A New Stage in the World Revolution

The December events in France, followed by the upsurge of the strike movement in Belgium marks an important turn in the international situation. These events underline the fact, already anticipated in the 1992 World Perspectives document, that we are entering into an entirely new period on a world scale. While it is impossible to predict in advance the exact time-scale of events, or accurately plot the inevitable ups and downs of the movement in different countries, it is clear that the world crisis of capitalism, after an unavoidable delay, is beginning to penetrate the consciousness of the masses in one country after another. This is a fact of the first order of importance for the revolutionary tendency, which must be capable of following the process carefully through all its stages, providing an accurate analysis of its concrete characteristics at a given moment, and showing the way forward. Only thus can we prepare the cadres of the Marxist tendency to intervene effectively in the real movement of the class, and not be caught by surprise by events.

The magnificent strike movement of the French workers, with its tremendous sweep and elan, was in the true tradition of that country. It was the biggest movement since 1968. Despite the fact that less than 10% of workers are organised in unions, and the union leaders did their best to split the movement up, calling strikes and demonstrations on different days, the response of the workers in the public sector was overwhelming. The terror of the French ruling class, haunted by the memory of 1968, was reflected in the hasty abandonment of Juppé's plan to restructure the railways, despite the fact that the Right has a big majority in parliament. Moreover, the fears of the French bourgeoisie were shared by the ruling classes of the whole of Europe. The example of the French proletariat was immediately followed by the Belgian workers, with spontaneous strikes and demonstrations of the railway workers, which have been supported not only by other public sector employees, but by car workers from the private sector.

It is impossible to understand these events outside the context of the general crisis of world capitalism. The bourgeois economists are at a loss to explain the simultaneous slowdown of most of the main capitalist economies at the present time. The average rate of growth for the advanced capitalist economies over the last twelve months has been about 2.5%. Only the USA has achieved a higher rate of growth, but this also has experienced a slowdown in recent months, provoking fears that the boom may already be coming to an end. In Japan, the GDP actually fell by 0.2% last year, despite the colossal investments pumped in by the state. In November 1995, Japan's industrial production increased 1.5%, but was only 0.5% higher than a year ago, while Germany's industrial production actually fell by 3.8% in the same 12 months. Everywhere, the level of unemployment remains stubbornly high. And everywhere the living standards of the workers are under attack. This in a period of "boom"! This is precisely the opposite of the situation that prevailed during the period of capitalist upswing that followed World War Two.

The curve of capitalist development

The capitalist system has reached its limits, because it is no longer capable of developing the productive forces as it did in the past. But this in no way implies the existence of some absolute standard of progress, or of an absolute barrier to economic growth in general. Even in epochs of historical decline, there can be periods of growth. This observation is true of every socioeconomic system that ever existed, but even more so of capitalism.

It is necessary to distinguish between the normal cycle of capitalism (the "trade cycle"), which was approximately ten years in Marx's time and is now about five or six years, and the longer periods, numbering decades, which have characterised the history of capitalism, each of which tend to be different to the others, and which may be characterised by a general tendency towards upswing or downswing.

If we leave to one side the early period of capitalism in the 18th century and early 19th century, we can see, for example, the long period of upswing from 1850 to 1873. This led to the strengthening of the working class in Europe and the United States, and ended with the Franco-Prussian War and the Paris Commune. The period of 1873 to 1895 was a period of low growth and crisis, with a severe slump in 1888. That was followed by the long period of upswing that preceded the First World War. This was a period of rapid growth and investment, imperialism, a further strengthening of the working class, and the rise of reformism, the Labour bureaucracy, and illusions in the possibility of a peaceful, gradual transformation of society. These illusions, inseparable from every period of capitalist stabilisation, were shattered by the new crisis which began in 1912 and ended with the outbreak of the First World War in August 1914.

Of course, the division of the curve of capitalist development into segments presents many difficulties, and there are different views as to when one period begins and another begins. For example, there is a school of thought which argues that the entire period from 1870 to 1913 was a period of upswing. If this is correct, then the segment from 1873 to 1895 would represent only a temporary interruption in the overall upward movement of the economy, in the same way that the booms of 1922-29 and 1982-90 were temporary interruptions in periods of downswing, which in no sense modified the fundamental process.

In a broad historical sense, capitalism had ceased to play a historically progressive role by 1912-14. The history of the twentieth century, with two terrible world wars, the second of which almost led to the extinguishing of civilisation, the collapse of the productive forces in the inter-war period, the rise of fascist barbarism, is sufficient proof of this. But capitalism will not collapse automatically. It must be overthrown by the proletariat. This is a complex question, which involves the subjective factor, and the dialectical relationship between the class, the party and the leadership. It is not enough to point out the crimes of capitalism, its exploitative, oppressive nature, its anarchic wastefulness. It is necessary to create the instrument capable of leading the proletariat to the taking of power.

The First World War created the objective conditions for the Russian Revolution. But, without the Bolshevik Party, and ultimately without Lenin and Trotsky, the October Revolution would never have succeeded. In Germany, France, Austria, Italy and Hungary, there were far more favourable objective conditions, but in every case, the lack of a revolutionary leadership led to defeat. The Russian Revolution opened up a new period. From 1917 to 1923, the revolutionary wave moved like wildfire from one country to another, Again and again, the workers were faced with the possibility of taking power, and again and again, they were frustrated by the leadership. The failure to overthrow capitalism, which would have been possible, especially in Germany, created the political conditions for the restoration of a temporary equilibrium.

It is an elementary proposition of Marxism that the economic cycle of booms and slumps is an essential feature of the capitalist mode of production which accompanies it from the cradle to the grave. The undialectical notion that, in the epoch of capitalist decline, all further growth is ruled out was invented by the ultralefts in the Third International in 1920-22, then taken over by the Stalinists, who used it as a "theoretical" justification for the "Third Period" madness in 1929-34. Following the Second World War, the same nonsense was dredged up by Mandel and the other "leaders" of the Fourth International (up until recently, the Lambert sect continued to maintain that there had been no growth of the productive forces since 1945!).

These false theories were answered a hundred times by Lenin, Trotsky and by our own tendency. Replying to the ultralefts, Lenin pointed out that there was no such thing as a "final crisis of capitalism," and that, if it was not overthrown by the working class, the capitalist system could always find a "way out." Lenin and Trotsky, as early as the 1920s, explained that, if capitalism was not overthrown, it could not be theoretically ruled out that it could experience even a prolonged economic upswing, like the two decades before the First World War, although they did not consider this a likely perspective. They could not foresee the monstrous degeneration of the Russian Revolution, which transformed the Communist International from the instrument of world revolution into a gigantic counter-revolutionary conspiracy.

The arguments of Lenin and Trotsky against the "Lefts" in the period 1920-23 were shown to be correct. 1922-29, was a period of feverish growth, especially in the United States, which emerged as a major world power. As usual, the boom in the productive forces was used by the theorists of reformism to argue that "capitalism had solved its problems," Marx was declared to be redundant, and so on. This was the thesis of Werner Sombart, an erstwhile disciple of Marx, whose book appeared in the bookshops on the eve of the Wall Street crash and the deepest slump in the history of capitalism.

In reality, the inter-war period was a period of downswing, which did not at all preclude booms, or even an important boom like that of 1922-29. Even after the deep slump of 1929-32, there was a period of recovery in the USA in 1932-37, which was the basis for a big movement of the American workers. The crisis did not affect all countries at the same time. Europe was hit later than the USA, France later than Germany. By 1937-8, a new slump was beginning, which led directly to the Second World War. Throughout this period, we saw not only economic but social and political convulsions — movements in the direction of revolution, and counterrevolution — in which the question of power was posed many times, in Germany, Austria, France, Spain, Britain, etc.

Reasons for post-war upswing

This is not the place to deal with the process in detail. Suffice it to say that the Stalinist degeneration of the Comintern played the main role in derailing the revolution. The defeat of the revolution in China (1923-27), Germany (1930-33), Austria (1934), France (1936) and, above all, the magnificent movement of the Spanish proletariat between 1931 and 1937, as a result of the policies of the Stalinists and Social Democrats made the Second World War inevitable. The peculiar development of the war, which we have dealt with elsewhere, could not have been foreseen either by Trotsky or anyone else. It was the biggest miscalculation in the history of imperialism, ending in the spectacular victory of the Russian Red Army and the Chinese revolution.

This led to a peculiar configuration of forces on a world scale, a situation completely different to that which followed World War One, and which led to different results to those anticipated by Trotsky. Only our tendency correctly understood the changed situation, as analysed in the writings of Ted Grant at the time. The reasons for the long period of upswing between 1948 and 1974 were explained by Marxists as follows:

"1)The political failure of the Stalinists and the social democrats, in Britain and Western Europe, created the political climate for a recovery of capitalism.

2) The effects of the war, in the destruction of consumer and capital goods, created a big market (war has effects similar to, but deeper that, a slump in the destruction of capital). These effects, according to United Nations' statisticians, only disappeared in 1958.

3) The Marshall Plan and other economic aid assisted the recovery of Western Europe.

4) The enormously increased investment in industry.

5) The growth of new industry — plastics, aluminium, rockets, electronics, atomic energy and by-products.

