Introduction

The document which we publish below puts forward the position of the Marxist tendency on the perspectives for the world revolution in a comprehensive way. It analyses the global crisis of world capitalism, economic perspectives and the stage reached by the class struggle in the developed capitalist countries, and also the revolutionary developments in the former colonial countries, the worldwide struggle against imperialism, the attitude of Marxists to war, the situation inside the mass parties and trade unions of the working class, and the tasks of the revolutionary tendency.

This document represents a finished programmatic statement of the followers of Marxist.com internationally. It is the ideological basis on which we carry on our fight for the creation of a mass Marxist movement on a world scale.

We ask all the readers and supporters of Marxist.com to translate it, publish it and give it the widest possible circulation among workers and youth. We welcome your comments and questions about our ideas. Finally, we appeal to all those who agree with these ideas to join us in the struggle to build the forces of Marxism and further the cause of the world socialist revolution.

London,
September 16, 2002

The world situation is characterised by increasing volatility at every level. The revolt of the productive forces against the straitjackets of private ownership and the national state is indicated by the present global crisis. Unable to deny the facts any longer, the bourgeois economists have admitted that the US economy is in recession. The fears of the strategists of capital are expressed in one article after another. This represents a turning point in the whole situation.

Marxism explains the historical process ultimately in terms of the development of the productive forces. The motor-force of capitalism is the production of commodities, and especially capital goods. In the last boom, the bourgeois of America and all other countries invested colossal amounts on new technology, new plant and machinery. Now there is massive overproduction ("over capacity") on a world scale. In Asia alone there is a huge productive capacity, which cannot be used. Even when this is mopped up, it will not be possible to go back to the type of feverish growth of the previous period. A period of sluggish growth, accompanied by high unemployment in all countries, will follow.

Nothing comparable to the present situation of global instability - a combination of war and slump - has been seen since 1945. For a long time the capitalist system experienced a powerful upswing, with full employment and rising living standards in the advanced capitalist countries, and relative stability in the relations between states. Now the world economy is entering into the first simultaneous slump since 1974. This is an unprecedented situation which is provoking deep concern among the strategists of capital.

Even after the crash of 1929, the slump did not affect all the main capitalist countries simultaneously. America went first, followed by Germany and Austria, then Britain, whilst France only really went down in 1934, when the USA was already coming out of the slump. These are uncharted waters, and the capitalists do not know what to expect. This is the reason for the growing alarm of the ruling class, reflected in the constant reduction of interest rates.

The present crisis represents a turning point in the historical process. After the collapse of the USSR ten years ago, the bourgeois felt that they were no longer threatened by "Communism". The capitalist system (the "free market economy") ruled supreme. The ruling class felt confident. They dreamed of an economic boom that would last forever. The economists wrote about a "new economic paradigm".

This situation affected the psychology of all classes. The middle class (including the Labour bureaucracy) followed the bourgeoisie and its "market" ideology. The working class saw no alternative and sought individual solutions to its problems. Despite the extreme pressure on the workers, the debt, the long hours of toil, the stress and exhaustion, it was possible for a temporary period to obtain a relative amelioration of living standards. The strength of reformism and particularly its right wing (Blair, etc.) and the isolation and weakness of the forces of Marxism were both predicated on this.

In a period where the workers were not participating in struggle, the pressures of capitalism on the workers' organisations, and especially the tops, were increased tenfold. The reformist leaders and the apparatus of the unions and the Social Democracy, liberated from the pressure of the class, acquired an unprecedented level of "independence" - that is, dependence on the bourgeoisie and its ideology. The degeneration of the mass workers' organisations reached extremes. But now this process has reached its limits. Over a period, major events will shake up the mass organisations. The whole process will be thrown into reverse.

Faced with the crude reality of economic recession, the spokesperson of the bourgeoisie are striving to put the most optimistic interpretation on the situation. Alan Greenspan asserts that: "the mildness and brevity of the downturn are a testament to the notable improvement in the resilience and the flexibility of the economy. The fundamentals are in place for a return to sustained healthy growth: imbalances in inventories and capital goods appear largely to have been worked off; inflation is quite low and is expected to remain so; and productivity growth has been remarkably strong, implying considerable underlying support to household and business spending as well as potential relief from cost and price pressures." This is just wishful thinking.

The temporary rallies in the first quarter of 2002 and in Stock markets in the US and Europe in the month of August were merely episodic developments. After recovering by 20% in August, the world's stock markets fell sharply again in the beginning of September. In Japan the Nikkei index fell to its lowest level since 1983. In New York, the Dow Jones Industrial Average fell by more than 350 points. Similar negative results were posted in London and other stock exchanges.

