Dmitry Orlov’s Reinventing Collapse: The Soviet Example & American Prospects Michael O'Meara

US, SU: Same Scenario?:

Dmitry Orlov’s Reinventing Collapse: The Soviet Example & American Prospects

Michael O'Meara

3,800 words

French translation here

“A time of crisis is a great opportunity.”

—Barack Hussein Obama

Dmitry Orlov

Reinventing Collapse: The Soviet Example and American Prospects

Gabriola Island, Canada: New Society Publishers, 2008

Despairing of my people’s passivity, I have often thought the collapse of the United States might be the one thing to turn them against the system that seeks their destruction.[1]

This “catastrophist” perspective is, admittedly, a strategy of desperation. For collapse (what Joseph Tainter calls a “recurrent feature of human societies”)[2] may delegitimize the existing system and make whites more receptive to their racial/national interests, but, in a worst case scenario, it could pose problems even more threatening than those of the last 60 years.

The literature of collapse is consequently of the utmost relevance, especially now that the “American Century” seems to be nearing its inglorious end.

Of the numerous works on fallen civilizations, perhaps the most pertinent are, for obvious reasons, those related to the Soviet collapse of 1991. Hence the propitiousness of Orlov’s recently published work.

A computer engineer by training, Orlov and his Russian Jewish family emigrated to the US in the 1970s. He has since maintained ties with the land of his birth, having returned during those periods leading up to, traversing, and following the Soviet collapse. Writing from a radical ecological perspective critical of industrial civilization (which he implicitly—Hebraically?—associates with white civilization), Orlov suggests what collapse entailed in the SU and why the US is no less a candidate.

His book, though, is no work of scholarship.

“I am not,” he writes, “an expert or a scholar or an activist. I am more of an eyewitness. I watched the Soviet Union collapse and this has given me the necessary insight to describe what the American collapse will look like” (p. vii).

He accordingly spends little time sketching the big picture—the structural forces driving the collapse—and, instead, concentrates on its “micro-scale” processes and experiences. This makes his book a “personal” work, without claim to scientific authority, but nevertheless one that is very readable and informed by the all-important “human” dimension of collapse.

Despite their different methods and styles, Orlov sees the two 20th-century superpowers as “antipodes” of the same techno-economic civilization committed to social management, economic growth, material accumulation, world domination, and the realization of the Enlightenment vision of a totally rationalized world.

As such, Orlov argues that the US and the SU both sought a better life through science, approaching every human problem in terms of a technical fix. They both were militaristic, imperialistic powers who, through direct or proxy wars, made a mess of the international arena and, though Orlov doesn’t mention it, introduced reforms in the Third World that has caused it to grow out of control; they both devoted endless fanfare to celebrating their democratic, egalitarian institutions, however fraudulent; both assaulted popular beliefs and values in the name of a higher rationality, discouraged traditional social relationships, created meaningless, uncreative forms of work, exalted materialist values over others, repressed dissent, recruited corrupt, venal elites—and, most seriously, cared little or nothing about the white, or European, race, though Orlov doesn’t actually think this. It might be added, and this too isn’t in Orlov, that the US and the SU both were social experiments that favored Jews, making them, and their values, dominant.

The list of similarities goes on. But the basic point—that the SU and the SU were techno-economic civilizations devoted to roughly analogous worldviews at odds with nature and the nature of ourselves—seems rather indisputable. As such, one civilizational model collapsed, and the other, for roughly similar reasons, now faces the prospect of a similar collapse.

Orlov gives no credence to the Reaganesque bombast that the United States defeated the Soviet Union in the Cold War. He argues that its collapse had little to do with ideology and even less with American influence. Instead, he attributes it to the SU’s “chronic underperforming economy, coupled with record levels of military expenditure, trade deficit and foreign debt” (p. 8). These economic problems made it increasingly difficult for “average Russians” to get by.

When Soviet reformers under Mikhail Gorbachev at last attempted to fix the centrally-planned stagnation, they couldn’t. This failure, combined with military humiliation in Afghanistan and the nuclear disaster at Chernobyl, so discredited the Soviet state that it imploded.

Given that Orlov’s book appeared before the US financial meltdown of September 2008, it looks mainly at those structural weaknesses in the US economy that most resemble those of the former SU—rather than at that institutionalized system of fraud responsible for pulling off one of the great historical swindles.

Stressing the inherent flaws in the US economy and noting that it has taken a couple of decades for the US to catch up to the SU, he suggests that the US may soon face a similar fate.

Like many ecologists, he rejects the facile conviction that modern society is exempt from the rise-and-fall cycles characteristic of pre-industrial societies or that present rates of economic and population growth can continue indefinitely.

The United States, he sees, is especially vulnerable to collapse, due to the petroleum basis of its economy.[3] He points out that the US, with its “energy-intensive model of empire,” is more dependent on cheap oil than any other industrial economy, that its crude oil production “peaked” in 1970, and that three-quarters of its energy is now imported.

Any rise in oil prices will consequently be paid for in declining economic growth and higher food prices (agriculture being petroleum-intensive). Once the era of cheap energy comes to an end (sometime supposedly past its peak), world economies will be forced to undergo changes as significant as those that accompanied the onset of industrialization. This will lead to further decline and ultimately to collapse—which Orlov, citing the archdruid John Michael Greer, defines as that condition whereby “production fails to meet maintenance requirements for existing capital” (p. 2).[4] That is, when the declining economic system starts “consuming” its infrastructure (cannibalizing itself, in effect) to compensate for declining incomes, it will simply hasten the inevitability of its demise.

But however central, energy is only one of the problems that Orlov, peak-oilist that he is, considers.

