World Perspectives review

posted 10 Mar 2010, 23:25 by Admin uk   [ updated 18 Apr 2010, 06:04 ]
The 2010 world perspectives document reviewed, amended, corrected. A work in progress.
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1.    The Crisis of Capitalism and the tasks of the Marxists

2.    Draft document for IMT World Congress, 2010

3.    Introduction

4.    Two decades have passed since the fall of Stalinism. In this period we have experienced an unprecedented ideological offensive of the bourgeoisie. The pressure of bourgeois and petty bourgeois ideology on the workers’ movement has increased a thousand fold. Alien ideas have had an effect inside the international labour movement. Many people deserted the movement altogether. Others remained but were infected by moods of scepticism and cynicism about the perspective of socialism.

5.    In this period of confusion, ideological backsliding and apostasy, revisionist ideas flourished, (Was there a less revisionsism before the Berlin Wall fell?) reflecting the pressures of capitalism. Such periods are not exceptional. (What aspect of this period is commonplace?) We have seen all this before and we have heard all the same arguments. In general, the revisionists have never improved on the arguments that Bernstein put far better one hundred years ago: that capitalism has solved its problems, that economic crises are a thing of the past, that class struggle and revolution is no longer on the agenda, that we need “new ideas” to replace the “old” ideas of Marx and Engels, and so on and so forth. (with whom is this a dialogue? Who are the people or groups that the paragraph refers to?)

6.    Our International stood firmly against these tendencies. We stand for Marxism, and for a revolutionary class policy. (is Marxism not automatically a revolutionary class policy? ) Events have proved that we were right to do so. Our 2006 World Perspectives document stated that we have entered a period of extreme turbulence on a world scale, a period of crisis, wars, revolution and counter-revolution: a period in which the economic, social, and political crises all condition one another. (was the claim not that we live in the MOST TURBULENT period in history? ) We believe that this general characterisation of the period was correct, and the present situation closely reflects this.
7.    We live in a period of turmoil and crises, a period in which the whole situation can be transformed in a matter of weeks or even days. The general instability was manifested in a particularly dramatic way by the financial collapse that was quickly followed by a world economic slump on a scale not seen since the Second World War. On the political plane, the revolutionary events in Honduras and, above all, Iran, which to many seemed to drop like a thunderbolt from a clear blue sky, showed the inevitability of sharp and sudden turns in the situation. (Is there something new about this phrase being used?)Now Greece stands on the brink of financial collapse and social upheaval.
8.    This very turbulence makes the task of perspectives more difficult. (Why in the human world?) It is well known that whereas classical physics could easily explain and predict the laminar flow of liquids, it could not explain or predict turbulence, which has a complex and chaotic character. (is this well known?) In a situation like the present, which has a clearly transitional character marking the difference between one historical period and another, a correct theoretical analysis is more necessary than ever – but also more complicated than ever.
9.    “It is in just such periods that all sorts of transitional, intermediate situations and combinations arise, as a matter of necessity, which upset the customary patterns and doubly require a sustained theoretical attention. In a word, if in the pacific and “organic” period (before the war) one could still live on the revenue from a few ready made abstractions, in our time each new event forcefully brings home the most important law of the dialectic: The truth is always concrete.” (Leon Trotsky, Bonapartism and Fascism, July 1934) (Is this inserted to imply we are in a similar period to 1934?)
10.    This is a period of (“small”) wars, revolutions and counterrevolutions, which can last years or decades (is this not too broad a period "years or decades" to generalize about) before a final denouement (the idea of a "final denoument" is an empty rhetorical and/or Stalinist final crisis theory) is placed on the agenda. This general analysis, however, by no means exhausts the question. (you have not actually said anything here that can be called a general analysis) There is a danger of a one-sided and mechanical interpretation of perspectives, which, if it is not corrected, can lead to serious mistakes. The general characterization cannot explain all the numerous changes, the vicissitudes of the economic cycle, the ebbs and flows of the class struggle, the various crises and splits in the mass organizations. (Your so called general characterization is actually wrong so no wonder if one follows it one acts mechanically, the concept is mechanical. You are referring to the views of the former Spanish leadership of the IMT here, so say this don't talk in shadows.)

11.    However, we must maintain a sense of proportion. Because of the absence of the subjective factor despite the overall favourable balance of class forces, a rapid movement in the direction of revolution or reaction is ruled out in the advanced capitalist countries. (The absence of the subjective factor cannot decide the pace of both revolution and reaction, is it not more logical to state what exists rather than say something that does not exist governs the processes that exist?) The period of revolution, wars and counterrevolutions will last, with ebbs and flows, not months but decades. (What do you mean the period of revolution? Are we in the period of revolution? or are you simply repeating Lenin's thesis, in which case why the emphasis as if it is a theory you have worked out relating to the present day?) It does not mean that the revolution will take place at nine o’clock next Monday morning, or that the workers’ movement is in a permanent state of uninterrupted ascent, with no defeats and reverses. Such a conception bears not the slightest resemblance to Marxist perspectives. (Is this again a mechanical misrepresentation as criticism of a the former Spanish section?)
12.    This is not a simple question, but a complex, dialectical process. The transition from one period to another, very different one will produce convulsive changes in the relationships between classes and between states. These pressures inevitably come to bear on our own organization and members. (But surely we need to know the consequences of this transition of society before we work out its affect on our organisation, but no doubt this is to come later?) Trotsky wrote in On the Policy of the KAPD, November 24, 1920:
13.    “A whole series of offensives followed by retreats, of uprisings followed by defeats; transitions from attack to defence, and throughout: critical self-analysis, self-purification, splits, re-evaluations of leaders and of methods, new splits and new unifications. In this crucible of struggle, and on the anvil of revolutionary experiences never before equalled, a genuine Communist Party is being forged. A contemptuous attitude toward this process as if it were a tussle among “leaders” or a family squabble among opportunists, etc – such an attitude is proof of extreme nearsightedness, not to say blindness.” (Is this quote needed?)
14.    Contradictory process
15.    Marx explained that the key to all social development is the development of the productive forces. The present crisis shows that the development of the productive forces on a world scale has gone beyond the narrow limits of private property and the nation state. That is the most fundamental reason for the present crisis. (How is the specific to the present crisis?) But the slump was delayed for a long time, (the slump was delayed? Or there was another process happening i.e. the profit rates and capitalist cycle was conducive to economic growth not slump) and there was a period of economic growth, although this was at the expense of the working class and the masses, particularly in the ex-colonial countries. (Which growth is not at the expense of the working class?)

16.    In a broad historical sense, this was true long ago. Already in 1938 Trotsky wrote. “Objectively speaking, the conditions for world Socialist revolution are not only ripe and mature, but they are rotten ripe!” The situation has revealed its bankruptcy from a historical point of view. Yet we are left with a paradox. If this is true, why is it that the forces of Marxism still remain a tiny minority? The mere repetition of general propositions and abstract formulae is wholly insufficient to explain the concrete reality of the stage through which we are passing. Yes because you always state that the slump is the primary tendency, there is no means of explaining periods of growth within your scenario, or better said no means predicting which phase we are entering and which we are passing through. This leads to errors in political intervention based on voluntarism as the method of development.

17.    Most people want to get back to the “good old days”. The leaders of the working class, the trade union leaders, the Social Democratic leaders, the former Communists, the Bolivarian leaders, etc., all encourage the idea that this crisis is something temporary. (of course the crisis is something temporary) They imagine it can be solved by making some adjustments to the existing system. And when we talk of the subjective factor, of the leadership, we must also understand that for us the leadership of these organizations is not a subjective factor.
How can the
leadership of the workers movement their outlook and orientation not be a subjective factor????? It If the theory that the crisis of mankind is the crisis of leadership of the working class then this must mean this is the subjective factor. The task of revolutionaries is to win the leadership of the working class and replace the subjective factors hindering revolution with forces leading revolutionary struggle.
It has become an important part of the objective situation, which for a time can hold the process back. (if you say they are simply an objective factor then they are passive objects to be broken down and defeated.)

18.    At this moment in time, the bourgeois economists and politicians, and above all, all the reformists, (the reformists naturally seek to retain stability as this is the only viable scenario to maintain their programme, positions, prestige and power) are desperately seeking some sort of revival to get out of this crisis. They look to the recovery of the business cycle as salvation. (what other revival might there be?)  They are constantly talking about the “green shoots” of recovery. The reformists imagine that all that is needed is more control and regulation, and that we can return to the previous conditions. This is false. This crisis is not a normal crisis, it is not temporary. Of course it IS temporary, as any crisis is, even though it may mark an important transformation to say it is not temporary implies capitalism has entered an era of permanent crisis. It marks a fundamental turning point in the process. However, that does not mean that there cannot be a recovery of the business cycle. Indeed, all the latest data indicate that some sort of recovery has begun.

19.    The most fundamental answer to that question (what question?) must be found in the dialectical contradiction between the objective situation and the way in which this is perceived by the masses. Human consciousness is innately conservative. The masses stubbornly cling to the existing forms and ideas of society until they are compelled to abandon these ideas on the basis of the massive hammer-blows of events. But sooner or later, consciousness catches up with reality in a series of explosions. This is the basic mechanism of revolution. (would it not be better to use human or even flora and fauna analogies rather than mechanical or chemical ones?)

20.    In the advanced capitalist countries the workers’ consciousness has been shaped by the experience of the past half century, during which they learned to consider full employment, rising living standards and reforms as the normal conditions. (the era from the late 1970s to the mid 1990s was not an era of an era of slow organic progressive reforms as you imply, there were major counter-reforms, big defeats for the workers movement and victories for big business interests for most of the advanced capitalist countries.) It is therefore natural that they believe that the present crisis will be only a temporary aberration, after which “normal” conditions will be resumed. But in fact, the last fifty years was not a normal period but an historical exception. It will take time for the workers to understand this, but eventually they will learn a harsh lesson in the school of life.

21.    The economy

22.    The last two years have seen the deepest crisis since the Second World War. Now the bourgeoisie is desperately trying to recover the economic equilibrium, which has been shattered by the collapse of the boom. The problem that they face is that all the measures that they have taken to restore the economic equilibrium will completely destroy the social and political equilibrium. They are hoping that the economic crisis is already surmounted.

23.    The recent contraction in production was the sharpest in a hundred years. The US economy was the motor force for the boom. Now that motor has stalled. (Again a purely mechanical analogy and a poor one. If a "motor has stalled" then you just need to restart the motor.) In May, 2009, the rate of capacity utilization for industry in the USA declined to 68.3 percent, 12.6% below the average for 1972-2008. The national debt has piled up, the currency is being debased. As a result, the foundations of the economy are being further undermined. There will be new shocks, which can put an end to the recovery before it has been consolidated. So is the firm consolidation of a recovery a possible scenario at present? Or are you saying you simply have no idea, but when something goes wrong you can point and say, there told you there would be new shocks?

24.    It is clear that some kind of recovery in the business cycle has already begun. But the recovery is uneven and feeble and full of contradictions. It is impossible to predict the timing of the process. The timing of what process, business cycles, contractions, stagnation and recessions, or all of the above? Many people have analysed these questions and have drawn conclusions what are yours? For that, we would require not scientific perspectives but a crystal ball. Economics never was an exact science and never will be. The fact that somethig is not an exact science does not mean you have no predictive ability, health care is not an exact science but the life expectancy of a patient with lung cancer can be predicted relatively accurately by analysing the data on other cases. You can predict economic events by analysis, not only can you predict slumps but booms as well by assessing the data and drawing historical parallels. Or are you saying the collapse of the credit bubble and housing bubble were impossible to predict? Thats does not mean you have a crystal ball, but surely Marxists are supposed to be advoctes of the idea that economic activity is plannable? Therefore to some extent you must be able to predict economic activity. This does not mean there are no limits to predictive economic futurology, but it does mean you can make progressively more precise predictions. It may be that data collection and assessment provide tools to facilitate predictability. China managed to increase its economic growth at almost precisely the predicted rate, was this accidental?

But it is possible to understand the fundamental processes and the general direction we are moving. But there is no methology explains as to what is it is possible to forecast and what is out of the scope of Marxist method. And it is equally clear that a weak and jobless recovery based on increased borrowing and more savage cuts will not solve any of the problems facing capitalism. On the contrary, it will prepare a new and deeper economic crisis, and above all a deeper social and political crisis. This may or may not be true but you provide only assertion.
25.    US Federal Reserve Chairman Ben Bernanke and his colleagues have cited “tentative signs” of the recession easing in some consumer spending, home building and other reports. After four consecutive quarters of contraction, US GDP grew by 3.5% in the third quarter of 2009, and an estimated 5.7% in the fourth quarter. Nonetheless, the economic picture remains grim and concerns that there could be a “double dip” recession remain. Overall, the US economy declined 2.4 percent in 2009, the largest drop since 1946. A slowdown in growth is projected for the first quarter of 2010, as 60% of the late-year growth was the result of companies rebuilding stockpiles depleted by the recession, which has a positive knock-on effect throughout the economy. However, this kind of growth has its limits. With consumer spending projected to remain muted, eventually the stockpiling will come to an end. This is simply repeating the views of various 'bourgeois journalists' where are your views?
26.    More important from the perspective of the Marxists, is the effect this constant instability is having on workers' consciousness. The American economy lost jobs every month for 23 months in a row, a steeper fall than during the Great Depression. (source please?) In October, 2009, the average work week remained at just 33 hours, the lowest on record, giving employers plenty of room to extend existing employees’ hours, not to mention to expand usage of existing industrial capacity before adding new workers or building new factories. According to the Bureau of Labour Statistics 11,000 jobs were lost in November 2009, after months of losing hundreds of thousands of jobs at a time. This was the smallest monthly total since the recession began in late 2007, and the overall unemployment rate fell slightly from 10.2% to 10.0%. The fact that such results were hailed as a success is itself a sombre comment on the seriousness of the situation. The paragraph began as if it was going to describe the effects of instability on workers' consciousness and continued by simply describing the macro level instability and ignoring workers' consciousness. No doubt this comes later.
27.    The US government has pumped in vast sums of money (how much is a vast sum of money?) and this is reflected in a growth of employment in education, health services, and government. However, savage cuts in state and local budgets are now beginning to drag on the economy. Even the services sector, which accounts for some 2/3 of the economy, has been shrinking, as fewer people have money to spend on non-essential expenses. (Are services necessarily non-essential? And given that you state services are 66% of the economy why is "Even" used when it is obvious that in an sharp recession the service sector is bound to shrink.)

The subsidies to the big automobile companies have led to a modest expansion in manufacturing activity. But the statistics suggests that increasing activity in manufacturing has largely been because of the replenishment of depleted inventories, and does not represent a long term solution. Other than social revolution what does represent a 'long term' solution, or is there none?

28.    The US unemployment rate has now surpassed 10 percent for the first time since 1983, and will probably hover around that level for some time. Sounds likely but where does this projection come from and what is it based upon? In some states in the so-called rust belt, for example, Ohio and Michigan, it is substantially higher. If those working part time or no longer looking for work were included, the real rate would be closer to 17.5%. One in five American men of working age are unemployed. For immigrants and blacks it is even worse. 34.5 percent of young African American men are unemployed. The youth are also severely affected. For example, in Maryland, the unemployment rate for workers under twenty was approximately 50 percent in August 2009, while the picture was even worse in Washington, DC with 55 percent of those under twenty terminally unemployed.
Would a simple statement that unemployment is high with one or two facts not be enough here?
This disastrous situation has important implications for the future. Why does it have 'important implications for the future' why not now? If in the future what are these implications, are they even accross the USA, are there racial, political, cultural changes that will occur because of this, if so what are they likely to be?

29.    2009 ended with total job losses of 4.2 million and an average unemployment rate of 9.3%. That’s compared to an average of 4.6 percent in 2007. Over 7.2 million jobs have evaporated since the recession began in December 2007, three times the number lost during the 1980-82 recession. The official unemployment rate for January, 2010 remained at 10 percent, with 85,000 more jobs being lost in December, far more than the 8,000 many analysts expected. When the “underemployment rate” is figured in, taking into account those workers hired part-time but wanting full-time work as well as those who are too discouraged to actively seek work, the rate goes as high as 17.3 percent. More of the same this has nothing to do with perspectives unless you link the data to some Marxist method of analysis of undemployment, investment, profits, growth rate or soci-political transformations that may follow from the data.

30.    At the end of 2009, those unable to find work for six months or longer rose to 5.6 million, or 35.6%, a new record. For workers, the so-called jobless recovery is no recovery at all. There are six workers looking for every job available. Since the American economy needs to add around 125,000 jobs each month just to keep up with population growth, this optimism of the bourgeois represents the triumph of hope over experience. More of the same.

31.    The Federal Reserve believes unemployment will stay high well into 2011, and most economists do not think it will return to “normal” levels (around 5 percent) until 2013. Over 5.2% of all jobs have been cut since the recession began. Heidi Shierholz, an economist at Economic Policy Institute in Washington, has said that the US suffers from a “jobs gap” of nearly 10 million. To close that gap and get back to pre-recession levels in two years would require more than 500,000 new jobs per month, a pace of job creation that has not been seen since 1950-51. More of the same.

32.    It is the effect of this situation on workers' consciousness that most interests us. repetition of paragraph 26 likewise no answer to the rhetorical statement is given! What kind of recovery is it when nearly 16 million people can’t find work? How can the GDP rebound when there are millions fewer jobs than there were two years ago? The answer is simple: the capitalists are making fewer workers do more work for less pay. According to the Department of Labour, productivity – the amount produced per worker per hour – rose by 9.5% in the 3rd quarter, after rising 6.9% in the 2nd. Wages and benefits were up just 1.5 percent in 2009, the weakest showing on records that go back to 1982. Less purchasing power means fewer goods can be bought; in an economy 70% reliant on consumer spending, this means that an eventual slowdown is inevitable. more of the same

33.    Public borrowing is spiralling out of control. Sooner or later this will feed through to higher interest rates and inflation. These are mortal dangers to a sustained recovery. Under these conditions, even when the recession ends, the economies of the USA and other key capitalist countries will remain feeble and unemployment will remain at high levels. No evidence is provided for these assertions it simply tailends the analysis of sceptical analysts of the financial press therefore it should state who said such things rather than imply these are your own conclusions on the basis of your own analysis. The crisis is being used by the capitalists to force the workers in the advanced capitalist countries to accept a new, lower standard of living. This is a finished recipe for explosions of the class struggle in the years ahead. These last two sentences are the only perpectives component of the above long section on US unemployment and economy. "a finished recipe for explosions of class struggle" is however an completely empty phrase with no value either to Marxists or anyone else.

