Two years ago we published Prospects for the world revolution Part One, Two, Three and Four. The present document – which was discussed and approved at a gathering of Marxists from many different countries in early August – updates the analysis of the Marxist tendency on the world situation in the light of the latest developments. Part One deals mainly with the world economy, with particular attention being paid to the position of the USA and the growing power of China. Parts Two, Three, Four and Five will deal with the European Union, world relations, Iraq and the Middle East, the South Asian subcontinent, Latin America and the effects all this is having on the consciousness of the masses and the mass organisations of the working class.
The whole of history is a process in which contradictions accumulate slowly, until they finally reach a critical point in which quantity becomes transformed into quality. The task of dialectics is to establish when such critical points emerge. For the last 10 or 20 years all the contradictions have been accumulating on a world scale. Now we see the results. In the history of the world since 1945 never have we seen such tremendous convulsions at all levels: economic, social, diplomatic and political. Never have the contradictions of the capitalist system been so clearly expressed in every part of the globe.
The present situation on a world scale resembles what is called a critical state in physics, where particles are subject to the wildest fluctuations. This creates certain difficulties for perspectives, which in the previous period were more predictable. Just as it is relatively easy to predict the laminar flow of a liquid, but difficult to predict the outcome of turbulence, so the world situation, balanced on the edge of chaos, can produce all kinds of surprises, both for the ruling class and for the Marxists.
The critical state in physics can be expressed by a simple experiment, in which the addition of a single grain to a heap of sand triggers a landslide. At the critical point, any accidental factor can trigger a serious crisis. This is known in modern physics as a "non-equilibrium system". This phrase describes very well the present situation on a world scale. It is the fundamental characterisation of the historical epoch through which we are passing. This is what determines our analysis – not this or that event. It is necessary to look beyond the immediate particulars and look for the deeper historical processes.
There are certain historical periods in which nothing much seems to happen. For a long time after the end of the Second World War, the capitalist system succeeded in establishing a relative and temporary equilibrium. The division of the world between mighty Stalinist Russia and US imperialism led to the freezing of international relations for a whole historical period. At the same time, the long period of capitalist upswing led to a reduction of the tensions between the classes, at least in the advanced capitalist countries. Revolution was off the agenda for decades, although even at this stage there was the revolution of May 1968 in France. But now the whole process has been thrown into reverse.
These remarks refer, of course, to the advanced capitalist countries of Europe, Japan and the USA. For two-thirds of the world's population living in the undeveloped countries, there was no respite. This was a period of almost continual upheavals, wars, revolutions and counterrevolutions. But for the developed capitalist countries, this was not the case. For a long time the conflicts and tensions were hidden beneath the surface. The working class was checked by the force of inertia. But now all the old equilibriums have been disrupted. The unseen forces have begun to assert themselves.
What is the main characteristic of the world situation? It is precisely the breakdown of the old stability, the violent disruption of the old equilibrium everywhere. Instead, wherever we look we see colossal and unprecedented instability and volatility at all levels. This is the most unstable period since 1945. Instead of boom, full employment and prosperity, there is crisis, growing unemployment and cuts in living standards, even in the most prosperous countries. The gap between rich and poor is constantly increasing and economic power is concentrated into fewer and fewer hands.
Gone are the old certainties, the "American dream", the conviction that tomorrow will be better than today, just as today was better than yesterday. In the advanced capitalist countries the present generation will be the first generation since 1945 whose living standards and working conditions will be worse than those of their parents. The relations between the classes are increasingly tense and unstable. To the degree that the real situation impresses itself on the consciousness of the masses, the stage will be set for an explosion of the class struggle everywhere. It is true that consciousness lags behind events, but it will catch up with a bang. That is the essence of a revolution.
The old equilibrium has been destroyed, not only between the classes but also between the nations. Not since 1945 has the world situation been so disturbed and chaotic. The relations between the powers are increasingly tense, and the USA's ambitions to world hegemony are leading to one war after another. Thus, the war in Iraq was not an accident but expressed a general tendency. It has all kinds of implications for the general situation in the Middle East and on a world scale.