Most economists now agree that the United States faces a so-called "double dip" recession. This confirms what we have consistently maintained: the rally that occurred earlier this year was only the prelude to a further and steeper decline in the world economy. The present falls on the world stock markets are merely the tip of the iceberg. The world economy is still slipping downhill.

Throughout July and August, every new figure on the US economy was worse than before. The net wealth held by American households (including shares, bonds and property) has fallen over 20% in the last two years, since the "bear market" in world stocks started in March 2000. The US Conference Board's July index of consumer confidence fell from 106.4 to 97.1, its lowest level since February. Consumers' expectations about the future took an even steeper turn for the worse. The future expectations reading plummeted to 95.7 from 107.2. If we bear in mind that the world economy is extremely dependent on consumption in the USA, these figures point to a serious downturn.

Sales in the shops are falling off. Indexes that measure confidence among US manufacturers have also weakened and manufacturing output is dropping back towards recession levels after a limited revival in the early part of this year. Most significant, the figures for real gross domestic product in the US for the second quarter of this year showed a rise of just 1.1% and previous quarters were revised down to confirm that indeed in 2001 the US economy had fallen into recession and only recovered briefly in the first quarter of this year.

Business investment has fallen for the seventh straight quarter. On the other hand, the pace of consumer spending slowed to a crawl, advancing just 1.9% after growing 3.1% in the first quarter. Only government spending shot up. And of course, at least for the moment, with interest rates so low the property boom continues, as it does in the UK, Australia and many other OECD countries.

There can be no real recovery for US capitalism until the level of profits recover. The top 500 US companies recently reported their second quarter earnings. These show that profits were up just 1% compared to the same time last year, when they were at very low levels. In the last year over 2 million American jobs have been lost. Unless profits improve significantly, there is no realistic prospect of an increase in investments - the real motor-force of any boom.

Things are no better in Europe. Most of European countries have reported economic growth figures for the second quarter of this year. In fact, there was almost no growth. Germany was up 0.3% and Italy was up 0.1%. Britain was best at just 0.7%. In Japan, output is falling by 0.5-1.0% a year. Deflation remains the order of the day with prices falling. The government is paralysed about what to do after 12 years of recession. Even the services sector is continuing to slide as unemployment hits post-war highs. Public debt is still relentlessly increasing.

The economic and political chaos in Argentina continues with no sign of escape. Now Brazil is also threatened with collapse. Similarly, despite huge injections of IMF money, the Turkish capitalist politicians continue to squabble, threatening to drive this key ally for the US in its so-called War on Terror into economic depression.

World capitalism is also threatened by two bubbles. The first is the strength of the US dollar. It has weakened a little in the last year but it will go down further in the next period. Since the US is running a trade deficit of $37 billion per month, the present level of the US currency is not sustainable. At a certain point the $9 trillion of dollar assets held by foreign capitalists will be unloaded, provoking a sharp fall in the value of the dollar. The second great bubble still to burst is the property sector. The present price rises of 10% a year in America and 20% in Britain are not sustainable. A fall in the housing market will have a negative effect on spending, dragging down the economy still further.

And hanging like a black cloud over the world economy is the threat of war in Iraq. Leaving aside the explosive political consequences, a US military adventure in the Middle East will inevitably result in a steep increase in oil prices. This will be the case even if the war goes well for America. If, as is more likely, it is prolonged, it could seriously damage the world economy.

Despite the exaggerated claims of the bourgeois economists, economic growth in the last period has been much weaker than in the immediate post-war decades. In the US, from 1942 to 1966, the average annual real GDP growth rate was 4.5%. From 1975 through 1999, it was only 3.2%. The average annual gain in industrial production from 1942 to 1966 was 5.3%. From 1975 through 1999 it was only 3.4%. At same time, consumer debt rose from 64% of annual disposable personal income in 1966 to 97% in 1999.

The Federal Reserve, caught between fear of a world slump and fear of inflation, has evidently decided to throw caution to the wind. The Reserve has carried out eleven reductions in interest rates in less than twelve months - an unprecedented situation. Interest rates in America now stand at 1.75 percent - the lowest level since 1961. But there are limits to how far this can go - and what it can achieve. It is clear that the rate of interest cannot be less than zero - although, when measured against the consumer-price index, real rates of interest are negative in the USA - a situation not seen since the Great Depression of the 1930s.

Marx explains that credit is a means by which the capitalist system goes beyond its normal limits. The market is artificially expanded for a time, but only at the cost of reducing future demand, since credit must eventually be repaid - with interest. Huge debts have been accumulated during the boom years of the 1990s, especially in the USA. The actions of Greenspan and the Federal Reserve in drastically cutting interest rates are panic measures, motivated by fear of a global economic collapse. But they are not having the desired effect. Given the overhang of debt, it will not help matters to incur new debts and deficits. They will get the worst of all worlds if they go down this road - ending up with a mixture of stagnation and inflation which can act as a drag on the US economy for a long time. Furthermore, corporate earnings are in a freefall. They are 44.9% lower than one year earlier. The last time earnings plunged this much was in the third quarter of 1938 and the fourth quarter of 1932 (the Great Depression).

