#35 - Financial turmoil, single currency: trade war on the world market.

Nov 1997


The world's capitalist leaders have had their bluff called by the recent economic turmoil across the planet. Forget about the so-called "miracle" and the colossal growth rates in the "emerging markets" of the Third World. The myth of a new era of worldwide economic expansion is being exposed for what it is - a tale designed to conceal the increasing decay of the capitalist system. Even the real nature of the alleged "prosperity" of rich countries such as Britain and the USA is being put into question. Not least because the vast majority of the population of these countries has still to see any of this prosperity. But also because the recent financial turmoil underlines the fragile basis on which rests the soaring profit of the capitalist classes of these countries.

As to the attempts at reassurance and the confused excuses of the past weeks, these have only highlighted the inability of the world politicians and their army of well-paid economic "experts" to explain, let alone predict, the behaviour of their own profit-driven, blind system.

It all started back in July, when currencies began to slide down dangerously one after the other in south-east Asia. Then came a worldwide chain reaction on the world's stock markets. First Hong Kong was hit on October 23rd. Within three days, the slide spread to New York and then to the entire world. Another week, another catastrophe. The bankruptcy of Kia, the second largest South-Korean motor company was the first of a series of Korean industrial giants which was to go bust in the following days. Within another week came the turn of Japan's tenth largest bank, soon followed last week by the country's fourth largest investment group. In the meantime, the list of European and American companies announcing large-scale job cuts, on the basis of actual or predicted losses in their foreign operations, began to grow - from US giants like Citicorp and Kodak, to the Swiss-Swedish engineering multinational ABB and British glass manufacturer Pilkington.

Assessing the social consequences of these developments is impossible at this point - if only because no-one can say for sure whether the turmoil is over or whether there is still worse to come. But even before the long term impact becomes visible, the austerity measures adopted in the countries which have been most dramatically affected by the financial crisis - in south-east Asia, primarily - are already resulting in a sharp drop in the standard of living of hundreds of millions. In most of these countries, which are already poor by any standards, this means a drastic slide into deprivation, turning the clock back several years and possibly several decades.

As to the economic implications of these events, they are just as unpredictable as the capitalist system itself. One thing seems certain, however: this was not a mere stock market "blip", nor just a technical "financial readjustment", as many so-called "experts" have stubbornly maintained.

True, things may well appear that way to shareholders in the rich countries of the West. Indeed, they have lost nothing so far. In the City, New York, Frankfurt or Paris, the impact of the crisis on share prices hardly dented the gains made since January 1997 - which stand to reach over 25% by the end of the year, far more than the earnings of working people! In and of itself, this is probably enough to bring comfort and reassurance to most investors and economic "experts", whose main concern is short-term profits anyway.

Yet, the City of London is not the centre of the world. Nor do stock markets always provide a reliable index for the state of the real economy. Behind what appears today to be mainly a financial crisis, also lies a string of problems which had been affecting the production sphere in south-east Asia for some time already. Huge factories, shipyards and mills are set to close down, some of which are so new that they had not even produced anything yet. But the debt mountain, which is forcing them to go bust today, goes back long before the present crisis, owing to their growing difficulties to find buyers for their products. And, as the industrial economy of south-east Asia developed, relatively recently, to serve the world market as a whole, and particularly the needs of the rich industrialised economies, production problems in that region, reflect, necessarily, production problems right across the world economy.

Nor can these events be reduced to a mere "regional problem", which would be specific to south-east Asia. One of the features of the financial market is the speed and ease with which enormous amounts of capital flow constantly around the world. No part of the world financial system can be protected from the flow of "floating" capital. Its extreme fluidity means that the system itself can, potentially, spread its local diseases to the whole body. A graphic illustration of this was given by the chain reaction which affected stock markets across the world in October. What happened then may happen again at any time, tomorrow or the day after, possibly with much more drastic consequences this time.

Today's buzzword for politicians and their experts is that the capitalist system's "fundamentals" are healthy, and that we are neither back to the stock market crash of 1987, nor of course threatened by another worldwide collapse like that of the 1930s. Maybe so, for the time being. But who can be sure? In any case, behind the official optimism, the fundamental contradictions of capitalism which caused the Depression of the 1930s remain as present as ever, only today they are potentially even more destructive than they were then.

All attempts by capitalism to regulate itself are doomed to fail eventually by the very nature of this system. Despite all the international bodies, world treaties and regional agreements, which have mushroomed over the past decades in order to, allegedly, tame the world market beast, the capitalist system remains governed by the law of the jungle. First and foremost it turns the economy into a battlefield at every level of its operation - from the competition for profits between individual capitalists gambling on shares or companies trying to sell their products, to the outright war for markets waged by entire capitalist classes, using all the resources of their national states.

Since the end of the relative stability of the postwar period and the return of capitalism to a state of permanent crisis in the 1970s, the bitterness of this economic warfare has constantly increased. The recurrent ups-and-downs of the world economy over the past decades, express this state of permanent crisis. Just as the so-called "globalisation" of the economy, in other words the intensification of the exploitation of the world by the imperialist bourgeoisies, is also an expression of this increasingly ruthless economic warfare. The former cannot be dissociated from the latter.

Whether it be the blossoming of "emerging markets", the drastic economic liberalisation imposed by the richest powers on their poorer trade partners, the consolidation of trade blocks or the slow process towards European integration and the single currency; what drives the capitalist system to rationalise or simply organise itself, is merely the pressure of the crisis and the requirements of the on-going economic warfare between the world's richest capitalist classes.

The crash that was never to happen again

During the run-up to the 10th anniversary of "Black Monday", 19 October 1987, every newspaper carried lengthy articles explaining that 1997 could not possibly see a re-run of the 1987 stock market crash. Conditions had changed, they said. All over the world, and particularly in Wall Street, regulations and anti-panic procedures had since been put into operation. And besides, weren't the "fundamentals" of the industrialised countries "very strong", as Rubin, the American Treasury secretary kept repeating to the press?

When, however, the Wall Street share index plunged on October 27th, losing over 7% in just one day's trading, Clinton immediately stepped in to calm shareholders' fears, blaming the temporary unruly behaviour of the south-east Asian economy. Later that week, after almost every stock exchange in the world had caught the disease, the British business newspaper, the Financial Times commented reassuringly: "Nobody ... needs to become agitated about what is still so modest a correction. This would be true even if markets were to fall further."

On October 30th, the head of the US Federal Reserve Bank, Alan Greenspan, gave his seal of approval to what was now becoming the official line, declaring soothingly to the Congress Economics Committee: "It is quite conceivable that a few years' hence we will look back at this episode as we now look back at the 1987 crash as a salutary event." The myth of the stock market "blip" was born.

However, leaving aside the share markets' on-going rise throughout the year, if this is a "blip", it is a costly one. Altogether, between last summer's peak and the last week of November, the world's six largest stock exchanges - New York, Tokyo, London, Frankfurt, Paris and Hong Kong, which account between them for over 80% of the world's shares in value - dropped by between 6% for New York and 36.5% for Hong Kong. This means that over $1500bn melted away in the turmoil - the equivalent of three times this year's government expenditure in Britain or the value of last year's entire annual production in France. Admittedly this fall is significantly lower in relative terms than in 1987. But the fact remains that at this stage, the losses incurred on paper are already larger in cash terms than in 1987.

