1. On a world scale developments are unfolding with lightning
speed. If we just take events over the past twelve months, this
becomes immediately evident. The new millennium opened with a
revolution in Ecuador, which was only derailed by the absence of
leadership. The whole of Latin America is in a state of economic,
social and political crisis, reflected in the fall of Fujimori
following mass demonstrations in Peru; strikes and demonstrations in
Bolivia. To this must be added the end of almost eight decades of
rule by the PRI in Mexico.
2. The election of Chavez in Venezuela was symptomatic of the
impasse of capitalism and a growing revolutionary temper of the
masses which is causing alarm in Washington. The Americans fear that
Chavez could go the same way as Castro. Under conditions of slump it
is not at all ruled out that he might lean on the masses to
nationalise the economy, as happened in Cuba. Above all, the
continuing guerrilla war in Colombia presents a threat to America’s
interests. The guerrillas are making further headway, and the
government forces are powerless to halt them. Under the pretext of an
alleged war against drugs, Washington has stepped up its military
involvement, sending money, arms and "advisers" (the "Colombia
Plan"). This is how they started in Vietnam. The USA might find
itself drawn into the conflict, with far-reaching consequences.
3. As Trotsky explained before the Second World War, US
imperialism has dynamite built into its foundations. The
demonstrations in Seattle and Washington were a warning to the
American ruling class of what they can expect in the next period.
These contradictions will serve to intensify the anti-corporate mood
in America, and prepare the ground for the entry of the American
working class onto the stage of history. Already, the narrow election
of George W. Bush, at the beginning of this new downturn, will usher
in a period of heightened class struggle in the USA.
4. On every continent we see the same tendency towards
instability. The wars in the Congo and Sierra Leone, with the
intervention of Britain and other foreign powers underline the
chronic crisis that afflicts the whole of sub-Saharan Africa and
threatens to plunge it into barbarism. In South Africa, the
pro-capitalist policies of the ANC government are pushing COSATU into
opposition and it has faced general strikes against its privatisation
policies.
5. In Iran, the sweeping victory of the "reformers" in the
elections marked a new stage in the Iranian revolution, which is
still unfolding. In the Autumn we saw the overthrow of Milosevic
after a wave of strikes and demonstrations in Yugoslavia. Above all,
the heroic uprising of the masses in Palestine is an indication of
the explosive situation which has developed on a world scale.
6. Only in a minority of developed capitalist countries is the
illusion of calm and tranquillity preserved. This is a reflection of
the boom in the United States, which has continued longer than we had
anticipated. The continued expansion in the USA has acted as a
support for the other capitalist countries, absorbing their imports
and providing a profitable outlet for investments. This fact
undoubtedly has had a determining effect on perspectives which we
have to take into account.
7. There is no doubt that the continuation of the boom has
assisted those governments that have been in power. This is the
fundamental explanation, for example, for the victory of Aznar in
Spain, and it is the main reason for the confidence of Blair at the
present time. It affects the psychology of all classes. However, even
on this front, there are storm clouds on the horizon.
8. The violent swings on the stock exchange over the past twelve
months, and the sudden decision to lower US interest rates, are
evidence of a growing financial instability and a nervousness among
investors, central banks and governments. But there is also a new
volatile mood among the masses, as shown by the crisis over the
result of the Presidential elections. By all the laws, Gore should
have won easily, yet he lost to the Republican Bush. True, Gore
revealed himself as completely incompetent, but since Bush is even
more incompetent, this cannot have been the decisive factor.
9. The election revealed the existence of a ground swell of
discontent and general malaise in American society. After nine years
of boom, many Americans are not happy. This is not like the 1950s and
1960s. This is a boom at the expense of the working class, based on
ever-increasing exploitation and merciless pressure. There is a
growing awareness of inequality, of huge fortunes being made by a
minority at the expense of the majority. The richest twenty percent
in the USA now possess over half of the wealth, while the poorest
twenty percent has only four percent. 74 percent of Americans
consider that the big monopolies have too much influence over their
lives.
10. The most important thing to see is that there is already the
beginnings of a ferment of discontent. Recent labour disputes, from
the Verizon strike, the struggles of janitors, teachers and even the
actors’ strike, along with the mass demonstrations in Seattle and
Washington, reflect this new situation. George W Bush, having won the
election, will wish he hadn’t. This right wing Republican will have
to preside over an America embittered and divided by a severe
economic crisis. The outline of the future divisions in American
society could already be seen in the crisis over the election result.
Millions of trade unionists, blacks and Hispanics feel cheated by the
election of Bush and rightly see his policies of cutting back state
healthcare, privatising public education and rolling back women’s
rights as a gearing up of the counter offensive against American
workers.
11. In the last analysis, economic perspectives are the most
decisive element shaping social and political processes. It is
necessary to keep this question under continuous review, bearing in
mind the enormous difficulty in making a precise prediction about the
tempo of economic processes. Therefore, we begin with a brief
appraisal of economic perspectives, which should be read in
conjunction with the other material we have published on this
subject.
The World Economy
12. We have dealt with the processes in the world economy in
detail elsewhere. We will therefore confine ourselves to a few brief
comments. As always happens in a boom, the bourgeois economists and
politicians have concluded that the present economic expansion can
continue forever. This is the delusion of Blair and Brown, who seem
to imagine they can now walk on water. But pride comes before a fall,
and in this case, the fall, when it comes, will be a precipitate one!
The present world boom has served only to mask temporarily the
continuing economic decline of British capitalism relative to its
rivals. When the slump finally comes – as it must – it will hit
Britain particularly hard, and with it, all the illusions in New
Labour.
13. The present world economic boom is in its ninth year and has
lasted longer than we, or the serious bourgeois strategists,
originally anticipated. This is due fundamentally to the continuing
boom in the United States, which has served to keep the rest of the
capitalist world afloat. Rather than being a salvation for
capitalism, the longevity of the boom means that the inevitable
slump, given the build up of immense contradictions, will be more
profound. The longer the slump is put off, the deeper and more
prolonged will be its character when it finally comes.
14. There are clear indications that the present boom is nearing
its limits. The American bourgeois, alarmed by the recent slowdown of
the economy, are increasingly concerned about the prospect of a ‘hard
landing’. The early warning signals of an approaching slump are
already visible. Prior to the January cut in interest rates, demand
in the USA was falling; in December consumer confidence was at its
lowest for two years and retail sales were much weaker than intended.