In practice they will all have high state deficits in the next period, anyway. But this will solve nothing and only exacerbate the crisis. In 1939 they "resolved" the contradiction through a world war. But this avenue now seems closed to them. Under these conditions, no amount of deficit financing will help. It will only make things worse - as the example of Japan shows.

In Japan, the interest rate is really zero, but this has had no effect, other than to increase the public debt to an unprecedented and unsustainable limit. And in America the high levels of private debt means that individuals and companies will not be eager to take on new credit, even where the interest rates are so low.

That does not mean that the bourgeois will not use Keynesian policies in an attempt to drag themselves out of the crisis. However, the Japanese experience shows that under present conditions Keynesian methods would not solve the fundamental problem, but only lead to severe distortions, ending in stagflation - a mixture of stagnation and inflation - the worst of all worlds.

In effect, Japan - once the former star performer of the world economy - has passed from one recession to another without ever experiencing a boom. A similar situation can be created in the USA, affecting the entire global economy for a protracted period. Japan is now in a state of outright deflation, after being stuck in recession for a decade. There are clear parallels with the situation in Japan ten years ago. The decisive factor is the unprecedented level of indebtedness that Japan inherited from the last boom in the 1980s. This has prevented the recovery of the Japanese economy for a period of ten years. Over the last two years the Japanese government has invested a sum of money equivalent to the total GDP of France, to no avail.

The exact nature of the slump - its depth and duration - is difficult to determine. But in all probability it will be the most serious since 1974, and possibly since the Second World War. It is not excluded that it could turn into a depression like the one that followed 1929. If the intensity of the slump and the struggle for markets that will result from it leads to generalised protectionism, that is even a likely perspective. But even if this is not the case, it is probable that the USA will only get out of the slump with great difficulty and then enter into a period of extremely low growth, like Japan after the recession of 1990-91. The reasons are similar: the colossal hangover of debts accumulated in the previous period. This is precisely an expression of the fact that capitalism went beyond its normal limits in the previous period.

Despite the obvious seriousness of the situation, the bourgeois economists persist in putting the most optimistic gloss on the picture. There is a constant campaign in the press to keep up the spirits of investors. Every bit of positive information is presented as light at the end of the tunnel. Impressionable investors are deceived by this, not realising that the light which they perceive may be that of a train coming in the opposite direction. The violent swings of the stock exchange up and down are an indication of a general nervousness and volatility among the stock market investors (among whom there are always a number of gamblers willing to take a risk). This perfectly mirrors the general situation and mood that is developing in society, and which tomorrow will find a political expression.

However, the movements on the stock market, as is well known, do not mirror the movement of the real economy, which is stubbornly downwards. At the same time that Wall Street was registering a relative recovery, after the immediate shock of September 11 and the Afghan war had worn off, Fords was warning that losses in the fourth quarter would be four times higher than even the earlier gloomy estimates of analysts. The Detroit company is due to make a new restructuring plan that will undoubtedly mean more factory closures and sackings.

There has been an avalanche of company profit warnings. Even the biggest companies are threatened with bankruptcy. On December 2nd, 2001, Enron, America's seventh biggest company, filed for chapter 11 bankruptcy. Its shares collapsed from $89 to just one dollar and were already classified as "junk" before the company went under. Since most workers held shares, thousands of workers will lose both their jobs and retirement savings. This was followed by a whole series of bankruptcies and scandals, including the giant WorldCom company, that involved unprecedented financial scandals. These scandals have created a general backlash and a questioning of the whole system of corporate capitalism in the USA.

As Marx explains, the final cause of every real crisis of capitalism is overproduction: the contradiction between the unlimited greed of the capitalists for surplus value and the limited consuming power of the masses. The present crisis is no exception. The massive overproduction of high-technology products, particularly computers and memory chips, is the main cause of the crisis in the USA and Asia. There is a limit to the amount of new technology which people can buy. But the anarchic, unplanned nature of capitalist production takes no account of this.

This also applies to other commodities. Overproduction in the car industry has led to a ferocious price war, with Fords and other big companies furiously discounting in order to get rid of their surplus products. This has led to a temporary rise in car sales. The increase in US retail sales, which rose by a record 7.1 percent in one month (October, 2001) was driven mainly by car sales (26.4 percent). This is part of the "Keep America Rolling" campaign, which offers discounts and interest-free loans. But this boom in car sales has only been achieved at the cost of reducing future sales and cutting profit margins to a point that is unsustainable - thus deepening the crisis of the car industry on a world scale.

