is continually transformed to cheapen output so that the company concerned can capture what little market there is left).

States have refused to permit the scale of bankruptcies required, both because to do so would be to jeopardise future national capacity to compete if the world economy resumed growth and because, in some cases, the fear of the political and electoral consequences of permitting sudden rapid increases in unemployment. In general, States used public revenues to protect their major public and private industries, and, in many cases, raided investment to hold up current levels of activity. Public revenue is extracted from current consumption through taxes and other means, so that it reduces the market for the rest of capitalism – lowering the local profit rate and thereby making even more difficult a resumption of growth.

The public disputes over the Public Sector Borrowing Requirement (PSBR) in part reflect this concern (although not exactly, since the PSBR does not indicate total public revenue, nor is it extended solely as subsidies to ailing businesses). Take the example of Italy. The 1979 PSBR required, it is said, to fund both the staggering cumulative debts of public sector corporations and Italy’s welfare system, was equal to about 18% of the Italian gross domestic product (Britain’s was, in the same year, about 5.9%), or some 65% of the credit officially available in the country. Such a high demand by the State for funding made general finance expensive: interest rates for borrowing were high enough to exacerbate the failure of business to invest. High levels of taxation persuaded a greater or lesser proportion of the workforce to “contract out” of the official legal economy in favour of the illegal “black” economy, this in turn produced the paradox of a thriving prosperous petty capitalism alongside the bankruptcy of the capitalist State.

Italy’s example is extreme, but comparable elements occurred in most of the major capitalist countries in the last half of the ’70s. The disproportionate growth of public expenditure to salvage bankrupt segments of capital and to sustain the domestic economy was a general phenomenon. Japan, with possibly the lowest proportion of public spending of the OECD group in the 1960s, pushed up its spending to equal a quarter of the Japanese gross national product in 1979 (that is, on one definition of “public expenditure”, the definition which puts US public spending at 35%, and British at 44½%). It is still quite low compared to its nearest rivals (public employment in Japan is at 4½ per 100 population, compared to 8 in the US and 10 in Britain) – but has continued rising when most of the leading powers are seeking to lower their own proportion of public spending. In 1979, Japan had the largest budget deficit of any State in the OECD group, equal to 8% of gross national product, and to the combined budget deficits of the US, West Germany, Britain and France together.

The expansion in public spending thus stabilized the political power of particular States at the cost of the world and local profit rates and so hindered the resumption of growth. However, things were not worse than they were because of the appearance of an unlikely saviour. The core of the system was able to achieve some growth of output through a vast extension of debt, routed through the Less Developed Countries (LDCs) [3] and the Soviet Union and Eastern Bloc. Among others, the OPEC countries “surplus” contributed to this vast expansion of credit, initially to cover the Payments deficits of the LDCs and Eastern Bloc as a result of the oil price increase and stagnating export markets there for the LDCs in the OECD group. Domestically within each of the major powers there was a comparably vast expansion of debt to sustain activity. [4] The United States, still the dominant element in the OECD group’ (contributing some 40% of the combined output) was particularly important in this respect, running enormous budget deficits in the mid-70s in order to expand the US economy. This produced in 1976 and 1977 some modest resumption of growth at the cost of rising inflation and an inexorably declining dollar. The expansion reached West Germany and Japan in 1978 and 1979 when the US had already returned to stagnation.

The change of direction

For nearly four years, the ruling classes of the OECD group kept up their morale, hoping that the patterns of modest expansion would sooner or later lift the profit rate high enough to spark off an investment boom. The use of Public expenditure and private debt was tolerable as a temporary response to overcome a temporary downturn; after all, the OECD itself set 1980 as the year of return to full employment and sustained growth in the world economy. Once the normality of growth was resumed, the debts could be repaid, public expenditure could return to normal, a testimony to the effectiveness of Keynesian counter cyclical policy.

Between 1978 and 1980, the realization occurred that the crisis was not temporary; credit could not indefinitely be extended without risking a collapse in the financial rate of return, without dangerously increasing the vulnerability of the system to a repeat performance of the 1929 slump. Perhaps one of the first signals of the change was the Barre plan in France (1978), heralding successive attempts in the seven leading capitalist countries to shift from holding up the domestic market to cutting consumption directly so that reduced real wages (and in particular, the social wage) would make possible increased profits – even if associated changes, in turn, bankrupted some sections of capital. Mrs Thatcher is only our local version of this attempt.

However, the assault on working class living standards was, as before, constrained by political and electoral considerations (that is, the politics of ruling class stability, and the electoral standing of particular parties). President Carter, for example, endeavoured to reduce the US budget deficit and use high interest rates to squeeze the domestic economy, but with the 1980 approach of a Presidential election has increasingly abandoned these efforts lest they affect his vote even more disastrously than his own personal incompetence. Mrs Thatcher, despite much brave talk, has not permitted British Leyland and the British Steel Corporation to go bankrupt, and the current battles over local authority spending show the difficulties involved in implementing a “Chilean turn” without a prior military coup. In Italy, the “stabilization plan” to reduce and eliminate the debt of public corporation and cut real wages was originally formulated by Treasury minister Pandolfi in September 1978, but could never be implemented because of the erratic fortunes of the Christian Democrat governments; the plan has now resurfaced (July 1980) in the Cossiga government; but still the authorities have not dared to propose the ending of the “threshold agreement” wage system in the largest companies (the scala mobile).

Government policy is only the political focus of the change, and the signal to employers to adopt comparably aggressive tactics. Debt can no longer be incurred to cover temporarily the saving of jobs, nor labour costs increased to avoid temporary stoppages. From Edwardes’ treatment of Robinson and British Leyland to Fiat’s abrupt sacking of 61 militants last October, or the use of the mass lockout by Swedish employers and West German engineering bosses, capital has generally assumed the offensive in the class war. And if such a remarkable rejection of the Social Democratic verities of class collaboration is tolerable in the core, the new style will spread rapidly elsewhere.

The specific measures require a general ideological counter attack, whether this is embodied in a general scorn of the “permissive society”, a rejection of “permissive education” and the millions of “scroungers” on Social Security, opposition to abortion, calls for “law and order” and more deliberate cruelty inflicted on those caught by the police, or the unrelenting campaign to restore the thousands of threads that sustain ‘national identity’ (that is, loyalty to the local State) – from “being proud to be British” because the SAS can kill, people can win races at the Olympic games, or the Queen Mother can manage to survive for 80 years. All problems are to be attributed either to foreigners (their “unfair” competition, their floods of immigrants), or to victims (the unemployed are responsible for not having jobs because they will not work etc.). The issues of import controls and immigration controls are only the political cutting edge of this restoration of hysterical chauvinism.

