Perspectives for world capitalism 2012 (Draft discussion document) – Part One

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We begin today the publication of the IMT’s analysis of the world situation. This is a draft document that is the basis of discussion within the Tendency and will be voted on with possible amendments at this year’s world congress of the IMT. Part One deals with the general crisis of world capitalism, to be followed by an analysis of specific areas of the world.

The situation is moving at lightning speed on a world scale. After the Arab Revolution, events followed in quick succession: the movement of the indignados in Spain; the wave of strikes and demonstrations in Greece; the riots in Britain; the movement in Wisconsin and the Occupy movement in the U.S.; the overthrow of Gaddafi; the fall of Papandreou and Berlusconi; all these are symptoms of the present epoch.

These sudden sharp turns indicate that something fundamental has changed in the entire situation. Events are beginning to impinge upon the consciousness of ever-broader layers of the population. The ruling class is increasingly divided and disoriented by the depth of a crisis they never expected and have no idea how to solve. Suddenly they find themselves unable to maintain control of society by the old methods.

Instability is the predominant element in the equation at all levels: economic, financial, social and political. Political parties are in crisis. Governments and leaders rise and fall without finding any way out of the impasse.

Most important of all, the working class has recovered from the initial shock of the crisis and is moving into action. The advanced elements of the workers and youth are beginning to draw revolutionary conclusions. All these symptoms mean that we are entering the opening chapter of world revolution. This will unfold over years, possibly decades, with ebbs and flows, advances and retreats; a period of wars, revolution and counterrevolution. This is an expression of the fact that capitalism has exhausted its potential and has entered a phase of decline.

This general observation, however, does not exclude the possibility of certain periods of recovery. Even in the period 1929-39 there were cyclical variations, but the general tendency will be in the direction of longer and deeper recessions, interrupted by shallow and ephemeral booms. The “recovery” that followed the slump of 2008-9 is indicative of this tendency. It is the weakest recovery in history—the weakest since 1830, according to the bourgeois economists—and merely paves the way for an even deeper slump.

This reflects the fact that the capitalist system has arrived at a dead end. Capitalism has been piling up contradictions for decades. At bottom, the crisis is a manifestation of the rebellion of the productive forces against the narrow straitjacket of the capitalist system. The main barriers that are blocking the development of civilization are, on the one hand, private ownership of the means of production and on the other hand, the nation state.

For a period, this contradiction was partially and temporarily resolved by an unprecedented expansion of world trade (“globalization”). For the first time since 1917 every corner of the globe is united in one vast world market. However, the contradictions of capitalism were not abolished by this, but merely reproduced on a vast and unprecedented scale. Now the bill is being presented.

“Globalization” now manifests itself as a global crisis of capitalism. The tremendous productive capacity that has been built up on a world scale cannot be used. This crisis has no real parallel in history. The scale of it is far greater than any crisis in the past. The strategists of capital are like the ancient mariners who have entered an unexplored ocean with neither map nor compass. There is now a general crisis of confidence in the ranks of the bourgeoisie internationally.

The bourgeoisie postponed the evil day by using up the mechanisms that would normally be used to get out of a slump. Now this is impossible. The banks are not lending, the capitalists are not investing, the economies are stagnant, and unemployment is growing, indicating that the feeble recovery after 2009 will at a certain stage collapse into a new slump.

The crisis of European capitalism finds its mirror image in the fluctuations of the bond markets that demand an increase in risk premiums for one country after another. Greece, Ireland, Portugal, Spain, and Italy have fallen one by one into the trap of the market, which condemns them to pay usurious rates of interest on their already swollen national debt. By so doing the “markets” render a difficult situation completely impossible.

Now the international rating organizations are threatening to downgrade France and Germany, and in fact the whole of the eurozone. It is a kind of deadly contagion that has infected all the eurozone’s big countries. The constant turmoil on world markets shows the nervousness of the bourgeoisie, which at times borders on panic. They are like a thermometer that measures the intensity of a fever. The bourgeois economists stand around the bed of the patient and shake their heads, but have no effective medicine to prescribe.

The panic, which is reflected in the wild gyrations of the stock exchanges and bond markets, has spread rapidly from Europe to America. In vain, Merkel and the others rail against the irresponsibility of the rating agencies. The latter reply that they are merely doing their job: they are accurately reflecting the general anxiety about the global economy and lack of confidence in the politicians to address it. But in so doing, they give a further push to economies that are tottering on the brink of the abyss.

Change of epoch

Lenin explained that there was no such thing as an impossible situation for capitalism. Until it is overthrown by the conscious exertions of the working class, capitalism can recover from even the deepest crisis. As a general proposition, this is undoubtedly correct. But this general affirmation tells us nothing about the concrete situation we are now facing, or the likely outcome. We must analyse the historical moment concretely, taking into consideration where we have come from.

