By Mick Brooks          

Argentina’s President Cristina Kirchner is having a little difficulty with vultures. ‘Vulture funds’
are trying to suck Argentina dry. A case in point is hedge fund Elliott Associates, run by American
billionaire and Republican supporter Paul Singer.     

This is the vultures’ modus operandi. In 2001 Argentina defaulted on foreign debts and 93% of
bondholders agreed to take a loss. The vultures are the ‘holdouts’, the 7% of bondholders who
refused to take a loss on their bonds and are now pursuing Argentina through the courts to get all
their money back. They are vultures because they want to pick the carcass clean even though they
don’t have the strength to kill the creature outright.

Argentine debts have been rolled over many times but they were ultimately incurred by military
dictatorships that tortured and murdered thousands of Argentinean citizens. Why should ordinary
Argentineans now have to pay for their debts?

Whatever the outcome of the present quarrel, the existence of these vultures is evidence of the
useless and parasitic forms of capitalism knocking around. It is normal under capitalism for failing
firms to go bankrupt and for creditors to take a loss. Yet this process is not allowed to happen in the
case of nation states.

In the old days they used to send a gunboat to collect the debts. Now the pressure is more subtle.
The Argentinean case has been taken to a US court. Judge Griesa found in favour of the vultures.
Among other things the judgement depended on his novel interpretation of the Latin phrase ‘pari
passu’. It seems that an obscure New York judge can ignore the wishes of the elected government
of Argentina and tell an entire country of 41 million people what they must do. He is acting as
the hired gunslinger of Singer and the rest of the holdouts. An Argentine naval vessel has already
been impounded in Ghana by an American court order. Such is the global reach of US law and US
imperialism.

The USA is the most powerful country in the world. How did it build up this wealth and power?
Nobody now remembers that states such as Mississippi in the 1830s repudiated their debt to British
bankers – and got away with it.

If the American judgement is confirmed, Argentina may have to repudiate all its debts, since the 93%
who took a ‘haircut’ (a loss) on their bonds will be back for the rest of their money too. This could
cause an international crash, and send the world economy back into recession. The USA would then
lose, as well as the rest of the world. And all because some greedy speculator was let loose by a
maverick American court!

Mainstream economists are unhappy at the judgement. Anne Krueger, former chief economist at
the World Bank, comments, “Unless the Griesa ruling is overturned, this will open a can of worms
that will have to be dealt with.”

The problems posed by the vultures pursuing Argentina are of general application. Greece is trying
to buy off its creditors at a discount and bring down its mountain of debt. Again the perverse

incentive applies: let everybody else cash in their bonds so the risk of Greek default fades and bond
prices rise; then demand your money back. As economist Gabriel Stern notes, “The more you raise
the price and the more you encourage participation, the better it is for those who don’t participate.”
It’s a free ride for the vultures.

Already hedge funds such as Third Point have been in operation applying this principle. They bought
Greek bonds earlier this year when they were regarded as useful only as toilet paper and sold for
just 17% of their face value. They gambled that the authorities would do all in their power to prevent
a default and therefore Greek bond prices would rise one day. They were right. Greek government
bonds rose to 34 cents to the Euro and Third Point stands to make $500m profit in a few months. It
beats working for a living!

The good news is that the European authorities intend to introduce Collective Action Clauses (CACs)
to whip holdouts into line in debt restructuring deals in future. The bad news is that the main lawyer
dealing with the Greek debt problem affirms that it will take decades before CAC clauses are fully
incorporated into a government’s debt stock.

The shenanigans of the vulture funds are all instances of what Adair Turner, head of the Financial
Services Authority called “socially useless activity.” At least vultures keep the veldt clean. The vulture
funds are a case of capitalism devouring its own entrails.

 by Michael Roberts      

The people of Spain, Greece and Portugal have been on the streets to oppose more 'austerity' as a solution to the economic crisis in these countries.  Yet the Spanish government is proceeding to impose yet another round  of austerity measures in its 2013 budget announced this week.  The French 'left' government has also done something similar and the Greek coalition is struggling to reach agreement on yet another round of cuts in government spending demanded by the EU and the IMF.              

Austerity is (correctly) conceived by the majority as trying to destroy their living standards now and in the future.  But the Keynesian left also tells us that austerity won't work anyway in creating economic recovery. As Paul Krugman put it in his blog only this week (http://www.nytimes.com/2012/09/28/opinion/krugman-europes-austerity-madness.html): "The straight economics of the situation suggests that Spain doesn’t need more austerity. It shouldn’t throw a party, and, in fact, it probably has no alternative (short of euro exit) to a protracted period of hard times. But savage cuts to essential public services, to aid to the needy, and so on actually hurt the country’s prospects for successful adjustment."

So what is the point of austerity?  Why do so many governments of the major capitalist economies persist in policies to reduce public sector spending, raise taxes and lower budget deficits at a time when their economies are in recession? Are they mad? Krugman thinks so ("Europe's austerity madness").  And so does Larry Elliot, the Keynesian business editor of the UK's Guardian newspaper, "Austerity mania is sweeping Europe" (http://www.guardian.co.uk/business/economics-blog/2012/sep/28/blame-austerity-mania-breaks-euro).

The Keynesians see this policy of austerity not only as wrong-headed, but also ideological.  It's true that there is an ideological aspect to austerity.  There is a built-in antagonism to any sector of the economy that is not capitalist and could threaten the dominance of capitalist production, by taxes on profits, 'excessive' welfare benefits, more regulation and 'interference' with free markets.

But that is not the main reason for governments pursuing policies of austerity. The main purpose of austerity is to restore the profitability of the capitalist sector of national economies after the Great Recession and resulting decline in profits.  Capitalism in the major G7 economies has experienced a secular decline in the rate of profit since the 1960s and despite a relative recovery in the 1980s and 1990s, profitability peaked and started to slide in the last decade (see my paper, A world rate of profit (roberts_michael-a_world_rate_of_profit.).   This decline was counteracted by a massive expansion of credit (fictitious capital) in the 2000s.  But that eventually collapsed into the Great Recession.  Now profitability needs to recover.  The policies of austerity are designed to help do that.  In the US, labour's share is at a record low, pushing profitability back up.  As a result, US economic growth has been relatively better than in Europe.

But the Keynesians argue that the problem is not profitability, they say, but a lack of 'effective demand'.  To boost demand, we need cheap money from the central banks, an injection of liquidity through the printing of money and more government spending, not less. To cut spending and even consider raising interest rates at this time is suicidal for capitalism and economic recovery.

As Elliot puts it: "The austerity programmes come with pledges of economic reforms. Put simply, the idea is that too many eurozone countries have been feather-bedded for too long and now need a chill blast of reality to wake them up. Budget retrenchment will ensure that countries live within their means while deregulation, privatisation and more flexible labour markets will make them leaner and fitter. Before too long a revitalised Europe will be punching above its weight in the global economy.  All of which is total moonshine.  Not one of the objectives set by Hollande, Mariano Rajoy in Spain or Antonis Samaras in Greece is likely to be met. The first goal is that budget deficits will come down rapidly as a result of austerity. All the evidence so far is that targets will be missed because demand will be sucked out of already pitifully weak economies, with the effects magnified because so many countries are acting in the same way simultaneously.

But the targets for budget deficits and debt levels would be met if European capitalism restored economic growth.  The question is: how can that be done?  The Keynesians say policies of austerity will not do it.  But will Keynesian policies restore economic growth either?  Under the capitalist mode of production, the purpose is not raise GDP or increase household consumption.  That may be a by-product, but the purpose is to make profits.  And profitability is still too low to encourage capitalists to raise investment sufficiently to reduce unemployment and wage incomes and thus 'effective demand'.  A policy of raising wages would reduce the share of profit in GDP; and a policy aimed at expanding government spending would be damaging to profits, just when capitalists are trying to 'deleverage' their 'dead' and unusable capital and reduce costs.

Sure, some capitalist sectors benefit from extra government spending through the procurement of government services and investment from the capitalist sector e.g. military weapons and equipment; roads, schools and hospitals etc. Mainstream economists often claim that government does not "produce anything",  it does not "create wealth". What the mainstream really means is that government does not create new value (profit).  It merely redistributes existing value, often against the interests of the capitalist sector as a whole.  Government can thus be damaging to capitalist investment especially if taxes are diverted to welfare spending, workers pensions and public sector wages.  And if government gets too large, it could even reverse the dominance of the capitalist mode of production.

So the Austerians see the need to keep government spending down, reduce the 'size of the state' and cut sovereign debt not as ends in themselves, but as part of the effort to revive profitability in the capitalist sector by cutting the costs of taxation and welfare.  Indeed, from this light, the most important policies of austerity are not really the control of government spending but the accompanying 'supply-side' reforms that aim to 'liberalise labour markets' (cut jobs,public and private), reduce wages (public and private), lower pensions (public and private) - in other words,  lower the cost of variable capital (labour) and drive up the rate of surplus value (profit to wages ratio).  If the capitalist sector is also 'deleveraging' by destroying the value of its constant capital and financial debt (by liquidating it or paying it down), then both measures will raise profitability and set the scene for a new round of capitalist investment.

Austerity can work.  But there are two problems.  The first is that the majority of people may not put up with it and remove governments who implement it.   The other problem is that it can take a very long time.  The long depression of the late 19th century that swept across the major economies started in 1873 and did not really end until 20 years later.  In my book, The Great Recession (Chapter 13), I show how Marx's law of profitability operated during that period in the most important capitalist economy then, the UK.  The UK rate of profit began to fall from early 1870s and stayed around 25% lower throughout until the early 1890s.  It took a long time for capital value to be destroyed sufficiently.

In a previous post (The Great Depression and the war, 6 August 2012), I have shown that the Great Depression of the 1930s was not reversed until the second world war broke out, when capital was destroyed physically as well as in value terms and the capitalist mode of production was temporarily 'suspended' by state direction of (military) investment and control of wages.  So austerity could well last a long time in this current Long Depression.  But eventually, unless labour revolts against it,  profitability will recover and capitalist investment will revive enough.  From this perspective, Keynesian policies will only delay the process and the lengthen the time before recovery.

The Austerians like to cite the example of the Baltic states as showing that their policies will work much better than the Keynesians in quickly restoring capitalism.  Yet another report justifying this has been released by the right-wing UK think tank, the Centre for Policy Studies (Estonia: a case study: how and why Estonia embraced austerity (http://www.cps.org.uk/).  Head of research, Ryan Bourne at CPS argues that "Estonia proves that a turnaround through swift, sharp austerity is possible for a country provided ... it is willing to undertake radical supply-side reform alongside curbing spending ...What is needed are an end to "excessive borrowing, unstable welfare states, high debt burdens, unreformed and illiberal labour markets, excessive regulation etc".

Bourne attacks Krugman for claiming that austerity has not worked because Estonia's real GDP is still some 9% below its peak in 2007, having fallen over 17% from peak to trough.  He says that this is unfair because Estonian unemployment has fallen back from 20% in early 2010 to just (!) 10% now and the economy grew at over 8% in 2011.  So austerity worked. But Krugman is right to point out that Estonia's real GDP is still way below where it was in 2007 and more important, Estonia will never return to the trend growth it has before 2007 - the value of that output has been lost forever.

Bourne sweeps past the reason for Estonia's high growth before the global financial collapse, namely a humungous credit boom where private sector debt exploded to 100% of GDP, generating a current account deficit of 18% of GDP, with inflation peaking at 11% a year.  So much for untrammelled capitalism providing a steady and sustainable economy.  Bourne's claim that 'internal devaluation' through policies of austerity adopted by the Estonian government had succeeded 'quickly' is also open to question.  The government cut public spending but also slashed pensions, reduced sick pay and health benefits for all workers.  The huge slump brought imports screeching to a halt and so the trade deficit was reversed as a result. The real success of austerity has been a sharp fall in real wages and cuts in corporate taxes - namely raising the share of profit.

But if austerity has worked in Estonia, the main reason is one not mentioned by Bourne at all: emigration.  The Estonian labour force has been decimated as thousands left this tiny country to seek work elsewhere in Europe.  The Estonian version of the British Tory cry to the unemployed of "get on your bike" to seek work was to get on the train or plane westwards for fill up the reserve army of labour in Germany etc. The money earned abroad also came back to families ameliorate the hit to living standards at home.

And there were two other factors not available to larger capitalist economies.  Estonia's banks are wholly owned by Swedish ones, who made sure they were bailed out and there was no collapse when the credit bubble burst.  And second, tiny Estonia received over €3.4bn in EU structural funds to finance infrastructure spending. (For more on this, see my post, Keynes, the profits equation and the Marxist multiplier, 13 June 2012.)   So small capitalist economies may well be able turn things round through austerity if the majority of working people are prepared to pay the bill for capitalism (as it seems the Estonian electorate has been - although they are a lot smaller in number than in 2007!).

Greece is not tiny like Estonia, but it is a relatively small capitalist economy, dependent on trade (including services like tourism).  The troika (EU, IMF, ECB) is demanding even more austerity to drive down labour costs.  It is demanding more wage and pension cuts (already cut 40%) and a six-day week for all Greeks as normal!  This is the most blatant attempt to hike the rate of exploitation. The Greeks already work the longest hours in Europe (see my previous post, Europe: default or devaluation?, 16 November 2011).

The interesting thing is that austerity in Greece is supposed to be aimed at the public sector.  The reality is that it is private sector workers that have been hit the most.  Public sector employment shrank by some 56,000 from 2009 to 2011, a 7.8% drop.   But private sector employment (a much larger share of the labour force) is down 13%. And labour costs are down 18.5%.  This is the real target of austerity.  And it is beginning to have an effect.  In Greece, unit labor costs rose 33.7% between 2000 and 2009, while in Germany they rose just 0.6%. But this gap between German and Greek unit labor costs has already dropped to less than half the 2009 peak.  Indeed, on current trends, Greek unit labour costs will be lower than Germany’s by early 2015, as Greek costs drop by over 40% and German costs rise by 10%. Greek capitalism is becoming ‘competitive’, but taking around eight years of hell to do so!

I made a (crude) measure of the rate of profit in the Greek economy over the last ten years.  The rate of profit peaked in 2007 some two years before the crisis really hit Greece.  Investment then plummeted 50% from 2007 to now.

  By Michael Roberts by Michael Roberts

 http://thenextrecesion.wordpress.com

                        The latest high frequency data on the state of the world economy are now available for April.  I use a combined index of activity in manufacturing and services in the major capitalist economies based on the so-called purchasing managers indexes (PMIs).  Starting with the US, it shows that the US is still in a low-growth trajectory and not in recession or boom, although the direction is downwards.

This is confirmed by the even more frequent, but less reliable, ECRI weekly index.

And for the world as a whole and other regions, it is much the same story – when the PMI for a country is above 50, it is expanding and below means contraction.

Only the Eurozone is in a confirmed recession.  Even the UK is still in a low growth expansion, contrary to the first estimates for UK GDP in Q1’12 that indicated that it was in a technical recession (see my post, Britain’s technical recession, 25 April 2012).  It is likely that those UK GDP figures will be revised up to a small positive position.  But overall, it suggests that the world economy is growing at about 3% a year, with the US at around 2% and the rest at under 1%.  The graphic below shows where the G7 top capitalist economies were sitting at the end of 2011.

World capitalism’s recovery from the Great Recession is the weakest turnaround from a slump since the 1930s. In effect, world capitalism, at least its mature capitalist economies, is in a long depression.  In many economies, the previous peak in output before the slump has not been surpassed.  Only the GDPs of North America and Germany have achieved that.  The rest of Europe and Japan are still in a slough of despond some four years since the Great Recession began.

