Introduction
"Here is the social-historical foundation of a revolutionary
situation. Of course it is a question of the struggle of living historical
forces and not an automatic accumulation of arithmetical quantities. And this
alone makes impossible a passive prediction of the stages of the process and the
timing of the denouement. A finger must be kept on the pulse of the British
economy and politics, and while not omitting overall perspectives for a moment,
one must attentively follow all the partial fluctuations, the flows and the
ebbs, and determine their place in the process of the capitalist decline. Only
upon the basis of such a general orientation can the revolutionary party conduct
its policy, the flexibility of which is expressed by the fact that while it does
take partial fluctuations into account, it in no way loses sight of the basic
line of development."
Leon Trotsky, February 11, 1926 (From Volume Two of Writings on Britain)
What are perspectives?
In the twelve months since the publication of our last perspectives document
the political landscape of Britain has altered dramatically. Events
internationally have continued to develop at breakneck speed too, from the
continuing revolutionary developments in Argentina, and the revolution and
counter-revolution unfolding in Venezuela, to the prospect of war in the Middle
East. However, alongside these international developments, a year ago events in
Britain were developing at a painfully slow rate. At times they looked like a
slow motion replay of a snails' race. Now that has begun to change.
For a period of some years we attempted to chart and analyse the profound
discontent that was being built up beneath the apparently calm surface of
British society. In particular, we laid heavy emphasis on the accumulation of
pent-up anger, bitterness and frustration in the workplace as a result of the
‘counter-revolution on the shopfloor'. British capitalism's concentration on
increasing absolute and relative surplus value through new management
techniques, speed-ups, and dependence on overtime – in other words the
maintenance of the capitalists' profits at the expense of the sweat, stress and
strain of the working class – could not continue indefinitely without provoking
a response. At a certain stage new movements of the working class were
inevitable. These movements, we explained, would have major repercussions inside
the organisations of the working class, beginning with the trade unions, and
then at a certain stage inside the Labour Party as well. This was the basis of
our general perspective, within which we attempted to take into account each
change and turn in events, whilst keeping our finger on the pulse of the
economy, politics and the outlook of the working class.
We are now at a fundamental turning point. The accumulated anger of the
British proletariat has begun to burst through the surface. The sleeping giant
of the British working class has begun to stir. Even though we are still at a
very early stage in this process, already there have been important consequences
inside the trade unions, where a transformation has begun to take place, with
the election of a whole series of new left leaders.
It is always necessary before proceeding to make an analysis of the present
situation to review our previous perspectives. Not simply to correct this or
that detail, which may have become outdated, superseded or proven incorrect by
the march of events, but more importantly to look at the general trends we
described, the broad processes at work in society. Did we analyse these
correctly? Are events moving in the direction we thought likely? Answering these
questions is an important starting point in preparing ourselves, orienting the
tendency to intervene in the new situation which is unfolding before us.
This document should therefore be read in conjunction with previous
perspectives. In relation to many detailed points these perspectives have been
largely borne out. More importantly, in relation to the general process at work
in the economy, in politics, and in the movement of the working class, they bear
out how vital Marxist theory is for workers and youth who want to struggle to
change society. By understanding the process, hidden beneath a thin veneer on
the surface of society, we should not be blown off course by sudden and sharp
changes in the situation but meet them fully prepared.
In preparing for the new situation developing in Britain, Trotsky's Writings
on Britain, particularly his writings on the general strike, on the trade
unions, and Where Is Britain Going? are required reading for every
comrade. These are living, vibrant ideas with enormous relevance to British
workers today, full of lessons which every thinking worker should study and
absorb.
At the same time, this document must be read in conjunction with the latest
World Perspectives. It is not possible to understand events in Britain in
isolation from the rest of the world. The word globalisation has been rammed
down our throats in the media for the last decade. Marxists have long understood
that we live in the epoch of the world market, world relations and world
politics. This fact dominates all our lives. For this reason we also live in the
epoch of world revolution. The struggle of the working class of Britain is
inseparably tied to the struggles of the workers internationally – far more than
in any other epoch.
Events in one part of the world economy inevitably affect the rest. Political
changes, diplomatic developments, wars, revolutions and counter-revolutions have
repercussions in every country. The movement of the working class in one country
after another has an impact on the workers' movement everywhere.
Here we find the purpose of Marxist perspectives. Using the method of
Marxism, dialectical materialism, Marxism attempts to uncover the connections
between events, not in order to make predictions, but in order to understand the
different and often contradictory processes at work in society. To the degree
that we can understand these processes, and which direction they are heading in,
we can arm ourselves and advanced workers with an understanding of what is
happening and why. This, as Leon Trotsky explained, is the superiority Marxism
has over all other trends in the labour movement, "the benefit of foresight
over astonishment."
If we look back over the past year or so, there is not one single event, but
in reality a chain of events in the economy, in international relations and in
the movement of the working class, which signal a turning point in the
situation. Consciousness, which tends to lag behind, has begun to catch up with
a bang!
To many commentators in the British media the magnificent one million strong
national strike by members of UNISON, the T&G, and GMB on July 17, 2002 was
'a bolt from a clear blue sky.' They were suffering from a case of astonishment
over foresight. Page after page and broadcast after broadcast was devoted to
convincing us that such militant action was an aberration, a one-off. According
to them, the fact that London Underground was brought to a standstill by a
strike the following day was unconnected, and caused by the 'hothead left-wing
leadership' of the RMT. How does the RMT come to have a left wing leadership? On
this they are silent. They admit no connection between these events and the
election of left leaders in a whole series of unions.
The magnificent strike of the firefighters, the first such action for a
quarter of a century, left them speechless, except to say there was no
connection with any of the other developments taking place. There will be no
return to the "bad old days" of the 1970s we were all assured – after
all, the trade unions are now social partners not militant workers'
organisations. Simon Jenkins in the London Evening Standard (July 18,
2002) for example: "I doubt if London is in for a run of industrial
disputes. Too much has changed. The public sector is not the monopoly it was.