Risky gambling on inflated profits

Not all commentators agreed with the official "blip" story, however. Already before the crash, there were a few dissenting voices. They pointed to a series of facts which they described as worrying.

Since 1987, share values have been rising almost continuously, with only a brief drop in 1990. This was the longest uninterrupted rise ever recorded in history. The Wall Street share index, for instance, increased nearly five-fold compared to the low point following the 1987 crash and nearly four-fold compared to its pre-crash high point. The almost three-fold rise in London was, relatively speaking, more modest. But still, weren't shares vastly overvalued? Wasn't this seeming unending rise bound to be brutally stopped at some stage? And these questions were not idle speculation, since already on August 15th, Wall Street had registered its largest one-day drop since 1987.

One feature of share-pricing reflects a telling aspect of today's alleged buoyancy of the world economy. Take a British Telecom share, for instance. It is merely a piece of paper, which represents a fraction of BT's present assets. However this is not the way it is seen by investors who are only interested in profits. They see this share primarily as representing a fraction of BT's profits. And if the general expectation is that of a regular rise of profits, they will be prepared to pay more for this share than the actual value of the assets it represents, in anticipation of the company's larger future profits.

This kind of anticipation has always more or less existed, depending on investors' optimism. But over the past decade their optimism has reached unprecedented levels, to the point where Alan Greenspan described it, in December last year, as "irrational exuberance". Before the recent crash, in Wall Street for instance, the price of a share was equivalent on average to 22 times the corresponding fraction of current annual profits. This compared with 17 times in 1987 and just 8 times at the lowest point of the 1980 recession. In other words shareholders are anticipating today a much faster profit growth than in 1987. But to what extent is their anticipation rooted in the reality of what the economy can actually deliver?

In late October, an editorial of the Financial Times offered a stark answer to this question: "Economies that grow at 2-3 percent a year", it said, "cannot increase profits at 10% a year indefinitely." A few days later, a columnist in the same paper added: "Some argue that the US economy can sustain faster growth than before. Correspondingly, prospects for profits are improved. Yet growth in US underlying productivity has been considerably lower than in the 1960s - a comparable period of sustained expansion and high stock markets. Moreover the rise in corporate earnings reflects not fast growth, but a recovery in the share of profits in gross domestic product." And the writer went on to predict another inevitable deep drop in share prices before the system could be considered back to normal.

The Financial Times can hardly be accused of being critical of the capitalist class and its system. Yet it was forced to admit to the narrow limitations of the present so-called "recovery" in the USA - although it cautiously refrained from applying its findings to Britain, despite the fact that the picture is exactly the same here, and in fact in all the rich countries.

The fact is, that over the past decades, capitalist profits have increased considerably. But this has not been the result of an expansion of the economy, neither locally nor worldwide. On the contrary, manufacturing production has been stopped and factories closed whenever the profits generated were not considered high enough. Investment have been limited to the bare bones, enough to maintain and renew the existing production base, but not to expand it. In the production sphere, profit growth has been achieved partly through savings due to rationalisation, but above all through the increased exploitation of workers.

This is why the announcement of large-scale redundancies by a company almost invariably results in the boosting of its share prices. Or, on the contrary, a drop in US unemployment figures usually triggers a fall of the Wall Street share index. This seems absurd to anyone with a sane mind, but it is entirely consistent with the logic of this ageing, crisis-ridden capitalist system, and the constant anticipation of future profits by stock markets.

Yet there are limits to the growth that profits can achieve without increasing the scale of production. In particular, there are limits to the exploitation the capitalists can impose on workers. Therefore, with time, gambling endlessly on rising profits can only become an increasingly risky business.

From the stock market bubble...

Of course, another cause for the present overvaluation of stock markets, and the general instability of the financial market, is the sheer volume of capital seeking an opportunity to make a quick buck.

One of the features of the past decades of crisis has been the growing reluctance of the bourgeoisies to invest their capital in production for any length of time. Despite the official rhetoric, there is one thing that every capitalist knows - that they cannot really trust their own system. And they are not prepared to risk their own money, in any case not without the promise of high and quick returns and the guarantee that they will be able to withdraw their funds whenever they wish to. This is precisely what the financial market offers them.

On the other hand the economy needs a constant flow of capital in order to keep production going. Companies raise funds using various mechanisms - mainly bank loans and share or bond issues. By issuing shares on the financial market, they scatter the ownership of their assets, the entitlement to their profits and the right to control their operations among large numbers of shareholders. Bonds, on the other hand, are interest-bearing IOUs which can be bought and sold like shares.

Private companies are not the only borrowers on the financial market, of course. Over the past decades, governments have increased enormously their direct and indirect subsidies to the rich, thereby generating huge public debts which are financed through issuing government bonds on the financial market. Likewise public corporations, such as local authorities for instance, raise temporary and long-term funding through similar means.

This growing demand for funds is met on the financial market by individual investors, companies which are seeking to lend whatever available cash they may have rather than leaving it in the bank, and the so-called "institutionals" which are large businesses managing huge amounts of capital put in their custody. These latter include pension funds, banks, insurance companies, building societies and all kinds of investment funds acting on behalf of individual investors.

Over the past decade, the financial market has adapted to the general reluctance for long-term commitments, by providing profit incentives for short-term purely speculative investment (which can be as short-lived as just a few hours) while using modern technology to increase the speed with which funds can move from one investment to another, or one location to another, in order to match the demand for capital. At the same time, regulations that had so far prevented many companies as well as smaller investors from entering the financial market directly, were scrapped. All these changes were achieved through a worldwide financial deregulation which started in the mid-1980s - in Britain this took place in 1986, under the name of "Big Bang".

This deregulation has resulted in a tremendous increase in activity in the financial market worldwide, with a parallel increase in the total amount of capital available for investment, thereby allowing shares and bonds to be used by companies and governments on a much larger scale than ever before.

Thus, over the past ten years, the total value of shares worldwide has increased four times faster than the production of the rich countries, thereby reflecting both the on-going rise of share prices and the massive issue of new shares. For the first time in history, the expansion of shares in certain countries has reached the point where the total value of the shares traded on their stock markets exceeds that of their national production - among the rich countries, such is the case for the USA, Britain, Sweden and Switzerland.

... To the casino economy

The trading of shares, which is almost as old as capitalism, already introduced a divorce between the capitalists and the sphere of production itself. For share owners, the only thing that matters is the profit which they can get out of their shares - either through the dividends they earn or the price for which they can sell them. They do not have to concern themselves with the nature of the production behind the shares, let alone the living conditions of the workers who produce their value. The act of buying and selling shares amounts to a mere bet on their potential to produce abstract profit.