34.    For almost 200 years capitalism has moved through a periodic cycle of booms and slumps. However, the present situation is not a “normal” manifestation of the boom-slump cycle, but a transition between entire periods of capitalist development. We have entered a period in which the overall curve of capitalist development is downward. This, of course, does not mean that there can be no development of the productive forces. This statement is thrown in without being backed by any previous evidence. It is a truly sweeping prognosis claiming validity on the basis (apparently of a study of 200 years of capitalist economic cycles.)
According to this assessment capitalism has entered an epoch in which "overall curve of capitalist development is downward" what exactly does this mean? It sounds profound and deep, but it is utterly and completely hollow. And it's empty rhetorical trickery has a get out clause, "of course" there can still be "development of the productive forces". Phewww for a moment I thought the final crisis of capitalism had come! But given that our great Marxists have discovered an overall downward curve, is one allowed to ask what is meant by this? Is "capitalist China" in the down curve too? 

35.    Lenin explained that there is no such thing as an impossible situation for capitalism. There is no such thing as a “final” crisis of the system. The bourgeois will always find a way out of even the deepest crisis unless and until the system is overthrown by the conscious action of the working class. They will undoubtedly get out of the present crisis. The question, however, is this: how they do this and at whose cost? Even in periods of downswing, there can be temporary revivals, just as a dying man can rally, and even create the impression that he has completely recovered. Such rallies are followed by even more serious relapses. Lenin keeps us on track thank heavens, because otherwise paragraph 34 implied everything was headed to that "final denouement"mentioned in paragraph 10. The if they will undoubtedly get out of this crisis why is this crisis neccessarily the start of an overall downward curve? Where is the evidence? Downward in relation to what? Growth? Living standards? Certain countries? A slide towards war? What exactly is the meaning of this "downward curve" you prognosticize about?

36.    This is a moment to reflect on fundamentals and work out the most likely line of development. It is necessary to understand the fundamental processes at all levels, not merely incidentals and episodic trends. Just when one expects such reflection and working out of the line of development and fundamental processes we are given ...a Trotsky quote! This is a complex, dialectical process, which we must follow carefully through all its stages. As Trotsky explained in The Curve of Capitalist Development (1923): “Still more, a transition from one epoch of this kind to a different one must naturally produce the greatest convulsions in the relationships between classes and between states.” That is the kind of period into which we have entered. The quote is rapidly followed by a hollow assertion.

37.    Ted Grant predicted that in the event of a deep slump, the bourgeoisie would use the colossal resources that it has accumulated over the last fifty years to avoid total collapse. This is exactly what they are doing. The present crisis, which caught the bourgeois completely by surprise, has provoked a wave of panic in governments all over the world.(Is this true? If the bourgeoisie are using their collosal reserves, why do they need to borrow money and make cuts? In fact the only major country using their "collosal reserves" is the Peoples' Republic of China. The USA, most if not all European countries, and Japan have borrowed money from the taxpayer in order to "avoid total collapse" so why has Ted been dragged in by the hair to make a false assertion from 50 years ago apply today, how barren must then author's stock of knowledge be to use such methods?)
In order to prevent the worst effects of the crisis, they have resorted to unprecedented measures. The bourgeoisie fears the social and political effects of a deep slump and has been forced to use up a big part of its reserves to prevent it. It was able to do this because it had accumulated a layer of fat over decades of economic growth. But this is now reaching its limits. More empty assertions!

38.    For decades the bourgeois economists argued that the state must not interfere with the market, which was considered to be a self-regulating mechanism. But when the crisis hit, the only thing keeping the system afloat was state intervention. Aggressive fiscal and monetary stimulus in the US and China, and, to a lesser extent, in the Euro zone and Japan, has so far prevented a complete collapse on the lines of 1929. But such measures cannot produce a sustained economic recovery and the measures they are taking will create new contradictions that will be even more difficult to surmount.

39.    A “crisis of credit”?

40.    The bourgeois economists cannot explain the recession. They say it was caused by the credit crunch and the resulting squeeze on demand. All bourgeois economists argue this? However, Marx pointed out that it is not the lack of money (“liquidity”) that causes a crisis, but the crisis itself that causes a lack of money. (is there a "lack of money?" Does this have some connection with the crisis? Surely it is not about a lack of money but a lack of sufficiently profitable fields of investment?) The same is true of credit. Marx explained that credit enables the capitalists temporarily to go beyond the limits of the system. But an increase in credit does not signify a sustainable increase in production. Of course credit can lead to sustainable increases in production it depends under capitalism on the rate of profit which determines if the capitalists use that credit to produce a 'sustainable increase in production". It can temporarily increase demand and consumption, but only at the cost of aggravating the slump when it finally comes. What causes the increasing production to be reduced, what causes the capitalists to stop investing in a "sustainable increase in proiduction?" We see this precisely in the present crisis, in which the crisis of overproduction has been enormously exacerbated by the sharp drop in demand in the USA, as a result of the sharp contraction of credit. You fail to explain why there is a crisis of overproduction and its connection to the profit rate.

41.    The bourgeois have resorted to borrowing on an unprecedented scale, building up huge deficits. (I thought in paragraph 37 you were claiming they are using their collossal reserves? Surely you can recall what you wrote 4 paragraphs earlier?) Now they are going still further and increasing the money supply through what they call “quantitative easing”. This is theoretically unsound and disastrous in practice. It assumes that the problems of the economy are of insolvency and lack of credit. If this were true then it should be possible to get out of the crisis by providing cheap credit and by printing and spending more money. But it is not true. Great! Now explain why and we the we can convince people of the superiority of Marxist ideas.

42.    There is always a grain of truth in the arguments of the bourgeois economists, although they are one-sided and undialectical. They are not capable of seeing all sides of the process. Milton Freidman was correct when he argued that Keynesian deficit financing would cause an explosion of inflation. But the Keynesians were also correct when they pointed out that cutting state expenditure and lowering wages will have the opposite effect: reducing demand and aggravating and prolonging the slump. However, their solutions are no solutions: one cannot solve the crisis by increasing state expenditure through borrowing and creating huge debts to be paid with interest in the future. Nor is it possible to conjure money out of mid-air without eventually driving up inflation. This was tried in the 1970s, when it led to an explosion of inflation and a huge upsurge of the class struggle in one country after another. Thus, the bourgeois are trapped between the devil and the deep blue sea. The entire paragraph is simply assertion again.

43.    There is nothing fundamentally new in the present crisis, (I thought this was the transformation from one epoch to another and a start of a permanent downward curve and the path to the final denouement?) except for its extraordinary extent and depth. This in turn is only a reflection of the contradictions accumulated in the previous boom. In any period of upswing, speculation and swindling flourishes. But when the bubble bursts, the swindles are exposed and confidence collapses. The bourgeois who participated so eagerly in the merry carnival of money-making, dress themselves in rags, pour ashes on their heads, and beat their breasts, proclaiming that they have learned their lesson and will never sin again – until the next frenzy of money-making. Just a year after the most acute phase of the crisis, the top officers of the most heavily bailed out corporations are already lavishing themselves with extravagant bonuses and perks, sparking public rage and outcry. (So that is all the boom was speculation and swindling?)

44.    The bourgeoisie was obliged to carry through a large-scale financial policy designed to prevent the economic crisis from descending into a deep slump. As a result, the deficits in the state budget have reached monstrous proportions and private enterprises and banks have been artificially kept in operation; in order to avert an even broader collapse. All this is for the political purpose of reflating the fictitious commercial-industrial prosperity of the boom years. But this leaves out of account the small detail that it was this that caused the financial collapse in the first place.

45.    The boom was accompanied by an orgy of speculation that was without parallel in its scope and size. The “respectable” bankers participated enthusiastically in this. Enormous quantities of fictitious capital were injected into the system in the so-called housing bubble. That was only one example of massive speculative activity based on non-existing values (fictitious capital). The housing bubble was based on houses, i.e. on real though overvalued assets. It was the boom of other non-material assets that constituted the ficticious capital not housing itself. The stock exchanges of the world soared to unheard-of heights. The worldwide market in derivatives was valued at almost $700 trillion just before the collapse, as these figures show:

46.    Global OTC derivatives market, end of June 2009

47.    (In billions of US dollars)
48.    June 2007: 516,407
49.    Dec 2007: 595,738
50.    June 2008: 683,814
51.    Dec 2008: 547,371
52.    June 2009: 604,622

53.    These figures are from the Bank for International Settlements Quarterly Review (December 2009). But, incredibly, now they have rebounded to levels similar to those of the boom years.

54.    This shows the other side of the “recovery”, which is based almost entirely massive amounts of state financing, based on borrowing. It is a desperate attempt on the part of the bourgeois to get out of the crisis by reflating the “bubble”. This is completely irresponsible from the standpoint of orthodox economics. It prepares the way for inflation and rising interest rates, which will lead to a new and even steeper collapse in the future. This is causing alarm among that section of the bourgeois economists who have not entirely lost their heads. (It seems the author thinks that 'orthodox economics' is superior to Keynsian economics but no reason is given for this assertion.) Sooner or later the system will face a painful period of “adjustment” as this fictitious capital is squeezed out of it.

55.    During a boom everyone is willing to lend and borrow as if there were no tomorrow. Credit is easy to come by. You mean during a credit boom where profits are high? But as soon as the economic cycle reaches its end, credit always dries up; everybody becomes parsimonious and wants ready cash, not promises to pay. In place of reckless abandon and irresponsible squandering, a miserly spirit rules. Instead of lending more money, the bankers demand prompt payment of debts. This pushes small and not-so-small firms into bankruptcy and contributes to the downward spiral. Thus, credit and all the other factors that pushed the economy upwards, combine to push it downwards. Dialectically, everything turns into its opposite. What took years to build up can take days to unravel. Banks and others lend to capitalists if the return on investment generates sufficient profits.

56.    To cushion the impact of the financial meltdown, the Federal Reserve slashed lending rates even further to near zero percent and poured money into the banks to spur lending. The US government launched a $787 billion stimulus plan of tax cuts and increased government spending on big public works projects to help boost economic activity. But so far the effect on job creation has been negligible. Just 650,000 jobs have been created or saved, less than were lost in the single month of January, 2009.

57.    Following Britain and the US, the EU also launched stabilization plans. Even the Swiss bourgeois injected massive amounts of capital into their banks, and took emergency measures to prevent a collapse in confidence in the country’s banking system. The bourgeois appear to have succeeded in postponing a deep slump for a certain period, but only at the cost of further disorganizing the financial and “quantitative easing”, which must lead to inflation at a certain stage, with dire consequences for the economy and a new and even more uncontrollable fall at a later date. What is this prediction based upon?

58.    Central bankers have injected huge amounts of liquidity into the money markets in an effort to keep the world’s banks lending to one another. The banking system is now almost totally reliant on public funding, yet despite all these measures, the banks so far remain unwilling to offer credit to any but the most secure of businesses and home buyers. The reason is that they know that the crisis may not yet be over and they are not sure that they will ever get their money back. While nominal interest rates are close to zero, firms and households have reacted slowly because for a time, prices have been falling, and therefore real interest rates remain higher.

59.    The US government has already committed the staggering amount of $11 trillion on subsidies: guarantees, investments, recapitalization and liquidity provision. But all the government efforts to fight the downturn have had only a mild effect, without solving anything fundamental. This is because they do not deal with the fundamental cause of the crisis, which is not the lack of credit but overproduction. All the government programmes to stimulate demand will be insufficient to balance supply with demand, which is a central problem of the unplanned and anarchic capitalist mode of production.

60.    Overproduction

61.    “The fundamental cause of crisis in capitalist society, a phenomenon peculiar to capitalist society alone, lies in the inevitable over-production of both consumer and capital goods for the purpose of capitalist production. There can be all sorts of secondary causes of crisis, particularly in a period of capitalist development – partial over-production in only some industries; financial juggling on the stock exchange; inflationary swindles; disproportions in production; and a whole host of others – but the fundamental cause of crisis lies in over-production. This in turn, is caused by the market economy, and the division of society into mutually conflicting classes.”

62.    This is what Ted Grant wrote decades ago in Will There be a Slump? It has been shown to be correct. The real cause of the crisis is overproduction: there is a global glut of capacity (housing, automobiles and consumer durables). It will take years to work out this glut. It is this, not the lack of credit that is obstructing the expansion of industry. When the politicians complain that, after all the money they have received, the bankers are not lending, the latter reply that when they offer to lend money, there are no takers. Naturally! A fictitious boom based on state expenditure will very quickly run up against the limits of demand. Now that workers can no longer borrow against high house prices, there is even less room to artificially expand demand.

63.    The motor force of any real recovery is manufacturing and construction. But this is prevented by overproduction in these sectors as well (also referred to as “oversupply” or “overcapacity” by modern bourgeois economists). Everywhere, office blocks stand empty and construction is at a virtual standstill. With falling demand on a world scale, the capitalists are compelled to resort to mass layoffs, part-time work and factory closures. This is graphic proof of the inability of capitalism to absorb the colossal productive potential that it has created. For example, there is world overproduction in steel. There is “too much steel” (for the limits of the capitalist system, that is). This is, to a large extent, related to the sharp fall in the production in cars.

64.    Businessweek asks an interesting question: how can overproduction exist?

65.    “For economists, overcapacity is a tricky concept. Human wants are unlimited, so how could the world ever produce too much of a good thing? The key is what people can pay. In many goods sectors, prices still aren’t low enough to bring forth enough. There will have to be some combination of falling prices and destruction of productive capacity before supply and demand come into balance. […] The question is how that balance will be achieved.” (http://www.businessweek.com/magazine/content/09_07/b4119000357826.htm)

66.    This question goes to the heart of the matter. Capitalism is unplanned production for profit, not rationally planned production for the satisfaction of human needs. There is no reason why the supply of cars, steel, food or anything else should coincide with what the economists call “effective demand”. The whole history of capitalism is the history of crises caused by the contradiction between the enormous capacity of capitalism to produce for the sake of profit, and the necessarily limited purchasing power of the masses (“demand”), which gives rise to periodic crises of overproduction.

67.    In the modern epoch, overproduction manifests itself as overcapacity. During the crisis the levels of capacity utilization fell sharply in all the developed capitalist countries, for example: Overcapacity is a permanent feature of capitalism in the modern epoch, so are you are saying there is always a crisis of overproduction " in the modern epoch, overproduction manifests itself as overcapacity" There are simply degrees of severity of the crisis of overcapacity, capitalism is in permanent crisis!

68.    USA

69.    The Industrial Production and Capacity Utilization Data from the Federal Reserve give the following figures:

70.    2009 April (low point): 68.28%
71.    2009 December: 72%
72.    1982 December: 70.8%

73.    Japan

74.    Index, 2000=100
75.    Feb-08: 110
76.    Feb-09: 62.61
77.    Aug-09: 81.75
78.    i.e. capacity utilization almost halved between February 2008 and February 2009.
(Regional Economic Outlook: Asia and Pacific, IMF, October 2009)

79.    A study from "NLI research" estimated Q1 2009 capacity utilization to be 50.4%.

80.    Euro-zone

81.    The capacity utilization rate in the euro area at the end of July 2009 stood at 69.5%, well below its long-term average of 81.6%. Especially hard hit were the producers of capital goods (67.6%). In the automotive industry, capacity utilization even went to below 60%.

82.    These figures are from the European Central Bank.
83.    (http://www.dowjones.de/site/2009/09/ezb-niedrige-kapazit%C3%A4tsauslastung-beeinflusst-inflation-kaum.html)

84.    Turkey
85.    Jun-08: 82.3%
86.    Jan-09: 63.8%
87.    Jul-09: 72.3%
88.    Dec-09: 69.7%
89.    These are the official statistics of the Turkish Statistical Institute press release (12 January)

90.    Canada
91.    Q3 2008: 78.9%
92.    Q3 2009: 67.5%
93.    These are official figures according to Statistics Canada

94.    Thailand
95.    Q4 2007: 73.12%
96.    Q1 2009: 58.09%
97.    Q4 2009: 67.20%
98.    (Bank of Thailand)

99.    These are record post-War lows. In some of the poorer countries, however, the situation is even worse, with capacity utilization of 50% or less.

100.    The automobile industry is a clear example. In 2008 global capacity utilization in industry fell to 70.9% – a rate 10% below its average from 1979 to 2008. This is a historic low, and equal to the level reached in December 1982. The magazine Autos (31/12/08) carried an article with the title, “Automakers’ Overcapacity Problem,” and the subtitle, “Automakers have to cut factory overhang without losing their ability to ramp back up when people start buying cars again.” This expresses the capitalists’ dilemma very clearly. The world automobile industry has the capacity to produce 94 million vehicles every year. On the basis of present sales, this is about 34 million too many, equivalent to the output of 100 plants.

101.    Global overcapacity in the auto sector of approximately 30% means that the big car makers could close one third of their factories and would still find it difficult to sell everything they produce. Automakers expect sales to revive, starting in 2011. But no one realistically thinks they can take out 34 million vehicles’ worth of production by then. Above all, automakers are relying on population growth and an increase in sales in 2013 as people start replacing old vehicles. Even then there will be “too many” factories.

102.    For this reason, General Motors has elaborated a massive restructuring plan that includes cutting more than 21,000 US factory jobs. Timken Co., the bearings and specialty steel maker, has indicated it will cut about 4,000 more jobs. The same phenomenon is being repeated in one form or another as hundreds of thousands of “excess capacity” workers are being thrown out of their jobs. These are among the best-paid jobs, often with union representation, while the few jobs that are being created are usually non-union and offer cut-rate wages and few, if any, benefits.

103.    The fact this is a crisis of overproduction has now penetrated the heads of even the most obtuse bourgeois who for years have denied the possibility of such a thing. An article in the right wing Conservative paper, The Telegraph (15 August, 2009), states this very clearly:

104.    “Too many steel mills have been built, too many plants making cars, computer chips or solar panels, too many ships, too many houses. They have outstripped the spending power of those supposed to buy the products. This is more or less what happened in the 1920s when electrification and Ford’s assembly line methods lifted output faster than wages. It is a key reason why the Slump proved so intractable, though debt then was far lower than today.”

Does this mean you think the bourgeois now understand their crisis?

105.    Toyota, Honda and Nissan have cut back on their profit margins. They are slowing production, cutting contract workers, and postponing plans to open more factories. At the same time, they aim to re-establish their market share once US demand revives. The problem is that they will face stiff competition from the US car industry, which is in a deep crisis. In North America the car industry has the capacity to build some seven million more vehicles than the market can absorb. That is why the bourgeois are so gloomy. They know that unless and until overproduction is eliminated, no serious and sustained economic recovery is possible. What exactly do you mean? Until capacity is fully utilised? Or until the US industry defeats the Japanese? Is there no question of profit rates determining investment?