Issues between the States

Insofar as States are able to conquer their domestic environment, they thereby throw an increased weight of competition on international rivalry. Of the multiplicity of collisions at any one moment, the current struggle of the Japanese ruling class to establish hegemony of world manufacturing looms among the most important, and will be used increasingly to whip up national solidarity in the other six of the leading OECD powers.

In the first half of 1980, motor companies in Japan produced 5.6 million vehicles, 1.4 million more than the first half year output of the hitherto largest world manufacturer of vehicles, the United States. Japanese companies also manufactured more steel than the United States, becoming at least for a moment, the second largest steel producer in the world after Russia. And, depending on which Yen-dollar exchange rate you take, the Japanese income per head attained roughly the same level as that of the United States. In the same period, Japanese shipbuilding yards took fully half the new ship orders in the world. And seven Japanese watchmaking companies produced 59.7 million watches, substantially more than the 50 million marketed by 867 Swiss companies.

One half year swallow does not make it spring, but were Japanese capital to keep up this rate of relative performance, it would be seen in historical retrospect as of the significance of the US and Germany overtaking British steel output in the 1890s. For the embattled US ruling class, such achievements, even if temporary, are the fuel of hysteria, the index of the possible course of future American decline, confined to agriculture, services and military production while Japan captures – as is the declared aim of the Japanese ruling class – overwhelming domination of all the most advanced forms of manufacturing.

The hysteria becomes very specific in the vehicle market. Sales of the four major US vehicle companies dropped 37% in the first half of 1980 (the worst out-turn for two decades), producing 320,000 layoffs and combined losses of $1.1 billion for the three largest manufacturers. At the same time, Japanese vehicle imports supplied 23% of the US domestic market, and Toyota announced world profits of $1.25 billion (Nissan: $831 million; Honda: $222 million). Of course, imports are heavy while the major investment programme of the US companies labours on to produce a small fuel-economic car, just the speciality of the Japanese importers. By 1983, the picture may look different.

But the long term fears are not simply the squeals of rage of American capitalists today. They reflect the amazing capacity for self-transformation in Japanese capitalism; its speed in catching up in existing lines of production matched by the speed of innovation in future lines of production. Japan has passed in two decades through successive phases of industrial development that took the existing industrialized powers much of this century – put crudely, from silk (textiles, clothing) to steel (steel, cars, ships) and now to silicon (semi-conductors, computers, industrial robots, information systems). [5] Today, there are no other manufacturers of, for example, video tape equipment, and in many of the most modern fields, the main competition is between Japanese companies. The target of the Japanese State is to replace its position in vehicles with one of equal strength in machine tools and electronic equipment, and begin the contest with the United States in those fields where there is at present overwhelming American domination: large computers, nuclear technology and aerospace.

A peculiar feature of the Japanese economy to which we will return later is that it has remained uniquely “national” in comparison with the rest of the OECD group. The government has consistently prevented the establishment of wholly or majority-owned manufacturing plants in Japan, and until the early ’70s, prevented Japanese companies setting up manufacturing abroad (in this respect, Britain is almost the exact opposite, with possibly – in investment terms – the most international national economy in the OECD group). Japan is the least “multinational”, and as a result, more dangerous to its rivals.

However, the enormous strength of US manufacturing – not to mention West Germany – is not defeated so easily. More importantly, the US has other very considerable powers. For example, US policies on interest rates and foreign borrowing (40% of US government debt is taken up abroad), as well as the oil price rise (oil is traded in US dollars), undercut the growing relative strength in Japanese manufacturing in 1979, as it did also that of West Germany. A declining dollar cheapens US exports relative to its competitors and forces those that trade with the US to accept its debts, the only country of which this is true. A rising dollar increases the price of oil imports to the competitors of the US (affecting particularly Japan, dependent for 90% of its energy consumption on imports, the most extreme case in the OECD group) as well as the price of US agricultural and arms exports, many of them not easily replaceable. Both West Germany and Japan rode out the 1973-75 slump by expanding exports to cover the increased deficit on the oil account (in other words, they used the US market to bail themselves out, to “transfer the oil debt” to the US). But in 1979, both moved into a trade deficit:


Balance of Payments






West Germany (current
account in Deutsche Marks
N.B. The 1978 figure includes
a trade surplus of 41.2 bn)

+25.5 bn

+8.9 bn

+17.6 bn

−9 bn

−23 bn




Japan (current account
in US$, with trade
account in brackets)


+11 bn
(+20 bn)

−4.5 bn
(+20 bn)

−22 bn
(−2.5 bn)


The change in the trade balance reflects both the changes in the price of oil, as well as the relative performance of exports with first rising and then declining deutsche mark and yen values in comparison to the dollar. The current account includes the large and rising deficit in services, of which the US has a very large surplus (1978: $70 billion). [6]

The deficits have produced some important changes of direction. Both governments are now promoting the use of their currencies and international reserves to offset their reliance on the dollar (and oblige foreign traders to accept their debts, as the United States has hitherto done), to actively pursue an increased share of the OPEC surpluses and to encourage foreign investment in their domestic economies. They have also both made a shift in favour of the Palestine Liberation Organisation to assist their aims in the Middle East. The surpluses resulting from the 1979 increase in oil prices – put at $115–130 billion this year, possibly $87 billion in 1981 – have had a much more powerful effect this time round than in 1973–74. As a result the cumulative deficit on external account of the OECD group is likely to be, according to the IMF, about $17 billion, and of the LDCs, $78 billion. A mass of countries will face extreme difficulty in covering this deficit in conditions of world slump – in particular, the smaller OECD countries (Denmark, Sweden, Belgium, Austria) and, with much more potentially catastrophic results, the mass of non-oil producing LDCs (of which, the Philippines and South Korea, countries with a large cumulative debt relative to their export revenues, are at risk, as well as the better known cases currently causing spasms of fear in the financial press: Turkey, Jamaica, Tanzania, Zambia). In the Eastern bloc, Poland is in a comparable position, with an estimated 70% of its hard currency earnings devoted to servicing a $19 billion cumulative debt in 1979, the worst performance of its economy since 1945, and it was the attempt to make its workers pay for this crisis that gave rise to the huge and successful strike wave in the summer of 1980.

Sudden political eruptions in these cases can produce financial panic. The sudden interest in the fortunes of Mr Manley or Mr Ecevit in the financial press betokens no sudden charm with Jamaican or Turkish culture. Actions taken for other reasons can similarly affect the debt climate – the freezing of Iranian assets by the US which affected the large outstanding loans to Tehran; the US reaction to the Russian invasion of Afghanistan which affected Russia’s capacity to continue borrowing (the banks did not mind the invasion, but they worry that a war might produce a Russian refusal to pay.) The instability and the dangers can only increase.