We explained this a long time ago, when all other tendencies were plunged into despair by the apparent apathy of the masses. We explained that beneath the apparent surface of tranquillity there was a silent accumulation of bitterness, anger, frustration and despair. This is what Trotsky meant when he referred to the molecular process of the socialist revolution. When the situation reaches the critical point, there is a tendency to growing instability and turbulence, which can be set in motion by even the smallest change.
Instability is rooted in the situation itself. Thus, changes that in a different situation would have no effect, or an insignificant result, now set off colossal transformations. The nature of these changes can be economic, political or military. But in every case, the effects are always disproportionate to the causes. Non-dialectical thought, which always skates over the surface of events without ever suspecting the existence of a deeper lawfulness, seeks the explanation in this or that incidental factor – the actions of George Bush, the lunacy of bin Laden etc. These individual factors undoubtedly play a role, but the deeper cause is the fact that the capitalist system on a global plane is coming up against its limits and foundering on its inherent contradictions of private property and the nation state.
The fundamental contradictions express themselves most graphically in the outbreak of wars like the war in Iraq and the invasion of Afghanistan. Here we see how a military event immediately set off a chain of reactions that was not foreseen by its authors. Even before the first shots were fired in Iraq there were huge demonstrations of protest in London, Washington, Rome and Madrid. In London alone there were two million, and in Spain six million. How do we explain this? Certainly not by the skills of the organisers, who were more surprised than anyone else by the results. The only possible explanation was the existence of a deep and widespread discontent among the mass of the population that was waiting for an outlet through which to express itself.
The convulsive character of the present period is no accident. It is merely an expression of the fact that on a world scale the capitalist system has exhausted its potential as a historically progressive force. The development of the productive forces, which achieved impressive results in the period 1945-74, is now being held back by the limitations of private property and the nation state. These now constitute the main barriers in the way of human progress. The future development of the human race depends on the sweeping away of these monstrous barriers and the achievement of a harmonious and rational economic system on the basis of world socialism.
Sudden and sharp turns are rooted in the situation. If ever there was a time when routinism was out of the question, this is it. In such periods it is necessary to expect the unexpected! The events of September 11th were an example of the inevitability of such sudden and sharp changes. The results of this particular action were, as we predicted, reactionary. But the seeds of future revolutionary developments are also being prepared, even by events like this. The pendulum can swing rapidly from left to right and back again, opening up great possibilities for the revolutionary tendency on a world scale, provided we are able to grasp them. This is no time for scepticism and waiting upon events. We must be prepared, and prepare others, for the great events that impend.
Lenin said that politics is concentrated economics. The vagaries of the world economy find their expression in the psychology of all classes, beginning with the ruling class. The mood of the spokespersons of capital swings between the wildest optimism and the deepest depression. These mood swings are themselves an expression of the general instability. At the moment, the bourgeoisie and its economic spokespersons speak optimistically about an imminent recovery of the world economy. There can, of course, be no doubt that at a certain point, some recovery will take place. There can be no such thing as a final crisis of capitalism. History shows that capitalism can always get out of even the deepest slumps. It will not collapse of its own accord, but must be overthrown by the conscious movement of the working class.
However, in the optimistic declarations of the bourgeois there is a large amount of wishful thinking. They cannot disguise the fact that all the beautiful dreams they had in the 1990s of the elimination of the boom-slump cycle have evaporated, leaving a bad hangover behind. World capitalist leaders are pondering their economic futures. There is little sign of any strong economic recovery in stagnant continental Europe or Japan.
The economies of the USA and Britain are currently growing at 3-4 per cent a year while Europe's big capitalist economies and Japan are hardly managing 2 per cent. Unemployment – according to the official figures, which understate the real position - is 5 percent in the US and the UK, while it is double that in France, Germany, Italy and Spain and now at a record high in Japan. And now there is the danger that record high oil prices could stop in its tracks the short Asian economic boom, pushing China and Japan into recession.
What growth there is concentrated mainly in one country – the USA, and even there it is confined mainly to the sphere of consumption. Even in the USA, despite the recovery, the symptoms are contradictory. The evidence for a significant recovery of productive investment – the real motor-force of any boom – is as yet inconclusive. This is closely linked to the question of profitability. The capitalists are desperately trying to restore the rate of profit at the expense of the working class. The present "recovery" in the USA is accompanied by a growth in unemployment, with further retrenchment, factory closures, sackings, downsizing and cuts. To the great majority of Americans this does not feel like a boom at all. Now the American bourgeoisie has begun to worry about the danger of inflation again – particularly the high price of oil that is threatening the recovery.