Unemployment insurance claims were rising rapidly; car sales were
falling. More importantly, inventories were building up and although
they are still quite low by historical standards, if this trend were
to continue, it would eventually lead to a cutback in production,
leading to a slump. Already manufacturing activity in the USA, as
defined by the National Association of Purchasing Management, fell to
its lowest level since the end of the previous recession.
15. According to the latest figures, job cuts in the US internet
companies rose 19% to a record 10,459 in December compared with the
previous month, according to a US-based recruitment company,
Challenge, Gray and Christmas. It was the seventh consecutive month
that lay-offs were up. December’s job cuts were the largest since
Challenge started keeping records 12 months ago.
16. The US economy is officially slowing down fast. According to
the Commerce Department, the US gross domestic product grew at an
annual rate of 2.7% in the third quarter, its slowest rate of growth
since the second quarter of last year. Some economists put the figure
now at 2%. One of the hallmarks of the nine-year boom was the
double-digit growth in corporate investment. But that has also slowed
down dramatically. The slowdown in corporate investment was confirmed
by the National Association of Business Economics’ latest quarterly
survey. It stated that pressure on corporate profit margins was the
most intense since mid-1991. Again, the fall in housing construction
and capital spending were seen as key factors in the economic
slowdown.
17. For Marxists, the classical symptom of capitalist crisis is
overproduction, which tends to occur at the peak of the boom, just
before a collapse. Even the bourgeois economists are forced to admit
the appearance of overproduction (or overcapacity) in a whole range
of industries. According to the Financial Times: "For companies that
only a year ago were running production lines at full capacity,
boasting about internet-enabled inventory management and struggling
to meet demand, the challenges of overcapacity, overgearing and
overstocking have arrived with frightening suddenness.
18. "The shock of decelerating growth seems greater because of the
record length of this economic expansion in the US…
"Lenders began to pull in their horns two years ago but the
extraordinary, technological-led surge in US equity indices tended to
cover up the increasingly delicate credit situation….
"The sharp decline in the Nasdaq Composite index since March, the
failure of a number of over-ambitious technology companies and recent
profit warnings and revisions have added to an air of corporate
malaise."
19. The seriousness of the situation was becoming clear to all by
the end of the year. The number of business bankruptcies has hovered
between 9,000 and 10,000 a quarter since the beginning of 1999, but
lawyers who specialise in this field have revealed that their own
internal evidence suggests a wave of business failures is now being
prepared:
20. "Moody’s, the credit ratings agency, is forecasting that
world-wide defaults on speculative-grade, or junk, bonds will rise
from 6% to 9% 12 months from now, with the majority concentrated in
North America. The last time there was such an increase in defaults,
in the late 1980s, the result was recession, says David Hamilton, an
analyst in Moody’s risk management department." (Financial Times,
12/12/2000).
21. The slowdown in the US was further underlined by figures
produced by the New York-based Conference Board Index of leading
economic indicators, a composite of 10 forward-looking economic and
financial signposts. This index fell 0.2% in November, after a 0.3%
fall in October and a 0.1% drop in September. The index has in the
months of November and December declined by the sharpest rate since
March 1995. "It’s consistent with what we’re seeing overall
throughout the economy," said Mike Fort, manager of the index.
22. Regarding the wonders of the ‘New Economy’ and its ability to
avoid overproduction, the same FT article had the following to say:
"Slowing growth is also putting to the test the theory that improved
technology would allow companies to manage their inventories better,
almost eliminating the build-up of stocks when demand levels off.
‘That’s turning out not to be the case: inventories are turning up in
a number of industries,’ says Jeanne Terrile, director of strategic
research at Merrill Lynch, citing the semi-conductor, electrical
component and steel sectors as areas facing inventory corrections.
‘[Inventory] is still behaving in a sort of old-fashioned way,’ she
says….
23. "Outside the technology sector, where share prices have been
stagnant for longer, the increasing risk-averse investment climate
has further constrained companies’ options. David Cote, chief
operating officer of TRW, the automotive and aerospace components
group, says the paths open to his company are limited by its steep
debt ratio, and the fact that the automotive sector, which accounts
for two-thirds of sales, is already entering a downturn."
24. The threat of recession eventually forced the Fed to act. This
was a reflection of the seriousness of the situation. The recent
reduction of half a point in US interest rates had all the hallmarks
of a panic reaction: previous adjustments in interest rates were
limited to one quarter of a percent, even after the crisis in Russia
or the failure of Long Term Capital Management in 1998, which Clinton
described as "the worst for 50 years". The US economy was slowing
down and Greenspan clearly feared a recession if something was not
done.
25. After the cut, the Dow Jones Industrial Average and the Nasdaq
index which mainly deals in new technology shares (and which had
fallen by 55 percent from its 2000 peak) both soared to dizzying
heights. However, Greenspan’s decision was not greeted with unalloyed
joy by capitalist commentators. The serious economists were worried
by the move. They had hoped that the slowing down of the US economy
might produce a "soft landing". But Greenspan is more concerned with
keeping the speculative bubble on the stock exchange going at all
costs. Thus, the present recovery on the stock markets creates the
danger of an even bigger slump later on, as The Economist pointed out
in its editorial:
26. "A shock which blasts America’s stock markets back upwards,
which may encourage investors to believe that the Fed will protect
them from risk even if it means keeping demand in the economy growing
faster than supply, not merely delays the necessary economic
adjustment, it runs the risk of worsening the existing financial
stresses. Later, when adjustment can be delayed no longer, the jolt
is all the more shattering, [….] Erring on the side of too much
stimulus carries with it not just the danger of higher inflation, but
also – more seriously – the risk of a worse recession down the road."
(The Economist, 6/ 1/ 2001)
27. These developments will have major implications for the world
economy. The recent revival of the beleaguered euro is due to the
fears about the US slowdown and the consequences for the bloated
current account deficit. At the moment the USA consumes one quarter
of world production, sucking in imports from the rest of the globe.
This has been the reason for the recovery of some of the
crisis-ridden economies of South East Asia, which still continue to
suffer from large over-hangs of bad debt. "Crisis victims such as
Korea, Thailand and the Philippines are heavily dependent on exports
of electronics to the US, as are financially stable countries such as
Singapore and Taiwan", states the FT, 7th November. As a consequence,
the trade deficit in the US in this financial year is predicted to
reach over £400bn, which is clearly unsustainable in the longer
term.
