War and the U.S. Economy

Charles Brown CharlesB at SPAMCNCL.ci.detroit.mi.us
Fri Aug 6 13:04:49 MDT 1999

War and the US Economy

By Vic Perlo


Alan Abelson*s weekly column in Barron*s Magazine of March 29th was headed: "Gunboat
Rally." It begins: "As it demonstrated so resolutely last week, Wall Street is nothing
if not patriotic. Hardly had the rain of missiles and bombs begun to fall on Kosovo
than the stock market struck the columns with a blazing rally."Abelson reviews past
wars, each one stimulating a huge rally in the stockmarket: World War II, the Korean
War, the Vietnam War * until the United States began to lose. Abelson continues:

"An exception was the Gulf War early in this decade, when blue chips suffered a loss
of 3.2 percent."

But that war was not really an exception. There had been some bombing of Iraq late in
1990 when a cyclical crisis was still unfolding. But in January 1991, when the all-out
U.S. assault, "Desert Storm," began, the market took off, leaping up 50 percent in two
months. It has not stopped since, except for temporary minor interruptions.

At this writing Clinton is stepping up the bombing and starting border incursions in
preparation for a ground invasion that could result in a major war, conceivably on the
scale of Vietnam. To what extent the U.S. will have the support of its NATO allies *
aside from its British "laborite" toadies and Germany * remains to be seen. The
spreading mass protests against the aggression could possibly cause Washington to back
off, although that seems unlikely. The propaganda used to justify the action is
similar to the canard used against Vietnam, e.g., the discredited Tonkin Gulf
"incident." The United States has accelerated its military aggressions, emboldened by
the lack of opposition from its former formidable superpower opponent, the Soviet
Union, and disdain for the weak protests of the chaotic bankrupt Russia.

Capital exports

Monopoly capital is the ultimate driving force behind U.S. aggression. Lenin*s stated
characteristic of imperialism: "The export of capital * has become extremely
important, as distinguished from the export of commodities" * has been markedly more
decisive in the case of American imperialism.

During the past decade the balance of trade has become increasingly negative. That is,
imports of commodities exceed exports, with a serious impact on employment in
manufacturing and other commodity-producing-and-transporting industries.

However, in the export of capital and the profits therefrom, the opposite trend is
apparent. The export of capital multiplied nearly five times between the 1980s and the
1990s, while import of capital fell short of doubling. The export of direct capital in
the 1980s was half the import of direct capital; during the 1990s export of direct
investments was 1.4 times larger than imports.

More striking was the huge excess of profits received by U.S. corporations from their
foreign investments over profits of foreign companies in the U.S.: 4.6 times greater
in the 1980s and 1.6 times greater in the 1990s, when Europe and Japan were afflicted
by long depressions, followed by the financial crisis that erupted in 1997 while the
U.S. economy boomed.

Vital corporate interests

The extension of U.S. military presence abroad, notably its aggression against Iraq
and against Yugoslavia (in Bosnia and Kosovo), strengthened the support for American
corporations expanding their positions overseas. And the foreign expansion of U.S.
companies, in turn, fosters more and more military spending and foreign incursions to
protect the American companies from possible popular uprisings. These private profits
and plunder are dubbed "a vital national interest," justifying U.S. aggression.

Clinton rationalized his aerial blitz against Yugoslavia by stating that the control
of this European country is in our "vital national interest," that it is in the "soft
underbelly of Europe," requiring U.S. defensive action and the expansion of NATO*s
sphere of operation.

The importance of Europe is explained in part by its dominant position in U.S. foreign
investments: Europe, 50 percent; Latin America, 20 percent; Asia, Africa, Australia,
15 percent; Canada, 10 percent; miscellaneous and unspecified, 5 percent.

In essence, U.S. taxpayers are underwriting the death and destruction by American
forces to protect U.S. corporations abroad. This, in turn, diminishes U.S.
manufacturing at home and causes the unemployment of hundreds of thousands of American

Obviously the multiplication of direct capital investment abroad has substantially
raised the power of U.S. monopoly capital. The following factors made possible and
stimulated this major development:

? The successful betrayal of the USSR by Gorbachev, Yeltsin and Co.; the consequent
downfall of the Soviet Union along with the capitalist counter-revolution there and in
the East European allies of the USSR. This catastrophe eliminated the decisive
anti-imperialist global force, making U.S. corporations confident that their
investments would not be seized by revolutions.

? Acceleration of U.S. military aggression, continuous since the attacks on Iraq in
1991, strengthening the security for operations of U.S. companies.