Even more defining is the sheer waste of the capitalist mode of production.  Factories are idle or under-used, many more millions are out of work (labour participation rates in the major economies have never been lower) and output has been lost forever.  After the deep ‘double-dip’ recession of the early 1980s, the US economy took three years to get back to the level of GDP that it would have achieved if there had been no slump.  Potential output of some $1 trillion was lost forever (that’s the gap between actual output and potential output from 1982 to 1985 in the graph below).

But this time it ‘s much worse.  About $1.5 trillion dollars of output (or over 10% of potential GDP) was lost in the Great Recession of 2008-9, but the recovery is so weak this time that output cannot catch up to where it would have been without the slump and there is now a permanent loss of output of nearly $1 trillion a year (6% of potential GDP) and no sign that the gap is going to be closed.   And this is just the US economy, which is doing relatively better than others.

And, despite all the ‘deleveraging’ of ‘excessive debt’ , massive job losses and the shrinking of assets, profit growth in the major economies continues to slow.  US profits are still growing at a 7% annual pace, but in Germany, the UK and Japan, profits are now contracting.

The depression in Europe is particularly severe.  The Eurozone unemployment rate has hit 10.9% — its highest level since the euro was launched in 1999.

The long depression continues.

                                                                                                                                    3 May 2012

 The following is a document written by Mick Brooks back in January. We publish it here as a contribution to an ongoing international discussion.

Mick Brooks   

18.01.12

The past year (2011) has seen a torrent of news items. It’s all happening! The coming year is likely to be just as eventful. It is quite clear that a new and significant period is opening up in the world economic and political situation. The reason for this flood of events is simple. We are living through the most momentous crisis of capitalism in our lifetime. The old order is being shaken to the core.

It is the task of Marxists to try to peer below the surface of events and make sense of the processes at work. The role of perspectives is to see what stage we are passing through and the general direction that the world is moving in. This is extraordinarily difficult at present. One cannot simply say that the world is moving left or that it is moving to the right. The processes we observe are contradictory. The direction that events are taking is not immediately obvious.

In fact that is what we should expect. On account of the deep economic crisis both revolutionary and counter-revolutionary trends are in the process of crystallisation. We are moving into a new political era, one in which revolutionary opportunities are opening up.

The post-War boom

The period immediately after the Second World War saw the biggest secular boom that capitalism has ever gone through. It was characterised by virtually full employment and steadily rising working class living standards, at least in the advanced capitalist countries. Though this was a period of relative class peace, the working class was enormously strengthened by the boom in capitalism. In the colonial countries there was an enormous movement for national liberation. This movement swept up millions of people into thinking, acting and risking their lives for a political cause for the first time. The post-War boom lasted from 1948 to 1973, when we saw the first generalised recession since the War. By this time formal independence had been achieved in almost all the former colonies.

It should be emphasised that, for workers in the advanced capitalist countries, this was a protracted non-revolutionary period. Illusions were widespread that capitalism had solved all its problems, that crises were a thing of the past, and that living standards for the vast majority under capitalism would keep going up for ever. In this situation reformist ideas were almost universal, the level of activity and involvement in the labour movement was very low and the forces of Marxism were reduced to a handful. In addition the Stalinist states were perceived as growing faster than most capitalist countries, so they seemed to provide a viable alternative to capitalism to many left-inclined militants. The bureaucracy was utterly dominant in the trade unions and the political parties of the working class.

At the same time the capitalist economies were slowing down even before the shock of the 1973-4 recession. Full employment had improved the bargaining power of organised labour so that workers had become used to getting their way by going on strike. The labour movement from the later 1960s cashed in the strength it had built up during the post-War boom with militant struggles to defend and improve its living standards, as in France in 1968 and Italy in 1969.

Capitalist offensive

The recession of 1973-4 acted as a shock to the working class. It was followed a few years later by another deep slump in 1980-2. Full employment disappeared forever and, with it, the strong bargaining position of the unions vis a vis the bosses. The period after the recession was completely different from the post-War boom. Capitalism was in deep economic and political difficulties. The system slowed down and stalled. It could no longer deliver the goods to the working class.

This put the social democratic and Stalinist bureaucracy in the labour movement in a tricky position. It was no longer a matter of negotiating reforms and improvements in wages, but of defending what the workers had gained in previous decades. This required a revolutionary challenge to the capitalist system, which the bureaucrats were unwilling to offer. On the other hand the critical situation forced the workers on to the road of struggle. Revolutionary possibilities opened up for the first time in one country after another.

The ruling class rearmed. They abandoned the consensual economic policies of Keynesianism aimed at delivering full employment. Indeed Keynesianism was seen to have failed in the economic crises of the 1970s. Instead the ruling class adopted monetarism. This was actually the old traditional capitalist economic policy. Monetarists argue that governments cannot affect the level of economic activity and employment, and should not even try. The election of Margaret Thatcher in Britain in 1979 and of Ronald Reagan in the USA marked the turn to an aggressive class struggle by the capitalist class, as recognition of the new situation confronting their system.

Reagan, in what was virtually his first act as President, sacked the entire cohort of striking air traffic controllers. The leaders of their union PATCO were paraded on television in leg manacles. Later Thatcher took on the British miners and, after a one year long strike, destroyed the union and the coal industry. The miners were regarded as the ‘brigade of guards’ of the British labour movement. Their defeat inaugurated years of further defeats and relative industrial quiescence. It was a period of ruling class onslaught and widespread fear at the workplace. In both Britain and the USA trade union membership fell significantly from its peak in the later 1970s.

Let us be clear. There was a real prospect of the overthrow of capitalism in several countries in the 1970s. This would have been the beginnings of a global change in the direction of the socialist transformation of society. By the mid-1980s this opportunity had been beaten back almost everywhere. The labour movement went through serious defeats in one country after another. The tide of militancy was rolled back and for years the capitalist class went on the offensive. The collapse of Stalinism, discussed later, provided the coping stone for capitalist triumphalism. There seemed no alternative to capitalism.

That period of defeats and reaction has now come to an end. The ruling class are no longer so self-confident on account of the economic crash. They are desperate. They are all the more determined to defend their system at the expense of the working class. The situation also opens up opportunities for revolutionaries. The rottenness of the traditional leadership of the working class laid the ground for defeats. It also exposed them and weakened their ascendancy in the movement. We have the opportunity to build from the ground up.

We revolutionaries see new prospects opening up before us. The reason for the failure of the movements from the late 1960s till the early 1980s was the lack of the subjective factor, the lack the mass Marxist parties. The opportunities are now opening up for us to build such parties. The need for an alternative is certainly there, and will increasingly be felt by more and more workers as the crisis unfolds.

The Great Recession

The period since 1974 has been completely different in every respect from that of the post-War boom. In retrospect 1948-73 can be seen as a uniquely favourable period of capitalist development for the working class. The period since then has been far more typical of what capitalism has to offer working people. Mass unemployment has returned along with slower economic growth and, with it, vicious attacks on working class organisations by the capitalist class.

Since the onset of the Great Recession in 2008 we seem to have entered a new and different era from that of 1974-2007. Governments of all political persuasions responded to the crisis by hurling enormous sums of taxpayers’ money at the banks in a desperate attempt to save capitalism. Clearly this was an abandonment of the dominant ideology of neoliberalism. But it was not a return to Keynesianism. Money was pumped into the economy not to create jobs for the working class, but to save capitalism from itself. This was socialism for the rich – and nobody else. The money was not spent on useful public works. It was used to buy up toxic pieces of paper that had been issued by the banks and poisoned capitalism’s bloodstream. The toxic securities were bought up and in effect buried deep in the ground like nuclear waste.

The period opening up is likely to be one of unrelieved austerity. The body of the world economy has been severely weakened by the Great Recession. Further rounds of bloodletting of jobs have been prescribed by the major capitalist powers. Public debts and deficits have ballooned. But this public money hasn’t been spent on public services or reforms for the working class. It has been used to bail out capitalism. The workers, having paid in lost jobs and wages in the first round of the crisis, are being asked to pay again – this time in the form of attacks on public sectors jobs and services to reduce the debts. The main capitalist economies are crawling ahead if they are not rolling backwards. Prosperity and full employment is a distant dream.

The Arab spring

The most important political event of the past year (2011) was the Arab spring. How far was this upsurge a direct result of the economic crisis? How far was it the product of a random spark? The Middle East, like most underdeveloped countries, had been held back by continued imperialist domination ever since formal independence. Poverty and mass unemployment are chronic features of most Arab countries, apart from a handful of thinly populated oil rich states. The crisis made conditions suddenly worse. But there is no automatic connection between economic hardship and political radicalisation.

The eruptions in Tunisia which kicked the movement off were the result of the rottenness of the Ben Ali regime, which had long been evident to the mass of the Tunisian people. A young man burned himself to death in protest against the exactions of the regime. This was an apparently random incident which provoked a revolutionary explosion because the conditions had matured below the surface. In the same way the riots by women in bread queues in Petrograd that marked the beginning of the Russian Revolution in 1917 seemed to be ‘accidental’ factors. In fact they marked the beginning of the end of the centuries’ old rule of the Tsar over Russia and of the world’s first socialist revolution. Lenin and Trotsky could later identify the incident as evidence that capitalism, stretched to breaking point by World War, was fracturing at its weakest link. The fact that the Arab spring spread so rapidly to Egypt and other countries in the region was evidence that the shock of the crisis provided a tipping point for the revolutionary conditions that had long been in preparation below the surface of events.

The Arab spring represents a gigantic step forward. Consider the common opinion of the imperialist powers only a year ago. They considered that the whole Arab world was securely under the grip of dictatorships of various kinds. All of these regimes held the common people down in the interests of imperialism. Even in January 2011 Hillary Clinton and Tony Blair were praising the Mubarak regime as a safe bastion in the region. It was assumed in a racist manner that the Arab peoples were uninterested in democracy and would never rise up against their oppressors.

All the same it is clear the revolution, for that is what it is, will be a protracted process.  Though we have a long way to go, the events so far have shaken the Arab nations and the wider world, and the grip of imperialism in the region, to the core. The workers and peasants have stepped on to the stage of history as independent players. That is of lasting significance.

Comparing the Egyptian and Russian Revolutions

We often use the events of the Russian Revolution as a template to analyse contemporary revolutionary events. The Russian Revolution unfolded in nine months over two main acts. The February Revolution overthrew the Tsar, the head of the old order. It is conventionally described as a spontaneous uprising of the common people in the big cities. The army was split, refusing to fight the revolutionaries, and thus rendered useless as a force for repression by the Tsar. Soviets, potential organs of workers’ power, were set up in the course of the insurrection.

The February Revolution was seen as leaderless. In fact as Trotsky showed in his ‘History of the Russian Revolution’, worker Bolsheviks played a leading role in the Revolution at rank and file level, though not under the direction of the Bolshevik Party leadership, which was mainly working underground or abroad.

The Revolution instituted a period of dual power, with the Soviets and the bourgeois Provisional Government representing the two possible options for Russian society. Initially the Soviets were dominated by moderate socialist parties who sought to prop up the Provisional Government. The Bolshevik Party already had a cadre rooted in the working class from the previous revolutionary struggles of 1905. They were able to take advantage of the revolutionary situation in Russia, given the utter failure of the Provisional Government to solve the basic problems faced by the masses, to build themselves up as a mass Party very quickly. In nine months they won a majority in the Soviets and took power on behalf of the workers and peasants.

The similarities and differences with the Arab spring are plain. We shall mainly use the Egyptian case, as Egypt is the key country in the Arab world because of its size and the relative weight of the working class.

The movement in Egypt was fed in particular by the masses of unemployed youth created by the longstanding failures of the Mubarak regime to break with imperialism, develop the country and create jobs. Here is an illustration of the country’s plight and the background to the mass movement that erupted. Nearly half the population, 44% of Egyptians, live in absolute poverty on less than $2 per day. Food prices went up by 30% in the year before the uprising. Between 2000 and 2009 the country’s debt grew by 15%, despite repaying $24.6bn in loans over the period.  The net transfer from Egypt to the rich countries was $3.4bn over the decade.

The working class did not play a leading role in the overthrow of Mubarak as workers, though of course they were there in large numbers in Tahrir Square. Some commentators characterise the movement in Tahrir Square as a middle class movement. This is quite wrong. It was an urban movement of the mass of the people in Cairo. The same process occurred in other cities.

The workers did not use the method of the strike against the regime in 2011, though the Egyptian Revolution had been prepared by years of a bitter and significant strike wave. There were 3,000 labour actions between 2004 and 2010. Particularly prominent was the textile industry in Mahalla (where Misra Spinning and Weaving mill employs 27,000 workers) which saw a wave of militancy from 2006 to 2008. This was already a clear sign that the Mubarak regime was on the rocks.

The repression of the old regime was aimed in large part against the working class, restricting their power to take independent action against the bosses on the shop floor. The Egyptian Trade Union Federation was a tool of the regime. After the overthrow of Mubarak, independent trade unions have been set up. There was a wave of militant strikes to kick out the ‘little Mubaraks’ in the workplace who had lorded it over the workers for so long. In time this movement ran into the sand. The reason for this was that the regime remained basically intact. The Egyptian Revolution has begun, but the overthrow of Mubarak was only the first act.

The armed forces were not neutralised by the movement, though this was beginning to happen. The ranks were increasingly unwilling to do Mubarak’s dirty work of repression. The army heads clearly recognised that a rebellion was on the verge of occurring in January 2011. They sacrificed Mubarak as a generous (and necessary) gesture to the masses in order to maintain their own control over the rank and file soldiers and prevent a complete meltdown of the old order.

Though the assemblies of people in the process of emancipating themselves in Tahrir Square inspired workers all over the world, they did not produce organs of workers’ power. The army is still intact. There was no revolutionary cadre like the Bolshevik Party capable of taking advantage of the revolutionary possibilities in a short period of time. For these reasons the Egyptian Revolution will be a protracted process.

Islamic parties

From secular nationalism to Islamism

Revolutionary events shot from country to country. This interconnection of the Arab world indicates that a powerful pan-Arab consciousness still exists. This is despite repeated failed attempts to build a united Arab republic, going back to the time of Nasser. Nasser was one of a generation of secular, progressive politicians, often using socialist rhetoric, fighting for independence, modernisation and an advance in living standards for the whole Arab world. This was the dominant political trend at this time. Islamism was seen as obscurantist and subservient to imperialism. Nasser and his generation of independence fighters and leaders could not achieve what they wanted as long as imperialism continued to exist. They failed because they failed to break the power of capitalism in the region.

In later years resistance to the status quo of poverty and imperialist domination tended to be voiced by the Islamist opposition, in contrast to imperialist puppets like Mubarak. Grotesquely, Al Qaeda at one time proclaimed itself the only opposition to imperialism in the Muslim world. Al Qaeda has of course has achieved nothing but damage and chaos. The emergence of the mass movement, a concept they don’t understand, has shown them to be useless and divisive.

In fact, so far from leading the revolutions, Islamist parties such as the Egyptian Muslim Brotherhood have been completely confounded by the revolutionary developments in the region. They have had the advantage that they are the most well-known opposition element and have been active on the ground for decades. But now they have had to run fast to catch up. The Muslim Brotherhood is likely to emerge as the largest single party out of the 2012 elections. That is a measure of the rural backwardness that has to be overcome in Egypt, and of the lack of a socialist tradition.