In the latest report by the US government's Bureau of Census, it is revealed that, under George Bush, the number of Americans living in poverty has risen by nearly 1.5million in 2003, the third straight year of increase. Now nearly 36million Americans live in poverty (as defined very narrowly by the Bureau, meaning that you have to be virtually destitute to qualify as poor, earning just $6,000 each in a year). That is 12.5 percent of the population. Child poverty is even worse. There are 13m American kids in poverty, or 17.6 percent of all children, up from 16.7 percent. These poverty rates, even as defined by the Bureau, are no better than they were in the late 1960s.
In order to appreciate the real state of affairs, it is necessary to resort to an historical analogy. Nowadays the bourgeois begins to cheer wildly if it gets a growth rate of three percent. Yet historically, this is extremely low. Let us consider the figures for the growth of the GDP of the advanced capitalist countries in the ten years prior to the year of the first post-War recession – 1973:
Japan - 146 percent
Canada - 69 percent
France - 69 percent
Italy - 58 percent
West Germany - 54 percent
USA - 48 percent
OECD - 63 percent
From these figures we see that in the period of upswing, the average annual growth of the OECD countries (5 percent) was more than double the figure that they now aspire to (without much success), while Japan actually achieved an annual growth rate of over 9.4 percent.
All the measures adopted by the Japanese capitalists under pressure from Washington have failed to produce the desired effect. This is a clear answer to the Keynesians in the Labour Movement who believe that the way to get out of the crisis is to stimulate the economy by public spending. Japan has, in effect, pursued Keynesian policies for most of the last period. It launched the biggest programme of public spending since 1945. The Japanese bourgeois threw caution to the wind. What was the result? They plunged the Japanese economy into debt, turning a budget surplus of 1.4 percent of GDP in 2000 to a deficit of 4.6per cent of GDP in 2003. Nor has this guaranteed stable long-term growth.
The sickliness of the world economy is shown by the global tendency towards deflation. In the first two quarters of 2003, the nominal GDP growth of the G7 nations was only 2 percent (on an annualised basis). Even this growth is only sustained by US consumer spending, which is increasing at an annual rate of 3per cent, as opposed to 1.8 percent in Japan and 0.8 percent in Germany. Growth in the EU has been even slower than in Japan for the last three years. Consumer confidence in Italy and Belgium has fallen to a nine and ten year low respectively. In Holland it stands at the lowest level since 1958. The forecasted growth for the EU is 0.75 percent.
The USA and the world
The American bourgeoisie has managed to keep its nose above water by using its special position and enormous economic and financial muscle. But from an orthodox bourgeois point of view it has behaved irresponsibly. By attempting to avoid a slump, it has generated a whole series of new contradictions and imbalances that can eventually undermine the whole system of world trade that was put together so painstakingly after World War Two. This poses immense risks for world capitalism. But the dominant group in Washington is unconcerned about this. They are shortsighted money-grubbers who are only concerned with American interests. Their slogan is: "what is good for America is good for the world". Unfortunately, this is not necessarily the case.
At bottom, the global crisis of capitalism is a crisis of overproduction (expressed as over-capacity). The crisis is aggravated by debts and deficits, but they are not the cause, only symptoms of the underlying problem. In order to solve the current account deficit, the USA must import less and export more. But in present conditions this automatically brings America into conflict with the rest of the world. If the present upturn in the US economy is to be maintained, it can only be by finding new markets for its products. This can only be at the expense of Asia and Europe. If the increase in demand in the USA only serves to increase the volume of imports from the rest of the world, it will have been entirely counterproductive from the standpoint of the American bourgeoisie.
A recovery based on the growth of consumer demand does not represent a healthy economic recovery. Despite the high rates of growth registered, the underlying sickness of the American economy is shown by the persistently high rate of unemployment. This has given rise to a noisy protectionist lobby that is demanding measures to protect US industry against foreign competition, especially from China, which has a big trade surplus with the USA, amounting to about half the total US deficit. This situation is producing rising tension between China and the USA. But it does not affect China alone. Taiwan, South Korea and other Asian economies have also been expanding at the expense of the USA, thanks to the fact that they have deliberately kept their currencies low.