Union leaders may be more left-wing but few other than Mr Crow wield much power
and he is only an occasional pain in the neck." Or even the editorial of The
Guardian (July 19, 2002): "It is a bit premature, to say the least, to
extract a lasting trend from events as disparate as a strike over safety at
London Transport, a dispute over a trade union leader trying to hang on to his
job too long and a strike by low paid council workers."
If this were the case in just one union, or just one strike, then it could be
an accident, an isolated development, a question of personalities or special
circumstances. However, the election victories of the left are not confined to
one union but spread across every single union to hold such a ballot. Industrial
action, especially the strike of the firefighters, although not on the same
scale as in the 1970s, has dramatically increased. With only one or two
exceptions, these are the first such national strikes in a decade.
In truth our ‘expert' journalists and analysts are taken by surprise
because they have an empirical and impressionistic outlook. On the one hand they
stubbornly refuse to see the connection between these events, seeking an
explanation in the existence of some secret conspiracy of 'reds under the bed'
and left wing agitators. On the other, they have been entirely seduced by the
previous apparent stability, taken in by the bourgeois propaganda that the class
struggle had ended – with capitalism the victor, naturally.
This shortsighted view is shared by the right wing in the labour movement,
and in reality by the lefts, who also lack a perspective. One despairing
supporter of defeated right wing union leader Sir Ken Jackson, speaking at the
TUC, compared it aptly to the film, the Perfect Storm: "There is a certain
amount of rain and a certain amount of wind, but it is coming together in a way
that no one meant or could have foreseen."
On the contrary, the process of change that has now begun in the trade
unions, the new upsurge in militancy, although still at a very early stage, was
not only predictable but also inevitable. Only by seeing the connections between
events, being armed with Marxist theory against the propaganda of the
capitalists, by understanding what Trotsky called "the molecular process of
revolution" which takes place now in the open, now beneath the surface, can
workers and youth be prepared for the mighty events – and for the ebbs and flows
in those events – which will unfold in coming years.
World Situation
The current world situation is characterised by profound instability. The
world economy, international relations, diplomacy and politics are in turmoil.
The root cause of this tremendous volatility is the fact that capitalism has
outlived itself on a world scale. The productive forces now strain against the
limitations imposed upon them by the private ownership of the means of
production and the division of the world into competing nation states.
The development of society, as Marx explained, is fundamentally dependent on
the development of the productive forces. Over the last decade of boom, despite
all their profligate waste, the American capitalists, along with the capitalists
of all countries, have invested colossal sums in new technology and new
machinery. As a consequence, inevitable because of the inherent contradictions
of capitalism, we now have massive overproduction and overcapacity to produce.
Even the conservative economists of the Organisation for Economic
Co-operation and Development (OECD) are now forced to concede that the US
economy has not entered a new upturn but is experiencing a 'double-dip'
recession. This will have profound consequences for the entire world economy.
The new slump will see much of the economy's overcapacity destroyed, but it
will not be possible to simply pick up where they left off, with high rates of
growth, in the new recovery that will inevitably follow the slump at a certain
stage. There will not be a permanent slump any more than there could be a
never-ending boom as the capitalists had dreamed. The boom-slump cycle is like
breathing in and out for capitalism. Once a new equilibrium is reached, through
the destruction of the slump, there will be a new recovery. This will be a much
weaker period of growth however, and it will be accompanied by rising
unemployment and a further intensification of the exploitation of the working
class in all countries.
This new situation unfolding before us – a world dominated by war and slump –
is unprecedented in the half a century since the second world war. For a period
of decades the capitalist system experienced a considerable upswing, the reasons
for this have been explained in previous documents. At least in the advanced
economies there was full employment and rising living standards. This accounted
for a relative social peace between the classes, and as a consequence, the
further degeneration of the workers' organisations. There were notable
exceptions to this social peace, of course. The revolutionary movement in France
in 1968, for example, where ten million workers occupied the factories and even
the theatres and could have transformed society peacefully were it not for the
role of the workers' leaders, especially the leadership of the Communist Party.
At the same time the stand off between US Imperialism and Russian Stalinism
ensured a relative stability between the nations, again with notable exceptions.
These 'exceptions' occurred towards the end of the upswing and demonstrate
something which Trotsky explained – it is not boom or slump that causes peace or
revolution, but the change from one period to another, the instability and
insecurity that inevitably accompany such change and disturbance.
These remarks of course concern the advanced capitalist countries. Meanwhile
for the majority of humanity, living – or more accurately – existing in the more
backward economies, particularly of Asia, Africa and Latin America, there has
been never ending misery. The masses endure one indignity after another to prop
up capitalism in the 'west', demonstrating the inability of capitalism to offer
any way forward in a single one of these countries and on a world scale.
Now the world economy is entering its first simultaneous slump since 1974.
This on its own would strike fear into the hearts of the strategists of capital.
However, to this must be added the profound instability in the relations between
nations. Economic and political instability are in reality two sides of the same
process.
The US, as the world's lone superpower since the collapse of Stalinism, holds
in its hands the most powerful weapons of mass destruction known in human
history. Aggressively and arrogantly US Imperialism now stamps its authority on
the world. Following their intervention in Afghanistan – which has solved
nothing and aggravated everything – comes a new assault on Iraq. There are
important economic factors involved in the intervention of the US in the Middle
East, not least the control of oil supplies. Above all their intention is to
strike fear into the hearts of the masses in these countries and the whole
region. If they do not do the bidding of US Imperialism they will be bombed to
kingdom come.
For the last period the world economy was kept afloat by the boom in the US.
The steep falls of the stock market in 2000 and 2001 meant that the US boom was
effectively running on one engine. That engine was being fuelled by consumer
spending, which, in turn, was based on a massive expansion of credit and
indebtedness. The net wealth of US households has fallen by 20% in the last two
years, but American consumers continued to spend. They have been spending
tomorrow's money today, i.e. they were spending credit. This has its limits,
which is now being reached. Despite all the claims of "sound
fundamentals" – a sure sign that slump is on the way – profitability has
fallen and investment with it. There appeared to be some signs of recovery early
last year. In reality this was only a case of returning to the downhill path,
after the shock of September 11th.
