With the first buds of spring emerging, the optimistic voices of officialdom are beginning to foretell economic recovery. President Obama detects some positive economic signs, though warning of further difficulties still to be overcome. Federal Reserve head, Ben Bernanke, has embarked on a public relations tour, pointing to signs of improvement and promising a difficult, but assured restoration of economic health. Five of the twelve Federal Reserve Regional Banks report some signs of improvement. And, of course, the stock market has demonstrated a bit of life.
Other signs are not so promising: unemployment continues to mount and retail sales, industrial production, and capacity utilization have fallen more than projected. And commercial and personal loans from TARP-sapping banks have actually declined.
Yet it seems like forever since any political or business leader has dared to paint an even modestly rosy picture of the US economy. In reality, virtually all the pundits and pols were upbeat about the economy’s prospects as recently as last summer. Indeed, it was a severe economic winter.
Lost in the tea-leaf readings of the official cheer-leaders is the state of the world economy. A myopia – a US-centered focus – apparently blinds most to the profound contradictions in the global economy. As the once tightly wound, interdependent global market unwinds, the effects of this crisis promise to strike deep and powerful blows upon the US economy. I delve more carefully into these contradictions in an article – Cowboy Capitalism and the Demise of “Globalization” – forthcoming on MLToday.com. Almost daily, the diverse and disruptive tensions and frictions within and between nation-states grow more serious.
An article (As Factories Vanish, Japan Seeks to Fashion a New Economy) in Monday’s Wall Street Journal (4-13-09) underlines this process of “de-globalization” and national restructuring, while hinting at the consequences for other economies. Japan, the second largest economy after the US, teeters on the precipice of collapse. GDP fell at an annualized rate of 12.1% during the last quarter of 2008 with the OECD forecasting a contraction of 6.6% for 2009. These loses are far deeper than the declines in the EU and the US. Heavily reliant upon exports, the Japanese economy experienced a catastrophic drop of 49% of exports in February against the prior year! Exacerbating this collapse, the Japanese economy has nearly doubled the export share of GDP over the last twenty years. For better or worse, the viability of the Japanese economy has become more dependent upon the global market and global demand. That demand has now collapsed.
As The Journal reports, Japanese manufacturers are determined to respond to the decline by moving production to low-wage countries, further eroding sinking domestic employment. For decades, Japanese industry has relied upon Japanese workers to provide the quality and workmanship that became the signature for products stamped “Made in Japan”. Luxury cars, sophisticated electronics, and other high-market goods required skilled labor and some accommodation to workers’ needs. With world demand collapsing, the exportation of these jobs to low-wage areas becomes a priority for Japanese firms bent on restoring profitability. Companies like Sharp and Nissan have already begun the exodus.
Mired in a profound political crisis, the Japanese ruling class lacks a plan to stimulate domestic demand as a response to the export catastrophe. The prospects are grim: declining growth and rising unemployment.
Those experiencing some spring-time optimism should also note divisions within the European Union that are threatening a unified policy for economic recovery. Some on the European Central Bank Governing Council favor following the US and buying bad “assets” in order to remove them from banking balance sheets, while others favor using Central Bank funds to pump credit into the banking system. Disagreements have also arisen over the optimal key bank interest rate, differences that are unprecedented in the decade long existence of the European Central Bank. These frictions reflect contradictions between the differing levels of development, resources, philosophies, etc. that define each constituent state in the EU.
The Marxist point is this: Capitalist states must individually strive for restoring economic health. The national differences are too great to devise a universal and common strategy. Moreover, cooperation for some greater good is beyond the logic of capitalist competitive advantage. Therefore, all the nation-states and economic blocs are searching for answers to the crisis that address the particular and specific ills that plague their economies. At the same time, “globalization” – the explosive growth of international trade – has created a mutual dependence between states that prohibits or, at least, inhibits, purely national solutions. Until world interdependence unwinds – until the world “de-globalizes” – moving beyond the economic crisis remains illusive.
Japan is the third largest recipient of US exports, accounting for nearly 7% of all products shipped abroad. The health of the Japanese economy will have a profound effect upon prospects for a US recovery, as will the fate of the EU and all other trading partners. Without gauging the health of the global economy, we must not be seduced by the first warm breezes of spring.