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Was our analysis of the world economy right

Marxist Analysis · 2026-05-13

Core Argument

The article argues that the Marxist analysis of the world economy published in 1997 — which predicted a coming slump of historic proportions — remains fundamentally correct despite the apparent recovery in the advanced economies by 1999. The central claim is that the post-war boom exhausted itself in the mid-1970s, and capitalism has since entered an epoch of increasingly sharp downturns interrupted only by weak upturns. The temporary stabilisation in the US, Sweden, and parts of Southeast Asia does not refute this perspective; rather, it represents a delay, not a cancellation, of the deeper crisis. The "new economy" thesis — that information technology has overcome the tendency to crisis — is dismissed as empirically unfounded, resting on productivity gains concentrated in a tiny sector (computer manufacturing) while the rest of the economy stagnates. The article insists that the structural features of the current period — extreme stock market overvaluation, massive credit expansion, currency speculation, and intensifying trade wars — resemble the 1920s more than the 1960s, and that a deep recession is inevitable.

Theoretical Grounding

The analysis is grounded in the Marxist theory of crisis, particularly the understanding that capitalism's periodic slumps are not accidents or policy failures but expressions of the system's internal contradictions. The article draws on the classical Marxist tradition's emphasis on the rate of profit and productivity as fundamental indicators of capitalist health. It explicitly rejects the notion that technological innovation — in this case, information technology — can transcend the law of value or suspend the tendency for the rate of profit to fall. The argument that productivity gains are concentrated in a narrow sector and that overall productivity growth remains weak is a direct application of Marx's distinction between productive and unproductive labour, and his analysis of how technological change under capitalism tends to cheapen constant capital relative to variable capital without resolving the underlying contradictions.

The article also deploys a Leninist understanding of imperialism, arguing that trade wars and proxy conflicts are not aberrations but expressions of the inter-imperialist rivalry that intensifies during periods of economic downturn. The comparison with 1914 is deliberate: globalisation, measured by trade and investment as a proportion of total output, was as advanced then as now, and it culminated in world war. The article situates itself within the Trotskyist tradition's insistence that the epoch is one of capitalist decay and that reformist or Keynesian solutions are incapable of restoring stable growth.

Conjunctural Relevance

The article was written in 1999, at a moment when the Asian financial crisis of 1997–98 had receded and the US economy was experiencing a strong recovery driven by the dot-com bubble. The conjuncture it addresses is the apparent vindication of "new economy" triumphalism — the claim that information technology had abolished the business cycle. The article counters this by pointing to specific data: US stock market capitalisation at 150% of GNP, nearly double the 1929 record; price-to-sales ratios of 50, compared to 1929's price-to-earnings ratio of 50; productivity growth outside computer manufacturing described as "abysmal"; and the qualitative escalation of trade conflicts, including US tariffs on European goods over hormone-treated beef, which the article treats as a harbinger of more serious trade wars.

The geopolitical dimension is also sharply drawn. The article identifies three main imperialist blocs — the EU, the US, and Japan — and notes that the EU's internal cohesion is increasingly built around excluding the others. It points to proxy wars in Africa (Sudan, Zaire, Congo) and the wars of Yugoslav succession as expressions of German–American rivalry. The argument that trade wars will intensify because direct military confrontation is deterred by nuclear weapons and working-class strength is a specific conjunctural judgement that distinguishes the current period from the 1930s.

Where the Argument Continues

The article explicitly promises a follow-up — "Why it has been delayed will be discussed in an article in the next issue of Socialisten" — indicating that the theoretical question of why the predicted slump had not yet materialised was left open. This is a critical point: the article correctly identifies the structural instability but does not fully explain the mechanisms of delay. The broader corpus of In Defence of Marxism addresses this through analyses of fictitious capital, the role of the Federal Reserve, and the expansion of consumer credit as temporary counter-tendencies. Later articles on the 2008 financial crisis, the 2010 eurozone crisis, and the post-2020 inflation surge can be read as confirmations and extensions of the framework laid out here. The argument also connects to the Marxist theory of imperialism developed by Lenin and Bukharin, and to Trotsky's analysis of the interwar period, particularly his writings on the 1929 crash and the rise of fascism.

Connections

The article should be read alongside:

  • Trotsky, The Crisis of World Capitalism (1931) — for the method of analysing a conjunctural crisis within the framework of capitalist decay.
  • Mandel, Late Capitalism (1972) — for the theory of the long wave and the structural crisis of the post-war boom.
  • Marx, Capital Volume 3, Part 3 — for the law of the tendency of the rate of profit to fall and the counteracting factors.
  • Lenin, Imperialism, the Highest Stage of Capitalism (1917) — for the analysis of inter-imperialist rivalry and the export of capital.
  • In Defence of Marxism articles on the 2008 crash — for the continuation of the argument and the confirmation of the prediction of a deep slump.
  • Against the Stream episodes on fictitious capital and the debt economy — for the mechanisms of delay that the article leaves open.

Key Quotes

  1. "The post-war boom had exhausted itself by the mid-seventies. Since then capitalism has moved into an epoch of increasingly sharp downturns, interrupted by only weak upturns."

  2. "If computerisation, or anything else for that matter, does not decisively raise productivity none of capitalism's basic problems can be solved."

  3. "The American stock market is valued at 150% of GNP, which is almost double the previous record set in 1929 and far beyond the average of about 50% of GNP."

  4. "The immense increase in share prices this year has laid the basis for an even more substantial crash."

  5. "The ground has been prepared for a thirties style downward spiral in world trade. Tariffs and competitive devaluations meant that 2/3 of world trade disappeared between 1929 and 1933."

  6. "Our basic analysis of the epoch is still correct. The downturn and stock market crash last year and in the Autumn of 1997 was not the recession. The system is now so unstable that it can be thoroughly shaken by events in one small part of the economy."