6) The increasing output of the newer industries — chemicals, artificial fibres, synthetic rubber, plastics, rapid rise in light metals, aluminium, magnesium, electric household equipment, natural gas, electric energy, building activity.

7) The enormous amounts of fictitious capital, created by the armaments expenditure, which amounted to 10 per cent of the national income in Britain and America.

8) The new market for capital and engineering products, created by the weakening of imperialism in the undeveloped countries, which has given the local bourgeoisie the increased opportunity to develop industry on a greater scale than ever before.

9) All these factors interact on one another. The increased demand for raw materials, through the development of industry in the metropolitan countries in its turn, reacts on the undeveloped countries and vice-versa.

10) The increasing trade, especially in capital goods and engineering products, between the capitalist countries, consequent on the increased economic investment, in its turn acts as a spur.

11) The role of state intervention in stimulating economic activity." (E. Grant Will There be a Slump?)

The period of 1948-74, unlike the inter-war period, has been a period of upswing, characterised by high rate of growth and investment, full employment and rising living standards. This has had a profound effect on the outlook of a whole generation of workers, enormously increasing the illusions in capitalism and reformism. It set the final seal on the degeneration of the reformist and Stalinist leaderships. This was the real basis for the weakness and isolation of the genuine current of Marxism for a whole historical period.

Contrary to the illusions of the reformists, however, none of the fundamental problems were resolved. The boom-slump cycle was not abolished, but, under conditions of upswing, the recessions were short and shallow, and hardly noticed by the masses. Full employment and rising living standards were the norm in the advanced capitalist countries. From a Marxist point of view, this long period of upswing had an immensely positive side. It strengthened the working class, healed the wounds of past defeats, eliminated the peasantry, and laid the material basis for world socialism. Nor was the class struggle abolished. In 1968, at the height of the upswing, there was the biggest revolutionary movement of the French workers since 1947. This was an anticipation of the future.

The long post-war upswing came suddenly to an end in 1974, with the so-called "oil" crisis. This was the real turning point. From that time on, the advanced capitalist economies have never managed to get back to figures of growth, employment, investment, profitability or output per capita remotely resembling the levels of the late 1960s. The difference between the two periods is graphically shown by unemployment. In every boom since 1974, the level of unemployment at the peak of the cycle has been higher than in the previous peak. This is a well-established fact, accepted by the bourgeois economists. The existence of mass organic unemployment, in contrast to the full employment of the period of the upswing, is a clear indication of the sickness of capitalism.

The sudden disturbance of capitalist equilibrium from 1973-74 had profound social and political effects on a world scale. Coming at the end of a long period of upswing, it revealed the colossal accumulated power of the working class, which was already manifested in France in 1968 and Italy in 1969. These movements occurred at the height of the economic upswing, just as the Paris Commune had done. This fact is a sufficient refutation of the mechanical caricature which identifies booms with reaction and slumps with revolution. Economic determinism has nothing in common with Marxism, which explains the dialectical relation between the development of the productive forces and the multiplicity of factors that condition the movement of society (the "superstructure"). It is true that, in the last analysis, developments in the economic sphere are decisive. But the relation is neither simple nor direct. This is what makes the working out of perspectives such a complicated business.

It is necessary to take the process as a whole. The effects of booms and slumps will be very different, according to the nature of the previous period. a deep slump, coming on the heels of an important political or industrial defeat, will disorient the workers for a time, as was the case in Russia after the defeat of the 1905 Revolution, or in Britain after the defeat of the General Strike of 1926. In such cases, the workers require an economic recovery before they gain enough confidence to move into action again.

It was entirely different with the economic crisis of 1974, which came after a long period of economic growth which, as we pointed out in advance, served to strengthen the working class enormously. This was demonstrated in the Portuguese Revolution (1974), the overthrow of the Greek junta (1974), the revolutionary movement of the Spanish workers which began in the 1960s and culminated in 1974-77, the stormy strike movements in Italy and Britain. In the colonial world, we had revolution and counterrevolution in Chile and Argentina, peasant wars in Angola and Mozambique, and a revolution in Pakistan (1968-9) which was derailed by the leadership.

In the advanced capitalist countries, for the first time since the 1930s, a section of the working class was beginning to draw revolutionary conclusions. This, in turn, was reflected in the crystallisation of left reformist tendencies within the mass organisations. These did not generally reach the level of the kind of centrism of, say, Largo Caballero in the 1930s. Nevertheless, the "Marxist" demagogy of Soares, Gonzalez and Papandreu in a distorted way reflected the first confused strivings of the workers to take the revolutionary road. The same was true, to a lesser extent, in France, Italy and Britain where the Left became the majority. Of course, the role of left reformism is to direct the revolutionary mood of the masses into harmless parliamentary channels. To the degree that these leaders approached "power," their "left" speeches were rapidly forgotten. It must never be forgotten that the strategists of capital had come to the conclusion that capitalism in Portugal was "dead" in 1975. Only the cowardly policies of the CP and SP saved capitalism in Portugal, Greece and Spain at that time.

The revolutionary movements after 1974 were temporarily cut across by the boom of 1982-90. The nature of this boom, which began with the "negative Keynesianism" of Reagan's massive rearmament programme, has been dealt with in other documents. Despite all the illusions that it represented the return to a "golden age" of capitalism, the figures show that it was no such thing The bourgeois failed to recover the same levels of growth, profitability, investment and employment as in the 1950s and 60s. At the same time, the existence of huge budget deficits,especially in the USA, the frenzied speculation in land, property and shares, and the huge expansion of the parasitic service sector indicated the unsound basis of the boom. The normal length of a boom in the last period has been about five or six years. By 1987, there were clear signs that they were heading for a recession. Fearing the social consequences of a slump, the main capitalist countries, in an unprecedented move, resorted to the massive injection of liquidity into the system.

Although the boom was artificially prolonged for two years by these means, from a orthodox capitalist point of view, this was utterly irresponsible. Even from the point of view of traditional Keynesianism, it is incorrect to use the methods intended to get out of a slump in order artificially to prolong a boom. The huge expansion of liquidity and credit has been a major factor in prolonging the recession which started in 1990, and was not foreseen by any of the bourgeois economists. The very high levels of private, corporate and state indebtedness which they inherited from that time is one of the main factor which has prevented a serious recovery.

Period of downswing

In a period of downswing, dialectically, all the factors that produced the upward spiral combine to produce a movement in the opposite direction. The huge accumulation of capital, the enormous increase in the organic composition of capital, must express itself at a certain stage, in a tendency of the rate of profit to fall. For a time, this tendency can be offset by countervailing tendencies, as Marx explains in the third volume of Capital. But at a certain point, the falling rate of profit leads to a fall in the mass of profit, precipitating a crisis. The statistics show that the general return on productive investment in advanced capitalist countries rose approximately from 1948 till the late 1960s, and began to decline in the early 1970s. It is the attempt of the capitalists to restore the rate of profit which explains the attack on wages and conditions, and the attempt to wring extra surplus value out of the workers at the present time. But this also has its limits, dictated by the physical limits of human endurance.

Despite the fact that the present boom in the USA and Britain is four years old, the workers are suffering a real counter-revolution on the shop floor, as the bosses attempt to restore the rate of profit at the expense of the working class through an increase in absolute and relative surplus value. The present boom is at the expense of the working class. The increases in productivity have been achieved by mercilessly squeezing the last ounce of profit from the muscles and nervous systems of the workers. In Britain, for example, four million workers in manufacturing industry are at present doing the work of seven million.

Consumption, and therefore demand, is depressed everywhere. Unemployment remains stubbornly high. The attempts of all governments to slash state expenditure further cuts the market — the exact opposite of what the old Keynesian policies were intended to do. The uncontrolled expansion of credit, which in the previous period artificially extended the market beyond its "natural" limits, in turn, now makes the situation worse. Everywhere there is huge indebtedness, not only of the state (as a result of the policies of Keynesianism and "state capitalism"), but of companies and individuals. Thus, as Marx explains, the bourgeois' attempts to avoid crises only leads to deeper and more prolonged recessions in the future.

The fact that we have entered an entirely new situation on a world scale is shown by the changed role of world trade. The massive development of world trade in the period 1948-73 was one of the main reasons for the post-war upswing in world capitalism. This enabled capitalism — partially and for a temporary period — to overcome the main barriers to the development of the productive forces: the nation state and private property. The intensification of the international division of labour, the lowering of tariff barriers, and the growth of trade, particularly between the advanced capitalist countries acted as an enormous stimulus for the economies of the national states. This was in complete contrast to the dismemberment of the world economy in the period between the Wars, when protectionism and competitive devaluations helped to turn the slump into a world depression.

One of the means whereby the capitalists try to overcome the limitations of the system is by participation in the world market, either by finding new markets, or by more thorough exploitation of the old ones. The growth of world trade in the post-war period, in striking contrast to the protectionism and competitive devaluations of the inter-war period, gave an enormous stimulus to production. This domination of the world market — brilliantly anticipated in the pages of the Communist Manifesto — is the most important feature of the present period. However, the present position shows that this, too, appears to have reached its limits.

