If even a few big-business economists were dispassionate with respect to their profession, they would have been forced by the Gulf War to make some fundamental revisions of their ideas regarding the effects of war on the functioning of the capitalist system. The aftermath of the Gulf War reveals a highly significant phenomenon that is only now coming clearly into focus.
It has been standard bourgeois economic theory, whether openly expressed or not, that a big war ends a depression and, once the war is over, a new cycle of capitalist development begins. The stagnation and stagflation of the late seventies and early eighties are attributed to the fact that there was no really big war in that period. True, there was Grenada, the merciless bombing of Libya, the shelling and destruction in Lebanon, not to speak of U.S. mercenary activity around the globe, particularly in Latin America and Africa. But none of this amounted to a big war in bourgeois common parlance.
This theory that a war brings prosperity and stops capitalist recession has been widely acclaimed even in sections of the labor movement, and in particular in those industries related to the military-industrial complex. Wide sections of bourgeois public opinion have been deeply affected by this, and have shown their readiness to support capitalist war precisely because they believe it either safeguards their jobs or will pull them out of a recession.
Whenever there's any talk of cutting back the gargantuan military budget, the Pentagon immediately sets in motion scare stories about the closing of military bases in small towns. This usually has the effect of getting their congressional representatives to curry favor with the military in order to forestall the closings. Secretary of Defense Cheney was all too aware of this when he announced base closings last week.
The stock market crash of 1987, whatever else it might have been, was a storm signal that something was not right in the economic organism of finance capital. And even though it was all "fixed" by a huge infusion of money from the Federal Reserve into the banking system to avert a total collapse, the economy thereafter began to slowly decline. By August 2, 1990, when the U.S. invasion of the Gulf began, it was widely accepted by the bourgeoisie that the country was in recession.
The theoreticians of the ruling class, the paid apologists for the capitalist system, stuck to their guns and doggedly adhered to their original idea regarding the effect of big wars on the economy. Small wars like Grenada may have no effect, they reckoned, precisely because of their "miniature" size. What the economy needed was one big push, like pushing a stalled auto, after which it would run on its own. The war would give that push, and the economy would quickly begin to accelerate. The war would spark a new cycle of capitalist development.
It is as plain as daylight that the Gulf War was indeed a very big war in the amount of human beings and production it consumed, the personnel and materiel deployed, not to speak of the incredible amount of destruction it caused to Kuwait, Iraq and the environment, all of which will require years of rehabilitation.
But what is the current trend of the capitalist economy? Has this bloody imperialist war accelerated economic activity, even to a small extent? Has it at least arrested the decline? The answer to these exceptionally critical questions is no on both counts.
This is the most staggering fact to emerge from the Gulf War. The carnage has not altered the fundamental direction of the capitalist economy, and the ruling class economists have had to publicly admit it. The government itself has now released a mass of statistics which prove beyond any doubt that the capitalist recession is on. And no amount of "confidence building" will undo it.
Not even United Technologies, a most important segment of the military-industrial complex in the Northeast, can escape the decline. The Wall Street Journal of April 17 reports that UTC announced its "first-quarter earnings plunged 70% as the recession battered important businesses serving commercial airlines, buildings systems and automotive industries. . . . `This is the first time that all three of these core commercial markets simultaneously have been at the bottom of their industry cycle,' said Robert F. Daniell, chairman and chief executive officer."
Analyst Howard Rubel said, "Everything that's bad with the economy is showing up in UTC's earnings."
The one area of UTC's business not affected is its contracts with the Pentagon. But the purpose of the military contracts is to stimulate the civilian or commercial economy. That's not happening.
Military production is supposed to inject new life into the economy, like a shot of a powerful narcotic. But after so many years of enormous borrowing to pay for an area of production which is parasitic and adds nothing to the real growth of the economy, this stimulus eventually turns into a depressant.
Military commodities are commodities sui generis (of a peculiar kind). They are not produced to be sold on the open market. Most of the time, their fulfillment as commodities is realized through sale by a prearranged contractg where the government is the sole customer.
The military-industrial complex has produced more weapons than can ever be used. They must be constantly updated, and the government has to pay the cost of obsolescence. This pumping up of the military budget is the product of a phase of capitalist overproduction which can't go on endlessly.
Now this process has finally reached the point where a big war has been launched and it still hasn't helped. New figures substantiate that the big war did not give that necessary and indispensable push to revive or accelerate capitalist production.
The Federal Reserve announced on April 16 that industrial production fell 0.3% in March. What is significant is that it was the sixth straight monthly decline and the longest string of losses since the 1981-82 recession.
This new data also showed that industrial production fell at a 9.25% annual rate during the first quarter, after falling 7% in the final three months of 1990. As though this were not enough, housing starts fell 9.3% in March, according to the Commerce Department, and for the first three months of 1991 housing starts were down as much as 36.8% from a year ago.
