In contrast to the demoralized petty-bourgeois radicals who have convinced themselves that capitalism is entering a second golden age, the most far-sighted representatives of capitalism are aware that the breakdown of US hegemony, the growth of transnational production in what is commonly referred to as a global economy, the intensification of trade rivalries and the impact of technological advances pose potentially insoluble problems. One such representative, W. Michael Blumenthal, the former US Treasury Secretary, recently wrote: “Purely national action on domestic policy and exchange rates has been rendered essentially obsolete by the growth of a true world capital market of gargantuan size and many interconnections—the vast range of financial innovation with its array of new money and money-like instruments crisscrossing through the world’s computers and telecommunications networks, without regard to borders, as fast as the speed of light. The very question of what is the national money supply is no longer easy to answer. Determining how to control the money supply nationally becomes equally difficult. The rules of the game have changed fundamentally... Simply stated, it is that technology is rapidly making the basic notion of national sovereignty obsolete in many areas of economic affairs—at least for some of the major nations of the world, and ultimately for most.... The conclusion is inescapable that technology has created a world no longer effectively composed of individual economic entities. Thus, if we continue to act as if nothing has changed, our persistence in applying strictly national policies is bound to prove frustrating, and often counterproductive as well” (Foreign Affairs, Vol. 66, No. 3, pp. 585-95).

The advances in technology are not, in themselves, the cause of the crisis which Blumenthal cannot help but recognize. Rather, his description verifies the analysis presented by Trotsky more than 70 years ago: “The forces of production which capitalism has evolved have outgrown the limits of nation and state. The national state, the present political form, is too narrow for the exploitation of these productive forces. The natural tendency of our economic system, therefore, is to seek to break through the state boundaries. The whole globe, the land and the sea, the surface as well as the interior has become one economic workshop, the different parts of which are inseparably connected with each other. But in accomplishing it the capitalist states were led to struggle for the subjugation of the world-embracing economic system to the profit interests of the bourgeoisie of each country. What the politics of imperialism has demonstrated more than anything else is that the old national state that was created in the revolutions and wars of 1789-1815, 1848-1859, 1864-1866, and 1870 has outlived itself, and is now an intolerable hindrance to economic development” (War and the International).

Under capitalism and its nation-state system, it is impossible to realize a harmonious development of the world economy. The concept of an “ultra-imperialism,” in which inter-imperialist conflicts are permanently subordinated to the joint exploitation of the globe by capitalist cartels, is as reactionary a fantasy as it was when it was presented decades ago by the arch-revisionist, Karl Kautsky. The idea that inter-imperialist antagonisms had been entirely superseded by the conflict between the imperialist powers and Soviet bloc, originally advanced by Pablo and later promoted by Banda and Slaughter, was nothing less than a petty-bourgeois adaptation to the temporary hegemony of American imperialism within the framework of the Bretton Woods system.

This conception, which implicitly accepted the proposition that imperialism had successfully resolved the contradiction between world economy and the nation-state system, has been exploded by the undeniable development of the most intense inter-imperialist antagonisms since the end of World War II.

There are innumerable statistics which can be cited to demonstrate the loss of US hegemony in the world market. From 1950 to 1976, the American trade balance oscillated between a surplus of $6 billion and a deficit of $9 billion; from 1977 to 1981 there were persistent trade deficits of between $25 billion and $34 billion. The trade deficit in 1982 was $36 billion and by 1985, it had reached $125 billion. Until the 1970s, the US imported raw materials and petroleum and exported manufactured and capital goods. The situation is now the reverse. In 1985, the United States’ five leading exports to Japan were yellow corn, soy beans, bituminous coal, wheat and cotton, while its imports from Japan were motor vehicles, office machines, consumer electronic products and semiconductors. The US share of auto production fell from 65% in 1965 to 20% in 1980. Between 1980 and 1984, the United States lost 23% of its export market share. The position of the steel industry vividly illustrates America’s loss of its once unchallenged supremacy as the premier industrial power. The United States produced 39.3% of the world’s steel in 1955. By 1975, that percentage had fallen to 16.4%. In 1984, it was just 8.4%. Between 1973 and 1983, US steel production fell 44%. In the 1950s, US integrated steel companies supplied more than 95% of the American market. Now their share is less than 60%.

A no less overwhelming mass of statistics exists to demonstrate the rise of Japan as an industrial and financial power, figures which are all the more astounding when compared to the indices of America’s decline. During the past quarter century, there has been an exponential increase in trade between the United States and Japan, but the growth in Japanese imports has exceeded by far that of US exports. In 1960, the United States sold $1.4 billion in goods to Japan and purchased $1.1 billion. By 1985, the US was exporting $22.6 billion worth of goods and importing $68.8 billion. When adjusted for inflation, this represents a fivefold increase in exports and an eighteenfold increase in imports. In 1960, per capita income in Japan stood at just 30% of the American level. By 1980, it had grown to about 70%. Between 1960 and 1980, there was more than a 300% increase of Japan’s total share of the world’s GNP.