The current downturn

Opinions differ as to whether the 1980–82 crisis will be more or less severe than that of 1973–75. President Carter, faced with an election, endlessly bleats that the recession will be shallower and more short-lived, a point almost consistently contradicted so far with each month’s figures. However, the reasons for believing the verse of Carter’s estimate are substantial:

1. 1973–75 came at the end of a period of relatively high levels of investment, and the completion of these investment programmes contained activity in some sectors through the worst years of 1974 and 1975. This time, the slump breaks on a world that in the major part of the core has experienced low levels of investment for a long period of time; the capital structure in the US and Europe is ageing, and therefore increasingly vulnerable to attack in particular sectors by other powers (whether Japan or the more advanced section of the LDCs, what are called the ‘Newly Industrialising Countries’ or NICs).

2. All governments of the major OECD powers are now dedicated to cutting imports and expanding exports, a recipe for collective disaster. Most governments are now attempting to cut public expenditure and domestic demand, so flattening the market even further.

3. The Eastern Bloc, alarmed at the growing volume of export revenue required to service its existing debts to OECD banks (and at the stagnating level of export revenue as OECD markets sag), is dedicated to reducing both debts and imports.

4. The non-oil producing LDCs are now heavily burdened with cumulative debt, and therefore much less financially able to borrow to sustain the growth of their imports (that is, the exports of the OECD group in the main, although internal trading within the LDC group has also grown rapidly). In 1973–74, the LDC cumulative debt of $73.1 bn (16% of it was borrowing from banks on commercial terms) took annual servicing of about $9 billion per year. In 1979, the debt was $321.5 bn (39% commercial loans), taking $50 billion in annual servicing, given higher interest rates. The debt is projected to reach $384 billion in 1980, and $440 billion in 1981; 70% of the commercial debt falls due for repayment in 1981–82. A third of the debt is owned by just five countries (Brazil, Mexico, South Korea, Argentina, the Philippines).

Thus, although the thirty international banks involved in lending are falling all over themselves at the moment to lend (and dangerously gambling with risks to do so), much of the borrowing that takes place will be merely to cover existing debts, rather than expand demand. The cumulative debt makes it much less likely this time that the banks will be so willing to meet external payments deficits since there seems no prospect of these deficits being covered, given long term stagnation, without domestic cuts. The combined payments deficit of the LDCs was about $7 billion between 1970 and 1973 (most of it covered by official government aid from the OECD group); $ 31 billion between 1974 and 1978; $45 billion in 1979, and is projected to reach possibly $78 billion in 1981. The decline of official government aid only exacerbates the problem.

5. The deficit, a simple projection of the impact of the increased price of oil (for every $1 increase in the price per barrel, the LDC group must find an extra $2 billion), is made much worse by the stagnating demand for LDC exports within the OECD group, stiffened by increasing import controls. Their ability to help get world capitalism going again between 1975 and 1979 seems now disastrously weakened.

6. Finally, in terms of the most vivid index of the failure of the system in the OECD countries, unemployment, the starting point this time round is very much worse than last time. Indeed, levels of unemployment in the OECD group during the “miniboom” of 1979 were higher than at the depth of the slump in 1974–75. The policies of the OECD States are now combining to maximise unemployment levels, nowhere more extremely than in Britain.

The sweated trades

Crisis expresses itself in increasing disproportionalities: between sectors of production – between the production of the means of consumption and the means of production – between consumption and profits, between public and private. The stable structure of growth, the frame of the house, does not just move, each element moves disproportionately and unpredictably relative to the rest. What was formerly an accepted division of labour, now becomes an arbitrary imposition. The frames of reference – for example, stable exchange rates – change so swiftly and apparently randomly, long term calculation becomes impossible. A rise in the value of the Yen staunches the flow of Japanese car exports to the US when informed opinion had assumed it impossible for the car flow to be ended; after years of the “US invasion of Europe”, a fall in the value of the dollar suddenly promotes foreign capital to raid the US economy, and for the first time, pushes those pillars of stability, West Germany and Japan, into large deficit.

One feature of the disproportionalities which is worth mentioning is the very poor profitability record of many large-scale corporations, especially those in the public sector, in comparison to the growth of some (but only some) sectors of petty production, of the sweated trades and the black economy. Here, the disproportionality between profits and the cost of labour is dramatically ‘readjusted’ relative to the large scale corporation, governed by legally enforceable or trade union backed wage rates, by a frequently large burden of additional labour costs (social security deductions, pension payments etc.) and by the tightest form of tax deductions. The petty and black economy wipes out the structure of additional costs – it spreads what is known as the lump the building trades to significant segments of manufacturing.

It is not necessarily possible in all sectors of production. Indeed, often the sweated trades depend on the provision of manufactured materials and machinery from the ‘unprofitable’ large scale This phenomenon can perhaps be seen in an number of apparently diverse issues:

1. The increasing competitiveness of some sectors of LDC production in the world market since 1973–75 is well known. Indeed, a new concept has been framed to describe those eight countries which are defined as having been able to attack the market position of the OECD countries in some lines of production (textiles, clothing, electronic components, leather goods, construction): the ‘Newly Industrialising Countries’ (NICs), including four in the Far East (South Korea, Taiwan, Hong Kong, Singapore), two in Latin America (Mexico, Brazil) and two others (Yugoslavia, India). Many of these countries not only kept up their rates of growth after 1973, but in some cases, accelerated, and did so on the basis of exports to the markets of the OECD group. Of course, the OECD States have an interest in exaggerating the significance of this, for the NICs are still marginal in world trade – taking some 8 to 10% of world manufacturing trade, and around one per cent only of the OECD market for manufactured goods. Nonetheless, their performance is exploited to justify import controls, and in some sectors and geographical areas of OECD production, their impact appears much greater than these figures would suggest. For example, Japan is particularly affected by the growth of Far Eastern production, some but not all of which is in the hands of Japanese overseas companies (as indeed, some of the imported textiles to Britain are sent by British companies overseas). Imports to Japan from the Far East increased from about 4.5% of total exports at the end of the 1960s to over 20% in 1976–77. The Japanese government estimated that synthetic fibre import prices from Korea and Taiwan were some 30% below Japanese prices; predictably, like their close comrades in arms in Europe and the US, Japanese textile bosses accused foreign suppliers of unfair competition and dumping and appealed for special duties to stop the inflow. The same phenomenon is appearing in certain sectors of cheap electronic products and general shipbuilding.