This brought a big decline in the first-quarter earnings of Citicorp and led to "dismay" on Wall Street, in the words of the Wall Street Journal. Newsday of April 17 described it this way: "Citicorp Chairman John S. Reed, who addressed the company's annual meeting of shareholders, said in attributing the bank's problems to the continuing downturn, `As we manage our business, we recognize that the real estate market continues to weaken and that it is not likely to recover for quite some time. Nor is there reason to expect a robust recovery.' Reed expressed little optimism for a quick turnaround in the economy, noting that there is little evidence yet of an economic rebound."
Coming from this behemoth of a multinational banking corporation, this speaks far louder than any of the optimistic words exuded by the Bush administration.
The capitalist media did its part in generating tremendous optimism that the military victory would spark a so-called consumer market, which would then lead to the expansion of the gross national product with increased sales of cars, homes, home appliances and so on. But this has not happened. This kind of confidence manufactured by the media is easy to turn on and off. What's harder is to create jobs, even in their own industry of newspapers, radio and TV, which is now experiencing cutbacks and layoffs.
With all the talk of the New World Order, of how the world economy is integrated and only needs a coordinator like the U.S. government to see that it functions smoothly, it nevertheless turns out that the interdependent world system, while it may be integrated as an economic organization, is not at all politically coordinated, nor can it be.
It is exceptionally interesting to see how the situation is handled politically in its most sensitive area, that of banking, credit and monetary circulation of capital. You would think nothing unusual is happening there, nothing that gives the bourgeoisie anything to worry about.
However, the august New York Times in a front-page story on April 8 made a startling announcement.
"Amid a debate at the Federal Reserve Board," the Times said, "over whether lower interest rates are needed to help the nation out of recession, the central bank's policy-making body has curtailed the authority of its chairman, Alan Greenspan, to reduce rates on his own, high government officials said over the weekend."
This story is of keen interest to the Wall Street "community," but the other papers did not pick it up. Nor was there much discussion about it in the media. The Wall Street Journal referred to it a few days later as though it were a passing, routine affair.
Curtailing the authority of the chairman of the Federal Reserve Board, whose powers have often been described as second only to the president — doesn't that have enormous significance? What does it mean? Obviously, it is the result of an inner struggle.
Without going into the economic significance of the lowering of interest rates, it has immediate profound political significance in relationship to the integrated capitalist world economy and the efforts to have a supreme coordinator like the U.S. government.
No one has spoken with higher authority on economic and financial affairs than the Federal Reserve chairman. His is not only the voice of the central bank, but of the government. This was especially true during the Carter and Reagan administrations when Paul Volcker headed the Fed.
Lower interest rates mean that the central bankers of the other imperialist powers, especially Germany and Japan, but including France, Belgium, the Netherlands, and others, feel freer to make deals manipulating their own currencies. Even in the USSR, where Alan Greenspan went in person to explain the magic of the capitalist market, giving particular emphasis to banking and finance, this move surely would jolt confidence in imperialist finance, coordinated by the U.S.
The military victory in the Gulf has not translated into raising the economic stature of U.S. capital. So if it hasn't led to economic gains, what good was it?
This conspiracy to take over the Middle East is something like an executory contract which still has to be fulfilled. The result has to be super-profits. At the present time, it has only brought financial liabilities to U.S. imperialism in the form of an increased federal deficit.
So, despite the movement of over half a million troops to the Middle East, despite all the devastation, the war has given them no respite from the economic decline. This explains why the Pentagon's strategists are rethinking the whole question of the Kurds. They are pouring out nauseatingly hypocritical humanitarianism in such a way as to turn relief for the Kurds, in whom they have never had any real interest, into yet another military operation.
Just a week ago, when British Prime Minister John Major proposed to make way for a so-called enclave in northern Iraq for the Kurdish refugees, the Pentagon turned it down. Now they are seeking a way to implement such a plan, which will mean the creation of a virtual colonial possession for the U.S. and its allies in the heart of northern Iraq.
They are rethinking their strategy. While at the moment a substantial withdrawal of U.S. troops appears to be taking place in southern Iraq, they are digging in deeper in the north.
Moreover, the anticipated gold rush to Eastern Europe is turning into a disaster. It is in fact accelerating the recession in Western Europe. The imperialist European Economic Community was supposed to experience a capitalist boom as a result of the annexation of the GDR. But this boast about capitalist Europe becoming, as the New York Times of April 16 says, the "locomotive of the world economy," has proven to be hollow. Nothing of the sort is happening. "Instead, Western Europe's economy has stalled, with the Persian Gulf crisis pushing much of the Continent . . . to the brink of recession," says the Times.
All of this points in one direction — that the capitalist world cannot long avoid an economic collapse.
Last updated: 19 February 2018