Because the US has outsourced most of it manufacture overseas, no longer produces the high technology on which it depends, and relies on imports for most of its basic needs, it has incurred an enormous trade imbalance, sustained by massive borrowing in foreign money markets. (For different reasons the SU acquired massive trade imbalances and debt in the 1980s.)

The problems created by America’s increased energy costs and the financialization of its economy have been compounded by a runaway military budget, a debt pyramid that grows at an exponential rate, and the decline of its overseas empire and “tribute economy.” Combined with imperial disasters in Iraq and Afghanistan, a growing international reputation for incompetence and corruption, violent changes in weather patterns (which produce killer hurricanes, like Katrina, having a system-disrupting potential), and the impending breakdown of neglected infrastructure (bridges, levees, poisoned water tables, etc.), these factors suggest that the US might eventually follow the SU into the dustbin of history.

The federal government and “the self-enriching political elites” that feed off it have, moreover, a vested interest in “perpetual growth” and imperial overreach, which means they can’t be expected to do anything constructive to stave off the impending collapse. As the economy begins to decline, tax revenues too will decline and public debt grow.

The only solution the elites have come up with to address the state’s impending fiscal crisis, thus far, is to crank up the printing presses and introduce more worthless paper into the market.

Orlov’s explanation of the Soviet failure and his prediction of an impending American collapse, given the impressionistic nature of his work, should, of course, be taken as merely suggestive, though economic contraction, declining energy availability, and increased political turmoil already loom on the horizon.

His work, moreover, is short on the specifics of collapse, he neglects any consideration of collapse as a “political process,” and he ignores important questions as to how and in what manner collapse occurred (in the SU) and will occur (in the US). It’s also not evident if an American economic collapse will mirror the suddenness of the Soviet collapse (which was historically unprecedented) or if, like more traditional cases, it will be stretched out over decades.

Qualitatively more persuasive, though, is Orlov’s claim that the Soviet Union was better situated than the United States to endure and recover from a political-economic breakdown.

In his view, Americans see their “spendthrift debtor nation” as a “land of free ice cream and perpetual sunshine” (p. 16). Never having experienced invasion, world war, famine, or bloody dictatorship, it’s hard for them to imagine a future unlike their past. More than Russians, Americans have been severed from their past and redesigned as gratification-oriented consumers whose defining character is materialist rather than ethnic, historical, or cultural. They also lack the psychology of resilience “bred” into the long-suffering Russians. Finally, they are more ideologically deluded by the system’s pretenses, just as they are more integrated into its increasingly dysfunctional institutions.

Born of a less happy, but more bona fide nation, Soviet Russians put greater emphasis on individual achievement and recognition than on economic success. Money and materialist designations didn’t play quite the same role in their lives as they do in the US, for their primary needs—work, housing, basic services—were essentially provided by their collectivized economy and the lifestyle consumption native to the American economy wasn’t an option. When the political system stopped functioning and the formal economy suffered its knockout blow, there simply wasn’t the moral and social devastation that is likely to affect Americans.

The SU was also favored in terms of food and shelter. Most Soviet housing was owned by the state. Though “drab and soulless,” it was well-built, insulated, and designed to last. Almost all housing was surrounded by public lands on which people kept kitchen gardens. Prior to the collapse, nearly 90 percent of the country’s domestic food supply came from these kitchen gardens and other individual plots, for Communism had turned Russian agriculture, once Europe’s breadbasket, into a basket case.

The Soviet regime also had a phobia of food riots and virtually every city stored large grain surpluses for emergencies. This made the Soviet-style food system almost immune to breakdown. After the collapse, most people were thus able to keep a roof over their heads and to provide themselves with food. All Soviet utilities, such as heat, running water, electricity, and garbage removal, were also public and could be counted on even after the dissolution of the central state. Above all, Russian housing was overwhelmingly urban, situated near the country’s extensive public transportation network, which continued to operate.

This will not be the case in the US, whether it undergoes a sudden Soviet-style collapse or if it should, as is more likely, experience a extended period of decline.

Most Americans, who don’t own their homes, will in either case face foreclosure, eviction, and homelessness.

They will also have trouble feeding themselves, once the shelves of their suburban supermarkets, stocked by just-in-time deliveries, are emptied.

Because the entire country is built around the auto—housing, shopping, work are virtually inaccessible without it—when the economy bottoms out and energy costs become prohibitive, this car dependency will prove catastrophic. Even in the oil-rich Soviet Union, there were gasoline shortages and severe rationing.

Without significant domestic supplies of gas and without spare parts for their foreign-built autos, suburban Americans will find themselves stranded.

Orlov suspects there will be a mass exodus from distant suburbs, as people are forced to relocate to centers whose supply and distribution networks remain operative. If this should occur, the world will shrink to areas that can be covered on foot or bike, long distance and global trade will be drastically curtailed, and the key principles of globalization will become totally untenable. More generally, “the world” will become “the local” and self-sufficiency the supreme virtue.

Consumerism will then become a thing of the past. Though the Soviet economy was notorious in its neglect of consumer goods, it nevertheless made things, with some conspicuous exceptions, to last. American goods, by contrast, are produced with artificially short replacement cycles and often in plastic, which means that once the container ships stop arriving at US ports many of the consumer items that have become essential will disappear, not to be replaced.

The greater prosperity and materialism of American life also means that things most of the world considers luxuries—cars, central heating, refrigeration, flush toilets, cell phones, packaged and processed foods, washing machines and kitchen appliances—have become necessities; their disappearance will be felt more intensely than in the Soviet system of socialized poverty.

An American collapse (or decline) is likely, then, to entail shortages of food, fuel, and countless consumer items, combined with outages of electricity, gas, and water; breakdowns in transportation systems and other infrastructure, including public health; widespread shutdowns and mass layoffs; all accompanied by confusion, despair, and perhaps violence.