To hide the truth about falling profits, in order to maintain the value of
their shares and their dividends, the US monopolies pursued a crude policy of
lying and cooking the books. The result was the bankruptcy of Enron and others,
which served to expose the weakness of the US economy. Their 'logic' was easy to
follow. The boom was supposed to continue forever. Therefore the fall in profits
must have been a blip. If they covered it up, sooner or later profits would
improve again, and in the meantime they would have maintained confidence. It was
a giant confidence trick.
Although Christmas spending has been weaker than expected, they will once
again convince themselves that a recovery is underway. In reality there can be
no real recovery until the levels of profits recover. Investment has fallen
month on month throughout the last twelve months. Two million Americans lost
their jobs last year. In a desperate attempt to maintain growth in the economy
the Federal Reserve has cut interest rates to their lowest level since the early
1960s. If you combine the interest rate with the level of the consumer price
index, then real interest rates (the cost of paying back loans compared to the
decline in value of money in your hand eaten away by inflation over the same
period) are actually negative. While profits are falling however, no matter how
low interest rates get the capitalists will not invest in production. They will
not borrow to invest when there is not only little chance of making a decent
return on their investment, but also they cannot even afford to pay back their
current debts. American Airlines have filed for bankruptcy unable to pay up on
debts of a billion dollars.
After all interest rates of zero have not helped the ailing Japanese economy.
Faced with twelve years of recession, with no real recovery, the Japanese
capitalists have pumped the equivalent of the GDP of France into the economy in
an effort to stimulate growth through Keynesian measures, but to no avail. They
are terrified that Japan's experience could be repeated in America. The decisive
factor in Japan's crisis is the enormous level of debt inherited from the 1980s
boom.
In the US low interest rates have fuelled consumer credit and above all an
unsustainable property boom, just as in Britain, Australia and elsewhere. House
prices have been climbing at a rate of over ten percent in the US (in Britain
the rises have now approached 30 percent!). When this house of cards crashes it
will have a massive impact on consumer spending dragging the whole economy down
still further.
American consumer spending has been responsible for mopping up much of the
world's overproduction. This is testified to by the trade deficit running at an
historic $37 billion per month. When US consumers stop spending – as they will
when they can't afford to pay their debts, when their jobs are threatened, when
the value of their houses fall, and when the instability of war hits home – the
world economy will be hit for six.
War with Iraq, rather than providing an opportunity for economic recovery
through arms expenditure as some economists have claimed, will have a negative
impact on consumer spending, and will drive the price of oil upwards with
drastic consequences for the world economy. Politically and economically this
war, will solve nothing, Instead it will add a new element of instability to an
already volatile international situation.
Whilst it is impossible to predict the exact nature of the slump, what the
capitalists fear is not slump in itself. They know, at least some of them know,
that sooner or later they will recover from a slump. What they fear more is the
prospect of the slump leading to a rise in protectionism. The development of
world trade, the much-vaunted globalisation, has played a central role in the
development of the world economy over the last fifty years. The growth of
international trade, the lowering of tariff barriers and so on, enabled
capitalism to partially and temporarily overcome the limitations of the nation
state. That could all unravel in the next period. In the last two years there
has been virtually no growth in world trade. Intensified struggle for shrinking
markets could lead to new tariff barriers and other protectionist measures. The
US has already introduced such policies in relation to steel, textiles, and
other commodities. If this policy becomes generalised it can result in
tit-for-tat measures, even trade wars and competitive devaluations resulting in
an even more severe crisis.
At the heart of this developing crisis is overproduction. Marx explained that
this is the root cause of every capitalist crisis. Capitalism's insoluble
dilemma is that if the workers' wages increase then the market is expanded but
the capitalists will not invest because of the limitations of their profits. On
the other hand if they increase their profits by limiting the wages of the
working class, then the capitalists will not invest because of the limitation of
the market. Ironically it has been the massive overproduction of new technology,
computers, chips, and mobile phones that has led to the crisis in the US. This
sector we were told just a few years ago would be the saviour of the world
economy. By some mystical process, never explained, Information Technology would
transform the economy, and end the boom-slump cycle. At the very least it was
going to provide the basis for a new expansion for decades ahead. This was the
New Paradigm. Instead, the fact that even the newest industries have fallen foul
of the basic contradictions of capitalism in just a few short years demonstrates
the decline, disease and enfeeblement of the capitalist system.
The Marxists explained that in economic terms these developments were nothing
new anyway. Marx long ago explained that capitalism means the constant
revolutionising of the means of production, in order to increase their profits.
Capitalism always seeks new fields in which to invest the surplus value they
extract from the working class, and at the same time they are always seeking new
markets in which to sell their goods. Despite all their pipedreams about first
Russia and then China becoming new markets for their goods, they neglected the
fact that a market is not just a number of people with needs. It is a number of
people with money to spend. Despite their vast populations, there are not many
with enough money to spend on US consumer goods.
There remained the new field of investment, new technology. As always under
capitalism a new field of investment offers spectacular returns, and
consequently all the capitalists pile in producing more and more. Meanwhile the
rate of return falls back towards the average, and eventually there is
overproduction. Rather than being the saviour of the world economy, new
technology has been the field in which overproduction, the ultimate cause of the
current crisis, began.
This overproduction is not confined to the IT sector, however, but now
applies to all commodities. The overproduction of cars, which has reached
unprecedented levels, has resulted in price wars in the US, and further
devastation to car plants in Britain.
We have explained previously how even during the boom the world was dividing
into rival trading blocs, the US and NAFTA, the European Union, and Asia and
Japan. This is an indicator of the trade wars that will develop in the future.
Under conditions of ferocious competition for shrinking markets the tensions
between these blocs will intensify.