In the past, Japanese capitalism could have relied on exports to pull itself out of recession. But not now. The struggle for markets, and the remorseless pressure of the USA in particular, forcing Japan to open up its market and accept the revaluation of the yen places it in an increasingly difficult position:

"Gone are the days when corporate Japan could mop up that surplus capacity by exporting," writes The Financial Times (5/7/95), "Now, that strategy is thwarted by the yen's rise, trade rows with the US — Japan's biggest market — and growing competition from low-cost east Asian exporters."

A collapse in Japan would have a catastrophic effect on the world economy, and could lead to a slump of 1929 proportions. Yet the American capitalists continue to pile on the pressure on Japan. Aware of the dangers posed by the situation, the London-based Economist (17/6/95) delivers a pious lecture to President Clinton on the virtues of free trade: "If Japan's financial problems, and the needed remedies, are essentially domestic, how can American policy be making things worse? The answer is simple: the persistent threat that small quarrels over trade will be allowed to escalate into exchanges of punitive trade sanctions is unsettling markets that are already nervous. Bad news of this sort is the last thing anybody needs — including Americans, whose interests would not be served by the administration's trade policy even if it 'succeeded'. In his economic policy towards Japan, Mr. Clinton is dicing with disaster. And for what?"

The Economist's pious speeches will have no effect. When there are not enough markets to go round, it's "every man for himself and the Devil take the hindmost!"

Last year world trade grew by about 8%. This is a very high rate of growth. Yet the upsurge in world trade did not prevent the almost universal slowdown of the main capitalist economies. This shows how the growth of world trade acted as a stimulus to economic growth until approximately 1987, after which the two curves diverge increasingly, like opening a pair of scissors. This is an exceptional situation historically, and one that has perplexed all the bourgeois economists, who are unable to explain it. However, the reason is not hard to see.

In the period of the upswing, the growth of world trade provided a market for capitalism because it stimulated investment. Cause becomes effect, and effect becomes cause, in an upward "virtuous spiral" of growth. But that is no longer the case. In most cases, the capitalists are only investing to cover depreciation, and only to a very limited extent to develop the means of production. The figures for investment in industry are nowhere near the levels of the 1950s and 60s, when the upswing in world trade drove the productive forces forward at rates of six, eight, or, in the case of Japan, even thirteen percent in some years.

It is basically the collapse of the home market that obliges them to seek a way out on world markets. But at the same time there is an economic slowdown, and, more importantly, investment in industry has not experienced the same growth as in the past. Instead, a large part of investment is dedicated to parasitical activities — services, takeovers, asset stripping, the looting of the state ("privatisation"), and all kinds of speculation.

Faced with the stagnation of the home market, the capitalists of different countries are desperately attempting to find a way out by exporting on the world market. But this can only be at the expense of their rivals. They cannot all export. Someone must import. This explains the haste of the different powers to take advantage of the "emerging economies" of SE Asia (and, earlier, Latin America). But, in the first place, these markets cannot provide an outlet for the exports of all the industrialised economies, and, in the second place, by investing in industry in China, Malaysia, Indonesia, etc., they will eventually create new producing countries, who will also seek to export their products. Indeed, this is already the case with China, with which the USA has a trade deficit,which is expected to reach $50 billion in 1996, leading inevitably to trade conflicts between the two. Along this road, there is no way out. Temporary advantages only lead to greater contradictions later on.

The growth of world trade in the post-war upswing was one of the main factors that enabled world capitalism, partially, and for a temporary period, to overcome the limits of the nation state. But this has also reached its limits. While it is true that world trade continues to expand, as we have explained, it neither prevented the recession, nor acted as a significant locomotive for growth. Nor has it prevented the present slowdown. In fact, the rapid expansion of trade reflects the feverish attempt of the different capitalist economies to make up for the lack of a domestic market by exporting. Thus, far from being a symptom of health, it is really only a further manifestation of a sick system. In the same way, a ruddy complexion may signify, not good health, but tuberculosis.

The signing of the GATT agreement has not removed the fundamental antagonisms between the different imperialist powers. On the contrary. The tensions between the USA, Japan and Western Europe have never been so intense since the 1930s. The conflict between the USA and Japan in the past would have led to war. But, for reasons outlined in other documents, a world war is now off the agenda. Instead, we will see a whole series of "small" wars, fought by proxy in order to secure spheres of influence, markets and raw materials in Asia, Africa, the Middle East and South America. The Gulf War was such a "small war," which, in modern conditions, can have the most frightful consequences, adding a further element of instability to the situation.

Not world war, but incessant and increasingly bitter trade wars between the different imperialist trade blocks, attempting to capture a larger slice of the world market, will be on the order of the day. Already, we see the tendency for the world economy to split up into three gigantic blocks — US imperialism, with Canada, and the whole of Central and South America as its client states and colonies; the EU, with North Africa and Eastern Europe under its control; and Japan, which is attempting to put together a rival "yen block" in Asia. All these are constantly involved in clashes over trade. They can only avoid a total breakdown by ignoring the rules of the newly-created "World Trade Organisation." These conflicts — inevitable in a period of capitalist downswing and scarce markets — threaten to provoke a breakdown in world trade, which would be the prelude to a deep slump. Thus far, they have managed to avoid it. But the next period will see a tremendous intensification of all the contradictions.

The crisis of capitalism is expressed in the wholesale abandonment of the policies pursued in the advanced capitalist economies in the post-war period. Everywhere we see the same remorseless tendency to cut state expenditure and ditch the policy of Keynesianism and "state capitalism" by which the bourgeois of the wealthy capitalist economies partially overcame the limitations of private ownership and the anarchy of capitalist production, through measures of nationalisation, state intervention and the rest. Our tendency predicted long ago that these policies, which the right and left reformists saw as the panacea for peacefully overcoming the contradictions of capitalism, would inevitably lead to an explosion of inflation. This is reflected in the fact that all the capitalist governments are terrified of inflation at the present time, although in reality inflation is at historically low levels in comparison to the period after 1945.

The old Keynesian recipes have been discredited everywhere. Instead of seeing the state as the Saviour, they are now all engaged in a frenzied orgy of privatisation, budget slashing and the dismantling of the welfare state. This is not, as the reformists (particularly the "Lefts") imagine, the result of the bad will of reactionary bourgeois politicians. It shows that the system has reached its limits, and is now compelled to destroy all the gains made under the pressure of the working class over the past two generations. But enormous social and political consequences flow from this.

In the period of upswing, the development of the productive forces reached unheard-of dimensions. Thus, the material basis has been laid for the establishment of world socialism. However, the colossal capacity to produce is constantly running up against the inherent barriers of the capitalist system. Everywhere, we have the unprecedented spectacle of stagnant consumption in the middle of an economic boom. In the absence of domestic demand, the bourgeois of every country are demanding a bigger share of world markets. The case of the biggest capitalist nation is instructive. A decade ago, the USA only exported the equivalent of 6% of its GDP. Now the figure is 13%, and they plan to increase this to 20% by the year 2000. This is the equivalent of a declaration of war against the rest of the world, Japan in the first place.

Collapse of Japanese model

Until recently, Japan was the classical model of capitalist accumulation, ploughing back huge amounts of surplus value in investment in constant capital. On this basis, spectacular results were achieved for decades, with rapid economic growth accompanied by full employment, growing living standards and a stable political regime. By constantly ploughing back a large part of the surplus extracted from the working class, renovating plant and machinery even at the cost of a lower rate of profit, they conquered a big portion of the world market. The "Japanese model" was universally regarded as the magical recipe for success. Japanese manufacturers expanded their capacity with new car and semi-conductor plants, built factories in Europe, Asia and the United States, and invaded every market. In the 1980s, the Japanese capitalists really imagined that the cycle would continue on its upward course indefinitely. Here was proof positive of the superiority of capitalism!

The success of the gigantic Japanese monopolies were based on massive investments in constant capital, which for decades made them the most technologically advanced in the world. But, as Marx explains, sooner or later the increased organic composition of capital must express itself in the tendency of the rate of profit to fall. Of course, the capitalists can put up with this, as long as the mass of profit is maintained. But now the impasse of capitalism in Japan reveals itself in a fall in the mass of profit. Although corporate profits rose last year, pretax profits stood at a mere 2% — close to a record low. Not surprising, when half the factories are idle.

This, in turn, has led to a fall in productive investment, accompanied with stagnant growth, a cutback in productive capacity, and, for the first time in decades, unemployment. The official figure for unemployment in Japan is 3%. This would still be a disastrous figure for Japan. But, in fact, it grossly underestimates the real position. In Japan, anyone who works for an hour a week is officially classified as "employed." If unemployment figures were calculated on the same basis as the United States, the true figure would be at least 8%, or even higher. This is an entirely new situation for Japan, where the workers were accustomed to the idea of "jobs for life" in the last period. Now this has evaporated. Many companies have frozen recruitment, forcing the level of graduate unemployment up to a record 17% last year.

The massive investment of the 1980s has led to huge over-capacity (which is merely another manifestation of over-production). 1995 was the fourth consecutive year of negligible growth, despite eight cuts in interest rates and massive injections of public funds. The recession in Japan — already the longest and deepest for 70 years — is worrying the strategists of capital. They fear that Japan might drag the rest of the world into recession. "If the world economy does face a recessionary threat it comes not from America, but from Japan. General price deflation and tumbling share prices are exacerbating the debt problems of firms and households, and weakening an already wobbly banking system. The biggest risk to world economic stability now is a financial collapse in Japan." (The Economist, 17th June 1995.)

