[Editor's Note: This document was discussed, amended and voted in July by the 2006 World Congress of the International Marxist Tendency. Most of the text was originally written as a draft in October 2005 in preparation for the Congress. In the process of discussion it was redrafted in February and then amended in July. This has to be taken into account when reading it. For example the section of the document on Mexico was written long before the great revolutionary events that have been unfolding over the past couple of months. The document actually predicted that such a movement would break out if the ruling class attempted electoral fraud. September 2006]
Politics is the science of perspectives. Without correct perspectives it is impossible to conduct fruitful revolutionary 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 on a world scale. It is not an accident that most other tendencies are in a state of utter confusion, pessimistic and sceptical. The strategists of the bourgeoisie - especially in the USA - have no real perspectives. In the words of Trotsky, they are tobogganing towards disaster with their eyes closed.
We have entered the most turbulent period in world history. One shock after another is shaking the system to its foundations. The world situation is characterised by extreme instability, which is a reflection of the impasse of the capitalist system on a world scale. The world has been plunged into a maelstrom of conflicts, wars and terrorism. The counter-revolutionary tendencies in the present world situation are obvious. They are an expression of the fact that a socio-economic system that has outlived its historical usefulness and become a barrier to human progress is struggling to maintain itself. The old system is hopelessly diseased but refuses to die. This is a common phenomenon to students of history, especially the period of the decline of the Roman Empire, which furnishes many analogies to the present period.
However, the death agony of capitalism inevitably gives rise to its opposite. Beneath the surface, revolutionary tendencies are maturing. Revolutionary developments are implicit in the whole world situation. Everywhere we look we see an enormous ferment. At different rates, and in different ways, this will find its expression in the consciousness of the masses and be manifested in all kinds of social and political crises and explosions.
If there were mass organisations with a clear revolutionary policy and with authority in the eyes of the working class or at least its vanguard, the process would be shorter and less convulsive than it is. The price paid by the human race would be immeasurably less in terms of death and suffering. But there is nothing similar to the Communist International in the days when it was a genuine revolutionary instrument under the leadership of Lenin and Trotsky. The central problem is that those mass organisations - communist, socialist and trade union - that were created by the working class to change society have been converted into powerful obstacles in its path. In the words of Leon Trotsky, the crisis of humanity can be reduced to the crisis of leadership of the proletariat.
The absence of the subjective factor, the revolutionary party and its leadership, does not signify that revolution is off the agenda. It only means that the crisis will be long drawn out and extremely convulsive. The capitalist class may succeed in "solving" the crisis temporarily, at the cost of imposing further intolerable burdens on the shoulders of the masses, intensifying exploitation and plundering the planet. There will be temporary lulls in the class struggle, resembling periods of uneasy truce in a war, but no genuine and lasting equilibrium can be restored. Every lull in the class struggle will only be the prelude to new explosions.
This instability exists at every level: economic, social, political, diplomatic and military. It is expressed in the volatility and nervousness of the bourgeoisie internationally. There is enormous volatility in the world economy. The violent oscillations in price of oil is a symptom of this instability, which in part is an expression of the political and military convulsions in the Middle East following Bush's Iraq adventure. Three years after the invasion of Iraq, the insurgency is increasing in scope and intensity. But the nervousness of the bourgeoisie is based on other, and more serious, calculations.
Different historical periods
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 vary 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 of twenty years or so before the First World War and the period that followed the end of the Second World War. These periods are characterised by full (or relatively full) employment, rising living standards and a softening of the class struggle. They are the classical periods of reformism. Such periods transmit a definite type of bourgeois ideology 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.
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, although the situation in most of the undeveloped world was completely different.
In the period 1948-73 the annual rate of 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).
But we must also recognise that during both periods the main beneficiary of this growth has been the ruling class, which has increased its economic strength at the expense of the working class, whose situation has become increasingly precarious, as the following figures demonstrate:
Annual rate of wage rises, in real terms, in the USA
Annual growth in profits, in real terms, of the 500 companies of the S&P (USA)
These figures demonstrate that this process of polarisation has deepened in the period following 1973, and this weakens the social reserves of the capitalist system even more
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%. In the past two years the rate of growth has recovered (5% in 2004 and 8% in 2005), fuelled by the impetus of the Chinese economy. However, the role of world trade at the present time is very different from the role it played in the 1980s and 1990s, when annual rates of growth reached 12, 13 and even 15 per cent, reflecting the alarming underlying crisis of overproduction within the world economy.