Companies are compelled to write off assets acquired during the boom, retrench, cut costs, and sack workers, in a desperate attempt to maintain profit margins. The same is true of debt. Big companies like Hynix Semi-conductors in South Korea find themselves unable to sell their products and heavily in debt. The credit which the big banks extended so merrily in the period of rapid expansion is now being called in. Now everybody wants ready cash. This forces a company like Hynix to merge with Micron Technology, the big US firm, in the hope of getting access to the US market and more funds. If it goes through, this merger will create the world's biggest memory-chip company. Thus, the process of concentration of capital and monopolisation which reached unheard-of limits in the boom, continues unabated during the slump.

The crisis in manufacturing inevitably affects the service sector sooner or later. The shock of September 11 undoubtedly contributed to the crisis in sectors like air travel, hotels and tourism. In the USA alone, over 100,000 workers were laid off in the air line industry alone. This does not express the real depth of the crisis, since many other industries depend on the air line sector. In Belgium the crisis of Sabena caused sharp labour conflicts.

WalMart, the big US cut-price retail chain has announced a record sales increase of 15.5 percent in the third quarter of 2001, pushing profits up to $1.5 billion. But this reflects the fact that more Americans are reacting to the crisis by buying more cheaply. This tendency will further depress profit margins in the long run, as other retailers are forced to cut prices. On the other hand, the luxury-goods companies are suffering losses, as happens early on in every slump.

Despite the official mythology, September 11 was not the cause of the crisis in the service sector, which is part of the general crisis. A further 220,000 jobs were lost in businesses unrelated with airlines or tourism. Workers clocked in fewer hours on average, and weekly earnings fell.

The dire state of the economy is reflected in a slump in advertising. The British advertising company Cordiant Communications announced its third profit warning in four months in December 2001 and predicted the situation would get worse still. It announced further job losses, bringing the total to 1,100 in the course of the year: one tenth of the workforce. Lloyds of London, the huge insurance company, announced losses (after reinsurance) of £1.7 billion ($2.7 billion). This was $600 million more than originally forecast, and represents the biggest loss in Lloyd's 300 year history. For the first time in years, London has been officially declared to be in recession. This reflects a crisis in the service sector, which is only a manifestation of the general reduction in economic activity.

Confirmation of the seriousness of the situation can be seen in the price of oil. Normally when there is instability and the threat of war in the Middle East, the price of oil rises sharply because of the fear of disruption to oil supplies. But since September 11 the price of oil has fallen well below the preferred price of OPEC - which is between $22 and $28 a barrel. Now, despite the efforts of OPEC to restrict production, the price of a barrel of oil dropped to below $20, before recovering slightly. That is a measure of the fall in global demand.

Despite the propaganda emanating from the USA to the effect that the recession will be short, an increasing number of economists are now pessimistic about the future. The Economist warned at the close of 2001: "Unfortunately, the case for optimism is less than solid. There are few signs that corporate America is nearing the end of its retrenchment. Despite the collapse in capital spending - it fell by an annualised 12 percent in the third quarter, after an annualised 14.6 percent drop in the second - firms still have a lot of excess capacity and big financing gaps. The excesses of the late 1990s investment binge will take time to work off. Meanwhile, the world environment continues to grow greyer. Europe is stagnant, while Japan is in its fourth recession in a decade."

The main danger for the capitalist system is not the prospect of slump. The boom-slump cycle has been a constant feature of capitalism for the last 200 years. They know that sooner or later, they can get out of even the deepest slump. The real danger is the threat of the unravelling of free trade and the rise of protectionism as a result of the slump. This is what turned the slump of 1929-33 into a world depression which lasted until the Second World War. The expansion of world trade has played a vital role in the last half century, and particularly the last twenty years. It has enabled the capitalists, partially at least and for a temporary period, to overcome the limitations of the nation state. But the basis on which this rests is quite fragile and can easily be destroyed, especially under conditions of world slump in which they are all fighting for limited markets.

Already there are tensions between Europe and America over trade which led to the breakdown of the Seattle talks. Although some issues have been resolved, new conflicts are emerging all the time. Particularly in the USA, protectionist tendencies are building up. America is the biggest economy in the world and is prepared to use its muscle to gain access to foreign markets, while protecting its own. It has benefited from lower trade barriers more than any other country, hence its public enthusiasm for free trade. But the Republicans in Congress (and the Democrats also) are ready to sacrifice the principle of free trade in order to protect American agricultural and manufacturing interests. We already see this with the introduction of protectionist measures in relation to steel, agricultural produce, textiles, softwoods and other areas of the US economy.

