Grim Economic Prospects

The editorial from Socialist Voice August 2001 IN RECENT weeks, the economic news coming from the United States, the world's largest economy, has become increasingly grim, with serious implications for Ireland, North and South.

First of all, there was the official confirmation that the US economy grew by a mere 0.7% in the second quarter of 2001. Two months ago, the American National Bureau of Economic Research concluded that the economy was already technically in recession, based on combining output, employment, income and retail trade data. The Commerce Department has now reported a 13.6% cutback on investment in new plants and equipment by US businesses over the last quarter. This is the steepest decline since the second quarter of 1982 when the country was in the throes of the most serious recession since the end of the Second World War.

Even now, there are still commentators seizing on any scrap of evidence to prove that this is only a temporary dip in the economy and that recovery will be underway by the end of the year. In particular, they point to consumer spending, which grew by 2.1% in the second quarter. Indeed buoyant consumer spending has kept the economy from falling into an outright slump. However, a fall in consumer spending generally lags behind other economic indicators at the start of a recession.

This brings us to the most significant news, the sharp increase in redundancies. At least 45,000 people were laid off in the US in one three-day stretch in late July. Over the past year, over 800,000 manufacturing jobs have been lost. So far, the unemployment rate has not gone up sharply because people are finding new jobs in the service sector, though undoubtedly at far lower wages. But as the layoffs continue and the full impact of loss of income is felt, consumer spending will slump and a full-blown recession will follow. This will be compounded by the massive level of personal and corporate indebtedness, which stood at $15 trillion at the end of last year. Nor will George Bush's tax cuts or Alan Greenspan's cuts in interest rates be able to stop this.

The most serious worry for the leaders of world capitalism though is that the downturn is happening in all three of the key areas of the global economy - the US, Europe and Japan - simultaneously. Japan is probably already in recession after a decade of stagnation while growth in Europe has slowed sharply. It is now predicted that the crucial German economy will only grow by 1.2% in 2001. Meanwhile, a number of other economies including those of Argentina and Turkey are in free fall.

On one level, the Celtic Tiger seems to be a complete exception from these trends. The projected drop from 10% growth last year to 6% this year will still leave the Celtic Tiger as the fastest growing economy in Europe if not the world. But these projections will almost certainly have to be revised downward as the international crisis deepens. And already, a clear change is underway. The IDA estimates that 2,500 jobs in the high-tech sector have been lost since the beginning of the year. This includes 170 of the 3,400 jobs at the key Intel plant in Dublin. Gateway which employs 900 in Clonshaugh is going to 'review' whether Dublin should be its European headquarters. This doesn't include the 400 jobs lost at Ispat in Cork or the hundreds of other jobs in other Irish manufacturers. Even if the rate of unemployment has not risen yet, the effect of the loss of a number of well-paying jobs will begin to filter through to the wider economy.

Meanwhile, the property market bubble is clearly beginning to burst. If job losses begin to accelerate as people are still stuck with absurdly high mortgage payments based on two incomes, the situation could deteriorate rapidly.

As recently as the end of last year, the media was still full of nonsense about how a global 'new economy' based on services and high-tech was at hand in which recessions were a thing of the past. We in the Socialist Party have, however, insisted that capitalism remains a boom/bust system in which the drive by the capitalists for profit at all costs makes crises inevitable. When profits fall as they are now, the capitalists make the workers pay for the crisis of their system through mass unemployment, attacking living standards and slashing social services. The only way to prevent these recurring nightmares is to end the capitalist system once and for all.

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