Alan Woods on world perspectives 2008 – Part One

Transcript of Alan Woods' speech on the world political and economic perspectives for year 2008 at a meeting of the leadership of the International Marxist Tendency on January 13, 2008. You can also listen to the speech here.

We have said we would have sharp and sudden changes. What more sharp and sudden changes can you have than what has happened in Pakistan, which is now in an explosive situation? After the fall of Stalinism, Ted Grant said, while the bourgeois were rubbing their hands with glee, that this would be the most explosive, turbulent period in human history. Even some comrades doubted this. The fall of Rome was quite turbulent, and incidentally there are many striking parallels between now and the period of the decline and fall of the Rome Empire. Even many bourgeois analysts commented on this. The same was seen during the process of the decline of feudalism.

What is the character of our epoch? Is it a period of growth, expansion, and capitalist progress? One must have to not live on this planet not to see all symptoms of a system in senile decay, at an impasse. Civilization itself is in danger. The choice is socialism or barbarism.

Just look at Kenya - it was supposed to be a success story, carried out market reforms, privatisations, etc., it was considered a shining example of democracy. Now we see the opposite: barbarism, elements of social disintegration - as a result of all of that. It is easy to play up the elements of barbarism - we can see them even in advanced countries of Europe: crime, drugs, murder, collapse of morale in society. How can we expect anything else of a system in decline? As Lenin said: capitalism is horror without end.

The purpose of a perspectives discussion is not academic, as in a university seminar. It is not to show how clever we are, but to analyse the situation in order to intervene - and we are intervening: in Iran, a key country, Venezuela, Mexico, Italy, Spain, and above all in Pakistan, the key country for this International. How was it possible for our comrades to make such a marvellous intervention? It's not an accident that we were in the right place at the right time. It's the result of our perspectives - all these discussions over years and decades.

All the so-called Marxists in the world have denounced us over our orientation to the PPP. Now look at the position: we were the only ones that were able to explain how the masses would react to return of Benazir Bhutto. Do you think the masses read the "small print" of the PPP, PRD or Bolivarian Movement documents? Not at all - but we understand how they move when they move.

There are certain parallels between January 9, 1905 in Tsarist Russia and the situation in Pakistan today. How is it that a Marxist organization can make such progress and develop in a backward country, with fundamentalists etc.? It's because of the superiority of the ideas and methods of Marxism. This is shown not only by Pakistan, not only in Asia but on a world scale.

We predict there will be big falls in the world stock markets, followed by panic. The instability finds its reflection in the rise in oil prices. This has reached over $100 a barrel now. So, what is the mood of the bourgeoisie? We can in some ways measure the mood of bourgeois with the "thermometer" of the stock market. Just 12 months ago, they had a mood of optimism: five years of fast, near-record growth. Now we witness a mood of profound pessimism. As Trotsky said in the Transitional Programme, the bourgeois are tobogganing toward disaster with their eyes closed.

Twelve months ago they said there was no sign of volatility because instability was supposed to have been abolished by the invention of derivatives. We predicted what would happen some years ago. We said the U.S. economy was defying gravity - like the cartoon character (I think it is called Roadrunner), who runs over a cliff and keeps on running in midair, then he looks down and scratches his head, and then falls down the canyon when he realizes there's nothing under his feet. It is the same with the US economy now. There is nothing real under it.

The bourgeois have been selling huge amounts of... debt! Debts are parcelled up and sold on the stock exchanges. This lunacy has now caught up with them. The sub-prime crisis had serious consequences on world scale: in the UK there was the collapse of Northern Rock, which happened suddenly, without warning. It's not a small bank, it's the 5th largest bank in Britain. For the first time in 160 years in Britain we saw a run on banks: you could see it on TV, not in academic books. People were queuing outside the banks in their hundreds to get their money back.

Even during the boom we saw the most vicious attacks on living standards, pensions, etc: it was a boom at the expense of the working class. It's no good just quoting general figures on growth and other economic indicators; we need to look at the effects on the masses. Yes, huge profits have been made, but at the expense of the masses. There have been a high growth rates in South America as well - but the masses have not benefited from it. Everywhere there has been a huge growth of inequality, obscene wealth at one extreme and extreme misery at the other. It's no accident that the richest man on earth is not Bill Gates but Carlos Slim, a Mexican.

This is the position of the masses in the best situation of capitalism. What will happen when there is a slump? The world is heading toward recession. The USA is heading for a recession, but Britain, Spain, and Ireland are particularly exposed. More banks will fail, as in the 1930s. There's a combination of factors that is very dangerous for world economy. Inflation is rising (which is normal at peak of a boom). Oil will rise beyond $100 per barrel before an eventual collapse in price. Gold is already over $900 per ounce - the highest level in 28 years. And as we know gold rises when the bourgeois are looking for a safe place to put their money before a slump, this is a telling symptom of approaching recession.