At the moment the capitalists are driving on with "free trade" by proposing a new round of reductions in trade restrictions at the WTO meeting in Dohar. The last Uruguay Round took a decade to achieve. This one will be still born. The development of world recession will inevitably lead to an increase in protectionist tendencies which will threaten the fragile structure of world trade so carefully constructed over the past half century. This is the main fear of the strategists of capital. They have understood what the Marxists have long ago explained: namely, that the main motor-force of the world economy has been the growth of world trade ("globalisation").

Even in the period of the boom there has been a tendency for the world to fragment into rival blocs. US imperialism has created Nafta, including Canada and Mexico, which aspires to control the whole American continent, north and south of the Rio Grande. Europe has created the EU which strives to control North Africa, the Balkans and Eastern Europe. In Asia, Japan has created a weaker yen bloc. As the slump deepens, the contradictions between these rival trading blocs will increase. The tensions between Europe and America, and between America and Japan, will intensify under these conditions. America will attempt to export unemployment to Europe and Japan, provoking retaliation. The prospect opens up of trade wars and competitive devaluations which will deepen and prolong the crisis.

The European capitalists, only a year ago, were boasting that they would avoid the recession. Now these boasts are shown to be hollow. Ironically, the worst affected sector is the communications industry (mobile phones), which was supposed to be the main motor of a new period of expansion for European capitalism.

Vodafone, the big British mobile phone company, announced pre-tax losses of £8.4 billion ($12 billion) in the six months to the beginning of December 2001. Profits at Siemens, the German engineering giant, fell by 76 percent to the end of September, including restructuring charges and a write-down of assets in its mobile and fixed-line telephone divisions. German unemployment now stands officially at 8 percent of the workforce.

We have already dealt with the reasons why the EU was formed in earlier documents. It is true that we underestimated the degree to which the European capitalists could arrive at a compromise and push towards greater economic and monetary unification. We did not think that the Euro would succeed to the degree that it has. This was only possible on the basis of the prolonged world boom, which benefited Europe and enabled the different capitalists to put aside their differences (temporarily).

Now the Euro has been introduced as a common currency in 12 of the EU states. This is an important development. A common currency is the first condition towards European integration. It ought to boost internal trade and thus act as a powerful stimulus to the development of the productive forces. But the Euro has been launched at the worst possible moment. Under conditions of world crisis, rising unemployment and a struggle for markets, the rigid framework of the Maastricht agreement will aggravate the crisis and increase the contradictions between the states of the EU.

The Economist drew a negative balance of the Euro's achievements: "When the Euro was conceived a decade ago, there was much heady talk of how it would boost competition in Europe, of all the structural reforms it would promote, even of how Europe would displace America as the world's economic dynamo. Yet, as a recent report by the European Commission concluded, the gap between Europe and America in both productivity and GDP per head has widened rather than narrowed over the past decade. This year's theory that, thanks to the Euro, Europe would largely escape the effect of a global recession has also proved false, as its biggest economy, Germany, has shuddered to a halt. As if to trumpet Europe's failings, the Euro has spent most of its first three years of ethereal life testing new lows against the dollar." (The Economist, 1/12/2001) The recent improvement of the euro in relation to the dollar is more a reflection of the weakness of the latter than the strength of the former.

Contrary to the hopes of the European bourgeois, the Euro has been a weak currency from birth. The need to maintain its level is one of the reasons why interest rates in Europe have not been reduced as fast as in America. This will aggravate the crisis in Europe and increase unemployment in the coming months. Paradoxically, the Germans, who were the most adamant in demanding strict adherence to the Maastricht rules, are now suffering the consequences in the shape of four million unemployed. The German economy, which ought to act as the main motor-force for Europe, is stalled.

The stubborn refusal of Duisenberg and the European Bank to lower interest rates has set the stage for conflict between the Bank and the European governments. They would like to see a further fall in the Euro to boost exports - the main reason for the relative success of the countries of the Euro zone in the last period. But despite this success, the performance of the core countries, especially Germany and Italy has been miserable, and their problems will now increase. Unemployment is beginning to climb again.

One effect of the introduction of a common currency will be to increase cross-border competition. The aim is to increase productivity by eliminating weak companies. But this places countries like Italy, Greece, Spain and Portugal at a disadvantage. Increased competition spells more bankruptcies, factory closures and unemployment. From this, new contradictions arise. In the past, Italy got out of difficulties by devaluing the currency. But this is now ruled out by the Maastricht agreement. Devaluations by nation states are not allowed, and neither is any other state permitted to help Italy. Therefore, the full weight of the crisis will be placed on the shoulders of the working class. The Italian employers are already putting pressure on Berlusconi to take action. The stage is thus being set for an explosion of the class struggle in one European country after another.