106.    Global overcapacity leads to falling prices for consumers, but increased competition and falling profits for the capitalists. Here we are talking not of a falling rate of profit, why not? but a fall in the mass of profit, why? which must lead to a cutback in production, why? increasing unemployment, bankruptcies and factory closures. In a shrinking global market, domestic producers must compete with imports. (Only in a shrinking market? Or do you mean the competition is fiercer?) Carmakers and steel producers face a "vicious circle" – a downward spiral of declining output, prices, and profits. Do capitalists invest for profit or for output and prices? It seems you are extending your confusion in Marxist economics into the analysis off the modern world in a way that negates the essence of the Marxist theory of the nature of capitalism. Capitalists don't invest to make more goods, or to get good prices, they invest for profits!  Falling car production means a fall in demand for steel, electricity, oil, and many other components involved in car production.

107.    According to Michelle Hill of the consulting firm Oliver Wyman, in order to recover profitability, (in the last paragraph you said "we are not talking of a falling rate of profit" to discuss this exlusively from the concept of the need to "recover the mass of profits" implies that the car makers adhere to a unified national plan to increase the mass of profit by increasing capacity utilisation which is contradicted by the next part of this sentence) the US automakers will have to close at least a dozen of their 53 North American factories in the next few years. (i.e. they will be happy to recover the rate of profit with less goods made) The only way to eliminate overcapacity is by the systematic destruction of the productive forces: factories are closed as if they were matchboxes, workers are thrown out of work, and machines are left to rust until, eventually, new markets and fields of investment emerge. (Where do these new markets come from and why would there be new fields of investment except for a high enough rate of profit to make investment "viable"?)

108.    This is what the bourgeois economists call “creative destruction”. It resembles the Greek mythological figure Procrustes, who cut off the limbs of his guests to make them fit in his bed. The central contradiction is between the confines of the nation state and the world market, which has long ago outgrown the narrow limits of national markets.

109.    Expansion of world trade

110.    The main factor that enabled capitalism to avoid a deep slump for so long was the huge upswing of world trade (“globalization”). What was that? Let me reword it to make it clearer. The huge upswing was what enabled capitalism not to be in a huge downswing! The period between the World Wars was characterised by a wave of protectionism and competitive devaluations that depressed world trade and intensified the slump for a decade. For reasons we have explained elsewhere (See Ted Grant: Will there be a Slump?), the period that followed 1945 was completely different. At that time, the USA possessed two thirds of the available gold in the world and its industries were intact, whereas Europe and Japan were still struggling to emerge after the War.

111.    The dollar was “as good as gold” and became the world currency (with the pound sterling in second place). The Marshall Plan and the post-War reconstruction boom in Europe led to a new economic upswing that lasted for more than two decades. The unparalleled expansion of world trade enabled the bourgeois, partially and temporarily, to resolve one of the most fundamental contradictions: the limitations of the nation state. As a result, science and technology grew faster than at any time in history. Capitalism showed, probably for the last time, what this system of exploitation was capable of achieving. On the basis of huge investments, the bourgeois achieved results that would have astonished Marx and Engels. When did this period of huge investments and staggering progress in science and technology end, for the last time?

112.    This process has been deepened and intensified in the last two decades. The collapse of the USSR and the Stalinist regimes of Eastern Europe, and the entry of China and India into the world market signified the participation of about two billion more people in the capitalist world economy as never before. This fact, in itself, represented an enormous stimulus to world trade and a further intensification of the world division of labour. Every country is now dependent on the world market and that is the meaning of “globalization”. (are you saying that the last period 1989 till today was also a period able to "partiallly and temporarily" develop "for the last time". So was that two last times? 1945-1973 and 1989-2007 Or just one last time? 1945-1973

113.    But that is now reaching its limits. For the first time since 1982, world trade has fallen steeply – 14.4% in 2009. Although it is expected to grow again in 2010, this was a very serious collapse, which reveals the other side of globalization. Integration in the world market means that all the so-called emerging economies are now subject to the fluctuations of the latter. They have all been affected by the recession and falling demand in the USA, where consumption has fallen and protectionism is increasing. Globalization manifests itself as a global crisis of capitalism. This fact is now realised by the more serious strategists of capital: Who are the serious and who are the unserious strategists?

114.    “The scale and speed of synchronized global economic contraction is really unprecedented (at least since the Great Depression), with a free fall of GDP, income, consumption, industrial production, employment, exports, imports, residential investment and, more ominously, capital expenditures around the world. And now many emerging markets are on the verge of a fully fledged financial crisis, starting with emerging Europe.” (Financial Times, 3/05/09)

115.    These lines express a fundamental contradiction. In a slump, prices, profits and wages fall in a vicious downward spiral. In the last three months of 2008, consumer prices in the US fell at a staggering annual rate of nearly 13%. Prices fell for all sorts of goods, ranging from clothing to TVs to furniture, as retailers advertised sale after sale. Given the collapse of aggregate demand (consumption, residential investment, capital expenditure in the corporate sector, business inventories and exports), the stimulus from government spending is totally insufficient to revive the economy in a sustainable manner. Even with the over $11 trillion in government bailouts and guarantees (most, if not all of it, borrowed), the US financial system is effectively insolvent.

116.    The capitalists are compelled to unload their commodities on a saturated market by savage discounting, even selling at a loss. They are trying to do the same in world markets. Protectionism is an attempt to export unemployment. In a period of boom, the bourgeois can reach an amicable agreement to share the loot. But in a slump, the slogan of the hour is: “every man for himself!” They do not care what happens to the others. This is dangerous for capitalism because it was precisely protectionism and competitive devaluations that turned the 1929 Crash into the Great Depression.

117.    Protectionist tendencies are already emerging. Western European governments are giving their carmakers money only if they agree not to close plants at home. Companies like Volkswagen and Renault are planning to cut back production in Spain, Portugal and Italy in order to keep plants open in Germany and France. The US automakers are cutting back on their European operations for the same reason.

118.    The most serious conflict is between China, the USA and Europe. China has an interest in keeping the yuan pegged to the dollar in order to boost its exports. It allowed the yuan to rise by 21% against the dollar in the three years to July 2008, but since then it has more or less kept the rate fixed. As a result, the yuan’s trade-weighted value has been pulled down by the dollar, while many other currencies have soared. In the first half of 2009, the Brazilian real and the South Korean won gained 42% and 36% respectively against the yuan, seriously eroding those countries’ competitiveness.

119.    Over the ten years to 2008 China’s exports grew by an annual average of 23% in dollar terms, more than twice as fast as world trade. If it continued to expand at this pace, China could account for around one-quarter of world exports within ten years. That would be more than the 18% share of world exports that the USA achieved in the early 1950s (it has since dropped to 8%). An IMF working paper published in 2009 calculated that if China remained as dependent on exports as in recent years, then to sustain annual GDP growth of 8% its share of world exports would have to rise to about 17% by 2020.

120.    However, such predictions are to be regarded with caution. Similar predictions were made in the past about Japan, which at its peak in 1986 achieved 10% – a figure similar to that reached by China this year. Subsequently, however, Japan’s share fell back to less than 5%. Its exports were undermined by the sharp rise in the yen, which appreciated by more than 100% against the dollar between 1985 and 1988. The combined export-market share of the four Asian tigers (Hong Kong, Singapore, South Korea and Taiwan) also peaked at 10% before falling back.

121.    It is likely that China’s exports will grow more slowly over the next decade, as demand in rich economies remains subdued. However, its market share will probably continue to increase. Projections in the IMF’s World Economic Outlook imply that China’s exports will account for 12% of world trade by 2014. But at a certain point it will come up against the barrier of protectionism.

122.    The authors of the above-mentioned IMF paper analysed the global absorption capacity of three export industries – steel, shipbuilding and machinery and concluded that to achieve the required export growth, China would have to reduce prices, which would be increasingly hard to achieve, either from increased productivity or a squeeze in profits. In many export industries, particularly steel, margins are already very small.

123.    China’s exports fell by around 17% in 2009 as a whole, but other countries’ exports fell by even more. As a result China overtook Germany to become the world’s largest exporter and its share of world exports jumped to almost 10%, up from 3% in 1999. In the first ten months of 2009 America imported 15% less from China than in the same period of 2008, but its imports from the rest of the world fell by 33%, lifting China’s market share to a record 19%. So although America’s trade deficit with China narrowed, China now accounts for almost half of America’s total deficit, up from less than one-third in 2008. This has given a fresh impetus to protectionist tendencies:

124.    “Trade frictions with the rest of the world are hotting up. On December 30th America’s International Trade Commission approved new tariffs on imports of Chinese steel pipes, which it ruled were being unfairly subsidized. This is the largest case of its kind so far involving China. On December 22nd European Union governments voted to extend anti-dumping duties on shoes imported from China for another 15 months.” (The Economist Jan 7th 2010)

125.    “Foreign hostility to China’s export dominance is growing. Paul Krugman, the winner of the 2008 Nobel economics prize, wrote recently in the New York Times that by holding down its currency to support exports, China ‘drains much-needed demand away from a depressed world economy’. He argued that countries that are victims of Chinese mercantilism may be right to take protectionist action.” (ibid.)

126.    The Chinese point out that their imports have been stronger than their exports, increasing by 27% in the year to November, when its exports were still falling. America’s exports to China (its third-largest export market) rose by 13% in the year to October, at the same time as its exports to Canada and Mexico (the two countries above China) fell by 14%. On the other hand, China’s merchandise exports have collapsed from 36% of GDP in 2007 to around 24% in 2009 and China’s current-account surplus has fallen from 11% to an estimated 6% of GDP. This means that China helped pull the world economy along during the course of last year. But these arguments will not silence the protectionist chorus.

127.    The conflict between China and the US is becoming more intense. Foreign demands to revalue the yuan are becoming louder and more insistent. But Chinese officials have become bolder in standing up to Washington. On his first visit to China Barack Obama, urged the government to allow its currency to rise. President Hu Jintao politely ignored him. Jean-Claude Trichet, the president of the European Central Bank, and Dominique Strauss-Kahn, the managing director of the International Monetary Fund, have also called for a stronger yuan. But China is resisting the pressure and has even imposed duties of its own, for example on US and Russian steel.

128.    While singing the praises of free trade, all the bourgeois in the world are preparing for protectionism. The US bourgeois have allowed the dollar to fall, in an attempt to obtain an unfair advantage in world markets and reduce the gaping trade deficit. The “Buy American” policy is a protectionist measure, as are the huge subsidies to US car manufacturers and agriculture. These tendencies will increase in the next period, as every capitalist nation tries to export unemployment and unload its problems onto its rivals. This opens up a scenario more similar to that of the 1930s than the period after 1945.

129.    China

130.    Marxists welcomed the development of the productive forces in China and SE Asia because it strengthens and develops the working class. The development of productive forces is not only progressive because it develops the working class, in fact the development of the working class develops the productive forces, but it is important because it provides the material basis for the improvement inthe living standards and material well being of the masses the peasantry and the proletariat. The illusion was created that the economic growth of China had no limits. (What are th factors that govern it's limits?) But by participating in the capitalist world market, China is now subject to all the contradictions of world capitalism. This is completely and absolutely contradicted by the events of the last two years as JC and HK explained it would. China participating in the world market means it is affected by trade fluctuations but can intervene when there is a downturn in world demand and increase investment as part of the state plan. Unlike the capitalist economies, since the world crisis broke out China has seen a massive rise in investment. The Chinese economy is heavily dependent on trade. China has a trade surplus of 12% of GDP, and according to official statistics it exports close to 40% of GDP, although according to some calculations, once you remove the imports of parts which are then assembled in China and re-exported the real figure is closer to around 10% of GDP. So now you recognise that China is not just an export economy but is driven by internal investment according to plan?

131.    Overproduction on a world scale affects Chinese exports. Millions of Chinese workers have been laid off and factories have been closed. The world economic recession has had the effect of destroying large parts of China's export industry, particularly in light industry, assembly plants, etc. These were overwhelmingly in the private sector. In a number of sectors of heavy industry, like steel, coal and others, the government has introduced plans for “rationalising” production, forcing the “consolidation” of hundreds of small companies into a few (mostly state-owned) giants. You cannot bring yourself to use the N word? China has been busy Nationalizing significant sections of the economy and squeezing the private sector out by a systematic support for the state vis-a-vis the private sector.

132.    Like other countries, China has resorted to a stimulus programme, together with a massive expansion in credit by state banks. (except unlike other countries this led to a rapid economic growth rate. China carried out  the biggest ever investment programme in Chinese history. This has meant an enormous injection of money into the economy. It has been largely directed towards investment, which accounted for 90% of growth during the first half of 2009. Most investment (almost 50% of GDP) is dedicated to the production of more capacity and machinery to produce more goods for export. Another large part of investment goes on residential construction and infrastructure investment. How can a capitalist country keep investing when the profit rate is low? Chinese investment iis overwhelmingly state investment where profit rates are not the determining factor.

133.    The main reason why the Chinese leadership has adopted this course is fear of social unrest which would threaten its own position, power and privileges. There are splits within the CCP and in the state, but these are not between those who want to go back to a planned economy (go back? When exactly was there a planned economy, and when roughly did it cease to be a planned economy 1990, 1999, 2004?) If it closely resembles the period just prior to the date of your theory of transition to capitalism can it not in anyway be said to have gone backl to a planned economy? If not why not? and those who want to continue the consolidation of capitalist property relations, (Look if capitalism was restored then it does not constantly need consolidation) but rather between those who think that a social welfare network and state investment are needed in order to maintain social stability, (who does not say this?) and those who think that the economy should be further “liberalised” in order to maintain economic growth and therefore social stability. Rather than analyse what actually is, the author seeks to fit the facts into their erroneous theories of a year ago, the predictions which flowed from their analysis have all been proven wrong. China will suffer a humdinger of a crisis of overproduction, China may suffer a fall on GDP, China can't possibly reach 5% growth. He who cannot admit errors, is doomed to intellectual immorality.

134.    This does not mean a rolling back of capitalism, but rather the attempt to create strong Chinese-owned companies able to compete in the world market, as well as to somehow attempt to control overcapacity. Why do the strong Chinese companies have to be state owned? Why does the 'capitalist state' not finance and encourage private Chinese companies?  The destruction of small companies and the concentration of capital is part of the normal process of capitalist development. The concentration is not one by big private of small private but of big state consuming small and medium private companies.

135.    This has led to a continued burst of growth, (State takeovers of private sector companies generated growth, or state investment into state companies?) but under conditions of a market economy, will only serve to aggravate the problem of overproduction (overcapacity). The mass of commodities produced must be sold, and China’s internal market is too narrow to absorb them. Most bourgeois economists consider this economic policy to be unsound and unsustainable in the medium and long term. Does this mean that most bourgeois economists are correct in this? What do most Marxist economists think? If this massive investment and increased capacity is then not matched by an increase in exports or domestic consumption, it will lead to companies not being able to repay their loans and a wave of non performing loans, bankruptcies and factory closures. The loans are from state banks to state owned companies. Why should there not be an increase in domestic consumption? Investment is primarily in the Internal market, in the development of infrastructure, or railways, or airports, of ports, expanding intermediate sized cities etc. Why would such activity not generate growth? Where is the Marxist analysis explaining this?

136.    The fate of the Chinese economy (and Asia in general, depends on the perspectives for the capitalist world economy as a whole. The Financial Times writes:

137.    “With massive excess capacity in the industrial manufacturing sector and thousands of firms shutting down, why would private and state-owned firms invest more, even if interest rates are lower and credit is cheaper? Forcing state-owned banks and firms to, respectively, lend and spend/invest more will only increase the size of nonperforming loans and the amount of excess capacity. And with most economic activity and fiscal stimulus being capital – rather than labour-intensive, the drag on job creation will continue.

"Why would state-owned firms invest", because central government orders them to!

138.    “So without a recovery in the US and global economy, there cannot be a sustainable recovery of Chinese growth. And with the US recovery requiring lower consumption, higher private savings and lower trade deficits, a US recovery requires China’s and other surplus countries’ (Japan, Germany, etc.) growth to depend more on domestic demand and less on net exports. But domestic-demand growth is anaemic in surplus countries for cyclical and structural reasons. So a recovery of the global economy cannot occur without a rapid and orderly adjustment of global current account imbalances.” (FT, 3/05/09)

The job creation method is internal investment based expansion of elementary insfrastructure which itself spurs on further internal growth.

139.    This analysis was confirmed by remarks made in January 2009 at the World Economic Forum in Davos, Switzerland, by Zhu Min, Executive Vice-President of the Bank of China Group, who told a panel discussion that even rapid growth in Chinese consumption cannot make up for weaker spending in the US. (BusinessWeek). In terms of the world market, China is far less important as a consumer than as a producer. Toy manufacturing in China is faced with a disaster because export orders are drying up and the home market cannot absorb what the factories are producing. Therefore, the USA and Europe is putting pressure on China to reduce its overcapacity by switching from investment to domestic consumption.

140.    The huge expansion of credit has allowed firms to borrow cheaply in order to invest in deposits with a higher rate of return. The massive liquidity boost which the government implemented last year has resulted not only in GDP growth but also to a surge of speculative investments

141.    Average housing prices recently hit $2,200 per square metre in Beijing, one-third the average annual income in the capital. In Shanghai, prices are even higher, having shot up 60 per cent in 2009. Many State Owned Companies, awash with liquidity, diverted funds to speculation in raw materials, the stock exchange and complicated derivatives operations. The Shanghai stock exchange as a result grew by more than 60% in 2009.

142.    Thus we have speculative spending and a continued increase in the phenomenon of overcapacity, which has led to falling prices in some sectors. Steel prices in China are falling, reflecting a global fall in demand. Trade fell in Asia, with a fall in exports of about 40-50% in Japan, Taiwan and Korea.

143.    Here's a very interesting comment about overcapacity in China, written by an Australian economics journalist referring to comments made to him by Yu Yongdin [a former member of the monetary policy committee of the Peoples' Bank of China, a former Director of the Chinese Academy of Sciences Institute of World Economics and Politics, and President of China Society of World Economics:

144.    "He believes China is trapped in a cycle where constantly rising growth in investment is constantly increasing China’s supply, but consumption has conspicuously failed to grow fast enough to absorb it. And so China is forced to increase investment in order to provide enough demand to absorb the previous round of increased supply, thus creating ever-widening cycles of oversupply.

145.    “In this manner, the investment share of gross domestic product has increased from a quarter of GDP in 2001 to at least half. ‘There is sort of a chase – demand chasing supply and then more demand is needed to chase more supply,’ he says. ‘This is of course an unsustainable process.’