2. Perhaps there has been a change in the relationship between well-known branded sellers of goods and the mass of units which manufacture under subcontract for the selling company. It appears that in textiles and the glove and shoe trades there may have been some expansion in the subcontracting sector, to the point where cottage industries (the ‘putting out’ system) have become important in some countries. In the cottage sector, labour costs are well below the official norm, and indeed, the use of unpaid family labour can make possible astonishingly low labour costs. In India, for example where Bata operates as a major shoe manufacturing and selling company, it is said that the company has in in the main given up manufacture in favour of subcontracting to merchants who finance and buy the output of home workers. In a way that is not so dissimilar, Thorns assemble television sets in London from parts manufactured in Taiwan. And almost all the watches exported by Switzerland are actually also made in Taiwan under subcontract. Japanese large companies have always been much more dependent upon subcontracting than their rivals in Europe and the US, and there is some evidence that they have been increasing the subcontracting share as a method of lowering total labour costs.

3. The last phenomenon is not very clearly distinguished from the growth of what in Italy is boldly called “Third World Production” – that is, the growth of petty capitalism, normally associated with the LDCs, but now in the heartlands of the system and, in some cases, operated by immigrants from the Third World. Again, the garment and leather trades are of particular importance whether in Lancashire household production or in Paris garment trade cellars – as well as food processing and catering operations in London and some parts of the United States. [7]

However, one of the most extreme cases is that presented by Italy. A recent Textile Workers’ Federation report estimated that some 800,000 “clandestine” workers – out of 3 million employed in home based piece work – operated in Italy in the textile, clothing and footwear trades. The contribution of these workers as well as others in the unrecognised small scale engineering and steel trades are said to contribute an extra 20 to 30% to Italy’s gross domestic product that is not recorded in official statistics (the official statistical agency finally conceded something to its critics by revising the 1978 net output figures upwards by 10% for the black economy). The massive debts of the faltering large scale sector seem to imply; that Italy is in a slump; but, it is said, the sweated trades – half the output of which is exported – gave Italy the highest European rate of growth in 1979 (5%) and look likely to do much the same this year. They have helped to bring Italy the fourth highest official reserves in the world (some $40 billion – compare Japan’s $20 billion) compared to $9 billion in 1977.

The Social Research Institute, Censis, estimates that in 1979, what it called ‘the parallel economy’ provided between four and seven million jobs (both second jobs and part time home work as well as full time employment). The existence of the sector went some way to explain a number of recurrent paradoxes – the powerful performance of the Italian economy despite the bankruptcy of the large scale sector (particularly the large public sector industries, covering most of heavy industry); the appearance of high levels of prosperity alongside official stagnation; or, for example, the steady rate of increase in the demand for electrical power when official industrial output was stagnating. This year the Italian performance has begun to falter, and the trade balance looks like being in deficit as the result of the oil price increase; it could well be that the parallel economy will expand as a result, eating away at the base of the large scale sector.

The sweated trades, the original brutal face of capitalism, are the inspiration for a number of policy measures to accelerate growth – from some forms of the ‘export processing zone’ idea to the British government’s notion of new ‘enterprise zones’. The Tory suggestion to make the unemployed work free could open the door to an even more massive ‘readjustment’ of labour costs in favour of profits.

But what is gained in one hand is lost in the other. The extensions of petty capitalism make it impossible for the state to control the economy as a whole. In Italy for instance, the Brescia small steel makers have regularly wrecked efforts to stabilize quota market shares for European steel companies under the Eurofer cartel agreements, so immeasurably exacerbating the ‘crisis of overproduction’.


However, this increased differentiation between the sweated trades and large scale production is also matched by elements of increased homogenisation. Both relative newcomers to the big capitalist league, Japan and the USSR, are subject to great pressures to bring their economies increasingly into line with the dominant mode within the OECD. Thus the largest powers have increasingly pressed the Japanese government to expand the public sector proportionately, to expand defence spending, to open its economy to foreign capital and to increase investment abroad by Japanese capital, all in order to reduce some of the relative advantages of Japanese capitalism vis-a-vis the rest. They have had some measure of success, although for reasons other than the pressure itself. Public spending has been increasing much faster than in the rest of the OECD group to keep up domestic demand; given that many in the OECD are simultaneously seeking to reduce the share of public spending, there could be some narrowing of the differences. Defence spending is being increased both in response to the alleged growing threat” of Russia in the north-east Pacific area, out of fears that US military protection is becoming unreliable in the palsied hands of President Carter, and because increased defence spending is an important element in stimulating research in key elements of future civil competition – in computers, aerospace and aircraft technology etc. The government still resists wholly owned foreign manufacturing subsidiaries in Japan, but it has supported a growing movement of Japanese capital overseas, as will be discussed later. The spread abroad of Japanese capital was one temporary response to offset the results of enormous balance of payments surpluses, to utilize the advantages of a strong Yen and a weak dollar, and a panic reaction to secure safe supplies of crude oil and other raw materials.

In the case of the USSR, a startling degree of relative integration in the world market has emerged in the past decade and a half. Of course, Russia began from a remarkably low base point in terms of integration, so that while the changes appear relatively dramatic they are still well below the degree of integration of the OECD members. Nonetheless, the increasing purchase of plant, machinery and raw materials (including periodic grain purchases) abroad, [8] and the need for large-scale borrowing from international banks to keep up the flow of imports, has produced an unprecedented degree of commercial integration of the Russian economy in the world market. This necessarily affects the domestic distribution of investment – towards forms of production which can be exported for hard currency earnings – as well as the USSR’s economic relationships with the Eastern bloc countries and the LDCs, all now part of a growing relationship with the OECD group (and in particular, West Germany). It is most curious that just as many LDCs moved from import substitution paths of industrialization to export-promotion ones, to what is known as “liberalizing”, so also the Eastern Bloc should have followed the same direction. The results are acknowledged in this citation from a speech by the Russian Foreign Trade Minister in 1978:

“Today it would be difficult to find an economic sector in the USSR that is not connected with foreign trade to some extent, or does not receive effective practical aid in its further development. To put it figuratively, foreign trade has become an important artery in the blood circulation of the Soviet economic organism.” [9]

Thus these manifold commercial linkages connect Russia to the world system not merely indirectly through competition in armaments, but directly to the ‘law of value’ of the world market.

However, these manifold commercial linkages are still commercial. They do not conform to a particular integrating feature of much of the OECD group, the integration of investment. That requires separate discussion.