In the history of capitalism definite periods can be observed. For example, the period before the First World War was a long period of economic upswing that lasted right up until 1914. This was the classical period of Social Democracy. The mass parties of the Second International were formed in conditions of full employment and a relative improvement of living standards for the European working class. This led to the nationalist and reformist degeneration of the Social Democracy, which was exposed in 1914, when they nearly unanimously sided with “their” bourgeois in the war.

The period that followed the Russian Revolution of 1917 was of an entirely different character. It was a period of class struggle, of revolution and counterrevolution that lasted until the outbreak of the Second World War. The slump that began with the Wall Street Crash of 1929 and turned into the Great Depression was preceded by a period of feverish speculation, which has many analogies with the boom that preceded the present slump.

The Depression of the 1930s was only ended by the war itself. In 1938, Trotsky predicted that the war would end in a new revolutionary upsurge. This was correct, but the way in which the war ended was different to what Trotsky had expected. The military victory of the USSR strengthened Stalinism for a whole period. The Social Democracy and Stalinists were able to abort the revolutionary wave in Italy, France, Greece and other countries. This was the political premise that prepared the way for a new upswing in capitalism, which Lenin and Trotsky had regarded as a theoretical possibility in 1920.

The reasons for the upswing of 1948-74 have been explained in previous documents (See Ted Grant’s Will There be a Slump?,, 1960). It is sufficient here to point out that this was the result of a peculiar concatenation of circumstances that is impossible to repeat. Such a perspective is ruled out at the present time. The upswing in capitalism lasted for almost three decades and, like the period before the First World War, led to a further degeneration of the Social Democracy and the Stalinist parties and unions in Europe and the other advanced capitalist countries. However, even at this time we saw the biggest general strike in history in France in 1968.

This period was interrupted by the first recession since the end of the Second World War that began in 1973-4, coinciding with a wave of revolutionary upsurge: revolutions in Portugal, Spain and Greece, mass strikes in Britain, a revolutionary ferment in Italy, and revolutionary upheavalin Latin America – particularly in the Southern Cone: Chile, Argentina and Uruguay – and in the rest of the ex-colonial countries. The working class in Europe and in other zones at that time was moving in a revolutionary direction. But the betrayals of the leaderships of the Social Democracy and the Stalinists created the conditions for the recovery of capitalism.

The period that followed in the 1980s can be described as a period of mild reaction. The bourgeoisie attempted to reverse the policies of Keynesianism, which had resulted in an explosion of inflation and an intensification of the class struggle. This was the period of Reagan and Thatcher, of monetarist economics and a counter-offensive against the working class.

Collapse of Stalinism

This was further intensified by the collapse of Stalinism. New areas of the globe were pried open to the capitalist market and investors. A vast pool of hundreds of millions of cheap workers, formerly inaccessible to the capitalists, and growing consumer markets in South East Asia, China, the former USSR and India (which also saw the opening up of its markets through the destruction of protectionist barriers) provided the oxygen that prevented the recession of 1990 from becoming a Depression, and temporarily gave the system a new lease on life.

In the 1990s and 2000s, the bourgeoisie and its ideologues were puffed up like the frog in Aesop’s fable. They succumbed to the delusion that the “free market” could solve all problems, if only it was left to itself. Previously, the bourgeois worshipped the state as a bountiful God, now they cursed it as the source of all evil. The only thing they demanded of the state was that it should leave them alone.

The tendency towards growing statization (the “encroaching socialist society”) was thrown into reverse. In place of nationalization there was a wave of privatization. The new situation was rationalized by the economists in the theory of the “efficient market hypothesis”, according to which markets had a built-in tendency towards equilibrium, in which demand and supply would automatically balance each other out, and therefore crises of overproduction were impossible. This was not a new idea but only a regurgitation of Say’s Law that Marx answered long ago. [See, Theories of Surplus Value, Marx 1861-3, Chapter XVII, Ricardo’s Theory of Accumulation and a Critique of it. (The Very Nature of Capital Leads to Crises),]

The 2008/09 crisis marked another turning point. It completely undermined all the theories of the bourgeois economists. It unleashed powerful shocks that are still reverberating. It marked the end of a prolonged period of apparent financial stability and order. It punctured the dream of the bourgeoisie that they had discovered the philosopher’s stone that would finally put an end to the vicious cycle of booms and slumps.

In reality they had discovered nothing new. The boom was a hut built on chickens’ legs: a model based on a massive expansion of speculation in housing, fed by an unprecedented credit expansion and the absolute domination of finance capital. The parasitical service sector expanded exponentially at the expense of genuine productive activity. The stock exchanges became even more like casinos, addicted to gambling on a massive scale, and the bankers threw themselves into this merry carnival of money-making with reckless abandon.

