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Editorial:Recession closing in

The events of 11 September have had many repercussions – foremost amongst them being a deepening of the financial insecurity pervading much of the world economy. Nowhere has this been exemplified more than in the major industrialised states at the heart of the capitalist system.

After the terrorist attacks stock markets across the world began to plummet. In the UK the FTSE 100 lost nearly six percent in a day (one of its biggest losses ever) and at its lowest point was nearly 30 percent down on its high of nearly a year ago. This was mirrored by similar falls in the Dow Jones Index in the US, the Nikkei in Japan, the Hang Seng in Hong Kong and other stock markets across Europe, the Pacific and South America. Most have since recovered at least part of their losses caused by the initial panic but their continuing fragility mirrors the fragility of the 'real economy' of which the stock markets are largely a reflection.

Indeed, if this supposed fragility of the 'real' economy was once in question, it cannot be any longer. In November unemployment in the UK started to rise, impelled by no less than 123,000 job losses in manufacturing in the last year. In recent weeks, BP, the Prudential insurance company, Rolls Royce and Waterford Wedgewood have been amongst those that have announced plans to slash thousands of jobs. On mainland Europe the story has been similar: French telecoms giant Alcatel has cut 10,000 jobs across the continent, Deutsche Bank 4,500 and Europe's second largest travel operator, Thomas Cook, has started shedding over 2,500 jobs Europe-wide.

In the United States the numbers signing up for unemployment benefits has risen to the second highest in ten years on the back of severe job losses across the hi-tech sector and in those industries (such as airlines) most badly hit by 11 September. These have had a sizeable impact with companies like Boeing, Motorola and Merrill Lynch cutting back their operations across the globe. The US Federal Reserve has warned in its 'Beige Book' report that economic activity in the US is now "sharply reduced" and most analysts are expecting further cutbacks in output and sharp rises in unemployment.

The situation in the Pacific Rim is little better. Indeed, in the "engine room" of the Far East – Japan – things are, if anything, even worse. In early November the Japanese government went on the record as admitting that the economy was probably in its worst state for 20 years and the Bank of Japan has since downgraded further its own assessment of the economy in the light of falling consumer spending and increased job losses (Financial Times, 19 November). To give but one example, Matsushita, the largest consumer electronics manufacturer in the world for much of the last fifty years (producing brands such as Panasonic, JVC and Technics), has predicted that it will be £1.5 billion in the red by the end of the fiscal year and is cutting at least 8,000 jobs as a result of the weak domestic economy and contracting export markets.

Boom goes bust
The onset of recession across the developed world should really come as no surprise – in the capitalist economy bust inevitably follows boom just as night follows day. It would be fair to say that currently even the more astute of the various business analysts and journalists who are paid to monitor developments in the markets have noticed this. Many realise that all they can really do is talk about softening the blow and mitigating the worst effects of the downturn.

Because the capitalist economy is orientated to making profits and as the expansion of the competing enterprises in the economy is not regulated and harmonious, the over-expansion of some sectors, a process which has a knock-on effect to the economy as a whole, is always a danger – and periodically a reality. This is what appears to be happening now. The industries that expanded so rapidly during the boom of the mid to late nineties, such as those involved in the 'dot com' and telecommunications revolution, have expanded far too quickly for market demand and the consequences have been severe. Sales have fallen, production has had to be cut back, debts have mounted and jobs have been slashed as companies get into serious difficulties, in some cases going bankrupt.

A key factor in this is that capitalism's financial apparatus is largely built on confidence that transactions will be smooth and payments will be met. When this confidence in the efficiency of trade and commerce starts to ebb then things can take spectacular – and serious – turns for the worse. The erosion of financial confidence is one of the ways in which a downturn in one sector - or country - can spread to others.

If the word 'globalisation' means anything in the era of the Multi National Corporation, it is surely that the world economy has now become so inter-related that the worsening of a company's financial position in one country can lead to them shedding jobs in another. This is what currently seems to be happening across the industrialised world and illustrates why so many of the so-called 'solutions' to economic downturns in the past (import controls, Keynesian 'pump-priming' economics, etc) are now more transparently useless than they ever were.