Part IX: The Overproduction Crisis in the Late 1990s

During the second half of the 1990s and Clinton’s second Administration, profits continued to grow, but at slower and slower rates, falling back nearly to the annual increases of the first half of the 1980s. It is precisely then that Bill Clinton determines that defense spending be increased. Corporate after tax profits (according to the Bureau for Economic Analysis) moved as follows:

Year	(In millions of U.S. dollars)
1995	455,614
1996	501,356
1997	552,092
1998	469,960
1999	517,242
2000	508,226

The message about falling profits had already been broadcast in August, 1997:

I feel like the prophet of doom…It’s our belief that the downturn has started. I can’t tell you how far it’s going to go. But it could be a very ugly one⁷⁷.

How did the speaker explain this downturn?

So far, demand isn’t a big problem. In many industries it is still growing steadily, though slowly. What is developing is too much supply, stemming from the recurrent problem of over investment.(Ibid)

He noted that this was particularly evident in the car industry, where future over capacity would lead to increased unemployment, which has indeed been borne out. At the time, hints of over production (and overcapacity) could be seen in many other industries by 1997. Although The Economist (Nov. 15, 1997: “Will the World Slump”) cavalierly dismissed the idea, a whole lot of evidence was piling up to support this view of things. On July 23, 1996, Reuters carried a story entitled “U.N sees world crude steel glut looming”. The story points out that steel producers were depending on Asian demand growth:

It will be difficult, however, for the Asian countries alone to absorb all the steel supply arising from crude steel-making capacity from 1995/96 to 1998/99…Furthermore, there are still many expansion plans to go into effect after 1999/2000 and when about 18 million tonnes of new capacity in North America is materialized by 1998/99.

While reporting tightness in copper supply with prices rising in May, 1997, by August of the same year Reuters referred to a world copper glut which was expected to grow into the year 2000, largely due to an increase in supplies from Chile⁷⁸.

“Most oil products are oversupplied in Europe and the United States”. So reported Reuters in March, 1997, noting that the only real demand was in Asia. Of course, Asia was one of the first places where the crisis broke out.

Moreover, a spokesman for the oil industry told Reuters in March, 1997⁷⁹:

Oil companies are growing at an average annual rate of 5.5%, while oil demand growth is pegged at 2% a year and gas demand at 4%.

And despite the continuing famines all over the world, food output also showed signs of overproduction. Reuters reported poor prospects in European grain markets in January, 1998 and the Economist Intelligence Unit expected a world coffee surplus in 1998/99.

By this time, Clinton had been disgraced by the Monica Lewinsky scandal (among others) and Al Gore stood against George W. Bush in the 2000 elections. As is well known, the outcome of the election was highly questionable, but Bush came into office in January, 2001. The collapse of corporate profits had by that time encouraged an increasing culture of accounting manipulations and the result of this was the collapse of several large corporations during the winter of 2001.

In September, 2001, the attacks using 3 planes on New York and Washington and the crashing of a fourth plane in Pennsylvania occurred, prompting the support for the Pentagon’s previously planned attacks on Afghanistan and Iraq. It can be noted here that defense spending estimates had already planned for increased spending from at least 2003⁸⁰. It is also of interest that the current high levels of defense expenditure are planned -by the Pentagon -to fall in real terms gradually from 2005 through 2007, after which they will rise somewhat through 2008/9⁸¹.

Looking back at what Eisenhower said about the military industrial complex, and looking at what confronts American society and the world today, we can see that the development of this phenomenon has been as pernicious as he supposed, if not more pernicious. The groups who financed George W. Bush’s election campaign in 2000 did so, to a large extent, through various charitable foundations, one of which has the reputation of being the largest in America. These, in turn, are connected to the armaments industry.

N.B. This is a continuing project. We welcome comments, corrections, suggestions, criticisms from readers.

NOTES

⁷⁶ Doing Business With Asia/Pacific Inc., Online Staff, Electronic News, 4/27/2004

⁷⁷ A. Duane Dickson of Mercer Management Consultants, in “Same Old Cycles” by Bernard Wysocki, Jnr., August 7, 1997, Wall Street Journal.

⁷⁸ Reuters, May, 1997 and August 28, 1997.

⁷⁹ Richard Gordon of US oil consultants John S Herold, November 18, 1997, Reuters.

⁸⁰ Writing in 1998, Douglas S. Meade, employed at the U.S. Department of Defense, notes that according to the Defense Employment and Purchases Projection System (DEPPS); projected spending assumptions foretell declining expenditures until 2001, with a slight upward trend until 2003, especially in procurement.” (See: “Defense Spending in the Context of the U.S. Economy: 1987 – 2003. INFORUM 1 April 1998,

⁸¹ National Defense Budget Estimates for FY 2005, Office of the Under Secretary of Defense (Comptroller), March 2004.