This is not a new phenomenon. In the 1848 revolutions Marx and Engels lamented the failure of the mood in the countryside to keep up with the towns. After the overthrow of the military junta in Greece in 1974 and the ending of Franco’s rule in Spain, the first beneficiaries of elections were conservative parties. Conservative parties in Muslim countries naturally take on an Islamic tinge as that is the dominant religion. A period of dictatorship is a period when the development of class consciousness is deliberately held back. It takes time to catch up.

9/11

The Al Qaeda outrage at the twin towers was the most spectacular instances of terrorist activity ever. It was also one of the defining incidents of the new millennium. It led inexorably to a sequence of events where imperialism struck back, eventually hunting down and murdering Osama bin Laden. 9/11 was an event which armed imperialism with excuses to intervene, repress and kill. It led directly to the invasion of Afghanistan and the destabilisation of the region. Ironically the final outcome of the imperialist invasion is likely to be a fiasco which leaves the Taliban firmly installed in control of the country.

Al Qaeda has shown itself to be a counter-revolutionary force; 9/11 served to throw the real movement back. Though it can continually harry imperialism, Al Qaeda cannot strike decisively against it. A handful of fanatics try to substitute themselves for the effects of a mass movement. The Muslims who bomb Christian churches in Nigeria are also serving to split the working class movement on religious lines. In the context of a unified movement against rising fuel prices, because of the removal of subsidies at the beginning of 2012, that was a doubly criminal act.

Varieties of Islamism

The imperialist powers continually express fear at the rise of Islamism in the region and the wider world. Developments like the Iranian Revolution are unlikely to recur. What happened in 1979 was a huge, genuinely revolutionary movement against the Shah, a movement in which the working class was playing a leading part. The revolution was hijacked by Khomeini and the clerics. The Tudeh Party allowed them to hijack the revolution, because it was a ‘communist’ party and adhered to the Stalinist theory of stages. They saw the revolution as national democratic, with the aim of setting up a democratic republic. This, of course, was the Menshevik position in 1917. In fact the overthrow of the Shah could have been the first act in a socialist revolution, as the deposing of the tsar was in 1917. Khomeini only gained power because the labour movement’s leadership failed. The working class paid a heavy price thereafter.

Khomeini spouted anti-imperialist rhetoric, but capitalism is unchallenged in Iran, and the condition of the masses is desperate. Islamism is a twisted form of anti-imperialism. It can only gain credibility because of the failure of the labour movement to offer a way forward. Islamism is always and everywhere an enemy of the working class movement, as the events in Iran showed. Islamism in that regard is no different from any other political movement founded on religious beliefs – whether Christian, Sikh, Hindu or Buddhist.

One thing all these religious parties have in common is that they are all bourgeois. Reactionary parties often take on the coloration of the dominant religion in the country. We Marxists recognise that the main division in society, and the cause of conflicting political ideas, is the existence of social classes with different and opposing interests. Any political movement based on religion tries to cover over the real conflicts in society, at best with soothing words, at worst with repression.

The Muslim Brotherhood is in any case not the same as the Iranian clerics. Islamism is not a unified movement. There are huge differences between movements described as Muslim, between the moderates who aspire to be elected and the fanatical bombers. The Brotherhood presented itself as a reformist opposition to Mubarak, and gained a limited tolerance from the regime as a result. After its downfall it strives (through the Freedom and Justice Party) to present itself as a party accepting the new constitution (which leaves the power of the military unfettered) and with no ambitions to be the sole party of government.

In this it seems to be following the ‘softly, softly’ example of the Turkish Justice and Development Party, which took on the armed forces, followers of the militantly secular Kemal Ataturk, founder of modern Turkey. The JDP finally got elected and is attempting to nudge Turkey in the direction of a Muslim country, while opening the country up completely to global capitalism.

The new movement in Egypt, typified by the huge assemblies of people in Tahrir Square who challenge continued military rule, the people who actually made the revolution, are no part of this Islamist movement and will have nothing to do with it. They are not overtly socialist and not led by the working class. But they are secular, intelligent and open to new ideas. They will learn fast.

Perspectives for the Middle East

Tunisia

The first lightning of the Arab Revolution was seen in Tunisia. The speed with which things developed, beginning with a young man burning himself to death in protest, to the enforced exit of Ben Ali and his family after 24 years of apparently impregnable rule, was remarkable. The apparent establishment of bourgeois democracy in the country with elections before the end of 2011 cannot be seen as the end of the affair. Further developments in Tunisia depend on what happens in the rest of the region.

Libya

Developments in other countries have followed a very different course from Egypt. The reason for this is that the weight of the working class in society is relatively much less elsewhere in the region. Libya was created as a unified country only quite recently, and strong regional identities persist. The fact that the insurrection against Gaddafi began in Benghazi and spread gradually to Tripoli is an indication of this. In fact the opposition to the regime appears to have had no common thread apart from an entirely understandable hatred of Gaddafi.

The rising took a developed differently from Egypt. Rather than powered by enthusiastic assemblies of millions of people in the cities, it was conducted by militias in pick-up trucks blazing away with AK-47s in the desert. It took the form of an armed civil war.

It is not completely correct to say that the rebels were all just stooges of imperialism, though Western bombing was vital to their victory. The motivations of the rebels were mixed. Individual motivations in any case do not determine the class character of a movement. No doubt sincere revolutionary democrats took part in the struggle against Gaddafi. But they were drowned in a movement dominated by local, tribal and religious loyalties and by business people who chafed at the restrictions on their activities imposed by the regime.

In this situation there is no reason why revolutionaries should support either side. How can a revolutionary intervene politically in a militia in any case? It is difficult, though not impossible.

Marxists cannot be neutral when imperialism intervenes. We oppose imperialist intervention, whatever the ‘humanitarian’ pretext. Western bombing killed uncounted thousands of innocent civilians in Libya and must be denounced.

The Western powers had made big steps to incorporate the Gaddafi regime into the structures of world imperialism before the civil war. Though Gaddafi has made anti-imperialist gestures in the past, he welcomed the recent rapprochement. The conflict broke out unexpectedly to the NATO powers, and they opportunistically seized the opportunity to oust Gaddafi instead of embracing him. Their aim was Libyan oil – no doubt about that.

The rebel government is by all accounts still a rabble, with militias driving round Tripoli and looting. No doubt over time the businessmen who had rebelled against the Gaddafi regime, and were an important part of the insurgency, will gain the ascendancy and impose a government more subservient to imperialism on the country. Already the oil booty, which previously was effectively the property of the Gaddafi family, is being divided up between the imperialist powers.

Syria

Developments in Syria are more similar to those in Libya than Egypt. There have been mass movements in cities –particularly Homs and Hama ­– but also armed insurrection by army rebels. The movements in these cities seem to have mainly been fed by religious dissent. The majority Sunni population feel themselves to be oppressed by the Assad regime. Though Assad, like his father before him, regards his government as secular, in fact the power of the regime lies in maintaining a patchwork quilt of different religious faiths divided against each other. The army officer caste, like the Assad dynasty, is mainly Alawite.

As long as the army remains loyal to Assad then there will not be a successful overthrow of the Syrian regime. Every revolution poses the need to split the army, the repressive apparatus that acts as the last guarantor of the regime. Some soldiers, revolted by the brutality used against their own people, have deserted and begun armed struggle against Assad. Apart from hatred of the regime, they have no clear objectives. There is no reason for Marxists to support the opposition army, or the Islamist opposition.

At the beginning of 2012 protests against Assad spread to the two chief cities, Damascus and Haleb. Cracks in the army became more visible. This could represent the beginning of the endgame for Assad. The implications of his fall could be dramatic for the region. At this stage it is not clear what forces might emerge to take Assad’s place and what the implications would be for Syria and the region. First the repressive regime has at least kept the country together. After its demise at the hands of opponents with different aims, Syria could descend into chaos. Secondly Syria has a client regime in Lebanon, whose legitimacy would undoubtedly be called into question. Finally Syria is seen as an ally of Iran, whose regional power would therefore be weakened.

Iran

In Iran the lives of the vast majority are very difficult. Inflation is rampant, together with mass unemployment. The decision to withdraw food subsidies over time will make living standards even more parlous The ruling Mullahs are riven into factions and widely discredited. They shamelessly loot the state and industry. No nation on earth is less likely to rally to the banner of ‘revolutionary’ Islam than the Iranians! They know better. The revolution against the Mullahs will naturally be secular and progressive.

The imperialists are once again beating the drum about the need to intervene, militarily if need be, to prevent Iran developing the capability of using nuclear weapons. They have a problem. They lied to the world about ‘weapons of mass destruction’ before the invasion of Iraq and are understandably distrusted. How will they knit together the support to take on Iran, a much more difficult proposition? The excuse is that Iran is developing a nuclear capability. Israel already has a nuclear bomb and appears to be carrying out a programme of state sponsored assassinations of Iranian nuclear scientists. An outright invasion is almost certainly ruled out, though an airborne offensive, perhaps in conjunction with the Israelis, is a possibility.

Imperialism in the region

It is significant that Obama’s election has made no meaningful change to the predominantly hawkish posture of US foreign policy. His outlook seems to have been completely changed from gestures he made before election. He has been absorbed by the military-industrial complex.

It is true that imperialism has conquered Iraq and gained its main objective, the vast oil reserves of the country. But the invasion, apart from being bloody and brutal, showed the incompetence of the imperialist powers. They have left behind a monumental mess. The main beneficiary has been Iran, which now has a friendly Shiite government next door instead of Saddam Hussein. Likewise the long drawn out operation in Afghanistan is ending in failure and leaves chaos in its wake. The intervention of imperialism has actually served to destabilise the whole region.

In the years after the Second World War imperialism seemed absolutely dominant in the world. It is true that the USA often supported the anti-colonial movement. But it did so in order to turn the formal colonies of the declining European imperialist powers into virtual colonies of its own capitalist class. In one country after another the USA cynically led coups and deposed leaders they thought in any way unreliable. The first serious check to their ambitions was Vietnam. Now imperialism is incapable of dominating the world in a way that once seemed to be the natural order of things.

As we have seen, a year ago the Middle East appeared to be in a deep state of political slumber, exploited by imperialism and administered by tyrants. Now the region has been shaken and awakened. Now the process has begun, it cannot just be snuffed out. It will go on to its conclusion, transforming the Arab world in the process and challenging the domination of imperialism.

Even in Saudi Arabia, long regarded as a monolithically reactionary country, the King has been handing out money (of which he has plenty) to his subjects in order to buy support, or at least acquiescence. The Saudis are also doling out money to reactionary and obscurantist Muslim parties all over the region. In normal times money can oil the wheels of a political machine and make it work more effectively. It cannot stop a revolution. The King is uneasy in the face of the movements all over the region. This fact shows that all Arabs look to the Arab spring as a new beginning, either with hope or with foreboding. It is a clean break with the past. The present and the future are a period of awakening and transformation.

In the Middle East there remains the festering sore of the treatment of the Palestinians. Israel is the dominant military power in the region. None of the Arab states seem prepared to stand up against it. In the Occupied Territories the Israelis continue their relentless land grab, squeezing the Palestinian communities remorselessly. There is talk about peace talks once again in 2012. One thing is guaranteed. Peace talks will fail. There have been terms on the table since the Oslo Accords were signed in 1993. Even if some of the Palestinian leaders are browbeaten into signing a piece of paper, no deal can be made to stick. There is simply no basis for an agreement between lion and lamb.

Egypt the key

Many of the countries in the Middle East have been divided on the grounds of tribe, region or religion and ruled in that way. In some nations such as Libya the working class only consisted of a thin stratum of migrant workers in the oil industry and very little else. We cannot pin our hopes for world socialist revolution on countries like that. At best they may be incorporated into a bloc of nations that have overthrown capitalism, as Mongolia was a few years after the victory of the Russian Socialist Revolution in 1917.

We base ourselves on a classic movement of the working class. The country where that is most likely to happen is Egypt. All the objective conditions for such a mass movement exist. The workers have already shown tremendous militancy and courage in their struggles so far. What has not emerged yet is a mass party of the working class that could tap into the energy and initiative that the masses have already shown and direct it to revolutionary ends. It would be very difficult to construct such a party under conditions of illegality and repression of course. It is much easier now.

Egypt is important not only as the main focus for revolution in the Arab world. The movement there also can make links with revolutionary possibilities in Africa as a whole. The other two strategic countries on the continent with a mighty working class are Nigeria and South Africa. The South African working class overthrew apartheid with mass strikes. But capitalism remains. Inequality is entrenched, with a small minority of black politicos rising to share the obscene privileges of the white minority. Now we see the beginnings of a left opposition within the ruling African National Congress.

The whole of Egyptian society has been awakened and is buzzing with new ideas. People are contemplating a future that they at last can have a part in making. People are discussing all the time, and are receptive to new ideas now the stranglehold of Mubarak’s censorship and repression has been lifted.

 The Bolsheviks, even when they were a minority in the working class movement as in February 1917, could tap into deep foundations of socialist consciousness among the workers. That sort of class consciousness does not yet exist among Egyptian workers. But at present we have precisely the conditions where that can quickly crystallise.

For all the reasons we have mentioned events in Egypt will be protracted. Tantawi and the generals are still firmly in power. Apart from their political rule they retain substantial economic power by owning big chunks of industry. Their strategy is to retain their real ascendancy behind the scenes while progressively abandoning their token positions as the provisional government preparing a long drawn out electoral process.

There has been no real change in the nature of the state. Mubarakism continues without Mubarak. The Supreme Council of the Armed Forces (SCAF) is using military courts against thousands of those who helped to make the Egyptian Revolution. It is slapping them in prison for years at a time. Their aim is to botch together a new constitution which, while offering a democratic facade, leaves their power intact behind the scenes. But the military are proceeding cautiously. It is inevitable after a long period of repression that democratic demands retain an enormous popularity with the common people.

Mobilised against the revolutionaries are the thugs of the old regime. Decades of repression have produced a layer of bribed gangsters loyal to the old order. Like any dictator, Mubarak maintained different paramilitary forces competing against each other in their brutality. They are almost certainly responsible for the attacks against the Coptic Christian minority and other attempts to divide and rule. This was all part of Mubarak’s strategy for survival. These forces do their work in the dark and out of uniform. They dare not take on the Tahrir Square protesters openly at this stage. They remain a threat to the revolution.

Millions of Egyptians know exactly what the military are up to. And they are resisting every step of the way. Further clashes are inevitable. Every time Tantawi and co. attempt a provocation they are met with determined resistance. At present we have a stand-off. It could last for some time. But it is an unstable equilibrium that must break up eventually. The generals do not need to plot an outright counter-revolution. They are already in the driving seat. However, now millions of Egyptians have been aroused, they cannot just be put back in a box. They want to taste the fruits of what democratic gains they have made so far. Further revolutionary movements of the masses are inevitable.

USA

In the USA the election of Obama appeared to open a window of change. Millions of Americans were enthused at his inauguration. He has not proved equal to their hopes. His health programme, the only significant reform of his four years in office, lags far behind the conditions working class people in other advanced capitalist countries take for granted. Obama also attempted a Keynesian programme to stimulate the economy on election in 2009. It didn’t work. He tried to spend federal government money on infrastructure projects to give people jobs and get the economy moving. As fast as he injected money into the economy, the State and local administrations were laying workers off in order to balance their budgets.

Since then the Democrats have lost their majority in Congress. Obama has abandoned even trying to improve the economic situation. Guantanamo is still there. The USA still stands convicted of torture. Obama’s record is miserable. He has proved to be a massive disappointment to his supporters. More importantly the failures of his policies has forcefully rammed home into  the consciousness of the working class the fact that America is dominated by two bourgeois parties run by and on behalf of millionaires – the Republicans and Obama’s Democrats.