Society as a whole will then be forced back to a less complex mode of operation; centralized forms of control will wane; things will suddenly become “smaller, simpler, less stratified, and less socially differentiated”; regions and communities will assume a greater centrality of tasks. Whether there will ensue a Hobbesian “war of all against all” is anyone’s guess.

As the old economy begins disintegrating, old forms of capital (cash, stocks, bonds) will progressively lose their value. Trucking and airplane fleets deprived of fuel will end up as scrap. Scientific and industrial equipment may be exported as forms of exchange, along with antiques, jewelry, and art objects. Numerous jobs—cable installers, lawyers, sales representatives, plastic surgeons, store clerks, stockbrokers—will become superfluous.

Given both the social and economic dislocation this will set off, law enforcement will probably be overwhelmed, replaced in part by private security and neighborhood defense units. Many laws will be ignored. Established authorities, no longer able to ensure the security of its citizens, will almost certainly cease commanding respect and new power structures may arise. Organized criminals, gangs, former cops, and military contractors will find new employment or self-employment. (This will be a good time to be in a Private Military Company.)

As the established market breaks down, an informal economy will likely replace it—an economy that largely revolves around the liquidation and recycling of the old economy and is based on “direct access to needed resources or the threat of force, rather than on actual ownership or legal authority” (p. 61).

As in Russia, we’ll probably see old people in open air flea markets selling off their treasured possessions, middle-class people rummaging through trash, the few remaining stores under heavy security.

All this will happen to a people not only psychologically unprepared for social upheaval, but ill-suited to the harsh realities it’ll bring. Americans, in fact, have lived so long with a radical disconnect between their “culturally acceptable beliefs” and their personal experiences that they are already afflicted with various mental diseases, evident in the tens of millions of anti-depressant and mood-altering drugs they daily consume. Collapse will send a great many of them over the edge—into new fantasized stages of denial or, perhaps, into a millennial “end times” revival.

The good news is that whites will also become increasingly unsupportive of a regime that no longer delivers the goods. Indeed, because the legitimacy of America’s managerial/therapeutic regime is so closely linked to economic well-being, the latter’s breakdown will likely also either bring down the state or “hollow” it out. But whatever happens, the fall of the American system, based on a highly controlled system of “communications” and programmed consumption (i.e., on packaged goods and packaged lives), is going to lead not to the rapture, but to a very rude awakening.

This is worrisome to the degree that the most vulnerable to collapse, besides the “couch potatoes” spawned by our “prosthetic society,” are whites. For they are the most integrated into the existing system, they are the most deluded by the ideology of the American Dream (which holds that if you work hard and play by the rules, you will succeed), they are the most shorn of their former identities, culture, and communities (which assume a primary importance in times of crisis), and they lack any consciousness of being a people, based on a specific stock with a specific culture, and thus lack any consciousness of why they should act cohesively as a people.

However, once whites cease being sheltered in the bubbles of their cars or in their cubicle jobs, they will have no choice but to deal face-to-face with blacks, Mexicans, turbaned Sikhs, and the other exotic fauna that now cover their land. At this point, they may discover that a nation is not a “racial ragbag,” but a community based on a “consciousness of kind”—i.e., on a consciousness of being related in blood and spirit, of belonging to a people with a shared ancestry and a common culture.

The ensuing anarchy might similarly provoke conflict along ethnoracial lines, exacerbated by high gun ownership on both sides, that could conceivably lead to violent clashes and perhaps forms of ethnic cleansing.

Such conflict will have a far greater role to play here than it did in ethnically homogenous Russia, where communal relations remained civil, if not amicable (except in respect to Jews and other non-Russian minorities).

If American whites should remain unconscious of who they are as a people, they will almost certainly become victimized by the higher cohesion and consciousness of non-whites, whose ethnic identity, family ties, and cultural motivations are both more primitive and more powerful than theirs. The big question, then, is whether whites will passively succumb to black and brown predators, like sheep before the slaughter, or if, in an awakening, they’ll join with other whites to fight back. (I’m betting it won’t take long before they realize that it’s a matter of “us or them.”)

Relatedly, successful, middle-aged white men will be especially prone to nervous breakdown and depression—as the career, savings, and property they spent a lifetime pursuing suddenly go down the drain. Suicide, emotional paralysis, drink, and drugs will strike them at higher rates than other sectors of the population. Their fragility will be further compounded by the fact that their work experiences leave them totally unqualified for employment in a collapsed economy. Concentrated more in business, management, communications, law, sales, and information processing, they will find that non-white immigrants with practical skills as carpenters, mechanics, and general laborers are better situated to take advantage of the remaining job opportunities.

At the same time, as single households and nuclear families prove to be unviable, whites will find that extended families and friends are their most valuable assets.

The Russian family wasn’t much healthier than the American family, but economic conditions and housing shortages before the collapse helped keep marriages together, with three generations often sharing the same dwelling. And like most people worldwide, Russians also tended to live in the same locale all their lives. As a result, they had extended family ties and knew the people among whom they lived, both of which enhanced their survivability.

American whites lack these extended networks, and this is going to affect their adaptability in a broken world. To survive, they will have to rediscover the meaning of community and revive those organizations and activities that were once a mainstay of American civil society. In making the transition to a Third World lifestyle, whites then will either have to rediscover their own traditions or else revert to the sort of practices common to non-whites.

It took Russia only a decade to recover from its collapse and regain pre-collapse economic levels. This relatively speedy recovery was due to the individual Russian’s ability to adapt to crisis conditions and to the country’s vast oil reserves, which enabled their economy to bounce back relatively quickly, once world gas prices revived.

The US is not so well-situated. It will take longer to recover from whatever collapse brings, and it’s likely there will be no “recovery” from the decline of its techno-economic civilization (given the inevitable rise of energy costs and the unfeasibility of a globalized economy based on cheap energy). There’s also no single figure in the US governing elite capable of emulating the nationalist-minded Vladimir Putin, who prevented the oligarchs from turning post-collapse Russia into a colony of the world’s financial system.