This will lead, not to European integration, but to increased tensions and antagonisms between the national states. In the end, it is probable that the Euro experiment will break down amidst mutual recriminations. Already there are indications of conflict between the states in the Euro zone, as each government tries to protect its own capitalists against foreign competition. Of course, if the perspective was one of uninterrupted capitalist upswing for the next 20 years, it would be possible for European capitalists to obtain further economic integration. But this is not our perspective.

Two years ago, at the Lisbon Summit, the EU heads of government agreed to a programme of further liberalisation with the aim of making the EU the world's most competitive economy by 2010. What has happened? France has implemented only minimal energy liberalisation and blocked the setting of any deadline for a total opening-up of the market. Full competition in the postal services has been delayed. Germany has put its boot through an EU directive on take-overs that took 12 years to work out and then introduced new rules to protect German owners. The Lamfalussy Plan to liberalise wholesale financial services has been sabotaged by procedural manoeuvring in the European parliament, even though it was unanimously endorsed in Stockholm in March. An agreement on a EU-wide patent regime has been prevented by disagreements on language policy. And so on and so forth.

53. What this shows is that each national government, while paying lip service to the "ideal of European integration", is mainly concerned with the defence of "national interests" - that is to say, the interests of its own bourgeoisie. Thus, Germany's decision to sabotage the law on take-overs was dictated by its desire to protect its domestic companies against foreign take-overs - such as Vodafone's bid for Mannesmann. The French opposition to energy liberalisation has been designed to support its state-owned giant, Electricité de France. The French government protects its national monopoly, which is meanwhile pursuing an aggressive policy of taking over the companies of states with more open markets.

Behind the "European" rhetoric stands the interests and ambitions of the most powerful European states, especially Germany and France, which seek to dominate Europe. Only the smaller countries take the rhetoric about the European ideal seriously, since they are too weak to stand on their own and foolishly imagine that they can be important players on the European scene. In addition, they have their own selfish interests to defend.

Belgium benefits from being the main seat of the "European institutions" - which brings in a tidy sum to the national exchequer. They are therefore the most convinced "Europeans". The weaker economies like Greece, Portugal, Ireland and Spain are enthusiastic "Europeans" only to the extent that they have done very well out of European subsidies. But when these are sharply reduced or abolished, which is already happening, their enthusiasm will cool rapidly. And that is inevitable in the next period when the economic crisis begins to bite and Germany, which pays most of the bills, gets tired of this role.

The truth is that the smaller states of Europe count for very little. This was shown recently in the aftermath of September 11. Britain (a semi-satellite of America) decided everything together with France and Germany. The others were not even invited to dinner in London. The Italians protested loudly. The others grumbled also: "We are being treated like candidates to join the EU. Decisions are made and then we are just informed." But that is just the real state of affairs. Only it is not supposed to be made public. Only Blair's characteristic crudity made it too obvious. The recent row at Laeken over the distribution of secondary EU institutions led to Berlusconi vetoing all decisions. When the Swedish Prime Minister complained that his country had got no institution, Chirac said maybe they "would like the headquarters for EU model agencies as they had such "pretty girls"! Such is the contempt shown for the smaller EU countries by the big Four.

A further expansion of the EU will exacerbate the problem. Does anyone seriously believe that Germany, France and Britain will accept that they cannot have a discussion without inviting 22 other European leaders? The German capitalists are pushing for the entry of their client states in Eastern Europe: Poland and the Czech Republic. France, which is opposed to this, proposes the entry of Romania. This is yet another example of the conflict of interests between Germany and France. In the end, it is likely that the expansion will go ahead. But in that case, the bigger EU states will find a way of dominating the show anyway.

The ambiguous attitude of the British bourgeoisie to Europe and the Euro is explained by several factors. There is a sharp division between the manufacturing sector which trades with Europe and does not want a continuation of the high pound, and the parasitic finance sector based on the City that has grown immensely in power in recent years. Having lost its empire and being reduced to a second-rate power off the coast of Europe, the British ruling class is reluctant to relinquish its dreams of being a world power, and is hesitating between a role in Europe and that of a satellite of US imperialism. But the weakness of the Euro and doubts about its future are undoubtedly important factors in its calculations.

The developing crisis will intensify the contradictions between the nation states of Europe, and particularly between Germany and France, with Britain manoeuvring between them. But it is unlikely that the EU will break up, because of the need to compete with the USA. The European capitalists must hang together, for fear of hanging separately. But the dream of a united Europe on a capitalist basis remains what Lenin said it was: a reactionary utopia.