Capital Raiding

The period since 1973–75 has witnessed on an increasing scale the acquisition by companies of assets overseas. If the 1950s were marked by a strong dollar and the raids by US capital on European manufacturing assets, the sixties and seventies have seen a major counter-attack by European capital on assets in the US. The period of crisis has quickened this process, and, for the first time, drawn in Japanese capital – and, far, far behind, Russian.

The dispersion of ‘national’ capital is frequently quite irrational in terms of the needs of world capital accumulation considered as a whole. There is no reason in principle why Japan should not produce all the world’s cars if they can be produced there more cheaply than anywhere else; competition between Japanese companies is as at least as ferocious as between Japanese and non-Japanese. But world capitalism in fact consists of competing capitals, owned or protected by rival states, and it is this latter agency, the State, which makes the threat of a Japanese monopoly of car production intolerable. The power of the State depends in part upon its direct command of a segment of the world’s productive capacity, and in a world of warfare, safe command requires location in areas directly administered by the State concerned, and ownership by its nationals.

The scale of costs required to sustain the interests of the State are staggering. Take only one example from Britain. If British Leyland’s productivity per worker is a quarter of Japan’s (although there are very different levels of labour productivity within Japan’s vehicle manufacturing companies too), and the Japanese companies aim to double the assembly line productivity in the next five years, then BL will have to increase its output per worker by eight times over to be competitive, and do so with a comparable record of no strikes, wage cuts in bad years, complete job mobility etc. In a rational world order there should be no need to endure such a staggering scale of depredation upon the British workforce for no better reason than to secure the pretensions of the British state and relieve it of responsibility for finding new work or paying the former British Leyland workers.

To protect “its own” companies, the State maintains an increasing number of restrictions on the flow of imports, and an increasing number of aids to exports. These restrictions in turn oblige exporters abroad to move manufacturing facilities behind the restrictions, within the territory of the importing state. This is the process of the “uneconomic” dispersion of production, entailing higher costs per unit of output; foreign capital is obliged to raid the assets of its rivals in order to secure its foreign markets. Then the competition in trade internationally is reimported back within national boundaries – the ‘safe home market’ is no longer safe.

Different states adopt different approaches to foreign investment. Some, pretending for political reasons to achieve something in terms of increased local investment, go out of their way to bribe foreign investment. Ireland and Britain are prime examples in this respect; in the British case, laying the national-market open to foreign raiding goes with the massive export of activity abroad. In contrast, as mentioned earlier, Japan legally proscribes majority-owned manufacturing subsidiaries of foreign firms in Japan. [10] This raises other acute problems. For example, the Japanese government has held down the share of domestic oil refining owned by foreign companies (and in particular the ‘seven sisters’ oil multinationals) to below 50%. As a result, during the oil shortages of 1979, the foreign oil majors refused to sell crude to the Japanese refinery companies; they in turn scrambled to buy “spot” priced oil in Rotterdam, sending the price soaring, to the severe disadvantage of Japanese purchasers. The shortages also drove the Japanese government to redouble its efforts to secure safe oil sources through so far unrewarding prospecting in the seas around Japan, financing Gulf prospecting, and reaching direct government-to-government agreements with oil producing countries (Iran, India, China and Mexico.) In the dissolution of the existing world order, it could produce also a Japanese military strike on Indonesia.

France has, with some exceptions, also tried to block foreign acquisition of key sectors of its economy – as British Petroleum, Lucas and Thorn have discovered. Thorn’s bid for Locatel prompted the French government to push two French companies, Thomson and CGE, to make a joint counter-bid. On the other hand, the government supports strongly efforts by Thomson to buy up electronic companies outside France, or Peugeot and Michelin to raid the assets of capitalists overseas.

Even where the local State is favourably disposed to foreign capital – as the French government wooed Ford for its new engine plant to go to Alsace Lorraine – local companies (even if their headquarters are in fact abroad) may seek to block what a recent advertisement by British Leyland calls ‘Trojan Horses’ (i.e. foreign capital; in the advert, BL is talking nicely of Vauxhall-General Motors, Chrysler-Talbot-Peugeot, and Ford UK). Renault and Peugeot protested vigorously against the proposed Ford investment in Alsace, as they subsequently did against the proposed British Leyland-Honda deal (on the grounds that this admitted Japanese capital into the tariff-free zone of the Common Market). The opposition to Japanese car investment parallels the unofficial import restrictions operated by France to hold down the Japanese share of the French market to around 3%. Fiat likewise opposed strongly Nissan’s purchase of Motor Iberica, the Spanish truck manufacturing plant, a danger when Spain enters the Common Market. It has furiously tried to prevent the deal between Nissan 3 and Alfa Romeo for joint manufacture of a medium size car, and will no doubt also oppose the recent decision by the Innocenti car group to import 150,000 Japanese engines annually. And no wonder, since Japanese car imports to Italy have been held down to 1,200 per annum, a singular privilege for Fiat. But even in the British case where maintaining a Welcome mat for foreign manufacturing capital is the quid pro quo for British capital to raid assets abroad (particularly in the service sector, rather than manufacturing), local companies try to block their rivals; “British” television manufacturers, shamefully supported by the trade unions, led to Hitachi withdrawing its proposal for a factory in the north east; and ICI is currently waging a campaign to prevent Dow Chemicals of the US building a plant in Scotland.

Nonetheless, despite all the open or covert attempts to block foreign investment, the internationalization of capital has accelerated, with a multiplicity of elaborate linkages developing to the point where what belongs to what country is, despite the confidence of some writers on the left, totally unclear. The different national origins of international companies and their “incestuous” denaturalization has thus reduced the former hysteria about US-based multinationals. Now there are even LDC multinationals competing effectively for chemical plant construction, for Middle Eastern construction contracts, for textile manufacture in Europe and the US etc.

In the last half of the 1970s, the declining value of the dollar induced a considerable movement of foreign investment to the US, with West Germany (followed by Japan and Canada) leading the way in manufacturing (particularly, electrical and electronic products, non-electrical machinery, chemicals, energy) and the British in services (particularly banking, wholesale and retail trade). Simultaneously, British investment has begun a major movement to West Germany after its conquests in trade and food products in France.

The late arrivers to the big capitalist league, Japan and the USSR, again show interesting features. Japanese companies were prevented from setting up manufacturing subsidiaries abroad until the early 1970s. Then the spread of Japanese capital took place with moderate speed up to 1976. By then, however, assets abroad were still relatively small in comparison to the rest of the OECD group; Japanese cumulative investment was roughly equal to a third of its gross national product or 27% of the value of its exports, in comparison with the comparable figures of Britain, 16% and 88%. Furthermore, most Japanese investment overseas was in trading and banking activities to assist Japanese exports (a third of Japanese overseas investment then was in manufacturing, compared to three quarters of West Germany’s; the current Japanese figure is 44%).

