Fidel Castro lays it out
Anatomy of world economic crisis
Following are excerpts from a Nov. 2 television address
on the present international situation, the economic and world
crisis, by President Fidel Castro of Cuba.
To characterize the current situation, one could say, by way
of a very brief summary, that in the mid-1990s, when
globalization was extending around the planet, the United
States, as the absolute master of the international financial
institutions and through its immense political, military and
technological strength, achieved the most spectacular
accumulation of wealth and power ever seen in history.
But the world and capitalist society were entering into an
entirely new phase. Only an insignificant part of economic
operations were related to world production and trade. Every
day $3 trillion were involved in speculative operations
including currencies and stocks. Stock prices on U.S. exchanges
were rising like foam, often with no relation whatsoever to the
actual profits and revenues of companies.
A number of myths were created: there would never be another
crisis; the system could regulate itself, because it had
created the mechanisms needed to advance and grow unimpeded.
The creation of purely imaginary wealth reached such an extent
that there were cases of stocks whose value increased 800 times
in a period of only eight years, with an initial investment of
$1,000. It was like an enormous balloon that could inflate to
infinity.
As this virtual wealth was created it was invested, spent
and wasted. Historical experience was completely ignored. The
world's population had quadrupled in only 100 years. There were
billions of human beings who neither participated in nor
enjoyed this wealth in any way whatsoever. They supplied raw
materials and cheap labor, but did not consume and could not be
consumers. They did not constitute a market, nor the almost
infinite sea fed by the immense river of products that flowed,
in the midst of fierce competition, from factories that were
ever more productive and created ever fewer jobs, based in a
privileged and highly limited group of industrialized
countries.
An elementary analysis was sufficient to comprehend that
this situation was unsustainable.
Nobody seemed to realize that any apparently insignificant
occurrence in the economy of one region of the world could
shake the entire structure of the world economy.
The fantasy falls to pieces
The architects, specialists and administrators of the new
international economic order, economists and politicians, look
on as their fantasy falls to pieces, yet they barely understand
that they have lost control of events. Other forces are in
control now. On the one hand, those of the large and
increasingly powerful and independent transnationals and, on
the other, the stubborn realities are waiting for the world to
truly change.
In July of 1997, the first major crisis of the globalized
neoliberal world erupts. The tigers fall to pieces. Japan has
still not managed to recover, and the world continues to suffer
the consequences.
In August of 1998 comes the so-called Russian crisis.
Despite this country's insignificant contribution to the
worldwide gross domestic product, barely 2 percent, the stock
markets of the United States were badly shaken, dropping by
hundreds of points in a matter of hours.
In January of 1999, only five months later, the Brazilian
crisis breaks out.
An all-out joint effort by the G-7, IMF and World Bank was
needed to prevent the crisis from spreading throughout South
America and dealing a devastating blow to the U.S. stock
markets.
This time, the inevitable has happened: the crisis began in
the United States, almost imperceptibly at first. Beginning in
mid-2000, the first symptoms began to be observed, with a
sustained decrease in the rate of industrial production.
U.S. crisis began in mid-2000
In March of that year, the so-called high-tech NASDAQ index
had already begun to drop.
At the same time, the trade deficit showed an enormous
growth, from $264.9 billion in 1999 to $368.4 billion in
2000.
In the second quarter of the year 2000, the gross domestic
product registered growth of 5.7 percent; in the third quarter,
it grew by only 1.3 percent.
Industrial sector production began to fall in October of
2000.
Nevertheless, at the end of the year 2000, opinions on the
prospects and forecasts for the world economy were still rather
optimistic. But reality soon reared its ugly head.
Since the beginning of 2001, the IMF, the World Bank, the
Organization for Economic Cooperation and Development (OECD)
and the European Commission, along with private institutions,
have been obliged to downwardly adjust their growth predictions
in the various regions of the world for 2001.
In May, the IMF forecast 3.2 percent worldwide growth in
2001. For the United States in particular, projected growth was
1.5 percent, and 2.4 percent for the Eurozone. Japan was facing
its fourth recession in 10 years, leading to a prediction of
0.5 percent negative growth for the same year.
IMF Managing Director Horst Kohler, during a speech to the
United Nations Economic and Social Council (ECOSOC) in Geneva,
on July 16, 2001, stated, "Growth is slowing throughout the
world. This may be uncomfortable for the advanced economies
[the developed and wealthy countries], but it will be a further
source of hardship for many emerging markets and developing
countries [the poor and underdeveloped countries], and a real
setback in the fight against world poverty."
Production has dropped in the majority of the Southeast
Asian countries, with the exception of China, and in Latin
America, too. According to the World Bank, growth in Southeast
Asia, which had begun to recover after its dramatic fall in
1997, would decline from 7.6 percent in 2000 to 4.5 percent
this year, while Latin America's growth would be around 2
percent, one half of the growth registered in 2000.
Other institutions also made predictions. The Economist
magazine estimated in April that world growth in 2001 would be
only 2.7 percent, in contrast to the 4.6 percent growth
registered in the year 2000, while world trade would grow by
3.5 percent, compared to the 13.4 percent growth in 2000.