28. As we have explained elsewhere, investment is the life-blood
of the capitalist system. As long as investment in production is
maintained, the boom can continue. The present boom has witnessed
staggeringly high levels of investment which in turn have led to a
wave of technological innovation and increased productivity. This, in
turn, has meant high rates of profit. It is the prospect of high
profits that has sustained the current investment boom. But this now
appears to be reaching its limits.
29. The spate of announcements from the corporations about weak
profits has sent a collective shudder through the capitalist class.
Investors appear to be suffering from manic depression: the earlier
manic optimism that drove share prices went through the roof has
turned into depression and pessimism, as they begin to realise the
illusory nature of their hopes. In the last couple of months, the
world’s stock markets have tumbled by as much as 20%. After
spectacular rises, which bear little or no relation to the real
economy, the trend is clearly downwards. Major companies have been
downgrading their profit outlook. Intel, Dupont, Apple Computer,
Invensys, Xerox, and many more have issued profit warnings, which has
put the skids under share prices globally and technology shares in
particular. According to IBES, the information firm, 70% of US
earnings pre-announcements have so far been negative. Incidentally,
this slowdown appears to be world-wide. The leading indicators for
the Group of Seven leading industrial nations dropped 0.6% in August,
their third decline in a row and the biggest monthly fall since 1990.
30. Although the return on shares in US companies had more than
doubled since the first quarter of 1991, the return on capital has
increased by only 13% over the same period. Moreover, the profits of
the capitalists can only be extracted from the labour of the working
class. Machinery (including computers and internet) can never produce
surplus value, but only transmit to commodities the value of the dead
labour stored up in them. The huge investments in computers and the
internet is changing the ratio of dead labour to living labour and
this must ultimately express itself in what Marx characterised as a
tendency of the rate of profit to fall.
31. At the heart of the present boom is the struggle for greater
labour productivity: that is, the struggle to squeeze a larger amount
of surplus value from the working class. In part, this is achieved by
new technology which enables a greater amount to be produced in a
shorter time. Ever since the mid 1990s, the American capitalists have
been struggling to increase productivity through new technology and
the Internet. Investment has shot ahead at 8% a year, boosting worker
productivity, and pushing profits even higher. However, as new
companies strive to compete on a similar basis, the rate of profit is
evened out and eventually reduced. The competition between
capitalists for diminishing markets is intensified. They cannot boost
profit margins by increasing prices. An increasing number of
companies are already facing bankruptcy. A slowing economic growth
will also slow productivity and squeeze profits even further. There
will be more layoffs and closures, thus further reducing demand. This
is the scenario facing the US economy which compelled Greenspan to
cut interest rates in an attempt to avoid a recession. However, this
measure will not remove the central contradictions, and , as we have
pointed out, will only aggravate them.
32. The previous tone of unbounded optimism in the pages of the
financial press has given way to gloomy foreboding: "The present
slowdown contains all the usual hallmarks of the day after the night
before", states The Independent (28/12/2000). "The boom in the new
economy investment has created an overhang of untapped capacity for
which there is little if any demand. Lenders and investors are
running for cover, as they always do in such circumstances, and
businesses across the land are tightening their belts for leaner
times, if not yet outright recession. Quite how bad things get
depends as ever on what happens in the US."
Asia
33. Ten years ago the bourgeois commentators placed all their
hopes on Asia. No more. The slump of 1997 completely shattered these
illusions. And although there has been a partial recovery in Asia,
made possible by the strength of demand in the USA, Asia has by no
means recovered its previous position. Indonesia, Thailand and the
Philippines remain severely depressed. And even countries like South
Korea, which have achieved high rates of growth, still suffer from
huge debts and other problems inherited from the slump which prevent
them from regaining their economic and social equilibrium. In one
country after another, the class struggle has been placed on the
order of the day, as shown by the wave of strikes and general strikes
in South Korea and the revolutionary situation in Indonesia.
34. The continuing revolution in Indonesia and the general strikes
in South Korea are indicative of the crisis in these areas. At this
time, an illegal strike of more than 12,000 bank workers have
paralysed the retail-banking sector. Despite threats to arrest the
leaders, the strike is on the point of escalating to 70,000 other
bank workers.
35. What is worrying the strategists of Capital are the colossal
imbalances that have emerged in the world economy. More than at any
other time, the American economy, and therefore the world economy, is
a hut built on chicken’s legs. Everything seems to indicate that the
present boom in the USA is already running out of steam. That much is
understood even by Greenspan. But given the lop-sided development of
the present boom, which renders the whole world dependent on America,
a recession in the USA – or even a marked slowdown of the US economy
– can precipitate a world economic downturn. The USA is by far the
most important importer in the world. A reduction in demand in the
USA will have the most serious consequences for the rest of the world
because no other country can provide a substitute for the US market.
36. The second biggest economy in the world, the Japanese, remains
in deep trouble. This is despite all the empty euphoria that Japan
has "turned the corner". The latest figures show a 0.8% fall in
industrial production. The Japanese are still desperately attempting
to lift their economy out of the stagnation of the last decade.
However, the economy remains weak despite the huge injections of
liquidity. Since the property crash of 1989, what was once one of the
main motors of the world economy has been stalled. The problems of
world capitalism are underlined by the crisis in Japan. All the
attempts to revive it through Keynesian methods have failed. The
Japanese have pumped in more than 100 trillion yen over the past
decade, with a further 10 trillion yen announced in September.
Despite this growth has been less than 1%, while Japan’s debt is
heading towards 130% of the GDP. The difficulties have led to splits
and divisions within the ruling party, and a growing political
instability. The vote for the CP has increased.
37. The yen slumped to a 16-year low against the dollar in
December as Japan’s businessmen declared that they were losing
confidence in the outlook for 2001. The latest report by the Bank of
Japan warned of a deflationary spiral, prompted by the continued
weakness of consumer demand and the impact on exports of a slowdown
in the United States. In December the Nikkei fell below the 14,000
mark, while the market had dropped about 30% this calendar year.