Not so long ago the capitalists of Europe were claiming they would avoid a
recession. Now they are not so smug. Except for the British capitalists, who
even now are vainly making the same empty boast. The European economy is already
in recession. In Germany unemployment has risen to over eight percent of the
workforce. The introduction of the Euro has not saved them. Its purpose was to
stimulate trade between European nations, thereby developing the productive
forces and the profits of the capitalists. Having been introduced just as
unemployment takes off and the economy has gone into decline, it has meant that
member states have been unable to use the mechanisms used in the past to
ameliorate conditions, such as devaluation, and public borrowing and spending.
Instead the entire burden of the crisis has been placed on the shoulders of the
working class, with massive cuts in spending, attacks on pensions, wages and
conditions. This has already resulted in big strike waves on the continent, in
Germany, even general strikes in Greece, Spain and Italy, where three million
workers took to the streets of Rome.
The limitations being imposed on each of the nation states of Europe along
with the cutthroat competition between them for markets could even lead to the
break down of the whole single currency experiment, though not the EU as a
trading bloc. The conditions of a prolonged boom expanding markets and profits
for all might have enabled them to succeed and even go further. The development
of slump however will tend to throw this process into reverse. In reality the
European Union is a glorified trade bloc of European nations against the US and
Japan.
In theory, Europe and America are allies – one big happy family of democratic
nations, united in the common interest of defending "western civilisation". In
practice, the antagonism between Europe and America is growing all the time. The
struggle for diminishing markets on a world scale has led to a sharp increase in
protectionist tendencies, such as those illustrated by the actions of the Bush
administration in relation to steel, textiles and agriculture.
Preparations are now supposedly underway to form a European defence force.
The European bourgeoisie wants to build up its own military force because it
does not trust the Americans to defend European interests. On this score they
are correct. The interests of the US bourgeois and their European counterparts
are not only different, but often contradictory. At the same time, there are
many contradictions between the rulling classes of the main European powers
themselves. This means that a real common foreign and military policy is
impossible to realise.
When trying to analyse the different tendencies involved in international
relations, it is important to be careful to distinguish between the public
propaganda about the so-called European ideal and the interests and cynical
manoeuvres of the different national capitalist classes that are constantly
seeking to gain an advantage at the expenses of the others.
In the last analysis, the idea that Europe could rival the USA on a
capitalist basis is absurd. In reality, the USA has forced Europe to accept its
dictates, as it did in the war in Kosovo, without the slightest regard for its
European "allies".
Since the European capitalists will be compelled to participate in foreign
military adventures anyway, would it not be better to do so under their own
flag, instead of constantly being blackmailed and bullied by Washington? Such is
the rationale behind the idea of a European defence force.
However, the decisive questions relating to a European defence force are
never stated. First, who pays for it? And second: Who will control it, and
decide where and when it is to be used?
Some people have apparently tried to argue from a "left" point of
view that a European defence force would be progressive since we Europeans are
more civilised than the American imperialists and would use military force to
uphold peace and democracy, or words to that effect. Clausewitz correctly
pointed out that ‘war is only the continuation of politics by other means.'
The bourgeoisie will wage war only to further its own selfish interests, whether
they are American British, German or any other nationality.
It is rather strange to argue that "we Europeans" are more
civilised than the Americans. Such an argument leaves out of account the conduct
of British, French, German, Dutch or Belgian imperialism in the past. History
hardly provides much evidence of our supposedly "civilised" conduct!
The only difference today is that the European imperialists are too weak to show
their teeth as they did in the past.
The force itself is still only an embryonic project. It is supposed to
consist of 60,000 troops with Britain and Germany paying 15 percent each, and
France slightly more. Its role is supposed to be confined to "peacekeeping,
crisis management and humanitarian operations." These days virtually all
armies are supposed to be engaged in such activities, just as in George Orwell's
1984, the ministry of war was called the ministry of peace. But as Kosovo
showed, a "humanitarian" "peacekeeping" mission can be very
effective as a means of bombing and occupying territory.
Here, however, we arrive at yet another contradiction. The notion of
"European interests" is itself an abstraction. The interests of the
German, French and British capitalists do not necessarily coincide. The fact
that France, despite its long colonial involvement in west Africa, has not
lifted a finger to help Britain or the UN "peacekeeping" mission in
Freetown testifies adequately to this.
Since a standing army is not envisaged, but each country will be asked to
provide troops as and when required, there is plenty of scope for future
quarrels. In fact, they have tacitly recognised this by stating that no country
will be obliged to contribute soldiers to a mission whose objectives it does not
support! This does not augur well for the future of the force as an effective
fighting operation.
The move towards a European defence force is an expression of the growing
tensions and rivalry between Europe and America. This leads us on to yet another
contradiction. If the European defence force gets off the ground, what role will
be left for the US-dominated NATO?
The Americans, fearing loss of control, are insisting that the new force must
only be used in situations where NATO (i.e., the USA) does not want to get
involved. They are also concerned about the inevitable duplication of planning,
intelligence and procurement. But the Europeans are determined to pursue their
own interests. Already, it seems, Lord Robertson has warned Tony Blair that the
new force could spark off a transatlantic crisis.
The French, pursuing their old ambitions, want to loosen America's influence
in Europe. Britain, and to some extent Germany, have resisted this in the past,
but this may now change. If the new force does get off the ground it will
inevitably lead to a crisis, and even a split in NATO at a certain stage. This
is an expression of the growing tensions between Europe and America.
Should we welcome this development? There is nothing progressive about either
NATO or the proposed European defence force. From the standpoint of the European
working class, the attempt of the European bourgeoisie to place their armies on
an equal plane with those of the USA can only signify one thing: new and deep
cuts in living standards. Such a policy would be ruinously expensive and, in the
context of a world economic crisis, could only signify further attacks on social
spending.
The first problem is that a European defence force, if it is to be effective,
must be properly armed and equipped, at least up to the latest American
standards. Who will pay for this? At a time when the working class is being told
there is no more money for schools, hospitals and pensions, we are also told
that more money is needed for bombs, tanks, satellites and warplanes. But it is
clear that one thing excludes the other.
