Recession Or Slump ? RUSSIAN WATCH ON AMERICAN ECONOMY

Press, Volume XCVII, Issue 28532, 11 March 1958, Page 12

Recession Or Slump ? RUSSIAN WATCH ON AMERICAN ECONOMY

[By ISAAC DEUT SCHER)

London, February 25.—Nowhere outside the United States is the course of the American recession watched as intensely as it is in Moscow. Indeed, to no event since the launching of the sputniK has the Soviet ruling group attached as much importance as it attributes to the fact that the mass of unemployed men in the States has swelled by one million in a single month —the month of January. Moscow sees this as a potentially new factor in the international situation, a factor which may weigh on the background against which the next Summit meeting takes place. Mr Khrushchev’s experts have now to provide urgent answers to these questions: Is it a recession or a slump? How rapidly is unemployment likely to grow between now and the next summer, when the leaders of East and West are expected to meet? How would an American slump affect the Soviet Union? What would be its impact on American and Western foreign policy? In what way should Soviet diplomacy adjust itself to the new situation?

For a year or so Soviet economists have tried to find out whether the United States was heading for a recession or a slump. The party’s Presidium had apparently been anxious to obtain a sober and undogmatic prognostication, and it allowed them to thrash out the issue freely. Consequently, some division of opinion has been revealed. The long postwar boom in the West has not failed to impress a few Soviet economists, who have argued that a repetition of a slump of the 1929 type should not be expected, that the course of the normal capitalist trade cycle has undergone a considerable modification, that it has been substantially affected by massive armament expenditure, and that the ability of the present bourgeois governments to control the ups and downs of the economy by means of quasi-Keynesian techniques should not be lightly dismissed. Marxist Analysis Other economists, however, while not denying that there are new elements in the situation, have insisted on the basic validity of the Marxist economic analysis and have expressed the view that a slump has been almost overdue, that even if it were delayed by another year or two, it is bound to develop, and that its consequences for the Western economy should be no less devastating than were those the great depression. This school of thought may see tjie latest developments as a confirmation, or the beginning of a confirmation, for its view.

Officially, however, Moscow has not so far committed itself to any firm forecast. It has seen its experts so many times making fools of themselves and issuing the wildest predictions about imminent slumps, that it now prefers to wait and see. Meantime, Soviet economists can point out that the fact that a million Americans have lost their jobs within one month, and that this has come as a surprise to the Administration, is in itself evidence of the continuing anarchy of the capitalist system. If some American experts see ground for optimism m the circumstance that the contraction of output has so far been confined to industries producing capital equipment and durable consumer goods, many Marxist economists see precisely these sectors as being of decisive importance and hold that the slump is going to spread to other sectors as well. According to this view, in order to arrest its automatic spread, the Administration would have to step up expenditure cn armament and public works far above the point to which it can afford to step it up. Industrial Contest

Whether the American economy is going through a recession or a slump, the Soviet Union is already placed in more favourable conditions for its industrial race with the United States. This year’s Soviet steel output will approach 55 million tons. If American steel mills produce only at 55 per cent, of capacity, i.e. 65-70 million tons, Russia’s lag in actual output will be unexpectedly and dramatically shortened. (It should be remembered that 10 years ago the Soviet output was only a small fraction of the American). Just how large Russia’s gain may ultimately be is another question. If American industry recovers next year, Russia’s advantage will be only transitory, although not negligible. But if American output continues to drop, or if it picks up only slowly, or if the recession is followed by stagnation, then the balance of industrial strength between the two countries may be decisively altered in favour of the U.S.S.R. In heavy industry the U.S.S.R. may then win the race already in the course of the next trade cycle. Moscow is confident that the political consequences of such a development would be felt far beyond Soviet frontiers. The morale of the satellite countries would be affected in the first instance. The great attraction which the West has exercised on Poles and Hungarians would be significantly weakened. So far most people in the satellite countries have contrasted their own poor living conditions with Western prosperity and have incredulously and contemptuously dismissed all that Communist propagandists have told them about the evils of contemporary American and Western European capitalism. But their resistance to Communist propoganda would be sapped if the West were to present once again a picture wholly or even partly reminiscent- of the 1930’5. The end of the so-called Adenauer miracle in Western Germany and the appearance of mass unemployment in the Ruhr area might cause even East Germans to appreciate the relative benefits of a Communist government which, whatever its failures, could guarantee them full employment. Such a change in morale might have far-reaching consequences. If a Western slump were to boost up the prestige of communism in Eastern Europe, Communist regimes there might cease to depend for thejkr survival on Soviet military backing; and Moscow