? The U.S. economic recovery and boom, in contrast to cyclical crises and depressions
in Japan and most European countries. The world financial crises erupting in 1997
created new opportunities for U.S. corporations to buy up depressed properties on the

? The growing importance and monopoly position of the United States in "high-tech"
computerization and communication facilities.

Domestic impact

U.S. global expansion abroad has significant consequences for U.S. workers. On the one
hand, the primacy of U.S. corporations results in lower prices of some imported goods.

On the other hand, the accompanying reactionary political climate results in a real
intensification of racism and discrimination against Blacks, Native Americans and
Hispanics, especially immigrants. A large section of the working class is doomed to
work in low-wage occupations * with stagnant or sub-minimum wages.

Also, the growth of American corporations abroad accelerates the export of jobs from
the United States to African, Asian and Latin American countries, where wages are a
pittance, reducing U.S. employment measurably in important manufacturing industries.

The growing importance of high tech necessitates advanced education. But frugal
government budgeting and soaring coasts of educational institutions make it impossible
for a large share of working-class youth to obtain the needed skills.

These factors, combined, result in an increase in the political and economic division.
Bob Herbert writes:

Scenes of poverty-stricken Americans standing in bread lines are standard in
documentaries about the Depression, which ended more than half a century ago. What is
not generally acknowledged * is that there are bread lines all over the United States
right now. (Second Harvest, a charitable organization] A comprehensive survey showed
that over the course of a year more than 21 million people sought emergency food
assistance through the Second Harvest network.

And that is only one organization! Of course, there are unknown numbers of other
destitute people who were forced to seek food from other charities in order to avert
starvation. Doug O*Brien, a Second Harvest official, observed:

"We have a hunger problem. And other Western industrialized nations do not have a
hunger problem. And that is just not acceptable when we have such abundance." (New
York Times, 4/11/99)

The other industrialized capitalist countries are politically and militarily dependent
on the United States, and most of them are host (not always willingly) to U.S. bases
and attendant personnel. But they have retained elementary social reforms, thanks to
the power of their workers* organizations. And although the American working class has
also won significant social reforms since the 1930s, the advances have never been
equal to those of the European capitalist countries.

And now, as the U.S. power elite are no longer held back by the example of Soviet
socialism, as they arrogantly flaunt their military might against the world, at home
they are discarding all restraint against the American workers.

All of these factors greatly increase the profits of U.S. corporations, at the expense
of more punishing exploitation of the workforce. The rate of surplus value has soared:
U.S. corporations receive 44 percent of the profits of all corporations. The value of
stocks on American exchanges amounts to 50 percent of the value of all stocks on all
exchanges globally.


The process of concentration of capital has accelerated. Takeovers and mergers are the
order of the day, often international in scope, involving corporations in two or more
countries. The most publicized international mergers have been the takeover of
American companies by foreign giants * e.g., Daimler-Chrysler and British Petroleum
(BP)-Amoco. The takeover of a major Wall Street firm, Bankers Trust, by Deutsche Bank
is pending. Last year, and so far this year, more European capital has come into the
United States than American capital to Europe * because the U.S. economy has been
booming, making for profitable investments while the European economies were
relatively stagnant.

At the end of 1997, U.S. direct investments in Europe, at $421 billion, were virtually
equal to European direct investments in the United States, $425 billion. However, U.S.
corporate profits on investments in Europe, at $48 billion in 1997, exceeded by more
than 50 percent the reverse flow of profits, $31 billion. Thanks to its military
presence in European countries, U.S. transnationals are in a stronger position to deal
with European government regulations, and hence in collecting profits.

Within the United States, only the largest corporations endure. Others hang on without
prospect or are taken over. This is crudely reflected in the movement on the New York
Stock Exchange (NYSE). During the first 14 weeks of 1999, the Standard and Poor*s
index of the prices of stocks of 100 large companies went up 10 percent, but the
number of daily declines on the NYSE exceeded the number of gains by about 8,000. And
those listed on the NYSE have to be sizable; small retailers and restaurant owners,
who change ownership and go out of business with great frequency, are not even in this

The growth of the U.S. economy, its global economic leadership, is partly based on the
U.S. primacy in the major technological advances that are changing the way the world

The spread of computerization affects all processes, all aspects of life. The largest
computer company, Microsoft, has the greatest market value of any corporation. Its
monopoly position in a key sector of the industry, software, is being challenged
(vainly) by the U.S. Department of Justice. Its largest stockholder, William Gates, is
the richest man in the world.

In this and other crucial areas, the United States attracts the top minds and hands
from all parts of the world, lured by high salaries and escape from weak economies
that cannot support major academic and research opportunities.

