The growth of debt has played a central role in the impoverishment of the backward countries and is a central element in the world economic crisis. The decade since the end of the world recession of 1973-75 has been characterized by an astonishing growth in world financial debt, which has been fueled by an extraordinary mobility of international capital, with vast sums crisscrossing the globe in search of whatever investment promises the quickest and largest return. Minute changes in international exchange rates are themselves the cause of massive shifts in financial assets from one part of the globe to another. Daily foreign exchange trading in the United States rose from less than $1 billion in 1969 to $34 billion in 1983. Worldwide, it rose from $75 billion in 1979 to over $200 billion in 1986.
This frenetic activity has contributed nothing to the development of the productive forces of mankind. The chief result of the drive for profits is glutted markets and a massive edifice of international debt. The furious competition in the world capitalist economy has created overcapacity in finance, basic industry and in commodities. The transition from the oil boom investment of the 1970s to the oil “bust” of the 1980s is the best illustration of this process. The same anarchic drive for profits which produced the overcapacity now requires its destruction through the traditional capitalist technique of plant closings and mass layoffs. This process has decimated the steel industry in the United States and Europe and has been in progress in the auto industry throughout the decade and will continue into the 1990s.
Debt looms like a dark shadow over the global economy and its implications are recognized by all capitalist economists to be potentially catastrophic. Entire countries have been virtually bankrupted by debt levels which can be only partially serviced through the drastic increase of exports at the expense of the utter impoverishment of the masses. By 1982, the external debt services as a percentage of exports had already reached 179% for Argentina, 129% for Mexico, 122% for Brazil, 95% for Venezuela, and 91% for the Philippines. For all the indebted Less Developed Countries, the ratio of debt to exports has increased from 132.2% in 1978 to 179.5% in 1986. During the past decade, the ratio of debt to Gross Domestic Product for the debtor LDCs has risen from 25.6% in 1978, 33.8% in 1982 to 40% in 1986. When considered on a per-capita basis, the level of debt for Latin American countries is staggering. In Argentina, it is $1,662; in Bolivia $622; in Brazil $791; in Chile $1,740; in Costa Rica $1,615; in Mexico $1,261; and in Venezuela $2,000.
Within the United States, the debt figures reveal the internal rot of American capitalism. The federal debt, which stood at $914 billion in 1980, had grown to $1,841 trillion in 1987, or 37% of the GNP. Net interest on the debt rose from $23.2 billion in 1975 to $42.6 billion in 1979 to $129.4 billion in 1985, or 13.7% of the budget. The total public and private debt has grown from $1.6 trillion in 1970 to over $8 trillion in 1980. The growth of corporate debt not only exposes the fragility of the entire structure of American business; it also represents an indictment of the workings of capitalism, where the drive for profit undermines the very process of production and prepares the ground for catastrophic crises.
The reorganization of American industry, which has been celebrated in the capitalist press as heralding a rebirth of US competitiveness in the world market, has, in reality, represented a gross and unproductive squandering of resources. The megamergers of the 1980s have had as their central aims the weakening of the working class, the intensification of the rate of exploitation, and the offsetting of the decline of the rate of profit. Banks and brokerage houses were hardly unmindful that the “merger mania” generated immense paper profits. Prior to 1980, there were only 12 mergers costing more than $1 billion. But between 1980 and 1985, there were 45. There were 25 such multibillion dollar mergers in 1985 and 33 in 1986. Four thousand firms spent $200 billion restructuring in 1986, and 12,200 companies, valued at $490 billion, changed hands between 1983 and 1987.
This reshuffling of assets invariably involved massive loans, e.g., $12 billion to Arco in its unsuccessful attempt to take over Gulf, $1 billion to Gulf to fight a takeover bid by T. Boone Pickens, $14 billion to Socal to finance its merger with Gulf, etc. As a consequence of this merger mania, corporate debt has risen to stratospheric levels. In 1950, the average American corporation had $43 for each dollar it paid in interest. By 1982, the ratio of assets to interest payments had fallen to four to one. In 1983, debt rose by about $60 billion and equity by $30 billion. In 1984, new corporate debt rose by $169 billion, while equity fell $78 billion. In 1985, the debt rose by yet another $145 billion. In a large number of industries, profits were not large enough to cover fixed interest and preferred dividend charges. While the size of the debt has grown continually larger, the duration of its terms has grown progressively shorter. Short-term debt of less than one year rose from $40 billion in 1976 to nearly $100 billion in 1984. By 1985, some 47% of pretax profits went into debt service, and over half the debt was short term. As to the quality of the debt, in 1985 junk bonds made up 25% of all new corporate issues.
The unsustainable character of this gargantuan structure of debt is obvious. The much-feared but inevitable onset of a recession will place unbearable strains upon the whole system and threaten a chain reaction of corporate bankruptcies. Moreover, as Trotsky noted more than 65 years ago, the growth of fictitious capital is the mirror reflection of the bankruptcy of the capitalist economy. All the billions in debt represent claims on capital which has either ceased to exist or which has yet to be created. From the capital that no longer exists, nothing can be extracted. It is from living labor, the working class, that the capital to sustain the debts must be derived. And that can be accomplished only through the intensified exploitation of those who work and the simultaneous reduction of the workers’ share of the national income.
The implementation of this policy depends entirely upon the collaboration of the agents of the bourgeoisie in the workers’ movement. But these traitors, despite their willingness, will not prove equal to the task. The rebellion of the working class against the consequences of the profit system is an inevitable product of the crisis of the capitalist system. It remains the historic responsibility of the Fourth International to direct that rebellion along revolutionary lines.