The New Worker

The Weekly paper of the New Communist Party of Britain

Global economy and the European Union

World Bank milks poor nations.

by Mick James

SOME economists argue that the world economy is no more global today than it was at the beginning of the century before 1914.

Certainly it was global then in the sense that there was an intense struggle for markets and spheres of investment. But the imperialist powers had already stuck their nests in everything, so the only way they saw to resolve this competition was through war.

Two world wars later and the crisis had not been resolved. And neither have peacetime inter-war measures nor even the labyrinth of international organisations that have been set up to regulate trade, exchange and interest rates settled it.

Keynesianism and neo-conservatism

The application of Keynesianism or so-called neo-conservatism (or monetarism) have also signally failed to solve capitalist crises. The terms neo conservatism and monetarism are really misnomers which actually dress the old classical ruling class methods in new clothes. Then as now, the effects of the crises are passed onto the working class by the ruling class.

Monetarism simply means controlling money supply in the economy as has always been the case. Neo-conservatism represents a return to traditional ruling class policies after a lengthy interval of Keynesian policies. In other words, it's a return to the conservatism of Baldwin and MacDonald after a spell of Eden, MacMillan and Heath, not to mention six Labour governments.


So what's different about the global economy today from its past phase, which Lenin -- and Hobson before him -- called imperialism?

There are more developed economies and more in a near-developed stage now, making for fierce competition. The world has got smaller because of the revolution in communication and information technology. Facilities for investment and commercial transactions have so improved that business can be carried out very swiftly.

The volume of capital available has grown tremendously compared to the period about which Lenin wrote in his Imperialism: the Highest Stage of Capitalism. Lenin had already emphasised the dominance of finance capital at the time. Today, the commercial and financial proportion of capital is much greater and even more dominant.

There is far greater freedom for capital now than ever before, particularly since most countries have removed exchange controls. And it is significant that among the pressing items for discussion at the inaugural meeting of the World Trade Organisation, is the freeing of all countries of any restrictions on inward investment. There are also more countries exporting capital today.

There is another big difference between the pre-1914 period and now. The United States (US) did not have a significant world trade role and was therefore not a large exporter of capital. Yet today, the US is the biggest exporter and importer of capital and plays the leading role in world politics.

The emergence of the rapidly industrialising countries of east and south east Asia now includes Japan and more especially China. In this context China is important, particularly as the remaining bastion of socialist development.

Prior to 1914 there were two alliances of competing imperialist countries pitted against each other in a struggle for territorial investment spheres and markets. Now there are trade blocs with some still being formed.

Again, one of the features of imperialisrn that Lenin noted was the growth of monopolies. It had become monopoly capitalism, he said. But now the monopolies are much bigger. These are transnationals that dominate the world economy.

Attacking the working class

I must point out, given that the Labour Party is explicit about not doing away with capitalism, that no change in essence has occurred to capitalism despite the way society has since developed. The contradictions and effects of capitalism have remained essentially the same between Marx's time and now.

Perhaps the most damaging aspect of this present stage for the working class, is that for the first time a permanent condition has arisen in which the growth of exports tends to exceed production growth (as recently explained in the New Worker). And while the volume of exports is likely to ebb and flow for individual countries, at present we are beginning to see a reduction in exports after a period of strong growth. Also some countries' exports grow while others' shrink.

The implications of all of this are very serious for the working class. In the developed economies, production, growth is shrinking, productivity is constantly increasing and new technology is being systematically introduced. As a result, the labour force is shrinking. More goods and services are being produced with less labour.

The rate of exploitation is therefore rising more steeply. More capital is being accumulated but the ratio of variable capital to constant capital is falling. This Is a recipe for ever deepening chronic crisis.

Analysing the differences between pre-1914 and now, as well as between today and the 1920s-30s, we arrive at the similar conclusion that the struggle is in essence for the same ends. And that means markets and spheres of economic investment, through which ever greater capital accumulation is made. What is new is that it is even more intensive and takes on a different form.