Will Obama be re-elected? It is impossible to answer that question at this early stage of the campaign. It is not really the most important question in US politics for Marxists today in any case. Obama’s re-election depends to a large extent on the state of the economy. Officially 9% are jobless in the USA. Really the figures are much higher. Taking into account the ‘discouraged’ (those who have given up looking for employment) and those scraping by on part time jobs probably one in six Americans are out of work.

Though the US economy seems to be picking up slightly (at least in comparison to the Eurozone) growth is not rapid enough to make a significant dent in unemployment. Obama may well be judged on the state of the economy and found wanting. But an upturn could give voters hope for the future, lift Obama’s chances and, more importantly, strengthen the hand of the working class. A crisis in the European Union, though, could push the entire world economy, including the USA, back into recession.

Obama appears to be positioning himself in the middle of the political spectrum, in effect as a moderate Republican President. He retains the belief of so many other centrist politicians that his natural supporters have no alternative but to vote for him on the day, because the alternative would be worse.

But he is killing hope in the hearts of all those who rallied to his support in 2008 in a campaign for change. This is an inevitable process in American politics. Until the working class understands that neither the Republican nor the Democratic Party will do a job for them, we will not see a real force for socialist change emerging in the USA.

That means in the first instance a movement for a Labour Party based on the trade unions. Movements in the 1990s to found a Labour Party ran into the ground. The main reason for this was and is the determination of the trade union leaders to adhere to the Democrats. Flag waving for Obama’s election may have seemed realistic in 2008. It will not arouse the same enthusiasm this year.

The election of Republican administrations at State level has led to a war on the unions. In Wisconsin Governor Scott Walker has moved to eliminate public sector trade union collective bargaining. His lead is being followed in several other Republican-controlled States. At present the jobs of hundreds of thousands of US postal workers are also under threat.

On the other hand the unions won a great victory in Ohio over the right wing Republicans. In a referendum Ohioans voted overwhelmingly against a proposal to ban public sector strikes and shred bargaining rights. This shows how public opinion can be mobilised behind the cause of labour. The working class in the USA has shown the determination to fight. The main obstacle to victory, as elsewhere, has been their own union leadership.

The trade unions have been severely weakened over decades by anti-union laws and by companies breaking away to relocate in the non-union South. Organised labour’s main strength now remains in the public sector. The recession conditions have weakened the position of the unions further. Their leaderships have offered concession, such as give-back contracts, acceptance of forced wage cuts and part time working or lay-offs, all to no avail.

Conditions and consciousness

There is a myth that Marxists believe that mass unemployment automatically radicalises workers. Actually it can bring disorientation and despair for a time. It can also produce anger and questioning. Obviously American workers are bitterly aware of the unfairness of their situation. While they suffer, the rich get richer. But their bargaining power, their ability to do anything to improve their conditions, is weak when there are millions of unemployed desperate to get jobs.

Likewise in the period 1929-33, in the depths of the Great Depression, there were very few strikes. It was when the jobs market was picking up in 1934, while there was still widespread unemployment, that we saw a general strike in San Francisco, the teamsters’ rebellion in Minneapolis and the Auto-Lite strike in Toledo. The big battles in the car industry and steel took place in the late 1930s when organised labour felt stronger. The links between conditions and consciousness are complex. They depend in part on the preceding course of the class struggle

World economy

Political perspectives are dominated by economic conditions. Conditions for workers in most capitalist conditions are likely to remain gloomy, particularly in North America, Europe and Japan, the traditional heartlands of capitalism. We are living through the most serious crisis of capitalism since the Second World War. The banking crisis, the crisis of state finance, the sovereign debt crisis and the crisis of the Euro are successive forms of appearance of that capitalist crisis. No end to the hardships is in sight. We are entering an age of austerity.

The Euro crisis

The economic gloom may well deepen on account of the Euro crisis. There is talk of a ‘double dip’ recession or at least a second phase to the current malaise. It is important to recognise that the crisis of the Euro is not a technical problem to be fixed (or not) by economic ‘experts’. It is part of the crisis of capitalism that broke out in 2007 in the form of the ‘credit crunch’. Credit dried up after the excesses of consumer borrowing and the house price bubble of the early years of the new millennium. Governments all over the world responded to what was regarded as a banking crisis by intervening to bail out the banks and bail out capitalism.

Not only did these governments spend vast amounts of taxpayers’ money to bail out the banks; they also lost tax revenues and had to spend more on doles and benefits as a direct result of the recession. In consequence the crisis then manifested itself as a crisis of state finance. The government was spending more than it was getting in. Debts and deficits spiralled out of control.

In the case of poor and peripheral countries most of this government debt was ratcheted up abroad. So the fiscal crisis of the state became a sovereign debt crisis for countries such as Greece. Within the Eurozone it put huge pressure on the Euro by way of its weakest members. If they cannot pay their debts how can they stay in the Eurozone?

A fixed exchange rate regime such as the Euro puts additional strains on the peripheral members of the currency union. A country with a balance of trade deficit does not have the option to devalue. Devaluation makes the local currency cheaper in world money markets. In doing so it makes exports cheaper in overseas markets and imports are more expensive. Devaluation is not a long term solution in any case, as it does not solve the fundamental problem of lack of competitiveness. All it can offer an uncompetitive country is temporary relief in a crisis.

Greece and the Euro

Greek workers are paid much less than German workers. Yet Greek industry is not competitive with German industry. Germany exports to Greece, but Greece exports little to Germany. The reason is that Greek workers are less productive, so the labour cost per unit of output (called Relative Unit Labour Costs) is much higher in Greece, though the workers’ hourly rates are so much lower. This is not the workers’ fault, of course. They are less productive because the Greek capitalists haven’t invested.

Greece has debts, mainly with the banks of other Eurozone countries such as France and Germany. It cannot possibly pay these debts and interest payments keep mounting up. These payments are sucking the life out of the Greek people. The whole country is likely to be pushed down a deep hole of third world debt from which it will be practically impossible to emerge, as we showed was the case in Egypt earlier.

Greece is in the forefront of the crisis. Other countries – Portugal, Ireland, Italy, Spain and even France are under the same pressures. The crisis of the Euro has thrust the Greek people into the front ranks of the battle. Greece is one of the most-crisis ridden countries in the world, and one where the most immediate revolutionary opportunities are likely to arise.

The European authorities don’t care about the fate of the Greek people. But Sarkozy and Merkel do care about the fate of French and German banks. Greece cannot pay its debts. If the country defaults, a swathe of West European banks will collapse. As we saw in 2008, the banks all over the world are interlinked and lined up like dominos. If one goes down they can all go down.

The future of the Eurozone

The other problem causing the crisis is the faulty architecture of the Euro. It is a currency without a country. Whereas the British state will defend the pound sterling as the French used to defend the franc, there is no nation state prepared to defend the Euro. What is required is a united policy to face off the speculators. This need is negated by the shortsighted selfishness of the nation states in the Eurozone. They are not prepared to risk their own money for a cause they do not see as their own. There have been ten European Union (EU) summits to deal with the Euro crisis so far, as of the end of 2011. They have all failed.

The fundamental contradictions of capitalism are between the development of the powers of production and the limits imposed on them by private property in the means of production and the nation state. The growth of the productive forces has actually made tiny nation states like Belgium almost irrelevant. Europe needs a huge common internal market to further develop production, and at some stage that necessitates a common currency. Yet politicians of squabbling states within Europe fight for their own national interests, and not the common interests of the Eurozone. As a result the entire Euro ‘project’ could be rolled back and shipwrecked, with incalculable damage to the rest of the world economy.

Will the Eurozone break up? Will countries such as Greece be forced to leave? The Euro crisis is the main threat to world economic recovery over the next two or three years. The European powers have invested a lot in the existence of the common currency. They will not lightly give it up. On balance the Euro should survive. That means that the world economy will continue to recover, though painfully slowly. If there is another deep recession in a few years’ time, that could sink the project for good.

The breakup of the Euro could take the form of Germany and other net exporting nations such as Holland setting up a strong common currency and leaving the rest to their fate. Or it could be caused by the expulsion from the Eurozone of Greece and other nations incurably in debt, whose membership would be perceived to threaten the future of the European Union as a functioning capitalist club.

The Euro and the world economy

In fact the prospect of another deep recession soon is a very real one. It is dangerous to make analogies with previous periods. Every historical period has unique features. All the same there are similarities with the 1970s and 1980s, a crisis-ridden time for world capitalism. The recession in 1973-4 was followed by another in 1980-2. This period was one of revolutionary convulsions, where the fate of the capitalist system lay in the balance.

The Euro crisis could trigger a new recession, which would spread far beyond the European Union. The world economy has been tremendously weakened by the most serious crisis since the Second World War. A return to recession conditions could produce political as well as economic turmoil all over the globe.

Greek default

Greece cannot possibly pay its debts. The country will be forced to default, no doubt about it. The deal signed in 2011 already imposed a ‘haircut’ (an enforced partial write down of debt) upon owners of Greek government debt. But of course it was nowhere near enough. The pressures being imposed on the country and its people are unbearable. The leading powers within the EU will at some stage try to organise an orderly, conciliatory default as a damage limitation exercise, writing off some of the debt. It would be an attempt to preserve the Euro. The survival of the Euro rests on a knife edge.

Marxists would not advocate that Greece or any other country should just leave the Euro. If Greece were to leave and reinstate its old national currency it is reckoned that the Drachma would fall to half the value of the Euro, if not lower. The country would be able to sell its exports at half their present price, so that should improve Greece’s balance of trade. The bad news is that creditor banks in the EU would insist that debts contracted in Euros should be paid in Euros, so Greece would have to repay twice as many Drachmas as they would Euros.

Marxists do advocate that a workers’ government in Greece should repudiate the monstrous debts. That could lead to expulsion from the Euro, but the initiative and fault for the breach would be seen to lie with capitalist Europe.

A unilateral, disorderly default by Greece or any other country could lead to a banking collapse and the break-up of the Eurozone. The break up could even occur as the result of a political misjudgement. The situation is not completely under the control of the EU authorities. Speculative sharks are circling.

We have already seen that the EU leaders are under pressure from the voters in their home countries to fight for their national interests rather than the wider interest of the European Union.  That is why the decision makers are dithering and unable to reach agreement. The apparent paralysis of the decision-making process at the top of the EU has reduced US President Obama to wringing his hands. The breakup of the Euro would be a catastrophic event for the entire world economy.

World economic leadership

It is clear that the imperialist heartlands remain the key to the future of world capitalism. There was fashionable talk of China and other countries decoupling from the USA, in the sense that they could separate themselves from the gravitational pull of the world’s biggest economy upon the global economy as a whole. This was disproved in the course of the Great Recession. It is clear that the USA, though weakened and under challenge from China in particular, remains the hegemonic power responsible for almost a quarter of world output. China is now a bigger exporter of manufactured goods than the USA, but its economy produces only about 8% of world output. The USA remains the world’s only superpower with the demise of the Soviet Union. It is undoubtedly in decline compared with its peak in 1945, but is unlikely to be challenged as hegemonic power for decades. Shanghai is growing as a financial centre. As yet the Chinese currency is not fully convertible. It cannot therefore become the global hegemon as Britain was with the pound sterling and the USA is with the dollar. For that the Renminbi must become the main reserve currency of world trade and China develop a city as the world’s financial centre.

It should be recognised that global hegemony is not just achieved by one country outpacing another for a number of years. The dominant power builds up the institutions and culture of global leadership gradually, and they only disappear slowly when under challenge. Britain was probably losing the economic race to Germany and the USA by the 1880s. But the City of London had built up its power as centre of the global capital market over centuries and retained a monopoly over financial expertise for a long time afterwards. America was unable to challenge this position till the First World War turned Britain from a creditor to a debtor country. Even then US hegemony did not become apparent till 1945.

After the Second World War the USA was able to dictate the terms on which world trade was conducted. The basic rules of world trade, the formation of the International Monetary Fund and World Bank and the imposition of the dollar as the world reserve currency which was ‘as good as gold’ were all part of this post-War settlement.

There are advantages to the stability achieved by allowing one hegemonic power to set the rules of the game. The inter-War period was chaotic because Britain was unable to take the lead in international relations and the USA was unwilling to do so. Since world trade became dominated by capitalism Holland, Britain and the USA have acted as hegemonic powers. The only possible challenger in the future is China, but that is some way off.

Emerging economies

It is true that economic perspectives are more nuanced than the future facing the advanced capitalist countries painted above. The BRICs (Brazil, Russia India and China) are growing fast, all showing countries such as the USA a clean pair of heels. Uneven development is after all a permanent feature of historical progress, and of capitalist accumulation in particular. It should be emphasised that many less developed countries remain enmired in the grip of imperialism. Billions of people living under capitalism are still trapped in deep, apparently inescapable poverty.

Though the BRICS are all growing at present, they are all growing for different reasons. Brazil and Russia both act principally as suppliers of raw materials to the industrialised world. Brazil will be discussed briefly in the section on Latin America. India will be discussed in more detail later. 

Russia in particular is almost exclusively dependent on exports of oil and natural gas. The price of these staples is notoriously volatile on world markets. It should not be forgotten that the collapse of the Soviet Union and the restoration of capitalism in Russia produced the biggest collapse in production of the twentieth century, greater than in the Great Depression. That puts the present growth rate in context. The means of production were seized by greedy oligarchs, for the most part former Stalinist managers. The gangster capitalism that resulted does not benefit the common people whether in boom or recession. Now we see the first stirrings of opposition to Putin’s authoritarian rule.

China

China remains a deformed workers’ state. Its growth rate has been the highest in the world for more than thirty years. From 2007 to 2011 the advanced capitalist countries have rolled back. In the same period China grew by more than 42%.

This explosive growth has lifted more than 400 million Chinese out of poverty. The fact is that China is developing the productive forces faster than capitalism can because the commanding heights of the economy are publicly owned, because the economy is planned and because it has broken with capitalism. This should be an inspiration to the wretched of the earth, despite the oppression of the masses by the ruling bureaucracy represented by the Chinese Communist Party. As long as the productive forces continue to develop, and workers and peasants get some of the benefits, then the regime is likely to survive despite tens of thousands of rebellions that we know are taking place against injustices by local functionaries.

Because of the sheer size and gravitational pull of China, which is a densely populated country with access to few natural resources, trade with China has provided a fillip for countries in the Far East and as far away as Africa. Part of the current prosperity of countries like Indonesia is attributable to the fact that they act as raw material suppliers (mainly coal and palm oil in Indonesia’s case) to the Chinese economy.

China is at the hub of a complex division of labour. The way in which the growth of the Chinese economy has buoyed up the whole East Asian region and further afield may be illustrated by the example of the iPhone. This was designed by Apple in California. The components are manufactured in Japan, South Korea, Germany and the USA. In fact Japan probably produces most of the high tech bits. The iPhone is then assembled at the Taiwanese owned Foxconn factory in Shenzen, which employs an incredible 3-400,000 workers.

India

China’s present rapid industrialisation was prepared by the 1949 Revolution which led to the abolition of landlordism and capitalism. By contrast India has seen no thoroughgoing land reform since independence.