The working class must oppose wasteful arms expenditure, counterposing a
programme of useful public works: not more guns and tanks but more hospitals,
houses, schools and nursery schools are what are needed.
The development of slump in the next period will tend to throw the process of
European integration into reverse. The utopia of European integration is only
the screen behind which the capitalists of the big European nations,
particularly Germany and France hide their ambitions to dominate Europe's
immense markets. The decision to include ten new member states is a recognition
of Europe's main capitalist powers' intention to spread their domination through
the Balkans, southern, central and Eastern Europe.
The ambivalence of the British ruling class towards the Euro and Europe in
general is a reflection of the splits in the British bourgeoisie. Those linked
to manufacturing industry recognise the vital importance of Europe's markets for
their goods. They favour joining the Euro as an antidote to the high value of
the pound, which contributes to making British goods less competitive. The
parasitic finance wing of capital, on the other hand, sees the future of British
capitalism as a satellite of US imperialism. The British ruling class may dither
and hesitate, dreaming of a renewed role as a world power, but while they fiddle
the Euro is struggling, and whilst not burning, the streets of Rome become very
hot beneath the feet of three million workers.
Bank of England Governor Eddie George, speaking on behalf of the city of
London, has thrown further doubt on Britain's compatibility with the eurozone
economies, with little more than six months to go before the Treasury decides
whether its five tests for entry have been passed.
"What you have in the eurozone at present is substantial weakness in the
German economy in particular… and that has an impact on the whole of the
eurozone which is more pronounced than the situation here," he explained.
"In those circumstances, I don't think there's any reason at all to
assume that interest rates should necessarily converge."
In the next period the contradictions between the nation states of Europe,
Germany and France in particular, between whom Britain will attempt to manoeuvre,
will intensify.
The formation of the EU was a tacit admission by the bourgeoisie that the old
national states have outlived their usefulness and become transformed into
reactionary barriers to the free development of the productive forces.
We are in favour of the unification of Europe, but we recognise that on the
basis of capitalism, as Lenin explained, a united Europe is only a reactionary
utopia. We are opposed to the Europe of the big banks and monopolies that
represents a future of unemployment, cuts and misery for millions. On the basis
of capitalism as we have always explained there can be no united Europe.
The past is now behind us. We have entered a new period on a world scale.
Instead of New Paradigms, and New World Orders the future unfolding before us
will be dominated by wars, slumps, revolutions and counter-revolutions. Such
crises already exploded in the more peripheral countries of world capitalism,
Indonesia, Ecuador and so on. They have spread to Argentina, and now impinge on
the shores of Europe and the US. Even Britain, which on the surface appeared to
be immune to the disease of capitalist crisis, has now entered a new period of
storm and stress. The British proletariat will play its full role in the
struggles of the working class internationally. In the decades in front of us
the fate of humanity will be decided by those struggles.
Britain
The British economy is the second biggest in Europe, with a GDP of around
£1,000 billion. Only Germany is bigger. However bald statistics can be used to
mask the real situation. This figure tells us little about the continuing
deterioration of British manufacturing industry which has been partially hidden
by the development of services, banking and speculation. It is true that the UK
economy has grown faster than Europe and even the US over the last year.
Inflation and unemployment are low. Such figures have no doubt served to bolster
Blair and Brown's delusion that they had succeeded in abolishing the boom-slump
cycle.
This has been the mythical Holy Grail chased after by every bourgeois
politician and economist. There is no such cure. Booms and slumps are like
breathing in and out for capitalism. In the words of the song "you can't have
one without the other". In reality it is precisely the weakness of Britain's
economy, its heavy reliance on services and the financial sector, which has
masked the further destruction of manufacturing industry. However, as a result,
Britain is more dependent than ever on the world economy. Recession
internationally will hit Britain very severely indeed.
Blair and Brown have persisted with the delusion that Britain can escape the
effects of a world slump. Now their words of foreboding about the "dangers ahead"
suggest that reality has begun to penetrate even the skulls of the Labour
leaders. In the next period all their delusions about abolishing boom and bust,
and abolishing the Labour Party, will be blown apart. Participation in the
single currency would not save the British economy, which fundamentally suffers
from decades of under investment. Besides the Euro and the eurozone economies
have troubles of their own. At the same time remaining outside won't save them
either. Britain's manufacturers complain that remaining outside the Euro with an
overvalued pound is crippling them. The main reason for their lack of
competitiveness however, is their failure to invest in updating machinery and
skills in the economy.
We have charted the destruction of Britain's manufacturing base over many
years. The last century witnessed the slow, inglorious decline of British
industry. From the workshop of the world Britain has been transformed into a
sweatshop. Dark Satanic mills have been replaced by dark satanic call centres.
This decline has continued apace even during the recent years of boom. The
last car to be produced at Ford's Dagenham plant rolled off the production line
last year, marking the end of 70 years of production. Vauxhall's Luton plant,
with a similarly long history, was closed too. These two examples illustrate
quite clearly the continuing destruction of manufacturing industry in Britain. A
further quarter of a million manufacturing jobs were destroyed in the first half
of last year.
Steel production was always considered an important indicator of the strength
of an industrial economy. Judging by the furore surrounding Bush's
implementation of a massive tariff against imported steel to protect the US
steel industry (which is a foretaste of future trade wars) it still is.
Previously Britain dominated the world in this vital sector. Now Corus, the
privatised remnants of the British steel industry has fallen out of the FTSE 100
index of the biggest companies. In the 1970s British steel employed 250,000
people. Today Corus employs just 25,000 in Britain, and another 25,000 overseas.
They are more concerned with mergers, like that with Brazilian steelmaker CSN,
than with investing in production. In fact, such mergers and acquisitions are
the main concern of Britain's capitalists. In this sector at least they dominate
the world. They prefer to buy up already existing production, in order to asset
strip – and the same applies to privatisation, which is a licence to print money
rather than to invest in public services – instead of the risky business of
investing to develop production.
The British coal industry was almost destroyed by Thatcher in the 1980s. What
remains of the privatised coal industry in Britain is on the verge of closure.