But all’s not doom and gloom in this scenario. The crash, if and when it comes, will help whites shed their liberal illusions, perhaps lead them to discover what is most important in life, and, in the best of all possible worlds, prompt them to reestablish the racial-nationalist ties that once made them a great, enterprising people.

Of course, it would have been better if they hadn’t screwed around for 60 years, leaving it until the very last possible moment to recoup the Aryan qualities that will enable them to overcome the coming dark age, but better at 11:59 p.m. than never at all.

In this pre-collapse interlude, before the fall, nothing can be done to halt the inevitable or mitigate the immitigable. We are facing, in America’s world decline, not a solvable problem, but an unavoidable predicament that promises to rip apart the illusions that have animated American life for at least the last two generations—especially the illusion that unlimited growth and limitless consumption are possible in a world of finite resources.

We have, moreover, absolutely no control over what is about to happen: All our efforts would be like “wiggling our toes at a tsunami.” The only certainty now is that the process of decline has begun.

Worse, there are no oppositional parties, political formations, or extraparliamentary forces representing white interests to lead them, once the smoke clears. The impending crisis—this make or break time—comes thus at a relatively inopportune moment.

However, as individuals and, more importantly, as European Americans concerned with their people’s fate, they still have time—a civilization rarely collapses all at once, as Orlov and survivalists fantasize, but rather gradually, often over the stretch of decades—to turn inward to prepare themselves mentally for the looming economic breakdown and, as they do, to start turning outward to develop those “resilient communities” of friends, family, and fellow tribesmen,[5] who, when the moment strikes, might not only help them survive—but perhaps also prompt them to start thinking about what should succeed the failed United States.

Notes

1. Michael O’Meara, “The Widening Gyre” http://www.counter-currents.com/2010/06/the-widening-gyre/

2. Joseph A. Tainter, The Collapse of Complex Societies (Cambridge: Cambridge University Press, 1988), 5.

3. The foundational work for this view is the ecological classic: Donella H. Meadows et al., The Limits of Growth (New York: Universe Books, 1972).

4. John Michael Greer, “How Civilizations Fall: A Theory of Catabolic Collapse,” http://www.xs4all.nl/-wtv/powerdown/greer.htm

5. John Robb, “Tribes!” (March 6, 2009), http://globalguerrillas.typepad.com/globalguerrillas/2009/03/manufacturing-fictive-kinship-.html

The Japanese Economy in Structural Difficulties

The Japanese Economy in Structural Difficulties

Makoto Itoh

   more on Asia, Economics

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Makoto Itoh teaches economics at Kokugakuin University, Tokyo, and is professor emeritus of the University of Tokyo. For a more detailed analysis of the Japanese economy by the author, see The Japanese Economy Reconsidered (Palgrave, 2000) and “Assessing Neoliberalism in Japan” in A. Saad-Filho and D. Johnston, eds., Neoliberalism: A Critical Reader (Pluto Press, 2005).

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A Feeble and Unstable Recovery

According to The Annual Economic Fiscal Report (July 2004) prepared by the Ministry of Economic and Fiscal Policy, the Japanese economy is recovering from the prolonged stagnation that began with the bursting of the financial bubble in 1990–91. This recovery started at the beginning of 2002. It is characterized by the restored increase of both profitability and spending on plant and equipment in the private business sector and an increase in demand from abroad, while public spending (like public works) has been rather held down. In the fiscal year 2003 (up through March 2004) for instance, the Japanese real Gross Domestic Product (GDP) was said to have grown by 3.2 percent. Contributions to this growth rate came from the growth of domestic demand in the private sector (2.9 percent) and the growth of foreign demand (0.8 percent), offset by a mild decline in government spending (minus 0.6 percent). The annualized rate of GDP growth in the quarter January–March 2004 was said to have reached 5.6 percent and especially encouraged the official expectation of a strong economic recovery.

The Economic Outlook for the Fiscal Year 2005, a document approved by a cabinet meeting on December 20, 2004, similarly emphasized the continuous economic recovery, mainly driven by spending in the private sector. However, estimates of annual economic growth rates (by fiscal years) were sharply marked down. The real GDP growth rate in 2003 was revised from 3.2 to 1.9 percent, so as to give the impression that the growth rate in 2004 had risen. Nevertheless, the projected growth rate in 2004 was reduced from 3.5 percent in July to 2.1 percent. And the growth rate in 2005 was projected to be just 1.6 percent.

It is amazing to see such a wide revision of the most basic estimates of macroeconomic data in a short five month period. Does it not reveal the irresponsibility of the Japanese government in regard to economic management? Indeed, when the government announced in July 2004 figures showing a rather strong economic recovery—no doubt expecting a favorable effect for the governing Liberal Democratic Party (LDP) in the July 2004 Upper House election—Japanese business managers and people in general were taken aback. The announcement was very remote from what their actual experiences in business and economic life were telling them. The revised downward estimation of growth rates confirmed people’s day-to-day sense of their economic lives.

These revisions in government data show that the Japanese economic recovery is still far from full-fledged, and in fact, remains feeble and unstable. Even a reversal of the recovery may be at hand. On February 16, 2005, data revealed by the Japanese government showed GDP declining by 0.1 percent in the three-month period ending in December 2004 as compared to a forecast of 0.1 percent growth. The government also revised its July–September figures to show a 0.3 percent decline in the country’s GDP, versus the earlier declared 0.1 percent growth. The Japanese economy had contracted by 0.2 percent in the April–June quarter. Following these data, eight private research institutes revised their growth rate projections for 2005 downward, to predict, on average, a rate of 1.1 percent instead of the 1.6 percent forecast by the government. There are four aspects, as we shall examine in the following sections, which make the Japanese economic recovery (if it has indeed not already ended) structurally restrictive, unpredictable, and difficult.