might in time come to consider a military withdrawal from Eastern Europe much more favourably than it has viewed it so far. Russian Feelings Mixed

Immediately, however, Moscow is concerned mainly with the effect which a slump or a serious and protracted recession may have on American policy. The more sophisticated Soviet pundits certainly view the prospects with mixed feelings. A deep slump in the West may not necessarily bring only benefits to Russia. Of necessity, Marxist analysts take the view that an extreme disorganisation of the capitalist economy would stimulate trends of political irrationalism in Western society, let loose waves of mass panic and hysteria, sap parliamentary regimes and in some countries, awaken the sleeping dogs of fascism, and accentuate all international antagonisms and rivalries. The period that has elapsed since the Second World War has been (despite cold war, nuclear terror, armament races, peripheral conflicts, and colonial wars) an era of relative international balance and stability, marked by the prevalence of parliamentary regimes in the West and by a relatively pacifist climate of opinion. In this respect the 1950’s have not been unlike the 1920’5. But between the two world wars, the American slump of 1929 marked the great divide between a decade of comparative stability and a decade of social and political cataclysms which ended in world conflagration. Has the world perhaps now reached another such divide? Is it again entering an era of acute disequilibrium comparable to that of the 1930’5? The Presidium of the Soviet Communist Party is certainly reckoning with such a possibility, even if it has no definite answer to the question. And although the Soviet Union is far better equipped to face this prospect than in the 1930’5, it cannot face it with equanimity. The Soviet rulers may find the West, unsettled and in the throes of economic crisis, to be far more incalculable than they have found it hitherto. This, however, may be the long prospect stretching over the next decade. In the short run, Moscow seems to expect that the economic deterioration will affect American and Western policy in a different sense. If President Eisenhower’s Administration were to prove unable to control the trend and if recession were to turn into a slump, the ensuing drop in national income and electoral pressures would compel the Administration to make heavy cuts in taxation and armament. America’s unemployed men- might then break the deadlock over disarmament that the diplomats have been unable to break. Trade Restrictions

They might also help to break the restrictions which are now in force on Western trade with the countries of the Soviet block. Moscow already points out that trade with those countries may offer the West an opportunity to mitigate its economic plight The Soviet leaders are watching with discreet satisfaction the steps which the British Government has already taken in order to impress upon its N.A.T.O. allies Britain’s need to trade with the Communist block. Japan, anxious about the future of its economic relations with the United States, is also chafing at the trade embargoes and striving to obtain freedom of intercourse with China. The American Administration may still be reluctant to abandon the trade embargoes; but wnat will its attitude be, Moscow wonders, if unemployment sweeps American cities?

In any case, Moscow’s propagandists will appeal to the jobless workers of the West and tell them: “You want jobs? You are haunted by fear? You do not want to live on the dole? Well, then, why don’t you press your governments and industrialists to trade with us? We and China are prepared to place massive orders with your industries. It is in your interest that your capitalists and politicians should not interfere. Trade with us is a partial cure for the plague of unemployment.”

Meantime, Mr Khrushchev has his eyes glued to the economic barometer: How many millions of unemployed is the United States going to have by the middle of the year? he asks. Five? Six? Or perhaps 10? This is much more important to him than all the longwinded epistles that his colleague, Mr Bulganin, has been exchanging with President Eisenhower, Mr Macmillan, Mr Gaillard, Mr Adenauer, and a host of lesser Prime Ministers.—(World Copyright Reserved.)