Similarly, a major part of subsequent Japanese investment abroad as directed to securing raw materials to service the Japanese economy – coal and iron sources in Australia, iron ore sources in Brazil etc. That is, much of the overseas investment was strictly to service the national capital unit of Japan, rather than undertake multinational activities proper. Nonetheless, the scale of capital export has increased substantially:

Japan: Long Term Capital Exports
(average annuals value US dollars) [11]



  1.243 bn



  4.635 bn



  8.216 bn



14.827 bn



16.605 bn

Yet even in 1979, of the total, only $2.9 bn represented direct investment in manufacturing, the strict ‘capital raiding’ of assets of foreign ruling classes.

Two themes appear in Japanese overseas manufacturing investment. The first is the establishment of genuine multinational production lines in the geographically proximate areas of Japan and in sectors dependent upon cheap labour for competitiveness, sectors being increasingly phased out in Japan proper. It is an international form of subcontracting. Thus, Toray, the Japanese textile company, has established integrated production lines encompassing Thailand, the Philippines and Malaysia. Other Japanese companies operate in South Korea, Taiwan, Hong Kong and Indonesia; and now, on an increasing scale, the People’s Republic of China is being drawn into the offshore manufacturing network of Japan. In essence, this is the restoration of the economic sinews of the old pre-war Co-Prosperity Sphere of Japanese imperialism.

The second, of increasing importance in the late 1970s, is investment in manufacturing in major markets overseas to escape actual or threatened controls on Japanese imports. This process began in the early ’70s with the first major investment abroad by Sony in television manufacture at San Diego, California; by 1978, Japanese television set manufacture in the US was larger in output than Japanese television imports to the States for the first time. In Europe, there have been more difficulties, particularly because both France and Italy have resisted the entry of Japanese investment nearly as manfully as Japan has resisted foreign investment in its home patch. Ireland has made much more lavish offers of subsidies to foreign investment – in order to try to catch up with its more advanced neighbours in the Common Market – and has been rewarded with the largest share of Japanese investment (some £80 to 100 millions). Britain – perhaps the home to more foreign investment than any other European power, the most “denaturalized” – has started to raise its bid to compete with Ireland, but so far can have gained not much more than £30–35 million (mainly in South Wales and the North East). However, the figures are a little suspect since there are many more collaboration agreements with giant British companies than is possible in Ireland (given the relative weakness of its native capitalism) – for example, Toshiba-Rank, British Leyland-Honda, Sharp-GEC, etc.

The growing pressure to use Japanese vehicle imports as the prime scapegoat for the poor and incompetent investment record of the US and European car companies means that there will be increasing restrictions on trade, so stimulating the tendency for the export of Japanese capital in vehicle manufacture. Some of the deals in Britain, Italy and Spain have been mentioned, and Japanese capital has been active in joint agreements with West German machine tool companies. Honda is the first Japanese company to announce direct investment in car making facilities abroad, to begin production in 1983 at Marysville, Ohio. Toyota is involved in discussions with Ford over possible collaboration; and now that the US government has raised the import tariff on pick-up trucks from 4 to 25%, Nissan has announced it will begin truck manufacture in the US.

The Japanese cumulative total is still relatively small compared to the big foreign investors, and is so for reasons specific to Japan’s late industrialization path. Nonetheless, the Japanese total is still far larger than that of the USSR. Russia has some 500 companies established in the countries of the OECD group, most of them set up since 1970 and primarily directed, as in the case of Japan, to servicing Russian exports, imports and associated financial activities. However, the total includes 22 companies engaged in manufacture and assembly, and insofar as protectionism increases in the OECD group (and, for example, Polish car exports are one of the targets of Western import controls), Russian manufacturing abroad will be obliged to expand to keep up Russia’s hard currency earnings (from repatriated profits as opposed to export revenue). None of Russia’s manufacturing units abroad yet operate as multinationals – that is, with integrated production lines located in several countries – but that is a promise for the future. By contrast, the Moscow Narodny Bank has long operated as a simple international bank, albeit a small one, speculating in commodities, currency and gold, and in a famous scandal, in the Singapore company and property market.

If we view the world system as a simple collision of clearly identified national capitals – a view which is, for reasons already numerated, very much a half-truth – then the special features of the dominant national powers become apparent. The world was dominated by US capital in almost all fields in the 1950s much as British capital dominated much of the nineteenth century. Few people now remember the hysterical accounts of the “Dollar problem” produced in Europe in the early fifties, demonstrating conclusively how the Europeans could never prevent the indefinite decline in the face of the overwhelming strength of the US economy. The decline of British manufacturing has accompanied an expansion in its international servicing and financing roles particularly in banking (which accounts for the paradoxical 1979 achievement of Barclay’s becoming the largest, and National Westminster the second largest, commercial banks in the world in terms of net earnings; Midland and Lloyds are fifth and sixth after Bank of America and Citicorp of US). In the case of the US, there is a similar phenomenon, although on a much larger scale because of the far greater size of the US economy and its very powerful world position in agricultural trade, armaments and many other fields. By contrast, the new rivals to the powers of the past, Japan and West Germany, have made their major advances in manufacturing, and are now in their turn threatened by even newer manufacturing powers in key sectors of current production.

The pattern of investment overseas is conceptually muddy. For part of West Germany’s manufacturing strength is produced by US-based companies operating in West Germany, just as US output includes that of foreign-based companies in the States. This is to leave out the entirely ambiguous areas of joint collaboration agreements between companies of different national origins.

A state driven to reduce its links with the world economy in the interests of domestic political stability would be obliged to curb or control those segments of local assets owned by foreign-based companies, to restrict the export of profits in favour of domestic investment. It could only do so by risking foreign States taking reprisals against its own assets abroad. There is no end to the problems – each drive to restrict imports produces the reverse phenomenon of foreign investment, which merely re-establishes world competition back in the domestic economy.


As the OECD group of States moves into the most severe economic downturn since the 1930s, the issue of import controls becomes of increasing political importance. The aim as most frequently presented is, for reasons already partly presented, both Utopian – it cannot be realized – and reactionary. Selective import controls on particular commodities are even less practicable except on a publicly announced temporary basis, for what is one capitalist’s advantage is always another’s loss. A ban on the import of cheap coking coal (from the US, Australia, Poland) entails higher costs for British Steel Corporation because of the enforced necessity to buy higher priced British coke – and therefore a price advantage to foreign steelmakers who are able to use the cheapest coking coal available. A ban on the import of cheaper foreign steel entails the costs of British car manufacture increase; what British Steel Corporation gains, British Leyland loses.