After the fall of the Berlin Wall there was a lot of talk in the West of a "Peace Dividend". The perspective was put forward of a new world order in which the whole world would enter a long period of peace and prosperity under the aegis of the USA. But things worked out very differently. In fact, there was some reduction in arms spending in the USA as a result of the disappearance of the Soviet Union. Under Clinton, US defence outlay fell from 6.2 percent of GDP to 3.8 percent, although in absolute terms, the US arms budget remained huge. Now all that is bound to change. American commentators are already talking of a probable increase by at least one percent of US GDP. Given the fact that the US is once more in deficit, this money will have to be found at the expense of other, less necessary, items, like schools and hospitals.

US imperialism is in the process of arming itself to the teeth. Even before the present crisis, the United States spent every year for every American citizen $804 on arms. France is next in line, with an annual expenditure of $642 per head on arms. Britain, which despite its total loss of economic and industrial power, likes to pretend that it is still mighty, spends $484 - an absurd figure for a country which long ago lost its empire and industrial superiority. These figures reflect the real situation of the epoch in which we now live: a period of crises, wars, revolution and counter-revolution. The consequence of this will be a general tendency towards the militarisation of the planet. Once again, the refrain of all governments will be "guns before butter".

Some have argued that the world will escape recession because of the huge increase in military spending in the USA. The historical examples cited are the Second World War, the Korean War and the Vietnam War. But in reality, such historical parallels prove nothing. It is true that American imperialism is using the present crisis to push through big increases in arms expenditure. This was already its intention before September 11, but the Republicans had to proceed cautiously for fear of opposition. Now they have what amounts to a blank cheque.

As soon as he was elected, Bush began to beat the drum for rearmament. In a speech he made in September 1999 - that is, before the US economy went into recession - Bush blamed Clinton for the "weakness" of America's armed forces and demanded a programme of re-armament: "The last seven years have been wasted in inertia and idle talk," he declared. "Now we must shape the future with new concepts, new strategies, new resolve." (BusinessWeek, December 24, 2001).

Even before September 11, the Pentagon had plans to spend no less a sum than $340 billion on 3,700 manned fighters: Lockheed Martin Corp's F-22 Raptor and Joint Strike Fighter and Boeing's Superhornet. But these are really antiquated toys in comparison to the new weapons of mass destruction that are being developed all the time. BusinessWeek (December 24, 2001) reports:

"Precision-guided munitions will be a priority as well. In addition to laser-guided bombs, which clouds can blind, the US is deploying the Joint Direct Attack Munitions (JDAMs) which use global-positioning systems (GPS) to find their targets in any weather." Boeing have recently created a unit to start making unmanned combat aircraft like the Predator, which, in addition to reconnaissance, can also fire missiles.

The disappearance of the USSR has created a new situation on a world scale that has compelled the US military planners to develop new strategies. Instead of an army intended to confront massive Soviet conventional forces in Europe, they are developing smaller, more flexible forces that can be deployed rapidly anywhere in the world, and also smaller, technologically advanced, "smart" weapons. The development of precision-guided bombs and unmanned areal vehicles (UAVs) has given such terrifying firepower to the USA that some defence analysts like Alexander Saevliev of the Russian Academy of Sciences have argued that "the character of war has changed".

However, history shows that the character of war has been constantly changing for over 2,000 years. What is different here is not the new technology, but the balance of forces on a world scale. The fall of the USSR has meant that there is only one super-power. Yet despite its colossal military might, the character of war has not fundamentally changed. In the last analysis, wars are won or lost, not by bombing alone but by soldiers fighting on the ground. It is an astonishing fact that a handful of men armed with knives and cardboard cutters could inflict such terrible damage on the world's greatest super power, and the war in Afghanistan, which is being fought with decidedly low-tech methods (the most efficient method of transportation is the donkey) is still far from being successfully resolved.

The defence spending policies of the USA are thus determined not mainly by economics but by political and strategic considerations. This is not a branch of the Fed, to be manipulated for the benefit of the economy, but an expression of the requirements of the US military establishment and the world role of US imperialism. Although military expenditure can assist a section of the economy (the so-called military economic complex), and partially alleviate the crisis in that sector, it merely diverts capital and resources from other sectors of the economy. It will do nothing to restore the general level of corporate profitability, without which no real economic recovery is possible. In the long run it will have inflationary consequences and make the situation worse. In any case, the effect will not be what some people imagine.

The present world situation is quite different to that of 1941, 1952 or 1964. In 1941, America was already coming out of recession, and the vast arms programme of the War played a decisive effect in mopping up unemployment and boosting production. At present, the US economy has just entered into recession after a long boom. The perspectives for the world economy do not suggest a quick recovery. On August 7, 1964, when Congress passed the Gulf of Tonkin resolution, backing increased US involvement in Vietnam, the economy had already recovered from a 10-month recession that ended in early 1961. Military spending during the Vietnam War helped to keep this expansion going (and in the process fuelled inflation), but did not cause the recovery.