The main motor force of the world economy remains the USA. A country with 5% of world's population has been responsible for almost 20% of growth. It's a growth based on demand, on consumption, but the USA has a record of nearly 30 years of stagnant wages, although the average U.S. worker now produces a third more than he did a decade ago.

There are colossal debts in America: private, corporate, and public debt. This accumulation of debt has limits, which are being reached. There has been a steep increase in unemployment (+5%). The housing bubble is finished and house prices are falling. People have been borrowing money against rising house prices. As long as boom continued, there was a merry carnival of money-making, and people got a little light-headed, banks lent money to anyone. Now there is a massive wave of repossessions. Thousands of American families can't sell their home because they owe more on mortgage than the home is worth. Some call it "a new class of mortgage slaves." This is not an academic discussion. It will have an effect. It is already having a profound psychological effect and the ruling class is alarmed.

After Bush was elected, most on the Left were pessimistic, they thought everything was shifting to the right inexorably. On the contrary, we predicted he'd be the most hated president in history. The ruling class doesn't know what to do. The Republicans are split because of the Iraqi quagmire and the economic mess. Larry Summers, former Secretary of the Treasury under Clinton, said: "America risks the worst downturn since the early 1980's."

Nobody knows the depth or duration of the coming recession. According to The Economist, "The real question is not the technical issue of whether the downturn will qualify as a recession, but how long it will last." They fear that the USA might repeat the experience of Japan in the 1990s, when the boom in the 1980's gave way to a recession for 10 years.

t is a supreme Irony that as the crisis approaches, the bourgeois immediately run cap in hand to the state for help. They want lower interest rates, loans, subsidies, etc. In effect, they want the bubble re-inflated! There is no more talk of "market sorting it all out." Greenspan re-inflated the bubble in 2001 to 2003, and he was seen as a hero - now they accuse him of causing a mess. They are right, of course, but it does not stop them from demanding similar measures now.

The real economy of the USA is already showing signs of crisis. In 2007 the sales of cars and light trucks fell by 2.5% to 16.1 million. This year a fall to 15.5 million is predicted. Major companies are in crisis. Chrysler is bankrupt in fact, if not in theory. The December figures for US manufacturing were the worst in five years. New home sales fell by 9.6% in December, 34.4% lower than a year earlier. Inflation is rising everywhere. The November inflation in the USA was 4.3% higher than a year ago.

There are factors that undoubtedly helped the bourgeois in the last period. The opening of new markets after the collapse of the Soviet Union and the restoration of capitalism in the former Soviet and Chinese blocs meant the entry of nearly 2 billion people in the world trade system. This caused a downward pressure on wages, although in China there are rising inflation and wages.

This was a big help to the capitalist system. It gave it oxygen, but none of the fundamentals changed. It led to the cheapening of commodities as a way of combating the tendency of the rate of profit to fall. Vast quantities of commodities were churned out in countries like China and India, for example cheap TVs, computers, etc. Thus, even without rising wages, workers could afford to buy goods that in the past would have been considered luxuries. But now the prices are rising, and yet wages are being kept down.

The UK provides an example. Public sector workers in Britain compose 20% of the workforce. Gordon Brown has declared that the wages of public sector workers should be below the level of inflation for the next three years, allegedly to combat inflation. This is a recipe for an explosion of strikes in the public sector in Britain. Everywhere there are programmes for further cuts in wages. We can express this in the form of an equation: the capitalists cannot tolerate the maintenance of the reforms and concessions of the past, but the masses can't accept further cuts in living standards.

Part of the reason for the rise in food prices is the bio-ethanol boom, which doesn't actually help environment at all, but uses corn and other foods for fuel (subsidised by the government), driving up food prices world wide. Fidel Castro predicted that this would cause a hunger crisis and he was right: it's a catastrophe for poor countries. In Italy, there's been an increase in the price of pasta, which is a serious issue for the average Italian working-class household. But in countries like Pakistan, India, Bangladesh, Afghanistan, etc. similar rises in basic food stuff have led to riots, because people can't afford to eat. The PPP in Pakistan will come to power in this situation of desperation - a reformist policy can't solve this problem, and serious consequences flow from this.

The bourgeois economists are like a drowning man reaching for a straw. They now accept that a crisis in the USA is coming, but hope against hope that Asia will save them, that it will not affect the rest of the world.

China has had the greatest growth of any country in the last 30 years. It's now the number one steel producer and consumer, the second consumer of energy. Some predict that at this rate it can overtake America. In the long term this is true, but it is not an immediate prospect. In the past they said the same of Japan, then the crisis came.

Economists like to extrapolate tendencies on the basis of past figures. Chinese inflation reached a 6.9% annualized rate in November. China's exports amounted to 20% of its GDP in 2001, in 2007 they are 40%. These are estimates, and are probably too high, nevertheless what is clear is that exports play a very important role in the Chinese economy and even a downturn - let alone a deep slump - in the USA will affect it.

January 13, 2008
Nieuwpoort (Belgium)

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