First Tremors of the Coming Slump

In this introduction to the special feature Rob Sewell gives a general view of the meaning of the present turbulence in the markets and explains why we say these are just the first tremors of a coming slump.

The stock market rebound has given rise to the euphoric idea amongst economic whizkids that after this minor "correction" its back to business as usual. Investors are now looking for bargains as share values are pushed up and up. Greenspan, chairman of the US central bank, avoided his previous comments of the stock market showing "irrational exuberance", and concentrated on how well the US economy was doing. "It is quite conceivable", he said, "that a few years' hence we will look back at this episode as we look back at the 1987 crash as a salutary event in terms of its implications for macro-economy."

But these pundits see things very much in terms of "confidence", of subjective feelings, when the crisis is really a reflection of the underlying objective situation. The capitalists managed to avoid a slump in 1987, by lowering interest rates pouring in "liquidity" into the world economy. This simply postponed the recession until 1990. The strategists of capital have not learned anything, and are blind to the real process of capitalist economy. A lead article in the Guardian commented: "What is important about 1929 was not the shares crash itself (much smaller than in 1987) but the great depression that followed. The share crashes of 1973 and 1981 were harbingers of recession but those of 1946, 1962 and 1987 were not. This time there is no sign of global recession apart from East Asia which is a small part of the whole." (29/10/97)

What is clear, the recent stock market crash represents a first tremor of an impending slump in the world capitalist economy. There will be more. The underlying causes have not disappeared. The examples of the absence of crises in 1946 and 1962 was due to the period of post war reconstruction and capitalist upswing that had begun. All crises in this period were practically non existent with the massive expansion of the productive forces. In 1987 there was a delay. Capitalism had not abolished the boom and slump cycle.

The speculation and boom on the stock exchange is a typical characteristic of the peak of the boom years. That was the case in every boom, including 1924-29. Illusions were widespread of the boom years continuing, as they are today. In October 1929, Andrew Mellon, US Treasury Secretary stated: "The US economy is fundamentally sound." Today, Robert Rubin, US Treasurer Secretary, says: "the fundamentals of the US economy are strong." This was a deliberate attempt to boost "confidence". But the US economy is heading for a recession. There is growing excess capacity in cars, steel, micro-chips, and other products. American big business is busy preparing for the next slump.

When this recession will occur is not possible to predict with accuracy. Economic processes are notoriously difficult to pin point, and timescales are extremely difficult to determine. However, what is clear is that we have reached the peak of the boom in the USA and Britain. Within the next year or two there will be a downswing. This could be precipitated by a further crash on the world stock markets. The National Bureau of Economic Research in the US in October 1987 reported that "There have been eight recessions in the post-war period and the stock market has entered sustained declines, signalling their approach, by lead times averaging just under eight months." The next slump, given the massive amounts of fictitious capital that has been built up in the last period, is likely to be deeper that those we have experienced in the post war period. This is further exacibated by the austerity measures of all the capitalist governments which have served to cut the market.

The coming crash and the slump that will follow will have a profound political effect internationally. It will finally destroy the illusions in the market economy once and for all, and bring into question the durability of the capitalist system. Even in this boom there has been mass unemployment, which has assumed an organic nature. In the downswing it will grow to astronomic proportions. All governments will be thrown into crisis as they try to unload the crisis onto the backs of the working class. In Russia and Eastern Europe, the new capitalist relations which are emerging will be absolutely shattered. The process of capitalist restoration there and in China will be thrown into reverse.

After the initial shock, the workers will draw the necessary conclusions that capitalism is the reason for all their problems. Once again, the ideas of genuine socialism and Marxism will come to the fore. The task will be the overthrow of capitalism and the building of socialism, which will relegate to the dust bin of history the nightmare of slump and mass unemployment for ever.