The present situation in Japan bears no relation to that which prevailed for almost half a century after 1945. Far from being the motor force of the world economy, Japanese capitalism remains submerged in the deepest recession since the War. Under the pressure of the USA and the other imperialist powers, Japan attempted to stimulate her economy by adopting a Keynesian policy (the only capitalist economy to do so) with the injection of massive amounts of state investment. To no avail! Production remains stagnant. Real unemployment is more than 8% — an unprecedented situation for present-day Japan, which is now faced with the same crisis as all the other capitalist countries.

To date, there have been no fewer than five public spending packages, totalling 57,500 billion yen and reduced interest rates. Yet the economy remains in a deep recession. The "classical" methods of Keynesianism and "managed capitalism" have had no effect. The Bank of Japan admits to being "puzzled and worried" that all their measures have so far had no effect in generating economic growth. The Ministry of International Trade and Industry fears that the Japanese economy could be condemned to a miserable 1% growth rate for the rest of the decade, compared to the 6% average growth of the 1980s and a figure which at times was double that in the period of the upswing.

Fictitious capital, in the form of gambling on the stock exchange, fraud, and all kinds of speculation, has always played a role in every boom in capitalism, since the Dutch "tulip scandal" of the 17th century. But the present situation is characterised by an unprecedented level of speculation and parasitic activity of all sorts. Japan is no exception to the rule. Speculation reached feverish proportions in the 1980s. The banks, awash with surplus money capital, engaged in an orgy of speculation in land and property, which sent the property market soaring. Then it all crashed. Land prices have fallen by 50% and share prices by more than 60% since their peak in late 1989 when the asset bubble burst. Nor have prices stopped falling. Tokyo bankers believe that another 30% drop in property prices is possible. "These price collapses," remarks The Financial Times (5/7/95), "have revealed the illusory nature of the wealth the Japanese thought they had only five years ago."

The recession, the accumulation of debts, and the huge injections of public money will mean a record budget deficit of ¥240,000 billion this year, the largest gap between government spending and revenue in decades. The Financial Times (28/12/95) comments: "Five years ago, talk of an impending budget crisis in Japan seemed fanciful. Having been in surplus for most of the post-war period, the central government's finances went into red in 1990.

"Over the next five years, the annual borrowing requirement increased at an alarming pace, and as a result the gross outstanding debt of the central government went from 55% of national income in 1990 to nearly 75% this year."

If we include local government debt, that will bring Japan's general government deficit nearly level with its own gross domestic product, well above the average for industrialised nations and not far behind Italy! The largest item of public expenditure is social security. The need to cut the deficit lies behind the present political crisis in Japan.

Over the past five years, as a result of the deliberate policy of Washington to allow the dollar to fall 30% against the yen, Japan's trading position is being undermined. Under the remorseless pressure of US imperialism, Japan has been forced to accept a cut in its trade surplus with the US by 17% to $45.56 billion, the first such drop in five years. This gap was made up by Japan's surplus with the rest of Asia, it fastest growing market. But there are limits to this, as The Financial Times (25/1/96) points out: "The trade gap with Asia expanded nearly 15 per cent to $70.75 bn, reinforcing Tokyo officials' fears that trade tensions with their neighbours could arise just as a relative lull emerges in trade relations with the US."

The rising yen means that , in dollar terms, Japanese labour costs have risen faster than its main competitors' since the turn of the decade. Since 1991, its unit labour costs have risen 41% in dollars, nearly twice the rate of Germany, while US labour costs have fallen 10% according to the Organisation for Economic Co-operation and Development. Overall, Japan's competitiveness against the OECD average has declined 30-40% in this period. This cannot be sustained.

Faced with falling profits and increased competition for markets, the Japanese bosses, like their US and European friends, are attempting to place the burden on the shoulders of the workers. The employers must drive down wages in order to recover profitability. Jiro Nemoto, president of the Nikkeiren employers' federation called in January for a general wage freeze at the beginning of the shunto wage bargaining round. The excuse, as in Germany, was the offer to create more employment. But the Japanese unions have turned this down, demanding a straight wage increase of 4.4% in 1996. A recent article in the Financial Times carried the title "Japanese politics heads for a more combative era" and predicted the emergence of "a more openly combative period in Japanese politics. It means that both government and opposition are now controlled by younger generation leaders who prefer confrontation to consensus to clarify the muddle". This marks the beginning of a fundamental change in class relations in Japanese society.

Non-productive invesment

Germany experienced zero economic growth during the third quarter of 1995, and there was a strong rise in unemployment. This was largely a result of a sharp slowing of investment in machinery and equipment, by 3.4% compared with the second quarter. Unemployment rose particularly strongly in Eastern Germany — from 13% in November 1994 to 14% one year later. Although this is supposed to be a boom, most recent statistics and confidence surveys point to a continuing weakness in economic activity. The accumulation of stocks and stagnant demand are symptoms, not of a boom, but of a classical crisis of overproduction! Stephen King of James Capel believes that the German GDP figures "mark and alarming slippage in final domestic demand and an equally alarming involuntary build-up of stocks." Alarmed at the slowdown, the Bundesbank has been forced to lower interest rates. It remains to be seen whether this will have the desired effect.

The Federal Labour Office in one of its gloomiest new year predictions, estimates that unadjusted unemployment could breach the 4m mark by February 1996, compared with 3.6m in November 1995.The figure of 4m unemployment in east and west Germany would translate into an unemployment rate of over 10%, close to the 1994 record. unlike 1994, however, this seasonal rise is occurring when the economy is in the middle of a cyclical upswing. Companies, especially Germany's multinationals such as Daimler-Benz, are cutting staff by the thousand. The medium-sized company sector, the so-called Mittelstand, has still not recovered entirely from the last recession. Nor has it reverted to its traditional role of sucking up Germany's unemployed. At the same time the decade-long boom in the building sector, artificially prolonged by the demands of unification, is coming to an end.

The present crisis is not the result of a shortage of capital. On the contrary, in the last period staggering amounts of surplus value have been extracted from the working class, both in the advanced capitalist countries where the productivity of labour has reached unheard-of levels and from the super-exploitation of the masses in the ex-colonial countries. But whereas in the period of upswing, most of the surplus value was re-invested for productive purposes, now we see the opposite process taking place. In its period of senile decay, capitalism assumes an increasingly parasitic character. This is not to say that there cannot be advances in particular fields of production. In general, every period of capitalist development is characterised by the discovery of new fields of investment, without which the system could not exist. Thus we had the power-driven looms of the industrial revolution, the railways, the telegraph and steamships at the end of the 19th century, electricity, telephones and aeroplanes at the beginning of the 20th century, the motor car with the attendant methods of mass production ("Fordism") in the 1920s and 1930s, and so on. In that sense, investment in such fields as information technique is nothing new.

What is striking about the present situation is not the existence of new inventions (which characterises every period of capitalism), but the fact that the bourgeois are desperately searching for new avenues of investment outside the field of productive activity. This is strikingly revealed in the unprecedented spate of takeovers and the swindle of privatisation, which represents a blatant policy of looting the state by the bourgeois. What is the reason for this remorseless drive to privatise which we see, not only in the advanced capitalist countries, but also, incredibly, in the ex-colonial world?

Privatisation, especially of the publicly owned utilities, is a license to make money. In the progressive phase of capitalism, Britain led the world in developing industry, science and technology. Now, in the period of capitalist decline, the utterly reactionary and decrepit British bourgeoisie leads the way in establishing the norm of parasitic activity. Paradoxically, it was the Conservatives under Joseph Chamberlain who established the system of so-called "municipal socialism" a hundred years ago, as a useful adjunct to private capital. In all the capitalist countries, especially Japan and Germany, the state played a major role in developing the economy. Now they are all intent on cutting down the role of the state. The role of "private enterprise" here is entirely parasitic. A host of private contractors descend on public assets like locusts devouring a cornfield. The consequences are, on the one hand, large-scale sackings and closures, on the other, massive corruption and swindling at the cost of the public, and worse services than before. This, in turn, prepares a colossal backlash against the whole fraud of privatisation, as we already see in Britain. This will be repeated in all countries, above all in the Third World, where privatisation has its most baneful consequences. The same phenomenon can be observed in the former Stalinist states of Eastern Europe and Russia, as we saw yet again in the December elections. Thus, the movement in the direction of "market" reaction is preparing an even bigger swing to the left in the next period.

Under the banner of "liberalisation," imperialism is applying merciless pressure on the ex-colonial countries, forcing them to open up their markets and ruthlessly destroying their weak national industries, causing mass unemployment, misery and unbearable suffering for countless millions. The consequences of this was seen in Mexico, which had been held up as a model of an "emerging economy." Now the bourgeois economists have invented a new term — "the submerging economies" — to describe the plight of backward economies where the attempt to move in the direction of "the market" has led to complete disaster. After Mexico, Argentina and Brazil have also entered into a severe social crisis, with mass movements of workers and peasants which tend to become transformed into virtual local uprisings. This is a warning of what we can expect throughout the Third World in the coming period.