38. In late December it was revealed that retail sales declined
for the 44th month in succession, household spending dropped and
unemployment hit an eight-year high. Tokyo consumer prices fell 1%
year-on-year, the largest annual decline since comparable records
began in 1971.
39. "Japan’s businessmen are also becoming nervous about their
prospects in other Asian countries, which are also expected to show
sharp falls in gross domestic product growth next year", states the
financial pages of the Evening Standard (13/12/2000). "The
manufacturing sector also expects to be no more confidant by March. A
slowdown in manufacturing would have a bad knock-on effect on retail
and utility companies, putting further downward pressure on the
economy."
40. Once the slump begins to take hold, there will be no stopping
it. It will spread from one continent to another. How deep the coming
slump will be is difficult to estimate. However, given the
accumulation of contradictions over the past period, all indications
are that it will be the most serious of the post war period. Some
bourgeois economists fear that it could be as deep as 1929. Whatever
the eventual scenario, a new world slump will have major implications
internationally, and introducing a new period of deepening social,
economic and political convulsions. The same phenomena that we see
now in Asia, Africa and Latin America will spread to the advanced
capitalist countries. And Britain, because of its exposed position,
will find itself in a deeper crisis than most.
Britain and Europe
41. Even before the end of the boom, there has been a general
tendency to greater instability – economic, social, political and
military – on a world scale. This is an anticipation of things to
come. Everywhere one looks, there are tensions, wars and conflicts.
One crisis is rapidly followed by another crisis in rapid succession.
After the war over Kosovo came the overthrow of the Milosevic regime.
Then came the Intifada in the Middle East and the renewed danger of
war in the region. In fact, there is not a single stable regime in
the Middle East. This instability is shown by the developing
revolution in Iran. In the next period there will be a movement
towards social and political instability and revolution throughout
the region. This poses a mortal threat to US imperialism, for which
this is a key area both from an economic and strategic point of view,
which explains Clinton’s desperate attempts to force an agreement
between Barak and Arafat.
42. The boom in the West has partly been at the expense of the
working class, and partly at the expense of the ex-colonial
countries. The merciless squeezing of the Third World, and the
opening up of their markets to imperialism, in turn creates colossal
instability. This is a finished recipe for conflict, and poses the
question of a new stage in the colonial revolution. Fear of
explosions in the colonial world is what explains the latest changes
in strategy of the imperialist powers: the insistence on their
"right" to intervene in any country, and the development of small,
mobile military units, armed with the most modern weapons, able to
intervene against revolutions in any part of the world. This is the
rationale behind the plan for a so-called European rapid deployment
force, in which France and Britain have taken the lead.
43. The collapse of the USSR and the end of the Cold War has,
among other things, brought out the contradictions between Europe and
the USA. On the economic and diplomatic front, there continue to be
growing frictions between Europe and America. After conflicts over
beef, bananas and patents, they are now locked into a dispute over
the European Airbus, which threatens to undermine the interests of
Boeing. The Americans are threatening to take the Europeans to the
WTO for violating rules of ‘competition’. The Europeans are
threatening to retaliate. These tensions between Europe and America
will inevitably intensify under conditions of world economic
downswing. This will have profound political and military
consequences.
44. The Kosovo war illustrated vividly the crushing superiority of
US military might, which reduced the Europeans to a secondary
supportive role on their own territory. The European capitalists do
not trust Washington to defend their interests. As a consequence, the
Europeans are taking steps to organise their own European Defence
Force, independent of the USA. In this process, France is trying to
set the agenda, hoping to re-assert its leading role in political and
military affairs. These pretensions are causing new frictions with
Germany, which, having long since established its economic
preponderance, now aspires to achieve a corresponding political
weight in world affairs. The European continent is dominated by a
united Germany, a mighty industrial power with a population of 80
millions at the centre of Europe. It has achieved this domination
through its own economic strength. It is the real master of the
European Union.
45. In an attempt to offset the crushing power of Germany, France
and Britain are gradually drawing closer together. The discussions
between Chirac and Blair on military co-operation, co-ordinated but
distinct from NATO, are a pointer of things to come. They mark a
first step in a future bloc between Britain and France against their
German counterpart. It is an attempt to forge a new balance of power
in Europe. But this attempt is complicated by Britain’s real position
as the poor relation of US imperialism. Since the Second World War,
Britain has been reduced to a virtual client state of the USA. This
reflects the decline of Britain and the colossal might of America.
This humiliating dependence lays at the bottom of the so-called
special relationship of Blair and Clinton, or whoever else is the
occupant of the White House.
46. The collapse of Britain’s old power is shown in its relations
to Europe. In the past, the other European powers (with the exception
of Germany for the past hundred years) were more backward than
Britain. British imperialism in effect dominated Europe and used its
power to keep Europe weak and divided ("the balance of power"). But
as a result of its long-term industrial decline, Britain has long ago
lost that position and has been relegated from the first rank of
world powers.
47. So degenerate has the British ruling class become that it has
turned the former workshop of the world into a parasitic rentier
state, as France was before 1939. However, in its blindness the
British ruling class has never been reconciled to Britain’s status as
a second-rate power. They imagine that Britain can be a great
economic power through the City of London, although it is likely that
even the London stock exchange will end up – like the bulk of British
industry – in foreign hands. On the other hand, they imagine that
they can maintain their influence in world affairs by tying
themselves with the USA, and pretending they have some sort of
"special relationship", when the only relationship that exists
between them is that of a pet poodle and its master.
48. On all these questions, it goes without saying that the Labour
leaders faithfully reflect the views of the ruling class. They do so
even more blindly than the Conservatives. This is nothing new, but it
is particularly true of the present leader of the Labour Party, who
is himself a consummate bourgeois. Thus, at present the British
capitalists have an ambivalent attitude towards the question of the
euro. While the big majority of the industrial capitalists favour
entry into the euro zone, other sections are not so sure. Contrary to
expectations, the euro has been weak since its launch, and may not
even last. The British bourgeois are therefore somewhat hesitant
about it, and this attitude is faithfully reflected by Blair.
49. The ridiculous posing of Blair, who tries to lecture the
European leaders, cuts no ice. The only reason that Chirac humours
him is that France needs Britain as a counter-weight to Germany. But
the French bourgeois are in no doubt that the key power in Europe
remains Germany. The recent agreement at Nice to proceed with
enlargement of the EU marked an important shift in alliances. "At the
centre of this shift is the Franco-German alliance", notes the
Financial Times. "Once the driving force behind the EU, now adjusting
awkwardly to a more assertive unified Germany." (12/12/2000). France
stuck by its pledge to oppose further concessions to Germany.