However, the size reached by the world's trade in shares, indicative as it may be, is only the tip of the financial iceberg. And the rest of the iceberg is just as focused on the search for abstract profit, in other words gambling, or to use a more conventional language, speculation.

Currencies, for instance, are traded in a separate specialised currency market. This year has been a relatively bad year in terms of currency trade volumes. Yet the average world daily turnover in currencies has been around £600bn, or twice Britain's annual budget everyday! Needless to say, only a small proportion of the currencies traded are needed for international trade. The vast majority of currency deals are purely speculative.

And there are many other separate markets, specialising in the trade of bonds, or the trade of particular commodities, etc..

However, to make the financial market even more attractive to capital, and therefore increase the volume of capital available, its gambling nature has been expanded far beyond the level of traditional speculation. Today, with the use of mechanisms called "derivatives", one can gamble on just about anything having to do with economics. Just as anyone can enter a betting shop to put money on a horse or a football team, financial operators can use derivatives to bet on a future increase of the Deutschmark, on a rise of interest rates in Ireland, on a drop in the price of robusta coffee beans or even on an increase of the FTSE-100 index, the index measuring the price of shares for the one hundred largest companies quoted in the City of London.

Moreover, in order to increase the size of bets, and therefore their potential to generate profits, financial deregulation has reduced the amount of money that gamblers have to lay down in order to play, so that the deposit required for a derivative bet can be as low as 10% of its actual value. The gains can be huge, but so can the losses, as was shown by a series of financial scandals which hit leading British banks such as Barings and NatWest over recent years. But such risks have not prevented a tremendous increase of the derivatives business. Over the past ten years their total annual value has increased almost twenty-fold, reaching a meaninglessly large figure - the equivalent of over three times the total annual production of the entire planet!

If stock, bond and currency markets are fundamentally focused on speculation, at least they deal with instruments which have some sort of physical existence. Not so for derivatives. A large part of derivative bets are based, for instance, on abstract economic indices. They are bets in the most speculative sense, unrelated to any kind of actual material value. But this does not mean that they have no economic influence. For instance, economists often use the current state of derivative bets on interest rates or share indices to "predict" the future behaviour of the economy. They even produce dozens of treaties every year, full of sophisticated mathematical equations, which makes it all look very scientific. Yet, at the end of the day, all this "science" is based on gamblers' bets! And these are the sort of scientific predictions on which governments base their economic budgets, including austerity measures which may affect millions of people at a stroke.

The merry-go-round of floating capital

It is impossible to measure precisely the masses of floating capital which operate today in the financial market worldwide, if only because they are constantly moving across the world and deregulation means that their movements are not closely monitored - not that this would not be possible, specially with the introduction of computerised trading systems, but this would be considered as an infringement on the free circulation of capital by capitalists and governments alike.

However, a recent survey published by the American bank Citibank give an idea of the total wealth of individual investors. It estimates that 2.2 million households worldwide are concerned with serious investment in the financial market. These are not the ordinary punter. Their assets are typically above £1.8m and, between them, they control over £10,000bn. Roughly half of this total is invested one way or another in financial institutions located abroad - in order to keep their money away from the investigative eye of the taxman. And these institutions take care of ensuring that the deposits in their custody produce the high profits expected from them through financial speculation.

In general, such fund managers, including the "institutionals" mentioned earlier, play an increasing role in the world financial market. For instance, the world's largest fund manager, an American company called Fidelity Investments, has £315bn to play with - that is more than Gordon Brown in his annual budget. Between them, the world's ten largest fund managers, which includes Barclays' investment arm, control over £2200bn, that is, more than the total value of all the shares quoted in London. In fact, it is commonly estimated that the vast majority of the shares quoted in the City are actually controlled by just ten fund managers.

This also means that each one of the relatively small number of large international fund managers has enormous financial resources at his disposal, much larger than that of most of the world's smaller states. Each of them, could if he chose to, impose an upswing or, on the contrary, a downswing on any of the world's stock markets and currencies, except mqybe those of the richest countries. Why would a fund manager make such a move? Certainly not because it is in the interest of the world economy as a whole, but solely if it fits his objective to get the highest possible short-term return for the funds he manages. These individuals could not care less about the economic, let alone social consequences of their moves on the ground. This, in itself, represents a permanent threat hanging over local economies worldwide.

The mass of speculative capital which floats constantly around the world in search of the best possible return, can therefore be measured in thousands of billions of pounds. The fact that such a huge mass of floating capital exists at all, instead of being invested on a long-term basis in the production sphere, is in itself a reflection of the underlying crisis of the capitalist system. At the same time, the fact that these masses of floating capital are in a position to withdraw from any market, almost instantly, as soon as the slightest sign of danger appears, is the main factor behind the instability of the world financial market.

A relatively benign economic hiccup in one country can be amplified out of proportion by the masses of floating capital. At first, they try to make quick profits by gambling on a possible collapse, thereby accelerating or even provoking this collapse. When this happens, the floating funds suddenly pull out, thereby depriving the local economy of a vital source of fresh money while pushing the local currency down. The result is likely to be bankruptcy for the country and even possibly, for other related economies.

Such catastrophic developments are not merely theoretical possibilities. They do happen. In December 1994, for instance, the Mexican crisis was triggered by massive speculation against the Mexican peso by floating capital - in particular US private pension and investment funds. When the government was forced to devalue the Mexican peso by 15%, fund managers pulled out in a panic, pushing the peso further down. As a large part of the country's public and private debt was in US dollars, in a matter of a few days it was faced with an enormously inflated debt mountain compared to the country's wealth. In the end Mexico's bankruptcy was only avoided when Clinton put together an emergency loan package worth $50bn, in order to protect American lenders who would otherwise have been theatened with bankruptcy had Mexico really gone bust.

The crisis in south-east Asia

In most respects, the crisis in south-east Asia followed exactly the same pattern as that in Mexico three years ago.

From mid-May this year, signs of growing problems affecting the region's industries prompted a sudden speculative run on the baht - the national currency of Thailand - while fund managers started pulling out of the country and hastily selling the bonds and shares they held. When the Thai government was eventually forced to devalue its currency in July, this triggered a similar flight of floating capital across the whole region, thereby creating a domino effect.

There was a wave of currency devaluations, first in the region's weakest countries, and eventually, in November, in one of the strongest, South Korea. By that time, the national currencies of Thailand, Indonesia, Malaysia and the Philippines had already registered falls of around 30% or more against the US dollar, while the fall was between 10 and 16% in the richer Singapore, Taiwan and South Korea. At the same time the stock markets of these countries experienced a drastic collapse, with share prices dropping by more than 40% in Malaysia, Thailand, South Korea and the Philippines, over 25% in Singapore and Thailand, and even in Hong Kong, by 36%.

In most cases, the IMF has now stepped in to provide emergency relief loans in order to make up for the sudden shortage of floating capital and the refusal of western banks to provide any loans without the guarantee of international financial institutions. One after the other, the Philippines, Thailand, Indonesia and now South Korea, have been forced to accept not just the loans of the IMF but also the strings attached to them.