146.    “From 2005 China’s overcapacity problem had been ‘concealed’ by ever-increasing net exports – but that strategy was interrupted by the financial crisis. Then came last year’s globally unprecedented stimulus-investment binge, which might not have been so worrying if it were delivering things that people needed. But the Government’s hand in resource allocation has grown heavier since the crisis without reforms to make officials more responsible for what they spend.

147.    “As a result of the institutional arrangements in China, local governments have an insatiable appetite for grandiose investment projects and sub-optimal allocation of resources,” as Yu previously said, in his Richard Snape lecture for the Productivity Commission in November.

148.    “So there are now airports without towns, highways and high-speed railways running parallel, and towns where peasants are building houses for no reason other than to tear them down again because they know that will earn them more compensation when the local government inevitably appropriates their land. (/http://www.smh.com.au/business/chinas-runaway-growth-train-on-a-dangerous-course-20100124-msll.html)

There are indeed, but is that all there are? Is there no real growth just bungling orgies of speculative investments? Clearly China's capitalists are either smarter than those in the west and the rest of the world, and thereby found some new means of development under capitalism or they are not functioning according to the dominant laws of capitalism. Or as the IMT leadership hope, based on a few bourgeois economists remarks, that one day soon China will collapse economically. Then they can say "see, we told you China would suffer from a crisis of overproduction".

149.    China’s employment has hardly grown, because investment in export-led growth is highly capital-intensive: in 2005, the excess capacity in China’s steel industry was 120 million tons – more than the annual production of Japan, the world’s second-largest producer. That was the position already during the boom. During the slump, China’s unemployment rose rapidly. The official unemployment, which only counts registered urban workers, was estimated in November 2008 at 8.8 million, or 4.3%. But the real figure is much higher. A survey by the Chinese Academy of Social Sciences put the figure for urban unemployment at 9.4%.

150.    Though growth in the cities has been rapid in recent years, the countryside has lagged behind. Peasants were forced to emigrate to seek urban factory jobs. According to a recent government survey, more than 15 per cent of China’s 130 million migrant workers have returned to their hometowns recently, where they are now unemployed. Another 5 million to 6 million new migrants enter the workforce each year. About 26 million Chinese were sacked from their jobs in the manufacturing sector due to the global economic crisis and forced to return to their villages.

151.    This means there are roughly 25 to 26 million rural migrant workers who are now looking for employment. In the countryside, many poor families rely on remittances sent home by migrants working in factories or on urban construction sites. The situation is increasingly explosive. Many factory workers have already taken to the streets. The protests in July and August of 2009 against privatisation and lay offs were particularly significant.

152.    The workers were fighting against the impact of capitalist restructuring of State Owned companies and in one case went as far as lynching the manager sent to take over the factory by the new private owner. This shows the mood of anger that is developing beneath the surface and can lead to an explosion when least expected. The discussion of the class nature of China is important. But we must follow carefully the movements of the Chinese workers and peasants. The Chinese proletariat has been enormously strengthened in the past period, and the workers of China have not yet said their last word. The implication is that the class struggles of the peasantry and the proletariat are not governed by the class nature of the state! i.e the issue of concern is struggle itself not the nature of the struggle or against whom one struggles. ("The movement is everything the final goal nothing." Bernstein) 

153.    World relations

154.    The centre of gravity of world history is moving from West to East: to Asia and the Pacific, and above all to China, which is not only an economic power but also a military power. Sooner or later, this power will come into conflict with the USA for control of Asia and the Pacific. Already China’s huge trade surplus with the USA has provoked protectionist tendencies in the USA. These tendencies will intensify in the next period, as the major capitalist powers seek to unload unemployment onto their rivals.

But if China is about to experience a major crisis of overproduction and economic contraction the surely its perspective for becoming a dominant power will also be affected? If this is so how does this compare with your thesis on the shift to China?

155.    The collapse of the USSR created a situation unique in world history. The USA was the only super-power, and ruled the world through a kind of Pax Americana. In 1999, when Clinton decided to kick Slobodan Milosevic out of Kosovo, he achieved his objective by American air power alone. No country had ever possessed such ability to project power so fast and so massively, to any corner of the globe. The feeling of superiority went to the heads of the men in Washington, leading to a series of foreign military adventures, especially after 9/11.

156.    In the 1930s, Hitler resorted to a massive programme of arms expenditure. In the USA, Roosevelt resorted to the New Deal. This did not solve the crisis in America. What solved the problem of unemployment in America was not the New Deal but the Second World War. The same is true for Germany. Hitler had to go to war in 1938; otherwise the German economy would have collapsed. German capitalism was obliged to try to solve its problems at the expense of Europe.

157.    Hitler invaded Europe and seized all the wealth of France and its other imperialist rivals. However, the perspective of world war now is ruled out. Nowadays, the European capitalists are in competition with the United States. But who is going to fight against the United States? There cannot be a world war under these circumstances. But there will be small wars all the time. Iraq is a small war. Afghanistan is a small war. There is a small war in Somalia. But a direct confrontation between the major powers is ruled out.

158.    The US remains in a class of its own in terms of military – power. Its defence budget exceeds those of its nearest competitors – China, Japan, Western Europe and Russia – combined. Its global military presence is unmatched. But the limits of the power of US imperialism are being reached. In the 19th century, when Britain occupied the same role, capitalism was in a phase of ascent. But now US imperialism has inherited the role of world policeman in the period of the senile decay of capitalism. Instead of benefiting from its role, it suffers a colossal drain.

159.    Russia is only the shadow of the old Soviet Union, burdened by a declining population, mismanagement and corruption. But it is still a major military power, and it is reasserting itself and opposing the advance of US power. Bush thought that Russia would not be able to resist NATO expansion, which was threatening to surround it with hostile bases. He was mistaken.

160.    In September of last year, US President Barack Obama announced that he was shelving plans for missile bases in Poland and the Czech Republic in a major overhaul of missile defence in Europe. The earlier plan of President George W. Bush would have put a radar installation in the Czech Republic and interceptors in Poland. Obama then reconsidered the proposal to use smaller interceptors in the face of Moscow’s threat that it would station Iskander missiles in Kaliningrad if Washington went ahead with its original anti-missile plan. The latest revised plan to install Patriot missiles has resurrected Russia’s suspicions about the motive for the strengthened NATO presence near its borders and has therefore decided to strengthen its Baltic fleet as a counterweight to US plans. This again shows the limits of the power of US imperialism.

161.    Obama has a different approach to foreign policy than his predecessor, at least in form, although not in content. He defends the same imperialist interests, but with a bit more subtlety (that was really not so difficult). He has expanded the overall military budget to an incredible $680 billion – an amount only dreamed of by Reagan and Bush. So-called defence spending now consumes 35-42% of the estimated tax revenues of the USA. Add to that the billions handed out without any accountability whatsoever to the already super rich, and it’s no surprise there is “not enough” money for job creation, schools or health care. It is a new version of “guns before butter”. And for this he gets the Nobel Peace Prize!

162.    Of course, the foreign policy of the USA is dictated by naked interest, not idealism. The economic cost of the wars in Iraq and Afghanistan is now $1 trillion or more and rising. The cost in lives is also rising and these wars are causing increasing opposition in the USA. Not even the world’s biggest superpower can continue to tolerate such a persistent haemorrhage of blood and gold for long.

163.    The projected deficit for the coming year is nearly 11 percent of the entire economic output of the USA. That is unprecedented in peacetime. During the Civil War, World War I and World War II, the United States ran soaring deficits, but once peace was restored, equilibrium was usually restored. But now things are different. Even on Obama’s own (optimistic) projections, American deficits will not return to what are considered to be sustainable levels for at least 10 years. In fact, in 2019 and 2020 they are expected to start rising again sharply, to more than 5 percent of gross domestic product.

164.    The deficit U.S. federal budget is staggering and can undermine the basis of American power. Obama’s chief economic adviser, Lawrence H. Summers, used to ask the question: “How long can the world’s biggest borrower remain the world’s biggest power?” Obama reminded the country that “the previous administration and previous Congresses created an expensive new drug program, passed massive tax cuts for the wealthy, and funded two wars without paying for any of it.” Now US capitalism is trapped between a rock and a hard place: in order to keep the system afloat, it is compelled to resort to intense deficit spending.

165.    This means that the deficits must soar to new heights before they can come down. It represents a profound crisis that is reflected in a deep split in the US ruling class. The Republicans, who maintained a discreet silence about the debt during the Bush years, now refuse to talk about tax increases. The Democrats refuse to talk about cutting entitlement programmes.

166.    The US Treasury has borrowed money to finance the government’s deficits at remarkably low rates. This indicates that the markets believe they will be paid back on time and in full. But how long will this confidence last? The USA owes China a lot of money and the Chinese are not sure they will get all of it back. When members of the Chinese leadership visited Washington last year, they asked awkward questions about Mr. Obama’s budget. The Europeans are also worried about the US deficit.

167.    Obama is beginning to draw the necessary conclusions. In early December he announced his plan to send 30,000 American troops to Afghanistan, but he also made it clear that the United States could not afford to stay there for long. “Our prosperity provides a foundation for our power,” he told cadets at West Point. “It pays for our military. It underwrites our diplomacy. It taps the potential of our people, and allows investment in new industry […] “That’s why our troop commitment in Afghanistan cannot be open-ended,” he said then, “because the nation that I’m most interested in building is our own.”
168.    For these reasons, Obama has been forced to recognize the limits of US power. He is trying to get out of Iraq. Instead, Obama is to sending 30,000 more troops to join the 68,000 Americans and 39,000 other NATO forces already in Afghanistan. This is about 10,000 less than requested by his commander in Afghanistan, General Stanley McChrystal. It is hoped that the difference will be made up by greater contributions from NATO allies. This is preparing the way for new political crises in the USA and Europe. But it will not make any real difference to the outcome of the war in Afghanistan.
169.    Obama is attempting a tricky balancing act, simultaneously promising to defeat the Taliban while telling Americans that Afghanistan is not an open ended commitment. His declared aim is to bolster the Afghan government, and train and equip the local army and police. But the Karzai regime is utterly corrupt and the Afghan army would not survive one week without the presence of NATO forces. The numerous civilian deaths caused by US air strikes have caused a backlash against the foreign invaders. The Taliban have almost limitless supplies of volunteers and plenty of arms and money from the drug trade that supplies 92 percent of the world’s opium. It has powerful backers in the upper reaches of the Pakistan state and Intelligence.

170.    Karzai has warned that the Afghan army will not be able to fight on its own for “fifteen, maybe twenty years”. Even that estimate is optimistic. Obama’s generals are pressing him to send more troops to Afghanistan, but no matter how many they send, they will have no more success there than the British imperialists in the past. The latter were compelled to purchase peace by bribing the tribal chiefs. The Americans in the end will have no alternative but to do the same. In the long run it will be a lot cheaper.

171.    The US imperialists cannot win the war in Afghanistan, but they have destabilised the whole region. Washington is compelled to work with the Pakistani government in an unsuccessful attempt to crush the Taliban in Pakistan. Obama has promised that “America will remain a strong supporter of Pakistan’s security and prosperity long after the guns have fallen silent.” But by entering Pakistan like an elephant in a ceramics shop, the USA has completely destabilized that country.

172.    By invading Iraq, all the US imperialists succeeded in doing was to destabilize the whole of the region. All the pro-western regimes there are hanging by a thread: Saudi Arabia, Egypt, Lebanon, Jordan and also Morocco. These ruling elites were terrified by the demonstrations that took place during the Gaza war.

173.    Obama would like to make a deal with the Palestinians, it would help his friends in the Middle East, and it would be very useful to him. But the Israeli ruling class has its own interests, which do not necessarily coincide with those of Washington, and they are not prepared to reach a meaningful deal. While talking about a deal, Israel’s prime minister leaked news of a new plan to build 900 homes in the occupied Jerusalem suburb of Gilo. All attempts to find ways to freeze or stop this settlement building have proved fruitless.

174.    In reality, the negotiations are a farce. Netanyahu says: “yes we will accept a deal” but he has put conditions which the Palestinians could never accept. They must be disarmed, in effect, they must accept Israeli control. What sort of state is that? What sort of independence is that? As we have said many times, there can be no solution to the Palestinian problem on the basis of capitalism and within the narrow limits of Israel / Palestine.

175.    The impotence of imperialism is also evident in Somalia. They have been dragged into a conflict there that will get them into even greater difficulties. Now Yemen is going the same way. Developments in Pakistan and Somalia potentially present an even greater threat to the imperialists than Iraq or Afghanistan. But they are unwilling to put in more troops because they are still haunted by the memory of Vietnam. Already commentators are drawing parallels between Afghanistan and Vietnam. The Vietnam War alerted them to the effect that the colonial revolution can have on the masses at home. The adventures in Iraq and Afghanistan could have a similar effect, not just in the USA but in other countries of the imperialist Coalition.

176.    The colonial revolution

177.    The former colonial countries have partially succeeded in getting rid of direct military-bureaucratic rule by foreign powers. But these countries are exploited by the imperialist countries, which have an even greater control through the mechanism of world trade. They bleed them even more than before. In most of these countries living standards were falling even before the crisis. Now a frightful perspective opens up of hunger, mass unemployment and suffering on an epic scale.

178.    The western liberals talk a lot of sentimental nonsense about the “poor countries”, while continuing to exploit them. These countries have paid back billions in debt repayments, but now owe more than before. The value of the exports of these countries (raw materials and agricultural produce) constantly falls behind that of the manufactured goods they import from the advanced countries. There is no solution to this on the basis of capitalism. This means big explosions in the next period in Latin America, Asia and Africa.

179.    In Africa, the constant threat of a relapse into barbarism is an expression, on the one hand, of the impossibility of solving Africa’s problems on the basis of capitalism, on the other, of the interference of foreign imperialist powers, greedy to get their hands on the huge resources of the continent. Even during the boom there was an absolute nightmare situation Sub-Saharan Africa. What happened in Rwanda was a terrible warning. Similar events can be repeated elsewhere, as we saw in the horrific civil war in the Congo in which at least five or six million people were slaughtered.

180.    Similar atrocities have occurred in Sierra Leone and Uganda. Not long ago Kenya, a relatively stable African country, was on the verge of Civil War. Now a bloody war is taking place in Somalia and the war in Sudan is on the point of breaking out again. There are religious pogroms involving Moslems and Christians in Nigeria. However, in Africa there are key countries where there is a powerful working class: Nigeria, South Africa and Egypt, where there have been big strikes in the last period.

181.    The huge strikes of the textile workers in 2007 are an indication of what is to come in Egypt in the future. What was most significant in those strikes is that it was the women, dressed in traditional Islamic clothing, women with the chador, who started the strikes and in many factories went over to the men to ask them why they were not striking. These women participated in the factory occupations, sleeping in the factories overnight with their babies. There have also been other important strikes such as those of the teachers. There is a ferment in Egyptian society, which reflects the growing confidence of the working class, in one of the largest and most developed countries in Africa.

182.    In Nigeria in the past decade we have witnessed eight general strikes, and several other important strikes of doctors, university staff, government workers and so on. The NLC (Nigerian Labour Congress) is by far the most popular organisation among the masses. The leaders of the NLC play a significant political role, but they are conscious of the potential power of the Nigerian working class and that is why they have so far not put their full backing behind the newly formed Nigerian Labour Party. If the NLC were to put its official backing behind this party it would undoubtedly become a major force in Nigerian politics. Instead because of this lack of a working class political alternative, the masses can only choose between different gangster bourgeois politicians. The present regime is in fact extremely weak, and remains in power through inertia, and because there is no credible alternative. But the masses are seething, and it is only a question of time before they move again.

183.    The key country in Sub-Saharan Africa, however, is South Africa. The ANC came to power on the basis of a rotten compromise with the white ruling class. The mass of black workers got hardly anything out of the deal. All that happened was that a black bourgeoisie and a black middle class have fused with the white exploiters and the interests of this bourgeoisie was represented by the section of the ANC led by Thabo Mbeki. He was a Stalinist and he became a complete bourgeois and as a result there was an open split in the ANC.

184.    In South Africa a nightmare scenario opens up on the basis of capitalism. The SACP is pursuing reformist policies. The ANC has gone to the right and is doing the dirty work of the bourgeoisie. There are millions of unemployed and only a small number of blacks have become rich and joined the elite. The only thing in the ANC's favour is the mineral wealth, which is exploited for the benefit of the imperialists. This is very unpopular. The black masses were embittered against Mbeki. Zuma has now replaced him, but now South Africa is severely affected by the economic crisis. The masses still have big illusions in the ANC. But their patience has a limit.

185.    The official unemployment is 23.5%; the real rate is much higher. The mass of black workers thought Zuma was going to be on the left, and that he was going to defend their interests. But these illusions did not last long. There have been big strikes in all the major cities of South Africa, not just the buses but the clinics, the traffic officers, the libraries, the parks and the public sector in general. There have been clashes with the police, barricades have been set up and the police have fired rubber bullets against the workers. This is the beginning of a revolutionary movement in the key country in Africa. We must keep an eye on developments in South Africa.

186.    India and Pakistan

187.    The collapse of Stalinism means that the leaders of the CPs have become even more rotten. In the past they looked to Moscow, now they look to the bourgeoisie. They have abandoned any pretence of standing for socialism. In India the CPI was always a tool of the Congress Party. This led to the split of the CPI (M). But now the CPI and the CPI (M) have the same reformist line. The outbreak of guerrilla war led by the Naxalites in several states of India is a desperate reaction against the class collaboration policies of the leaders of the Communist Parties.

188.    The Indian proletariat is a mighty force. In the last period there have been strikes and general strikes. Within the Communist Parties there is a ferment of discontent. The working class rank and file believes in socialism and communism and is unhappy with the policies of the leaders. A Marxist tendency would rapidly win support among the workers and youth of the Communist Parties. This is on the agenda in the near future.

189.    In Pakistan, the election of a PPP government under conditions of crisis represents a new stage. The position in the country is disastrous: price hikes, unemployment, poverty, electricity, water and gas shortages, redundancies, privatizations and other factors have created a situation for the working masses that is unprecedented in the history of Pakistan.

190.    The PPP leaders, by basing themselves on bankrupt Pakistan capitalism, were compelled to start a series of attacks on the working class. To make matters worse, Zardari promised the Americans total submission that even Musharraf was incapable of providing. This regime has given all-out and blind support to the imperialist aggression that has killed thousands of people in Afghanistan and Pakistan.

191.    The role of our comrades in Pakistan is of extraordinary importance. The Pakistan Marxists have succeeded in building a modest but important force under the most difficult conditions. It is an extraordinary achievement that in a poor, backward Islamic state, the forces of Marxism have made such striking gains. Our comrades are working in very hard and dangerous conditions. They face attacks from all sides and are swimming strongly against the tide. But the tide is beginning to turn.