Japan’s role in global finance has undergone a no less dramatic growth during the last 20 years. Japan’s net foreign assets are now close to $300 billion, compared with a net foreign debt of $264 billion for the United States. Seven of the eight largest banks in the world are Japanese. There are 25 Japanese banks in the world’s top 100, and 98 in the top 500. They account for 25% of all international bank loans. By comparison, US banks have just 18% of all international loan assets. Twelve of the 25 largest banks operating in the City of London are Japanese. In 1986, the Tokyo Stock Exchange became the largest in the world, accounting for more than one-third of world stock value. If the size of the New York Stock Exchange is not included, Tokyo’s is bigger than all other exchanges in the world combined. Nomura Securities Co., with its market capitalization of $54 billion, is more than 10 times that of its largest American competitor, Merrill Lynch & Co. These statistics reflect conditions prior to the Wall Street crash of October 1987, from which Tokyo share prices have fully recovered, while those of Wall Street remain far below last year’s highs. Apropos the Wall Street crisis, in a perceptive analysis which appeared in Foreign Policy, a key bourgeois journal which reflects the thinking of important sections of the ruling class, one economist declared flatly that “the 1987 crash marked a significant step in the transfer of economic and financial power from the United States to Japan” (Spring 1988, No. 70, p. 71).

The global competition of Japanese and American capitalism is assuming an ever-greater intensity. Throughout the world and within the United States itself, the ruling classes struggle furiously for control of export markets as well as access to raw materials and sources of “cheap” labor. With the sharp fall of the dollar, the Japanese have rapidly increased their financial and industrial position in the United States. Five out of the 11 largest banks in California are Japanese-controlled, and their banking assets in that state alone are believed to be in the area of $25 billion. In response to the movement in the US Congress for protectionist legislation against Japanese imports, Japan’s industrialists and financiers are expanding their network of foreign production facilities. They are relying increasingly on South Korea, Taiwan, Spain and Mexico as foreign assembly platforms from which goods, evading protectionist measures, can be exported into the United States.

The disparity between the economic power of Japan and its weak military posture, and, inversely, between the decline in the world economic position of the United States and its overwhelming military superiority, serves to intensify, rather than mitigate, the antagonism between the two imperialist rivals. The Japanese bourgeoisie cannot help but feel that its political and economic ambitions are constantly frustrated by American interests which are, in the last analysis, backed up by the latter’s military power. The deployment of the American task force in the Persian Gulf was intended not only to threaten Iran, but also to remind the Japanese that their lifeline to oil supplies in the Middle East can be cut at any moment by the United States. This action could not fail to remind the Japanese bourgeoisie of its country’s desperate lack of raw materials, which, given its present level of development, is a greater danger than it was in 1941. In the long run, such a state of affairs is intolerable for the Japanese bourgeoisie.

The inevitable intensification of the conflict between Japan and the United States is a profoundly destabilizing factor in the affairs of world imperialism. The hegemony of American imperialism during the two decades following World War II and the apparent mitigation of inter-imperialist antagonisms were the political prerequisites for the expansion of world trade upon which the postwar boom was based. The breakdown of that hegemony and the fracturing of inter-imperialist relations along the same geographic and economic fault lines which produced World War II augurs a new period of explosive disequilibrium and illustrates the organic inability of the bourgeoisie to unify the world market on a peaceful and progressive basis. Indeed, according to the same economist quoted above, the conflict between the United States and Japan threatens “an experience similar to the 1930s: financial turmoil and beggar-thy-neighbor policies sliding toward worldwide depression and perhaps even war” (Ibid., p. 82).

In the affairs of world imperialism, Europe still plays a major role. The oldest bourgeoisie in the world has by no means withdrawn from the struggle for world domination. Rather, the plans for the establishment of a single European market in 1992, without border controls or customs, and possibly with a single currency, are closely linked to the growing inter-imperialist antagonisms between the United States, Japan and Europe. With 320 million inhabitants, Europe potentially comprises the biggest capitalist market, and the European bourgeoisie hopes that the proposed 1992 consolidation will enable it to remain internationally competitive. The United States has issued a sharp warning to the Europeans, threatening retaliation against any attempt to exclude American goods from the unified market.

These plans for the creation of the so-called single market no more denote the abolition of the nation-state system than peace treaties between imperialist states signify the abolition of war. The genuine economic unification of the European people cannot be realized under bourgeois rule. In fact, the negotiations over the creation of a unified European market have unavoidably revealed the depth of national antagonisms and demonstrated the impossibility of creating a unified capitalist Europe. British Prime Minister Thatcher has ridiculed all talk of superseding the nation-state organization of Europe as “airy-fairy,” and it has been generally acknowledged that the most enthusiastic proponents of “European unity,” i.e., France and Germany, are basing their position entirely upon calculations of the benefits that it will bring to their own national capitalism. But above all, the main goal of the single market plan is the intensified exploitation of the European working class. The recent wave of mergers, such as the fusion of Swedish ASEA and Swiss Brown Boveri, are bound up with plans for mass layoffs and attacks on working conditions. Already, more than 16 million workers in Europe are unemployed, of whom more than one-third are under the age of 25.

Moreover, each European bourgeoisie insists that its national capitalism cannot compete within the planned single market if the workers of its country enjoy better social programs and higher wage levels and working conditions than those in neighboring countries. Thus, the Belgian government has prohibited all wage increases and demanded that cost-of-living clauses tying wage levels to inflation rates be reduced. The Danish government canceled cost-of-living bonuses for two years in 1985, and parliament has passed a law invalidating all agreements on cost-of-living raises. In West Germany, the trade unions have agreed for the first time to three-year wage contracts (in place of one-year agreements) without any terms for renegotiating the agreement in the event of inflation.