And yet, while these strings involve drastic austerity measures which will reduce substantially the standard of living of the population, the IMF's so-called relief loans will serve primarily to allow these countries to pay the interest on their debt to foreign investors and banks. In actual fact, the IMF's funds will only end up lining the pockets of the capitalist class of the imperialist countries. But then this is precisely what the primary role of the IMF has always been - to protect imperialist interests in the Third World.

The combined impact of the austerity measures imposed by the IMF and that of the financial collapse can already be felt. The collapse of the local currencies, combined with the IMF's diktat to end food subsidies, has already pushed the price of staple foods up. The regional press reported, for instance, a 40% increase in the price of rice and cooking oil in Indonesia, and a general 25% drop in the living standard of the population in the Philippines.

Foreign companies are beginning to pull out, like Japan's Sumitomo Industries which has postponed indefinitely the completion of a large brake-pad factory in Thailand, while Toyota has closed down its two car assembly-plants in the suburbs of the capital, until the end of the year for the time being, but possibly forever.

In the local industries the sector most affected everywhere is the building trade, because it is heavily dependent on large loans (or state funding financed by such loans) until the properties are completed and sold or rented out, or on state funding. Thus, in September, the Indonesian government postponed a series of public works programmes, including the development of sewage systems, worth a total £7bn. A few weeks later the Indonesian construction business organisation reported 150,000 lay-offs in the capital alone. The situation was similar in Thailand where 60,000 building workers had lost their jobs, together with 40,000 clerical workers previously employed in financial services. Many factories, which used to do subcontracting work for foreign multinationals, depended heavily on imported parts, components and machinery. Due to the currency crisis they can no longer afford to buy these imported elements and are forced into bankruptcy. This is particularly true of the pharmaceutical and electronics industries. In the meantime, many medium and small factory owners who still had some cash reserves, have chosen to close down their factories in order to benefit from the high interest offered on bank deposits, rather than risk their cash in raw materials for products that they are no longer certain to sell.

At the same time, many of the so-called "liberalisation" measures imposed by the IMF are designed to remove the tariff barriers and regulations which protected these countries' local industries and agriculture against foreign competition. Sooner or later, these measures will inevitably mean further closures in the local industry and bankruptcy for entire sections of the peasantry who will be unable to compete with cheap foreign imports.

What happened to the "Asian Tigers"?

So what actually happened to these countries which, collectively, formed the so-called "Asian tigers", so often quoted as the living proof of the new strength of the world capitalist economy?

First it must be recalled that there was nothing "miraculous" in the industrialisation of south-east Asia. Nor was it a reflection of the wonders that markets forces are supposed to be able to produce. The richest "Tigers" were only able to build their relative affluence thanks to initial exceptional circumstances due either to the war chests they had inherited from the Cold War - like Taiwan and South Korea - or to their role as financial and trading counters for imperialist multinationals - like the town-states of Singapore and Hong Kong. Their industrialisation was primarily the result of a determined policy on the part of their dictatorial states to devote all available funds to this purpose, both raised locally and borrowed abroad, and to use every means at their disposal to protect their fledgling local industry against foreign competition.

It was only later on, once industrialisation had taken off the ground, that multinationals - mostly Japanese - under the pressure of the increasing competition caused by the capitalist crisis on the world market, chose to reduce their production costs by subcontracting non-skilled work to these countries. This subsequently spread to the lesser "Tigers", namely Thailand, Malaysia, Indonesia and the Philippines. But even then, the imperialist multinationals kept their productive investment in these countries to relatively low levels. The construction of ready-made subcontracting facilities was mostly financed, initially at least, by loans provided by Japanese and American banks to the local state banks, which then offered low-cost loans to the local would-be subcontractors.

This industrial "success story" proved to be short-lived. In November 1996, the Financial Times featured an article entitled "Asian miracle takes a break: many of the tigers have begun to look like pussycats". Its author, columnist Barry Riley, pointed to the disappointing performance of local stock markets. This, wrote Riley, resulted from "a sharp slowdown in the economic growth rate of the export-led Asian economies. GDP growth in the region was typically 8 or 9% during the previous two boom years, but it has slipped to about 5% in 1996." And the reason for this, said Riley, was a much reduced export growth as "depressed Japan and continental Europe have been poor customers (..) In fact there appears to be a general over-capacity problem". And Riley concluded by saying that "south-east Asia has become a strongly cyclical region depending for its economic health on strong world growth".

This problem of productive over-capacity was already illustrated that year by the fall in Korean exports. This fall was primarily due to the situation in the semi-conductor market, which represented 18% of its exports the previous year. In 1996, international semi-conductor prices dropped by 70%, partly because of a decrease in world demand, and partly because of a more aggressive pricing policy on the part of the American and Japanese electronics giants. As a result Korean semi-conductor sales went down drastically.

However, South-Korea's response was to increase the scale of its production facilities in a desperate attempt to cut production costs further, assigning $8bn to build new memory-chip plants. The worldwide demand for memory-chips is limited however. US and Japanese chip manufacturers have consolidated their hold on the markets they took over last year, and South-Korea's attempt has been a complete failure so far. The only thing this attempt achieved was to increase the country's over-capacity and the indebtedness of electronics companies - all the more so as most of the sophisticated machines required for these new plants had to be imported from Japan. And now, not only are these new plants going to remain idle, but some of the old ones are going to be closed down due to low orders.

In other words, after only a few years of relatively spectacular growth, the "Tigers" have come up against the old chronic problem of the imperialist market, and the cause of the on-going world crisis of the past two decades - namely the incapacity of capitalism to match production to actual solvent demand. Moreover, their economic development is, at the end of the day, totally dependent on growing demand - and therefore economic growth - in the imperialist countries, which has failed to materialise.

This fundamental problem faced by the south-east Asian economies is compounded by another one. In the early 90s, massive amount of floating capital began to flow towards the south-east Asian so-called "emerging markets", following a major stock market crash in Japan. American, Japanese and European finance firms began to set up special south-east Asian investment funds - meaning speculative funds specifically designed to attract investors who were tempted by the media coverage of the Tigers' growth. Soon there was an over-abundance of floating capital looking for borrowers.

This led to the development of a huge stock market bubble across south-east Asia. The poorer the country, the keener it was to eliminate regulations so as to attract more funds, and the more inflated became its stock market. Thus for instance, before the currency crisis started this year, the total value of shares quoted in the Philippines was already larger than the value of its annual production. Malaysia, however, probably deserves a mention in the Guinness book of records, with total shares equivalent to over 3.5 times its national production! And it was not just shares which were affected by this bubble syndrome. Credit and money supply increased too, in enormous proportions, much faster than production and exports.

But what material activity did all these shares and credit actually represent? According to most commentators here, this huge financial bubble was a sign of growing success and impending prosperity, because, as they said, it only reflected the strength of the Tigers' industrial growth. But did it?