In the last three years 3 million jobs have been lost in US manufacturing industry – almost one in six in that sector. A falling dollar is a way of increasing the competitiveness of US exports. In other words, it is a way of exporting unemployment to Europe and Japan. It will put still further pressure on Europe and aggravate tensions between Europe and America. A weaker dollar will undoubtedly help US exports, but at the expense of Europe, China and Japan. It will exacerbate the social tensions and heighten the class struggle in these countries. But this is a matter of indifference to the American bourgeois, who are noisily demanding action against China and other competitors in world markets. This is a measure of the depth of the crisis on a world scale.
China's economy has been growing rapidly, much faster than the rest of the world. It is a colossus and in future will undoubtedly play a key role in world history. In the context of the world economy it has played the role that the West once thought that Russia would play. Despite the accusations that China has been benefiting from her exports to the USA and other markets, in fact China's imports have been growing faster than her exports – 40 percent a year as against about 30 percent. But this does not impress the USA, which has a big deficit in its trade with China. In fact, its bilateral deficit with China is now bigger than its deficit with Japan. The Chinese currency, the yuan, is pegged to the US dollar, and has been fixed at 8.3:$1 since 1994. The Chinese were originally praised for this. Now it is said that the yuan is undervalued by as much as 56 percent, and China is accused of dumping cheap produce on the US market.
Beijing is resisting American pressure to revalue the yuan, because it is terrified of the social and political effects of unemployment. This has led to a hysterical campaign in the USA against China. There are moves to put tariffs on Chinese goods if they are deemed to be causing "market disruption". So much for America's commitment to free trade!
The economies of Asia are dependent on the US market. Exports now represent 64 percent of Asia's GDP, as opposed to 55 percent in the 1990s. The capitalists of Taiwan, South Korea and China bought large amounts of dollars to try to keep the dollar from falling any further and thus boost their exports at the expense of the USA. They need to keep their exports artificially cheap in order to maintain their export-led growth. But this causes severe contradictions with the capitalists of the USA, who wish to keep imports down and increase their share of world trade. There has been a sharp rise in tension, not only between the USA and Europe, but also between Asia and America. In the end, the efforts of the Asian capitalists did not prevent the dollar from falling still further.
This is the central problem: the whole world is now dependent on the economy of one country – the USA. In the past this was not the case. Strong economies like Japan and West Germany acted as locomotives for the world economy alongside the USA and could take the strain if America faltered. But that is no longer possible. After a decade in recession, Japan has at last been showing signs of recovery, but the other former motor of the world economy, Germany continues to stagnate, with 4.4 million unemployed (about ten percent). The main support for the world economy still remains the growth of consumer demand in the USA, which provides the rest of the world with markets for its exports. If this begins to falter, the world economic recovery would soon grind to a halt.
This highlights a fundamental problem. In the past few years, US imports have considerably exceeded US exports.America has been sucking in imports from other countries, thereby keeping them afloat. This is very pleasant for European, Chinese and Japanese manufacturers, but not so pleasant for their American confreres. American industries are forced to close and American workers are losing their jobs. Moreover, the US current account (CA) deficit had been increasing alarmingly. If it had continued to increase at the high rate of last year it had been estimated that it would have reached about $800 billion, or 7 percent of US GDP by the end of 2004. This would be an intolerable situation, resembling a massive haemorrhage, where the huge amount paid in interest would drain away a great part of the wealth of America. But, as we predicted one year ago, things were not allowed to get that far. The "unseen hand" of the market has intervened to introduce a correction through a devaluation of the dollar. This will have serious consequences for the world economy.
The current account deficit of the USA is now the highest in the country's history. In the past the USA was the world's biggest creditor nation. It is now the world's biggest debtor. Even at the end of the 19th century, after the Civil War, America's deficit was normally less than 3 percent of GDP. At the end of the 1970s, after decades in which the current account was always in surplus, the USA possessed a net stock of foreign assets worth about 10 percent of GDP. But in the 1980s, persistent current account deficits turned the USA into a net debtor. Since that time it has got deeper and deeper into debt.