192.    The workers and peasants of Pakistan turned massively to the PPP after the return of BB. They voted for the PPP in the hope of a change. But their hopes have been dashed. The workers and the rank and file of the PPP are also reacting against the right wing policies of Zardari and the PPP leadership policies. This situation entirely confirms our perspectives for the PPP. The workers had to pass through the school of Zardari in order to learn the real nature of the PPP leaders. And they are learning fast.

193.    Cracks are opening up inside the PPP that will widen with time and experience. We have no intention of abandoning the PPP, but it would be fatal for us to be seen as defending the anti working class policies of Zardari, which are alienating the masses and preparing the way for the return of reaction. Our position is that of Lenin: “patiently explain. This will attract an ever increasing number of people towards our revolutionary ideology.

194.    The Pakistan comrades have remained firm in the face of cruel pressures. This is proof that we have built a viable revolutionary force, capable of fighting and defeating opportunist and ultra left elements and conducting serious work among the masses. In the coming period they will have the possibility of becoming a decisive force, not only in Pakistan but in the whole Subcontinent. A revolution in Pakistan would immediately spread to India, overcoming the artificial frontiers that separate people who speak the same languages and have a common history and culture going back thousands of years.

195.    Iran

196.    In Iran, the entry of the masses onto the scene signifies that the revolution has begun. This fact is clear to millions of people who have come onto the streets to fight the hated Basij repeatedly over many months. Despite the terrible repression there were one million or maybe two million people on the streets of Tehran in the aftermath of the June elections. It was an astounding revolutionary movement. This is the final answer to all the cowards and sceptics, the cynics, the ex-Marxists, the ex-communists, and all the others who doubted the possibility of revolutionary movements in the present epoch.

197.    Lenin explained the four conditions for a revolution:
198.    The regime is split; there is a crisis in the regime.
199.    The middle class is wavering between the revolutionary forces and the ruling class.
200.    The working class is ready to fight and make the greatest sacrifices.
201.    The existence of a revolutionary party and leadership.

202.    The regime in Iran is split from top to bottom. As for the second point, the middle class was not wavering, but actually took the side of the revolution. There was some participation of the workers, like the Teheran bus drivers. There was even talk of a general strike, but this failed to materialize, precisely because of the absence of the last factor: a revolutionary party and leadership.

203.    There were two fatal weaknesses in this spontaneous movement. In the first place, it was precisely the weakness of spontaneity. There was no leadership, no plan, no strategy. It is impossible to keep masses of people on the streets without a clearly worked out plan.
204.    Above all, there was no concerted participation by the organized workers. That was the second and decisive weakness. This again shows the limitations of the workers’ leaders in Iran. There have been many strikes in Iran in the last period, but in the decisive moment, where was the leadership? Unfortunately, the so-called workers’ vanguard failed to support the movement and did not call on the workers to join it.

205.    In 1930, when there were big student demonstrations, Trotsky insisted that the Spanish workers and the Spanish Communists must support these demonstrations and put forth revolutionary democratic demands. Unfortunately, in Iran the workers’ leaders boycotted the election and boycotted this movement. An indefinite general strike would have finished this regime, especially if it was accompanied by the setting up of shoras (workers’ councils). But this demand was never concretised, and the opportunity was lost.

206.    On the surface it seemed that the regime had regained control after the June demonstrations, but that was not the case. Nothing has been solved and the splits in the regime deepened. The public criticisms of Rafsanjani were one instance; the splits among ayatollahs were another. The demonstrations continued with renewed force in September (Quds Day) and in November and December, when they culminated with the mass upheavals during Ashura.

207.    The masses showed great courage, clashing with the police, army and the hated Basij on the streets. They went onto the offensive, attacking the buildings of the Basij. There were cases when the soldiers disobeyed the orders of their officers to fire on the demonstrators.

208.    Of course, it would be a mistake to confuse the first month of pregnancy with the ninth, but it is an even bigger mistake to deny that the act of conception has taken place. Despite everything, some “Marxists” continue to deny that there is a revolution in Iran. Some, like James Petras, make the small mistake of confusing revolution with counterrevolution. With such people it is impossible to argue. Others are not so crude, but still deny that there is any revolution in Iran because the working class and the Marxists are not leading the movement. They quibble and split hairs about words and phrases in a doctrinaire fashion. But for the masses there is no doubt whatsoever that what is taking place in Iran is a revolution.

209.    In order to lead the masses, it is necessary to show that we understand the real nature of the movement, which in its early stages is bound to be heterogeneous, confused and politically naive. In Iran, the revolution is still in the early phase of democratic illusions. How could it be otherwise after three decades of the most monstrous dictatorship? Unless the Iranian Marxists are able to connect with the real movement, making skilful use of revolutionary democratic slogans, they will be condemned to the role an irrelevant sect that comments on the movement from the outside.

210.    When we say that the revolution has begun, that does not mean that the workers will take power next Monday at nine o’clock in the morning. On the contrary, because of the absence of the subjective factor, it can be protracted in time, with many ups and downs, advances and retreats. As in Spain in the 1930s, when the revolution lasted for almost seven years, periods of intense activity will be followed by periods of tiredness, disappointment, even reaction. But these periods will be only the prelude to new and ever more explosive movements of the masses.
211.    As Iran approached revolution in the late 1970s, Shah Mohammad Reza Pahlavi vacillated between conciliation and brutal repression, but nothing could save his regime. Now Khamenei the Supreme Leader is in a similar position.
212.    Mir Hosein Mousavi constantly strives for a deal, but all his offers of conciliation go unheard. The Supreme Leader has let it be known that his critics’ only hope of leniency is to repent and throw themselves on his mercy. Some of them might be prepared to do this, but they feel the hot breath of the Revolution on their necks.
213.    More intelligent leaders are infuriated by the supreme leader’s inflexibility. They advocate concessions in the name of national unity. Several times since June, conservative politicians and clerics have proposed measures such as freeing political prisoners, setting up an impartial election commission and pressing the state broadcasting monopoly to reduce its bias in favour of the government. But it is all to no avail. Khamenei has dismissed them all.
214.    Now five prominent intellectual exiles (Abdolkarim Soroush, Mohsen Kadivar, Ataollah Mohajerani, Akbar Ganji and Abdolali Bazargan) have issued a manifesto calling for the lifting of restrictions on political, academic and media activity; and the return to barracks of the Revolutionary Guard. It also proposes that the Supreme Leader should be elected for a fixed term and lose his ability to block parliamentary legislation through the Guardian Council, and to appoint the country’s chief justice. In short, they politely ask the devil to cut off his claws!
215.    This will have no effect on a regime that still has at its disposal a powerful apparatus of repression. The recent funeral of Ayatollah Hosein Ali Montazeri showed that the revolutionary mass movement is still very much alive and not at all inclined to compromise. The slogans were more radical than before, denoting an increase in consciousness. The Economist (Jan 7th 2010) reported:
216.    “On December 21st, the day of the funeral, thousands of middle-class Tehranis converged on the holy city of Qom, a bastion of clerical conservatism. In the streets outside Qom’s great shrine they joined forces with thousands of traditional, provincial Iranians, devout followers of Montazeri’s teachings and rulings, and shouted abuse at some of the Islamic Republic’s leading figures. ‘It was a big day for the city,’ commented one eyewitness. ‘People couldn’t believe they were hearing such slogans being shouted – in Qom, of all places’.”
217.    The demonstrators suffered heavy losses – at least eight dead and many more injured and arrested – but all this repression has not broken the spirit of the masses. On the contrary, there were many reports of demonstrators responding violently to the assaults of the Basij, and shouting slogans against Khamenei. Gone is the talk of non-violence. The movement is becoming more and more radicalised. As the masses lose their fear, there are also signs of cracks in the state’s repressive apparatus. There have been reports of soldiers refusing the order to fire on the crowds.
218.    Mousavi is trying to reach a deal with the regime to halt the movement. He has gone back on his earlier insistence that Mr Ahmadinejad’s government was illegal, and by saying that “not all the opposition’s demands need to be met at once”. But that does not impress the Supreme Leader at all. On December 30th the government organised a counter-rally in central Tehran, in which the crowd demanded that Mr Mousavi and his supporters should be executed for “waging war on God”. Reactionary clerics and conservative newspaper demanded, that Mousavi and Karroubi be executed. The only reason Khamenei has not agreed to their arrest is his fear of turning them into martyrs and provoking new and more violent disturbances.
219.    In reality, the bourgeois leaders of the opposition are the regime’s best hope of survival. In the first week of January Ezzatollah Sahabi, a critic of the regime, issued an open letter in which he warned the movement not to slide towards “radicalism and violence”. “A revolution in today’s Iran”, he wrote, “is neither possible nor desirable.” If moderate and conservatives clerics were forced to choose between a revolution and the status quo, he predicted, they would choose stability. There is no doubt that he was telling the truth. But the fact that “moderates” and “conservatives” all fear the revolutionary movement like the plague is not new and it will not halt the movement.
220.    On February 11th, the official celebrations of the anniversary of the 1979 revolution will see a new outbreak of the movement, when hundreds of thousands will take to the streets yet again. Khamenei will not budge. As The Economist correctly says:
221.    “To make concessions under pressure, the ayatollah apparently believes, is a sign less of wisdom than of weakness. So he has contented himself with vague calls for national unity, even as the Basij bash opposition heads and the nation’s prison officers gain notoriety as rapists and torturers.” But the same article adds:
222.    “Having survived more than two decades at the top of Iran’s power structure, Mr Khamenei is now looking acutely uncomfortable. By refusing to countenance a fresh election in the aftermath of the June poll, he turned much of the ire that was being directed against his president against himself. As recently as a few months ago, few Tehranis would have dared whisper “Death to Khamenei”. Now that slogan has become a commonplace.” (The Economist Jan 7th 2010)
223.    The overthrow of the regime may be postponed for six months, twelve months or even a longer period. But it is inevitable. And it will open up a very stormy period in Iran. The overthrow of the regime of the mullahs would have a profound effect on all the countries in the region and beyond. Under these circumstances it is necessary to fight for the most advanced democratic demands. But they must be summed up in the slogan of a nationwide general strike and soviets (shoras). On this basis this regime would be finished, and the ground would be prepared for the transfer of power to the working class.

224.    We cannot be precise about the nature of the regime that will have. It is probable that in the first stages it will be of a bourgeois-democratic type – as in Russia after the February Revolution in 1917 or in Spain after the fall of the Monarchy in 1931. But we can be sure what it will not be: there will not be another fundamentalist Islamic regime in Iran. The Iranian revolution will cut across all the madness of fundamentalism that exists in the Middle East. It will transform the situation in Pakistan and Afghanistan and have a major impact in India, Pakistan and throughout Asia. Regimes like Egypt, Jordan and Saudi Arabia would fall, one after the other.

225.    The ideas of the IMT have already had an echo inside Iran. Our articles were immediately translated into Farsi, were rapidly distributed in Iran, and, according to our reports, they had an excellent response. We must discuss the problems and perspectives of the Iranian revolution as a matter of urgency in order to work out the correct slogans, programme and tactics, in order to prepare for a decisive intervention in the stormy events that impend.

226.    The Latin American revolution

227.    We have discussed Latin America extensively in previous documents. It remains an absolutely key sector of the world revolution. Despite what bourgeois and reformist politicians said, far from being immune to the world recession, Latin America has been hit by it in a particularly severe way. On the one hand, the collapse of the prices of raw materials and oil has affected the countries of the region, many of which depend heavily on those. Mining and oil exports in the entire region fell by 50.7% in the first semester of 2009.

228.    The recession in the US and Europe also affected remittances by migrant Latin American workers which in some countries (Honduras, Nicaragua, Mexico, Ecuador, Bolivia, Peru, etc), make up a significant part of their GDP. In the first ten months of 2009, the value of remittances to Mexico fell by 16.5% and in the case of Colombia by 17.5%, with El Salvador and Guatemala registering a 10% fall. Finally, the credit crunch world wide, has led to a collapse in Foreign Direct Investment into the region, which regional economic body CEPAL calculates could be as high as 45% in relation to 2008.

229.    Mexico and Central America have also paid a heavy price for the integration of their economies into the US economy, suffering more than other countries which have more trade links with the EU and China. The economy of the continent as a whole fell by 2.1% in 2009, with countries like Mexico (-7%), Venezuela (-2.9%) amongst the worst affected. But even after these countries recover from the recession in 2010, the number of poor will continue to grow by a total of 39 million. This is the explosive background to the developing revolution in Latin America.

230.    Venezuela

231.    Over the past decade on more than one occasion the workers could have taken power in Venezuela. The problem is a problem of leadership. Chavez is a very courageous and honest man, but he is proceeding empirically, improvising, making up a programme as he goes along. He is trying to balance between the working class and the bourgeoisie. And that cannot be maintained.

232.    Lenin explained that politics is concentrated economics. Chavez was able to make concessions, reforms, the social missions, etc., for quite along time because of the economic situation. The high price of oil allowed him to do this. But that is finished. The price of oil has fallen dramatically, although it has now recovered a little. Inflation is at about 30%. Therefore there has been a fall in real wages. Many of the welfare schemes are being scaled back and unemployment is increasing.

233.    There is no doubt that the Venezuelan workers still remain loyal to Chavez, but there is also no doubt whatsoever that many workers, even dedicated Chavistas, are getting impatient. They are asking: what sort of a Revolution is this? What sort of Socialism is this? Are we going to solve these problems or not? The threat of counterrevolution has not disappeared. The counterrevolutionary opposition is preparing a new offensive to win a majority in the National Assembly in 2010. If they succeed, or if they win a sufficiently large number of seats, the way will be open for a new counterrevolutionary offensive.

234.    The most striking fact about the Venezuelan revolution is the inability of the imperialists to intervene directly. In the past, they would have sent in the Marines to overthrow Chavez. But they have been unable to intervene directly, although they have waged a constant campaign to undermine, isolate and destroy the Bolivarian Revolution. The defeat of the coup in 2002 was brought about by the intervention of the masses.

235.    Washington is manoeuvring with Uribe to threaten Venezuela. The agreement under which Colombia granted the United States access to up to seven military bases was an act of aggression directed against the Venezuelan Revolution. The external threat from Colombia is very real. But far more serious is the threat from within. The bourgeoisie still holds in its hands key points in the economy. Ten banks still control 70% of the country’s financial activity. Most of the land remains in the hands of the big landowners, while 70% of the food is imported (along with inflation). Above all, the state remains in the hands of the counterrevolutionary bureaucracy. After more than a decade, there are signs of tiredness and disappointment in the masses. This is the most dangerous element in the equation.

236.    At the First Extraordinary Congress of the PSUV Chavez admitted these things and stated that “socialism had not yet been achieved.” He called for the total elimination of capitalism, for the arming of the people and a workers’ militia. All this is necessary, but if this remains on the level of speeches, it will lead nowhere. The fact is that the bureaucracy is systematically undermining the Revolution from within. The movement towards workers’ control is being systematically sabotaged, and workers who attempt to fight the bureaucracy are coming under attack, as we saw in the case of Mitsubishi. This situation is producing a ferment of discontent and disillusionment that is the biggest danger of all. If this mood is expressed in apathy and abstention in the legislative elections, the scene will be set for a counteroffensive of the right.

237.    There is a sharp polarization between the left and the right within Venezuela and this polarization is reflected within the Bolivarian movement itself, above all in the PSUV. The mood of discontent will find its reflection within the Socialist Party, the PSUV. The penetration of the Party by alien elements: careerists, bureaucrats and counterrevolutionaries has alienated many workers. The Party has been heavily bureaucratized and the leadership is dominated by reformists, but the pressure from below will be there. And that should be a very favourable condition for the Marxist tendency.

238.    We must pay much more attention to our work in this Party, which is at the centre of the problem of the Revolution. We must admit frankly that the leadership of the Venezuelan section has not paid sufficient attention to this work, and as a result we have missed many opportunities. This is a very serious error, which must be rectified immediately. Trade union work is very important, but it must be given a political expression. Our work with the occupied factories remains a key question, but it will be completely sterile if it is not linked to the fight to transform the PSUV.

239.    The Venezuela Marxists must combine theoretical firmness with the necessary tactical flexibility, always stressing the role of the Bolivarian movement and the PSUV. If we work correctly in the next couple of years, the foundation will be laid for a mass left wing opposition within the PSUV, in which we will participate, fertilizing it with the ideas of Marxism. This is the only way in which we can build a mass Marxist current in Venezuela, as the first step towards a future mass revolutionary Marxist Party.

240.    Mexico, Cuba and Central America

241.    There is a very serious economic crisis in Mexico. Whole areas of Mexico depend on the immigrants working in the United States, whose remittances have collapsed due to the crisis. The bourgeoisie cannot tolerate the continued existence of the reforms and concessions it made in the past. But there is no alternative for the masses except to take the road of struggle.

242.    The attack on the electricians’ union is an indication of how the Mexican ruling class is thinking. They are compelled to attack living standards, and in order to accomplish this aim, they have to smash the powerful Mexican trade unions. This was shown by the closure of Luz y Fuerza and the attempt to crush the powerful Mexican Electricians Union, which led to a mass movement and the National Stoppage (Paro Nacional) in October 2009.

243.    The attacks of the PAN government will provoke a reaction that can lead to a social explosion on the lines of 2006, or on an even higher level. We must be prepared! The PRD will recover on the basis of the unpopularity of the Calderon government. The Party is in the hands of the right wing, and will be shaken by internal crises and splits. It is possible that Lopez Obrador may decide to spit away and join forces with the PT (Workers’ Party). We must be flexible in our tactics and follow events closely in order to reach the most advanced workers with our ideas.

244.    The fate of the Cuban Revolution is directly linked to the perspectives for socialist revolution in Latin America. After the fall of the USSR, Cuba was isolated and under pressure, which has now been intensified. As long as Castro was in charge, they could keep the pro-capitalist elements under control and maintain the situation. But now Cuba is also in serious difficulties. The global crisis of capitalism has hit the Cuban economy, which after the collapse of the Soviet Union is heavily dependant on the world market.

245.    There is a clear danger of taking economic measures which, in the name of "efficiency" would open the road to capitalist restoration. At this juncture, the revolution must be strengthened by unleashing the creative power of the Cuban working people through their full involvement in the running of society and the economy. Instead, the long awaited Congress of the Communist Party has been postponed sine die.

246.    This shows the limitations of “socialism in one country” The isolation of the revolution is the source of bureaucratism as well as the pro-capitalist tendencies. The Revolution is faced with a stark choice: either capitalism is overthrown in Latin America, or the tendency towards capitalist restoration in Cuba will acquire an irresistible character.

247.    If the Venezuelan Revolution were to be successfully completed, the situation would be transformed. The objective conditions for revolution are rapidly maturing everywhere in Latin America. What is true of Mexico is even truer of Central America, as we have seen in Honduras. What is required is a revolutionary leadership that knows what it wants and how to achieve it.