However, Germany has its own separate national interests to pursue.
It wishes to match its economic superiority with political and
military superiority. It will insist on a leading role in Europe, at
the expense of the other powers. At the same time the Big Four
treated the small countries with contempt, riding roughshod over the
interests of "small" countries.
50. The move towards European integration has gone a long way. But
this has its limits. The national interest of each separate
capitalist class asserts itself in times of growing difficulties. The
idea of a European currency, in the form of the euro, is fraught with
big difficulties. When the economies were moving forward, a certain
degree of integration could take place. With a world downturn, the
euro will be pulled in different directions, as the tensions within
Europe mount. Rather than acting as a source of strength, the
European currency will be a source of instability. It is doubtful
that it will survive a new world slump. Under certain conditions, the
EU itself could begin to break up, at best holding together as a
customs union against the other economic blocs of America and Japan.
The British Economy
51. This is the profoundly unstable international background that
forms the backdrop to developments in Britain. As our tendency has
explained in the past, the period since the war has witnessed a
continuation of the long-term decline of British capitalism relative
to its rivals. Despite the forcast that Britain will have overtaken
France and Germany in GDP per capita by the end of 2001, both its
main European rivals have considerably larger industrial sectors than
Britain. This has completely altered the balance of forces to
Britain’s disadvantage. The responsibility for this situation lies
with the British bourgeois who have failed to reinvest the surplus
made from the labour of the working class. However, this decline was
largely masked by the colossal expansion of the world economy.
52. The British bourgeois, which was the most far-sighted in the
world at one stage, has lost its world role and become increasingly
inept and parasitic. Rather than engage in productive investment, it
squandered its resources on all kinds of quick speculative returns
and foreign investments. In the latter period they turned towards
service industries at the expense of Britain’s manufacturing base.
The policies of Thatcherism destroyed 20% of manufacturing industry.
Sections of the ruling class, representing the interests of finance
capital, talked about services totally replacing manufacture:
53. "Manufacturing has shrunk as a slice of the economy", states
The Economist (21/10/2000), "while services have boomed. While in
Germany manufacturing industry still accounts for a quarter of
output, in Britain it is down to a fifth." The haemorrhaging of
manufacturing jobs has continued relentlessly, especially in car
production, steel and engineering. Today, manufacturing employs 4.3
million. Forcasts say that as few as 3.7 million people will be
employed in manufacturing by the end of 2002.
54. Over the last two years more than 200,000 manufacturing jobs
have disappeared. Recently, 400 jobs were axed at Sony in Pencoed,
South Wales, while 2,000 job losses were announced at Vauxhall and
1,200 at the textile firm Coats Viyella, a 60% reduction. Cammell
Laird announced 250 shipyard lay-offs on Merseyside. Ford has
announced the closure of car production at Dagenham, while thousands
of jobs are in the balance at Nissan in Sunderland. Tens of thousands
of jobs in component suppliers will also be affected. It is the
abject failure of the trade union leaders to offer a fighting
alternative that has seen these jobs go. Even where a plant has been
saved, as in Longbridge, the trade unions have co-operated in
bringing in new working methods to the detriment of the wages and
conditions of the workers. In December Corus, formerly British Steel,
who have already sacked 4,000 workers in the last year, announced
that a restructuring of its European plants will affect a further
6,000 jobs. There are fears that at least one UK plant, Llanwern in
South Wales, will close down. These figures represent a deepening
crisis in British manufacturing industry, and a clear malaise
affecting British capitalism.
55. However, the idea that Britaiun has become a
‘de-industrialised’ or ‘post-industrialised’ economy based on
services is false. In fact manufacturing output has increased by over
30% since 1974, despite the slaughter of industries and jobs. The
bourgeois have attempted to restructure propduction in their favour
with all manner of ‘initiatives’: just-in-time production and
distribution, ‘flexibility’, the growth of s-called ‘network
cultures’, outsourcing and contract manufacture. The British
bourgeois have led the way in introducing these so-called new
production processes, even being held up as a model for other
economies to follow.
56. At the same time, the British bourgeois has also been engaged
in an orgy of mergers and take-overs. Within the first few months of
2000, the corporations had beaten their own records. This reflects
the growing monopolisation on a world scale – an unprecedented
concentration and centralisation of capital. This process has assumed
an extreme character in Britain, where the big monopolies are engaged
in a frenzy of take-overs. While the value of mergers and
acquisitions in Europe broke all records in 1998, it actually doubled
in 1999, with the UK in the forefront. Britain is the most
"acquisitive" nation in Europe, responsible for $386bn worth of
take-overs. In second place is Germany with $261bn. This again
reflects the utterly parasitic nature of British capitalism. The
British bosses are increasingly abandoning productive activity in
favour of large-scale asset-stripping, as a means of enriching
themselves without having to resort to the painful necessity of
production.
57. "There is no better way to gauge the changes in British
business than by looking at the changing face of the FTSE-100 list of
leading companies by market capitalisation", states The Economist.
"Last month the list was revised, with some dramatic changes, spurred
by new economy shares but also reflecting the relative decline of
famous old-economy companies. Out went such stalwarts as Scottish
& Newcastle Breweries, Associated British Foods, Hanson (what is
left of it), Corus (formerly British Steel) and Rolls-Royce, which
makes jet engines (nothing to do with cars now). In came high-tech
companies with names like Dimension Data, Electrocomponents and
Baltimore Technologies, which few outside the City or the electronics
and telecoms industries have yet heard of. When the list is next
reviewed in a few months even ICI, once synonymous with British
industry, will probably drop out."
58. In terms of industrial strength, Britain has been overtaken by
her European rivals, especially Germany and France. This trend is set
to continue as investment declines in relation to its rivals. A
recent CBI survey showing the investment intentions of British bosses
showed investment falling for the 11th quarter in a row. The CBI
forecast a drop of 6% in manufacturing investment this year following
last year’s fall of 15%. (The Guardian, 26/10/2000).
