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[This unsigned article is reprinted from Peking Review, #3, January 17, 1975, pp. 10-11 and 21.]
THE Western capitalist world is facing the most serious economic crisis since World War II.
Hitting the major capitalist countries in the West, the crisis is characterized mainly by periodic overproduction crises entangled with rampant inflation and serious financial and monetary crises—a combined attack of various economic ills.
U.S. industrial production dropped 4.3 per cent last November compared with December 1973 when the decline began. The situation in the three key industries was even worse: housing construction was down 60 per cent from its peak in January 1973; the auto industry was in a state of depression, with production of automobiles last December cut by more than half of that in October 1973; steel production fell about 10 per cent. “The country will have suffered its longest and deepest business slump since World War II,” warned U.S. News and World Report.
Japan’s industrial and mineral production plummeted 13.4 per cent last November as compared with November 1973, a decline surpassing the drop in each of its previous postwar crisis periods. Production was slashed in major industrial sectors: 40 per cent in the textile industry, nearly 30 per cent in machine building and 9.4 per cent in steel.
West European industrial production in general has been on the decline. Last October, as compared with November 1973, it had dropped by 3.9 per cent in the Federal Republic of Germany and 3.1 per cent in Britain. In France last September it was down 6 per cent from January 1974 and continued to fall each month in the final quarter of the year. The drop in Italy was 5 per cent for the 13-month period ending in October last. Drastic fall-offs were recorded in a number of trades. For example, housing construction in both Britain and France was cut by half as compared with their peaks. Auto output dipped 30 per cent in France and 20 per cent in the Federal Republic of Germany. The Financial Times of Britain admitted that “a world recession is, therefore, no longer a distant threat. It is already beginning to take shape.”
Fixed investment in these countries has decreased considerably. In the second quarter of 1974, as compared with the corresponding period of 1973, spending for new plants and equipment nosedived 11 per cent in Japan and was down around 5.8 per cent in the Federal Republic of Germany. In Britain it was 7.3 per cent less than the fourth quarter of 1973. Fixed investment shrinkage also occurred in the United States.
With the economic crisis worsening, more and more workers have been thrown into the huge army of unemployed. The U.S. jobless rate climbed to 7.1 per cent in December with the officially announced figure hitting 6.5 million, a record high since the end of World War II and a rise of 1.6 million within four months. U.S. officials admitted that unemployment in the country would continue to go up. The number of jobless in Japan and most West European countries broke or was close to postwar records. It was 690,000 in France, far surpassing her postwar high, and 940,000 in the Federal Republic of Germany. Unemployment also rose sharply in Australia, Belgium and Canada.
Inventories of unsold stocks have greatly increased in these countries, with many business failures. In Japan, bankruptcies in 1974’s first half rose 60 per cent above the level of the 1973 corresponding period, with total liability up almost 150 per cent. Insolvencies in the Federal Republic of Germany in 1974’s first nine months were 42 per cent over those of the same 1973 period. Business failures also increased markedly in the United States, Britain and France. In addition, it was reported frequently that some big enterprises were operating at a loss or were in bad financial shape. In the circumstances, the stock markets—the barometer of the capitalist economy—went into a long sustained slump that seldom had been seen. The London stock prices index on December 12, 1974 slipped 72 per cent from its highest point in May 1972, surpassing the 52 per cent drop in the Great Depression of the 1930s. The stock prices index in the United States sank nearly 50 per cent in early December 1974 as compared with the peak point in January 1973—a loss in value of 500,000 million dollars.
With the decline in production, the Western capitalist countries entered a new stage of runaway inflation. Consumer prices in these countries escalated several times over the average annual rise in the 1960s. As compared with the same month in 1973, last October’s consumer prices were up 12.2 per cent in the United States, a more than fivefold increase over the average annual rise in the 1960s; 17.1 per cent in Britain, a five-fold increase over the 1960s; 14.9 per cent in France, 3.7 times the 1960s’ level; and by a staggering 26.2 per cent in Japan and 25.7 per cent in Italy. Although the Federal Republic of Germany registered a price boost of only 7.1 per cent, this was already close to triple the 1960s’ average annual rise.
Public and private indebtedness in the capitalist countries has piled up fast. U.S. indebtedness, public and private, by the end of last June had reached the enormous total of 3,000,000 million dollars, the equivalent of over two years’ national income. Private indebtedness alone exceeded 800,000 million dollars, equivalent to 90 per cent of a year’s after-tax personal income for the whole U.S. population. National indebtedness in Japan at the end of 1973 was 26 times the 1950 sum, with business loans from commercial banks 188 times the 1948 figure.
Rampant inflation plus huge public and private debts are jeopardizing the economic structure of capitalism and wreaking havoc with its economic foundations.
In the past three years, Western financial and monetary markets have been beset by the fiercest turbulence since World War II. From the beginning of the 1960s to 1973, the U.S dollar underwent ten crises. In August 1971, the United States suspended convertibility into gold of dollars presented to the U.S. Treasury by foreign central banks; in December that year and again in February 1973 the dollar was twice devalued; West European and Japanese currencies floated. All this pointed to the total collapse of the Bretton Woods monetary system based on the dollar and marked the beginning of a new serious stage in the Western financial and monetary crisis. West European money markets are now flooded with more than 100,000 million “Euro-dollars.” This tremendous amount of idle money never failed to touch off violent storms lashing at Western monetary market whenever there was speculation in this capital. Dollar sales and hectic gold rush took place again and again. Gold on the free market once sold for close to 200 U.S. dollars an ounce, or more than 4.5 times the official price of 42.22 dollars. All this has heightened general instability in the Western monetary world. Chancellor Helmut Schmidt of the Federal Republic of Germany predicted that the wobbly international monetary market might totally collapse tomorrow.
The working people’s real income has dropped drastically with runaway inflation, resulting in a constant fall in purchasing power. The U.S. Department of Labour recently admitted that workers’ purchasing power had been steadily declining for 20 months running, with a decrease of 4.9 per cent in real wages last October as against the level of a year earlier. Japan registered a 2.9 per cent drop in real wages from a year ago. This further shrank the domestic market in these countries.
At the same time, foreign trade and balance of payments in major capitalist countries further deteriorated. According to official publications, in the first half of 1974, these countries with the exception of the Federal Republic of Germany all had huge trade deficits: Britain, 6,000 million U.S. dollars; Italy, 5,700 million; the United States, 2,300 million; and France, 2,000 million. Italy is now on the brink of financial bankruptcy and exists by borrowing, with foreign debts reaching 19,000 million dollars by the end of 1974.
In the face of the onslaught of the periodic overproduction crisis, inflation, and the financial and monetary crisis, the ruling groups in the capitalist countries are in a quandary and bourgeois remedies have failed to cure the economic ills. The Japanese Current Affairs Analysis said: “To curb inflation is to create depression; to avoid depression is to increase commodity prices. Thus the current Japanese economy is in a state of self-contradiction and dilemma.” The Washington Post wrote: “The trouble now is that we are not dealing simply with 1951’s inflation or 1958’s recession, but with both of them together and the cure for each aggravates the other.”
The economic crisis of the Western capitalist world is continuing to develop, and many economists in the West admit that harder times lie ahead.
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