International Environments

A substantial part of the Japanese economic recovery has been assisted by foreign demand. Its contribution to the 2003 growth rate, as we have seen, was assessed to be 0.8 percent, or a quarter of the total 3.2 percent growth. In fiscal year 2004, Japanese exports are estimated to reach 59.4 trillion yen, or 11.8 percent of GDP, resulting in a 13.4 trillion yen trade surplus as well as an 18.4 trillion yen international current account surplus.

A major portion of foreign demand in this recovery phase came from China and other Asian countries. Their share in the Japanese total export in 2000–03 reached 45.5 percent, doubling from 23.4 percent in 1984–87. During the same period, the U.S. share declined from 37.5 percent to 28.1 percent. If Hong Kong is added to China, their share in Japanese total foreign trade (exports plus imports) in 2004 was more than 20 percent, greater than the share of the United States. It is apparent that the high rate of economic growth in China and other Asian countries made the largest contribution to the expansion of Japanese exports.

Although growth of manufacturing industries in China and other Asian countries tends to increase their exports to both each others’ domestic markets and overseas, including Japan, it simultaneously expands demand for Japanese industrial machinery, cars, and the more sophisticated models and parts of electric appliances. Multinational-ization of Japanese corporations with direct investment in these Asian countries has been effective in inducing such expansion of Japanese exports, including intra-firm international trade.

The expanded demand for digital home appliances and cars in the United States and other advanced economies also benefited Japanese export industries. Although its relative share has been reduced, the U.S. market is still important in this regard, as it remains the biggest single-country export market, still absorbing more than 22 percent of Japanese exports in 2004. The demand of the U.S. market, however, has been maintained by three categories of mounting debt: in the international account, in households, and the state. It is clear that a huge amount of Japanese portfolio investment and other forms of lending, as well as increased foreign currency reserve assets, have directly or indirectly supported the U.S. economy’s swelling debt. At the end of September 2004, the cumulative amount of Japanese portfolio investment reached 207.9 trillion yen, and the foreign currency reserve assets amounted to 92.1 trillion yen, large parts of both of which were in U.S. dollars and in great part lent to the United States.

The international environment that has facilitated the Japanese economic recovery is full of uncertainty. It is now turning into a serious source of worry for the Japanese economy in at least three ways.

First, as domestic and international concern has intensified about the twin U.S. deficits (both in the federal budget and in the international current account), the exchange rates of the dollar against other major currencies have begun to decline. The dollar, which cost more than 130 yen at one point in 2002, and around 120 yen through most of 2003, declined widely last year and went below 102 yen at the beginning of 2005. It is feared that the dollar may decline still further. Needless to say, a fall of the dollar, or appreciation of the yen, hits Japanese exporting industries. For example, a certain model of Japanese car, which had been exported and sold in the U.S. market for 10,000 dollars to earn 1,200,000 yen with about 20 percent of profit in 2003, can earn almost no profit at the same dollar price if it yields just 1,020,000 yen. Since the exchange rates of most of the Asian currencies, including the Chinese yuan, are tied to the U.S. dollar, such difficulty for Japanese exporting industries occurs not just in the U.S. market, but also in the Asian markets. In addition, the U.S. economy seems likely to subside into a depressive phase as a result of rising interest rates (and therefore falling share prices), largely the result of the massive borrowing needs of the state. This likely U.S. slowdown would surely affect directly and indirectly (via other Asian economies) the Japanese economy.

In theory, Japan can compensate for some part of the loss in the U.S. and Asian markets by expanding exports to the EU, where the appreciated euro should facilitate Japanese exports. However, since Japanese industries have tended to concentrate on the United States and Asian countries, sending more than 70 percent of their exports there, the EU market is not yet so familiar to them and not easy to access for a rapid expansion of their business. Though they will surely endeavor to shift their business activity toward the expanding EU, it will take some time and may be obstructed structurally by the excessively strong politico-economic relationship with the United States.

Therefore, a major Japanese political reaction to the consequences of the falling dollar for the faltering Japanese economic recovery will not necessarily have an immediate bearing on Japan’s classic postwar stance. Rather, it is more likely that Japan will continue to try to mitigate the shock by buying dollars so as to increase dollar foreign currency reserves (as well as encouraging dollar portfolio investment), in effect tying the yen to the dollar in order to (at least) slow the yen’s appreciation. In a December 2003 interview, Hiroshi Watanabe, Director General of the International Bureau at Japan’s Ministry of Finance, said even Toyota might struggle with less than 100 yen to the dollar, and for medium-sized enterprises and the service sector any further appreciation in the yen would be painful. He confessed he was “somewhat puzzled” by the European Central Bank’s apparent willingness to tolerate the steady appreciation of the euro against the dollar. Like Japan, he said, the core European economies need lower interest rates and a depreciating currency (The Independent, December 8, 2003).

Japanese banks and other financial institutions also would not dare to sell their dollar assets so massively as to ignite a global monetary crisis, in fear of yet greater capital loss. Another possible reaction would be to cooperate with the United States to persuade China to allow the yuan to appreciate by pushing it into the floating exchange rate system.

