29 March - 4 April 2001
Issue No.527
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Al-Ahram Weekly On-line 29 March - 4 April 2001 Issue No.527 |
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The end of the rainbow
The global economy is recession-bound and hundreds of thousands are losing their jobs, writes Faiza Rady
Following a tumultuous two-week downward spiral, Wall Street appeared to bounce back slightly on Friday amidst the cheers of suddenly re-energised traders bent on a comeback. But the surface buoyancy masked deep anxiety, as the Dow Jones Industrial Average closed at 9,509 points, still lower than last Friday's disastrous close at just under 10,000 points. The high tech composite index NASDAQ climbed over the week to close at 1,928 points, an improvement over last week's 1,891 mark, but still mired in "bear market" territory. Judging from the evidence, the slump is here to stay.
An anxious trader talks on the phone from the floor of the New York Stock Exchange as another writes down an order, last Monday. The Dow Jones Industrial Average rose in early trading, recovering from last week's fall
(photo: AP)
Since the early 1990s, a booming stock market propelled the system forward on a tumultuous roller-coaster circuit. The lure of spiralling profits appeared to investors -- convinced by the magical pledge of "revolutionary" high tech innovations -- like manna falling from heaven. Even after the NASDAQ showed signs of slipping after reaching its March 2000 high of 5048 points, investors continued to fall over themselves to throw good money at anyone who promised to hit the information technology (IT) jackpot.
Notwithstanding its rapid ascent to super-stardom in the mid-1990s, the IT market started off in relative obscurity. In 1990, investment -- or "venture capital," to use the savvy young entrepreneurs' jargon -- in new IT companies in the US amounted to a modest $3.7 billion. But the market escalated as fast as the change in technology. In 1999 alone, a staggering $45 billion was invested in North American IT start-ups, ie new companies capitalising on the promise of some virtual share of the scintillating market.
But the jackpot had to crack at some point -- it could only hold so much. The first investor to enter the market did, in effect, pocket colossal profits. Accordingly, a pioneer like Bill Gates was in a position to milk the nascent industry for all it was worth. But the herd instinct soon took over, launching a long stampede into the same investment niche. New competitors mushroomed in virtually every nook and crook of the industry, pouring money into madly sprouting IT ventures like there was no tomorrow.
Over-investment, however, signalled the end of the rainbow. Left to its own "volition," a deregulated market has the inherent tendency to over-invest and therefore overproduce. This is the central flaw of the market economy: the contradiction between the investors' unlimited scramble for profits and the market's limited power of consumption.
Based on this structural contradiction, the market inevitably moves in cycles, oscillating between "virtuous" booms when space remains wide open and "vicious" slumps as the territory shrivels in the wake of the herd's stampede. Once the market is saturated, the cycle of investment has to accelerate -- and competition becomes the driving force. Whether investors like it or not, they are compelled to invest and keep prices down, in order to stay one step ahead of the next guy. At this point, the rate of profit rapidly falls to more normal levels. "It is then a question of struggling to maintain profit margins -- usually at the expense of the work force," explains economist Alan Woods.
Despite the much-touted labour market expansion in the US, workers faced increasing hardship during the boom years. A rather symptomatic joke, describing the job boom under the Clinton administration, illustrates this: Clinton is hosting a bunch of high-powered corporate executives at the White House. While his guests are lounging around the dinner table, sipping their champagne, Clinton brags about his accomplishments: "Just look at our economy! I just created a million jobs!" At which point, the waiter, who has been listening impassively, butts in: "Yes, Mr President, I know -- I have got three of them!"
People are working long hours and taking two or three jobs just to make ends meet. In lieu of reducing working hours, the IT "revolution" has expanded the working day. Workers are subjected to relentless pressure to increase production while reducing production time. Referring to rising labour productivity levels in the US and Europe, which jumped from 1 to 1.5 per cent a year prior to the cyber revolution to 3 to 4 per cent at its height, economist Alan Wood comments: "Most of it is nothing new at all. It is based on the old familiar method: simple good old-fashioned pressure on muscles and nerves."
In the US in particular, the working day has been stretched to its limit. American workers spend more hours on the job than workers in any other OECD country. IT has done away with the 40-hour work week. Living under threat of an imminent robot take-over in this Brave New World and fearing to lose their jobs to the latest high tech labour-saving device, US workers average 50-hour weeks under nerve-racking strain.
Nevertheless, the worst is yet to come. The bad news was announced by Alan Greenspan, US Federal Reserve Bank chairman and chief engineer of the country's fiscal and monetary policies, when he recently told a congressional committee that US growth was now "probably very close to zero."
No matter how exploitative the conditions, the boom cycle years did at least provide jobs. A nearly 5 per cent yearly growth average in the US pushed unemployment down to 4 per cent, its lowest point in decades. However, following warnings of a fall in corporate profits and the consistent market downturn since 1998, growth levels slipped from 5.9 per cent to 2.4 per cent in the second quarter of 2000 -- signalling severe retrenchment of the work force, ie the sack for hundreds of thousands in both the high tech and the manufacturing sectors.
The manufacturing sector is severely contracting, paving the way to a recession. Steel production is especially affected -- 11 plants have filed for bankruptcy. US companies announced more than 100,000 job losses in February, almost three times as many as in the same month last year, reported The Financial Times. Between October and December 2000, a total of 647,012 North American workers were fired. And this is only the beginning. Well-established and healthy transnationals like General Electric (GE) and Phelps Dodge, the world's second largest copper miner, are seizing the chance to cut labour costs and slash their global work force in the midst of the general mayhem. An essential by-product of deregulation, the slump -- like the market -- works in mysterious ways.
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