With regard to the Eurozone, the OECD, in its quarterly
report issued in early May of 2001, estimated that the European
Union would experience growth of 2.6 percent, a figure 0.5
percent lower than its initial projection.
On Sept. 10, just one day before the events in New York and
Washington, the IMF analyzed the evolution of growth
predictions for the world economy and for the economies of the
United States, Europe and Japan.
[Here Castro cites figures showing falling growth rates from
autumn 2000 to September 2001: the growth rate of the world
economy declined from 4.2 to 2.7 percent; the U.S. economy from
3.2 to 1.5; Japan, from 1.8 to 0.2 percent; the Eurozone, from
3.4 to 1.9.]
Without exception, the three major centers of the world
economy saw their growth rates fall simultaneously, dropping to
less than half of initial figures over the course of less than
a year. In the case of Japan in particular, growth dropped to
almost zero.
The employment situation
At the end of the year 2000, the unemployment rate in the
United States was only 3.9 percent. By August 2001, it had
risen to 4.9 percent.
Today, Nov. 2, the official figure was released: it is 5.4
percent. In just one month, 415,000 jobs were lost.
The increase of the unemployment rate is irrefutable
evidence of the deterioration that the U.S. economy had been
suffering prior to the terrorist attacks.
It should be kept in mind, as an important precedent, that
over the last 50 years, when the unemployment rate has reached
5.1 percent, this has coincided with the beginning of a
recession.
In August, industrial production fell by 0.6 percent as
compared to July. Over the previous 12 months, industrial
production had shrunk by around 5 percent. August was the 11th
consecutive month of economic contraction.
The figure registered in August is very close to the lowest
level reached since 1983.
Also registered in the month of August of 2001 was a budget
deficit of $80 billion.
That same month, Democratic members of Congress were already
pointing out that predictions indicated that the government
would have to use Social Security money to finance current
expenditures.
During the second quarter of 2001, U.S. imports shrank by
$13.9 billion, while the low level of trade activity in the
rest of the world led to a $9.1-billion reduction in
exports.
Stock values on the main indexes have suffered the following
decreases in 2001: Dow Jones, 18.06 percent; NASDAQ, 66.42
percent; Standard and Poor's, 28.48 percent.
This means the loss of trillions of dollars in less than a
year.
The Federal Reserve has lowered interest rates nine times in
2001. The goal in doing so is to lower the cost of money, boost
consumer confidence and thus promote economic activity. This
frantic frequency clearly reflects desperation.
Decline in Europe and Japan
Industrial production in the European region experienced a
sustained decline in the first quarter of the year 2001 that
obliged companies to reduce staff, and this, in turn, reduced
consumption, thus creating a vicious downward circle.
Investment and consumption are depressed, aggravating the
trend towards recession.
The European Commissioner for Monetary Affairs has stated
that the European economy will grow by only 1.5 percent this
year. Meanwhile, the six most prestigious economic research
institutes in Germany have predicted that their country's
economy will grow by 0.7 percent this year and 1.3 percent next
year, and announced that the German economy is on the verge of
a recession. This will have a strong negative impact on the
rest of Europe, given that Germany is considered the region's
"economic motor."
The decrease in industrial production that began in March
reached 11.7 percent by August. This phenomenon of six
consecutive months of decline in industrial production has not
been witnessed in the Japanese economy since the period from
December of 1991 to May of 1992, and it places industrial
production at the lowest level of the last seven years. This
means an even worse crisis than the financial crisis of
1997-1998, according to Japanese analysts.
Japan's trade surplus decreased 48 percent in July of this
year.
As a defensive measure, companies are cutting staff, leading
to a rise in the unemployment rate, which reached an all-time
high of 5 percent in August of this year, something never
before seen in Japan.
Crisis in Latin America
In August, the Economic Commission for Latin America and the
Caribbean (ECLAC) reported that the region's economy would grow
by only 2 percent in 2001, a mere half of the growth registered
the previous year.
According to ECLAC, this is the result of the worldwide
economic weakening and instability in a number of the region's
key countries: Peru and Uruguay will experience no growth;
Brazil has been affected by a scarcity of fuel supplies, which
has hit its productive activity, and by an almost 40-percent
devaluation of its currency this year; and Chile's economic
reactivation has come to a halt. In the case of Mexico, a
feeble economic growth of 0.13 percent is predicted for this
year, and 1.74 percent for 2002. The government had originally
forecast 4.5 percent growth in the gross domestic product for
2001, but it has downscaled that figure a number of times due
to the slowdown in the world economy, and particularly that of
the United States.
ECLAC estimates that unemployment in the region will reach
at least 8.5 percent.
As can be seen, the economic crisis is not a consequence of
the Sept. 11 attacks and the war against Afghanistan. Such
claims could only be made out of total ignorance or an attempt
to hide the real cause. The crisis is a consequence of the
resounding and irreversible failure of an economic and
political conception imposed on the world: neoliberalism and
neoliberal globalization.
The terrorist attacks and the war did not give rise to the
crisis, but they have considerably aggravated it.
Reprinted from the Nov. 29, 2001, issue of
Workers World newspaper
This article is copyright under a Creative
Commons License.
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