The pitiless exploitation of the Third World has not solved any of the fundamental problems of the imperialist counties, but has enormously exacerbated the social crisis of the backward economies, lending it an increasingly convulsive and explosive character. Far from a new "World Order" of peace and prosperity, the real perspective is one of constant upheavals, wars, revolution and counterrevolution on global scale. The collapse of Stalinism has resolved nothing, but has given rise to an even more convulsive position internationally, which imperialism will be powerless to control. It is similar, in some respects, to the situation that existed at the end of the last century, except that imperialism finds itself in a far weaker position.

This is beginning to dawn on at least the more astute strategists of capital, like the successful multi-millionaire investor George Soros, who has recently expressed his profound unease about the future of capitalism: "Mr. Soros," writes The Financial Times, "is gloomily convinced that the present world order, which he regards as a golden age capitalism, will ultimately break down. The last comparable period, he says, was the end of the 19th century. In those days, 'the British Empire was at the heart of the system, and had an interest in maintaining security. When there was trouble, it sent a gunboat. Now there is no chief beneficiary (from stability); certainly not the US." (FT, 2/1/96.)

The "emerging economies"

The illusion that it would be possible to solve their problems by investing in the "emerging economies", especially in South East Asia, have recently received some rude knocks. The prospects in Latin America no longer seem so bright after the Mexican debacle. And even the enthusiasm for China has been cooling off lately, as the bourgeois begin to wake up to the risk of social explosions, especially after the death of Deng. The investments in China and other counties of South East Asia undoubtedly played a role in preventing the last recession from developing into a full-scale depression, but it did not prevent the recession from taking place. Neither have the "Tigers" been sufficient to act as a motor force for the present feeble recovery. Despite their undoubted potential for the future, these economies are still too small, in the context of the world economy, to make a fundamental difference. They have solved none of the basic problems of world capitalism, but the greater investment in industry will undoubtedly strengthen the working class and quicken the pace of the revolution in Asia, as did the similar influx of foreign investments in Russia a hundred years ago.

Incidentally, in the same way that the "new technology" is not at all a new phenomenon in capitalism, neither are the so-called "emerging economies." In every period of capitalist development, from the 16th century onwards, capitalism has always sought and found new markets in the underdeveloped parts of the world — the "opening up" of the New World by Spain at the dawn of capitalism was followed by the expansion of Holland in the East Indies, and later by the establishment of the French and British empires. In the last century we had the rush to invest in Australia, California, Russia, Egypt (the Suez Canal), Argentina and — China. The latter is dealt with by Engels in Capital volume three, where he describes the illusions of the bourgeois in the Chinese market in terms which could have been written yesterday:

"In 1843 the Opium War had opened China to English commerce. the new market gave a new impetus to the further expansion of an expanding industry, particularly the cotton industry. 'How can we ever produce too much? We have to clothe 300 million people," a Manchester manufacturer said to this writer at the time. But all the newly erected factory buildings, steam engines, and spinning and weaving machines did not suffice to absorb the surplus value pouring in from Lancashire." (Capital, Vol. 3, p.399, English ed.)

These particular illusions ended in the slump of 1847. The present illusions in China and the "emerging markets" in general will fare no better. In reality, the markets in South East Asia are already reaching their limits. They have achieved high rates of growth in the past period precisely because they have been reinvesting in industry, along classical lines. But at a certain stage, this constant capital must produce a mass of commodities, which have to be sold on the world market. This is already the case with South Korea, Taiwan, and to an increasing extent, China. This gives rise to new contradictions, as shown by the increasing tension between China and the USA over trade. In addition, the rapid growth of industry (a progressive development from a Marxist point of view) increases the power of the proletariat, and prepares the way for revolution. There is talk of a slowdown in the next period, although they may continue to grow for a few more years. But even at the present time, the foreign investors' enthusiasm for the Asian market is beginning to cool:

"The index of emerging stock markets compiled by the International Finance Corporation jumped by 63% (in dollar terms) in 1993. Since then, however, it has dropped by 19%. Some markets — notably China, Mexico and Poland — have lost around half their value since December 1993. There were some exceptions, such as Brazil, Chile and South Africa, which did well over the same period. But, in general, emerging markets have proved a poor investment.

"With hindsight it is easy to see that investors got carried away by emerging-market fever in 1993. In part, this was because unusually low American interest rates encouraged them to take bigger risks by seeking higher returns abroad. Then, when interest rates started to rise in early 1994, investors repatriated their cash. Mexico's bungled devaluation in December 1994 seemed to be the final blow." (The Economist, 6/1/96.)

The frantic scramble to "get into China" was really a reflection of the central problem: that the bourgeois cannot find an outlet for the vast sums of capital on its hands. Only a relatively small part of this is being invested for productive purposes at the present time. The majority is either invested in the parasitic service sector, or used for speculative purposes, for example in the derivatives market, currency speculation, buying up profitable public utilities or takeover bids. Lenin pointed out that the export of capital was one of the classical features of imperialism. At present, the advanced capitalist countries are exporting capital because they cannot export goods. Japan, for example, for a whole period used all its surplus to buy up US property and bonds. This is one of the reasons why the US capitalists are terrified of a collapse in Japan, which would lead to the panic selling of Japanese property in the USA, causing a collapse of property and share values in America.

In an attempt to avoid paying high wages at home, the Japanese capitalists have more recently began to export capital to Asia, where they have set up factories. German capitalism has done the same, to a limited extend, in Eastern Europe (the Czech Republic, Poland). This will serve to aggravate the contradictions at home, without solving the problems of the more backward countries of Asia. This is a classic example of the law of combined and uneven development, which is the basis of the theory of permanent revolution. This situation is similar to that of Tsarist Russia a hundred years ago, when the influx of foreign capital from Britain, France, Belgium and the USA created the conditions for the Russian revolutions of 1905 and 1917.

The process of the centralisation and concentration of capital has reached unheard-of proportions. The number of takeovers has reached astonishing proportions in all the main capitalist countries. 1995 was a record-breaking year for mergers and acquisitions. Mitsubishi Bank and Bank of Tokyo merged to create the world's biggest bank. The union of Chase Manhattan and Chemical Bank created America's biggest banking group with assets of $297 billion. The world's biggest entertainment company was formed when Walt Disney bought Capital Cities/ABC. Westinghouse bought CBS and Time Warner bought Turner Boradcasting Systems. In pharmaceuticals, Glaxo bought Wellcome. Kimberly-Clark's acquisition of Scott Paper produced the world's largest tissue manufacturer. Just in the last few weeks we have seen the hostile bid of Forte, the largest hotel group in Britain for the rival Granada leisure and catering empire for the sum of $5.1 billion; the bid of the Swedish Wallenberg industrial empire to control Gambro for $1.6 billion. Even Switzerland saw its first contested takeover bid, for Holvis, a paper group. In almost all cases, the intention is not to invest in new plant and machinery, but, on the contrary, to close down whole enterprises and lay off workers in order to boost profit margins without increasing production.

Immediate economic perspectives

That the policies of "state capitalism" have reached their limits is shown by the huge state debts which represent a staggering drain. Interest payments on such debts can add up to as much as a quarter or more of the state budget. In the case of Belgium, where the debts of the state amount to BF 10,000 billion (£226 billion), every year £20 billion is paid out in interest. This would be enough to build three Channel tunnels a year, or 300,000 2-bedroom flats, or pay all the unemployed in Belgium for five years. These are staggering figures. Yet the bourgeois has no difficulty whatever in raising such sums. A few months ago, the Belgian government raised a new loan of BF 450 billion. The loan was fully subscribed in just two days. More than 85% was raised within Belgium itself. The parasitic nature of capitalism is shown by the fact that the state borrowed a total of BF 800 billion, while the private sector borrowing amounted to only BF 266 billion. The Belgian capitalists prefer to buy state bonds rather than "risk" their money on productive investment.

On top of this, there is the money that has to be paid to the unemployed to prevent them from starving. Between them, interest repayments and social security probably add up to something approaching one half the budget. This fact is, in itself, a graphic expression of the impasse of capitalism. In Belgium, since the early 1980s, there have been cuts in public spending to the tune of about BF 150 billion every year. Yet the colossal level of public debt remains. Like a gigantic and insatiable leech, parasitic finance capital extracts a huge slice of the surplus produced by the working class. The ruling class places the burden for this robbery squarely on the shoulders of the workers, and, to some extent, the middle class, while the monopolies pay very little tax.

The claim frequently advanced that they have "beaten inflation" has an extremely hollow ring. In the first place, with falling living standards, high unemployment, huge unsold stocks of goods, and stagnant demand, it would be astonishing if the rate of inflation were anything other than low. In such a situation (which is more similar to a recession than a boom!), the capitalists are compelled to sell their goods at a discount, or not sell them at all. That way, they can realise at least a part of the surplus value. But, in fact, inflation has not at all been beaten. In the past, there were big falls in prices during a slump. Now that no longer happens. As a rule, prices continue to rise, though at a slower rate, in a recession. Moreover, the "underlying (long term, 'suppressed') rate of inflation" is still high everywhere. That is why the Central Bankers and governments all remain terrified of inflation, a fear that appears completely irrational if we accept the fairy story about the alleged "victory over inflation."