Second, a further fall of the dollar must cause a huge amount of capital loss in terms of yen value. Since in September 2004 Japan had 438.5 trillion yen of estimated assets in various forms invested internationally, devaluation of the dollar and other currencies tied to the dollar by, say, 20 percent would easily cause the loss of assets valued in several tens of trillion yen. This would be the same as if a huge amount (probably more than 10 percent of Japanese GDP) of value produced by Japanese working people were given as a free gift to the United States and other countries, initially being lent and then made exempt from repayment. I am afraid that the loss would actually diminish the savings not just of wealthy persons and firms but also of Japanese working people, who have been advised to deposit their retirement savings in dollar-denominated saving accounts (so as to avoid the almost zero domestic interest rate), as well as into investment trust funds, pension funds, and insurance funds invested largely in dollar-denominated assets. Japanese banks and other financial institutions have already been seriously affected by capital loss in their dollar-denominated loans and investments. They have only just recently recovered profitability after more than a decade of struggling to cope with bad loans following the collapse of the gigantic bubble. Overcoming additional capital loss would put them in a tight and inflexible financial position. The result is that a credit crunch similar to that in the 1990s may reoccur, harming in particular medium and small businesses. Working people would then greatly suffer, since more than two-thirds of Japanese workers are employed by medium and small businesses.

Third, a strong tendency for the price of oil to rise also threatens Japanese economic recovery. From the middle of the 1980s toward the end of the 1990s, the price of crude oil remained stable and relatively low. It started to rise from a little more than 10 dollars a barrel at the end of 1998, accelerated with the U.S. military invasion of Iraq in the spring of 2003, and now has reached over 48 dollars a barrel, or nearly four times the 1998 level, at the beginning of 2005. Thus we may be witnessing the third oil crisis following the first in 1973, and the second in 1979–80. Combined with the restricted supply of oil from the Middle East due to the war, the continuous expansion of demand for oil caused by the high rate of economic growth in China and other Asian countries serves as a powerful background for the rise in price. And the rise in the price of oil has already tended to induce an increase of prices for other raw materials. The Japanese economy is particularly vulnerable to these oil shocks, as its energy import-dependency rate approaches 80 percent, by far the highest among major capitalist countries (excepting only Italy). In comparison with the previous two oil shocks, the current rise in oil price is more prolonged, but it has not yet induced general inflation. It has so far been offset in Japan by the deflationary tendency in prices of consumption goods and services caused by stagnant income among working people, global overcapacity preventing price increases by the multinationals, and the pressure of cheap (primarily Chinese) imports. Thus the rising prices of oil and other raw materials make Japanese firms fear for their profits, threatening the reversal of their profit recovery, a precious and hard won result of many years of rationalization.

Since the Japanese economic recovery has depended on a degree of export expansion, the restored flexibility of banks and other financial institutions achieved by the reduction of bad loans, and the return to profitability and new investment by private firms, the worries that affect each element in turn naturally cloud the process of recovery itself. If the concerns turn real, basic internal structural difficulties in Japanese capitalism will resurface to cause a renewed phase of depression.

Neoliberalism and the Deepening Fiscal Crisis of the State

Three major actors compose the contemporary Japanese economy: private firms; the state; and working people. The first has obviously gained disproportionately in the recent recovery process. Indeed, while profits of not a few big businesses in the first section of the Tokyo stock exchange (firms with the largest capitalization) have reported historic highs for the 2004 fiscal year, the fiscal crisis of the state has continuously worsened, and living conditions for working people remain hard and stagnant.

According to the government budget for the 2005 fiscal year, despite an increase of corporate and consumption (sales) taxes, the amount of new state bond issues (including those that roll over maturing bonds) will reach 169.5 trillion yen, the largest in history. At the end of the 2005 fiscal year, the amount of outstanding national bonds will go up to 538.4 trillion yen, for the first time more than annual GDP. If we add the debt of local governments, the total amount of Japanese public debt will swell to 774 trillion yen, 1.9 times bigger than in 1995. This amount is per capita 6 million yen (about 60 thousand dollars), and 151.2 percent of GDP, which is by far the highest among the seven major advanced countries. The second highest proportion of public debt to GDP is 119 percent in Italy, while the proportions in the other five countries remain within the range of 40–70 percent. Even in the United States, the proportion of government debt to annual GDP will be 64.9 percent in 2005 (see OECD, Economic Outlook, no. 76, December 2004).

It is quite ironic to see how Japanese neoliberal policy, supposedly targeting the fiscal deficit of the state since the beginning of the 1980s, has continuously increased the outstanding public debt and deepened the fiscal crisis of the state. Just before Japanese economic policy turned to neoliberalism under the name of administrative reform, outstanding government bonds totaled 70.5 trillion yen in 1980. By 2005 this debt has increased more than seven-fold.

Such an enormous increase of the state debt is a result of confused economic policies. On the one hand the state budget suffers from the so-called hollowing out of tax revenue by tax-rate reductions for the rich, in addition to overall lowered tax revenue due to the continuous stagnation of the Japanese economy through the 1990s. By following U.S. neoliberal policies since the 1980s, the Japanese corporate tax rate was reduced gradually from 42 percent to 30 percent, and the highest marginal income tax rate was cut down from 75 percent to 37 percent together with a substantial reduction of the inheritance tax rate, favoring the wealthy. This was done in the name of meeting global rivalry by reactivating competitive market principles for the economy. In contrast, a consumption tax of 3 percent was introduced in 1989 and raised to 5 percent in 1997, shifting the burden of the fiscal crisis of the state to the shoulders of working people in general. The consumption tax revenue is now projected to go beyond 10 trillion yen in the 2005 fiscal year, almost as much as corporate tax revenue, but it is still well short of solving the problem of the hollowing out of tax revenue.