This situation is only maintained by massive inflows of foreign capital. However, what flows in can also flow out when the foreign investors realise that the whole structure is about as sound as a hut built on chicken's legs. In the Reagan era, the deficit peaked at 3.4 percent of GDP. It now amounts to $589.5 billions (June 2004) - the equivalent of 5.2 percent of GDP. If this is allowed to continue unchecked, the interest repayments on the accumulated debts will constitute an intolerable drain on the wealth of the USA. That will not happen, of course, because, as we have explained earlier, long before we get to that point, the foreigner investors would begin to unload dollars, causing a steep devaluation of the US currency. This is already happening.
The charter of the IMF prohibits the manipulation of currencies by countries for the sake of gaining "an unfair competitive advantage" over its trading partners. But all is fair in love and war, as the saying goes, and that is also applicable to trade wars. Unfortunately for the Europeans and the capitalists of Asia, if it comes to a struggle for global markets, America has all the muscle. Bush has already shown that rules and regulations matter very little when it comes to a struggle over vital interests. He no sooner stepped into the White House than he tore up the Kyoto agreement. He then proceeded to ignore or reject other international agreements on disarmament, trade and any other issue that did not suit him – or, more correctly, the interests of the big US corporations.
The whole situation is completely unsound and cannot last. The US dollar is already under pressure. It fell steadily for 18 months and then rallied against the Euro. But this will not last. Since its peak in 2002 the dollar has fallen sharply against the currencies of its trading partners. The Americans hope that this will be achieved through a controlled "correction". However, estimates of how far the dollar must fall vary from 15 percent to as much as 50 percent. A depreciation of 50 percent would push the euro to over $2 and the yen to less than 60 to a dollar. Such a huge devaluation is extremely difficult to control.
Once people start unloading large quantities of dollars onto the world's money markets, it can escalate into a full-scale panic. There is a danger of a vicious downward spiral in which one factor impacts upon another, driving the whole world economy down. Lack of demand leads to falling prices and profits, which, in turn, lead to falling investments, factory closures, and increasing unemployment. These factors serve to undermine consumer confidence, leading to falling demand, and so on. What happened in South East Asia can be repeated with far more devastating effects with the US dollar. This could very easily push the world economy into a deep slump, as The Economist points out:
"That kind of depreciation is hugely risky. The more a currency falls, the greater the danger that it will fall too far, too fast. A sudden dollar crash could roll financial markets and plunge the world into recession." (The Economist, 20th September, 2003.)
It goes on to warn:
"Moreover, the dollar is unlikely to fall evenly against other currencies. The Asian central banks' determination to stop their currencies rising has, so far, concentrated the dollar's fall on the euro, with a 20 percent drop against the European currency since early 2002, compared with 8 percent overall. A further, even bigger drop in the dollar, targeted on the euro, would probably sink Europe's economies." (Ibid.)
It concludes, "The risk of a dollar crash and a subsequent financial meltdown are not negligible." In the words of Ken Rogoff of Harvard University, who was a chief economist of the IMF, "The world is set to jump off the top of a waterfall without knowing how deep the water is below." (Ibid.)
Despite all these warnings, the steep fall of the dollar reflects the unsound position of the US economy and finances. Consumer confidence in the USA has shown a marked decline, reflecting the high level of debt and uncertainty about the future. The growth of prices is outstripping the increase in wages. The high budget deficit (currently 4.7 percent of US GDP) limits the scope for further tax cuts and reductions in interest rates. This means that the world economy cannot continue to depend on the USA for much longer. That process is reaching its limits. The American bourgeoisie is not very concerned about this. It is allowing the dollar to fall in order to obtain an advantage over its rivals. It aims to solve its problems at the expense of China, Europe and Japan, even if the price is to cause chaos on a world scale.