Why do the Bundesbank and the Federal Reserve constantly harp on the danger of inflation, and insist on deeper cuts and austerity? The reason why all the Central Banks are demanding a 3% limit on budget deficits is because of the underlying inflation which has been building up over generations. They understand that the colossal state deficits are a source of inflation. They saw what happened in Latin America in the 1970 and 80s, and are afraid that, once they pass from a deflationary to a reflationary situation, inflation will quickly tend to get out of hand. And they are not mistaken. The reason why inflation has not taken off so far is because markets are slack, but that the moment the economy begins to enter into a real boom, they will soon face a new outbreak.

This is the main reason why they did not want rapid growth, in the mistaken belief that they could somehow "iron out" the boom-slump cycle — a chimera which they have chased after in vain for generations. Instead, what they may well achieve is another slump, without the benefits of an intervening boom — the worst of all worlds!

The idea that they could eliminate the trade cycle by skillful manipulation of interest rates and other means is a delusion. This is now admitted by the more serious economists: "Is the much dreamed-about 'soft landing' for the world economy still within policy-makers' reach? The truth is that soft landings are only achieved by accident; economies are naturally cyclical. Skillful policy-makers maybe able to moderate the cycle, but they cannot eliminate it. The rich economies will face another recession some time this decade, though probably not yet." (The Economist, 17/6/95.)

Alarmed at the slowdown, the Bundesbank, the Fed and the Bank of England have begun to lower interest rates. But, given the other factors already mentioned, it is not at all certain that this will have the desired results. The Japanese have already cut the official discount rate several times — to no effect. It is quite possible that the present slowdown could end up in a recession. But even if, as some economists predict, there is a rally in the next few months, that would only be the prelude to a new and even steeper fall within a year or two (it is, of course, impossible to be exact about the timing), which might even be a deep slump. In any case, a deep slump is not necessarily the best scenario for the class struggle. It would temporarily have a disorienting effect on the workers, although later they would begin to draw far-reaching political conclusions. The movement of the American workers in the 1930s (sit-down strikes, organisation of the CIO, etc.) did not begin in 1929, but only when the economy began to pick up, about four years later.

Worldwide manufacturing output growth slowed to 3.2% in 1995, from 4.4% the year before. But this masks the real position, because it lumps together the growth rates of the "emergent economies," which still average 5.4% with the much worse results of the industrialised nations. China's industrial output grew by 14%, down from 15.8% in 1994 and 20% in 1993, but still faster than any other country. But the most significant factor is the growth of the advanced capitalist economies, which slowed from 4.2% to 2.4% in the same period. Manufacturing output in Eastern Europe, despite an improvement in Poland, Hungary and the Czech Republic, continued to contract by 8.5%.

Most worrying of all for the bourgeois is the slowdown in the USA, where the annualised growth of industrial production has dropped from a peak of about 7% in 1994 to only 1% in December 1995. The rate of capacity utilisation of manufacturing also fell, as did the housing market, one of the main indicators of the economy. New house sales in the USA fell 2.1% in November to their lowest level in seven months, the fourth consecutive monthly decline. US economists have recently revised their growth estimates downwards. All eyes are fixed on the Federal Reserve, anxiously awaiting a cut in the interest rate. But the Fed has already cut interest rates by a quarter of a percent to 5.5% in December, and is reluctant to cut again before getting tangible results from the talks between Clinton and Congress on budget reductions. Yet again, the fate of the economy is being linked to a perspective of cuts in social spending.

It is an open question whether the present slowdown in the USA is the prelude to a recession, or whether the US economy will rally. This will be decisive for the immediate perspectives for the world economy. In principle, it cannot be ruled out that the USA might continue to achieve reasonable growth for one or two years more. But, as Stephen Roach points out, this will be the basis for an explosion of the class struggle in the United States. Such a situation would not be long lasting, and would end up in an even steeper decline, with far reaching consequences in America and on a world scale.

If we assume that there will be no downturn in the USA this year, Japan might be able to attain a growth of perhaps 2%. From a Japanese standpoint, this in itself is a disastrous result, which will inevitably lead to an intensification of all the contradictions in Japanese society. The same is true of Germany, which, like Japan, can only hope to recover its competitive position against the USA by pushing down wages. This is the best scenario for world capitalism. A downswing in the USA, on the other hand, would immediately destroy the feeble economic recovery in the rest of the world. From a Marxist point of view, the present position is far better than a deep slump. A feeble boom, with low rates of growth accompanied by attacks on living standards (a "joyless boom" as the bourgeois economists have called it) is the best scenario for the class struggle. Such a "boom" solves none of the fundamental problems of capitalism, but infuriates the workers, preparing for an explosion of the class struggle, as the French events anticipated.

Given the present situation, it is extremely unlikely that there could be another period such as 1948-75. All the factors which caused the prolonged economic upswing have now turned into their opposite. Instead of an upward spiral, we face the opposite process — a prolonged period of crisis of the productive forces, which will not signify the abolition of the normal capitalist cycle of booms and slumps, but in which we will see a tendency for longer and deeper recessions, interrupted by shallow and weak "booms" accompanied by high organic unemployment, attacks on living standards, and attempts to cut state expenditure. We have thus entered into a period of tremendous economic, social, political and military instability. It is a period far more similar to the situation in the 1930s, or, in some respects, to the international situation one hundred years ago. All this will have a profound effect on the psychology of all classes.

Crisis of reformism

In all countries the capitalists are faced with the same dilemma. They must cut back the public sector, or face uncontrolled inflation, which in the 1970s was already threatening to reach Latin American proportions. However, if they reduce the deficits, they will also cut the market, thus exacerbating the crisis. But they have no alternative but to go down this road, which inevitably brings them into collision with the working class. The dilemma of the bourgeois is strikingly illustrated by the USA, where, while entering the fifth year of a boom, with relatively high rates of growth, the ruling class has embarked on a ferocious attack on the living standards and conditions of the workers. The Republican-dominated Congress wants to cut the enormous public deficit by ruthlessly slashing the already minimal medical assistance to the poorest sections of society. For demagogic electoral purposes, Clinton has opposed some of the cuts, although in practice the differences between his programme and that of the Republicans are not great. All sections of the American ruling class are agreed on the need to cut living standards. The only question is how.

However, the more far-sighted of the strategists of capital in the USA understand the dangers of provoking a big reaction on the part of the working class, who have not had a rise in real wages for twenty years. Stephen S. Roach, the chief economist and director of global economic analysis of the Morgan Stanley bank warned recently of the risk of a "worker backlash" in the United States. He points out that the big gains in productivity have been at the expense of the working class, and cautions the American bosses of the consequences of squeezing the workers too much:

"I do not share the view that price stability is now at hand," he writes. "The bulk of the disinflation of the 1990s has been a by-product of an extraordinary compression of labour costs. With productivity and corporate profitability surging, with the unemployment rate at 5.6% and with real compensation (i.e. wage rises) virtually stagnant for over a decade, I do not accept the notion that a submissive workforce has no choice but to capitulate further on wages.

"In spite of the supposed threat of the dollar-a-day Chinese worker, this strain of productivity has now gone far enough. The days of asking the labour force to keep sacrificing for the noble cause of disinflation appear to be largely over. The risk of a backlash from workers is a growing concern — one that might have an important impact on the sociology, politics and economics of the US for years to come." (Financial Times, 2/1/96.)

The class collaborationist policies of the union leaders has led to an unprecedented fall in union membership. But now there is a growing mood of anger and bitterness on the shop floor. Last year, for the first time in 14 years, there was a slight upturn in union membership and a noticeable increase in strike activity in the USA. After years of being squeezed by the bosses, the American workers are saying, "enough is enough." Although many small strikes are not reported, the American press is now full of reports of big industrial disputes, which were up last year by one third.

The growing radicalisation of the American workers was reflected, although not fully, in the 1995 national convention of the AFL-CIO. For the first time ever, the post of President was up for election following the retirement of Lane Kirkland after 16 years in the job. Kirkland was forced to step down after two unions opposed his re-election for a ninth two year term. The new president, John Sweeney, was elected as a "left" candidate who partially reflects the growing militancy of the rank and file.

"Whom the gods wish to destroy they first make mad." The reformist leaders, including the trade union leaders are completely blind to the processes taking place in the real world. They are the most conservative force in society. They try to base themselves on the past, on a capitalism that has already receded into history. Just when world capitalism is entering into crisis, they embrace the "market." They have no understanding, but merely react empirically to events, and inevitably do the dirty work of capitalism, as we saw with the 'socialist" governments in Sweden, Spain, France, Australia, New Zealand, and now with the extreme right wing policies of Blair in Britain.

However, the ultraleft idea that it is possible to find a short cut by raising the banner of the "independent party" (like Tsovolas in Greece and Scargill in Britain) is false to the core. Reflecting the impatience and frustration of a minority of activists who have moved a bit too far ahead of the class, these left reformists show a complete lack of perspective or understanding of how the class moves. All history shows that, when the masses move into action, they first express themselves through the traditional mass organisations. This law is revealed in a striking way in the astonishing revival of the "Communist" Party in Russia and Eastern Europe — something which even we did not anticipate. Merely to recite a litany of the crimes of the leadership, as the sectarians do to justify their adventurism, does not at all exhaust the question. No matter what crimes have been committed by the reformists and Stalinists, where there is no mass alternative, the workers always return time after time to the traditional mass parties and unions. Whoever does not understand this law, will forever be incapable of finding a road to the masses and becoming a serious factor in the situation.