248.    The Stalinist two-stage theory has failed everywhere. In order to succeed, the revolution cannot halt at the limits of private property. Beginning with the national-democratic tasks (the struggle against imperialism and the oligarchy, the agrarian revolution), the revolution must carry out the expropriation of the banks and bog industries, which are only the local agencies of imperialism and the centre of the counter-revolution. Last but not least, the revolution cannot halt at the frontiers, which are in any case of a completely artificial character, above all in Central America.

249.    In El Salvador, where the socialist revolution could have been carried out on healthy lines in the past, but was derailed by the false policies of the leadership, the revolutionary movement is entering a new stage. The vote for the FLMN was an expression of this discontent. The election of the first FMLN government in the history of El Salvador showed a deep desire on the part of the masses for a radical change. But the reformist leaders have no solution for the crisis, which can only be solved by revolutionary means, through the expropriation of the land, the banks and the key points of the economy.

250.    In Nicaragua, Guatemala or El Salvador, the crisis of capitalism is a catastrophe. When the immigrant workers in the USA are laid off, they cannot send money back to their families. This is a social catastrophe for the whole region. That explains the convulsions in Honduras where the question of power is posed. There will be similar convulsions in all the countries of Central America. These countries are too small and weak to compete with the more powerful capitalist economies, particularly the North American giant that holds them in a suffocating embrace.

251.    The crisis in the USA has led to a collapse of demand for the products of these countries, and the migrant workers from Central America who provided a reserve of cheap labour for the US economy during the boom are the first to be sacked in the recession. The collapse of the remittances of these migrant workers spells disaster for Central America.

252.    The marvellous movement of the masses in Honduras, which lasted for nearly five months, could not be stopped by repression, curfews, selective assassinations. It shows the enormous revolutionary potential which exists in all countries in Latin America. In the days that preceded and followed Zelaya's secret arrival back into the country in September, the masses could have taken power and overthrown the dictatorship by revolutionary means. However, the vacillations of the leadership of the Resistance Front and of Zelaya himself at the crucial moment, meant that the opportunity was lost. Once again, the question of leadership was the key.

253.    All sections of the ruling class – including Obama – were united in their fear of a revolutionary overthrow of the coup. In the end, through trickery, diplomacy and deceit, they all got what they wanted: the oligarchy and their friends in Washington managed to establish “legitimacy” for the coup through fraudulent elections. Typically, Obama retreated under pressure from the right wing, dropping his objections to the coup and arguing that the election represented the “restoration of democracy”. This little detail clearly reveals the real character of Obama and his “progressive” policies, both at home and abroad.

254.    What happened in Honduras can happen in any other country in Central America. The events in Honduras show that the Central American Revolution is a single, inseparable process. Even on a healthy basis, however, the countries of Central America could not solve their problems in isolation. If it is to succeed, the Central American Revolution must be linked at the very least to the perspective of the Latin American Revolution. A successful socialist revolution in any of these countries would give a powerful stimulus to the socialist revolution, not only in Central and South America and the Caribbean, but in the USA and the other advanced capitalist countries. In the final analysis, this is the only guarantee of its success.

255.    Bolivia, Ecuador and Colombia

256.    The re-election of Evo Morales with an increased vote shows the enormous reservoir of support for the revolutionary movement amongst the masses. The new government will be put under enormous pressure to deliver on all the crucial issues: jobs, land, health care, and education, none of which can be seriously be solved within the limits of capitalism.

257.    This has opened up a period of sharp class struggle in Bolivia, which is not yet resolved. The final outcome partly depends on the speed with which the advanced workers draw the necessary conclusions, which in turn is related to the capacity of the Bolivian Marxists to build strong links with the vanguard and convince them of the need for a revolutionary alternative.

258.    Above all, it depends on the future of the Venezuelan Revolution. If the Venezuelan workers take power, it would mean the overthrow of capitalism in Bolivia and Ecuador in a matter of days. Faced with a revolutionary movement of the masses in several countries, the imperialists would not be able to intervene. On the contrary, they would be faced with mass opposition movements at home, which would make the protests over the Vietnam War seem tame by comparison. However, if the decisive step is not taken, and the masses begin to tire of years of struggle with no clear outcome, the balance of forces can change.

259.    The Venezuelan Revolution has had a powerful impact on neighbouring countries like Bolivia and Ecuador. Ecuador has closed the US imperialists’ base and now the imperialists are building up their forces in Colombia, which has put seven bases at their disposal. This represents a mortal threat to the Venezuelan Revolution. At some point in the future, Washington may try to engineer a war between Colombia and Venezuela. However, that would be a risky strategy.

260.    The Venezuelans would fight like tigers to defend the Revolution, and the Colombian regime would find itself fighting on two fronts with a renewal of hostilities on the part of the guerrillas, not to mention the opposition of the Colombian workers. It is not at all clear that the agents of imperialism could win such a war, and a military defeat could signify the end of capitalism, not only in Venezuela, Bolivia and Ecuador, but in Colombia also.

261.    Brazil

262.    Brazil is the largest country in South America, with a population of around 190 million. It has undergone significant economic growth since the Second World War, and especially in the past 30 years. With this has come also a huge growth in the Brazilian proletariat, which led to the creation of powerful labour movement organisations; in particular the 7 million strong CUT trade union confederation and the PT, the Workers' Party with its one million plus members.

263.    Brazil's $1.3 trillion economy is bigger than those of India and Russia, and its per-capita income is nearly twice that of China. New discoveries of oil reserves are also expected to make the country one of the world's biggest crude producers. Foreign investment ($45 billion in 2008) is three times what it was a decade ago. 

264.    Last year Brazil was affected by the worldwide recession suffering a brief downturn in the second quarter, but is now expected to grow by more than 5 percent this year, according to a survey of leading financial institutions published in February.

265.    Lula achieved a massive victory in the 2002 presidential elections , and was re-elected again in 2006 extending his term as President until 1 January 2011. At the end of this year the country returns to the polls. Lula has been the most popular president in Brazil's recent history, but cannot stand again as Brazilian law bars him from running for a third consecutive term.

266.    Lula has governed during a long period of economic upswing (the greatest burst of economic growth in Brazil in three decades). Since 2003 8.5 million jobs have been created and programmes such as food assistance for poor families (the Bolsa Familia) have been implemented. This has benefited a large number of families and also explains why his approval rating has reached an amazing 82 percent.

267.    At the same time as these and other reforms have been instituted Lula has not cancelled the previous governments' privatisations and other attacks on previous reforms. There is still a wide gap between rich and poor. In fact Brazil is a country of huge contradictions. It has large modern cities such as Rio de Janeiro and Sao Paulo, which are comparable to cities in the more advanced capitalist countries, but where a third of the population lives in favelas, or slums. This contradiction is even bigger when we look at disparities between the different regions, the North-East being more akin to “third world” poverty conditions. Much of the land is controlled by a handful of wealthy families. This has led to the emergence of the Movement of Landless Rural Workers (MST) which organises five million landless peasants seeking land redistribution.

268.    As could be expected, the election of Lula in 2002, and the subsequent economic upswing and reforms, have had the temporary effect of achieving an unstable equilibrium, a kind of “social peace”. Although there have been important strikes, the general level of conflict has been reduced. The workers see the present government as their government. This is something the sectarians do not understand. It is true that the active membership of the PT has gone down in this period, but the PT has enormous reserves of social support. The PT was created by the Brazilian working class in the struggles of the metalworkers of the late 1970s and early 1980s. It has deep roots within the Brazilian working class.

269.    The Brazilian Marxists base themselves on this fundamental fact. The mass of workers still see the PT as their party. The huge popularity ratings of Lula confirm this. The fact that the Brazilian Marxists won more than 3500 votes in the recent internal elections and won a position on the national council of the PT confirms the fact that within the party there is an advanced layer seeking a revolutionary alternative. On the basis of events, of the experience of the PT government and a movement of the working class, at some stage the left within the party will be strengthened and the Marxists are positioned to make big gains from this process. Already they have important positions in the railway unions, the chemical and glass workers amongst others. They also have PT councillors in Sao Paulo and Santa Caterina which give them a wider echo within the labour movement. They are also recognised widely within the Brazilian labour movement as the leaders of the Occupied Factories Movement, which gives them authority within a wide layer of the working class. All this positions them well as a respected tendency by many workers and opens up big possibilities for them in the future.

270.    Argentina

271.    Despite significant economic growth of 2003-2008, with annual rates of 8%, the living conditions of the masses did not substantially improve, and although the working class instinctively rejects the right wing politicians, the government of Cristina Fernández arouses no enthusiasm.

272.    The most significant aspect of the situation is the frontal clash between the government of Cristina Kirchner and the bourgeoisie. “Kirchnerism” is a political variant of Peronism (bourgeois populism) comparable to the European Social Democracy, but lacking a mass movement – a fact that differentiates it from apparently similar governments and political movements in Venezuela, Bolivia and Ecuador. However, the bourgeoisie cannot tolerate the government's attempt to maintain a certain degree of independence. “Kirchnerism” attempts to limit the more predatory tendencies of big national and imperialist capital, and grant some concessions to the working masses, in order to uphold the overall interests of Argentine capitalism. In the end, it satisfies neither one side nor the other.

273.    The only alternative is to form a Workers Party, to carry the political struggle to the broader layers of the working class, within which a Marxist tendency can group together the most conscious and advanced sectors. Proyecto Sur, which began as a movement of left Peronists, trade unionists and left activists does not yet represent this alternative because it lacks a consistent class programme and a mass base. However, it got nearly 25% in the local elections in the capital, Buenos Aires, and it appears as an alternative to the left of Kirchnerism.

274.    Meanwhile, it is the duty of Marxists to participate in any mass front which tries to channel the political activities of the working masses, and there to explain patiently the socialist programme, to provide a class perspective, whatever the vacillations, inconsistencies, and confusion of the accidental leaderships of these movements.

275.    Crisis and class struggle in Europe
276.    It is an elementary proposition that the advent of mass unemployment is not conducive to strike activity. The financial crisis did not immediately impact on workers in the workplaces, but as months went by unemployment started to increase dramatically. In the autumn of 2008 there were significant student mobilizations in Italy, Greece and other countries, where there were also general strikes. However at the beginning of 2009 the situation started to change with the steep rise in unemployment.
277.    In most European countries a steep fall in level of strikes. This we have seen in a very marked way in Italy, but a similar trend can be observed in countries like Denmark, Britain, etc. According to the BBC News the level of strikes in Britain was one third what it was in the 1991-92 recession. The depth of the present crisis is one of the factors in this situation. However, the situation is contradictory, with outbreaks of very bitter and militant struggles of some sections, including factory occupations in Britain, Italy and even the United States.
278.    In Italy in the very recent period, there have been a number of disputes, all involving larger factories where big numbers of workers are losing their jobs. This is provoking a reaction, with strikes, pickets and partial occupations. But in general the overall picture is still one of low level of strikes.

279.    In the previous period Spain enjoyed rapid growth. Now it has experienced a spectacular fall. Spain is one of the few European countries to continue in recession as of January 2010, after a fall in GDP of 3.7% in 2009 (and a collapse of industrial production by 15.8%), and is forecast to continue in recession throughout 2010 with a fall of 0.5% of GDP. Unemployment has increased sharply, reaching an all time high of 4.3 million unemployed (18.8% which is double the EU average), having increased by 1.1 million in 2009, and another 1.2 million in 2008.

280.    Official unemployment figures are expected to reach 20% in 2010, another year where there will be net destruction of jobs. Youth unemployment has now reached 39% according to the official statistics. Together with a rapid growth of unemployment, the general trend has been a falling off of strike activity. However, there have been some important struggles, such as the dispute of the Vigo metalworkers in Galicia and the strike in the Basque Country, which was a partial success (although it was only general in Guipuzcoa). There is the beginning of ferment in the unions (CCOO) and the United Left, where Cayo Lara is calling for a general strike. We must pay careful attention to this and intensify our work in the mass organizations of the working class.

281.    The inevitability of sharp and sudden changes in the situation is shown by events in Iceland, a country that had enjoyed high living standards and political stability. In January 2009 protests in the capital Reykjavik brought thousands of people on to the streets in the biggest demonstrations the country has ever seen. As a result, the coalition government between the Samfylkingin (Social Democrats) and the Conservative Independence Party broke up. In what was formerly one of the most stable and prosperous country in Europe we see the beginnings of social ferment and political radicalization.

282.    The class struggle is growing in Ireland, where, as in Iceland, a period of rapid economic growth and feverish speculation has ended in complete collapse. Between 2002 and 2007 Irish GDP grew at an average of 5.6 percent. In 2008 the economy contracted by over 2%. In February 2009 some 200,000 workers and their families took to the streets in Dublin, to demonstrate their opposition to the government's decision to impose a pension levy on 300,000 public sector workers.

283.    There was a factory occupation of workers by Waterford Crystal. Tens of thousands of people: public sector and private sector workers and their families, unemployed workers, pensioners and students thronged the streets of eight cities in the south; while a further ten demonstrations took place in the north also. 70,000 marched into Merrion Square in Dublin, 20,000 in Cork, 10,000 in Waterford, 6,000 in Galway, 5,000 in Sligo, 5,000 in Limerick, 4,000 in Tullamore and 1,500 in Dundalk. (6 November, 2009). Over 250,000 Irish workers in the public sector were on strike on the 24th November 2009.

284.    Greece

285.    The achievement of monetary unity has only exacerbated the problems of European capitalists. We pointed out at the time that it is impossible to unify economies that are pulling in different direction. We also explained that these contradictions would come to the surface during a recession, which is exactly what has happened.

286.    Greece is one of the weak links of European capitalism. The world crisis is bringing enormous pressure to bear on Greek society. Here we see the outlines of what will happen at some stage in all European countries. The public debt has reached such proportions – a result of past policies and the recent urgent need to back up the banking system – that now the Greek workers are being asked to pay.

287.    In the past, countries like Italy were able to avoid a crisis by devaluing the currency and increasing the state deficit. Now this door is closed. They cannot devalue because they have the euro instead of the lira. The case of Greece is even more serious. Greek capitalism is, along with Italy, Portugal and Ireland, the weakest link in the chain of the European Union. Its economy is in a deep crisis, with the collapse of shipping (due to worldwide overproduction) and tourism. Some economists are predicting that Greece will have to default on its foreign debts.

288.    The Greek bourgeoisie will be obliged to inflict savage cuts on the living standards of the workers and the middle class. But the right wing government of New Democracy was not strong enough to implement such cuts. Therefore the bourgeoisie has handed the poisoned chalice to PASOK. This new correlation of forces favours the working class, giving workers and youth power and confidence. It is the first huge victory after years of ND government and of course after years of defeats.

289.    However, the leadership of PASOK has proven that it does not want to come into conflict with the ruling class. On the contrary, it has already given its promise to the ruling class on major issues, such as the privatization of social security. The ruling class and the EU are exerting heavy pressure on the leadership of the PASOK, which, using the excuse of the huge public deficit, is attempting to impose a harsh programme of cuts.

290.    The Greek workers did not vote PASOK in order to have severe austerity measures imposed on them. Now we see their reaction. There have already been strikes by some sections of the working class and the union leaders have been compelled to call a general strike for February 24. The working class is being forced to enter into struggle to defend their living conditions. This will also have an impact on the political situation. As the PASOK is in government it will take all the blame for the present policies. This explains why to its left the Communist Party (KKE) is able to attract a significant layer of youth. The youth of the KKE, the KNE is in fact the largest left youth organisation in Greece.

291.    The Party leadership has managed to maintain the tight Stalinist apparatus of the past. In its recent congress the party actually reaffirmed its adherence to Stalin’s policies. This is combined with a kind of “third period” ultra-leftism, whereby the party promotes strikes and rallies separate from the bulk of the workers in the trade unions who still support the PASOK. This in fact is an attempt by the KKE leadership to build a wall around its rank and file in an attempt to isolate them from the pressures of the general situation.

292.    However, even in this apparently monolithic party cracks are appearing. At this stage this is reflected in expulsions of anyone who dares oppose the leadership, but opposition points of view have been aired in the KKE publications, something that would have been impossible in the past.

293.    The objective situation is also having an impact on the Synaspismos, a party that has its roots in a split from the KKE in the past. This has significant support among the youth and is going through a left-right conflict inside the party. The fact that the leader of this party has openly invited left groups to join its ranks with the right to form tendencies is indicative of the process taking place within this party. In the next period the impact of the crisis will have an important effect inside both the KKE and the Synaspismos, which at present stand to the left of the PASOK and therefore stand to gain from the present situation.

294.    However, the PASOK remains the main party of the Greek working class and at some stage the pressures the capitalists on the one hand and the pressures of the working class on the other will be reflected in an increasing differentiation in the party, with an openly right-wing, pro-bourgeois section pushing for full compliance with the demands of the bourgeois and another section coming under pressure from the workers. This will prepare the ground for the development of a mass left wing at a later stage.

295.    What has held back this process so far has been the upturn in the economy and the apparent feeling of well-being that this created among a significant layer of the working class. That has now gone but Greece also was affected by the effect of the deep recession that emerged on a world level, with many jobs being destroyed. This has a temporary paralysing effect on the workers, who first turned to the PASOK on the electoral front, hoping that “their” party in government would save them from the worst effects of the crisis. They are now about to go through the bitter school of Papandreu’s programme of deep cuts and counter-reforms.

296.    Political radicalization

297.    Radicalization is not only expressed in strike statistics. It can be expressed in political terms. This is seen in electoral shifts in some countries, in particular the vote for Die Linke in Germany and the two left blocs in Portugal. The violent swings of public opinion were demonstrated in the September 2009 general election in Germany, when the SPD lost 11.2 per cent and was thrown back to the level it had in 1893.

298.    German capitalism has been especially hard hit by the economic crisis. Its heavy dependence on exports makes the German economy vulnerable to a fall in demand. The elections of September 2009 reveal an enormous shift in the political life of Germany. On the one hand, we saw the massive decline of the SPD vote and the victory of the right-wing parties.

299.    This means the German capitalists are preparing for an offensive against the biggest and most powerful working class in Europe. In the past the Conservatives would be in government during a boom, and they would hand power to the Social Democrats in a slump to do all the dirty work. Now the process is reversed. The bourgeois parties have come to power in the most serious slump since the War. They will have to cut social spending and take on the unions. This is a recipe for class war in Germany.

300.    The most striking feature was the fact that the Left Party won 5,153,884 votes (11.9%) an increase of 3.2 percent. In the East, the former DDR [German Democratic Republic], the Left Party has decisively eclipsed the SPD which was down from 30.4% to 17.9% of the votes cast. In the East there is in fact no majority for the bourgeois parties. In the West, Die Linke has increased its share from 4.9% to 8.3%.