For a number of years the bourgeoisie has been ceaselessly disseminating the idea that the advent of globalisation has eliminated all the old contradictions between nations and laid the basis for a peaceful and prosperous future. The more dim-witted revisionists like Professor Hobsbawm have naturally swallowed these arguments whole. They try to present the movement towards free trade and globalisation as an inevitable and automatic process, leaving out of account all the contradictions and countervailing tendencies. In fact, even the most superficial examination of history shows that periods of greater free trade (such as before the First World War) have alternated with periods of ferocious trade wars and protectionism (such as the 1930s), and that the bourgeoisie will resort to protectionism whenever its interests are threatened. That remains just as true of the present epoch as it was when Marx or Lenin were alive.
Despite a decade or more of "globalisation", none of the old contradictions have been removed. On the contrary, they have been multiplied a thousand-fold and reproduced on a far vaster scale than ever before. The conflicts are being played out before our eyes, passing from one country and continent to another ceaselessly and with incredible speed. The national question, instead of disappearing, as Hobsbawn and others imagined, has assumed an intense and particularly poisonous character everywhere. One war follows hard on the heels of another. And at bottom this reflects the impasse of the world economy, shackled and suffocating in the straitjacket of the "free market economy." This is the epoch of capitalism "red in tooth and claw."
These underlying antagonisms are the real explanation for the change in America's role in the world and its adoption of a more aggressive, thrusting imperialism. The capitalists of all countries are faced with the iron necessity of conquering foreign markets, raw materials and spheres of influence. In the present situation, they will fight over even the smallest markets, like dogs fighting over a bone. In this climate the idea that supposedly impartial international forums can eliminate conflicts between the imperialists is as nonsensical as the idea that one can persuade a man-eating tiger to eat grass. This applies not only to the UN but also to the WTO, the future of which is now in doubt.
The threat of protectionism
What really worries the strategists of Capital is not a slump, but the threat of protectionism. The capitalist system will always get out of even the deepest slump. They did this in 1939 by going to war. Indeed, the contradictions between the capitalist powers are so serious that in the past it would have led to war between the USA, Europe and Japan. But for reasons we have explained in previous documents, a new world war is ruled out, at least in the near future. All the accumulated contradictions in world capitalism must therefore be expressed through different channels. This is shown by the increase in protectionist tendencies that threatens the delicate fabric of world trade that was painfully put together after 1945.
The expansion of world trade (the intensification of the international division of labour) was one of the main factors that enabled world capitalism to avoid a deep slump and achieve the results it has achieved in the last fifty years. Trade barriers, at least between the advanced capitalist countries, have been substantially lowered since the 1960s. In this way, one of the main barriers to economic growth, the nation state, was partially overcome for a temporary period. But there is no guarantee that this situation will continue in the future. Historically, periods of economic upswing and relatively free trade have been followed by periods of downswing accompanied by protectionism, as in the 1930s. That is the main worry for the bourgeois at the present time.
The collapse of the world trade talks at Cancun last year was a warning that the antagonisms between the main capitalist powers – and between them and the underdeveloped world – have reached new and menacing proportions. The Economist commented in an editorial: "Cancun's collapse leaves the whole system in peril. It comes less than four years after a similar flop in Seattle in 1999, where efforts to launch trade talks failed amidst street violence. After two such abject defeats in four years, the WTO is in enormous trouble." (The Economist, 20th September, 2003.)
It goes without saying that the reason why the talks collapsed was not the street demonstrations but the profound antagonisms between the different capitalist powers themselves. The Americans were unwilling to reduce subsidies to cotton producers. The level of support given to farmers in the OECD has remained more or less the same for the past 15 years – about $300 billion. In the USA, 25,000 cotton farmers receive more than $3 billion a year in subsidies. This affects mainly producers in the poor countries. The Economist was quite clear about the reasons for Washington's position: "A presidential election is looming in America: starving peasants are not a pressing constituency." (Ibid., our emphasis) But the USA is not the only country to behave in this way. Japan is not prepared to reduce its subsidies to rice producers. The EU refuses to reduce subsidies to its farmers. One way or another, they are all adopting protectionist measures.
The WTO was formed out of the old GATT, which was run by the rich countries. Poor countries played almost no role. But the attempts by the bourgeois of poor countries to defend their interests have led to the collapse of the talks. The American, Japanese and European imperialists, despite all their hypocrisy, are not interested in the plight of poor countries, but only in grabbing and holding on to markets, raw materials and spheres of interest. The USA in particular took a hard line at Cancun and in effect sabotaged the talks. It is not at all clear that the WTO talks can now be revived.