The crimes of the AFL-CIO leaders for decades did not prevent the US workers from attempting to transform their union organisations. Likewise, the French and Belgian workers express themselves through the traditional trade union confederations. And, despite the protests of the sects, there is no Chinese Wall separating the reformist unions from the reformist parties. Thus, in France, the workers, who are now expressing their desire to change society through the industrial struggle and the unions, will move back at a certain stage to the Socialist Party and, to some extent, to the CP, simply because they see no alternative.

The reformist degeneration of the mass organisations — the Social Democracy, the "Communists" and the unions — has reached frightful proportions everywhere over the past period. Particularly in the boom of 1982-90, when the workers in the advanced capitalist countries were prepared for a temporary period to tolerate increased levels of exploitation (increase in relative surplus value) in exchange for an improvement of living standards in absolute terms, as a result of overtime, second jobs, spouses and children working, credit, etc., there was a decline in the active participation in the mass organisations, which were allowed to fall under the virtually untrammelled control of the right wing. This is not a new phenomenon, but is a tendency that is constantly observed in periods when the class struggle is temporarily alleviated.

The working class and its organisations do not exist in a vacuum, but in capitalist society, in the midst of hostile classes which exert constant pressure as so-called "public opinion," that is, the pressure of bourgeois and petit-bourgeois ideas. The corruption of capitalism had a great effect on the upper layers of the Labour movement internationally. The leadership became increasingly divorced from the rank-and-file and the reality of the working class. A similar process took place in the period of capitalist upswing before 1914, and was the basis of the reformist and nationalist degeneration of all the parties of the Second International, as Lenin and Trotsky explained many times. The collapse of the "Left" and the seemingly unending advance of the right, which, in abandoning Keynesianism and embracing the "market," merely echoes the bourgeois, which is precisely the traditional role of right reformism throughout history.

Even Marxists are not immune to the enormous pressures of capitalism. In the absence of a counter-pressure from the working class moving into activity in the unions and mass parties in the last period, there has been a tendency towards the ossification of the workers' organisations which has left many of the activists bewildered and disoriented. Lacking a real Marxist perspective, many advanced workers had fallen into moods of despair. They became impatient with the rest of the class. From impatience arises frustration and eventually scepticism. These temporary moods unfortunately rubbed off on some of the Marxists, who began to express doubts in the perspective of a movement of the workers. This is also not a new phenomenon. Only by constantly raising the theoretical level of the cadres and explaining the general processes at work in society is it possible to combat moods of scepticism, raise the horizons of the tendency, and prepare it for the great events which impend. Otherwise, there is always the risk that even quite experienced comrades will tend towards an empirical approach, and be thrown into confusion by temporary and episodic moods in the class. it is necessary always to look beyond the surface and grasp the fundamental processes at work within society and the working class.

The crisis of European capitalism

Within the general crisis of world capitalism, the specific crisis of European capitalism has assumed a particularly acute character. Trotsky long ago predicted that the centre of gravity of world civilisation would shift to the Pacific, and that the Mediterranean would become an unimportant lake. This prediction is well on the way of being fulfilled in the last decade of the twentieth century. The long drawn-out decline of Europe is similar to the "inglorious decline" of the Spanish empire after the 16th century. The attempt to move towards European unity is a tacit admission that the lilliputian states of Europe cannot survive within their narrow national boundaries. After 1945, squeezed between mighty Stalinist Russia and the transatlantic colossus, they were forced to come together in a desperate attempt to overcome the limitations of the capitalist system outlined above. Thus, the European bourgeois themselves have realised the need to overcome the narrow limits of the nation state. But they are powerless to effect the unity of Europe. Only the working class can achieve this historic goal by overthrowing the rule of the banks and monopolies and establishing the Socialist United States of Europe, as a step in the direction of a Socialist World Federation.

Germany has emerged as the "strong man" of Europe. German imperialism, as we have explained many times, has achieved by its economic might what it failed to do in two world wars &endash; to "unite" Europe under German domination. The EU was originally conceived as a "condominion" between Germany and France for the joint domination of Europe. In practice, however, France is only a second-class partner struggling to keep up with its powerful neighbour. The attempt by the Gaullist Chirac to pose as the leader of a nuclear superpower (which anyway backfired) cannot conceal France's subordination to Germany. Beneath the surface show of "European unity" fundamental antagonisms remain and become ever more intense with the developing crisis of world capitalism.

The dominant role of Germany in Europe is shown by its demand that all the other European powers accept its terms for monetary union. From a position of strength, Germany insists that all the others must adopt "sound finance," that is, a monetarist policy, with a maximum budget deficit of no more than 3% of GDP. This is still quite high, but imposes an intolerable strain on the weaker member states. The tone of German pronouncements has an increasingly insolent character. Finance minister Theo Waigel demands that EU member states must accept heavy fines, and even the threat of expulsion if they fail to meet the onerous obligations of joining a currency union. A single word from Waigel was sufficient to provoke a devaluation of the Italian lira and plunge European money markets into crisis a few months ago. The Bundesbank has assumed the role of the supreme arbiter of the European economy, raising or lowering its interest rates without the slightest concern for the pain caused to its "friends and allies," in the first place, France.

At the same time, German imperialism is busily expanding its sphere of influence to the East and South, creating de facto colonies and puppet states in Poland, the Czech Republic, Hungary and Croatia, to the chagrin of France and the weaker EU states like Italy and Spain, whose interests lie elsewhere — in the Mediterranean and North Africa. German pressure to expand the EU to its satellites in Eastern Europe is a direct threat to the Common Agricultural Policy in general and French agriculture in particular. German intrigues in the Balkans led directly to the breakup of Yugoslavia, but it was the British and French who were forced to foot the bill.

Notwithstanding all the illusions, it is impossible to unite Europe on a capitalist basis. Four years ago, we said in advance that the Maastricht Treaty could not be implemented. At the time there were some doubts even among some comrades. Now it is clear even to the bourgeois that the goal of monetary union by January 1999 are unlikely to be reached. How is it possible to unite economies that are pulling in different directions? Britain and Denmark have already opted out. Italy and Spain cannot meet the Maastricht criteria by 1999. Italy's hope of rejoining the EMS were rudely dashed when the lira was devalued yet again, not without a none-too-gentle nudge from Herr Waigel.

It seems clear that they are not going to reach the goal of European Monetary Union. Everything we said on that subject in the 1992 document has been shown to be true. This too is a reflection of the changed situation. If they could obtain a boom like that of the 1950s and 60s, with similar levels of profitability and growth, they could reach monetary union without too much trouble. Germany and France would be in a position to throw a bone to the smaller "partners." Now they can only fight over reduced markets, and squeeze the working class and the middle class, the colonial countries — and also the weaker EU states as the need arises.

At best, Germany might forge ahead with an "inner core," which would be a thinly-disguised German block. It is not likely that France would be in a position to belong to it. But without France, the whole idea of "European unity" falls to the ground. Such a situation would be catastrophic, and might even lead to the break-up of the EU, although it is more likely that they would maintain some kind of unity, even if it were only a glorified customs union. At the moment, they are frantically searching for ways to prevent the collapse of the 1999 timetable. The possibility of an actual breakup is now openly being expressed by European leaders like Belgium's Prime Minister, Jean-Luc Dehaene, who was quoted as saying: "If we fail, I fear we will start an irreversible disintegration process." (The Independent, 25/1/95.) Given the threat from Japan and the USA, they will have to "hang together, or hang separately." But the original dreams of Schumann and Adenauer of avoiding conflict between France and Germany through a capitalist united Europe are in ruins. The underlying antagonism between French and German capitalism remains and will become increasingly sharp.

The strain of trying to keep up with the more powerful German economy, as expressed in the policy of the "franc fort" has already proved ruinous to French capitalism, and has been a contributory factor in exacerbating the social tensions in France. Even in Germany, doubts are beginning to grow about the wisdom of tying the German economy so closely to those of the weaker states. SPD leader Oskar Lafontaine has questioned the timetable of EMU. His remarks were gleefully received in London, but Lafontaine was only expressing out loud the doubts of a section of the German ruling class. Despite what they say in public, most of the European bourgeois doubt that monetary union can be reached. They have thus belatedly arrived at a conclusion drawn by our tendency a long time ago, when we predicted that France would enter a bloc with Italy and Britain against Germany. In the light of the French events, Der Spiegel paints the future in gloomy colours: "How long can he (Juppé) resist the pressure from the streets? (If France renounces) the common currency, it might cause a flight towards the Deutschmark Through the Bundesbank, the Germans would then completely control the European economy. And Germany's neighbours, motivated by fear and jealousy, might then be tempted to set up an alliance against Germany."

Despite its colossal power, German capitalism is a giant with feet of clay. Far from acting as the locomotive for economic growth in Europe, it has acted as a brake, forcing the others to maintain a high rate of interest, slowing down growth and keeping unemployment high. Here, as in all other spheres, despite all the demagogy about "solidarity", the German bourgeoisie puts its on interests first. but the German economy itself cannot escape the general crisis which afflicts world capitalism. The problems that arise from a stagnant economy and high unemployment are having an effect on German society, where the old model of class peace and "Mittbestimmung" has broken down. Kohl lectures the German worker on the need to work harder, longer hours for less pay.