No longer is it as simple, at least in theory, as dividing up the world territorially. The means to gain competitive advantage aren't new, but a more thorough and intensive use of the oldest weapon of systematically cutting working class consumption -which has always been employed up to a point -- is now having a major impact.

Asia's economic power

The most rapidly growing economies are in east and south east Asia. Their growth rate over the last 20 years has been three times that of the developed countries. Over that time, countries of this region have already absorbed high growth, large amounts of foreign imports, capital from the developed countries and have become significant exporters in their own right.

These countries have set up their own trade bloc -- the Asia-Pacific organisation for Economic Co-operation (APEC) -- to improve trade between themselves and to strengthen trade negotiating capacity with the big Economics of this region have already absorbed 0.75 per cent of their Gross Domestic Product (GDP) in Foreign Direct Investment (FDI) between 1980 and 1983, but this had increased to 1.25 per cent between 1991 to 1993. Comparative figures for the developed countries are: 0.85 per cent of GDP in 1981-83 and 1.6 per cent in 1991-3. This is much greater than in all the other regions.

But projections for Asia's GDP growth for 1996-2005 far outstrip that of any other region including the developed countries. This is expected to be seven per cent compared to the developed world's 2.05 per cent. So opportunity for increased trade and foreign investment is sure to improve a lot in the next 10 years.

Britain and Europe

In the final analysis, the dominant section of Britain's ruling class is completely committed to European Union (EU) and European Monetary Union (EMU) in particular. So is the majority of the Tory Party, but to the EMU only in the right conditions and at the right time.

The big capitalists in Britain as Western European countries want an integrated Europe with a single currency. That is a most logical position for them, although achieving It will be very difficult. They also want a politically unified system to administer it.

These capitalists envy the United States because it has a unified market of 280 million people with one currency -- so they want a similar set up. It will make competitiveness that much easier in the world market. It will stop the ceaseless struggle for advantage in exchange rates among the member states and reduce the conditions for currency speculation within the EU. It will allow the process of industrial rationalisation on an EU basis to continue. This again, more than anything else, will make Europe more competitive as an entity, than the existing individual member States.

EU is a response to crisis

There is a strong tendency among the working class, the Euro-sceptics aside, to blame the EU for all the problems without realising that the root cause is the crisis of capitalism. That mistake should always be combated. The formation of the EU, as with all other trade blocs, was itself a response to deepening crisis. What the more far-sighted of the western European ruling class anticipated was the future intensification of the struggle for markets. In the development of western Europe, if they have their way, all Europe's capitalists will go into the EU, which will make the crisis of capitalism for the working class that much worse.

We should not be misled by the antics of Sir John Goldsmith at the Institute of Directors conference and with his Referendum Party, about the ruling class's position on EMU and the EU. Goldsmith is a maverick who is often criticised by other members of the ruling class for his views. For example, not long ago he wrote an article in favour of all-out protectionism for the British economy. That, of course, is not the position of the ruling class.

Clearly, support for EMU and closer integration on the right terms and in the right conditions is expressed by the City of London, Confederation of British Industry (CBI) and the mainstream of the Tory Party. This is a far better barometer of the ruling class position. The government equivocates on it only because it wants to hold the party together, especially as a general election approaches.

The ruling class is so nervous about the timing because of what big business and the City see as the divisions in both Conservative and Labour Parties, the similar position in the country as a whole, and not least the lack of progress towards convergence.

But there is no doubt that, even though the ruling class is hedging its bets over whether to go into Europe or not, ultimately the decision will settle on going in. We must remember that once the European Community was formed, it took 13 years before we eventually joined it.

One cause of the difficulties in the Tory party is a strong current of basic anti-Common Market feeling in this country, coupled with an even stronger opposition to closer union and especially to the EMU. This is likely to afflict the Labour Party too if it is elected.