It seems that Hong Kong commentators were not convinced, judging by this terse comment published in the Hong Kong weekly Far Eastern Economic Review in the week preceding the first big drop of the territory's stock market: "Tear up the story of an Asian miracle fuelled by an endless flow of funds. Instead write one about the illusion of endless growth and ever-expanding corporate profits fuelled by and endless flow of cheap funds.". A few days later, Financial Times columnist Barry Riley was drawing an even more precise picture of the situation in south-east Asia, following the first shockwave in the stock markets: "Suddenly, money has tightened, bringing an end to the rosy years when the real money supply in Asia was growing at 15 to 20% annually, much faster than the credit could be absorbed by the real economy; the excess served to fuel the boom in equities and real estate."

Indeed, by October this year, in Hong Kong, Thailand and Korea, for every pound of value produced (including services), £1.50 was owed to a finance institution. In all three countries, between 40% and 50% of outstanding credit and an even higher proportion of shares were in the housing and business property sector. Worse, in the first half of the year, the fastest growing type of loans was to brokers. In other words, not only was the financial bubble fuelled by property speculation rather than production and exports, but a fast-growing proportion of borrowers were merely financial gamblers.

Korea is, in some respects, a specific case in that it has a comparatively small stock market, but overall indebtedness has reached enormous proportions, particularly among the chaebols, the country's giant industrial groups. This year saw the collapse of several of these chaebols, all of them for the same reason - their debts had risen to such a level that they could no longer find new lenders to allow them to repay their old loans. For instance the food and retail group Hatai, the country's 24th largest company, collapsed under the weight of debts for which it had to pay annual interest representing the equivalent of 15 times its 1996 net profits. Already, just for the half-a-dozen chaebols which have been allowed to file for bankruptcy since October, Korean banks will have to write off a total £19bn-worth of loans. Needless to say, Korean companies are now finding that the cost of new loans, assuming they can find a lender, has become prohibitive. Which is why all the plans they had to build factories in Britain - like the large electronics plant planned by Lucky Goldstar in Wales or the heavy equipment factory already started by Samsung in Yorkshire - are now cancelled, as well as many others across the world.

To sum all this up, the crisis in south-east Asia is primarily rooted in the fundamental chaotic nature of the world market. The region's industry developed primarily to serve the needs of the rich industrialised countries and it is now collapsing partly because of the stagnation of the world market and partly because of the increasingly aggressive competition of imperialist multinationals determined to control a larger share of this market.

But the sick irony of the situation is that the main factor in developing the financial bubble in south-east Asia, thereby providing an illusion of prosperity and fast economic development, is also the main factor which is now threatening to bring the region's economy to a standstill, if not to its knees. That is, the merry-go-round of floating capital, which was so keen yesterday to provide south-east Asia with finances for just about any project, and is now fleeing the region after having made a last quick buck by pushing its financial markets into a black hole.

Innocent and impotent imperialist powers?

The present economic disorders, and their drastic social and human consequences, must therefore be blamed squarely on the erratic nature of the world capitalist market - that is on the incapacity of the capitalist system to match harmoniously the production of commodities to actual needs and on the blind forces which weigh continuously on the real economy through the abstract operation of the financial market. But this does not mean that there is no-one to blame and no responsibilities involved.

Some commentators and politicians are now laying the blame solely on speculators whom they accuse of having destroyed a "dream of prosperity" with their reckless greed. They include a whole range of opinion, from some of Britain's liberal economists to south-east Asian politicians such as Mahathir Muhammad, the outspoken and rather demagogic prime minister of Malaysia.

Others, like the Financial Times, are quick to retort that "the victims are not completely innocent. Much of the region is guilty of over-borrowing, over-investment and crony-capitalism(..) This is not to pretend that financial markets are entirely rational; they have a capacity to exaggerate both the good news and the bad. But then they are not completely irrational either (...) Until Asian leaders realise they bear some responsibility for the crisis, they are unlikely to take the necessary corrective steps".

To talk about the victims of this crisis being guilty of crony-capitalism certainly exposes the utter social contempt of this business paper for the real victims - that is for the hundreds of millions of anonymous south-east Asian poor, who never had a say in the policies of their rulers, never gained anything out of the region's relative prosperity that the Financial Times used to hail with such vigour not so long ago, and yet stand to bear the brunt of the consequences of the collapse. Of course, Financial Times columnists cannot even conceive of the existence of these real-world victims. What would they know about south-east Asia outside the lobbies of its expensive hotels and conference centres?

Both lines of argument are certainly right to point at the responsibilities of the speculators and that of the regional capitalist classes. However, both are equally flawed, in that they consciously leave the main culprits scot-free - the imperialist powers.

To present these imperialist powers as innocent and impotent victims of the financial markets - which is what both of the previous arguments imply - is simply ludicrous. It is ignoring the conscious role played by the imperialist states in creating the conditions for the financial bubble to develop in south-east Asia as well as in the imperialist strongholds. It is dismissing their role in tightening the screw of competition on the region's economies. And finally, it is concealing the way in which they are now using the south-east Asian collapse to strengthen the grip of the imperialist bourgeoisies over the region and its population.

Liberalisation, deregulation and imperialist interests

The American press, which is usually just a bit more cynical and less hypocritical than its British counterpart, printed some enlighting comments after the beginning of the crash. The chief executive of a leading investment firm was for instance quoted by the Washington Post explaining that "the disequilibrium in south-east Asia is very positive for continued moderate inflation in the US" while another financial heavyweight added in the same issue of this paper that "ultimately the effect for US markets is a positive one. Asia is one of the two motors of world growth. That motor just shut down. And we're the other". Leaving aside the content of these comments, which are obviously designed to reassure the American middle-class, what is significant about them is their common cynical flattering of imperialist prejudices and American supremacism. The rest of the world could well starve to death, if only this could bring some pep to US markets! And the present crisis is an illustration of this.

Financial deregulation, for instance, was not a south-east Asian invention. It was initiated and actively promoted by the imperialist powers. It was eventually imposed by them on the Third World, often against the will of the regimes and always despite raising the suspicion of the populations.

In relation to poor countries, world imperialism had additional reasons to impose financial deregulation. The imperialist powers wanted to avoid a repetition of the Third World debt crisis which had shaken the world's banking system in the early 1980s. But they did not want to lose the possibility of using the poor countries' indebtedness as a means to extort fat profits from them.

Deregulation offered much more flexibility in lending practices, forcing the poor countries to resort increasingly to short-term loans - at a significantly higher price, of course. The advantage was that the funds needed could then be provided not just by banks but also by the whole range of financial players, including the huge investment funds, which had previously been prevented from taking part in this game. In this way, the risks were reduced in time span while being spread much more widely. The banking system, the spearhead of imperialist domination over the world, was thus protected - at the cost, of course, of imposing the inherent instability of financial markets on poor countries which certainly could have done without that additional burden.

Out of this policy of financial deregulation in the poor countries rose the legend of the "emerging markets". These days, no part of the Third World is spared. Even sub-Saharan Africa has now been promoted to the rank of "emerging market", complete with fully-equipped stock exchanges and... £25bn worth of shares - which will no doubt be a cause of great pride for the starving population of Sudan and Mali and the war refugees of Rwanda and Zaire!