On the other hand, the government annual expenditure has been hard to reduce. Public expenditure for social security and general education has indeed been widely cut pursuant to neoliberal policies. But so-called additional emergency economic policies, mainly public investment to construct highways, public buildings, and new bullet train line projects, have been repeatedly undertaken in order to mitigate the difficulties of banks suffering from bad mortgages based on inflated land prices and bad loans to construction companies. For example, the sum of such public spending in 1992–2000 amounted to 120 trillion yen. Japan has thus rightly been called a “construction state,” and in the face of its official neoliberal policy her government has ironically followed a Keynesian-like spending policy, creating huge budget deficits. In addition, about 30 trillion yen of public money was directly injected into banks since 1998. Military expenditure has been also hard to cut down, including the costs of supporting the U.S. military bases in Japan, the purchase of sophisticated weapons from the United States, and cooperation with the U.S. wars in the Middle East. For Japanese business circles, such military spending tends to be seen as a necessary cost in order to sell their products and carry on their activities in the U.S. market.

In addition, the rapid transition to an “aged society” makes it difficult to reduce the total budget for welfare policies even though the level of public service for individual persons has been severely reduced. For instance, the share to be paid by individual persons for their medical expenses under the public health insurance system was successively raised from 10 percent to 20 percent in 1997 and further to 30 percent in 2003.

As a result of the deepening fiscal crisis, in the 2005 state budget debt-servicing expenditure for the swelling sum of government bonds reached 18.4 trillion yen, or more than three times the total public outlay for education and promotion of science and technology. Income almost matching the sum of welfare spending is thus redistributed to owners of state bonds, in large part banks and wealthier persons. It is an evident concern that if the currently extremely low rates of interest paid by these bonds (achieved by setting the official discount rate of the Bank of Japan at 0.1 percent since 2001) rise even a little, the fiscal crisis of the state will become acute with the consequent massive increase of the cost of debt service.

It is clear that such a structural fiscal crisis of the state in both revenue and expenditure demonstrates an obvious failure of neoliberalism to reconstruct a sound budget or to reactivate the Japanese economy. The policy measures chosen to cope with the deepening fiscal crisis, while confused and inconsistent, nonetheless show a constant invariable pattern—in favor of capitalist firms and wealthier people and against working people in general and especially the weakest persons in society. Such policies expand inequality in the economic life of the Japanese people, and must by now remind even non-Marxists of the old notion of a class society.

Deteriorating Conditions for Workers

In pace with the economic recovery, Japanese official unemployment in November 2004 fell to 2.9 million, below three million for the first time in three years and eleven months. The unemployment rate improved to 4.5 percent from 5.7 percent (with 3.75 million in real numbers) in 2002. Although this official data may give an impression of a strong recovery of employment, the impression is deceptive for several reasons.

It is commonly accepted among political economists that the official Japanese unemployment statistics should be doubled if they are to be comparable with data in the advanced Western countries. The definition of unemployment is too narrow, for example, it excludes a person who did just one hour of paid work in the last week of a researched month. If doubled, a 4.5 percent unemployment rate becomes 9 percent and thus remains quite high even when compared to European countries.

Reduction in the real number of unemployed and in the rate of unemployment has not in fact resulted in a proportional increase in employment. The number of employed persons remained almost at the same level in 2002 and 2003, and increased but a little from 53.4 million in 2003 to 54.6 million in 2004. Even The Annual Economic and Fiscal Report (July 2004) recognizes that Japanese employment has probably become structurally stagnant since the latter half of the 1990s, even in the phase of recovery of private firms. In particular, employment in manufacturing industries has been continuously decreasing since 1993. The reduction in unemployment is thus rather due to an increase in the number of persons who left the labor market and gave up the search for work, either due to advanced age or due to the difficulty of finding suitable jobs.

At the same time, so-called NEET persons (not in education, employment or training) are increasing. They are already graduated from schools, colleges or universities, not married, not engaged in housework or education, and not attempting to seek jobs. According to The White Paper on Labor Economy 2004 by the Ministry of Health, Labor and Welfare, the number of NEET among the generation between 15 and 34 years old is 520 thousand in 2003 and increased 40 thousand in a year. This largely reflects the severe difficulty of finding proper jobs. The rate of unemployment in the young generation indeed tends to be high. At the end of 2003, the official rate of unemployment of persons 21–24 years old was as high as 9.8 percent. It is estimated that the number of NEET, who are not counted as unemployed, equals about half of the unemployed persons in the same generation.

Despite the slight quantitative increase in employment, the quality of employment has deteriorated. In 2002–04, part-time employment increased by about 1.5 million, while regular workers decreased more than that number. As a result wages have decreased. Compensation for employment in nominal national income account has decreased both in total amount and per capita during the recovery phase in 2001–04. Labor’s relative share in the national account has thus fallen and has been pushed back to the level of the early 1990s. It follows that consumption demand as a whole continues to remain stagnant in comparison with investment demand in the private sector, even in the recovery phase.

It should be noted as an important background factor that the power of Japanese trade unions has greatly declined. Their organization rate among employed workers fell from 35.4 percent in 1970 to 19.6 percent in 2003. In particular, neoliberal policy in 1985 privatized three state-owned enterprises—Japan National Railways (JNR), Nippon Telegram and Telephone Public Corporation (NTT), and Japan Tobacco and Salt Public Corporation—dealing a heavy blow to the most militant wing of the labor movement. The General Council of Trade Unions in Japan (Sohyo), which had been the national center of the left labor movement and was largely based on the public sector, as a result dissolved and united with the Japanese Confederation of Labor (Domei)—forming a new national organization of trade unions, the Confederation of All Japan Trade Unions (Rengo) in 1989.

This development also delivered a shock to the Japanese Socialist Party (JSP), added to by the collapse of the Soviet Union. The JSP, which with Sohyo’s support used to occupy around one-third of parliamentary seats, has steadily lost its seats. It changed its name (and character) to the Social Democratic Party of Japan (SDPJ) in 1996 and has now shrunk to a small party getting just 6 out of 480 seats in the House of Representatives in the 2003 election. The Japanese Communist Party (JCP), which had strengthened and thus managed to compensate for a small part of the losses of the JSP in the 1990s, also suffered a loss of 11 seats to get just 9 in the 2003 election.