Pressures of capitalism
Under conditions of capitalist upswing, 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.
The present boom is based on unsound foundations. The whole world is dependent on the USA and now, to a lesser extent, on China. But the present feverish rate of growth in China is unsustainable and prepares the way for a serious crisis of overproduction. The US economy is characterised by unprecedented indebtedness at all levels. Such a situation in any other country would long ago have led to a slump. Only the fact that the USA is the world's mightiest and wealthiest economy allows it to continue on this road. But this cannot last indefinitely.
The character of the present boom bears no relation to the booms of the past. It has not led to an improvement in living standards. On the contrary, it is based on a general intensification of exploitation, longer hours of work, speed-ups and cuts. That is the position even in the advanced capitalist countries. In the United States, the present generation will be the first since the end of the Second World War which cannot expect an improved living standard. The attack on pensions is a general phenomenon. They are saying, in effect: work until you drop dead. It is a return to the mentality of 19th century capitalism. The smiling mask of reformism has been discarded to reveal the ugly face of capitalism, the law of the jungle that is known as "free market economics".
Everywhere there is an enormous increase in inequality. The rich are obscenely rich, while a growing layer of society, even in the richest countries, are sinking into absolute poverty. This is a consequence of the process of the concentration of capital predicted by Marx. The reformists claimed that this was a thing of the past. But the monopolisation and concentration of power and wealth in a few hands has never been so extreme as now. The predictions of Marx have come into existence in what can be described as laboratory conditions.
This is gradually producing a mood of discontent and a growing questioning of the system, especially among the youth. This is true both in the USA and in Europe and is reflected in the mass so-called anti-globalisation protests and the huge demonstrations against the war in Iraq. These are the first symptoms of a growing revolutionary tendency among the youth. And hanging over the situation is the threat of a new world recession.
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!
Parasitism of the bourgeois
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 billion dollars
2002: 678.8 billion dollars
2003: 559.6 billion 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 of industrial capitalism it was the workers who wrecked machines, whereas now it is the capitalists themselves.
Even where the capitalists are making big profits they do not invest in developing the productive forces in their own countries. In an article safely hidden away in its back pages, The Economist (25th February, 2006) commented: "Today, however, corporate profits are booming in economies, such as Germany, which have been stagnating. And, virtually everywhere, even as profits surge, workers' real incomes have been flat or even falling. [...] Firms in Europe are delivering handsome profits [...]. In the past two years, the earnings per share of big listed companies have climbed by over 100% in Germany, 50% in France, 70% in Japan and 35% in America despite the latter's faster GDP growth. [...]
"Secondly, and more worrying, the success of companies no longer guarantees the prosperity of domestic economies or, more particularly, of domestic workers. Fatter profits are supposed to encourage firms to invest more, to offer higher wages [!] and to hire more workers. Yet even though profit's share of national income in the G7 economies is close to an all-time high, corporate investment has been unusually weak in recent years. Companies have been reluctant to increase hiring or wages by as much as in previous recoveries. In America, a bigger slice of the increase in national income has gone to profits than in any recovery since 1945." (Our emphasis)
Instead of developing the means of production, the capitalists are engaged in a carnival 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.
Let us take a few random examples. In the last few months 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. Volkswagen has warned that 20,000 jobs could be affected by its restructuring plans. France Telecom announced the loss of 17,000 jobs over the next three years. There are many more examples. 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.
This is the only kind of boom you can expect during the present period. The question must be asked: what will happen when there is 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 is not 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 does not mean that this will apply to the next one. On the contrary, everything seems to indicate that enormous contradictions are preparing way for a serious slump when it arrives.
The serious bourgeois economists are drawing parallels with this situation and the early 1970s, when the soaring price of oil (also as a result of a military adventure in the Middle East) provoked the first real world slump since the Second World War. The increased price of oil was not (as vulgar economists claimed) the cause of the slump, only the "last straw", or the catalyst, to use a term from chemistry, that brought to a critical point tendencies that had already been prepared in advance.