As a result, compared to the past, Britain now has a much depleted steel
industry and coal industry, and the same is true of the shipbuilding and car
industries.
Employment in manufacturing in Britain now represents just 14 percent of the
total. This is a damning indictment of the destruction of British industry over
a whole period. The British economy is heavily dependent on banking and
services. In 1990 the UK had a trade surplus of £7billion in insurance, finance
and computer services. By 2000 that had grown to £28billion.The triumph of
finance capital over manufacturing is reflected in their political dominance
too. Not just the Tories, but also the Labour leaders now do the bidding of the
city of London.
Having said that, manufacturing industry remains decisive, despite the
shortsighted approach of British capital. It represents 62 percent of all
returns on exports. It is not possible for the economy to survive on the basis
of services alone. This was the delusion of Thatcher and co, which has been
continued under Blair and Brown. Surplus value is created in industry.
Capitalism is above all the production of commodities. Services meanwhile are
parasitic by nature. They consume surplus value. There has to be manufacturing
to create the wealth to spend on services, as Mike Legg (Chairman of the
Engineering and Machinery Alliance) points out "it creates the wealth and
spending power that feed the service sector." (Financial Times 05/02/02)
Manufacturing output is falling at a 3% annual rate, bringing overall growth
in the economy down towards just 1%. Of course, the forecasts for 2003 remain
optimistic. The economic experts expect 3% growth in manufacturing and 2.5%
growth in the economy as a whole.
But leaving aside the likely economic recession in the rest of the world –
world trade, the former motor of world capitalism, did not grow at all in 2001
and barely registered in 2002 – there is little justification for expecting the
UK to resume 2-3% growth next year. UK businesses resolutely refuse to invest in
Britain. What investment takes place is often to move production to cheaper
locations abroad.
Investment is falling at a near 10% rate (See Chart) and imports flood into
the country to compete with UK industry. As a percentage of GDP business
investment has fallen from 15 percent to 12 percent since 1999. Property prices
are an indicator of the state of the economy in more ways than one. While house
prices have enjoyed meteoric rises, commercial property prices rose by just two
percent last year. In reality, Brown and the Treasury know the real truth about
British industry. There has been so little investment over the last decade that
despite working the longest hours and having the shortest holidays in Europe,
the productivity of British workers remains well below that of France, Germany
or the US.
The Treasury's own recent study shows that American workers are 30% more
productive, French workers are 25% more productive, and German workers 15% more.
Only Japanese workers do worse with the collapse in output. No matter what
productivity improvements are squeezed out of British workers they cannot
compete with productivity levels in their competitors' economies, which is
boosted by both squeezing the workforce and investing in new machinery. In the
last five years, productivity has improved by nearly 2% in the US and Germany,
but only by 1.4% in the UK.
Between 1995 and 2000 manufacturing output grew by 27% in the US but only by
11% in Britain. Approximately speaking the US economy now produces almost twice
as much as it did in 1973 with the same number of workers, whereas Britain
produces about the same amount with the workforce cut by one half. This means
that the US economy has invested in new machinery and increasing productivity in
order to expand output and gain a bigger share of the world market. Meanwhile
Britain's capitalists have concentrated on squeezing us harder to get more
profits but a declining share of the world's markets. This is the real meaning
of the counter-revolution on the shopfloor over the last two decades. It has
been a desperate attempt by capitalism to increase Absolute and Relative Surplus
Value.
A recent report by The Institute of Management Services acknowledged that
"the superior performance (in improving productivity) in manufacturing
relative to services reflects efforts by manufacturers to further reduce
staffing levels while simultaneously boosting output."
While British workers work longer hours than their counterparts in Europe and
the US, their productivity while in work has been increased through a remarkable
increase in toil. This pressure could not continue indefinitely without
provoking a response from the working class. It is not the ‘laziness of
British workers' but the failure of British capitalism to invest which makes
British manufacturing uncompetitive.
This is also illustrated by the UK Treasury survey, which shows that US
capitalists invest 46% more in capital equipment per worker than their British
counterparts. In the high-tech sector they invest nearly three times as much!
The French capitalists invest 75% more and the German capitalists 50% more.
The other factor that drives productivity is the skills of the workforce.
Britain's short-sighted capitalists prefer cheap unskilled labour. According to
the Treasury study, 57% of UK workers have no qualifications compared with 54%
in the US, but only 32% in France and just 20% in Germany. No wonder the
profitability of UK companies has fallen sharply in the last five years and is
now back to the lows of the early 1980s. Profit levels are £30 billion below
what they would have been if they had grown at the same rate as GDP.
The UK's poor productivity and company profitability demonstrate that to a
large extent British capitalism gave up on industry and manufacturing a long
time ago. Instead, the UK has increasingly become like a rentier economy. It is
an economy that does not make much any more, and what it does make is largely
foreign owned, the result of foreign investment. Instead, British capitalism
concentrates on selling things others make or on lending money to others to make
them, or else it lives off the income 'earned' from investments it makes abroad.
This is increasingly an economy that survives through business services and
finance. That sector alone now contributes nearly 29% of each year's national
income. Financial services contribute 9% towards annual income and they now
provide the single biggest area of employment outside the public sector.
Investment is not into the productive sectors of the economy or even into the
public sector to maintain the infrastructure (railways, roads) and services
(health, education) that are vital to make the private profit sector work.
Despite the headline figure of the second biggest economy in Europe – which in
any case depends on what measure you use – anyone travelling on Britain's roads
or railways would conclude that Britain was at best a second rate economy.
Although Britain's GDP per person is high, so are prices and the cost of
living. At what the economists call purchasing power parity levels Britain's per
capita GDP is ninth out of the 15 EU economies. At the same time Britain is
amongst the most unequal of all industrialised countries. GDP per capita is just
a statistic. The wealth is not really divided up evenly amongst the population.
The share of total income received by the poorest tenth of the population is
under 3 percent, while the richest tenth share nearly a third between them.