59. "This is a major cause of concern, as it will lead to a
shrinking industrial base and a reduction in the long-term supply
capacity of UK manufacturing industry," said Nick Reilly, head of the
CBI’s economic affairs committee. Ironically, the same Nick Reilly is
Managing Director of Vauxhall, in which capacity he recently
announced the closure of the Luton plant with the loss of 2000 jobs.
Yet while British capitalism’s investment at home trails behind its
major competitors, its investment abroad has reached record levels.
Last year, while manufacturing investment has declined, British
companies overtook the Americans as the largest foreign direct
investors in the world. Some $200 billion was invested abroad. At the
same time it attracted record levels of inward investment. Britain’s
trade deficit now stands at around £12 billion.
60. This is the main reason why Britain’s labour productivity is
lagging behind the world’s most competitive powers. Costs of
production are around 20% higher than they are in the Euro area.
Corporate profits, which had risen dramatically in Britain in the
past, have now fallen to their lowest levels in five years as a
result of the high pound and weak investment, according to the Office
for National Statistics. In the ONS survey the ratio of profits to
capital employed by British companies fell in 1999, from 12.8% to
12%, the lowest rate since 1994. Comparing different countries, the
survey showed that during the 1990s profits of British companies rose
from £71.6bn to £116.1bn, an annual growth rate of 6%. In
the same period in the US, profits grew faster, at a rate of 8%, in
Germany at an average of 4% and in Japan they declined.
61. The accelerated decline of British capitalism means that
Britain will be hit particularly hard by a slump. The British
capitalists will simply not be able to compete on world markets with
her better equipped rivals. Under such conditions, all the
pipe-dreams of Blair and Brown will be shattered.
The Employers’ Offensive
62. Profits rose over the last decade primarily due to the
increase in relative and absolute surplus value. There has been an
employers’ offensive, which, given the abject failure of the trade
union leaders to organise a fight-back, has driven down terms and
conditions. There has been a ‘counterrevolution’ on the shop floor,
with new flexible working practises introduced across the board.
Short term temporary contracts, part-time working, new shift
patterns, team working, quality circles, de-skilling of labour, and
other forms of so-called flexibility, have served to squeeze every
ounce of surplus value from the labour of the working class. The
regime of increased exploitation in the workplace has secured for the
bosses a greater proportion of unpaid labour. Over the last 12
months, productivity in manufacturing rose by a huge 5%, as fewer
workers produced the same as before.
63. "Profits in America and Britain are at a 20-year high", states
The Economist, "but workers are feeling more insecure than ever." The
capitalist squeeze is producing unheard-of stress levels in the
workforce. "The natural counter-part to a free market economy is a
politics of insecurity", states John Gray. And he adds: "We stand on
the brink not of the era of plenty that freemarketeers project, but a
tragic epoch."
64. This greater intensity of work has witnessed the introduction
of new workplace methods of exploitation. Management by stress and
‘lean production’ methods are simply new variants of Taylorism of the
pre-war period. All this is dressed up in the jargon of Human
Resource Management. They are simply refined forms of capitalist
exploitation. They have in turn introduced a nightmare of speed-up
and toil across industry. The battle cry of this employers’ offensive
has been Global Competition, Flexibility, and Deregulation! Capital
has been relentlessly driving down standards by pitting worker
against worker in the dog-eat-dog competition of capitalism.
"Deregulation may leave the consumer or the workforce helpless, but
it is part of a growing global consensus", states Joe Rogaly in the
Financial Times. "So is the notion of ‘flexible labour markets,’ for
which read ‘crushing the workforce beneath the heel’."
65. Parallel to this has been the introduction of just-in-time
production and outsourcing. This is aimed at lowering costs and
squeezing the system to the limits. However, as the experience of
America has shown this has not had the required effects, and has
build into the system tremendous instability. Any breakdown along the
chain of production can have disastrous effects. Paradoxically, this
puts greater potential power in the hands of the working class. A
strike in one area can affect a whole combine, as was clearly shown
in the GM strikes in the USA.
66. However, the bosses also want to use these new methods to
break up and weaken the power of the traditionally stronger and more
organised sectors of the class. In the car industry, for example, the
capitalists have hived off one sector after another, splitting up the
workforce into separate companies and undermining their bargaining
strength. Ford plans further outsourcing of its jobs. The Halewood
Transmission plant is to become part of a joint venture with the
German firm Getrag, along with the Bordeaux and Cologne transmission
plants, leading to the likely withdrawal of Halewood from the Ford
National Joint Negotiating Committee. The same separation is being
undertaken with the establishment of Visteon.
67. While unemployment has fallen, a huge reservoir of permanent
unemployment continues to exist. Unemployment has fallen as more and
more workers are forced to take the lowest paid and most menial jobs.
As a result some low paid workers, such as student nurses, are forced
to take second jobs just to make ends meet. This has meant a huge
leap in insecurity and stress at work.
68. Call centres, which have mushroomed in the last five years as
part of the ‘new’ economy, have been described as the modern Satanic
Mills. According to a recent report by the CBE, a training consultant
company, the monotonous nature of the work coupled with employees’
lack of control over their work produced severe stress levels among
call centre workers. Six per cent of call centre workers suffered
from "serious psychiatric problems" – double the rate for the general
working population.
69. "You cannot turn human beings into machines", said Jim Bennett
of CBE, "making their function little more than a production line of
repetitive operations and still expect them to perform all the human
and inter-personal skills required in customer service roles."
70. This all-out attack on the working class, eradicating many of
the gains of the past, has led to growing frustration and anger in
the workplaces. For workers, it has been a race to the bottom.
Despite the prolonged boom, there is no ‘feel good’ factor on the
shop floor. This accumulation of bitterness is an explosive mixture,
which at a certain stage will lead to sharp changes in mood, and
abrupt changes in the situation.
71. At the present moment, there is a low level of strikes.
However, this does not mean that the working class is happy and
content with its lot. The existence of the most repressive anti-trade
union legislation in the western world has played a role. The union
leaders hide behind these laws to avoid strike action, and this has
undoubtedly been a major factor in holding back the movement. There
have been a growing number of ballots for strike action, showing a
willingness of the workers to strike. In many cases, the mere threat
of strike action has been sufficient for the bosses to make an
acceptable offer, thus avoiding a strike. Thus the figures for
strikes do not adequately reflect the real situation, or the boiling
mood of anger in the working class, which sooner or later must
express itself in action. At the moment the trade union leaders are
doing everything in their power to suppress and dissipate this mood.