But the imperialist powers also wanted to get rid of other obstacles to their looting of poor countries. For instance, the tariff and custom barriers which protect their industries, or the food subsidies which shield their agricultrure while providing the poor masses with affordable food staples. Also, in many poor countries it is the state itself which provides most investment while running industries, banks, transport and utilities, thereby creating an additional obstacle against the penetration of imperialist capital.

So, together with financial deregulation, the watchword of the imperialist powers became that of economic liberalisation - which was craftily linked, for the benefit of public opinion of the rich countries, to political liberalisation and human rights. The world market was to become a "free" market, in which everyone would have full access to any goods, markets or capital. And this, it was implied, would be the first step towards a freer and more affluent society for the populations too.

Of course, the reality is somewhat different. Despite the increasing numbers of international trade negotiations, and the setting up of the World Trade Organisation in January 1995, the international market is in no way "free", or rather it is more "free" for some than for others. Investment funds originating from the main imperialist powers have set up shop in just about every countries in the world. But in Wall Street, it would be difficult to find many fund managers coming from Central Africa. It is not that they would be banned from operating in Wall Street. It is just that there is not enough money in most central African countries to finance a sizeable investment fund. This "free" market simply means the freedom for imperialist companies to treat every poor country as their own backyard.

To impose the law of their "free" market the imperialist powers have all-powerful weapons. The main one is the International Monetary Fund which, since the 1980s, has been imposing reforms and austerity plans on poor countries as a precondition for any help with their debt, forcing them to give up any control on their foreign trade, privatise their state-owned industries and squeeze even further their impoverished populations.

In many poor countries, the tiny bourgeoisies which live in the shadow of the ruling dictatorships have been happy to oblige, hoping to gain some crumbs for themselves in the process. In others, usually because they were less poor, the regimes have proved more stubborn in their resistance. Such is the case in particular of most countries in south-east Asia. They have gone along with some of the reforms which were demanded from them, but not all, thereby retaining a larger measure of control over their economy. And the imperialist powers have tolerated this situation, because they could draw some benefit from it for the time being, while waiting for a more favourable opportunity.

Today it seems that this favourable opportunity has arrived with the collapse of the region's financial system. The "rescue packages" granted by the IMF to several countries in the region all include compulsory measures designed to make them more accessible to imperialist finance and trade. This is precisely the reason why the South-Korean leaders were so reluctant to turn to the IMF for help - and not due to some nationalist bloody-mindedness, as was claimed by the press here. It was only after both the USA and Japan had turned down their request for an emergency loan that the South-Korean government turned reluctantly to the IMF, in the full knowledge that they would face an impossible task in trying to contain the voracious appetite of the imperialist agency.

In the end, having paved the way for the region's present economic problems, the imperialist vultures have managed to turn the situation to their own advantage. Not only will they benefit from the devaluation of the local currencies, which will make their subcontractors cheaper, but in addition they will have succeeded in breaking some of the remaining resistance to their domination.

Warfare between competing powers

Not only is the world market not "free", but it is a place of permanent confrontation between competing powers.

The American leaders, who are also the main promoters of the World Trade Organisation, quite openly declare that they will only accept the rules of this organisation provided these do not go against their economic interests. US foreign policy is nothing but an auxiliary for the economic strategies of the big American corporations. To talk of "free" trade in the on-going economic war between American and Japanese imperialism, for instance, would be a joke - as the domestic and foreign leverages of both states are actively used to defend the rival interests of their respective capitalists.

South-east Asia provides a graphic illustration of this economic war between American and Japanese imperialism. For obvious geographical, historical and economic reasons, the whole region has very strong ties with Japan. Japanese companies have by far the largest share of foreign investment and trade in the region and Japanese banks are its largest lenders, with over 40% of its total debt.

The USA, on the other hand, have a long history of colonial presence in the region, dating back to 1898, when following the Spanish-US war, Spain ceded the Philippines to the USA. Until World War II, the USA and Japan coexisted in the region on the basis of a territorial division which accommodated the Japanese occupation of Korea, Taiwan and parts of China.

Since the 1970s, however, with the emergence of Japan as the USA's main industrial rival and the resulting increased competition between the two powers, south-east Asia has been the scene of on-going frictions between them. From the Cold War period, the USA retained privileged ties with Korea and Taiwan, which enjoyed the privilege of tariff-free access to the US market. This led American companies to take the step of subcontracting the cheaper low-range of their production to these countries, thereby reducing costs.

As the American banks also had the upper hand in both countries, Japanese companies concentrated on providing transportation for the flow of goods travelling between the region and the USA and supplying the fledgling economy with machinery, semi-finished products and technology. Since Japanese products were prevented from entering the US market by high tariffs, Korean VCR's and Taiwanese home-computers did it for them, using Japanese technology and equipment.

To a large extent, this regional division of labour suited the American capitalists as long as they retained overall control. In 1967, to consolidate its hold on the rest of the region and pre-empt Japan's attempt at raising its profile, the USA inspired the setting up of ASEAN, the Association of South-East Asian Nations, which brought together Malaysia, Singapore, the tiny oil-rich state of Brunei, Indonesia, the Philippines and Thailand.

This so-called independent regional grouping was in fact a Trojan horse for US businesses. And it proved so effective that by the early 1990s, when Japanese banks had already taken over the leading role from American banks in Korea and Taiwan, the ASEAN countries were still largely controlled by US capital, albeit again with Japan playing the role of the main supplier of industrial equipment and technology. Already, however, there were dissenting voices within ASEAN, with Malaysia in particular arguing vocally for its transformation into a trading block with Japan. And obviously Japan imperialism was all for it.

So far, outside a commitment to aim at reducing tariffs in trade between ASEAN members by the year 2000, the status quo has been more or less maintained. But the present economic crisis raised the issue again, although in a different form, when several south-east Asian countries took the initiative to open talks to discuss the setting up of an Asian Monetary Fund, which would effectively replace the IMF in the region.

This move is probably an attempt by Japanese imperialism and its regional allies to deprive US imperialism of the possibility of using the IMF as a vehicle for its influence in Asia. This came just after the IMF had imposed economic reforms on Indonesia and Thailand. And of course, one of the main arguments used by the participants was that such reforms should be agreed within the region itself, instead of being dictated from Washington. Predictably, the proposal was strongly opposed by US leaders.

Whether this attempt will come to anything remains to be seen. But one thing is certain - at best it would replace the diktats of US imperialism by those of Japanese imperialism and establish formally Japanese imperialism as the dominant regional power.

The multiplication of trade blocks

In this allegedly "free" world market, inter-imperialist competition has been intensified over the past decade by the stagnation of the world economy.

In the political field, this was illustrated by the more aggressive policy adopted by American imperialism towards Third World countries that were "stepping out of line". It was also illustrated by the American leaders' insistance on imposing a consensus and a military and financial cooperation between imperialist countries to back US military adventures on the basis of the necessity to police the imperialist world order. US imperialism is prepared to play the main role in policing the planet but only if the economic and military burden this involves is shared by all its imperialist rivals.