Evidence of this failing is provided by the Naxalite rising, where landless peasants armed with bows and arrows fight medieval style landlords. The Naxalite insurrection has dragged on for thirty years and claimed thousands of lives. There is no prospect that the Maoist guerrillas will overthrow Indian capitalism, but the rebellion is likely to remain a thorn in the side of the state for years to come. Its main significance is to challenge the view that India is modernising and adapting to the requirements of global capitalism. Though that may be the government’s intention, the situation in the countryside reveals the backwardness, lack of infrastructure and other obstacles to capitalist modernisation that still exist. Pockets of extreme poverty and backwardness still exist in the Chinese countryside, of course. They have been gobbled up by the rapid industrialisation that has offered the opportunity of a new and better life to hundreds of millions of Chinese peasants.

Of far more significance to the workers’ movement internationally than the ongoing Naxalite insurgency is the loss of power in elections last year by the Communist Party of India (Marxist) in West Bengal last year. The CPI (M) has for 34 years regarded the province as its fief via the United Front government.  Since the 2011 elections a vicious right wing administration has run West Bengal. There has been a wave of repression, according to the CPI (M). The victory of the right can be seen as a serious defeat for the workers’ movement. All the same the Party still claims hundreds of thousands of members nationally. It is bound to be in crisis. The traditional Stalinist parties have not represented and defended the interests of the working class. They have shown themselves to be irrelevant and are in danger of becoming marginalised.

These recent defeats of the working class have produced a trumpeting of capitalist triumphalism and talk of a new paradigm in India. This is completely premature. An objective balance sheet reveals the failure of capitalism in India. Though Indian growth has been high over the past decade, it is due to slow down sharply in 2012. There are structural reasons why India will not achieve the consistently fast growth rates needed to catch up with China.

More than half the population is still dependent on farming and the land for work. Agricultural productivity is very low. Peasants labour on dwarf plots, incapable of taking advantage of new techniques. That would need bigger fields and organised co-operation among the peasantry to implement effectively. Seldom are the peasants outright owners. As sharecroppers they have to give up the fruits of much of their labour to an idle landlord class. They are often squeezed by moneylenders as well, and by the suppliers of inputs such as fertilisers. The villages can be very isolated. A majority of the population, 600m Indians, have no access to mains electricity. Thoroughgoing land reform and a helping hand from a workers’ state in command in the cities is an absolute precondition for modernisation and the elimination of rural poverty in India.

The picture of Indian industrialisation has been compared by economists to the construction of cathedrals in the desert. There are undoubted patches of modernity. The prevailing backwardness in the countryside means that the islands of prosperity cannot percolate out to the rest of the nation.

There is a significant layer of educated English-speaking young people who are being snapped up into performing outsourced business services – accountancy, routine legal services such as conveyancing and the like, and staffing call centres to serve the imperialist countries. It is impossible that these activities can provide employment and a way forward for a country of more than a billion people. Indian manufacturing is still protected. It serves a big home market but is not generally competitive globally. It is hampered by poor infrastructure.

There has been a big campaign against corruption led by Hazare. It is serving to discredit the entire ruling elite. No wonder. Corruption is indeed a major ‘burden on business’ in India. The Swiss Banking Association calculated that in 2006 thirteen times as much as the total official external debt of India was salted away in Swiss bank accounts by Indian citizens. The total was an eye-watering $1,456bn.

The world’s workers’ parties

Social democracy

Many of the traditional social democratic parties date back to the foundation of the Second International in 1889. They are the oldest mass workers’ parties in the world. In their early years they were a significant if not dominant force in the foundations of the labour movement and its battle for democracy and reforms. Over time they developed an encrusted reformist bureaucracy. The social democracy was irretrievably split by the attitude of the leadership to the First World War and the Russian Revolution.

For decades after the social democracy remained the main party of the working class in the majority of advanced capitalist countries. During the period of the boom after the Second World War, when capitalism was growing rapidly, they were able to maintain their credibility by gaining important concessions for the workers. The British Labour government of 1945-51, for instance, won a National Health Service and a welfare state. As the post-War boom drew to a close, reforms were more difficult to achieve. Eventually important layers of the leadership were captured after 1989 by the feeling that there was no alternative to capitalism, and total free market capitalism at that. They progressively adopted the dominant neoliberal ideology. The British Labour government of 1997-2010, despite being elected by a landslide, introduced very few reforms in their period of office. They got away with it because, for most of this period, capitalism was in boom and living standards were rising for the majority of workers. But the traditional mass parties emptied out of members. This pattern was repeated in one country after another. The British Labour Party was finally ejected from office after the Great Recession struck.

Stalinism

The Stalinist parties were formed in the wake of the Russian Revolution of 1917. In the beginning they composed the revolutionary part of the working class. In several countries they replaced the social democracy as the mass party of the workers; in others the labour movement was split between social democracy and communism.

The communist parties did not remain genuinely revolutionary parties for long, With the bureaucratic degeneration of the Soviet Union under Stalin, the Communist International became over time a  mere instrument of Russian foreign policy. It was still more attractive to revolutionary-minded workers than the social democracy. The Trotskyists were isolated and persecuted in the Soviet Union as the bureaucracy strengthened its grip on power. Trotsky tried to rally the revolutionaries around the world against the counter-revolutionary forces of social democracy and Stalinism. His efforts were stillborn. After the Second World War the reformists gained in support on account of the post-War boom. The influence of the Stalinists in the movement grew because of the accession of a whole layer of new Stalinist states.

The Stalinist parties played a leading and heroic role in the struggle for national liberation in many countries. (The Communist Party of India’s reputation was scarred by its subservience to Moscow.) The victory of the Chinese Revolution in 1949 gave another boost to the prestige of international Stalinism. The ‘communist’ parties became a more important part of the labour movement globally than the social democracy.

The Sino-Soviet split in its turn produced new splits in the workers’ movement. This split was not as clear cut as the choice between reformism and revolution offered after the Russian Revolution. Initially Maoism appeared to offer a left alternative to traditional Stalinism to some militants. In advanced capitalist countries with a mass working class, guerillaism could not act as a model or a viable strategy. Mao used the Chinese-oriented parties as foreign policy instruments in the same way as Stalin had. In some areas the Maoists became independent of Chinese Stalinism, particularly after the death of Mao. The tendency of these parties was to drift towards reformism or to become rural guerrilla movements.

Capitalism v socialism

The credibility of Stalinism received a huge blow with the collapse of the Soviet Union and its satellite states in Eastern Europe in 1989. Not only did the restoration of capitalism impoverish, disorient and demoralise the working class in these countries. It also created a wave of capitalist triumphalism, a feeling that capitalism was the only game in town. The communist parties in capitalist countries received a blow from which few of them recovered. This collapse also shook the social democratic parties, which generally moved to the right, and created a feeling of helplessness more widely in the world labour movement.

After the collapse of the Soviet Union and the Eastern bloc in 1989 there was a wave of capitalist triumphalism. ‘Socialism had failed’, we were told. One writer, Francis Fukuyama, even proclaimed ‘the end of history’.  Corresponding to this triumphalism the ideology of neoliberalism became dominant. Any state interventions in the economy however moderate, any reforms or improvements in the conditions of the working class, were declared to be an obstacle to the development of unfettered market forces. Workers were supposed to just put up with the ever-increasing demands of the bosses.

Marxists recognised that the collapse of Russian Stalinism, actually a miserable caricature of real socialism, was widely seen as a serious setback by working people all over the capitalist world. Was there really no alternative to capitalism? But we also knew that the working class was bound to struggle, and that the advanced elements would inevitably come to recognise that the successful outcome of their struggles must be the overthrow of the capitalist class and the installation of a society in the interests – socialism.

Latin America

 Venezuela

This new socialist ideology, cleansed of the impurities of Stalinism but inevitably unclear as to its ultimate goal and the methods of the struggle that has to be waged, arose first in Latin America. Its first significant representative was Hugo Chavez in Venezuela. He calls it Bolivarian socialism, named after the anti-imperialist Latin American independence leader.

Latin America had experienced a ‘lost decade’ in the 1980s. As living standards were rolled back to pay the exactions of Western banks, capitalism resorted to dictatorial rule in large parts of the continent. Now the dictators have been ousted. The masses have reclaimed their democratic rights. Over the past decade they have been moving forward in one country after another.

President Chavez faces a serious electoral challenge in Venezuela over the coming year. Chavez has enormous reserves of support among the workers and the poor. But he has to continually mobilise and motivate this support against the threat of counter-revolution. Chavez is seen as a consistent anti-imperialist and a potential threat to capitalism. He has not capitulated to the pressures on would-be reformist leaders. As such he is the subject of constant intrigues and coup attempts both from the capitalist class at home and from US imperialism.

Venezuela is a major oil exporter. For this reason Chavez has a constant supply of funds with which he can implement reforms and inspire his supporters among the poor in the process. But Venezuela remains a capitalist country. Chavez has not moved to expropriate the capitalist class. He is a champion of the poor, but relies on his own charisma to draw support towards him when he is under threat rather than building a mass party in the country.

An unintended consequence of the phenomenon of Chavezism is that we have not seen the trade unions emerge as an independent factor in Venezuelan politics. The new trade unions are rather part of the Bolivarian movement in support of Chavez. It is of course correct that labour should support him against counter-revolutionary attempts, but the working class has its own interests and should maintain an independent position.

So we have an unstable equilibrium in Venezuela. How long can this go on? The situation has already lasted more than ten years. It could carry on for years longer. Chavez has not abolished capitalism and introduced a planned economy. Therefore the country, and his supporters in particular, are plagued with inflation. Most food is imported and rising food prices are often accompanied with outright shortages of basic foodstuffs such as milk. The Venezuelan capitalist class are not reconciled to his rule and constantly seek to provoke counter-revolution. On the other hand, as long as the oil revenues keep rolling in, Chavez can keep his supporters fairly happy and maintain the misiones which provide the basis of his support at a local level.

Bolivia

Venezuela’s example was followed by the election of Evo Morales in Bolivia as President. Bolivia is a desperately poor country with vast reserves of natural gas, which could make the country and its people wealthy. Morales was elected on the back of a revolutionary wave. He was the first indigenous person to be elected President. The elite in Bolivia are descendants of the Spanish conquistadores. At first Morales took radical-sounding action against foreign owned energy companies that delighted his poor and indigenous supporters.  Bolivia joined ALBA, the trade pact set up by Chavez which is deliberately intended to challenge US control of the continent’s economies. ALBA has provided vital support for Cuba, caught in the vice of America’s vicious fifty year old blockade.

More recently Morales has shown signs of wavering. He is under enormous pressure from the capitalist class internationally. Will Morales go further in Bolivia? At bottom he is caught in the same dilemma as Chavez. Unless he moves to expropriate capitalism he will not be able to carry out his reform programme.

Brazil

Brazil is a giant in Latin America. With a population of almost 200 million, the economy overtook Britain’s in size at the end of 2011. Despite a long history of vicious military dictatorships the sheer abundance of natural resources and wealth of the country mean that the situation need not be as desperate for the workers and peasants as in the rest of Latin America. The transition to a democracy, where the workers at least appear to have a say in the way the country is run, was cemented by the election of Lula as president in 2002. Lula was a former steelworkers and radical. His party is called the Workers’ Party (PT). He has recently been succeeded as President by Dilma Rousseff, also of the PT. Lula and his successor have so far been able to use the recent rapid growth of the economy in recent years to improve the living standards of the majority of Brazilians without challenging capitalism. Lula has been lucky. Under the patina of temporary prosperity he has maintained his popularity among all classes, but he has solved none of the deep, ineradicable problems of Brazilian capitalism. The PT has used the advantage of an economic boom to follow a radically different path from that forced on Chavez and other populist Latin American leaders. This cannot last!

The future

Coming elections

The elections in Spain in November 2011 provide a typical pattern of the likely shape of things to come. The Spanish Socialist party (PSOE) was thrown out of office. The government was being punished for the bad economic climate. Youth unemployment in Spain is an incredible 46%. For some years the ruling Socialists made some effort to ameliorate the worst effects of the global recession on the population. In the end they capitulated completely to the demands of international markets and imposed ferocious cuts. For this they were rewarded with eviction from office. They had sided with capital against their own natural supporters and paid the price. Everybody knew that the right wing PP would enthusiastically introduce even more severe economies, as they are now doing. There was a substantial level of abstentions in the elections, reflecting dissatisfaction with the political process and disgust with the establishment parties.

The Spanish elections look like a movement to the right. Actually they show something different. Incumbents are unpopular because they are taking the blame for the austerity. They are being turfed out all over the world. Opinion polls indicate that right wing Sarkozy will lose the French Presidential elections in May.

Whichever party is in office, world capitalism is in power and conditions are bad for the workers. The capitalists demand that governments implement austerity upon their electorate.

A sinister recent development is the formation of technocratic governments in Greece and Italy. Elected governments have been thrust aside, using the excuse of the national emergency, in favour of bankers and other ‘experts’ It is assumed that ‘the markets’ (capitalism) will trust the technocrats to do the right thing for them in exercising the reins of power. Usually bourgeois democracy allows the capitalists to sort out differences between themselves and debate strategy, as well as providing the mass of the people with the illusion that they also have a say in how society is run. It is surely an indication of the depth of the crisis that the usual institutions of capitalist democracy will not let international capital take the drastic measures that it deems necessary.

So democracy has been thrust aside for the time being. The political regime in Greece and Italy is similar to the years before the downfall of the German Weimar Republic when Hitler took power in 1933. Because of the desperate economic situation and political and parliamentary deadlock, what Trotsky called weak forms of Bonapartism ruled Germany. On account of the impasse between the classes and the depths of the crisis, the state gained a certain independence from society. It acted in the interests of capitalism but without the authorisation of the capitalists. Bruning, Schleicher and Von Papen all ran the country on classic conservative economic principles without a democratic mandate.

Of course the rise of a mass fascist party like Hitler’s is now ruled out. The balance of forces globally has changed in favour of the working class. The mass of frenzied petty bourgeois and complacent peasants in the countryside that provided the basis for Hitler’s support have for the most part been gobbled up by capitalist progress.

Greece – on the verge of meltdown?

The impossible situation that the Greek people find themselves in, up to their ears in debt they cannot possibly pay, could bring down the Euro. The European Central Bank and International Monetary Fund are concerned with the threat of contagion. If Greece is let off the hook only a little bit, then Ireland, Portugal and all the other debtor countries will be queuing up for equal treatment. If Greece collapses, that could be the start of a chain reaction that could drag the world economy right to the brink of meltdown as it was in September 2008. Commentators are starting to whisper about ‘a Lehman moment’ that signalled the near-collapse of world banking in that month.

Despite all the top US bankers and the Treasury Secretary being closeted away for an entire weekend in September 2008, no agreement to save the stricken Lehman Brothers bank could be arrived at. Whatever the reason, this failure is now seen as catastrophic – leading to the collapse of all the subsequent financial dominos. Greece could be the equivalent of Lehman Brothers in the sovereign debt crisis. Its default could bring down the Euro.

The Greek government debt and deficit were higher in 2011 than they had been a year earlier. It was quite clear by now that the Greek economy was in a vicious circle, where cuts fed economic decline and further decline necessitated yet more cuts. The Greek economy was in effect going on a diet by slicing off limbs in order to lose weight.

One reason for the deteriorating economic situation was that much of this enforced austerity didn’t even go to pay off the country’s monster debts. Servicing the debt will cost 12% of GDP, vastly more than health and education. All this money will be syphoned off just to pay interest on the existing debt, not even to reduce the principal. Most of this money is drained out of the country.

At the end of 2011 holders of Greek government securities were making higher returns than they would do even on the stock exchange. At that time the return on ten year Greek bonds stands at 35%. The speculators claim this exorbitant sum is compensation for the risk they are taking. In fact, if Greece is unable to pay, they will scream for their national governments to bail them out, as they did in 2008.