Thus, Japanese working people have to a considerable degree lost their collective bargaining power through trade unions, as well as the representative power of their political parties. As cheaper part-timers and other types of irregular workers have increased, average wage rates have tended to fall. In 1998, protective labor laws were generally relaxed. The employment agency business was liberalized, and the range of jobs open to such business was expanded. Overtime work was deregulated. Limits on discretionary payments and the time limit of one year for part-time employment were abolished, in order to give private firms more “flexibility” to utilize cheaper (usually female) part-timers for longer periods of time. Stressful overtime work and other sorts of hard working conditions under competitive and unstable market pressure have clearly increased.

In the very process of economic recovery, cases of work-related death increased to 317, including 160 cases of notorious karoshi (death from overwork), in 2002. The number of annual suicides increased beyond thirty thousand for the first time in 1998, and reached 34,427 in 2003. The Japanese suicide rate is the highest among major advanced countries, and more than twice as much as that in the United States. Among the causes of suicides, economic and livelihood problems account for 26 percent, failures in work 6 percent, and disease 45 percent, in which mental and physical diseases more or less related to work are also included. Such increases in karoshi and suicides symbolize the uneven, deteriorating, and hard working-and-living conditions faced by the majority of Japanese workers, and stand in sharp contrast to the recovery in the profitability of capitalist firms.

The Threat of Declining Population

Another important symptom of deteriorating social conditions for Japanese working people is a sharp decline in the average birth rate. Needless to say, the average birth rate needs to be more than two per woman if population is not to decrease. It remained above two for Japanese women at the beginning of the 1970s, but thereafter fell continuously to 1.29 in 2003. Thus it is estimated that the Japanese population will begin to decline after 2006. Speculative long-term extension of this trend shows Japan’s population halved by the end of this century and back to the size of the feudal Edo period toward the end of the next century.

A fall in birth rate is more or less common in many advanced countries (excepting a few such as the United States), but Japan is among those with the highest rapidity of change. A prompt shift to an aged society upsets all the relatively stable proportions of Japan’s postwar economy. The shift threatens to undermine accustomed expectations for pension plans, medical public insurance, and educational institutions; the budget crisis of the state; and national economic vitality in relation to prospects for the growth of both consumption demand and the supply of labor-power. Thus, this aspect completes a vicious circle of the Japanese economy in structural difficulties.

Marx in Capital (vol. 1, chap. 25, sec. 4) formulates as “a law of capitalist society” that “not only the number of births and deaths, but the absolute size of families, stands in inverse proportion to the level of wages, and therefore to the amount of the means of subsistence at the disposal of different categories of workers.” He quotes Adam Smith’s statement “Poverty seems favorable to generation,” as well as Samuel Laing’s prediction that “If the people were all in easy circumstances, the world would soon be depopulated.” This law may well apply to the pressure of population explosion in many of the developing countries in the contemporary world. However, the depopulation trend in Japan and other advanced countries is not a result of easy circumstances among working people.

On the contrary, marriage has been delayed by the massive mobilization of relatively cheap female workers into automated workplaces equipped with various information technologies (IT) in the process of capitalist restructuring under the pressure of continuous depressions and neoliberal ideology. Social care systems such as access for young people to reasonably priced dwellings, guarantees for child-bearing leave, and public child-care centers, have remained quite insufficient and unimproved by neoliberal “reforms.” Under the pressure of long hours and poor wages in not very promising jobs (or the greater pressure of unemployment) the traditional pattern of raising a family in a home of one’s own has become harder for a large portion of the younger generation.

Capitalism has developed on the ground of commodification of human labor-power by disintegrating communal social units and formations. Starting with the destruction of communal feudal social orders, Japanese capitalism mobilized more and more workers into the urban labor market. The total population quadrupled since the Meiji Restoration in 1868, as a result of the abolition of feudal demographic restrictions. Especially in the postwar period of high economic growth until 1973, large families (typically with three generations) were broadly divided into nuclear families with two generations as the younger generation moved into urban capitalist work places. Thereafter under the influence of both IT in a capitalist firms-centered society and the pressure of neoliberal initiatives to meet global competition, nuclear families seem to have been further fragmented so as to expand the supply of single workers’ cheaper labor-power, as well as the demand for those highly profitable consumer goods and services—such as cell phones, personal music players, and computer games—which, by their nature, are not sold to the whole family, but to individuals.

Thus, in a sense, contemporary advanced capitalist societies like Japan are paradoxically undermining their own social foundation in the reproduction of human beings, as a result of the excessive success of the commodification of labor-power, by the formation of an extremely individualistic market society. Depopulation in Japan thus does not at all signify the easy circumstances of working people, but it is rather a symptom of a deep structural disease rooted in the basic historical tendency of a capitalist market economy, tendentiously driving societies toward atomistic individualism.

The structural difficulties in the Japanese economy, as we have seen, will be impossible to resolve through the current dominant neoliberal political stance. The capitalist firm-centered economic order unleashed by neoliberalism has deepened instability, inequality, stressful individualism, the fiscal crisis of the state, and a social crisis of generational reproduction. The relevance of Marxist political economy is surely shown in its ability to present objective analyses of the serious problems of our age in relation to the basic workings and the historical character of the capitalist market economy. Though still tragically uncertain, the restoration of democratic socialism is globally both desirable and necessary for a future worthy of all that working people have dreamed, suffered, and sacrificed. We can hope to build such a future through projects for local collaboration among people, movements against war and militarism, movements demanding improved welfare policies, trade union movements, and other forms of broad struggle against capitalist oppression of working people. For such practical responses to grow more unified and confident, they will need to be grounded in a critical understanding of contemporary capitalism. Socialist intellectuals cooperating across borders can help build that foundation.