The purely parasitic element in capitalism flourished in the last period. This in itself was an indication of the senile decay of capitalism: the crushing domination of finance capital and the rise of “services” at the expense of manufacturing industry; a massive expansion of credit and fictitious capital; all kinds of swindling and unbridled speculation on the stock exchange and in the big banks.

The speculative element has been present in every capitalist boom since the Dutch Tulip Bubble of the 17th century. But the extent of it in the recent period surpasses anything seen in the past. The trade in derivatives alone amounts to US$650 trillions of dollars and represents a massive fraud. The capitalists employ an army of people who specialise in making derivatives as complicated as possible in order to conceal this fraud from the public. This was supposed to provide greater stability to the markets, but in fact it is a major element in increasing instability. This has contributed powerfully to the present collapse, and the aftermath of debt renders it all the more difficult to get out of the slump. At the same time there has been an unprecedented development of the concentration of capital.

Our tendency expected the slump to occur before now. However, it was postponed due to the factors outlined above, and this had a certain impact on our perspectives. But the first thing we have to ask ourselves is this: by what means was the slump postponed and what were the consequences? We explained the fundamentals in a perspectives document 12 years ago (OnaKnife'sEdge: Perspectivesfortheworldeconomy, We pointed out that the bourgeoisie had postponed the slump by using the methods that ought to be used for getting out of a slump. They held down the rate of interest while expanding credit to an unheard of degree. That is to say, they avoided a crisis but only at the cost of making the eventual slump all the deeper.

The capitalists always try to get around present contradictions by putting off the inevitable crisis to the future, when the whole unsound edifice will fall on their heads with even greater force. Credit has definite limits and cannot expand endlessly. At a certain stage the whole thing begins to unravel. All the factors that drove the boom turn into their opposite. The seemingly endless upward spiral turns into a downward spiral that cannot be controlled.

The problem faced by the bourgeois is easily stated: they can no longer use the usual instruments to get out of the slump as they have already used them up during the boom. Interest rates are near zero in the U.S. and Europe, and zero in Japan. If you account for inflation, which in the U.S. and Europe is higher than the rate of interest, it means that in real terms the interest rate is negative. How can they decrease interest rates any further than this to instigate growth? How can they increase state expenditure when all governments are burdened with colossal debts?

How can consumers spend more when they must first pay back the current massive debts inherited from the boom? And what is the point in investing in more production when the capitalists see no markets to sell their goods? For the same reason, lenders have no interest in expanding credit. Since they see no point in investing in producing goods for saturated markets, the bourgeois prefer to make money by speculating on the money markets.

A vast amount of money is constantly moving around the world seeking to make more money by speculating against currencies like the euro. They act like a pack of hungry wolves following a herd of reindeer, seeking out the weakest and sickest animals. And now there are plenty of sick animals to choose from. This speculative activity is adding to the general instability, imparting an even more convulsive character to the crisis.

Protectionist tendencies

If you accept the market economy, you must accept the laws of the market, which are very similar to the laws of the jungle. To accept capitalism and then complain about its consequences is a futile exercise. The reformists (especially the left reformists) continually harp on the Keynesian idea of solving the crisis by increasing public spending. But there is already a huge public debt to be paid off. Instead of increasing public spending, all governments are cutting spending and laying off public sector workers, thus further exacerbating the crisis.

It is an expression of the desperation of the bourgeois that they are grasping at straws. In America and Britain they once again reverted to “quantitative easing”, i.e. printing more money. This will not solve any of the problems, but will intensify them in the long run. When it eventually feeds its way into the economy, it will produce an explosion of inflation, preparing the ground for an even deeper slump in the future.

The hopeless confusion of the economists is illustrated by the strange spectacle of Jeffrey Sachs, the man who unleashed neo-liberalism onto Eastern Europe, calling for a global version of the New Deal. The problem is that any such suggestion is anathema to the Republican-dominated US Congress, which is hell-bent on pursuing the opposite policies.

Neither free market economics nor Keynesian stimulus policies have worked, or can work. Governments and their economic advisers are in a state of despair. There is no more money for fiscal stimulus, but austerity policies only serve to depress demand even further, thus aggravating the slump.

The greatest fear is that a new recession will provoke a resurgence of protectionist tendencies and competitive devaluations, as happened in the 1930s. This would have catastrophic effects on world trade and pose a threat to globalization itself. All that has been achieved in the past 30 years can unravel and turn into its opposite.

The measures announced by the Swiss National Bank (in September 2011) to push down the value of the Swiss franc is a warning of the way things are drifting in the direction of protectionist policies and competitive devaluations. It was this that turned the 1929 Wall Street Crash into the Great Depression of the 1930s. Something similar can happen again.

Downward spiral

Trotsky wrote in 1938: “The capitalists are tobogganing towards disaster with their eyes closed.” We need one change to that statement: The capitalists are tobogganing towards disaster with their eyes wide open. They can see what is happening. They can see what is coming with the euro. In America they can see what is coming with the deficit. But they have no idea what to do about it.