But the more they do this, the greater will be the explosion in the
future.
The Blair Government
72. The present situation in Britain represents an unavoidable
stage. Having elected a Labour government for the first time in 19
years, the working class naturally were prepared to extend it a
degree of tolerance and good will for a time. This was undoubtedly
one of the factors that has contributed to a low level of industrial
activity. But this phase is already over. Now there is a confused and
rather contradictory mood, as the working class slowly takes stock of
the situation and begins to draw conclusions.
73. The complete rout of the Tory Party in May 1997 was a
reflection of profound discontent within society. It was not the
result of Blair’s policies, but rather in spite of them. Labour would
have won a landslide victory whoever would have been the leader. In
fact, a left leader with a radical programme would have achieved an
even bigger majority. The Blairites, who wanted a coalition
government with the Liberal Democrats, poured cold water over any
expectations that Labour was going to offer fundamental change.
Everything was done to alienate Labour’s traditional supporters. "We
can’t promise what we can’t deliver", was the Blairite refrain. But
no matter what Blair said or did, it made no difference. The workers
saw this election as the chance to defeat the Tories after 18 years
of attacks on living standards, anti-trade union legislation,
privatisation and cuts in the welfare state. They had had enough of
Toryism. They voted massively for a change.
74. However, Blair came to power offering more of the same.
Despite certain concessions on the minimum wage, rights at work, and
more money for health and education, the New Labourites pursued
pro-capitalist policies. They did next to nothing for the workers
that elected them, and did everything to appease big business:
immediately handing over powers to the Bank of England, continuing
with Tory spending limits, attacking benefits, and continuing with
privatisation plans. CCT was abolished, but it was replaced with the
monstrosity of ‘Best Value’ that continued the horrendous squeeze on
local authority workers. The Blairites have kept most of the Tory
anti- union laws and continued with PPP or PFI, leading to partial
privatisation of hospitals and schools. Despite previous opposition
they are pushing ahead with the privatisation of the London
Underground and air traffic control. Even where some feeble reforms
have been introduced, they have been niggardly in the extreme, as in
the case of the minimum wage.
75. This is at a time when the class divide in Britain has widened
dramatically. The gulf between rich and poor has never been so
glaring. According to the new Office of National Statistics report on
social inequality, the wealth divide in Britain continued to grow
right through the 1990s. "We reckon that 10 new millionaires are
being created each week with fortunes of £20 million or more",
states the Sunday Times. In contrast, the DSS reported that 100,000
more children sank into poverty in the first two years under Blair.
The total number of children living in poverty in Britain is now 4.5
million – more than one in three. The number of pensioners living in
poverty has risen by almost 100,000 since Labour came to power.
76. At the same time, we see the revolting spectacle of the
parasitic ‘fat cats’ enriching themselves with huge salary increases
and share options, while nurses and low paid workers get next to
nothing. The privatised utility cartels are raking in billions at the
expense of ordinary people. This has provoked widespread resentment
not only in the working class, but also in the middle class.
Following the Paddington and Hatfield rail disasters, opposition to
privatisation has never been greater. The great majority now would be
in favour of re-nationalising the railways. Such is the level of
popular indignation that a strike on the London Underground against
privatisation would get massive support from the public. This shows
how far out of touch the Blairites are. Slowly but surely there is a
change of mood in society, preparing the way for a big swing to the
left in the next period. Blair and co. are oblivious to this and are
maintaining their rightward course. This makes a social collision
inevitable in the next period.
77. The mood within the working class is beginning to harden
against Blairism. Workers were naturally prepared to make sacrifices
to get a Labour government elected, and then to extend a fund of
credit to the government after it was elected. One could not expect
anything else. But the honeymoon period evaporated as soon as the
workers realised that little, if anything, had changed. This
disillusionment has reflected itself in a string of election results
where the Labour vote collapsed in spectacular fashion. Labour did
badly in the local and European elections. It did badly in the
election to the Scottish Parliament and the Welsh Assembly, opening
the way for coalition deals with the Liberals. In Wales, it suffered
its worse defeat for generations, losing its former strongholds in
the Rhondda, Llanelli and Islwyn to Plaid Cymru where in the past a
Labour defeat would have been unthinkable.
78. In the election for London mayor the official Labour candidate
was humiliated and pushed into third place behind the Tory candidate.
Labour lost control of Sheffield and Oldham, while its vote in
Liverpool was at a record low. Although it held the recent
by-elections in Scotland and the North, there is no enthusiasm for
Labour. In Falkirk West, Labour managed to hold on by the skin of its
teeth, but saw its majority reduced by 14,000 votes to less than 800.
In this rock-solid Labour seat, there was a 19% swing to the Scottish
Nationalists in a historically low turnout. If repeated in the
general election, Labour would be humiliated. This was the result of
Blairite policies at a national and local level, and it served notice
on the government that the attitude of the workers is changing.
79. The support for Labour is haemorrhaging in its key heartlands
and the local Labour Parties are increasingly falling into disrepair
in many areas. "What has Labour done for us?" is the question many
Labour voters are asking. There is disquiet amongst Labour MPs at the
high levels of abstentions, with even right wingers expressing alarm
at what is happening. This has prompted the right wing Labour MP,
Peter Kilfoyle, to openly voice concern at the direction of the
government. But with 10% lead in the opinion polls, Blair hopes to
turn this into solid votes in the general election.
80. The Blairites have become completely divorced from reality.
They are cocooned in their ivory towers hobnobbing with the bourgeois
and surrounded by up-and-coming careerists. They have created more
quangos and think tanks than the previous Tory government. The right
wing leadership has become completely separated from the rank and
file. They are ever more influenced by the civil service Mandarins,
who pressure them from all sides. The disastrous decision to give the
pensioners a 75 pence increase shows how far out of touch they have
become. Now they are promising more, but as always, this appears to
be too little too late.
81. Blair has built a small clique around himself who take all the
decisions. Even the majority of the cabinet is excluded from this
inner circle. This has clearly created frictions, which can lead to
open splits in the future. For the present, Blair dominates the
cabinet like a tin-pot dictator. He sees himself as the grand
Statesman surrounded by his courtiers. This shallow and ignorant
middle class upstart has no tradition or roots in the Labour
movement. Even compared to Wilson and Callaghan, he is a lightweight.
