AMERICA'S NEXT SLUMP ?
By GUNTHER STEIN
FOREIGN diplomats in Washington have a difficult time evaluating the enigmatic trend of American developments. While absorbed in the hot internal controversies that ,accompany the political struggle between the United States and the Soviet Union, and puzzled by the manifold conflicts brought to the surface in the present election campaign, they have to pay increasing attention to the rapidly growing complexity of America's economic problems. " Is America heading for a depression? " their home- offices are demanding from diplomats and trade representatives in Washington. " Is the American economy, on whose course the fate of a new world- economic order so greatly depends, once more proving as unpredict- able and unstable as before the war? " Looking around for an answer, the foreign observers see a picture which Americans them- selves find difficult to interpret in reassuring terms.
The sudden break in Stock Exchange prices was more serious than anything that has happened to Wall Street since the big crash of 1929 started the world-wide depression of the 1930's. Within two weeks the average value of American stocks suffered a loss of more than twenty per cent. For example, Du Pont (chemical) stocks fell- 25 per cent: from the year's highest price, and Chrysler (automobile) stocks fell 37 per cent. Investors lost a total amount of about £2,250,000,000 in the brek. An atmosphere of bewilderment and apprehension still prevails, and new stock issues for the purpose of expanding productive facilities are difficult to place.
Commodity prices have been rising with almost unprecedented speed since the end of June, when Congress restricted the control powers of the Office of Price Administration against the clearly expressed wish of the masses of consumers. Food prices, increasing almost daily, are now at least twice as high as they were before the outbreak of the war in 1939. The purchasing-power of the dollar, measured in terms of the price-level as a whole, is now thirty per cent. lower than it was nine months ago—when the British loan first reached Congress for ratification. Yet prices continue to rise.
The 'unequal struggle between the unorganised consuming public and the well-organised manufacturers is becoming more pronounced. Consumers are beginning to postpone their least urgent pur- chases, hoping for lOwer prices of manufactured goods and trying to preserve as much as possible of their unequally distributed war-time savings. Manufacturers, on the other hand, expect to enforce an even more drastic rise of prices as the weakened Office of -Price Administra-
tion is gradually being liquidated, and are therefore holding back a large part of their output, which is quickly approaching the tremendous volume of its full post-war capacity. Extraordinarily large stocks of manufactured goods are thus piling up, and the great question is what will happen when, sooner or later, greatly increased supplies of goods rush into the retail shops.
Strikes for higher wages, however, remain an even more burning economic problem. The maritime strike, the largest in America's history, paralysed all foreign and domestic shipping. It is considered the last big event in the " first round " of post-war strikes aimed at seeking compensation for the workers' increased cost of living. For most other industries obtained considerable wage-gains in earlier strikes, through which the record total of 12o,000,000 man-days were lost to the nation's economy during the first half of the year. But these earlier wage-gains have almost been wiped out in the mean time by the accelerated rise in the cost of living, and fresh wage demands are already being made. A " second round " of strikes is freely predicted for the winter unless industry yields to the demands of trade-union leaders to reduce the prices of manufactured goods and thus to set an end to the price-wage race which frightens labour no less than management.
Closely connected with the unprecedented strain in labour- management relations over the wage-and-price issues and the mutual bitterness it entails is the problem of reduced productivity of factory labour, i.e., the comparatively low efficiency of workers, which keeps manufacturing costs high. Opinions differ as to the degree to which the average hourly unit-output of workers has actually fallen, or at least failed to increase with the war-time improvements of machinery. But recent inquiries from large numbers of industrialists indicate that the. fall- in labour's productivity below pre-war standards in a good many lines of production may be as much as r5- to 35 per cent. There are many complaints about a degree of absenteeism and indifference of workers altogether new in the experience of American industry.
In the face of all these problems the administration in Washington appears more and more torn between the two camps which advocate, on the one hand, the abolition of all restrictions on free enterprise with the aim of restoring to it-the rugged character of earlier American pioneer days and, on the other, a revival and extension of the Roose- veltian policies of firm government leadership in the interest of improved social security and economic stabilisation. People in both camps are gradually realising that an economy which is " half-free and half-controlled," as at present, suffers from the disadvantages of both systems rather than enjoying the advantages both of freedom and control. But the balance of political power is too delicate these days, and the administration of President Truman seems too un- decided as to which side to choose in its approach to many fateful problems to make the resultant drift from compromise to compromise surprising to anybody. Moreover, it appears now that government officials, economists, industrialists and trade unionists have learned less than had been assumed from past experience where clear judge- ment of the course of business cycles in the American economy, the timely forecasting of downward trends and agreement on adequate means of fighting them are concerned.
Six months or so ago there were still a large number of govern- ment and business leaders who refused to accept the dictum of sceptics that serious business crises were inevitable in the present American economic system. Today, most people seem to see a disturbing parallel between the present trends and the developments that took place after the first world war. Twice during the inter- war period—in 1920 and 1929.---sudden breaks on the Stock Exchange proved to be the forerunners of sharp business crises. Twice, some time after the Stock Exchange breaks, consumers were victorious over producers who driven up prices beyond their reach ; but those victories were of a pyrrhic character, because with falling prices they brought about drastic cuts in production, unemployment and bank- ruptcies. Both times the inflationary price-wage spiral resulted in paralysing crises. That of 192o-21 was short-lived and compara- tively mild, while that of the early 1930's, the most severe economic crisis in history, was finally overcome only when the war provided full use for all the available men and. machinery under a highly successful system of governmental price and wage control. The only question now in the minds of most Americans seems to be how soon the slump will come and whether it will be short-lived and com- paratively mild, as in the early 'twenties, or whether it will lead directly, if slowly, to a major depression like that of the 'thirties.
Characteristically, a recent public-opinion poll showed that 6o per cent. of a representative cross-section of the American people believed in the inevitability of a depression. Only 20 per cent. expected that it could be avoided, while the rest gave no opinion. A separate inquiry from prominent Americans resulted in a strikingly similar picture of opinion among the best-informed people. The average time at which the pessimists expected a full-fledged de- pression was five years. But this poll was taken before the break on the Stock Exchange and the intensified accumulation of manu- factured goods in industry awakened many Americans to a more acute sense of economic danger.
This is what foreign diplomats and trade representatives must report today to their home offices. Those of the " capitalistic " nations have obvious reason to be apprehensive about developments in America ; for what their countries need in the interest of economic recovery and progress is a stable and prosperous America that will be able to buy and sell and lend in the world markets at a steady rate and in increasing volume, at prices and interest rates that will not fluctuate greatly on account of domestic disturbances, as they did between the two world wars. But there are many indications that the Soviet Union and its satellites rather than welcoming the prospect of economic crisis in the United States, are equally dis- turbed about the fresh proof of the instability of America's economy. For their very fear of the United States is probably not due quite so much to the atom bomb and the present firmness of American diplomacy, as to their Marxist interpretation of capitalistic develop- ments, according to which " capitalism must breed depression, and depression must breed war." Any confirmation of its theory that Moscow may believe it sees in the apparent course of the United States toward a depression automatically enhances- its speculative fear of eventual war and its political reaction by way of " protective " expansionism.
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