More dramatic has been the explosive growth of the Internet as a means of
communication. Traditional systems, such as telephone and postal service, which have
some degree of public control, are being downgraded by the wholly unregulated Internet
servers. The revenue these companies receive for their service is inconsiderable, but
their stock prices have skyrocketed out of sight. The largest Internet company,
America On-line, reports a trifling profit, but its market value on the stock market
exceeds that of IBM, one of the half-dozen giants among U.S. corporations.

Internet companies are established by those * often young investors * able to raise
the capital to set up an entry, "portal," to access the various aspects of electronic
communication. They have not needed to report profits, and incalculable numbers of
investors are speculating in shares of these companies, sending their stock prices up
still further.

There is a trend towards displacement of postal mail as more and more companies and
organizations provide e-mail addresses. In some cases only an e-mail address is
provided, which is a severe handicap for the large section of Americans unable to
afford the computers and other necessary equipment.

Another significant high-tech trend is the replacement of telephone operators by
computerized recorded answers, making it difficult, time-consuming and frustrating to
obtain any information other than answers to pre-programmed questions. (Even the
telephone company is guilty of this.) And of course this practice has led to the
layoff of many thousands of workers * with a corresponding rise in corporate profits.

On the one hand, the electronic advances are an important source of the financial
profits that are propelling the economic boom in the United States. On the other hand,
the developments have created a financial "bubble" of unprecedented size, with the
potential of bursting into a severe financial and economic crisis. This could happen
before resolution of the crisis now sweeping the less developed, neo-colonial areas of
the world, with the multi-billion majority of the world*s population as its victims.
But it would be reckless to predict timing of that calamity.

Military High-Tech

An essential element in the thrust of U.S. imperialism to achieve world domination is
its investment of many billions for the creation of:

? New weapons, including advanced nuclear warheads, and means of delivery;

? Intelligence systems to provide U.S. military, diplomatic and police forces with the
ability to scrutinize private lives everywhere;

? Means for intrusion by the U.S. government and military into the most classified
data of other countries, going far beyond traditional means of espionage.

As this is written, U.S. technical capability is being used to identify, select and
destroy specific features of the Yugoslav economy * and territory.

The use of advanced military technology against such countries as Iraq and Yugoslavia
is analogous to the use of rifles against the bows and arrows of the Native American
peoples * the resulting genocide that remains a shameful blot on our history. Then
there was the use of atom bombs against Japan, and the U.S. threat to use nuclear
weapons again.which raises the specter of terrifying devastation * even the potential
annihilation of all life, which the Pentagon refuses to consider.

For 45 years Washington*s expansionist goals were stymied by the power of the Soviet
Union, by the USSR*s veto in the United Nations, and by its ability to retaliate to a
nuclear attack. Now, even with the collapse of socialism and the dismemberment of the
country, Russia has retained that capability * the only other country that has. It is
obvious, therefore, that the prime objective of Washington is to pressure Russia into
destroying its nuclear weapons * given the political and economic weakness of the
counterrevolutionary government there. America*s success in this endeavor would be a
terrible threat to all the world*s peoples.

President Clinton is deeply involved in this campaign. The Senate approved a bill to
build "as soon as technologically possible" a "Star Wars" system to catch incoming
missiles before they land, and the Defense Department already budgeted $10.5 billion
for a less ambitious version than originally conceived. Clinton threatened to veto it
unless it included two amendments. One states "that any system be consistent with
policies to reduce Russia*s nuclear stockpile." (NY Times, 3/18/99) This, if anything,
exemplifies Clinton*s personal involvement in the nefarious agenda of U.S. imperialism.

Crisis of Overproduction

Economic data indicate an accumulation of excesses such as would precede a crisis
decline in economic activity:

? Over a 12-month period ending February 1999, production of durable goods rose 5.4
percent, but capacity went up 8.2 percent, an excess in relation to likely increases
in durable goods production. Latest figures show a rise in the number of business
failures and a decline in the number of new businesses established.

? There was a gain of 12.5 percent in the number of autos (cars and "light trucks")
sold in the first quarter of 1999, and the largest increases were in the more
expensive models. Since workers* payroll income went up only 2.2 percent, these
purchases were made possible mainly by a vast rise in consumer borrowing. In fact,
consumer installment debt rose 6.5 percent, and bank records show significant
increases in write-offs for uncollectible consumer debts. And it is quite possible
that other forms of consumer debt escalated even more rapidly than installment debt.