Since the collapse of 2008, the authorities have committed trillions of dollars to rescue the financial system, but to no avail. The European Commission has continually downgraded its outlook for economic growth in the eurozone, which has now come to a virtual standstill. Stagnation, however, is only the most optimistic variant. Everything now points to a new and even steeper fall than in 2008-9.

In the months after the bailout of the banks, the bourgeois tried to console themselves with talk of a recovery. But, as we have seen, this is the weakest recovery in history. There are no “green shoots”. In reality, the world economy has not recovered from the slump of 2008, in spite of the trillions of dollars pumped into the economy. By such desperate means they succeeded in avoiding an immediate slump on the lines of 1929, but these panic measures did not resolve anything fundamental. On the contrary, they have produced new and insoluble contradictions.

The bourgeoisie avoided the collapse of the banks, but only at the cost of provoking the bankruptcy and collapse of entire states. What happened in Iceland is a warning of what awaits one country after another. They have turned the black hole of the private financial system into a black whole of public finance.

Now the European politicians are moaning that the Greeks falsified financial data to conceal the true state of their finances. “If we had known this we would never have allowed Greece to join the eurozone”, they complain. But it is supposed to be the job of bankers to analyse data from loan applicants and to uncover falsehoods. The charge against the Greeks can thus be extended to the bankers. How could they not have discovered the Greek deception?

The answer is that they didn’t want to. The financial institutions were all involved in the speculative racket and making huge profits out of speculating in everything from home mortgages to the purchase of government bonds. In this speculative orgy of money-making the bankers were not particularly interested in assessing the quality of a given loan. On the contrary, they connived with borrowers to make their debt look more attractive.

The U.S. subprime crisis tells exactly the same story. The banks lent a lot of money to people who did not have the means to buy their own home. In fact, they pressurized people into buying on credit. The resulting debts were then sliced up and repackaged and sold on for speculative purposes. Huge amounts of money were made from this speculation. As long as the money was rolling in, they did not worry about the finances of the Greek government, or of insolvent homeowners in Alabama, Madrid or Dublin.

It is no exaggeration to say that the capitalist class in this period completely lost its head. Like a drunken libertine, the bourgeois became intoxicated with its success. They lived only for today, and the devil take the future! Like most libertines, they overlooked the inconvenient detail that they were living on credit, and incurring debts that sometime would have to be paid. And like most libertines, they eventually woke up with a bad headache.

But here the analogy ceases. The headache was immediately transferred to the state, which obligingly passed it on to the whole of society. The bankers arose from their bed refreshed by a transfusion of billions of public money, while the rest of society was presented with the bill.

The public is now waking up to the fact that our so-called democratic society is in reality ruled by the unelected boards of directors of the banks and big corporations. These are linked to the state by a thousand strings, and also to the political elites who represent them. This realization has led to the abandonment of the old comforting belief systems, and a fracturing of consensus. Society is rapidly being polarised. This presents a colossal danger to the ruling class.

Dialectically, all the factors that drove the economy upwards are combining to drive it down. Society is entering into an agonizing downward spiral that seems to have no end. The working class in Europe and the US has conquered through struggle what we may call the conditions for a semi-civilized existence. The continuation of these social conquests has now become intolerable to the capitalist class. The capitalist system is bankrupt in the most literal sense of the word.

Who will pay for these debts? The economists have no idea how to get out of the crisis. The only thing they agree on is that the working class and the middle class must pay the bill. But for every step back the people take, the bankers and capitalists will demand ten more. That is the real meaning of the attacks that have been launched everywhere.

But certain things must flow from this. Both the English and French revolutions began with a crisis over the debt. Both states were bankrupt, and the question was posed, “Who pays?” The nobility refused to pay. That was the initial cause of the revolution. We face an analogous situation today. The workers will not sit with their arms folded while the ruling class systematically destroys all the gains of the last half century.

The Greek working people rose up in revolt against these impositions. Their example will be followed by the workers of Italy, Spain and every other country in Europe. Debt servicing (interest) is the third largest expense of the Spanish government, after healthcare and unemployment benefits: $35bn annually. The Spanish crisis expresses itself most acutely in unemployment. There are nearly 5 million people out of work: 1 in 5 of the population. In the South there is nearly 30 percent unemployment. Half of the youth are unemployed. This was what produced the movement of the “indignados”.

“Contagion” is on the order of the day, not only on the economic but also on the political plane. Protests over spending cuts and tax increases have spread from Madrid to Athens, from Athens to Rome, and from Rome to London. In the U.S., the Occupy movement has spread like wildfire, expressing the same pent-up discontent and frustrations. The stage is set for an explosion of the class struggle everywhere.


Part 2