The reawakening of the world working class and the tasks faced by Marxists - Part One

In January at a meeting of the International Committee of the International Marxist Tendency Alan Woods gave a lead off on World Perspectives, in which he analysed the unfolding class struggle on an international scale, laying special emphasis on the events taking place in Latin America. After a long period of relative lull in the class struggle workers everywhere have started to move once more. The task is to provide this movement with the necessary revolutionary leadership. The present text – in five parts – is based on Alan Woods’ speech. In Part One of his speech he deals with the method of Marxism, the relationship of the economic cycle to the class struggle and the state of the US economy.

Politics is the science of perspectives. This is the key to all our work. The present world situation entirely confirms the general line of our perspectives worked out in previous world perspectives documents. It may be necessary to correct this or that detail, but the fundamental analysis of the period through which we are passing has been confirmed by the march of events. This should strengthen our confidence in the ideas of Marxism and in ourselves.

It is a supreme irony that so many have abandoned Marxism – some explicitly, others implicitly – precisely when history has vindicated its main postulates in a laboratory fashion. The bourgeois, the reformists, the Stalinists and the sects, have not the slightest idea of the real processes at work. It is not an accident that all other tendencies are all in a state of utter confusion, pessimistic and sceptical. The strategists of the bourgeoisies – especially in the USA – have no real perspectives. In the words of Trotsky, they are tobogganing towards disaster with their eyes closed.

Lenin once said that politics is concentrated economics. However, it is not possible to reduce politics to mere economics. The economic cycle has considerable importance. Indeed, in the last analysis it is decisive – but only in the last analysis. In his 1924 preface to The First Five Years of Communist International, referring to the situation in Germany, Trotsky explained:

“Today more than ever we are obliged to follow attentively the fluctuations in the commercial and industrial conjuncture in Germany and the way in which they are reflected in the living standards of the German worker.

”It is economics that decides, but only in the last analysis. Of more direct significance are those political-psychological processes which are now taking place within the German proletariat and which likewise have an inner logic of their own.” (The First Five Years of Communist International, vol. 1, p.7).

Marxism has nothing in common with economic determinism which attaches an almost exclusive importance to the question of the economic cycle. What is first necessary to understand is that the nature and effects of the economic cycle varies at different stages of capitalist development. The booms that accompanied the period of capitalism’s historical upswing are not at all similar to those that occur in the period of its senile decay.

There are periods of capitalist upswing during which booms are prolonged and recessions short and shallow. Such a period was the period before the First War and the period that followed the end of the Second World War. These periods are characterized by full (or relatively full) employment, rising living standards and an amelioration of the class struggle. They are the classical periods of reformism.

Such periods transmit a definite psychology that extends from the ruling class and its ideologues through the ranks of the middle class and into the working class itself. There is a general feeling of confidence, that all is for the best in the best of all possible worlds, that today is better than yesterday and tomorrow will be better than today. In such periods the revolutionary tendency will inevitably find itself isolated and weak.

Under such conditions reformism was the dominant trend in the workers’ movement, and the right wing was dominant in the reformist camp. The pressures of capitalism bore down on the labour movement from the tops, setting the seal on the reformist degeneration of the mass workers’ parties (“communist” as well as social democratic). The illusion was created that capitalism had solved its problems and revolution was a thing of the past. Under these conditions the genuine current of Marxism was isolated and reduced to a small minority for a whole historical period.

Now, however, the situation has changed into its opposite. The capitalist system is displaying all the symptoms of senile decay. It has lost its equilibrium and cannot return to it. As we predicted in the last world perspectives document, every attempt to restore economic equilibrium inevitably destroys the political and social equilibrium. This is now a fact that can be observed worldwide. With the exception of China, the rates of growth in the advanced capitalist countries are extremely sluggish. The USA, it is true, has managed a 3% growth rate, but it suffers from serious imbalances, as we shall show, and it is not certain that it can maintain this rate of growth for long. On the other hand, the EU’s rate of growth is only 1.8% (or more likely 1.5%). Italy’s growth is a mere 0.2%. And this is what they call a boom!

The period that followed 1945 showed, perhaps for the last time, what the capitalist system was capable of. This was a colossal fireworks display of economic growth, with full employment and rising living standards at least in the advanced capitalist countries of Europe, Japan and North America. It was a period of reforms and concessions, leading to an amelioration of the conditions of the masses and a lessening of the class struggle in the developed countries (the situation in most of the undeveloped world was completely different).