301.    This result is of historical significance for Germany, as there has not been any serious workers´ party to the left of the SPD since the 1930s. This is an anticipation of processes that will take place in one country after another in the next period. We should remember that the Left Party was formed out of the split of Oskar Lefontaine and the Left Reformists from the SPD. Lefontaine joined with the former Stalinists to form die Linke. In the next period we will see all kinds of similar developments, with crises and splits in the mass reformist organizations and the creation of big left reformist and centrist currents. We must be prepared for this and adopt flexible tactics so as not to be taken by surprise by events.

302.    In Austria too, the situation is changing. The economy is vulnerable to external factors, especially the crisis in Eastern Europe. About 270,000 people, or around 7.5 %, were unemployed in March 2009. In a year-on-year comparison, that is an increase of 28.8%. Among the youth (15-24 year-olds) the figure rose by 39.3% to 44.085. About 40,000 workers are on short time work. Industrial output has fallen by 10%. The car sector has been massively affected due to the international crisis of overproduction in this industry.

303.    The early sign of radicalization is the movement of the youth. In April 2009, there was the biggest school student movement in the history of Austria. All over Austria more than 60,000 school students protested against the cancelling of five holidays and demanded an increase in spending on the public education system. There have also been protests and occupations in the universities. In October 2009, there was a student demonstration of tens of thousands in Vienna, when the students were joined by many workers and trade unionists.

304.    Portugal is one of the sickest of the sick men of Europe. It was in economic crisis even before the outbreak of the latest global economic downturn that has further aggravated the already precarious conditions of the Portuguese economy. Unemployment is at the highest rate in Europe. The Socialist Party, like all the socialist parties in Europe who have been in government in recent years, pursued a policy of counter reforms, with attacks on the welfare state and workers' rights.

305.    In the legislative elections of 27 September 2009, the Socialist Party lost the absolute majority which it had over the past four years. In an election marked by a significant increase of abstentions – which rose from 35% to 40% – the Socialist Party lost half a million votes and 24 deputies, falling from 2,588,312 votes and 121 deputies in 2005 to 2,077,695 votes and 97 Members of 2009.

306.    The right wing Social Democratic Party and the Popular Party, a classic conservative, liberal and right wing party, both increased their votes. But the left parties also grew: the Bloco de Esquerda (BE) and the Portuguese Communist Party (PCP). The Bloco de Esquerda went from 364,971 votes and 8 members in 2005 to 558,062 votes and 16 deputies in 2009. The growth of the Left parties reflects clearly the fact that the BE and PCP occupy room to the left of the Socialist Party.

307.    In France there have been big movements of the working class and violent swings of the pendulum to the left and right on the electoral plane. The election of the Sarkozy government, followed by the deepest crisis since the War prepares the way for a further intensification of the class struggle.

308.    On January 29 and again on March 19, 2009 more than 2.5 million people took to the streets in mass demonstrations against the constant attacks of the Sarkozy government. The trade union leaders have attempted to hold the movement back, preferring a series of government “consultations”, but the pressure from below is becoming unstoppable.. Against a background of economic recession and sharply rising unemployment, the organizations of the working class are once again on the move on a massive scale.

309.    Italy has seen a whole series of strikes, general strikes and mass demonstrations in the last period. The movement of workers and students in Autumn 2008 culminated in the December 12, 2008, general strike. Up to 200,000 people marched in Bologna and other large demonstrations with tens of thousands of workers and students took place in Milan, Turin, Venice, Florence, Rome, Naples Cagliari and another 100 cities. Metalworkers went on strike with participation rates over 50% in all important workplaces, and over 90% in most key factories. 45% of school workers also came out on strike.

310.    However, this was cut across by the economic crisis, which has had severe effects in Italy. According to a CGIL survey, at least 10,000 Italian companies entered into crisis as a consequence of the world recession. FIAT closed all its plants for one month, leaving its workforce on lay-off pay. (December 2008) Between December 12 and January 12 industrial production came to a virtual standstill. This was an unprecedented situation in recent times, with 900,000 jobs being lost (especially among casual labour) and millions of workers laid off for ten to fifteen weeks on wages of less than 600-700 euros per month.

311.    A whole period of austerity

312.    The post-War upswing lasted for about thirty years (until 1974). But such a perspective is no longer on the agenda. It was the product of a special concatenation of circumstances which in all probability will never be repeated. And because they cannot go to war, all of the contradictions must eventually be reflected internally in a ferocious class struggle. That is the real perspective for the next period. Over a period of fifty years, thanks to the economic upswing, in the advanced capitalist countries (Europe, the United States, Japan, Australia, etc.), the working class and its organizations were able to conquer at least semi-civilized conditions of existence. They considered these conditions to be normal because they have never known anything else. But the last fifty years were not normal at all. This was an historical exception, not the normal state of affairs under capitalism.

313.    According to the IMF, in 2010, the gross public debt of the ten richest nations will be 106% of the gross domestic product. In 2007 it was 78%. That means an increase of extra debt, in three years, of more than nine trillion dollars. This is an incredible state of affairs. By pumping such vast sums of money into the economy, the bourgeois are creating levels of indebtedness without precedent in the whole of history. And it cannot be sustained. As everyone knows, sooner or later debts must be repaid – with interest. That in itself is a recipe for another gigantic crisis in the next period.

314.    In the past the US was the world's largest creditor. Now it has been transformed into the world's largest debtor. The hallmarks of the age have been debt-fuelled consumption and an increasingly bloated financial sector. Today, this model stands discredited. The US has been able to run huge deficits largely because of the privilege accorded by the reserve role of the dollar, meaning it can pay foreign countries with its own currency. But the patience of its creditors, most notably China, is starting to wear thin.

315.    These debt figures are unprecedented in peace time. War is a different matter. After the Second World War, the public debt of Britain was 250% of gross domestic product. And America had a debt of over 100% of GDP. That was a result of war spending. But they managed to pay off these debts due to the enormous economic upswing after 1945, the reasons for which have been explained in previous documents (See Ted Grant: Will there be a Slump?).

316.    The collapse of Dubai World in November 2009 exposed the extremely fragile state of the world financial system. It immediately caused fears of a renewed bout of financial turbulence. It has raised the spectre of defaults of governments that have emerged from the crisis burdened by debt. Both Greece and Ireland are carrying heavy public liabilities denominated in a currency (the Euro) that they cannot print. It is very likely that the world financial system will be hit by further panics, which can prepare the way for an even steeper economic collapse, which no amount of state subsidies can prevent.
317.    The bourgeois economists are all agreed that it will be a long and painful process to struggle out of the mess which they are in. The enormous accumulation of debt means years and decades of deep cuts and a regime of permanent austerity. We can express this as a kind of equation: the ruling class of all countries cannot afford to maintain the concessions that have been given for the last fifty years but the working class cannot afford any further cuts in their living standards. That is a recipe for class conflict everywhere. In the advanced Capitalist countries (including “nice”, civilized countries like Sweden, Switzerland, Iceland and Austria) ferocious class struggles are on the agenda. This perspective is the best perspective from our point of view, opening up big opportunities to connect our ideas, program and methods with the masses.

318.    The smiling, reasonable mask of capitalism, represented by President Obama is going to come off very quickly, and behind the smiling mask the people will see the real, brutal, savage, ugly face. From a capitalist standpoint, they have no choice except to do attack living standards. Pensions will be under attack, beginning in the United States. Already the bourgeois are saying this publicly that they cannot afford to maintain so many old and unproductive people. In an editorial of the 27/6/2009, The Economist writes: “Whether we like it or not, we are going back to the pre-Bismarckian world where work had no formal stopping point.” In other words, you work until you drop dead.

319.    The bourgeois and its strategists are gripped by a mood of despair. The Financial Times has run a series of articles about the future of capitalism. Martin Wolf writes: “The legacy of the crisis will also limit fiscal largesse. The effort to consolidate public finances will dominate politics for years, perhaps decades.” In other words, the capitalists must cut, and cut, and cut again, even when there is a boom. British Airways recently demanded that workers work for nothing, “we can’t afford to pay your wages,” they say. Thousands of state and city workers across the USA are being made to work a certain number of days for free (“unpaid furloughs”) or face layoffs. With no fighting alternative presented by the labour leadership, workers are being forced to bite this bitter bullet. But this will not last forever.

320.    What conclusions do we draw from this? Do we say that there is a low level of consciousness, that the workers are not revolutionary? No! We do not draw such a conclusion! Situations such as these are an inevitable consequence of the present phase through which we are passing – the transition from one period to another.

321.    The lag in consciousness

322.    Trotsky explained many times that the relationship between the economic cycle and consciousness is not an automatic relationship. It is conditioned by many factors, which must be analyzed concretely. He also pointed out that one of the most difficult and complicated tasks that faces Marxist analysis is to answer the question: through what phase are we passing?

323.    At present consciousness is lagging far behind the objective situation in the advanced capitalist countries. The mass organizations of the working class are lagging far behind the real situation. Above all, the leadership of the proletariat is lagging far behind the objective situation. These factors did not drop from the clouds; they have been conditioned by decades and generations of capitalist economic upswing, of full employment and relative improvements of living standards.

324.    This has been the position, particularly in the advanced capitalist nations, not for a short time, but for a period of half a century. It is true that even in the last period, there was an enormous intensification of exploitation, based on an increase in relative and absolute surplus value. The hours of work were increased and merciless pressure was applied to increase productivity. However, on the basis of overtime, whole families working, young people working on part-time contracts, credit and debt, many workers were able to increase their living standards in absolute terms, even as the rate of exploitation rose sharply and the bosses increased their share of the surplus value at the expense of the workers.

325.    In the last period, the intensification of the international division of labour led to a cheapening of the price of commodities, which meant that workers were able to buy things that previously were considered luxury items: mobile phones, big-screen televisions, computers, laptops etc. Marx explained long ago the difference between real wages, money wages and nominal wages (See Wage Labour and Capital). In a boom, it is quite possible for wages to decline vis a vis capital, while nominal wages increase, and the worker can purchase a larger amount of commodities than before. This is particularly true in periods when inflation is low, as was the case, for special reasons, in the last boom, where both prices and interest rates were kept down.

326.    In the USA, Britain, Ireland and Spain, rising house prices added to the sensation of a significant layer that “we are better off”. The workers in the advanced countries understood that they were being exploited, but in the absence of any alternative from the trade union and labour leaders, were compelled to seek individual solutions through long hours of overtime, overwork and debt.

327.    That is what conditioned the consciousness of the working class in the advanced capitalist countries, although the conditions in the so-called third world were, and are, completely different. Now, however, everything has changed into its opposite. All the factors that combined to push the world economy up are now propelling the world into a vicious downward spiral. This will have the most profound effects on consciousness. But this process is not linear and automatic, but highly complex and contradictory.

328.    Why the delay?

329.    There is no such thing as a “final crisis” of capitalism. The boom-slump cycle has been a constant feature of capitalism for over two hundred years. The capitalist system will always eventually get out of even the deepest economic crisis until the system is consciously overthrown by the working class. But the concrete question is this: how do the capitalists get out of the crisis and at what cost to the masses? And the second question is: what is the relationship between the economic cycle and the consciousness of the working class?
330.    The IMF is projecting a recovery for 2010 and there are indications that this is the case. However, the real question is, what kind of recovery? Who benefits and who pays? Even the best case scenario is an extremely feeble recovery, which will be accompanied, not by an improvement in living standards, but by ferocious attacks on living standards, cuts in public spending, and increased taxation which will fall on the working class and the middle class.
331.    When Arnold Schwarzenegger unveiled his final budget as governor of California, including vicious spending cuts to try to close a $20 billion deficit, he said there was “simply no conceivable way to avoid more cuts and more pain”. This would be an appropriate slogan for the ruling class, not only of the USA, but of the whole world. This is not a scenario for social peace and stability.
332.    A recovery with those characteristics will serve to infuriate the working class at a certain stage and that will be accompanied by waves of strikes and a general revival of the class struggle. Already there are the beginnings of struggles against the crisis and rising costs of living. We have already seen protests in Hungary against the financial crisis, and in Turkey, where 60,000 workers protested against price increases and unemployment, following the call of the unions, and the students joined in. Similar protests and mobilizations have taken place across Europe and even on Wall Street itself.
333.    Although we are passing through the biggest crisis since the 1930s – possibly in the history of capitalism – the crisis has not yet expressed itself in a tidal wave of strikes and general strikes. There is no question that the crisis is producing significant changes on a world scale. But they are not yet being clearly expressed in the labour movement. In Iran there is the beginning of a revolution, and a similar situation is developing in Honduras. But in the key industrial countries, the movement is developing slowly.

334.    Some comrades do not understand why the crisis has not immediately expressed itself in mass mobilizations, strikes and occupations. The delay in the movement can cause perplexity and frustration in the ranks of the revolutionary movement if it is not explained. It is worse than useless to make general statements about the “revolutionary nature of the Epoch” in order to explain to a worker why his workmates in the factory are not willing to strike. Trotsky made this very clear when he wrote the following:

335.    “If one proceeds only on the basis of the overall characterization of the epoch, and nothing more, ignoring its concrete stages, one can easily lapse into schematism, sectarianism, or quixotic fantasy. With every serious turn of events we adjust our basic tasks to the changed concrete conditions of the given stage. Herein lies the art of tactics.” (Trotsky, Writings, 1939-40, p.103)

336.    What is the reason for this delay? The onset of the crisis has caught the workers by surprise, and the initial reaction is one of shock and disorientation. This is hardly surprising. It is a very concrete question. Workers see the factories are being closed, their jobs are at risk, their families are at risk, the trade union leaders do not offer any alternative, but rather, use this situation to discourage strikes. For a time they can succeed in keeping a lid on the movement. But this has a limit.

337.    Temporarily, the onset of mass unemployment has had a restraining effect on strikes. But when there is even a small upturn, and they see that the bosses are no longer sacking people but taking a few people on and the order books are beginning to fill up, this can act as a powerful stimulus to the economic struggle. The car manufacturers are selling off their surplus stocks, closing factories and sacking workers. But once they finish running down the stocks, there will be a certain small improvement, which will serve to embolden the car workers, and in particular those who are not currently unionized, to take action.

338.    Workers are willing to take this for the time being. They want to believe that the worst is indeed over, that they have made it through the storm to relative shelter. They are willing to “wait and see,” and hope for real change from Obama. But this has its limits; the worst is far from over. The immediate shock of last year’s crisis may have subsided, but now the reality is gradually creeping in: Americans are going to be forced to accept a new, lower standard of living, and there will be no rapid bounce back of jobs. Millions of the jobs lost are gone forever, to be replaced by fewer jobs offering lower wages, no benefits, and no union protections.

339.    In the short run, the workers see no alternative but to accept closures and sackings. Because the union leaders offer no alternative, there is a resigned, fatalistic attitude. Their attitude was expressed by one US auto worker who makes Chrysler sedans outside Detroit: “Someone has to go." However, there is a limit to all things. At a certain stage the mood of the workers will change to anger.

340.    In a crisis the workers feel the need for trade union organization even more than in other periods. On the other hand, the seriousness of the crisis is forcing the bourgeois to take up an intransigent attitude in relation to the trade unions. The bosses have a strategy of taking on some key militant sections and defeating them in order to send out a message to the rest of the class. They are also taking advantage of the recession to go onto the offensive.

341.    The old, cosy relationship with the union leaders is no longer possible. The crisis means that the workers must fight for every demand. In Britain there has been a whole series of deals, involving cuts in hours but also cuts in wages. On the other hand, where the workers have faced closure and the loss of everything we have seen factory occupations like Visteon. In our previous perspective documents we underlined the contradictory nature of the situation we were entering, in which a general decline in strike levels is combined with some very militant struggles in some sectors.
342.    .The refuse collectors’ strike in Denmark was very militant, although it took place in the midst of a general collapse of strike activity in the country. The intention was to take them on, use any means possible to smash them and then move on. This is similar to struggle of Mexican electricians. The struggle attracted the attention of the whole labour movement. The postal workers’ strikes in Britain had a similar aspect. The management seemed prepared to take on the workers, taking advantage of the more general mood and make an example of them. On that occasion, the union leaders found an excuse and backed off, but the problem remains.
343.    The situation in the Netherlands has dramatically changed from what it was 10 years ago. From the period of “consensus” politics we now have a very polarized situation, with an aggressive ruling class facing an increasingly militant working class. During the post-war boom they could afford to grant concessions to the working class, and at the same time try to control the workers through their links with the Christian trade union federation (CNV). Now even the traditionally relatively right-wing CNV have gone into opposition against the CDA’s plans. In these conditions the Socialist Party has emerged as a sizeable force to the left of the Labour Party.

344.    Consciousness of the working class

345.    It is a very serious mistake for revolutionaries to confuse what we understand with how the masses see things. Most workers do not have the same consciousness as the Marxists. As we have already explained, the first effect of a deep crisis, a deep slump is shock. The workers do not understand what is happening. However, this is not a simple or uniform process. There are some quite bitter strikes taking place, even now. But at this stage one would not expect a generalized increase of strike activity. In a deep crisis: this would be completely unreal. There is a very low level of strikes as a matter of fact: in the USA, Britain, in Italy, Spain, France etc.

346.    One cannot draw an automatic parallel between radicalization and strikes. Radicalization can express itself in many ways. Although the overall figures for strikes is low, there is already a growing ferment in society, a widespread questioning of the capitalist system which was not there before. This is a terrain in which our ideas can make a big impact. This is a change, and it is an important change. It provides favourable conditions for the development of the Marxist tendency. But we must be patient and follow the process of radicalization step by step, advancing concrete transitional slogans that can find an echo in the minds of the masses at each stage. Above all, we must patiently build our own forces, recruiting the ones and twos and training them in the ideas and methods of Marxism.

347.    The reformist leaders tell the workers that if they are patient and make the necessary concessions and sacrifices, all will be well and the old conditions will be restored. This is a deception and a lie. The bourgeoisie cannot restore the old conditions. They do not know how to get out of the deep hole they have dug. The only thing that occurs to them is to place the full burden of the crisis on the shoulders of the workers and the middle class. A nightmare scenario therefore opens up before the masses everywhere. They all talk about balanced budgets, but this is impossible without deep cuts in living standards. This will still be the case in the event of an economic recovery.

348.    The first signs of a recovery will lead to a wave of economic strikes, which will have a profound effect on all the labour organizations, impelling them to struggle in spite of the current leadership. Even the right wing trade union and the Social Democratic leaders will be affected and forced to the left by the stubborn pressure from below. The mass organizations will be shaken from top to bottom by a tide of radicalization. There will be a wave of defensive strikes and sit-ins to combat sackings and factory closures.