The Greek working class has embarked on more than a dozen general strikes since the crisis began. They have resisted the cuts with every fibre of their being. All this shows is that one-day and two-day general strikes may shake capitalism. They cannot overthrow it. They can be used to prepare the workers for further action. The course must be set for social revolution.

The PASOK (Pan-Hellenic Socialist Party) government has unfailingly carried out the demands of the EU authorities and imposed austerity upon austerity on the common people. Now they have been supplanted by a ‘technocratic’ (unelected) administration to do the dirty work.  What has all this austerity achieved? In 2012 the Greek economy is predicted to shrink by another 5%. How can this sacrifice help to pay off the debts?

The problem faced by the Greek working class is one common to workers all over the world. It is a problem of leadership. The social democratic party PASOK was so eager for the fruits of office that it kicked its supporters in the teeth and launched round after round of austerity. Their trade union arm, PASKE, is in revolt. The Greek Communist Party (KKE) is an unreformed Stalinist party incapable of putting forward a programme to inspire the working class. Recently they have decided that Stalin’s Moscow Trials of the late 1930s, that framed Zinoviev, Kamenev, Bukharin and a whole generation of old Bolsheviks and put them to death, were completely correct! Their trade union arm, PAME, always marches separately from the rest of the working class on demonstrations against the cuts. They are incapable of leading the working class out of the desperate situation it finds itself in.

Resistance

Though Greece may be regarded as being in the forefront of the struggle at present, we see the beginnings of a general movement in resistance. In Italy and other countries where the cuts are beginning to bite we have seen mass strikes in opposition. Since the onslaught on the working class is global, so is the opposition. Most countries have seen big demonstrations and movements of the working class.

In tandem with this we have also experienced a mass wave of student protest in one country after another. Though the issues are different in different places, there is a common thread. Capitalism has educated millions of people all over the world but, from Cairo to Barcelona, it can now offer them no future. Mass youth unemployment is a common feature of the new world of austerity.

The obscenity of bankers paying themselves huge bonuses, when arguably they were responsible for causing the world economy to crash, has caused almost universal indignation. In many countries we have seen direct action and protests. The Occupy Wall Street (OSW) movement, no doubt inspired by the assemblies in Tahrir Square, proclaims, ‘We are the 99%’. Though only a minority of activists are actually camping in protest, the movement is receiving a generally sympathetic response. Trade unions have marched in their support in the USA. OSW, and the kindred protests all over the capitalist world, is of enormous symptomatic significance.

Finally Marx mentioned in Capital Volume III that the accumulation of capital not only lays waste and ruins labour power, and thus human beings. It also exhausts the soil and the planet. Since Marx’s time environmental degradation is far advanced. This is not a news item we can just comment upon and then move on to next business. Imperialism’s search for loot, specially oil, seems never ending. We have seen wars about water in Africa between herders and agriculturalists. Drought is a man made condition. On the other hand Bangladesh is threatened by flooding. Large parts of the country could be under water in a few years time on account of rising seas caused by climate change fed by human action. The destruction of the environment is probably the most serious and longstanding threat that capitalism poses to the continued existence of the earth as the home of mankind. Environmental protection must be a central part of the programme of the working class in its struggle against the system.

The working class is waking up. There is a real anger and a determination to fight. This represents the early stages of a huge movement against capitalism. So far that has not been articulated in the mass organisations. That is bound to come.

 

 The following are some comments on the IMT's World Pespectives Document 2012 and concern the section on China. The comments in red are by Heiko Khoo. Below are some general comments by Mick Brooks.                                                                     

In the past, China provided relief to a world economy facing stagnation and slump. China can no longer do this. The Chinese economy, although still maintaining high levels of growth, is showing signs of faltering. This has serious social and political implications. Marxists understand that the rapid growth of the Chinese economy in the last period enormously strengthened the working class. The Chinese ruling clique avoided a social explosion because the constant growth of the productive forces gave people hope of future improvement. But now all the contradictions are coming to the surface.                                                                                                     

The argument that China’s economy is faltering is based on assertion not evidence. Why are the rulers of China called “the Chinese ruling clique”? A Communist Party and bureaucracy runs the country would be one possible argument, another would be that it is run by the bourgeoisie. The latter is the position adopted by the IMT in 2006, so how did the Chinese bourgeoisie now become a “ruling clique” ?

The avoidance of “a social explosion” in the past is said to be caused by “the constant growth of the productive forces” it is thereby being asserted that that has somehow come to an end. Yet there is not a shred of evidence for this claim as we shall see.

 

After a long period of very rapid growth, China shows signs of slowing down. For three straight quarters (January through to September 2011), year-on-year growth slowed, as the government, concerned about rising levels of inflation, restricted lending and raised interest rates. The problem arises from the fact that U.S. and European demand for Chinese goods has weakened.

 

What signs of ‘slowing down’ are these? What level of decline do the IMT leadership expect for China? The 12th Five Year plan predicts 7 percent growth over 5 years, and the latest government work report forecasts 7.5% in 2012 does the IMT have an alternative prediction? If so what is this prediction based on? Any why were all the IMT’s previous predictions about Chinese economic decline wrong? Surely one has to investigate why one gets things wrong?

 

The main problem is that the fast-growing economies of Asia have to sell their goods on the world market. China still has a relatively high rate of growth. Its industries are still churning out a mass of cheap commodities. But China must export to continue to produce. Where is the market for these commodities if the economies of the USA and Europe are in a slump?

 

Now we are told China’s growth is still “relatively high”. It has actually experienced the fastest and longest growth rate of any country in history, and this counts as “relatively high” in IMT speak. But let us not forget that this was all “in the past” according to paragraph 148 of World Perspectives 2012.

 

Now we are told ‘a mass of cheap commodities’ can’t be sold. Where have they been sold during the greatest fall in world output since the 1930s? We are told “China must export to continue to produce” do the leadership of the IMT not read anything?

 

One example will suffice to negate this nonsense. The Chinese automobile industry (a mass of cheap commodities remember?) is now by far the largest in the world. It produced 18.4 million units in 2011. Let us not mention, airplanes, ships, high-speed trains, computers, hardly items generally found in the pound shop!

Desperately the IMT asks “where is the market” if not in Europe and the USA? This is absurd, the Chinese buy their own goods, the state buys goods, and Europe and the USA are not the only places that buy things.

Part of the nature of economic crisis is that shifts in economic weight take place within it and because of it. For example the shift to the USA as the centre of the world economy took place in the inter-war years and even during the Great Depression and World War Two.

 

As John W. Schoen, Senior Producer at the msnbc.com new site commented in September 2011:

 

·       “Policymakers in China, the world’s third largest economy behind the U.S. and EU, face their own set of tough choices. Rapid growth rate has fuelled inflation that is running at a double-digit rate, according to analysts -- much higher than official targets. To contain inflation, Beijing has raised interest rates five times and lifted banks' reserve requirements nine times since October [2010]. If it clamps down too hard, though, a deeper economic slowdown could reverse China's efforts to lift hundreds of millions of people out of poverty.

 

What sort of source is this? John W. Schoen Senior Producer at msnbc.com, what makes his statement valid or noteworthy? It is that it fits the Chinese economic doomsday scenario mythology that the IMT want to peddle! It is not based on any facts, inflation in double digits did you bother to check? The learned man at msnbc starts with “If” China “clamps down” (on what?) it “could reverse” efforts to lift hundreds of millions out of poverty”. Does he mean it could reverse the fact that China has lifted hundreds of millions out of poverty? Or “reverse efforts”? What evidence is presented for this “If” it “could” scenario? Nothing.

Anyone who studies China knows that poverty reduction has massively escalated since 2011, with a vast extension of low cost housing, (the biggest public sector housing programme in human history) a vast extension of welfare, pensions, social insurance and health care provision, and wages have risen dramatically. So how exactly is this reversing efforts to lift hundreds of millions out of poverty? This is simply rubbish.

 

 “China is also coping with a banking hangover of its own, after years of massive government lending for expansion of state-owned enterprises and infrastructure upgrades.

 

What is this banking hangover? “lending for expansion of state enterprises and infrastucture” i.e. in the expansion of the public sector and infrastructure and services that promotes economic growth  and development. Why the quote? Because the IMT can’t be bothered to find out the facts themselves, so they rely upon an amateur pundit from MSNBC.

 

“‘There is a two-tier system within China and I think the lending that’s taking place and the percentage of nonperforming loans is now at a level that is disturbing,’ David McAlvany, chief executive at McAlvany Financial Group told CNBC. ‘Ultimately, (China's banks) will have to see some comeuppance’.” [Recession's second act would be worse than the first, http://bottomline.msnbc.msn.com/_news/2011/09/22/7900826-recessions-second-act-would-be-worse-than-the-first, By John W. Schoen, Senior Producer, September 22, 2011]

 

Now for the double whammy quote, someone from some “Financial Group” is dragged in to tell CNBC, “I think” … China will get its “comeuppance” how exactly is this quote supposed to enlighten Marxists about Chinese political economy and the laws of motion which govern it? This remains unexplained.

 

The Chinese authorities revealed they had not understood the full extent of the crisis that broke out in 2008 in the advanced capitalist countries. They saw it as a recession that would soon be over and they implemented polices accordingly. In 2008, the US$586 billion stimulus package was introduced with the aim of keeping buoyant the Chinese economy, creating greater internal demand as export markets shrank. This, however, came at a price, with a significant increase in central government public debt. Chinese public debt grew very slowly in the past, from zero percent of GDP in 1978 to around 7 percent by 1997, to just under 20 percent in 2003. But as a consequence of the public spending in the face of the world crisis of capitalism, it shot up to 37 percent in 2010.

 

The stimulus package was the largest programme of state intervention since the Chinese revolution in 1949. It can hardly be characterised as lacking boldness. The cited figures on public debt are not presented in a way that provides any meaning. Public debt if it is invested in goods, services and infrastructure for the masses is surely a good thing? How exactly does the IMT envisage public debt under their concept of socialist economic expansion?

 

As The Global Post reported (July 8, 2011):

 “China's banks have been engaging in risky ‘off balance sheet’ lending somewhat reminiscent of Enron’s shenanigans. Last week, Beijing released a national audit revealing that local governments owe an estimated $1.65 trillion in outstanding loans. This week, Moody’s has indicated that the problem is significantly worse, by as much as $540 billion. And that's only local government debt. It doesn’t include the central government’s huge obligations, or those of banks that are essentially guaranteed by Beijing. Even for a miracle economy like China's, that’s a lot of debt.”

 

“A lot of debt” says the “Global Post” so? What is the significance of all this for Marxist analysis of Chinese political economy? Silence…

 

In the same article, Victor Shih, a U.S.-based expert on China’s economy, in answering the question “How much debt does China have?”, explained the following:

“That depends on what you include. Large sectors of the Chinese economy are owned by the government. The debt of these state-owned enterprises is what’s called a ‘contingent liability’ — ultimately it’s the responsibility of the government. If you count all of these liabilities, then you get to an extremely high number, something like 150 percent of the Chinese gross domestic product, or more.

“A more restricted definition is debt that’s owed by either the central or local governments. That is about 80 percent of China's GDP.”

 

Whichever way one looks at it, in massively increasing public spending, China has upped its level of public debt significantly. For now it has provided stimulus and allowed the economy to maintain high levels of growth. But this cannot go on forever. China’s debt is still low compared to that of countries like Japan, the USA and many European countries, but it is going up. So long as China’s economy keeps growing it can finance this level of debt, but if there is any significant slowdown then all the contradictions of the situation will come to the surface.

 

Ah now it comes! The Marxist theory of Chinese Political economy is:

 

The debt in China is sustainable provided the economy continues to grow!

 

Surely you didn’t need to write all these paragraphs just to say one sentence?

The IMT leadership should really try to economise on words, quotes and paragraphs and concentrate on saying something meaningful! So now we are at the starting point…Can China continue to grow? The socialist alternative to capitalism traditionally put by Marxists (and the IMT still claim this title and attempt to apply this method to every other country than China) is to call for “public ownership of the commanding heights of the economy and the banks and a massive programme of public works”. Now anyone who has bothered to read anything other than the magnificent Global Post, MSNBC and CNBC will know this is precisely what is happening in China. But these facts don’t fit into the “official line” of IMT, that China is capitalist. Therefore, according to the IMT, the commanding heights and banks can’t possibly be publicly owned. Therefore the expansion of the economy can’t be called a massive programme of public works! Thus the IMT seeks to change the facts to fit erroneous theories.

 

Apart from the future financial crisis that all this will provoke in China, there is also the fact that the growth of the economy has generated huge and rising inequality: “communist” China is one of the most unequal countries on earth. A small number have become very rich but the conditions of millions of workers resemble those of Britain in the times of Charles Dickens. This has given rise to unbearable tensions, reflected in a rise of suicides of young workers, strikes and peasant disturbances.

 

The main source of inequality is the gap between urban and rural, as well as between rich urbanites and poor urbanites, but the wages of workers and the welfare provided by the state have all improved significantly precisely during the Great Recession. Is this not the opposite to the processes in Europe and the USA? And why is this the case?

 

High rates of growth should not be regarded as a guarantee for social stability. Egypt grew at an average of 5.5 percent since 2003, and in some years the rate of growth was over 7 percent. This rapid growth coincided with the biggest strike wave since World War II and it ended in revolution. There are lessons here for China in the future. The authorities are worried. During the Egyptian revolution, Chinese censors scrubbed “Egypt” from the search engines. China has invested in creating a huge internet police that monitors what people are doing online.

 

The real surprise is not that there is a huge Internet police, but that the use of broadband Internet in China was developed and rolled out by State Owned companies so fast and universally, there are now over 450 million internet users in China.

 

 

 

They think that if you can stop people from finding out about revolutions in other countries, they can stop people drawing revolutionary conclusions about the situation in China. But the point is that what will lead to revolutionary upsurges in China are the living conditions of Chinese workers and peasants. And no amount of internet police can hide that from the Chinese people.

 

It is not true that the Chinese state prevents people from finding out about revolutions. The attempt to start a ‘Jasmine revolution’ in China was actually led by counter-revolutionary forces who called a demonstration for “freedom” at Mc Donnalds in central Beijing. But, how can there be a counter-revolution when China is already capitalist? No-one except a few western journalists turned up. Despite Alan Woods claiming China is on the edge of a Jasmine revolution http://www.marxist.com/china-anger-beneath-surface.htm there is not the slightest evidence for this.

 

Inflation stands above 6 percent, which is high enough in itself, but food price inflation exceeds 13 percent. The purchase of foodstuffs accounts for more than one-third of the monthly spending of the average Chinese consumer. High inflation has persisted despite the government measures. Measures like restricting the amount of money banks can lend and hiking interest rates five times since October 2010 have not had the desired effect.

 

No sources even worth providing here? I guess simply repeating platitudes from the bbc or the Guardian does not require sourcing, but perhaps its relevance could be explained?

 

A totalitarian regime resembles a pressure cooker with the safety valve clamped down. It can explode suddenly, without warning. Although it is difficult to get accurate information, the published reports, which understate the real position, suggest that unrest in China has become increasingly frequent. Every year China experiences tens of thousands of strikes, peasant protests and other public disturbances, often linked to anger over official corruption, government abuses and the illegal seizure of land for development.

 

Why is it difficult to get accurate information, because you do not even make the slightest effort to look for it, as is evidenced by the sources you cite as authorities.

 

Food prices are of particular concern to the Chinese government, as they directly affect the lives of millions of workers and peasants in the country. The “Communist” Party leaders fear this could cause social unrest as workers suffer the consequences of the price rises. Sharp clashes will inevitably emerge between the ruling economic and political strata and the masses.