In the period 1948-73 the annual growth of the world economy (based on fixed dollars of 1990) was five percent. World trade was also expanding rapidly and acting as a stimulus to the development of the productive forces. In the same period the annual increase in world commodity exports was 7.4%, and that of world manufacturing exports 9.8%. This was a prolonged period of capitalist expansion that lasted until the first serious world recession in 1974.

However, since then the capitalist system has not managed to recover anything like the same results. Whether we take growth rates, profitability, productivity, unemployment, or any other index, the results are generally worse. Between 1973 and 1998 the average annual growth rate of the world economy was 2.9%. In the period 1990-98, the most significant period of economic growth since 1973, it was 2.6%. If we consider world trade, the average increase of world commodity exports in 1973-1998 was 4.7%, and that of manufacturing exports 5.9%. In 1990-98 the corresponding figures were 6.5% and 6.7% respectively (figures from the WTO).

In the period after 1945 the growth of world trade was the most important locomotive for the world economy. But in recent years there has been a slowing down of the growth of world trade. World trade in 2000 grew by more than 10%, but in 2001 it was a mere 1,5%, in 2002 2% and in 2003 just over 3%.

Economic cycle and class struggle

The most important question on which we must focus our attention is the political and social effects of the crisis of capitalism – the way in which this is finding a psychological expression among the masses. Even the events of the last two or three months have furnished us with a wealth of information in this respect. A serious political crisis is developing in one country after another. Everywhere there is the beginning of a ferment among the masses. The explosions in France indicate a growing mood of revolt among the youth. In one country after another there have been important strikes. There is an acceleration of the process of radicalisation. We are witnessing the reawakening of the working class on an international scale.

From the point of view of the class struggle a deep slump is not necessarily a good thing. Sudden mass unemployment can cause a temporary paralysis of the class struggle. The workers are traumatized for a time, although this can later lead to factory occupations and the masses will begin to draw far-reaching political conclusions. The present situation, on the other hand, can and does act as a stimulant to the class struggle. There is feeble growth, but accompanied by high, persistent, organic unemployment. This is a boom at the expense of the working class, based on merciless pressure, closures, sackings, unemployment, speedups, attacks on pensions. Everywhere the message is the same: “work until you drop dead.”

In the last few months, to take a few random examples, Telstar, Australia’s leading telecoms firm, has cut 12,000 jobs, while Deutsche Telekom has slashed 19,000 jobs. The pharmaceutical company Merck announced a three-year restructuring plan, with the loss of 7,000 jobs.

This is the only kind of boom you can expect during the present period. The question must be asked: what will happen when there’s a slump? It is clear that a serious slump is being prepared. The timing cannot be established with any degree of certainty. Economics was never an exact science and never will be. At most it can establish general trends. But that isn’t the point. The effects of capitalist crisis are making themselves felt right now. The capitalists attempt to increase their share of the surplus value at the expense of the workers. This can be seen everywhere. In every country the share of the workers in the national wealth is declining, while the share of the capitalists is increasing.

The capitalists have maintained profits, on the one hand by expanding both relative and absolute exploitation and on the other hand by increasing participation on world markets, a greater intensification of the international division of labour (or “globalisation”, as they call it). This has temporarily assisted them. That is why the two world recessions that have occurred since 1987 have been quite mild affairs, compared to the four deeper recessions of the previous 18 years. But in economics, the past is no indication of the future. The fact that the last two recessions were shallow doesn’t mean that this will apply to the next one. On the contrary, everything seems to indicate that enormous contradictions are preparing way for serious slump when it arrives.


To prevent recession – since they were worried about the political and social effects   the US bourgeois have behaved irresponsibly from a capitalist standpoint. The Republicans, who formerly embraced the principles of sound finance, balanced budgets and a strong dollar, have thrown caution to the winds and are acting like a drunken libertine, gambling away the family fortune at the roulette table. The result has been a massive increase in credit, and unprecedented levels of state, business, and personal debt. No other country could get away with this. The IMF would be knocking on the door demanding austerity measures. Only America’s special position as the world’s most powerful nation has saved it. But this situation cannot be continued indefinitely.