There has been a major rise in the sale, construction and reconstruction of
residential housing, including an upsurge in luxury housing, with a corresponding rise
in mortgage debt. But housing construction has gone beyond relevant purchasing power
and new housing starts and, even more, permits for future starts have started
downward. Housing, like autos, is an important precursor of major cyclical moves.

Excessive borrowing by consumers is more than matched by corporate borrowing, which
went up by more than 10 percent in 1998, reaching $343 billion. But corporate equity
dropped by $178 billion. As a result, corporate bond defaults are rising, reaching $36
billion in 1998, compared with $16 billion in 1994.

These factors increase the danger that the United States will be drawn into the world
capitalist financial crisis, which has not yet been resolved. It is still deepening in
the ruined Russian economy, in some South American and African countries, and in
Japan. It may have eased into a depression in Southeast Asia, where it began. Western
Europe, while escaping crisis so far, has moderately depressed economic activity. U.S.
capitalism, which did so much to cause the global crisis, has so far escaped its
impact, and has actually profited from it * at the expense of the hundreds of millions
of working people around the world thrust into deepest poverty and even starvation.

Corporate Salaries

But the CEOs have it made. Business Week has just published its annual survey of
executive pay. (4/19) In 1988 the highest paid executive received $40.1 million. Not
peanuts, but in 1999 the highest paid executive received $575.6 million, an increase
of 14 times or 1,300 percent. It so happens that it was the same recipient: Michael
Eisner, CEO of Walt Disney Corporation. Although he was not in first place every year:
in the interim period various executives were at the top, and the scale rose steadily
above Eisner*s 1988 take.

The average pay of CEOs rose 36 percent in 1988, to $10.6 million. Over the years,
these average have risen, as have the paychecks of the other high-paid top bureaucrats.

In 1988, according to Business Week, the average worker*s pay was $16,745; in 1998 it
was $22,976, an increase of 37.2 percent Clin* not really comparable to 1,300
percent!!! And the consumer price index (CPI) went up 37.8 percent, officially,
although of course, the actual cost of living rose much more than the Labor
Department*s CPI.

Over the past 20 years, the pay to top executives multiplied 276 times! This is
absorbing more and more of the surplus value extracted from the working class; by some
estimates, more than one-fifth of the total. Taken together with the merger activity,
this trend signifies a growing concentration of economic power in the hands of a small
coterie of billionaires and other "insiders."

For the present, the negative factors are more than countered by the stimulus provided
by the U.S. war against Yugoslavia. That action is consuming vast quantities of
materials, ammunition, bombs and missiles. And aircraft.

Wall Street support * approval of the main sections of the ruling class * has
reinforced the bull market, creating paper profits and capital gains, which are used
by the recipients to finance purchases. The speculative bubble in the stock market is
unusually pronounced and the potential for a major decline is evident.

However, for the present, this upswing is stimulating all kinds of economic activity.
The vast amounts of material being used ensure that there will be demands for higher
and higher additions in military spending, over and beyond the $110 billion rise
already in the president*s budget. In fact, at this time, in late April, the
administration has asked Congress for an additional $6 billion this year for the war.
And, as usual, determined to appear more belligerent than the Democrats, the
Republicans want to double that amount.

With the improved weather, NATO warplanes flew as many as 439 sorties Tuesday, and * a
variety of options is under consideration of how to expand and intensify the air
campaign, including the deployment of vastly increased assets* Air operations are
running day and night. (Wall Street Journal, 4/8)

The United States has abandoned pretense of avoiding civilian targets. The center of
Pristina, the capital of Kosovo province was destroyed, as were all the Danube River
bridges to/from Yugoslavia, ruining the normal transport between Western Europe and
Eastern Europe/Asia. This actually has minor effect on Yugoslavia; the main victims
are its trading partners, most notably Austria and Hungary. For joining NATO, Hungary
is thus "rewarded" by this severe blow to its trade.

If public opposition is not strong enough to prevent it, and if the Yugoslav
government does not yield, the projection is for intensification of the war by
escalation of bombing and a land invasion, involving mobilization of large U.S. and
NATO forces. The U.S. goal is the removal of Yugoslavia*s president and government,
and conversion of the country into a neo-colony of U.S. imperialism which would yield
much to U.S. corporations in plunder and in exploitation of labor. Further, Washington
would gain an additional base in Central Europe in its drive for conquest eastward.

This agenda would involve a hefty increase in military spending, as occurred during
the Vietnam War.

It is the urgent task of peace forces in our country and Europe, especially, to raise
sufficient opposition to prevent such an outcome. If not, military spending and its
subsidiary effects would forestall a cyclical crisis of overproduction, but at the
cost of greatly magnified long-term economic and political damage to Americans.

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