Thus, to make import controls work requires massive State intervention to subsidize export production at the cost of the home market – otherwise, all exports become increasingly uncompetitive. Such intervention is only acceptable to the capitalists if the state of crisis is so severe, they fear for their very survival and are willing to accept the destruction of some of their numbers in favour of others. It is tolerable also only if the likely effect on export markets and the operations of capital overseas are not affected in reprisal. All this is true despite the growing chorus of demands in Britain (and the US) for import controls. The ruling order is fully aware of the problems even if it is willing to tolerate the demands – it is part of the hypocrisy. It is perhaps worth remembering how long it took last time round to achieve import controls even though substantial sections of ruling class opinion favoured them – demands for controls were strong at the turn of the century, and produced a majority vote in favour at the Conservative Party conference of 1907, but general import controls were not introduced until 1931.

The political froth should not mislead us as to the strength of opposition, nor to the fact that all OECD States today are involved in operating a network of controls on imports and subsidies to exports, barriers to the expansion of world trade. Whether it is Italy’s straight ban on Japanese car imports, French administrative restrictions, or the British subsidy to exporters through the export credit guarantee system (worth some £500 million per year, or about half the British contribution to the Common Market or two thirds of the aid programme [12]), or the reservation of public ordering for local companies, all add up to greater or lesser attempts to manipulate the terms of trade in favour of one state.

The capacity of a State to cheat on the principles of free trade is a function of its relative strength in the world market, how far it is able to intimidate those that trade with its nationals into accepting the cheating without taking reprisals. Reprisals are taken. The most recent example of the potential of reprisals is in the Australian government’s reaction to the EEC. The pretext was the proposal of the EEC to include sheep meat in the Common Agricultural Policy, but the underlying cause is the dumping of heavily subsidized European agricultural surpluses in third markets, the markets for Australian exports (in sugar, beef, dairy products, flour). The Australians claim to have lost to the EEC a market for 200,000 tonnes of beef in the Middle East and Eastern Europe. Queensland produces sugar exports for its geographically close neighbour, Papua-New Guinea, or rather did so until the EEC dumped subsidized sugar and captured the market. There is no way of determining the truth of the issue, nor does it matter very much what the truth is, but in reprisal, Australia now threatens to end about a third of its trade with the EEC (1979 value, £489 million), covering defence, aircraft and telecommunications equipment. Britain is the most threatened since it holds about a half of the outstanding contracts. As was quickly pointed out in Brussels, Australia is becoming the major supplier of cheap coal to the world market and controls 17% of the world’s uranium reserves, so it was thought unwise to offend the country. We shall see whether the EEC will climb down (and how it will rejig the CAP to accommodate Australia) or call Australia’s bluff.

The test is between the relative economic strengths of the two participants. It is thus not at all accidental that the United States has most frequently resorted to import controls. Its aggression is protected by the size of its domestic market (and the need of foreign exporters to get into that market) and the relatively irreplaceable character of some of its exports. US industry has regularly invoked the power of the State to curb imports in favour of the profits of all declining segment of industry except in periods of high boom – even as the US government has been the most consistent public advocate of free trade and the urgent necessity to keep foreign markets open for US capital. Whether it is the elaborate hypocrisy of ‘voluntary export restraints’ in the late 1960s (i.e. bullying foreign exporters to withhold their supplies under the threat of closing the US market to them altogether), or the current innumerable restrictions on television sets, steel, shoes, textiles etc.

In fact the restrictions give no real indication of what the actual effect is. Japanese steel exports to the EEC might be ‘restrained’ to a set figure and then reappear as “Swedish steel” (without even the knowledge of the Japanese steel exporters). Restriction of imports to the home market might work, but produce intensified competition in third markets – the Japanese cars kept out of Europe then wipe out European car exports to Australia, the Middle East or South East Asia (and, in the final assessment, the loss in third markets might be considerably greater than any gains in the home market). Or excluded Japanese textiles reappear as Korean textiles; Japanese cars resurface as German car components. Or as Japanese car exporters are fond of repeating, the ‘restraint’ forced upon them by the British government (the Japanese share of domestic British car registrations has remained, contrary to the hysterical press reports, between 10.61 and 10.96% of the British market since 1977) has merely provided an opportunity for mainland Europe’s car manufacturers, aided by those of Eastern Europe (total car imports, 1977–80, increased as a share of the British market from 45.38 to 57.68%). That entails that British car buyers have been denied lower cost Japanese cars – and resulting increased costs of vehicles has reduced the market for other goods.

The underlying problem is that capital has only a contingent nationality, an alignment with the State only under certain conditions. There are no products which are ‘British’ or ‘German’ ‘Japanese’, only products, commodities. The contingent nationality of capital is important, but limited and by no means to be taken for granted. In the real flows of trade, finance and services, nationality means no more than the passport of the businessman – except where major political crisis obliges chunks of the world’s capital to align itself for survival with one or other State.

However, to force the alignment of capital ruptures the world system and thereby the economic basis of the States themselves. It is possible only if the State can subordinate domestic competition to external competition, which in turn means the formation of domestic cartels and monopolies by State fiat. In today’s conditions, such a change is impossible, which is a good illustration of the hypocrisy wrapped up in the debate on import controls – it is a demand that flows from the politics of controlling mass support in one patch of the globe, even though it collides directly with economic reality.

In the EEC context, there are even greater problems because there is no effective single state to enforce conformity, and none of the constituent States is willing to police the capacity reducing proposals of Brussels lest it thereby jeopardise its relative standing vis-à-vis other member States. The EEC scheme to enforce a common control of steel prices and quota production for each nation foundered on the mistrust of all the companies involved; on the unwillingness of the Italian State to risk its exports by curbing the Brescia small steelmakers; on the refusal of Spain to scrap its investment plans for steel for its growing car industry; and so on.

The import controls which are practical possibilities are no more than tinkering on the margin so far as the OECD group are concerned. Where the controls are damaging is for the LDCs, lacking the world-wide capacity to switch their exports between markets. Here the OECD is able to off load its crisis on the shoulders of the LDCs, but only at the cost of the LDC demand for OECD exports. The slackening of growth in South Korea is attributed by the Koreans to increased import restrictions in the OECD markets.

Increased imports are a symptom, not a cause, of the problem, as most of the capitalists know. The importance of the import control issue is entirely political – to structure the myth of ‘national entity’ against the myth of the foreigner, to keep the world’s peoples carefully corralled in national ghettoes where the States can retain the right to herd them as they will.