In the sphere of trade, the intensification of inter-imperialist rivalries and the generally fiercer competition on the world market, led to the formalisation of a number of trade blocks. The capitalist economy is international and has long been suffocating within the straightjacket of national borders. Hence the repeated attempts to get rid of this straightjacket one way or another.

However, while every capitalist class agrees that all obstacles to the free circulation of goods should disappear, because they want to have access to the largest possible market, at the same time each bourgeoisie tries to use its own national market to protect its profits from the rival bourgeoisies. This contradiction is reflected by the mushrooming of trade blocks.

South America, for instance, now has two main trade blocks. Mercosur - the "common market of the South" - was launched in 1996 and includes Brazil, Argentina, Uruguay and Paraguay as full members, and Chile and Bolivia as associate members. Its aim is to establish a free-trade zone with a common external tariff. The timetable to achieve this was already revised twice and the date for completion is now set for 2006. The other block is the Andes Community. Originally founded in 1969 by Bolivia, Ecuador and Venezuela with similar aims as Mercosur, it came to a standstill in the 1980s due to the political crisis which affected the region. It was then relaunched in 1988, this time with the additional membership of Columbia. But it still has to set a timetable for implementing its objectives.

In both cases, these trade blocks, or rather potential blocks, since they are still in the process of abolishing obstacles to trade between their member states, are primarily defensive blocks of poor countries, aimed at protecting the participants' economies against the threat of competitors, and by the same token, at resisting the pressures exercised on them by US imperialism through the WTO and the IMF. Indeed, resisting these pressures is becoming increasingly difficult for any single country, given the means of retaliation that imperialism can use against it, if only in the form of economic sanctions.

Such defensive blocks have been emerging on every continent. But they are all coming up against serious difficulties. For the abolition of borders, even only for the circulation of goods, requires a certain degree of harmonisation and coordination between the financial and governmental institutions of the participating countries. When these participants are poor countries in which the operation of the chronically undermanned national institutions is already patchy, with vast discrepancies from one region to another, and often plagued by corruption, the task becomes virtually impossible. These difficulties are illustrated by the fact that Mercosur, which is probably the most viable of all these blocks, has had to postpone its deadline several times.

More spectacular, however, is the setting up of what can be described as offensive blocks. Such is the case of NAFTA, which was set up in 1991 by the USA, Canada and Mexico. In reality it was designed to extend to Mexico the free trade agreement already passed in the late 1980s between the USA and Canada. As to the completion of free trade within NAFTA, it is planned to take place some time around 2005. Given the relationship of forces between its members, NAFTA can only be a vehicle for US imperialism. It provides the US bourgeoisie with a "home market" of 380 million inhabitants, which includes vast reserves of all kinds of natural resources, and is large enough to guarantee comfortable profits to even the biggest US multinationals and to equip them to resist their existing imperialist rivals.

The case of the EU and the single currency

The European Union is another example of an offensive block, except that it is much more ambitious than NAFTA.

A particular feature of the European Union is that, unlike NAFTA, it does not coincide with the sphere of influence of one dominant imperialist power, but brings together three main rival imperialisms - Germany, France and Britain, whose rivalries have already been the cause of two world wars - as well as lesser imperialisms like that of Italy, Holland, etc..

For German, French and British multinationals to be able to compete against their American and Japanese rivals, they need a stable market of a size at least comparable to that of the USA. Without such a market they remain too vulnerable to the ups and downs of the world market to be able generate steady profits and at the same time produce, on a scale comparable to their main competitors. But in addition, the continuing existence of different currencies, which allows each bourgeoisie to use its national money against the others, by means of competitive devaluations for instance, would make such a market ineffective if not unviable. Hence the need for a single currency.

This is a statement of fact which is self-evident and has been accepted as such by most leaders of the European bourgeoisies for a long time. Yet it took no less than 25 years for the 6-member Common Market established in 1968 to develop into the 12-member single market of 1993, and a few more for it to reach the present complement of 15 members. This only reflects the fact, that despite the general concensus on the ultimate aim, the short term interests of the various bourgeoisies have been different enough to postpone the issue for a lengthy period.

Today the main outstanding issue to settle is that of the single currency. It is all the more vital to deal with it, as the intensification of financial speculation over the past decade has already resulted several times in serious disturbances for the European market, in particular with the devaluation of the British pound and the Italian lira in 1992. One of the consequences of this devaluation has been to give a competitive advantage to the British and Italian bourgeoisies at the expense of their European partners. But it could operate the other way at some point in the future. In any case, such a risk is a major obstacle for the European multinationals, especially for the more recent ones, such as the anglo-French engineering group GEC-Alsthom or the Franco-German insurance company Allianz, which have expanded through mergers into European-wide companies precisely in preparation for the single currency.

Besides, it is inconceivable for the European bourgeoisies to be able to compete with their American rivals without having a weapon comparable to the dollar in their hands. Indeed, for American imperialism, the US dollar is an extremely effective weapon in the international trade war. And it is effective primarily because its material base, the American economy, is large enough to guarantee its stability and make it a trusted reserve currency for most of the world. Without the weapon of a similar reserve currency, the European bourgeoisies would still remain dependent on the US dollar and therefore vulnerable to the monetary manoeuvres of US imperialism.

The shape of the future Europe

The euro is meant to be introduced on 1 Jan 1999. But only 11 of the 15 members of the European Union will be involved, since Britain, Sweden, Denmark and Greece will remain outside. Whether this event will happen at all, and whether the four maverick states will join at a later date, remains to be seen. Another violent hiccup in the world economy could still put everything into question. However, the British government's decision to postpone its entry into the single currency illustrates once again what the future may have in store.

There is probably an element of political posturing and electioneering in Labour's decision not to participate in the first wave. After all, everyone is used by now to Labour being extremely preoccupied with the feelings of Little England. But Blair's most decisive reasons are exactly the same as those which motivated Thatcher and Major in adopting delaying tactics while the preparatory negotiations were taking place. Beyond their rhetoric, they were in favour of doing what the British multinationals wanted - and the multinationals wanted to participate, but they also wanted to be in the best possible bargaining position, in order to win as many concessions as they could.

There are indeed a whole number of areas in which the British bourgeoisie would need to win concessions from its partners. One of them is of course to obtain a guarantee that the City retains its present financial importance - which is certainly not what a number of its partners would prefer. Another is that Britain is allowed to retain some of its antiquated legislation - that on land ownership for instance, or that which allows a few British satellite islands to avoid the common law, allowing them to be used as convenient tax havens. More generally the fact that overall the old British bourgeoisie is even more senile, for obvious historical reasons, than its younger partners, means that it has to win special allowances if it is to retain all its cosy privileges.

Whatever way the euro is finally introduced, another vital issue will remain - that of the need for a unified European state machinery. Indeed the survival of separate states would inevitably mean that the union can potentially be reversed at any point and this would deprive the single currency of the credibility it needs to impose itself as a competitor of the US dollar.