All the talk about the "sacred principle of free trade" has been shown to be completely hollow. America – and every other nation – cynically defends its own interests. It is a question of "every man for himself and let the devil take the hindmost!" They are in favour of protecting American companies and agricultural interests first and last. Therefore, the Americans wanted the Cancun talks to fail. In reality, protectionist sentiment has been on the increase in the USA for at least a decade. The USA, as the engine of the world economy, has been sucking in imports. The trade deficit is soaring as jobs are cut. The anger of those affected is directed against China and other competitors.
China now has a huge surplus in its trade with the USA. The US capitalists are demanding that China revalue the yuan or face reprisals. But China shows no sign of obliging them. The reasons for this are not only economic but social and political. There is an old Chinese proverb: "a man who mounts on the back of a tiger will find it difficult to dismount." With over 150 million unemployed, and a restive working class and peasantry, social tensions are mounting. There are deep divisions and splits in the ruling bureaucracy. One wing wishes to accelerate the movement towards capitalism, closing the big state owned factories and allowing unemployment to soar. But the other wing (the "conservatives") fears that this could produce a social explosion:
"The government is deeply worried about the instability that might result [from a devaluation of the yuan and a slowing down of the economy], writes The Economist. "For some years it has derived its legitimacy, such as it is, from the country's continuing economic boom. It fears that meddling with the currency could raise unemployment, aggravate deflationary pressures and cause a meltdown in the banking system." (The Economist, 20/ 9/ 03)
Despite the rapid growth – in fact, partly because of it – the Chinese economy is balanced delicately on the brink of an abyss. Credit is soaring to dangerous levels. The proliferation of financial scandals and the creation of a property bubble are all symptoms that one associates with the peak of a boom, heralding a collapse. But an economic collapse in China would unleash powerful social forces, threatening the established order. The workers and peasants of China have so far accepted the movement towards capitalism with gritted teeth, in the hope that things will improve. If these hopes are dashed, they can move quickly in a revolutionary direction. There have already been explosive movements, though not yet of a generalised character, which represent early tremors of the earthquake to come in the future. In order to maintain at least the illusion of progress it will be necessary to maintain a fast rate of growth to keep unemployment within more or less tolerable limits.
For all these reasons, Beijing cannot afford to slow down the pace of economic growth to please Washington. And since the capitalists of the other Asian economies are terrified that China will invade their own markets with cheap imports, they will also not allow their exchange rates to rise unless China does so first. Thus, the pressure on America and US manufacturing in particular, continues to grow.
To make matters worse, capital continues to pour into China at an extraordinary rate. In 2002, China was the world's largest recipient of foreign direct investment, with inflows of $53 billion. The economy is now growing at 9.6 percent a year. Chinese industry is working flat out, making use of cheap labour, pouring out immense quantities of commodities of all kinds onto the world market, that is to say, onto the American market. Moreover, according to The Economist, the yuan is undervalued by a staggering 56per cent. China's bilateral trade surplus with America is now bigger than Japan's. This cannot be allowed to proceed indefinitely.
The American bourgeoisie saw China only as a vast market for its products and a profitable field for investment. That is partly why they were so keen to include China in the WTO, the other reason being to tie China firmly into the capitalist world market. But this strategy has backfired. True, China is a huge market that absorbs imports at an annual rate of over 40 percent a year. Car imports to China in 2003 were up more than 60 percent on 2002, for instance. But what the Americans did not grasp is that China would also become a formidable exporter. This was not anticipated!
The pressure for protectionism is becoming irresistible in the USA. On the website called Save American Manufacturing, a cartoon of Uncle Sam urges you to "join the fight stop the de-industrialisation of the United States". China is being blamed for the loss of one in three manufacturing jobs in the USA in the last three years, just as Japan was blamed in the past. Joseph Liebermann, one of last year's contenders for Democratic candidate to the Presidency and a supposed free trader, accused China of "economic attack".