There are 3.9 million children in Britain living below the poverty line.
There are 150,000 16 and 17 year olds who receive nothing, not in education,
training or work, they are too young to claim job seekers' allowance. Many of
the parents of the millions of children living in poverty are not even
unemployed. 1.75 million children live in households where one or both parents
work, and yet their income falls below the poverty line by more than £50 per
week. So much for the minimum wage, and Brown's stated, yet hardly ambitious aim
of reducing child poverty by half in the next half a century.
Half of all parents on Income Support are paying off loans from the social
fund, which lends rather than grants money for things like household repairs.
British capitalism is very democratic. Even the poorest are forced to get up to
their necks in debt. The Citizens' Advice Bureaux are dealing with new cases of
bad debt worth more than £1.2 billion each year.
Door-to-door loan merchants are leeching fortunes out of the poorest estates
in Britain. Offering loans at massively inflated interest rates compared with
the banks, which would refuse the unemployed and the low paid, they charge
anything between 100 and 1000 percent for their loans. A survey conducted on
three streets on the Meadowell estate on Tyneside found residents paying out
more than £60 a week each to such credit companies. Their average income
meanwhile is £200 per week. In total the residents of these three streets are
paying out £375,000 a year to companies like Provident who made a pre-tax
profit of £150 million on loans like these last year.
These facts, which can be added to at will, are sufficient to illustrate the
terminal decline of British capitalism. On the basis of this miserable, diseased
system there is absolutely no way out for the working class and the mass of the
population.
Far from the fundamentals being sound, the weakness of the British economy –
the decline of which has been masked by the world boom, but which has not halted
– means that Britain will be hit hard by a new slump. Blair, Brown and co who
imagine they have solved the boom slump cycle will find they have no more solved
the contradictions of the capitalist system than they have solved the problem of
Ireland.
The heavy reliance of the British economy on banking and services, and the
decline of her manufacturing base mean that Britain is especially dependent on
the world market. This is reflected in the record trade deficit. Falling exports
saw Britain's trade in goods fall into its deepest deficit since the state began
collecting records in 1697 during the reign of William of Orange. Imports in
1697 were £3,344,000 while exports and re-exports were £3,391,000, giving us a
surplus of £47,000. Today, the economy is worth around £1,000bn a year, and
the trade deficit in goods was running at well over £100m a day in October. UK
trade in manufacturing, food and oil was in the red by £3.6bn in October,
compared with a shortfall of £2.7bn the previous month.
Meanwhile, Brown predicts a rebound in Britain's exports next year on the
back of a stronger global economy. There is no evidence to suggest such a
recovery in the world market, on the contrary, all the evidence points in the
opposite direction. Brown's statement nonetheless confirms the extent of the
reliance of the British economy on the world market. The Labour leaders have
placed all their faith on the world market, but that horse will prove to be
lame.
The value of Britain's goods exports fell by almost 4% in October, while
imports were up by just over 1%. Over the latest three months, which
statisticians consider a better guide to the trend than one month's figures,
both exports and imports were down – by 8.2% and 1.6% respectively.
Even though the deficit in goods was partially offset by a surplus in
services, officials said that the country's underlying trade picture was
deteriorating. In the three months to October, the figures showed a deficit in
goods of £9.8bn – another record. The Office for National Statistics said that
total exports had fallen by £4bn over the latest three months, with the
collapse in the demand for hi-tech goods blamed for a hefty drop in overseas
sales of computer components, such as microchips. Exports to the Irish Republic,
which became a European base for US computer firms in the 1990s, fell by £1.4bn
as a result of the global downturn since the end of the dotcom boom almost three
years ago.
Traditionally, the balance of payments became a worry to the government
because excess demand sucked in imports. The trade gap was an early warning of
inflationary pressure building up in the economy. This would prompt them to
increase interest rates, as would the dumping of sterling on world markets,
which would follow a continuation of such poor trade figures. Such an increase
now would result in a further collapse of investment, and of consumer spending,
sending the economy spiraling into recession.
This time, however, the problem is exacerbated by the weakness of exports,
with the widening of the deficit a reflection of the competitive – and
deflationary – pressures in the global economy. This would usually prompt a cut
in interest rates to try to boost spending and investment.
The bourgeois economists cannot agree on what to do next. Some argue that
Britain should join the euro. Others argue for a devaluation. Raise interest
rates, cut interest rates. Blair and co prefer the Mr. Micawber approach – "something
will turn up". In the end, whatever they did would make no difference. Something
will indeed turn up – a slump.
Weak global demand, the strength of the pound and the failure of Britain's
capitalists to invest means that industry in Britain just as elsewhere has
already been in a recession for the past year. This has been masked, however, by
consumer spending, which continues to defy gravity.
The successes of the UK economy under Labour since 1997 were made possible in
the first place by the great stock market boom of the late 1990s. That boom
drove up the wealth of the rich massively. On average, the wealth of UK
households reached four times their annual income. Of course, that ratio was
much higher for the rich. With the rich and the middle-class feeling rich, they
spent money and the economy went forward. Brown and co's claims to have fixed
the economy appeared to have a ring of truth about them – but only if you were
taken in by the glitter on the surface.
The bubble of the stock market has long since burst. Stock market prices are
down 60% since their peak in March 2000 and the bonuses of the fat cats in the
City of London have been cut, while the big investment houses are sacking their
workers (the lower-paid ones of course). The wealth ratio has fallen back to
just three times, a 25% loss (on average and higher for the rich). If the stock
market continues its decline in 2003 it will be on course to be the longest bear
market on record.
But there is still one bubble left in UK capitalism – the property market.
While UK industry stagnates and the financial sector cuts its throat, house
prices go on rising at a 30% rate. This cannot last. And while it does, in the
words of the deputy governor of the Bank of England, Mervyn King, it is causing
'major imbalances' in the economy.
Sir Eddie George, the governor of the Bank of England, has confirmed that the
fear of stoking the boom was one reason why they had held back from lowering
borrowing costs.
