The Crash of ’87: Opening of a New Period?

Against the Current, No. 11, November-December 1987

The Editors

U.S. POLITICS APPEARS to be entering a new phase, one that could offer significant openings for workers, movements of the oppressed and the left. The reactionary steamroller, originating in the late 1970s and gathering momentum when Ronald Reagan assumed the presidency, has lost its steam.

As early as the Democratic victory in the 1986 congressional elections, the Reagan-powered right-wing juggernaut seemed to be losing its power to convince and intimidate. Since then, the administration and its far­right supporters have sustained a series of devastating blows: the Iran arms sales and Contragate revelations, the Bork defeat followed by the Ginsburg comedy, and the sharp reduction of European confidence in U.S. leadership. The stock-market crash of October 1987 delivered the knockout blow.

A slow economic rot was actually eroding the roots of Reagan’s authority from early 1986 on. For a long time, the business establishment and academic economists had ceased to give much credence to Reagan’s fantasies that tax reductions would bring increased federal revenue and that a constant rate of growth in the money supply would keep the economy forever inflation-free and on an even keel. Today, everyone has awakened to fears of a coming recession. The political confidence placed in the administration by business and the public is plummeting.

Definitive evidence that Reagan’s teflon coating had worn thin and his political clout irreversibly weakened was the defeat of Robert Bork, Reagan’s handpicked choice to entrench the power of the ultra-right on the Supreme Court.

While liberal groups mounted a well-organized campaign to stop Bork’s confirmation, there was nothing particularly novel or especially powerful about these efforts. They were led by the same forces whose traditional letter­writing and lobbying methods had failed so often and so miserably in the recent past. That was why many observers, including ourselves, mistakenly predicted Bork’s confirmation (“Letter From the Editors,” Against the Current #10).

In this case a new factor intervened. Fear of losing Black votes that had supplied their margins of victory induced a number of conservative Southern Democratic senators to vote against Bork. Yet warnings from the Black electorate had not prevented these same reactionaries from voting against Black and progressive social interests on countless occasions. The difference was that the previously effective counterthreats from the Reagan administration have lost their credibility.

There is little doubt that the Democratic Party is the first to gain from the Reagan administration’s decline and disarray. Nevertheless, there’ is very little likelihood that a Democratic victory in November 1988 would usher in a new period of liberalism. It is too soon forgotten that Jimmy Carter, not Ronald Reagan, initiated virtually every policy that today is misleadingly labelled “Reaganism.”

Thus the policies of accelerated support for the employers’ offensive, the huge step-up in military spending, intensified intervention in the Third World, and the policies of welfare for the rich in the form of tax breaks while austerity for everyone else, all began under Carter and have formed a largely bipartisan consensus.

But even if the Democrats adhered to a more liberal paper program and mouthed more progressive sentiments, they could in no way be expected actually to pass and implement policies which would help the tens of millions of working people and the poor who have seen their working and living conditions decay over the past decade or more.

This is true because of the nature of the current world economic crisis and the character of the restructuring of international capitalism that is accompanying it. Committed above all to the maintenance of stable capitalism, the Democrats are constrained first and foremost to ensuring the conditions for successful capital accumulation. In this period of economic crisis and capitalist restructuration, securing such conditions is incompatible with significant social reform at home or a non-interventionist policy abroad.

The Crisis of Profitability. The crash of October was perhaps less important for its immediate effects than for the point it brought home about the underlying condition of the world economy. During the late ’60s and early ’70s, the postwar boom ended. This was expressed, above all, in a serious fall in the rate of profit by fifty percent or more from its levels of the 1950s and early ’60s, and there has been no recovery in profitability since.

The low rate of profit is the fundamental source of the economy’s deepening instability, which has been reflected since the end of the ’60s in reduced rates of economic growth throughout the capitalist world, ever higher rates of unemployment in both upturns and downturns, and a succession of ever more serious recessions-1970, 1974-75, 1979-82-and generally more shallow upturns.

Under Reagan, the greatest splurge of debt creation (government and corporate) in U.S. history imparted an acceleration to the economy, disguising its basic weakness. With the Reagan upturn having reached unprecedented heights, a new downturn can be expected in the very near future. Yet, given the extraordinary indebtedness of massive sectors of the world economy — not just the Third World, but major sectors of the U.S.  economy — there is a serious threat that any recession, with its accompanying restriction of demand, might set off a chain reaction of bankruptcies that could plunge the system into depression.

Under the conditions of economic fragility that have prevailed since at least the recession of 1974-75, even mildly reform­minded social-democratic governments have found it difficult to introduce even slightly redistributive reforms without provoking investment reductions and capital flight. Every one of the social­democratic parties that have acceded to office since the early ’70s — in England, Sweden, Germany, Austria, France, Spain and Portugal-have shown themselves to be apostles of austerity.