Sickness of US economy
For years and decades, contradiction upon contradiction has been piling up. In the USA, the so-called American Dream - work hard, get rich - has been exposed as nonsense. In the first decade of the 21st century, American capitalism is not a dream but a nightmare for millions of people. The real face of US capitalism was shown by Hurricane Katrina. The existence of an underclass of poverty-stricken people in the richest country in the world was carefully concealed from the world. It took an accident like Katrina to expose the rotten heart of US capitalism. The rest of the world was shocked, but in reality we have a similar situation developing everywhere, as we saw in the French youth riots.
One of the most significant countries where we can see the outbreak of class struggle is the very heart of world capitalism: the USA. After decades of attacks on the rights and working conditions of the working class, and after the initial uproar provoked by the terrible attacks of September 11th, the US working class is beginning to awaken. In the past few years we have seen very important struggles: the dockers, the hotel workers' strike in San Francisco, Wal Mart, American Airlines, the New York subway, the car industry... These have been long and hard strikes, and demonstrate the enormous discontent and the accumulation of combustible material preparing the way for an explosion of class struggle.
The nature of this new period has been brilliantly shown in the magnificent struggle of immigrants, mainly Hispanics, which has rung serious alarm bells for the US ruling class. Immigrant workers are a very important section of the US working class. They are the majority in sectors such as transport, agriculture and the hospitality industry. The historic demonstrations of millions of workers at the end of April, and the ‘general stoppage' of 1st May are having an important effect on the entire US working class. To this we must add the psychological effects of the war in Iraq and which Hurricane Katrina had at the time. The outbreak of class struggle in the US will have tremendous repercussion, above all in Latin America, just as the revolutionary events in Latin America are having a profound effect in the US. Just as in the 1970s with the Vietnam war, once again the biggest enemy of the US is not outside its borders, but within them.
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 presided over 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 partly 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 wide fluctuations 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. In the last few months 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 the 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.
Sooner or later real life imposes itself over the speculative fantasies, puncturing the speculative bubble that finds its expression in overvalued property and share prices. In the given circumstances, a collapse of the speculative boom will have serious consequences for the real economy. Above all, it will lead to a severe slump in 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), this must 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. 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. This is not a sign of boom. Rather these are phenomena we normally associate with a slump.
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 off 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 the inherent laws of the system compel them to repeat these boom and bust cycles.
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
Germany: - 0.2
Although the growth of house prices in the USA has been slower than some other countries, it accounts for a large part of the growth of 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.
Contrary to the prejudices of the bourgeois economists, globalisation is not set in stone. It can be reversed, just as it was reversed in the past. Before the First World War there was major globalisation. In some ways it was even more important than now. That was certainly true in terms of immigration and labour markets. However, this tendency was reversed in the interwar period. The slump turned into a prolonged depression, characterised by beggar-my-neighbour protectionist policies, competitive devaluations and so on.
Protectionism is in fact an attempt to export unemployment. In the event of a deep recession, with high unemployment, the main capitalist powers will attempt to solve their problems at the expense of other countries. The tensions between Europe and the USA, between the USA and China, which already exist, will become exacerbated. The whole fragile fabric of world trade will be put under enormous strain, preparing the way for protectionism and trade wars. This is implicit in the present situation.
The bourgeois thought globalisation had solved their problems. They imagined that they had discovered something entirely new. In fact, it was not new at all. Marx explained in the third volume of Capital how the development of world trade could temporarily prevent a crisis, but only at the cost of preparing an even bigger crisis in the future. In the last two decades the bourgeoisie has developed the world market on an absolutely unprecedented scale. This has undoubtedly helped the capitalist system to get certain results and explains the shallowness of recessions in the recent period. But the emergence of China as a major economic power is preparing new contradictions on a world scale.
It is certainly not a minor thing that 1,000,000,000 people should enter the capitalist world market, as has happened in the case of China. China has played the role that the capitalists had originally intended for Russia. It provided them with a vast field for the export of capital and commodities, new markets and investment opportunities. In other words, they saw China only as a market, but did not adequately understand the longer-term implications (capitalists tend not to think about the long term). By investing massively in China, they have created a mighty industrial rival that is now in a position to challenge them on world markets.