 

The ruling “economic and political strata” you mean the capitalist class? Or have they disappeared from your theory again?

 

The crisis of the global economy has led to falling profits and investments, a situation that is aggravated by a drying up of credit. This forces many factories to resort to seek unofficial credit at usurious rates of interest. They face a choice of paying these rates or cutting wages. The result is pay cuts or even failure to pay any wages at all.

 

One minute! How can you forget what your wrote only a few paragraphs ago? Credit has dried up??? Only a few paragraphs before you claimed there has been a massive expansion of credit in China and associated debt, now you claim credit has dried up, how do you come to such statements?

Why does no one notice these glaring contradictions?  Where does your data come from? The fact is wages have risen almost universally! The confusion about the “drying up of credit” stems from the denial of a differentiation between private capital and state enterprises. Private enterprises have never been major credit recipients from state banks. Instead state banks transfer private savings into credit for state enterprises.

 

In November 2011, Guangdong’s acting governor said the province’s exports dropped 9 percent in October from the previous month. Provincial leaders are also contending with widespread protests by farmers over land seizures. Factories are cutting the overtime that workers depend on to supplement their low basic salaries. There have been strikes and demonstrations in car, footwear and computer factories in Shenzhen and Dongguan, two leading export centres in southern Guangdong province.

 

The Chinese Academy of Social Sciences has estimated that there were more than 90,000 “mass incidents” in 2006, with further increases in the following two years. The ruling class is preparing for unrest on a far bigger scale. China increased its domestic security budget by 13.8 percent in 2011, to 624.4bn yuan (£59bn). For the first time in its history China now spends more on the maintenance of internal order than on defence.

 

Ah now “the ruling class” make a guest appearance. A round of applause must be due! Are they the same as the “ruling economic and political strata” and the “ruling clique”? And what is their role? Supposedly it is to finance the state apparatus responsible for “internal order”. Note that nowhere have the words “the ruling capitalist class” or the “bourgeoisie” been used. I guess by avoiding the issue of whom the ruling class is you can try to avoid dealing with the minor problem, that the state apparatus is based on public property not private property! But who cares, it is only the fundamentals of Marxist theory and analysis that is at stake? What is this compared to the prestige of the IMT leadership?

Some general comments by Mick Brooks:

Paras 9 & 27: in both these paras it is suggested (i) that credit should be pumped into the economy
in a slump, not a boom, and (ii) that this would work. The impression is given (not spelled out)
that the ruling class sits around in a room, comes to an agreement and then pulls levers to achieve
results. The capitalist class can postpone slumps when they feel like it. They just made a mistake,
that’s all. Though members of the ruling class do occasionally meet up (Mont Pelerin, Davos etc) this
is a fundamental misunderstanding of how capitalism works.                                                                                                                  

22. Say’s Law is usually paraphrased that every seller brings a buyer to market with them (aggregate
demand = aggregate supply, therefore no overproduction). It was developed in the early nineteenth
century. The efficient markets hypothesis was developed by Eugene Fama in the 1960s. It states that
the price (e.g. of a share) fully reflects all available information. The only thing both theories have
in common is that they are both erroneous. (This is a bit pedantic.) In para 12 the bond markets are
seen reflecting the general anxiety. This is contradicted when it says (para 56) that bond market
attitudes to Italy are a self-fulfilling prophecy i.e. not efficient markets at work.

24. The parasitical service sector. Service sector is not a Marxist concept. Most service sector
workers are not parasitic in any case. They are about 26-27m out of 30m workers in Britain. Are
nurses parasites?

33. Quantitative easing will lead to ‘an explosion of inflation’. Not so far. How long do we have to
wait?

69-70. ‘The EU wouldn’t allow the devaluation of the Drachma after exit from the Euro’ (?). They
would impose tariffs. It’s a legalistic point but the EU is supposed to have a common tariff policy, not
just pick on individual countries. Some in the EU would be glad to see the back of the Greeks. They
don’t fear exports from Greece, even with a devalued currency.

77. ‘The Drachma would lead to a revolutionary situation like Germany in 1923.’ Did hyper-inflation
lead automatically to a revolutionary situation? Wasn’t the preceding history of class struggle in
Germany important? Was Zimbabwe in a pre-revolutionary situation a few years ago? Simplistic,
ridiculous historic comparison.

The main point about this section on Greece is that it takes for granted that it’s all about bailing out
the poor old Greeks (I supposes he gets this from the Economist.). It’s not. It’s about bailing out the
European banks that lent the Greeks money. That’s a fundamental misunderstanding. It means you
get everything upside down. Secondly the preoccupation is with Greece getting bombed out of the
Eurozone. Most Greeks still support the Euro. It’s repudiating the debts that’s the big issue for them.
Default may or may not lead to exit from the Euro.

This is worse than his recent article on Greece, even. It doesn’t mention the political parties in
Greece. It’s all down to the ‘revolutionary youth’. That’s the way they’re going. They are actually
abandoning class analysis and the traditional attitude to the mass organisations.

Despite this emphasis on unorganised youth the document underplays the ‘Occupy’ movement
internationally and the inspiration of Tahrir Square it fed on, which are the real achievements
theyouth have led.

107. Is the attitude of ‘Germany’ rational? Isn’t the German bourgeoisie just pursuing its own
national interests, even though this may produce a catastrophe for everyone? In other words it’s
an instance of the other main obstacle to progress under capitalism, the continued existence of the
nation state.

Eurobonds are not explained at all to the reader.

China. This is very superficial. Just cuttings on the economy strung together. No political analysis.

India. Lumped together with Brazil and China. Really? India’s growth spurt is relatively recent. Is
India’s faster growth because of liberalisation? That is the argument that socialists have to answer.
Brazil’s economic record is far from impressive till it was buoyed up by exports to China over the last
decade.

Pakistan. Nothing much on the PPP ranks, just intrigues at the top.

218-219.The first para suggests a split in Islamist organisations on class lines. This is contradicted in
219. Islamists are all bourgeois at best (like Christian democratic parties in Europe) What about the
Salafists? They are outright reactionary.

228. What is the point of comparison of Egypt with the July days? A premature semi-insurrection led
to the revolutionary movement being driven underground in 1917. None of this has happened in the
Arab spring.

Libya. This is very poor analysis. Was Libya ever a deformed workers’ state? The movement against
Gaddafi was a ‘genuine popular revolution, but...’ Was his overthrow a step forward? How about
imperialist involvement, definitely downplayed here? What are the perspectives?

Syria. Apparently it’s a revolution against Assad. That means it’s progressive, right? But what are its
objectives? What are its chances of success?

249. ‘Democratic bourgeois counter-revolution’ (as well as a revolution?). Where did this concept
come from? This means Syria was a deformed workers’ state. When did it stop being one? Was the
transition completed (para 246)? If so, why were we not told at the time?

Iran. What happened to the pre-revolutionary situation there?

The section on the Arab revolution is the worst in the document, and it’s the most important area
in the world to analyse what happened last year and what are the perspectives for the region in the
future. The Egyptian events are really downplayed in the document – much more important than
Libya or Syria.

Cuba. This is a relatively well-informed section. The economic crisis is down to the collapse of
Stalinism and, more recently, of world capitalism. The collapse of Stalinism was thirty years ago, and
Cuba got over the worst of it a long time ago.

313. Organic crisis. Meaningless. It’s a weasel way of saying ‘final crisis’.

361. This is ridiculous. Of course Germany isn’t going to invade Russia. Who ever thought it would?
Nor is Japan likely to invade China any time soon.

367. The Norwegian massacre ‘shows the contradictions of capitalism’. This is not wrong, just
meaningless unless it’s made concrete.

At the end there is virtually nothing on the social democratic and Stalinist parties. The real
significance of the document is what it doesn’t mention.

 by Michael Roberts http://thenextrecession.wordpress.com

 Back in January I reviewed the latest evidence on the state of the world’s major economies (see my post, World economy: where are we now?, 18 January 2012).  I concluded then that “Capitalism is weak, but the patient is not having a relapse and going back into intensive care.”  That conclusion was based on reviewing the economic forecast from the World Bank and analysing a couple of key high-frequency indicators of economic activity in the US.  The World Bank had forecast just 2.5% real GDP growth for the world economy this year and even lower at 1.3% for the mature capitalist economies of the OECD.  Capitalism appears to be recovering from the slump of 2008-9 but very sluggishly and with even a small setback in 2011 compared with 2010.

Indeed, in a new paper, Barry Eichengreen and Kevin O’Rourke (A tale of two depressions, http://www.voxeu.org/index.php?q=node/7696) conclude “that, while industrial production and trade recovered much more quickly than during the Great Depression, both series now appear to be slowing down”. Since the World Bank report, both the IMF and the EU Commission have issued economic forecasts that conclude something similar – namely that capitalism is still recovering but at a snail-like pace.  This gives the Great Recession the character more of a Long Depression, similar to that experienced by capitalism in Europe and America in the 1880s and early 1890s.  Recovery from a significant slump in 1873 was quick but then further slumps ensued and economic growth remained fragile right through the 1880s.

Having said that, again I must emphasise that capitalism is not yet slipping back into economic recession or slump.  I have found that the best high-frequency guide to where US capitalism is going is to look at the monthly Institute of Supply Management (ISM) survey of US businesses, both in the manufacturing and services sectors, for the evidence of orders, employment and costs.  I have combined the ISM indexes in the two sectors to produce a good indicator of the state of the US economy.  Last January, that combined index showed that the US was in ‘low growth’ territory (defined as below trend average of about 3% a year) at the end of 2011, but not in recession.  The latest ISM figures were released this week and they confirm that position.  Indeed, the latest chart suggests that there has been a slight pick-up in US economic activity in its capitalist sectors.

Another high-frequency measure of US economic activity is the ECRI’s leading indicator, which compiles various measures of the economy into one index.   This also shows that the US economy is in a low-growth mode (still well below pre-crisis levels of activity), but not heading back into recession.

What about the rest of the capitalist world?  Well, a quick look at the last two months of purchasing managers data for Europe, Japan and China suggest much the same.  If a PM index is greater than 50, that is supposed to show that an economy is still growing, with anything below 50 suggesting contraction.   JP Morgan have a world index that scored above that 50 in both January and February with the direction up (First bar in red).  Japan is scoring just on 50 (last bar in red).  Only Europe appears to be contracting (slightly) – last bar in blue.  As for China, it depends on which PM measure you want to follow, that of the HSBC survey (first blue) or the official government survey (third red).  HSBC shows China to be contracting (but only just), while the official index shows it still to expanding,if at a slower pace than this time last year,

In sum, the capitalist world economy struggles on at a rate of growth that is not enough to restore the jobs lost in the Great Recession and not enough to encourage big business to kick in with sizeable new investment, or for consumers to want to spend more.  I have argued in this blog before that the reason for this low-growth world is primarily that the recovery in profitability in the major capitalist economies has not been enough; and that these economies are still weighed down by debt (or ‘dead capital’).   This makes it impossible to have a ‘normal’ cyclical recovery for recession as in 1999-2 or 2001.

The following are some comments on the IMT's World Pespectives Document 2012 and concern the section on China. The comments in red are by Heiko Khoo                                                                     

In the past, China provided relief to a world economy facing stagnation and slump. China can no longer do this. The Chinese economy, although still maintaining high levels of growth, is showing signs of faltering. This has serious social and political implications. Marxists understand that the rapid growth of the Chinese economy in the last period enormously strengthened the working class. The Chinese ruling clique avoided a social explosion because the constant growth of the productive forces gave people hope of future improvement. But now all the contradictions are coming to the surface.                                                                                                     

The argument that China’s economy is faltering is based on assertion not evidence. Why are the rulers of China called “the Chinese ruling clique”? A Communist Party and bureaucracy runs the country would be one possible argument, another would be that it is run by the bourgeoisie. The latter is the position adopted by the IMT in 2006, so how did the Chinese bourgeoisie now become a “ruling clique” ?

The avoidance of “a social explosion” in the past is said to be caused by “the constant growth of the productive forces” it is thereby being asserted that that has somehow come to an end. Yet there is not a shred of evidence for this claim as we shall see.

 

After a long period of very rapid growth, China shows signs of slowing down. For three straight quarters (January through to September 2011), year-on-year growth slowed, as the government, concerned about rising levels of inflation, restricted lending and raised interest rates. The problem arises from the fact that U.S. and European demand for Chinese goods has weakened.

 

What signs of ‘slowing down’ are these? What level of decline do the IMT leadership expect for China? The 12th Five Year plan predicts 7 percent growth over 5 years, and the latest government work report forecasts 7.5% in 2012 does the IMT have an alternative prediction? If so what is this prediction based on? Any why were all the IMT’s previous predictions about Chinese economic decline wrong? Surely one has to investigate why one gets things wrong?

 

The main problem is that the fast-growing economies of Asia have to sell their goods on the world market. China still has a relatively high rate of growth. Its industries are still churning out a mass of cheap commodities. But China must export to continue to produce. Where is the market for these commodities if the economies of the USA and Europe are in a slump?

 

Now we are told China’s growth is still “relatively high”. It has actually experienced the fastest and longest growth rate of any country in history, and this counts as “relatively high” in IMT speak. But let us not forget that this was all “in the past” according to paragraph 148 of World Perspectives 2012.

 

Now we are told ‘a mass of cheap commodities’ can’t be sold. Where have they been sold during the greatest fall in world output since the 1930s? We are told “China must export to continue to produce” do the leadership of the IMT not read anything?

 

One example will suffice to negate this nonsense. The Chinese automobile industry (a mass of cheap commodities remember?) is now by far the largest in the world. It produced 18.4 million units in 2011. Let us not mention, airplanes, ships, high-speed trains, computers, hardly items generally found in the pound shop!

Desperately the IMT asks “where is the market” if not in Europe and the USA? This is absurd, the Chinese buy their own goods, the state buys goods, and Europe and the USA are not the only places that buy things.

Part of the nature of economic crisis is that shifts in economic weight take place within it and because of it. For example the shift to the USA as the centre of the world economy took place in the inter-war years and even during the Great Depression and World War Two.

 

As John W. Schoen, Senior Producer at the msnbc.com new site commented in September 2011:

 

·       “Policymakers in China, the world’s third largest economy behind the U.S. and EU, face their own set of tough choices. Rapid growth rate has fuelled inflation that is running at a double-digit rate, according to analysts -- much higher than official targets. To contain inflation, Beijing has raised interest rates five times and lifted banks' reserve requirements nine times since October [2010]. If it clamps down too hard, though, a deeper economic slowdown could reverse China's efforts to lift hundreds of millions of people out of poverty.

 

What sort of source is this? John W. Schoen Senior Producer at msnbc.com, what makes his statement valid or noteworthy? It is that it fits the Chinese economic doomsday scenario mythology that the IMT want to peddle! It is not based on any facts, inflation in double digits did you bother to check? The learned man at msnbc starts with “If” China “clamps down” (on what?) it “could reverse” efforts to lift hundreds of millions out of poverty”. Does he mean it could reverse the fact that China has lifted hundreds of millions out of poverty? Or “reverse efforts”? What evidence is presented for this “If” it “could” scenario? Nothing.

Anyone who studies China knows that poverty reduction has massively escalated since 2011, with a vast extension of low cost housing, (the biggest public sector housing programme in human history) a vast extension of welfare, pensions, social insurance and health care provision, and wages have risen dramatically. So how exactly is this reversing efforts to lift hundreds of millions out of poverty? This is simply rubbish.