Since the social-democratic parties are unwilling to challenge capitalist rules, they must be sure to protect profits first, for profits are the key to investment, and investment is the key to growth, employment, and government budgets. Any attack on profits, in a period such as this, risks economic contraction and all of its devastating political consequences. If such pro-capitalist programs are the norms for even the self-styled socialist patties of the world, what can we expect from the Democratic Party, which has never claimed any antipathy to capitalism?

The answer in brief is that the Democrats will run as the party of a balanced budget-a particularly sickening stance on the eve of possible severe recession, and at a time when drastic reductions in social expenditures have devastated Black America and the most vulnerable sectors of the population.

Capitalist Restructuring. Accompanying the capitalist crisis, and partly in response to the intensifying pressures on profitability, there has been a massive technical and geographical restructuring of the capitalist world economy. Perhaps most striking, sections of the Third World that were underdeveloped only relatively recently have experienced a massive and impressive industrialization, most notably the so-called East Asian gang of four — Korea, Taiwan, Singapore and Hong Kong — but also, if to a lesser degree, Brazil.

The necessary, if not the sufficient, condition for this massive switch in the location of a significant part of the world’s manufacturing has been ultra-cheap labor. Superexploited labor has been secured by the most repressive and authoritarian regimes. The advanced industrial countries have sunk hundreds of billions of dollars in investment funds, both loans and direct investments by the multinationals, in the developing countries. But they have not done so without great risk. The combination of highly exploited labor, rapid industrialization, and political repression is a recipe for social confrontation, as events in Chile, Portugal, South Africa, Iran and, most recently, Korea amply illustrate.

Given the huge financial commitment of U.S. and European capital in the newly developing countries, the United States — as world capitalism’s policeman — has no choice but to step up the level of its commitment to intervene, directly and indirectly, throughout the Third World. It must insure the survival of unstable authoritarian regimes, thereby providing the conditions for continued growth. The force driving U.S. imperialism is not the protection of the sources of raw materials but rather the protection of dynamic but unstable manufacturing in the developing economies.

Intervention in Central America illustrates the point. Stability there is crucial to the U.S. political establishment, not because the volume of U.S. investment in the region is huge, but because successful revolution could serve as an example to countries which are economically and politically indispensable-above all, Brazil, Mexico, Chile.

U.S. intervention with bipartisan support is escalating today even where the direct American economic stake is quite low-as in the case of the Iran-Iraq war. The most important reason for the presence of American warships in the Gulf appears to be a demonstration to its allies that the United States remains their military guarantor. Despite the stunning incoherence and even incompetence of Reagan’s Middle East policy — the loss of 241 Marines blown up in Beirut, the fiasco of the secret arms sale to Iran and the theft of sensitive U.S. intelligence by its closest ally, Israel — the basic message comes through. Despite its economic decline, U.S. military power remains crucial to the preservation of world capitalism.

No less committed than the Republicans to keeping an increasingly unstable capitalist world safe from revolution, the Democrats can be expected to pursue imperialist intervention as it becomes “necessary,” as it surely will. While the aggressively interventionist quality of U.S. behavior toward such diverse areas of the Third World as Central America, “the Middle East and the Philippines will not be altered, the U.S. military budget will be trimmed. And an arms control treaty as well as a possible new detente with the Soviet Union would certainly facilitate carrying out such cuts.

All this, it must be emphasized, in no way means that it is impossible today to achieve significant social reforms or to restrict U.S. aggression. It is simply that such goals can be achieved only through struggles from below by the broadest and most powerful social movements, movements that are, sooner rather than later, committed to doing what is necessary to defy the requirements of capitalist profitability.

The right-wing political offensive that set the agenda for political and intellectual elites for almost a decade has lost its power to intimidate and demoralize the forces of opposition. The Democratic Party, heavily implicated in the austerity drive, cannot be expected to initiate a new course. The degree to which working people and the oppressed can, with the help of the organized socialist left, take advantage of the divisions at the top and a less rigid political atmosphere to win significant gains will depend upon the their capacity to revive mass movements and impose reform from below.

One hopeful sign is that the crucially important movement against U.S. intervention in Central America seems to be resisting the usual election-year pressures to orient itself entirely to electioneering. If the anti-intervention movement carries a sustained mobilization of mass actions through 1988 it can expect infusions of support from the campuses, where students in large numbers are once again coming to see that the political options the system presents are morally unacceptable and that it is necessary to organize for change.

Clearly the place for socialists is at the grass roots, to organize from below in our workplaces, in our communities and in the social movements. It is important to re­ member that the great reforms of this century were not given to us by the Roosevelts, Kennedys and Johnsons, but were extracted from them in moments of social upheaval.

November-December 1987, ATC 11

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