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Globalisation of the economic slump

The events of September 11 brought the fragility and weakness of the world financial and economic system into sharp relief. A meltdown of the US Stock Exchange was only narrowly averted due to the rapid response of the Federal Reserve and the European Central Bank, both of which cut interest rates and guaranteed liquidity. Corinna Lotz assesses the depth of the global slump.

IN THE WEEK after September 11, the Dow Jones industrial average fell more points than ever before in its history, with $1.2 trillion worth of market value wiped out. The index of blue-chip US stocks suffered its biggest decline since the Great Depression of the 1930s.

Although the dramatic falls on the global markets were temporarily reversed by early October, the damage to confidence was permanent. A sustained recession is now forecast by a host of economic and financial experts.

Respected New York bankers J.P. Morgan are now predicting 0.5 per cent growth for the last quarter of 2001 and minus 1.7 per cent for Japan. "The current downturn is notable for its breadth as well as its width. Virtually all economies are weakening simultaneously, whereas past global slowdowns tended to accentuate rather than diminish the differences between them," the bank commented.

At the same time the International Monetary Fund issued a stern warning about the prospects for the global economy. Chief economist Kenneth Rogoff said that recession in America was "a done deal". His laconic words spooked politicians trying to reassure their countries about the "robust" nature of the world economy.

And just before the G7 finance ministers meeting in Washington on October 7, IMF managing director, Horst Kohler warned that "a more-pronounced- than-expected economic slowdown is under way across much of the IMF's membership".

The suicide attacks on the WTO and the Pentagon triggered an immediate and disastrous slump in trade for the air transport business, and they have accelerated a process which was long in the making. Profit margins were already so narrow that a short period of cancelled flights and loss of bookings was enough to bring virtually every major carrier to its knees.

At the beginning of 2001, a third of the world's workforce of 3 billion people were already unemployed or underemployed, according to the International Labour Office, the UN agency. The number of "openly unemployed" increased by 20 million over the three years since 1997. In the US 199,000 jobs were lost in the month preceding September 11.

J.P.Morgan's chief economist, John P Lipsky, said that the US economy was already headed into a recession before September 11. In the weeks before, more jobs were lost in the US than at any time in the last decade. Layoffs and job cuts spread from the manufacturing sector into the service sector, which now accounts for 80 per cent of jobs. The decline in wages was twice as large as expected.

Fund managers Morgan Stanley Dean Witter's chief economist described the run-up to September 11 as "two months of sickening declines in a row". Thus, the current jobs massacre is a sharp downward twist in a spiral of a long-term economic decline over the past year and a half. The world's stock markets fell by just over 40% in real terms in the last 18 months, "a decline of historic proportions", in the words of the Independent's, Jonathan Davis. Nasdaq, the technology market dropped by more than 70%.

Davis discovered a silver lining in the events of September 11, seeing them as a catalyst that will restore market valuations to "sustainable levels". In reality stocks and shares were pushed to the "bubble" levels seen in the last years of the 20th century by vast amounts of speculative and fictitious capital desperately seeking a lucrative home.

The vast loss of jobs sweeping the world's biggest economy, the United States, will have devastating effects on all other countries. The notion that the global capitalist system is the only viable economic and social system, and that we had arrived at "the end of history", appears more threadbare than ever.

Instead of globalisation bringing a "trickle-down" equalisation of wealth, the differences between poor and developing countries and the major capitalist powers are greater than ever, especially to the millions losing their jobs. Extreme economic inequality and political repression have led to millions of people moving around the planet in search of a better future.

This grim reality is the background to the attacks on the symbols of capitalist globalisation, regardless of who was actually responsible. What is new is that the political and psychological aftermath of September 11 triggered a loss of confidence in the system itself.

For an economic order that is based on untold amounts of personal consumer debt, any loss of confidence is disastrous. This is why interest rates have been lowered again and again over the last six months both in the United States and Britain in a desperate ploy to keep their economies afloat.

Currently at 4.5%, home loans are now at their lowest level in Britain since the 1950s.

John Gray of the London School of Economics remarked: "The effect of the attack on the World Trade Centre may be to do what none of the crises of the past few years - the Asian crisis, the Russian default of 1998 and the collapse of Long Term Capital Management, an over-leveraged hedge fund - was able to do. It may shatter the markets' own faith in globalisation. ("The End of Globalisation", New Statesman September 24)

"The name of the game has changed for ever," Gray writes. The entire view of the world that supported the markets' view of globalisation has melted down."

It is clear that the "go-go years of globalisation" are gone, never to return, and that we have entered a period of extreme instability, where governments have very little control either over the economy or over the process of conflict or war itself.

But globalisation as an economic and political process continues unabated, not least in the weakening of all economies. But now it is the globalisation of slump and recession and the drive to war that predominates.