 

 “China is also coping with a banking hangover of its own, after years of massive government lending for expansion of state-owned enterprises and infrastructure upgrades.

 

What is this banking hangover? “lending for expansion of state enterprises and infrastucture” i.e. in the expansion of the public sector and infrastructure and services that promotes economic growth  and development. Why the quote? Because the IMT can’t be bothered to find out the facts themselves, so they rely upon an amateur pundit from MSNBC.

 

“‘There is a two-tier system within China and I think the lending that’s taking place and the percentage of nonperforming loans is now at a level that is disturbing,’ David McAlvany, chief executive at McAlvany Financial Group told CNBC. ‘Ultimately, (China's banks) will have to see some comeuppance’.” [Recession's second act would be worse than the first, http://bottomline.msnbc.msn.com/_news/2011/09/22/7900826-recessions-second-act-would-be-worse-than-the-first, By John W. Schoen, Senior Producer, September 22, 2011]

 

Now for the double whammy quote, someone from some “Financial Group” is dragged in to tell CNBC, “I think” … China will get its “comeuppance” how exactly is this quote supposed to enlighten Marxists about Chinese political economy and the laws of motion which govern it? This remains unexplained.

 

The Chinese authorities revealed they had not understood the full extent of the crisis that broke out in 2008 in the advanced capitalist countries. They saw it as a recession that would soon be over and they implemented polices accordingly. In 2008, the US$586 billion stimulus package was introduced with the aim of keeping buoyant the Chinese economy, creating greater internal demand as export markets shrank. This, however, came at a price, with a significant increase in central government public debt. Chinese public debt grew very slowly in the past, from zero percent of GDP in 1978 to around 7 percent by 1997, to just under 20 percent in 2003. But as a consequence of the public spending in the face of the world crisis of capitalism, it shot up to 37 percent in 2010.

 

The stimulus package was the largest programme of state intervention since the Chinese revolution in 1949. It can hardly be characterised as lacking boldness. The cited figures on public debt are not presented in a way that provides any meaning. Public debt if it is invested in goods, services and infrastructure for the masses is surely a good thing? How exactly does the IMT envisage public debt under their concept of socialist economic expansion?

 

As The Global Post reported (July 8, 2011):

 “China's banks have been engaging in risky ‘off balance sheet’ lending somewhat reminiscent of Enron’s shenanigans. Last week, Beijing released a national audit revealing that local governments owe an estimated $1.65 trillion in outstanding loans. This week, Moody’s has indicated that the problem is significantly worse, by as much as $540 billion. And that's only local government debt. It doesn’t include the central government’s huge obligations, or those of banks that are essentially guaranteed by Beijing. Even for a miracle economy like China's, that’s a lot of debt.”

 

“A lot of debt” says the “Global Post” so? What is the significance of all this for Marxist analysis of Chinese political economy? Silence…

 

In the same article, Victor Shih, a U.S.-based expert on China’s economy, in answering the question “How much debt does China have?”, explained the following:

“That depends on what you include. Large sectors of the Chinese economy are owned by the government. The debt of these state-owned enterprises is what’s called a ‘contingent liability’ — ultimately it’s the responsibility of the government. If you count all of these liabilities, then you get to an extremely high number, something like 150 percent of the Chinese gross domestic product, or more.

“A more restricted definition is debt that’s owed by either the central or local governments. That is about 80 percent of China's GDP.”

 

Whichever way one looks at it, in massively increasing public spending, China has upped its level of public debt significantly. For now it has provided stimulus and allowed the economy to maintain high levels of growth. But this cannot go on forever. China’s debt is still low compared to that of countries like Japan, the USA and many European countries, but it is going up. So long as China’s economy keeps growing it can finance this level of debt, but if there is any significant slowdown then all the contradictions of the situation will come to the surface.

 

Ah now it comes! The Marxist theory of Chinese Political economy is:

 

The debt in China is sustainable provided the economy continues to grow!

 

Surely you didn’t need to write all these paragraphs just to say one sentence?

The IMT leadership should really try to economise on words, quotes and paragraphs and concentrate on saying something meaningful! So now we are at the starting point…Can China continue to grow? The socialist alternative to capitalism traditionally put by Marxists (and the IMT still claim this title and attempt to apply this method to every other country than China) is to call for “public ownership of the commanding heights of the economy and the banks and a massive programme of public works”. Now anyone who has bothered to read anything other than the magnificent Global Post, MSNBC and CNBC will know this is precisely what is happening in China. But these facts don’t fit into the “official line” of IMT, that China is capitalist. Therefore, according to the IMT, the commanding heights and banks can’t possibly be publicly owned. Therefore the expansion of the economy can’t be called a massive programme of public works! Thus the IMT seeks to change the facts to fit erroneous theories.

 

Apart from the future financial crisis that all this will provoke in China, there is also the fact that the growth of the economy has generated huge and rising inequality: “communist” China is one of the most unequal countries on earth. A small number have become very rich but the conditions of millions of workers resemble those of Britain in the times of Charles Dickens. This has given rise to unbearable tensions, reflected in a rise of suicides of young workers, strikes and peasant disturbances.

 

The main source of inequality is the gap between urban and rural, as well as between rich urbanites and poor urbanites, but the wages of workers and the welfare provided by the state have all improved significantly precisely during the Great Recession. Is this not the opposite to the processes in Europe and the USA? And why is this the case?

 

High rates of growth should not be regarded as a guarantee for social stability. Egypt grew at an average of 5.5 percent since 2003, and in some years the rate of growth was over 7 percent. This rapid growth coincided with the biggest strike wave since World War II and it ended in revolution. There are lessons here for China in the future. The authorities are worried. During the Egyptian revolution, Chinese censors scrubbed “Egypt” from the search engines. China has invested in creating a huge internet police that monitors what people are doing online.

 

The real surprise is not that there is a huge Internet police, but that the use of broadband Internet in China was developed and rolled out by State Owned companies so fast and universally, there are now over 450 million internet users in China.

 

 

 

They think that if you can stop people from finding out about revolutions in other countries, they can stop people drawing revolutionary conclusions about the situation in China. But the point is that what will lead to revolutionary upsurges in China are the living conditions of Chinese workers and peasants. And no amount of internet police can hide that from the Chinese people.

 

It is not true that the Chinese state prevents people from finding out about revolutions. The attempt to start a ‘Jasmine revolution’ in China was actually led by counter-revolutionary forces who called a demonstration for “freedom” at Mc Donnalds in central Beijing. But, how can there be a counter-revolution when China is already capitalist? No-one except a few western journalists turned up. Despite Alan Woods claiming China is on the edge of a Jasmine revolution http://www.marxist.com/china-anger-beneath-surface.htm there is not the slightest evidence for this.

 

Inflation stands above 6 percent, which is high enough in itself, but food price inflation exceeds 13 percent. The purchase of foodstuffs accounts for more than one-third of the monthly spending of the average Chinese consumer. High inflation has persisted despite the government measures. Measures like restricting the amount of money banks can lend and hiking interest rates five times since October 2010 have not had the desired effect.

 

No sources even worth providing here? I guess simply repeating platitudes from the bbc or the Guardian does not require sourcing, but perhaps its relevance could be explained?

 

A totalitarian regime resembles a pressure cooker with the safety valve clamped down. It can explode suddenly, without warning. Although it is difficult to get accurate information, the published reports, which understate the real position, suggest that unrest in China has become increasingly frequent. Every year China experiences tens of thousands of strikes, peasant protests and other public disturbances, often linked to anger over official corruption, government abuses and the illegal seizure of land for development.

 

Why is it difficult to get accurate information, because you do not even make the slightest effort to look for it, as is evidenced by the sources you cite as authorities.

 

Food prices are of particular concern to the Chinese government, as they directly affect the lives of millions of workers and peasants in the country. The “Communist” Party leaders fear this could cause social unrest as workers suffer the consequences of the price rises. Sharp clashes will inevitably emerge between the ruling economic and political strata and the masses.

 

The ruling “economic and political strata” you mean the capitalist class? Or have they disappeared from your theory again?

 

The crisis of the global economy has led to falling profits and investments, a situation that is aggravated by a drying up of credit. This forces many factories to resort to seek unofficial credit at usurious rates of interest. They face a choice of paying these rates or cutting wages. The result is pay cuts or even failure to pay any wages at all.

 

One minute! How can you forget what your wrote only a few paragraphs ago? Credit has dried up??? Only a few paragraphs before you claimed there has been a massive expansion of credit in China and associated debt, now you claim credit has dried up, how do you come to such statements?

Why does no one notice these glaring contradictions?  Where does your data come from? The fact is wages have risen almost universally! The confusion about the “drying up of credit” stems from the denial of a differentiation between private capital and state enterprises. Private enterprises have never been major credit recipients from state banks. Instead state banks transfer private savings into credit for state enterprises.

 

In November 2011, Guangdong’s acting governor said the province’s exports dropped 9 percent in October from the previous month. Provincial leaders are also contending with widespread protests by farmers over land seizures. Factories are cutting the overtime that workers depend on to supplement their low basic salaries. There have been strikes and demonstrations in car, footwear and computer factories in Shenzhen and Dongguan, two leading export centres in southern Guangdong province.

 

The Chinese Academy of Social Sciences has estimated that there were more than 90,000 “mass incidents” in 2006, with further increases in the following two years. The ruling class is preparing for unrest on a far bigger scale. China increased its domestic security budget by 13.8 percent in 2011, to 624.4bn yuan (£59bn). For the first time in its history China now spends more on the maintenance of internal order than on defence.

 

Ah now “the ruling class” make a guest appearance. A round of applause must be due! Are they the same as the “ruling economic and political strata” and the “ruling clique”? And what is their role? Supposedly it is to finance the state apparatus responsible for “internal order”. Note that nowhere have the words “the ruling capitalist class” or the “bourgeoisie” been used. I guess by avoiding the issue of whom the ruling class is you can try to avoid dealing with the minor problem, that the state apparatus is based on public property not private property! But who cares, it is only the fundamentals of Marxist theory and analysis that is at stake? What is this compared to the prestige of the IMT leadership?

Some general comments by Mick Brooks:

Paras 9 & 27: in both these paras it is suggested (i) that credit should be pumped into the economy
in a slump, not a boom, and (ii) that this would work. The impression is given (not spelled out)
that the ruling class sits around in a room, comes to an agreement and then pulls levers to achieve
results. The capitalist class can postpone slumps when they feel like it. They just made a mistake,
that’s all. Though members of the ruling class do occasionally meet up (Mont Pelerin, Davos etc) this
is a fundamental misunderstanding of how capitalism works.                                                                                                                  

22. Say’s Law is usually paraphrased that every seller brings a buyer to market with them (aggregate
demand = aggregate supply, therefore no overproduction). It was developed in the early nineteenth
century. The efficient markets hypothesis was developed by Eugene Fama in the 1960s. It states that
the price (e.g. of a share) fully reflects all available information. The only thing both theories have
in common is that they are both erroneous. (This is a bit pedantic.) In para 12 the bond markets are
seen reflecting the general anxiety. This is contradicted when it says (para 56) that bond market
attitudes to Italy are a self-fulfilling prophecy i.e. not efficient markets at work.

24. The parasitical service sector. Service sector is not a Marxist concept. Most service sector
workers are not parasitic in any case. They are about 26-27m out of 30m workers in Britain. Are
nurses parasites?

33. Quantitative easing will lead to ‘an explosion of inflation’. Not so far. How long do we have to
wait?

69-70. ‘The EU wouldn’t allow the devaluation of the Drachma after exit from the Euro’ (?). They
would impose tariffs. It’s a legalistic point but the EU is supposed to have a common tariff policy, not
just pick on individual countries. Some in the EU would be glad to see the back of the Greeks. They
don’t fear exports from Greece, even with a devalued currency.

77. ‘The Drachma would lead to a revolutionary situation like Germany in 1923.’ Did hyper-inflation
lead automatically to a revolutionary situation? Wasn’t the preceding history of class struggle in
Germany important? Was Zimbabwe in a pre-revolutionary situation a few years ago? Simplistic,
ridiculous historic comparison.

The main point about this section on Greece is that it takes for granted that it’s all about bailing out
the poor old Greeks (I supposes he gets this from the Economist.). It’s not. It’s about bailing out the
European banks that lent the Greeks money. That’s a fundamental misunderstanding. It means you
get everything upside down. Secondly the preoccupation is with Greece getting bombed out of the
Eurozone. Most Greeks still support the Euro. It’s repudiating the debts that’s the big issue for them.
Default may or may not lead to exit from the Euro.

This is worse than his recent article on Greece, even. It doesn’t mention the political parties in
Greece. It’s all down to the ‘revolutionary youth’. That’s the way they’re going. They are actually
abandoning class analysis and the traditional attitude to the mass organisations.

Despite this emphasis on unorganised youth the document underplays the ‘Occupy’ movement
internationally and the inspiration of Tahrir Square it fed on, which are the real achievements
theyouth have led.

107. Is the attitude of ‘Germany’ rational? Isn’t the German bourgeoisie just pursuing its own
national interests, even though this may produce a catastrophe for everyone? In other words it’s
an instance of the other main obstacle to progress under capitalism, the continued existence of the
nation state.

Eurobonds are not explained at all to the reader.

China. This is very superficial. Just cuttings on the economy strung together. No political analysis.

India. Lumped together with Brazil and China. Really? India’s growth spurt is relatively recent. Is
India’s faster growth because of liberalisation? That is the argument that socialists have to answer.
Brazil’s economic record is far from impressive till it was buoyed up by exports to China over the last
decade.

Pakistan. Nothing much on the PPP ranks, just intrigues at the top.

218-219.The first para suggests a split in Islamist organisations on class lines. This is contradicted in
219. Islamists are all bourgeois at best (like Christian democratic parties in Europe) What about the
Salafists? They are outright reactionary.

228. What is the point of comparison of Egypt with the July days? A premature semi-insurrection led
to the revolutionary movement being driven underground in 1917. None of this has happened in the
Arab spring.

Libya. This is very poor analysis. Was Libya ever a deformed workers’ state? The movement against
Gaddafi was a ‘genuine popular revolution, but...’ Was his overthrow a step forward? How about
imperialist involvement, definitely downplayed here? What are the perspectives?

Syria. Apparently it’s a revolution against Assad. That means it’s progressive, right? But what are its
objectives? What are its chances of success?

249. ‘Democratic bourgeois counter-revolution’ (as well as a revolution?). Where did this concept
come from? This means Syria was a deformed workers’ state. When did it stop being one? Was the
transition completed (para 246)? If so, why were we not told at the time?

Iran. What happened to the pre-revolutionary situation there?

The section on the Arab revolution is the worst in the document, and it’s the most important area
in the world to analyse what happened last year and what are the perspectives for the region in the
future. The Egyptian events are really downplayed in the document – much more important than
Libya or Syria.

Cuba. This is a relatively well-informed section. The economic crisis is down to the collapse of
Stalinism and, more recently, of world capitalism. The collapse of Stalinism was thirty years ago, and
Cuba got over the worst of it a long time ago.

313. Organic crisis. Meaningless. It’s a weasel way of saying ‘final crisis’.

361. This is ridiculous. Of course Germany isn’t going to invade Russia. Who ever thought it would?
Nor is Japan likely to invade China any time soon.

367. The Norwegian massacre ‘shows the contradictions of capitalism’. This is not wrong, just
meaningless unless it’s made concrete.

At the end there is virtually nothing on the social democratic and Stalinist parties. The real
significance of the document is what it doesn’t mention.