This article has been limited to a discussion of a number of issues affecting the central core of the world system – as seen through the distorting mirror of the relationships between the dominant power of the OECD group, the advanced western capitalist Stated Inevitably, this entails speaking of capital as if it were mere national chunks of a world whole, playing back the perceptions embodied in the categories by which international statistics are normally organized. In such an account, the world’s population becomes merely onlookers, victims of the play, even though at key points we see the sudden effect of mass intervention in the affairs of world capitalism – in Iran, in South Africa, or in the strikes in Poland or Brazil. The closer we get to the concrete, the more powerful that influence becomes.

Nor has the article dealt with other aspects of the crisis of great importance – corruption and violence, arms spending and the prospects for famine. As in 1974, famine on a mass scale is again returning to the system, and for very similar reasons which have nothing to do with the accident of the weather, and everything to do with the world profit level and its relationship to agricultural markets.

The world system is not in collapse, nor is it immediately faced with a slump on the scale of 1929 to 33, but it edges closer to it with each downward movement. In such circumstances, what seem small events can suddenly have dramatic consequences. The illegal strike of 65,000 car workers in Sao Paulo can stop the financial life-support system from international banks to Brazil, which in turn produces a scale of military repression in Brazil which brings the regime down; and if the new order is obliged to refuse to honour the cumulative debt of its predecessor – some $50 to 60 billions – then a major financial catastrophe is fed back into New York and Europe.

However, all this is in the realm of “accident” rather than conscious political action. Revolt continues in the system, but it is harder and tougher, the stakes much higher, ruling classes much more ruthless in their attempts to control their respective patches of territory.

Yet mere control solves nothing. Indeed, the actions of States only make the central problem worse. The system was saved last time by the “accident” of the LDCs expansion, not by the deliberate combined efforts of the OECD States. Nor are they likely this time to be able to combine for common action – on the contrary, the downturn splits them apart as rivals rather than brings them together. And no one power can ‘solve’ the domestic question without the close collaboration of all the rest. It was so in the last time round, in the 1930s. Despite all the efforts of States – including the endless international conferences and agreements – the world economy remained basically in slump until the Second World War. Import controls, cartelization, measures of national planning in fact if not name, did not shift the profit rate. In contrast to nineteenth century capitalism, only war had the capacity to wipe out a chunk of capital large enough to restore the profit rate. In this case, Britain and the United States were temporarily able to wipe out their closest rivals, Germany and Japan, so ensuring the US hegemony of the 1950s.

The 1930s were, paradoxically, safer, because the world was dominated by the decaying empires of France and Britain, with the rest divided up. Protectionism was not confined to the petty British market, but included the vast captive market of the empire where British capital could stagnate protected by the military truncheon. Today, there are a vast number of newcomers which, despite slump, can redirect and concentrate their much smaller resources on capturing one part of world manufacturing. Indeed, paradoxically, the world system today has some resemblance to the hey day of Victorian capitalism with its multiplicity of competitors, ungovernable precisely because of the multiplicity. With a difference that today a large number of the new competitors are married to the territorial interests of an LDC State.

War is not an option as a solution, despite the rhetoric to rivet ‘national identity’ of the captive peoples of the States, for world war could liquidate the territorial rivals altogether. Then the restoration of the profit rate would console no-one. Which leaves virtually indefinite stagnation as the sole option, a stagnation masking the expansion and contraction of different sectors and relatively rapid changes in the power and standing of particular States. It is a perspective we need, for without it there will be no opportunity to build a real mass alternative, to replace blind revolt with conscious revolution.


1. This article is designed to try and minimise repetition of the issues discussed in World Crisis and the System, IS 100 (old series), July 1977. That article pays much more attention to issues of debt and the backward countries.

2. $ and dollar here refer to US dollars, and billion and bn. mean 1,000 million.

3. The current euphemism for the backward countries, covering two-thirds of the world’s population, is ‘Less Developed Countries’ or LDCs. Within that group, an advanced stratum is identified as Newly Industrialising Countries or NICs.

4. Consider in the British case, the growth of liabilities of selected financial institutions, compound annual per cent rates of growth:






Major deposit banks





National Savings Bank





Trustee Savings Bank





Finance houses





Building societies





Insurance offices





Pension funds





Source: Table 1, Mervyn Lewis, Lloyds Bank Review, No. 137, July 1980

5. The structure of Japanese exports partly illustrates the changing structure of the economy. Total export value, in current terms, increased from about 8 to 100 billion dollars. But while machinery was only 25% of exports in 1960, it rose to 61.8% in 1977. During the same period cars rose from 2% to 14.4% and textiles fell from 30% to 6%.

6. The US and Britain regularly take the largest share of service income, reflecting the strength of their external investments, banking and financial services, shipping and commerce. Service incomes have been rising faster than manufacturing (with higher rates of profit in Britain and the US). In 1978, “invisible trade” increased 16.4%, twice as fast as visible trade. It broke down into: 31.6% investment income; 22.8% transport; 19.3% travel and tourism; 26.3% ‘other services’. Japan’s 1978 deficit on invisible trade was $8.2 billion, and West Germany’s $11.7 billion. The US had a surplus of $70 bn on invisible trade, or half the size of the value of its visible exports (as was also true of Britain).

7. This discussion is contained in more detail in my The New Untouchables, International Socialism 2 : 8, Spring 1980.

8. Consider these estimates, from Western trade sources, of Russian imports of machinery and transport equipment from the OECD group, 1955–77:





1. Average current value, US$m




2. Average annual value, 1969
Rouble prices, millions



(2 years only)

3. Imports as per cent of domestic
machinery investment in the
following year (annual average)



(2 years only)

The table excludes non-machinery items (for example, large diameter pipes, silicon chips etc.), as well as raw materials and grain.

Derived from: Table 2.1, Philip Hanson, The Imports of Western Technology, in Archie Brown and Michael Kaser (eds.), The Soviet Union since the fall of Kruschev, London 1978, p. 31.

9. N.S. Patolichev, Foreign Trade, Moscow, No. 6, 1978, p. 3.

10. Which is why, for example, the largest three US motor companies have only; minority holdings in Japan – General Motors, 30% holding in Isuzu; Chrysler, 15% holding in Mitsubishi (vehicles); and Ford, an interest in Toyo Kogyo.

11. Toshike Yoshino, in World Economy, 2/4, Feb. 1980, Amsterdam, p. 441.

12. See Subsidising Export Credit, Policy Studies Unit, Royal Institute of International Affairs, Chatham House, 1980.

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