With cheaper labour costs, modern machinery and high productivity, China has become a formidable force on the world market. The enormous increase in Chinese exports of textiles to Europe caused a serious clash between the EU and China. Eventually, an uneasy compromise was arrived at. But the problem will not disappear. Shoe imports to the EU from China rose by 300% in the nine months from ending October 2005 compared with the same period of 2004. The demand for import quotas, especially from Italy, will become ever more persistent. Nor is the problem confined to cheap textiles and clothes. This economic giant has now overtaken the USA as an exporter of high tech. goods. In 2004 China exported $180 billion in high tech goods. The result has been a furious outcry particularly from the US capitalists. There is a growing protectionist mood in Congress, fuelled by congressmen whose position is being threatened by unemployment in their own states. Charles Schumer, the most vociferous representative of this group, put forward a bill that threatened to impose a 27.5% tariff on Chinese imports. He did not succeed, but it shows the direction in which the situation is moving.
From a Marxist point of view, the massive development of industry in China is a progressive thing because it develops the power of the proletariat. As long as the economy continues to grow, offering at least the perspective of future improvement, the masses will be prepared to tolerate the heavy sacrifices imposed upon them. But even an economic slowdown will be sufficient to bring all the hidden contradictions to the surface. According to official statistics the number of mass protests in China has risen from 10,000 in 1994, to 74,000 in 2004. These figures are still minuscule, but they are an indication that revolutionary developments are maturing in China. The class struggle in China can burst to the surface when the world least expects it.
The phenomenal growth of the Chinese economy has limits. A serious slump led by a crisis of overproduction China is now being prepared in which all the factors that served to propel the world economy forward in an upward and apparently unending cycle, will turn into their opposite. The movement in the direction of capitalism and the abandonment of a planned economy is preparing the way for a massive crisis of overproduction in China. Thus, whereas China has moderated the effects of the last two world recessions, it can now have just the opposite effect. Previously the West saw China as a gigantic market but it does not require much intelligence to see that if you build factories in China, they will start to produce export commodities in massive amounts. This is already happening and the Americans are increasingly alarmed by this.
There is now a ferocious struggle for even the smallest markets. This is threatening the future of world trade and undermining attempts to liberalise it. This explains the failure of every one of the world trade summit meetings: first Seattle, then Cancun. The same protectionist tendencies can be observed in the Doha round of talks on world trade. Here we see the complete hypocrisy of the demagogy about "free trade". The strong capitalist economies of Europe, Japan and the USA forced the weak countries of Asia, Africa and Latin America to open up their markets under the banner of "free trade". As a result, the native industries were decimated and whole nations ruined and forced into debt from which they cannot escape. But when the poor countries ask for free trade in agriculture, which would afford them some relief by giving their agricultural exports more access to the lucrative markets of North America, Europe and Japan, the doors are immediately slammed in their faces.
The deadline for the Doha talks is June 2006, at which point the permission of the US Congress for the negotiations expires. Yet no progress has been made. They are haggling like miserly peasants at a medieval horse fair. The main bone of contention is agriculture. Although this only accounts for three percent of total world output and less than ten percent of total world trade, it nevertheless accounts for 60% of the benefits of the Doha round. But the USA, Japan, and particularly the EU are not prepared to make meaningful concessions. They all put the interests of their rich farmers first. The US government subsidises its farmers to the tune of $19.1 billion, while the EU farm subsidies amount to a colossal $75 billion.
The growth of protectionism can be seen in the increase in the number of bilateral or regional agreements. In 2004 there were 206 such agreements, compared to only 89 in 1995. These bilateral agreements, which have been pushed hard by the USA, are an attempt to by-pass the WTO, which Washington sees as inimical to its interests. But other countries are following in the footsteps of the USA. The latest involves Asia, where China and ten other countries of South-East Asia are preparing a free trade deal that will affect 1,800 million consumers. The objective, which will probably not be reached, is to reduce tariffs for most products to zero by 2010. From this it is clear that China is laying claim to economic hegemony in Asia, which will inevitably lead to a direct collision with the USA, with not only economic but also military implications.