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John Palmer

[Threat of Recession & Japan]

(Autumn 1965)

From The Notebook, International Socialism (1st series), No.22, Autumn 1965, pp.6-7.
Transcribed & marked up by Einde O’ Callaghan for the Encyclopaedia of Trotskyism On-Line (ETOL).

John Palmer writes: ‘The international fashion – and it is an ominous one – is deflation’, writes The Economist. Other voices have also warned at what seems initially the most gloomy conjuncture of world economic indicators for 25 years. Socialists, particularly those of us who have inveighed against habitual prophets of ‘the-end-is-nigh-slump’, should not underestimate the subtle but important changes which are overtaking the world economy.

The first – and most striking – fact is the slowdown in the rate of expansion in nearly all European ‘miracle’ economies. In the Six, Italy and France struggle to maintain expansion rates the lowest for ten years, while new and heavy curbs have at last been imposed on a German expansion which threatens even Bonn’s Wirtschaftswunder. Second, Britain is heading for another of its four year bouts of ‘stop’ – notwithstanding Neddies, a Labour Government and unparalleled rhetoric claiming loyalty to permanent expansion. As the successive bouts of deflation imposed by Callaghan begin to hit workers, there is still little real indication of confidence in the future by the almighty holders of sterling. Third, and unhappy news for Wilson’s ‘export-or-die brigade’, the neo-colonial third world is steadily relapsing into record payments deficits. From Ghana to India, client states are tightening their belts and deferring industrialisation programmes. Fourth, and most serious, is the distinct international shortage of ready cash to finance world trade and provide credits for the underdeveloped to buy exports from the developed states. The origins of this ‘liquidity crisis’ are complex, but are largely due to the challenge by Europe, led by France, to the dominance of sterling and the dollar as international reserve currencies. De Gaulle argues that as long as these currencies go unchallenged, France and other countries with payments surpluses will effectively be subsidising US and British balances of payments. This means subsidising Anglo-American imperialist operations throughout the world where newly confident European capital feels it has interests quite distinct from those of Washington or London. With European bankers pushing for a return to gold and both the US and Britain trying to correct payments deficits, the world’s capital markets are contracting. Already the warning signals of bank failures – especially in Japan – are being seen.

Two important counter-trends to world recession remain. One is the prolongation of the US boom, recently stimulated by a huge increase in Pentagon military outlays for Vietnam. The other is the preparedness of Russian state capitalism to feed the world payments system with a large volume of gold as a result of its wheat purchases from Canada. However much the downward tendency of world economic activity is ameliorated by these factors, the signals are being hoist for a choppy period ahead. In the case of British capitalism, it is difficult not to think that the coming stop is going to take a longer and more bitter draught of the traditional medicine to bring foreign trade and payments into balance.

For the Labour movement, the questions of the length and severity of the present recession are secondary to the fact of its imposition on the working class by a Government which pledged that economic expansion ‘must not be sacrificed to the dictates of private profit, to the selfish whims of speculators, to outmoded financial techniques, or to unpatriotic manoeuver-ings in foreign exchange’, and which said, ‘Neither great industrial combines nor monopoly institutions must ever be allowed to become masters of our economic policy.’

The significance of the agreement between Japan and South Korea, whatever its propaganda publicity, should not be missed. South Korea’s years of Japanese imperialism (1910-45) and the needs of General Park’s military government to play on this chauvinist chord to stabilise its own rule, have not been enough to overwhelm the case for a ‘normalisation’ of relations after fourteen years’ desultory discussion – despite the massive opposition of Korea’s students (sent off a month early for the summer vacation to avoid trouble). The Zaibatsu of Japan, faced with an increasingly serious labour shortage (for the first time in 1963, there were more jobs than takers) that threatens in the long-term to curb growth and pump up wages faster than productivity, has located again its traditional source of cheap labour – Japanese business is tumbling over itself to establish factories in South Korea now, and even last April, before ‘normalisation’, 70 such companies were said to be waiting in Seoul (Asahi, 13 April). In the short-term recession now puncturing the growth rate (slightly) and the Tokyo stock exchange (mightily), the economic clauses of the agreement are welcome to hard-pressed business on other grounds – Japanese reparations payments in goods and services, a lucrative element in past booms, has slackened (payments to Burma and South Vietnam ended recently), and ‘normalisation’ includes a Japanese offer of 800 million dollars and aid to South Korea; one Japanese newspaper noted that cynics observe how ‘reparations agreements happened to materialise whenever there were signs of an impending economic slump in Japan’ (Yominri, 10 May). For the old Japanese Right, dreams of the Greater East Asian Co-Prosperity Sphere seem less remote than before, particularly when conjoined with the simultaneous Japanese ‘friendship’ for Pekin (the new Prime Minister Sato’s ‘high posture’ foreign policy) and Taiwan (150 million dollars credit offered last April, more over the next five years); to the 50 million dollars credit offered Indonesia last year has been added 24 million last May, including, to the horror of the British, eight Kappa space-sounding rockets in July. These are small signs, but do indicate the recognition of Japanese business that further expansion in a relatively contracting world market demands generous injections of tied aid to its immediate neighbours – south-east Asia takes a third of Japanese exports at the moment, but cannot expand this proportion without massive help: this is the form for a resurgence of a Japanese neo-imperialism.

For the US, ‘normalisation’ has been a long-term aim as the first step towards a North East Asian Treaty Organisation (South Korea–Taiwan–Japan–US) that will skim off some of the froth from the Japanese export effort and divert it into armaments: so simultaneously relieving US defence costs in the area and some competition with US business. This is a delicate operation, that involves countering the widespread anti-war neutralism of the Japanese people and revising the Constitution to permit Japanese rearmament – ‘Japan’s defence budget is far too low today’, McNamara bluntly put it last April. The needs of Vietnam that strain US military resources throughout East Asia have added an immediate edge to the demand – on 28 June, coinciding simultaneously with the worst stock market crashes of the current Japanese recession and a popular revulsion from the Vietnam war, the US offered Japan at a third of their normal price, two battalions of Nike air-to-ground missiles, the payment for these (200 million dollars) then to be used by the US to buy military equipment in Japan, an astonishingly ‘generous’ offer. The Japanese Government responded eagerly, although there are still many outstanding points of friction with the US – US investment in Japan at 500 million dollars is substantial (roughly five per cent of total investment), but this has not shielded Japan from measures to strengthen the dollar, nor has recent Japanese liberalisation of its trade (entry into Article Eight status of IMF and into OECD) prompted the US to revise restrictions on its wool and cotton imports, its Buy American schemes, its ban on Japan airlines’ overflight of the US (the only major airline so discriminated), nor has it ended the boycott of Japanese goods by the US fishing industry (retaliation for alleged unfair competition in the Alaska salmon waters). Japanese business has a long memory and current experience of the ‘liberalism’ of Western business when, and only when, it is in a position of economic supremacy – where Japanese competition threatens, liberalisation ends for the threatened. But the US is still Japan’s biggest market, and thus the ties are more than immediate frictions can disturb: even if Japanese opinion blames its current recession on the admission of more foreign imports to its economy and the US restrictions on dollar investment in Japan.

The ‘normalisation’ agreement is thus a crucial step in the expansion of Japanese capitalism and the maintenance of US hegemony. Korean students, with the immediate demand of reunification of Korea, have reacted sensitively – as have Japanese students and trade unions. But this is a difficult tactical issue to fight on, and one impossible to win in isolation – but its implications are clear.

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