On the other hand the scale of military spending is not at all comparable to the situation in 1939-45. During World War Two, spending on arms in the USA peaked in 1944, when it accounted for an incredible 60-70 percent of America's pre-war GDP. At the peak of the Korean War in 1952, US military spending accounted for 11 percent of America's GDP. At the peak of the Vietnam War, it stood at 2 percent of GDP. But during the Gulf War ten years ago, it was only 0.3 percent of US GDP, and most economists agree that this expenditure played little or no role in the economic recovery that started one year later, which, in any case, had an extremely sluggish character.

On August 7, 1990, when Iraq invaded Kuwait, the US economy fell into an eight month recession. The USA was badly affected by rising oil prices, and the modest and temporary increase in military spending was not enough to provide a serious boost to the economy. Only the stimulus provided by the rest of the world, particularly the Asian "tigers" which were then experiencing rapid growth, prevented the recession from turning into a depression. Robert J. Barro, writing in the BusinessWeek (5/11/01) comments: "The analysis from the other three wars suggests that little of the recovery stemmed from the Gulf War."

The situation now is more similar to that of ten years ago than to the cases of World War Two, Vietnam or Korea. Except that the world economic context is far worse. Already before September 11, it was clear that the United States was enduring a sharp downturn, and that the longest period of expansion in history had already come to an end. The attack on the World Trade Centre merely acted as a catalyst to accelerate and exacerbate these recessionary tendencies.

The present "war against terrorism" is a most peculiar kind of "war". Whereas the Second World War, and to a lesser degree the Korean and Vietnam wars, involved the destruction of a lot of tanks and other equipment that had to be replaced, the only items that have so far been used up in Afghanistan are bombs. This is not likely to act as much of a stimulus to production, even in military terms. And certainly not enough to offset the effects of a general world crisis of overproduction. The measures taken by Bush may look spectacular on paper, but fall far short of the massive sums pumped into the US economy by general mobilisation in 1941, and will not even reach the level of the Vietnam War.

The results will be correspondingly limited. In the words of Harvard university economics professor N. Gregory Mankiw, quoted by the Moscow Times (October 10, 2001): "My guess is that this is not going to be all that similar to previous wartime economies. Unless the fiscal stimulus ends up being a lot bigger than I expect, the differences will be greater than the similarities to the past."

The long period of economic upswing, together with the division of the world between US imperialism and the USSR, provided the material basis for this relative stability in world relations. The reason why they could get this so-called peace was because the balance of terror between mighty Stalinist Russia on the one hand and mighty American imperialism on the other. But now everything has changed. The emergence of US imperialism as the sole major world power has created an unprecedented world situation.

As we have explained in previous documents a new balance of forces has been developing over the past decade. Prior to the collapse of the Soviet Union the two super powers, the USA and the USSR balanced each other out and this provided a relative stability to the world situation. There could have been no question of the USA daring to attack Iraq or bomb Yugoslavia. The disappearance of the Soviet Union as a super power has allowed the United States to emerge as the sole world power and given it the confidence to develop a more aggressive foreign policy.

Now this imperialist arrogance has been increased to the nth degree. The war in Afghanistan represents a new twist in the world crisis of capitalism. The chief concern of US imperialism is to use the terrorist outrage in America as a pretext for strengthening its position on a world scale. This involves a reminder to the world of its military power. After the attack on Afghanistan will come other "reprisals" against Iraq, and maybe Sudan and Somalia.

America is the mightiest imperialist power in world history. It holds in its hands the most diabolical and sophisticated means of destruction. Yet it stands on feet of clay. After September 11, US imperialism blundered into a war with no clear strategy or aim. Of course, the most fundamental questions are determined by objective factors and broad historical processes, not individual personalities. However, in wars and revolutions, the role of the individual (the leadership) is by no means unimportant. It can, and does, exert a powerful influence in the short term, producing all kinds of distortions and cross-currents that affect the context in which the class struggle unfolds. At the present moment, the leadership of the most powerful country on earth is the most stupid and short-sighted in history. Bush intended to display the might of American imperialism, but has only succeeded in aggravating all the contradictions. In reality what the Afghan adventure showed was the limitations of American power.

It is always impossible to calculate accurately the bloody equation of war and to predict precisely the outcome. Trotsky thought that the Second World War would be over quickly. But war has its own logic which is impossible to determine beforehand. The same is true of the war in Afghanistan. In Afghanistan - despite all their military might - the American imperialists are in a no-win situation. Even if they achieve their formally declared war aims, they will ultimately lose, because by their actions they have destabilised the whole region and other parts of the world.