"The risk of cutting interest rates now is if it would exacerbate larger
risks further down the road… of a larger shock later on," he said.
Much of the surplus value created by British workers is being sucked into
property speculation or investment overseas instead of being invested in
improving productivity and profitability in productive sectors or into exports.
As a result, the Bank of England fears that inflation will stay higher than in
Europe or the US because of the property boom, forcing the Bank to keep interest
rates higher than in Europe or the US (UK 4%, US, 1.25% and Europe 3.25%). In
turn these high interest rates will stop companies borrowing to invest, so
economic growth will weaken. The economic gurus at the OECD demand that the Bank
of England increase interest rates to reduce borrowing and spending. They
imagine this would allow the economy to achieve a soft landing. It would result
in an almighty crash, with a collapse in investment and spending. With rates at
4 percent, a rise of just one percent would represent a rise in monthly mortgage
payments of 25 percent. The consequences for spending would be calamitous. Yet
the Treasury itself is forecasting such a rise over the next twelve months. Even
if the onset of a slump encouraged them to cut rates instead as Eddie George
points out that would only extend a little more credit, resulting in a greater
crash later. Doing nothing will not cause investment to rise, any more than
doing something would. Jobs will be lost and the property bubble will burst. All
this could happen just at a time when the world slips into a new recession.
The Bank of England admits that consumer spending on the basis of credit is
all that is keeping the economy afloat. Such growth is unbalanced and
unsustainable but, says Eddie George, "We have taken the view that
unbalanced growth is better than no growth at all."
As a result the level of indebtedness has reached record proportions in
Britain during the boom. Consumer borrowing has been growing by 14 percent a
year. While outstanding home loans now amount to £400 billion, other personal
debt, credit cards, overdrafts etc, now total over £80 billion. As Marx
explained credit takes the market beyond its limits. It is spending tomorrow's
money today, and consequently when tomorrow comes there will be nothing to
spend. This is a binge, and as we all know from experience, there is always a
morning after the night before. As ever it will be the working class who will be
asked to pay for capitalism's hangover.
Hanging over the British economy right now is an unsustainable property boom,
or more accurately, property bubble. House prices have reached record highs,
with prices rising in some parts of Britain by 30 percent last year alone,
almost reaching the 34 percent record at the end of 1988. One year later prices
collapsed. (See Chart) This is a crisis of capitalism's own making. But it will
be the working class who will be asked to foot the bill. Capitalism peddled the
myth that the boom was never going to end. Interest rates fell to 40-year record
lows. Borrowing was easy. So why not buy a new house? The statistics are clear,
but you only have to look at the TV schedules dominated by such programmes as The
House Doctor, Hot Property, and Location, Location, Location to see
the obsession with housing in the British economy.
Of course if everyone starts buying houses then inevitably prices rise, and
if they rise so much that the house you bought just a few years ago is now worth
far more than you originally borrowed, why not borrow a bit more of that spare
equity, to buy a new car, a new television, or to pay for a holiday? The Centre
of Economic and Business Research calculates that such equity withdrawal
amounted to almost £40 billion last year, £10 billion in the three months from
April to June alone, financing six percent of consumer spending. A colossal
speculative house of cards has been built which must sooner or later crash.
Yet in a desperate attempt to place one more card on top of the already
wobbly structure the banks come up with scheme after scheme to convince you to
borrow. The Northern Rock Building Society is prepared to loan up to £1 million
on the basis of a self certification mortgage, i.e. a mortgage where they don't
bother to check your income before they lend you the money. Bristol and West
have just introduced a 40-year mortgage for 110 percent of the value of your
property, where you can borrow up to four times your income. Some lenders will
offer you a loan for six times your annual income. This is a desperate attempt
to keep the property bubble from bursting. It is also a recognition of the fact
that workers are already struggling to pay for their housing needs. There is a
chronic shortage of rented accommodation, and workers on average wages cannot
afford to buy. In the past you could typically only borrow three times your
income for a mortgage. With average house prices in London now over £200,000
however, you would need to earn over £60,000 per year to get a 95% mortgage on
a modest family home.
In fact the housing shortage and the cost of housing have already played an
important part in generating the new mood of militancy. Workers in London in
particular, but not only in London, have been on strike precisely over wages to
pay for housing. This is true of several disputes over London weighting. Even
the firefighters have explained that in many cases they cannot afford to live
near their fire stations, and have to take on second jobs to pay their bills.
This bubble will burst. With jobs under threat people will not buy new
houses. Already prices are reaching a limit, which explains all the new schemes
to entice you to borrow. With average prices, in London particularly, reaching
seven times average income, they cannot rise much more. The rise of 30 percent
will be followed by a fall of similar proportions. Many thousands will be
trapped with negative equity (owing more than the value of their property). Some
will lose their homes. Now it is only a question of whether slump in the economy
will lead to a crash in property prices, or whether the bursting of the property
bubble and the collapse of consumer spending which will follow will push the
economy deeper into recession.
For all their pipedreams Blair and co will not prevent a slump. Old King
Canute had more chance of holding back the tide.
In any case, even before the slump there have been important political
developments, affecting all classes in society. There is a renewed mood of
militancy developing in the working class. At quite an early stage there have
been important changes taking place in the trade unions. Political and economic
developments, at home and abroad, in the next period will have dramatic
consequences for British society.
The boom did little to benefit the lives of millions of workers. The onset of
a new slump, factory closures, rising unemployment, will hit workers hard.
However it is not simply conditions of boom or slump, which determine the
outlook of the working class. It is above all the uncertainty caused by change,
the movement from boom to slump and vice versa which disturbs the outlook of
workers and indeed all classes in society. We do not welcome a slump because of
the consequences for the lives of millions of workers. Nor do we await a slump,
anticipating that such a development will mean an explosion of strikes and
militancy. On the contrary, the first effect, of a deep slump in particular, is
usually to check the movement of the working class, because of the fear of
losing their jobs and their houses. However, this is not a black and white,
automatic response either. What is decisive is the situation that existed before
the onset of slump. In the event of a deep recession following a per