Marx long ago explained that the capitalists could avoid a crisis for a time through the use of credit. This serves to extend the market beyond its natural limits. But sooner or later this must turn into its opposite. The debts must be repaid with interest. Thus, the expansion of credit increases the market in the short term only at the cost of reducing it sharply in the longer term. Greenspan, who was responsible for this policy, has retired. The Economist on 15th October 2005 asked the question: “would any sane man want to take this job?” The reason for this scepticism is that US capitalism is based on unsound foundations. Greenspan has left behind him a nice mess for his unfortunate successor to clear up in the shape of a huge budget deficit (“the Greenspan deficit”).

The US economy is perched on a mountain of debt. Sooner or later, mountains experience avalanches. All serious economists admit that the USA is what is known as a bubble economy. To make matters worse, inflation is beginning to rise again in the USA. This raises the spectre of increased interest rates. But one of the main factors in prolonging the consumer boom in the USA (for which Greenspan was responsible) was the historically low rate of interest. This had the effect of expanding credit (and hence the market) but only at the cost of preparing a painful crisis in the future.

Greenspan created a situation where a series of increases in interest rates have become necessary. The Fed has increased interest rates eight times in the last 12 months. But this was a case of “too little and too late”. It has done nothing to reduce the speculative bubble, or lower inflation, which reached four percent in 2005 – the highest rate since 1991. Short- term interest rates in the USA are therefore higher than in Europe, attracting money in spite of the colossal deficits. Sooner or later, high interest rates will puncture the consumer boom in the USA. This will have serious effects on the world economy. The European capitalists are already talking about increasing interest rates, although the economy of the EU is hardly growing at all.

The sickness of the US economy can be charted by the feverish movements of the dollar. The dollar, as we predicted, has experienced a steep fall. How could it be otherwise when the USA has a current account deficit of approximately $800 billion? What is more surprising is the fact that the dollar has partially recuperated. It has gained 3.5% in relation to a broad basket of world currencies, and even more (14%) against the Euro.

However, this situation cannot be maintained. It does not reflect the strength of the US economy but rather the weakness of the European economy. It can be reversed at any time, with a major outflow of foreign currency and a further steep fall of the dollar. There is now an extreme nervousness on the part of bourgeois. Any shock, such as a sudden increase in oil prices, can spark off a bout of selling on world stock exchanges that can provoke a panic.

In the given circumstances, this will have serious consequences for the real economy. It will puncture the speculative bubble that has led to overvalued share prices. Above all, it will lead to the collapse of the housing and property market. Since building and related activities are the main element behind the boom in the US economy (together with consumption based on credit), it will lead to a sharp downturn in the real economy and a downward spiral that will be difficult to control.

We are already seeing evidence of overproduction in cars and mobile phones both in Europe and the USA. The automobile industry is still a very important industry in the USA. Many other industries depend on it. But all auto firms in the USA are in a deep crisis. General Motors is on the verge of bankruptcy. Ford and Daimler-Chrysler are not in much better shape. Delphi, the largest US suppliers of car parts, has gone bankrupt. All the major US car firms are furiously discounting. This is not a sign of boom, but is a phenomenon we normally associate with a slump. In September 2005 US car sales fell by 20% when compared to September 2004. GM’s sales also fell by 24%. As a result of discounting, car sales are rising again, but profits are declining.

Instead of developing the means of production, the capitalists are engaged in an orgy of destruction on a world scale. We have given some examples, but the reality is that hundreds of thousands of jobs are being destroyed in the productive sector and being replaced in the main by an expansion of parasitic “services”. Those workers who retain their jobs are required to work longer hours in worse conditions and often for less pay. There has been a savage bosses’ offensive aimed at increasing profits at the expense of the workers. It is a universal phenomenon. There are constant attacks on the workforce, which are infuriating the workers. Strikes and protests are on the agenda, as we see already, not only in GM but also with the New York transit workers. The Boeing workers have also struck against proposed changes to benefits. Others will follow.

Marx pointed out that the ideal of the bourgeois is always to “make money from money”, expressed in the formula: M–M1. Whereas in the past the bourgeoisie developed the means of production and therefore played at least a relatively progressive role, this is no longer the case. Increasingly, the capitalists seek to make easy profits through speculative activity, dispensing altogether with the painful necessity of producing. With the exception of China, where there has been an enormous development of the productive forces, the capitalists have not been investing in production to the same extent as they did in the past. The figures for global Foreign Direct Investment (FDI) for the period 1999 to 2003 are as follows:

1999: 1.08 trillion dollars

2000: 1.38 trillion dollars

2001: 817 billon dollars

2002: 678.8 billon dollars

2003: 559.6 billon dollars.