Some of the Euro-sceptics bow to that in order to hold onto their seats, others lead it because they are firmly opposed to the EU. Some of those Tories were prominent in the anti Common Market campaign during the 1975 referendum, but they don' t come out openly now against the EU as such.

There are also objective difficulties both in the timing of EMU and with the EU's economic performance. The convergence targets of the Maastricht Treaty have not been achieved, and they are a prior condition for introducing the EMU. The main three are inflation, budget deficits and gross debt as a percentage of GDP.

The inflation growth target is 1.5 percent and only Belgium, the Netherlands and Finland have achieved it. Budget deficits as a percentage of GDP should be three per cent. Only Denmark, Germany, Ireland and Luxembourg have achieved that.

But the biggest failure of all is the failure of all member states except Luxembourg to keep within the permissible limit of 50 per cent for gross national debt as a ratio of GDP. Most of them have failed by a very high margin. Britain and France have come nearest to making it.

Three other conditions need to be met: i) convergence of long term interest rates; ii) independence of national central banks and iii) exchange rate stability.

The government and Labour leaders differ little over the convergence of economic elements, as a condition for joining the EMU. The exception is that the government avoids making its position too clear, although Chancellor of the Exchequer Kenneth Clarke and the Governor of the Bank of England do.

Clearly a number of member states are getting into deep political trouble trying to achieve these targets. In France, as we saw last year, it provoked the French strikes. Other examples are Germany and Spain where drastic cuts in public spending are either underway or expected soon.

It is not difficult to understand why such convergence of economies necessary if there is to be a single currency. It would be chaotic if their economic indicators differed widely, something like the US with every state going its own way, while federal government and federal reserves only had the role of controlling the dollar.

This kind of economic uniformity is not possible without at least a federal state, if not an even closer type of state. And that, of course, does stick in the craw of many members of the ruling class.

EU economic performance

The analysis of the global economy is clearly relevant because it affects Europe's ability to compete on the world markets. One example of that is a comparison of EU manufacturing growth 1980-95. According to this the US had 3.0 per cent growth in output and 3.75 per cent in productivity while Europe's equivalent figures were only 1.1 per cent and 3.0 per cent respectively.

But there is also a slow down in the European economies as a whole and business confidence is falling, while unemployment in some countries is increasing. The economies of France, Germany, Spain, Italy, Britain and Sweden are slowing. There has been a lot of stock building which now has to be sold before there can be economic growth.

The Labour Party's Gordon Brown gave a speech recently which, while it confirmed the Labour Party's position, also indicated that the Labour Party would accept a much looser conception of convergence as a condition of joining EMU even as early as 1999.

Otto Pohl, ex-Bundesbank governor and architect of EMU, gave some idea of what he thought it would mean. More than likely, he initially said, it would mean higher interest rates. Even minor mistakes m the preparatory stages could lead to all kinds of trouble like massive capital movements, exchange rate. interest rate and price instability.

The central banks organised in the European System of Central Banks (ESCB) will play a major decisive role. They would, in fact, have ultimate control of the European economies. The primary objective is to maintain price stability and this is the clue to its real aim to better equip European capitalism for its role in the global economy.

It is clear from Gordon Brown's recent remarks that he also thinks this way. Pohl said that even if only the core countries joined, EMU would exist, an attraction that would influence the exchange rates of the countries inside it. The EU wants to be competitive in the 5500 billion telecom market and information technology generally-- as well as in the market for manufacturing. Average European productivity at 3.0 per cent (1980-95) is well below that of the US, its main rival, in these two fields at 3.75 per cent.

This is one reason for the efforts being made -- in the run-up to the formation of the World Trade Organisation (WTO) -- to get it to include in its objectives guarantees for complete access to all countries for information technology and to foreign investment. One of the chief targets is the fastest growing region of the Asia-Pacific.

The upshot of all of this on the working class is severe. Rationalisation in industry and the meeting of convergence targets would mean even greater downward pressure on wages and more drastic cuts in the social wage. In other words, it would worsen still further the conditions of crisis.