This is already the language of war. America is being invited to "defend itself". Under the terms of China's entry into the WTO, there are a number of "safeguards" that permit countries to impose tariffs on Chinese goods if they are deemed to be causing "market disruption". The expiry of the Multifibre Agreement at the end of 2004 could be the flashpoint for a clash between the two countries. With its vast army of low-paid workers, China would be the main beneficiary of the end of this quota system that has governed the world textile trade for decades. According to some estimates, its share of the US textiles market could increase from 12 percent to 30 percent when restrictions are lifted. The calls for protectionism will become a deafening chorus.
Bush is supposed to be a free trader. He also needs China's assistance in his dealings with North Korea. But all this will turn to dust in the face of the Presidential elections when states like Ohio will demand action against China to protect jobs. If Beijing does nothing to change the situation (and it is hard to see how it can), the outcome will be a trade war between America and China that will have disastrous consequences – above all for China. Such a development would spell the end of the WTO as an effective body and have serious consequences for the entire structure of world trade.
The peak of American arrogance was the defiance of the UN Security Council over the war in Iraq. American imperialism decided to go on a rampage like a wild elephant, trampling underfoot all agreements, resolutions and diplomatic protocol. It was an action replay of the old imperialist policy of the end of the 19th century, when America under McKinley and Theodore Roosevelt first raised the idea of "speak softly and carry a big stick" to rule the world. The real aim of America was to undermine the European imperialists and take over their empires, above all in Asia.
Now, however, the world balance of forces is entirely different. America's road to expansion in Asia is blocked by China, which now represents a colossal and growing force. This is causing concern in Washington. In the past, when American imperialism had its sights set on Asia, China was a weak and decaying empire with a backward semi-feudal economy. The US imperialists were vying with their European rivals to divide the living body of China, seizing slices of territory and "concessions". China was powerless to resist. Now things are very different. The Chinese Revolution, despite the crimes of Maoism, radically transformed the situation, abolished backwardness and established a firm base for spectacular growth. As a result, China is herself emerging as a major force in Asia.
There has been a shift in the balance of forces in Asia. The rising economic power of China is the central element in the equation. Leaving aside Japan, China is now the region's giant, with the fastest growing economy and the biggest reserves. Economic and industrial power is the basis of military power. The recent launching of a Chinese satellite is a warning that China's economic advance has military implications. In the long run the future of Asia will be decided by a titanic conflict between the USA and China. Despite all the public shows of friendship, both sides are acutely aware of this fact. The noisy campaign in the USA against China is an expression of the underlying antagonism that sooner or later must come to the surface.
The failure of the Cancun talks was a mortal blow to the WTO. It is possible that the collapse at Cancun was engineered by the Americans themselves. Congress is now in a protectionist frenzy. It is not certain that the US congress will vote to renew America's membership of the WTO. Instead, the Americans are developing a series of bilateral trade deals with other countries. This fits in with the general tendency of US imperialism to pursue its own interests regardless of the opinions of other states. They are preparing for a showdown in which they will use their muscle power to overwhelm their rivals. It is the economic equivalent of "shock and awe."
However, nothing is ever simple in world economy or world politics. In this complex web of interrelations, dialectically one thing affects another and the whole fragile mechanism of world trade can be irremediably damaged. In the same way that the bungling tactics of the USA in Iraq threaten to destabilise the whole Middle East, so their economic bullying can unravel the whole delicate fabric of world trade.
The world economy is being split up on a regional basis, as each rival imperialist gang hastens to consolidate its control over different parts of the globe. This is shown on the one hand by the formation of the euro-zone and the moves towards a European military force independent of NATO (that is, independent of America), on the other hand by the formation of NAFTA and the growing appetite of the USA for bilateral trade deals. The result will be an inevitable fragmentation of international trade and a growth in protectionism in the next period.
A growth in protectionism is the inevitable consequence of a period of sluggish growth – the best scenario for the world economy in the next period. The Economist warns gloomily: "The WTO is a fragile organisation, less than ten years old. It would not survive a lengthy period of American disengagement." Of course, there will be countervailing tendencies. But the general trend will be towards greater frictions and antagonisms. The bourgeois understand the need for free trade, but they understand it only abstractly. The moment free trade affects their vital national interests, they react against it. We are therefore entering into a period in history that will be more similar to the period of the 1930s than the last half century: a stormy period for the world economy that will be the background for wars, revolutions and counterrevolutions in one country and continent after another.