This shows that in 2001 there was an actual fall in FDI of 41%, in 2002 of 17% and in 2003 of about 17%. Furthermore, when we look at the figures for FDI into the United States we find that in 2003, there was a fall of 53%   the biggest for 12 years. In Central and Eastern Europe there was a fall in FDI of 30%, in the EU of 20% and in Japan of 35%. (China is the exception, being the country with the biggest inflow of FDI). [Source: UNCTAD 2004 Report]. In its report for September 2005, the IMF warned that “despite the strong increase in business profits, investment performance has been generally weak”, and it called for a change of strategy: “Until now world growth has been sustained by the increase in consumption, but it is now time to shift from growth based on consumption to growth based on investment”.

In their search for easy profits, the capitalists have engaged in a new orgy of takeovers, which almost always end in factory closures, asset stripping and sackings. In the first few months of 2005 there was a 40% increase in takeovers, with a total value of 1,657 trillion dollars. The IMF tries to present this as “economies of scale which permit a reduction of fixed costs”. This is euphemistically known as “creative destruction”. In reality there is nothing creative about it. It amounts to a kind of modern Luddism, except that in the early years it was the workers who wrecked machines, whereas now it is the capitalists themselves.

A lot of the economic activity at the present time is not productive but speculative activity like the stock exchange boom, takeovers and the housing bubble. This does not benefit the economy and does not create an atom of new wealth. It acts as a monstrous bloodsucker, extracting the wealth created by the working class and siphoning it of into the pockets of the parasites. When the last speculative boom collapsed the bourgeois swore they would never repeat the experience. Like a drunk who has over-indulged at a party and wakes up with a bad hangover, they cried: “Never again! I've learned my lesson!” But subsequent events show they've learned nothing.

Of course, there is always a speculative element in every cycle. A speculative boom in real estate played a big role in the boom that preceded the 1929 crash. Before that there was the South Sea bubble in the 18th century and the Dutch tulips scandal in the 17th century. But this present bubble is the biggest speculative boom in history, bigger than 1929 and all the others. And the bourgeoisie will live to regret it. They are preparing a serious slump at a certain stage. The figures of the increase in house prices internationally in the period 1997-2005 in percentage terms are as follows:

South Africa: 244

Spain: 145

Britain: 154

Ireland: 192

Italy: 69

France: 57

Belgium: 71

USA: 73

Germany: - 0.2

Although the growth of house prices in the USA has been slower than some other countries, it accounts for something like 80 percent of total US GDP over the last five years. To give an idea of the scale of the problem, the stock exchange bubble in the later 1920s, just before the crash of 1929 was the equivalent of 55 percent of total US GDP. In the last five years in the USA consumer spending and residential construction represented no less than 90 percent of total GDP growth. Over two fifths of all jobs in the private sector since 2001 have been related to housing. This situation is alarming the serious bourgeois economists.

The problem can be simply stated. In the last period there has been an enormous expansion of credit and debt. This is the basis of the consumption boom in the USA. A householder can owe more than what his property is worth. This is the way in which US capitalism has expanded the market far beyond its natural limits. But there is a small problem here: debts must be repaid, and house prices (and stock prices) can rise and fall, but debts are fixed. Sooner or later the gap will have to be filled. The present speculative orgy, like every other bubble in history, will inevitably end in a slump.

A housing market crisis will affect the real economy very seriously. Most economic activity in the USA in the recent period, one way or another, is connected to the construction industry. A sharp fall in the housing market will affect house building directly, and that is the main motor force for the present boom. But the indirect effects will be still greater. As credit becomes squeezed, consumption will be reduced. The high levels of consumer debt, which previously sustained the boom, will have the effect of sharply constricting the market and deepening the slump when it finally arrives. And the longer the moment of truth is delayed, the deeper the slump will be.

As in every slump, all the factors that propelled the economy upwards in the boom will turn into their opposite. Cause becomes effect and vice versa. The effects will soon be felt on the world market, precisely as a result of globalisation. When the US consumer stops spending, where will China sell its goods? And when the Chinese economy slows down, the whole of Asia will be affected immediately because its main market is now China.

London, February 1, 2006

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