349.    Threat of fascism?

350.    In this transitional situation we will find all kinds of contradictions, not just in South America but in Europe, the USA, and around the world. What we are witnessing are the early stages of political polarization. The situation is characterized by enormous volatility. There will be violent swings of public opinion to the left and the right, reflecting a volatile mood especially in the middle layers of society, which are trying to find a way out of the crisis.

351.    In the absence of a mass workers' alternative, the frustration of the workers in the USA can be expressed in contradictory ways. It is possible that after the failure of Obama to deliver on his promise of "hope" and "change", disillusionment with the Democrats may lead to the return of the Republicans on the basis of large-scale abstentions and protest votes against the incumbents. In a system dominated by two capitalist parties, "the other guy" stands to benefit from the failure of those in power. Already, the Republicans, who were heavily defeated one year ago, have managed to make some gains in the off-year elections. Such violent swings are inherent in the present situation.

352.    No doubt the sectarians, behind whose strident ultraleftism lies a profound scepticism towards the working class, will say that this is proof of a turn to the right in society. In reality, however, it is an inevitable stage in the political education of the masses, who were obliged to pass through the school of Obama and the Democrats in order finally to lose all hope in salvation at the hands of the Democratic Party. It will be a difficult and protracted process. But sooner or later, American workers will come to see that the only way forward is to break with the Democrats and build a mass party of labour based on the unions. The will transform the entire equation of American politics, opening further opportunities for the Marxists.

353.    We see similar sharp swings in public opinion in Europe. In the 2009 European elections, the Social Democrats in particular suffered a heavy defeat and in some countries the ultra right gained some support. What these results indicate is an angry mood, frustration and discontent with the existing “mainstream” centre of European politics. Naturally, the ultra left sects immediately started shouting: “Fascism!” This is irresponsible nonsense. The correlation of class forces in all countries rules out the possibility of fascism at this stage.

354.    Before the Second World War, in countries like Italy and Spain, the working class was a minority. Even in Germany there was a huge peasantry which could be easily recruited by the demagogic arguments of extreme right wing and fascist parties. In France also, that was the case before the war. Now the peasantry has almost disappeared in most European countries and the working class is a decisive majority in society. In the 1930s, the students in all countries were the sons and daughters of the rich. Most were conservative right wingers and a large number were fascists and Nazis. In Britain in 1926, students were the strike-breakers. In Germany, Italy and Austria, most of the students were fascists. Today, in almost all countries the students are left-wing or even revolutionary.

355.    The ferment in the middle class finds all kinds of expressions, reflecting the heterogeneous nature of that class. The votes for the Greens and similar parties is an indication that the petty bourgeois layers are seeking a way out of the impasse of capitalism. The “anti-capitalist” movements in different countries show the same thing. The anti-war movement that erupted even before against the invasion of Iraq showed the revolutionary potential in society. Similar movements are inevitable as a result of imperialist adventures in Africa, the Middle East and Latin America.

356.    Insofar as they exist, the fascists are small organizations, in the main. They can be particularly vicious, violent and engage in provocations, but there is no question of them taking power. In the USA, the ultra right has been stirred up with the so-called tea parties in preparation for the battles of the future. However, the ruling class would only resort to open reaction after the working class has suffered a series of very heavy defeats. That was the case in Germany and it was also the case in Italy and Spain in the period 1919-39.

357.    There is no question of fascist or Bonapartist reaction in any advanced capitalist country at this stage. But in the long run, if the workers do not take power in France, Italy, Greece and Spain, the situation can change. Bourgeois democracy is a very fragile plant that can grow only on the fertile soil of economic prosperity. Under conditions of crisis the bourgeois will eventually draw the conclusion: there is too much disorder, too much chaos, too many strikes and demonstrations. They will attempt to move in the direction of reaction. But that is not an immediate perspective. Long before the question of fascist or Bonapartist reaction is posed, the workers would have tried time and time again to take power.

358.    The mass organizations

359.    In this period the question of the mass organizations will occupy a central position for the Marxists. The crisis of capitalism is also the crisis of reformism. The reformists have the illusion that it is possible to go back to the situation that existed before. But this is ruled out. The class struggle under capitalism is the struggle for the division of the surplus value created by the labour of the working class. As long as the capitalists are extracting surplus value in sufficient quantities, they can buy social peace. But that is not the case now.

360.    In the 1970s the left reformist tendency was dominant and even began to take on a centrist colouring in some cases. But in the 1980s this trend was reversed. There has been a general swing to the right of all the Social Democratic parties, and also the CPs. The left reformist tendency everywhere is very weak or has collapsed altogether. This is the result of almost three decades of boom, which has set the seal on the degeneration of all these parties, which has gone much further than even the Marxists could have foreseen.

361.    Far from reacting with a fighting programme to mobilize the rank and file, the crisis has pushed the reformist leaders in the opposite direction. They cling to the bourgeois and support the lavish state handouts to the bankers and capitalists. They will support cuts and austerity, allegedly to “solve unemployment”.

362.    The right reformist leaders imagine that it was their “clever” and “realistic” policies that enabled them to win elections. In reality, wherever they have won elections it has been in spite of their policies, not because of them. They were helped by the boom of capitalism and the lack of an alternative to their left. But now here is a deep crisis, their policies stand exposed as bankrupt. These right wing leaders will in time be vomited out and replaced by others, standing further to the left, who reflect the discontent of the masses, in however a confused, partial or inconsistent way. This is an inevitable stage.

363.    The crisis will find its first expression in the trade unions. In his article Perspectives for the Economic Upturn (August 18 1932) Trotsky writes that a revolutionary must be patient. He also writes that every Party member must be obliged to join the trade unions. He stresses the need for the revolutionaries to establish closer links to the mass organizations, above all the unions. That is no accident. In a crisis, the workers feel the need for the mass organizations to defend their interests, and these organizations will be affected by the crisis.

364.    In some cases, with a bold approach, it will be possible to put ourselves at the head of mass movements. But it is ruled out that small revolutionary organizations can substitute themselves for the traditional mass organizations. The masses do not understand things in the same way as the Marxists. It would be a fatal mistake to confuse the two things.

365.    We have returned to the situation that Trotsky described in 1938 in the Transitional Programme: an organic crisis of capitalism with no way out except further cuts and falling living standards. However, when Trotsky wrote of an organic crisis, he did not mean that there could not be a temporary recovery of the economy. The boom-slump cycle will not disappear until capitalism has been overthrown. But the character of the cycle is not the same in the period of capitalist decay as it was in the period of its youthful expansion.

366.    The collapse of Stalinism has reinforced the complete reformist and nationalist degeneration of the former Stalinists, just as Trotsky predicted in 1928. In the case of Italy, the former “Communist” party, after the split of the RC, changed itself into the Democratic Party – something that Blair attempted to do with the Labour Party in Britain, and failed. However, the argument of the sects that the Communist Parties are finished is not new and is contradicted by historical experience.

367.    In 1931 the French CP was reduced to only 5,000 members as a result of the ultra left policies of the Third Period. But it soon recovered and became a mass force. In 1968 the French SP got only about 4% of votes in elections and was written off by the sects, but became the main mass party of the working class. In Britain the Labour Party in the 1980s got only 28% of the vote and it was widely assumed that “Labour could never win another election”. Yet in 1998 Labour won a landslide victory. There have been many other examples.

368.    The explanation is simple. The workers have no alternative to the mass organizations. Although the votes may rise and fall, both the reformist and ex-Stalinist parties have huge reserves of support in the masses. The workers do not understand small organizations. When they move into action they inevitably express themselves through the traditional mass organizations. This law was worked out by Ted Grant and is confirmed by historical experience. All the attempts of the sects to build revolutionary parties outside the mass organizations have ended in farce. They have not understood how the class moves.

369.    It is said that consciousness has been thrown back. But historical materialism teaches us that conditions determine consciousness. The problem is that consciousness is lagging behind the objective situation, the mass organizations are lagging behind that, and above all, the leadership of the working class is lagging even further behind. This is the main contradiction of the present period. It must be resolved, and it will be resolved. Dialectically, consciousness will be brought into line with reality in an explosive manner.

370.    The new layers who will enter into struggle will be far more militant than the older generation, whose psychology has been shaped in the boom years, but they have no direct experience of the past and they do not read the party programmes or the speeches of the leaders. They are guided by a vague idea that it is necessary to change society. In the next period the mass parties will be filled by thousands of workers and young people who want to change society.

371.    This will have an effect on the leadership, which will also be changed many times. The process will begin in the unions, where the old leaders formed in the period of boom will come under intense pressure: either they will respond to the pressure and begin to give a lead, or they will be pushed to one side and replaced by newer and fresher elements more in touch with the mood of the rank and file. Crises and splits are inevitable, with the emergence at a certain stage of left reformist and centrist tendencies.

372.    Danger of ultraleftism

373.    The long delay in the realization of our perspectives for the mass organizations has produced a certain perplexity and confusion even in the ranks of the Marxists, reflected in opportunist and ultra left moods. Impatience is the mother of opportunism as well as ultraleftism. They are head and tail of the same coin. Both trends attempt to find a short cut to success. They seek to reap where they have not sown. That is not possible. The IMT cannot make any concessions to these tendencies. The Marxist tendency was created in an implacable struggle to free itself of ultraleftism and opportunism.

374.    The Marxist tendency is not immune to the pressures of capitalism. The sudden change in the situation, and its contradictory character, necessarily reflects itself in differences, and even sharp internal conflicts. This is not an accident. Differences that seemed minor during the previous period, are now coming to the fore as the situation changes. Small mistakes in method in some sections, which, under “normal” circumstances may have been corrected over time on the basis of events and discussion, can develop into more serious problems.

375.    Impatience with the pace of development of events is affecting an entire layer of activists who do not have the benefit of a scientific Marxist perspective. Many activists on our periphery are demoralized and dejected and these moods can rub off onto some of our own comrades as well. Past defeats have left a pile of political corpses, some of which are not yet prepared to lie down but wander around like the zombies in a cheap horror movie, preying on the living, who they wish to convert into zombies like themselves.

376.    Some comrades, under the influence of a layer of activists who have become burnt out and demoralized, blame the masses, and fall into the trap of what Trotsky called gangrenous scepticism. Others, without necessarily admitting it, begin to question our perspectives for the traditional workers' organizations, the mass workers' parties and trade unions. They regard them as unsalvageable, and embark on adventurous and doomed efforts to found new “mass workers’ parties”.

377.    The main problem is the crisis in the leadership of the working class, the role played by the leaders of the mass workers' parties and unions, compounded by the complex and contradictory nature of the stage we are passing through. We are a small organization of a few thousand cadres on a world scale. Our forces are too small to have a major effect on the movement of the masses. We are still at the stage of recruiting the ones and twos, although, as the experience of Brazil shows, we can win whole groups of workers if we work correctly.

378.    We must have a sense of proportion. We must not commit the cardinal error of exaggerating our own forces. But the current situation is more favourable than it has been since we founded the IMT. We have made some mistakes; but the balance of the work of the International over the past decade is extremely favourable. The political authority of the IMT has never been higher.

379.    There are no panaceas or shortcuts. Impatience is our worst enemy. We must have patience and confidence in the working class. We must not get too far ahead of the class, but rather, accompany them through their experiences. Lenin was fond of the Russian proverb: “life teaches.” The workers are learning, drawing conclusions from their experiences. We must participate in the struggles of the workers and youth, and at each stage patiently explain to our periphery and to our own comrades the meaning of events as they unfold.

380.    Above all, we are building a cadre organization. This is the prior condition for our future success. Engels pointed out (and Lenin emphasized this) that in addition to the economic struggle (strikes) and the political struggle, we must also pay great attention to the ideological struggle. This is particularly important at the present historical juncture. The IMT is unique among all other trends claiming to represent Marxism and Trotskyism, in that we have consistently defended and developed Marxist theory. Our theoretical production is what sets us apart, at a time when every other tendency has abandoned the struggle for theory. Contempt for theory is always a guarantee of political and organizational bankruptcy, as the fate of the old International proves.

381.    The future of the IMT depends on our ability to train cadres. We must resist pressures and conduct a struggle against both opportunist and ultra left tendencies in our ranks. We will inevitably have some losses. Not everybody is able to swim against the stream. Many others are unable to adapt to the new conditions when the current begins to change. It is no accident that precisely at this time the Left is in crisis. The pressures of the objective situation will be expressed in our own ranks, and they will harshly reveal weaknesses that were previously hidden. This is inevitable. The revolutionary tendency is not immune to the pressures in society and within the workers’ movement.

382.    For the ultralefts the situation is always revolutionary, and the proletariat is always ready to stage general strikes and build barricades. These people live in a world that is far removed from the real life of the workers. For them, it is as if the Transitional Programme never existed. They are doomed to impotence.

383.    You cannot reap where you have not sown. That is what all the ultra lefts try to do. Work in the mass organizations is patient, long-term work, conquering one position after another, winning and training cadres in ones and twos. There is no substitute for this. The working class does not understand small “revolutionary” organizations but must always express themselves through the traditional organizations of the class. In the words of Ted Grant: “Outside the labour movement there is nothing.”

384.    Perspectives and tasks
385.    Perspectives are a science, but it is not a precise science. Certain branches of physics can make predictions of astonishing accuracy, but there are other sciences, such as geology, which do not have this privileged position. To this day, despite all the advances of seismology, it is impossible to predict the timing of an earthquake. All that can be said is that such-and-such a place lies on a geological fault line and that sooner or later an earthquake will occur.
386.    The situation is even more complicated in the so-called social sciences. It is sufficient to note the despairing comments of the bourgeois economists in recent months. The same ladies and gentlemen who imagined that their elaborate models could predict the behaviour of the capitalist world economy, and who confidently predicted the impossibility of a slump, are now beating their breasts in public. Barry Eichengreen, a prominent economic historian, writes: “The crisis has cast into doubt much of what we thought about economics.” Paul Krugman, who was given the Nobel Prize for economics in 2008, has said: “For the last thirty years macroeconomic theory has been spectacularly useless at best, and positively harmful at worst.” (Our emphasis)
387.    The bourgeois understand nothing. They do not know what is happening and are in a state of panic. That is why they are taking measures that are completely irresponsible from the standpoint of orthodox economics. This is a sign of desperation. The complete inability of the bourgeois economists to explain anything is clear. Marxists were able to predict the inevitability of a slump, and in that sense were vastly superior to the bourgeois economists. But we were no more able to predict its timing than the seismologists were able to predict the gigantic earthquake that has devastated Haiti.

388.    It is wrong to demand more of a perspectives document than what it can give. It is not a finished plan for what will happen (that is called a crystal ball), but a working hypothesis. And like all hypotheses, it must be constantly checked against the real march of events, filled out with new data, modified, or even rejected. In other words, it is a process of successive approximations.

389.    Let us express the same idea differently. Before a general goes into battle, he must first work out a plan of battle, which attempts to envisage how it will unfold. He will take into consideration all the available information, such as the number of his troops and that of the enemy, the state of their training and morale, the relative firepower of both sides, the geography of the terrain, the weather and so on. He will also try to anticipate the likely movements of the enemy, tactics and so on.

390.    This, as Napoleon said, is a very complex equation with an almost infinite number of variables. Nevertheless, it would be a very poor general who sent his troops into battle without a battle plan. On the other hand, it would be an even worse general who insisted on adhering rigidly to his initial battle plan, ignoring all the changes that take place in the course of the struggle that he did not originally anticipate.

391.    By constantly revising and adjusting our perspectives on the basis of changing circumstances, we help to raise our level of understanding. Our purpose is to determine as best we can the political, economic, and social stage we are passing through, in order to intervene in the movement, establish roots in the working class, and build our organization more effectively.

392.    A deep slump is not the best perspective for our work. The most favourable perspective is the one that is most likely: a long period of feeble growth accompanied by constant attacks on living standards. Such a perspective is a finished recipe for class struggle. One thing is certain: they cannot go back to the days of the post-1945 boom. Even a return to the kind of artificial consumer boom of the 1990s is beyond their present capabilities. 

393.    Lenin once wrote an article with the title Combustible Material in World Politics. There is combustible material now everywhere, and the conditions for revolution are maturing.

394.    We are entering into a most convulsive period which will last for some years, similar to the period in Spain from 1930 to 1937. There will be defeats and setbacks, but under these conditions the masses will learn very fast. Only a year or so ago we were living in the most turbulent period in human history a position propagated by Alan Woods since 2002 at least. see this article now we are entering a most convulsive period, so have things become less turbulent since the global economic crisis broke? Or was the original characterisation incorrect? The entire planetary situation of in situation similar to Spain immediately prior to the outbreak of a fascist uprising civil war and world war? The basis for such an analogy is completely lacking!
The same article in 2002 claimed "The only thing that has saved capitalism, and which continues to save it, is the extreme weakness of the subjective factor." i.e. if the IMT had more members the world revolution would be on the order of the day. This is not the method of Marxism, instead it is a voluntarist utopia. The followers of the IMT are supposed to work like mad, as each miniute they slack delays the world revolution.

395.    Of course, we must not exaggerate: we are still in the early days. It is not a simple process. We need to be patient. But two things are clear here: we can see at least the beginning of a change of consciousness of the masses. Millions of people are open to the ideas of Marxism in a way that was not the case before.

396.    In this situation, pure agitation is of limited value. The serious workers want explanations, not slogans. But through both victories and defeats the working class will learn, and our ideas will begin to get an echo. We will have time to build the forces of Marxism. We have some time, but the time we will be allowed is not unlimited. We must have a sense of urgency in building the tendency.

397.    This International is destined to play an important role, provided we keep our heads and do not make too many mistakes. Our forces are still very small, we are struggling to build the first nuclei of the IMT in many countries, but we are beginning to develop. We are no longer just observers, but an active part of the movement in some very important countries. We have the correct ideas, the marvellously profound ideas of Marxism. We have the correct tactics and methods, and above all we are determined to link these ideas to the mass organizations of the working class. Therefore, we can be supremely confident of the future.

398.    Our International has its finger on the pulse of history. We must follow events closely, especially the internal life of the workers’ organizations. In The First Five Years of the Comintern Trotsky speaks of “that tendency which is growing up together with the revolution, which is able to foresee its own tomorrow and its day after tomorrow, which is setting itself clear goals and knows how to achieve them.” (Vol. 1, p.72)

399.    That is what we need if we are to succeed in creating the instrument that the proletariat requires to carry through the socialist transformation of society. We can go forward with absolute confidence in the ideas of Marxism, absolute confidence in the revolutionary role of the working class, absolute confidence in ourselves and in the future of the International Marxist Tendency.

400.    London, 5th February 2010

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