But this is precisely where major obstacles are to be expected. Just as the British bourgeoisie wishes to gain special concessions, and relies on Blair for this, all the other bourgeoisies will want to benefit from special allowances, on one issue or another. And what guarantee will they have, except the fact that there is at least one state machinery on which they can count to stand for them? The European capitalist classes are much too addicted to counting on the support of their state machineries to abandon this possibility willingly - not without the pressure of circumstances so drastic, as to force them to forget about their rivalries and to put their common interests first.

The way the EU will eventually be shaped will depend primarily on the relationship of forces between the various bourgeoisies. With the exception of the three main partners, the others will probably consider that whatever happens they would stand to lose more by remaining outside than by going along with the diktats of the Big Three in order to remain inside.

In any case, the EU will be, primarily, a war machine in the worldwide trade war between the rival imperialism, a war machine which will aim at taking control of entire regions of the world - regions comparable in size to south-east Asia, for instance, or to France's former African colonial empire, out of which French imperialism is being slowly evicted by its US rival. And, of course, an economic war machine always means the possibility of a real war. But this possibility exists already anyway.

At the same time, like any other vehicle of capitalist interests, the EU will be an instrument of oppression and dictatorship against the labouring classes. Just as the present states often choose to disregard the fate of the population of entire regions, simply because they are poorer, the same will happen in Europe, but affecting much larger areas and therefore, much larger numbers, who may find that on balance, they did lose out in the setting up of the Union.

This means that the working class cannot support the setting up of this imperialist Europe, in any shape or form. But this does not mean that defending the old nation-based set-up is any more in its interests. On the contrary, the working class must declare loud and clear its refusal of the old ways, of keeping alive the antiquated British state - that is, a tested instrument of oppression for the British bourgeoisie - its refusal to remain tied-up in the straightjacket of British nationality. For these old rags cannot protect its class interests.

We live in a world which has long grown out of its old national borders, where workers, who were born thousands of miles apart, find themselves building the same cars, sharing the same experiences, living the same life. So why should the horizons and ambitions of our class remain confined to the narrow nationalist ideas and institutions which were invented by our exploiters several centuries ago? Why should we leave to the imperialist bourgeoisies the monopoly of having a worldwide outlook?

In the face of events like the present financial crisis, there is no real choice anyway. The world has already become a single economic entity in which what appears, initially, as a local unbalance may develop very fast into a worldwide catastrophe. Freeing society of capitalism would free the world of today's main causes of economic disruption. It would make it possible, for the first time in history, to turn this economic internationalisation into a factor of prosperity for everyone on the planet - instead of being, as it is the case today, the source of enrichment of a tiny wealthy minority in the rich countries and an instrument of oppression against the poor masses across the world.

The capitalists still need their national states to survive against their rivals and the chaos generated by their system. But the working class does not. Even before this decaying society gives way to another, better, social organisation, the working class has already emerged as an international class, whose eyes should be set on the future of the entire world, not on the narrow prejudices of the past.

Postscript: a warning

As this pamphlet goes to press, over a month after our London forum was held, the financial crisis has already gone through a series of new developments.

By and large, it appears at this stage, that in the rich European and Northern American countries, the impact of this crisis will remain limited and, in fact, largely unnoticed. The papers and economic "experts" celebrated the beginning of 1998 with sighs of relief and expressions of self-satisfaction: hadn't share prices achieved their highest one-year rise ever, in 1997, at least in the rich western countries' stock markets? Wasn't this the ultimate proof that their "fundamentals" were indeed "healthy", after all? Once again, all the past warnings over the over-inflation of the world stock markets seem to have been forgotten.

In the meantime, however, the financial crisis is pushing several south-east Asian countries to the verge of bankruptcy. Six months after the financial crisis broke out in Thailand, last July, several million people have joined the ranks of the unemployed in Thailand, Indonesia, the Philippines and Malaysia.

South Korea, once ranked as the world's eleventh industrial economy, is now going through a large wave of bankruptcies and factory closures. Its newly elected president has announced a turn of the screw against the working class, in the name of the "nations' interests" - the worn-out pretext used by all bourgeois politicians across the world to impose sacrifices on working people so that capitalist profits can be preserved.

Japan itself, the world's second imperialist power, is deep into a banking crisis. The problems of the Japanese banking system did not arise from the south-east Asian crisis, they went back to the beginning of the decade. But it is the climate of uncertainty created by the south-east Asian crisis which forced the issue and precipitated a banking crisis which had been looming for a long time.

The IMF's so-called "emergency packages" - which involve a theoretical total of £66bn-worth of loans - have done and will do, nothing to limit the social and economic impact of the financial crisis in these countries themselves. At best they will prevent the states of these countries from going to the wall - mainly out of fear that this might result in financial chaos worldwide.

The western creditors of south-east Asia are therefore re-assured. The flow of interest payments will keep coming from the region into their coffers. And should western banks such as the British-owned HSBC-Midland and Standard Chartered or the US-based Citicorp, incur any losses despite all this, they can count on the benevolent help of their home countries' public funds, as the US authorities themselves have urged.

Never mind the fact that all these new loans will only increase south-east Asia's indebtedness even more, thereby merely postponing the problem. The role of the IMF and the aim of the main imperialist powers is not to bail out the victims of this new financial crisis, but to bail out their own looting system - that is, the merry-go-round of floating capital.

Not only does this flooding of the world financial system with massive amounts of new "emergency" funds resolve nothing, it may actually compound today's problems, shifting them in space and time, while actually increasing their momentum.

Back in August 1997, The Economist carried a warning, which was rather unusual in this paper. It explained that the sustained flow of cash towards Asian "emerging markets", despite the currency crisis which had broken out in July, seemed to indicate among investors the "feeling that countries are simply not allowed to default any more: the IMF together with rich countries, will always come to the rescue" And it went on: "Lenders (..) have been more concerned with the quest for returns than with a cool-headed analysis of credit risk." Coming from a paper which is normally such a great fan of the "global" bingo system, this warning can only be taken seriously.

Indeed this is one of the glaring paradoxes, and dangers, of today's crisis-ridden capitalist economy. Imperialism is prepared to devote large resources to prevent the system from breaking down and, so far, this has been successful. But at the same time, these "emergency" interventions only result in increasing the greed of financial operators, who no longer fear rocking the boat - or even sinking it - confident as they are that their losses will be covered one way or another. And this was undoubtedly one of the factors both in the growth of the financial bubble around the south-east Asian "emerging markets" and in their downfall, when the same speculators chose to gamble on the fall of the regional currencies, last Summer.

So the merry-go-round will go on. Not only will it be unhindered, it will be actually reinforced by this new "rescue operation". And it will go on producing other financial bubbles elsewhere in the world - as well as feeding the speculative bubble which is still growing today in the rich western countries' share markets. How long will it take before another one of these bubbles breaks? No-one can tell, but it will happen inevitably. And the uncontrolled speed with which the present financial crisis spread across the world, at the end of 1997, shows that each time this happens, the entire system will be under threat of a generalised crisis.