They were also right wingers, but had some feel for the movement.
Blair has none at all. He is a committed bourgeois politician, loyal
to the capitalist system. For the moment, the ruling class have no
alternative but to back him. As long as he is able to do their
bidding, they will continue to do so. As the pronouncements of the
CBI on ‘red tape’ indicate, they are determined to push him all the
way to carry through their interests. The question is: how long can
this last?
82. In reality, Blair has already been shown up, certainly for the
majority of Labour and trade union activists, but also, to a certain
extent, for a section of the Labour voters. They are disenchanted
with New Labour and do not trust Blair – but they cannot see any
alternative. New Labour is bad, they reason, but the Tories would be
even worse. It is this that keeps Blair where he is. Inside the
Labour Party no alternative is being offered. The Lefts are
invisible.
83. The Cabinet and the PLP seem to be united around Blair.
Certainly the so-called ‘paid staff’ the ministers and junior
ministers back Blair, but there has been oppoisition within the ranks
of the PLP. There have been parliamentary revolts over disability
allowances, single parents, air traffic control and other issues. And
recently Clive Soley came within a handful of votes after two ballots
of losing his position as Chair of the PLP. Blair and the machine
were were forced to call in every member of the ‘paid staff’ to
prevent defeat. This developing opposition can play a key role in a
movement against a second term Blair government.
84. As long as this situation continues – where the anger and
discontent of the masses finds no point of reference and no organised
vehicle through which to express itself – the present state of uneasy
and unstable equilibrium can be prolonged. It is the chronic weakness
of the subjective factor that is delaying the process. But the
process is still there and will occur in any case. This artificial
situation cannot last indefinitely. Events will shatter the stalemate
and prepare for a big move to the left both in the unions and in the
Labour Party.
The Tory Party
85. The continuing crisis within the Conservative Party is itself
a reflection of the crisis of British capitalism. Once the most
far-sighted ruling class in the world, the British bourgeois are now
increasingly short-sighted and inept. In the past, the landowning
aristocrats (the Tory grandees) dominated the Tory Party. This
allowed the British bourgeois to rise above their short-term
interests, and plan their rule over decades, and even centuries. Now
that has completely changed. The days of Churchill, Eden and
Macmillan have given way to Thatcher, Major and Hague. The era of the
‘grandee’ is at an end. Now the Tories are dominated by the petit
bourgeois upstarts, with their narrow outlook, lack of historical
mission and empirical approach.
86. The parvenus who now run the Tory Party reflect the views of
the backwoods men and backwoods women of the Tory rank and file.
Thatcher, like Blair another middle class upstart, changed the
traditional balance of forces within the Conservative Party, in
effect leaning on the middle class rank and file – shopkeepers,
estate agents and insurance clerks – to strike blows against the
upper echelons who had hitherto controlled the Party. For a time this
tactic appeared to work. Thatcher ruled the Party with a rod of iron.
But the old internal stability was lost. The collapse of Thatcher
opened up a crisis in the Tory Party, and the splits and divisions
that have plagued the party for more than a decade. This places the
Tories in grave difficulties. With Blair faithfully carrying out the
dictates of Big Business, the traditional party of Capital is no
longer needed – at least for the time being.
87. The Tory Party, despite having experienced a certain electoral
revival over the fuel protests, is clearly still in disarray. With
Blair carrying through Tory policies, the Tories are desperately
looking for new ground to build up support. Hague is desperately
seeking to play the ‘law and order’ card, capitalising on the asylum
issue, while dabbling in the waters of racism. Widdecombe is
continually brought forward in an appeal to a reactionary audience.
This reflects the impasse of Toryism and their current desperation to
lessen Labour’s lead. However, as the general election approaches,
the Tories’ chances of winning are diminishing by the hour.
88. The main problem for the Tories is that Blair has stolen their
clothes. He does the bidding of the ruling class without question,
and this is of great benefit to them at this stage. Blair is their
man. For this reason, there is nothing Hague can do but move further
to the right. By his demagogic statements on law and order and racism
and his Little Englander position on Europe, he hopes to appeal to
the Tory faithful. But this does not coincide with the position of
Big Business. Given these difficulties, the bourgeois are backing
Blair at the present time. He will be of use to them so long as he
can hold the line within the Labour Party.
89. The splits in the Tory ranks, especially over Europe, have
become the dividing line between the past traditions and the new
breed. The rank and file of the Tory Party, dominated by the
pro-hanging and racism of the ‘blue-rinse brigade’, in the past were
kept in check. Now they are well represented in the leadership. The
Clarke wing is very isolated and realises increasingly that the old
Tory Party is no more. It is no accident that Clarke has joined the
all-party European Campaign, or that he has had secret discussions
with the Blairites. Blair has repeatedly made appeals for this
section of the Tories to join New Labour. Under conditions of deep
social crisis, the Tory Party can split, with the One Nation Tories
going over to Blair as part of a new political realignment. Hague
will probably be forced out after an election defeat, with someone
like Portillo taking over the Tory Party leadership.
90. This perspective is still possible. But it is not the only
variant. In the coming election the Tories will inevitably regain
some of the lost ground. Part of the middle class voters who
traditionally voted Tory are disenchanted with New Labour and will
tend to drift back to the Conservatives. This is particularly the
case in the rural areas where the clumsy policies of the Labour right
wing have alienated many ordinary people who, if Labour had had the
correct policies, could have been won over. The rural poor have
always hated the Squireocracy. But Blair has succeeded in pushing
them into the arms of the Squireocracy, as shown by the so-called
Countryside Alliance.
91. Nevertheless, the rural areas are too small to make a
fundamental difference in a general election. And although the Tories
will increase their votes and seats, it seems unlikely that they
could defeat Labour at the next election. A defeat at the polls would
provide the opponents of Hague to move against him, probably putting
Portillo forward as someone more likely to win next time. A
consummate and unprincipled opportunist, Portillo started on the
extreme right of the Tory Party, then swung "left". In the future he
will swing sufficiently far back to the right to be able to win the
leadership, while making overtures to the former "Grandees" as
someone capable of uniting the Party.
92. The Tory Party will not easily disappear from the scene. It is
the traditional party of British capitalism and has close ties with
Big Business, although it bases itself on the middle class, and to
some extent