Germany will not escape the storm and stress of the coming period, which will be characterised by sudden and sharp changes in the psychology of the German workers. The accumulated effects of decades of full employment and high living standards will be burned out of the consciousness of the German workers, who have already shown their willingness to struggle in the strikes of the metalworkers and the struggles for the 35 hour week. There will be many surprises in store for the bourgeoisie in Germany. It will not be easy for them to attack the gains of the working class. Last year, they were forced to concede more than they wanted in the wage round. Now they believe they have reached their limit. Unemployment is rising, wages are stagnant. This is a "joyless recovery" that satisfies no-one. Disgracefully, the German trade union leaders have announced their willingness to accept a zero per cent wage deal in return for a commitment of by the metal industry employers to hire 330,000 workers over a three-year period. Even if such a deal is signed, it will not hold for long, particularly as the promised jobs will not materialise. Meanwhile, the German employers are demanding wage cuts and counter-reforms. Thus, a storm is brewing also in Germany.

As a first symptom of a change in the situation, we have the removal of Scarping as leader of the SPD and his replacement by Oskar Lafontaine. Lafontaine is not a left, but , in his anxiety to win the election, is prepared to put forward demagogically more "radical" sounding policies. Nevertheless, this is a significant development, which anticipates future developments in the SPD. The crisis of the Liberals of the FDP is also an anticipation of the beginnings of a polarisation of German society. It is significant that the former "Communist Party" has made a big comeback in East Germany. The PDS vote increased sharply in the elections in Berlin, where it got one third of the votes from the East. The bourgeois, who were not long ago rubbing their hands at the re-election of Kohl, now face the prospect of an early election and the real threat of the coming to power of a Lafontaine government in a situation of economic and social crisis and growing polarisation between the classes. As a footnote, we observe that, precisely at this juncture, the German Taaffite sect have abandoned the SPD and raised the banner of — the Independent Party!

"End of the good life"

In December, at the height of the French events, the American magazine Newsweek carried on its cover the headline "Europe — End of the Good Life?" and on the inside pages published a photo of a French demonstrator throwing a stone, with the title "Not Without a Fight." From these few words it is clear that the bourgeois internationally have drawn the same conclusions from their class point of view as the Marxists.

Everywhere the bourgeois are attempting to reduce the public debt by ruthlessly slashing public spending and demolishing the welfare state. this is a finished recipe for class struggle. Sweden, together with the rest of Scandinavia, is in the same position (with the partial exception of Norway, where North Sea oil has temporarily helped them). In Finland, unemployment officially stands at 17% — the highest in Europe after Spain. The crisis of Swedish capitalism inevitably means the crisis of reformism. The "Swedish model" has collapsed, and Sweden has entered the same process as the rest of Europe. The Swedish workers have powerful organisations in the trade unions and Social Democracy. Already the opposition of the working class to the counter-reforms of the Social Democratic government has found an echo inside the unions and, to some extent, within the Social Democracy. For the first time since the 1930s, there is the beginnings of an opposition. This tendency will inevitably grow in the next period. The Swedish Marxists, with quite modest forces, have already shown that it is possible even for a small group to get an echo, on condition that it takes bold initiatives with timely slogans and clear policies.

The same is true of Denmark, where the struggle of the busworkers against privatisation led to a general strike of 200,000. The brutality shown by the police in this dispute, where police dogs have been turned on the pickets, is unprecedented in recent times and is a warning of things to come. The old, cosy relations between the classes is over. The ruling class is compelled to go onto the offensive to take back the gains of the past 50 years. The Danish workers showed their willingness to fight in the magnificent demonstration of half a million workers on May Day 1995, a remarkable result for a country of only five and a half million inhabitants. As in Sweden, we can already see at least the outline of a process of inner differentiation within the Labour Movement. At this stage it is still a question of assembling and training the first cadres among the youth. But the big battles in the future will be fought out inside the unions and the Social Democracy. With a combination of flexible tactics and firmness in ideas, we can build a very strong position in the Danish labour movement in the next few years.

At the root of this situation is the fundamental change in the situation outlined above. As long as the advanced capitalist economies were growing at the rate of 5% per annum (more in the case of Japan), they could afford to give concessions to the working class. This was the objective basis for the blunting of the class struggle in the advanced capitalist countries for decades. It was the ground upon which a "social consensus" could temporarily be arrived at. This was the main reason for the strength of reformism and Stalinism (which degenerated into a new and even more repulsive variant of reformism long before the collapse of the Soviet Union) for a whole historical period. This, in turn, is the fundamental reason for the isolation of the genuine current of Marxism throughout this period. but now the situation is completely different. With growth rates of 2.5% (even less in the last few years) significant, long-lasting reforms are ruled out. On the contrary, all governments, whether openly bourgeois or nominally "socialist" are carrying out a policy of counter-reforms.

If this is the case in countries like Germany, France and Sweden, it is still more true of the weaker capitalist states of Europe — Britain, Italy and Spain, not to mention Greece and Portugal. Italy, with a public debt of more than 100% of GDP, is in an impossible position. The old system of rule by the Christian Democracy, based on large measures of state capitalism, patronage, and concessions to the workers, has collapsed, creating a situation of enormous instability. Had the "Communist" Party been worthy of the name, the Italian workers could have taken power decades ago. But the unparalleled degeneration of the CP has meant that the mass of the petit bourgeoisie swung behind the bourgeois demagogue Berlusconi. However, the extremely volatile situation in Italy was shown by the fall of Berlusconi, and the crisis of the Dini administration. The Italian workers demonstrated their combativity in a wave of strikes and demonstrations, including a demonstration of one and a half million in Rome. This is an anticipation of the future movements of the Italian proletariat, which will be on an even bigger scale than that of the French workers. Not for nothing was the Italian bourgeoisie particularly concerned about the movement in France.

Time after time the Italian workers have demonstrated their will to fight, forcing the union leaders to give some sort of lead, although inevitably in the form of partial general strikes and demonstrations intended as a safety valve, not a serious attempt to overthrow capitalism. But despite all the disappointments and despair at the leadership, which led to the setting up of the COBAS movement in the past, the workers will return repeatedly to the struggle, and they will look to the mass organisations, in the first place the unions, when they do so. The fact that the COBAS ended up as a blind alley (which was inevitable under the circumstances) further reinforces this idea, which results from the fact that there is simply no alternative.

Inevitably at a certain stage, the movement of the workers will be expressed in opposition within the mass organisations, beginning in the unions. A left will begin to crystallise not only in the unions but in the PDS and the RC. In fact, in a confused way, the split-off of the RC from the PDS was an early anticipation of this process, which will be repeated many times in the future. At a faster or slower pace, depending on events, analogous processes will occur in the SPs and CPs of every country in Europe, with the formation of left reformist, and even centrist currents. The building of mass Marxist tendencies is closely related to this unavoidable stage.

A sluggish boom which does not lead to increased living standards is a finished recipe for class struggle, which is only just beginning. The process will be protracted, not only in Italy but in the whole of Europe, because of the weakness of the subjective factor. Nor will the movement proceed in a straight line. Great movements of the class will inevitably be followed by periods of relative quiescence; there will be victories, but also defeats, periods of tiredness, demoralisation, and even reaction. But, at bottom, the position of the bourgeoisie is hopeless. They have no alternative but to attack the living standards of the workers and the middle class. No long-term stability is possible on this basis. Every setback of the movement will only be the prelude to new struggles on an even higher plane. It is essential that the cadres of Marxism clearly understand this, so that they will not be thrown off balance by episodic developments and temporary shifts in the mood of the masses, which are an unavoidable element in the situation.

The way in which the process will unfold was anticipated in Greece, where the composition of PASOK has been changed several times in the course of the last two decades, with a whole series of opposition tendencies springing up and splitting away, unfortunately prematurely and without a clear perspective. Now we see the same process repeated with Tsovolas, who decided to split precisely when PASOK is in crisis, with a struggle between the extreme right wing tendency of Simitis and the party apparatus. The death of Papandreu, which cannot be far off, will open up a new period of convulsions in PASOK. If Tsovolas had not succumbed to impatience, he would now be well on the way to winning a commanding position in the party. By splitting away prematurely, at the wrong time and on the wrong issues, Tsovolas will end up in a blind alley, particularly as he is not putting forward anything like a clear class position. This shows the fundamental difference between Marxism and confused left reformism. However, there will be good possibilities for the Greek Marxists, provided they continue to work patiently in PASOK, the unions and the youth.

It is the dialectic of history that at this time the movement of the leaders of the mass organisations has been to the right. Most of the splits that have taken place in the last period have been to the right. The long period of 40 years of capitalist upswing, the temporary, unsound boom of the 1980s, the collapse of Stalinism, and the unprecedented ideological offensive of the bourgeoisie have all had an effect. The right wing reformists like Gonzalez and Blair have completely accepted that capitalism (and national capitalism, at that) is the only possible system. All their perspectives (insofar as they have any) are based on the need to "compete successfully on the world market." This inevitably means that they will assume full responsibility for putting the weight of the crisis on the shoulders of the workers and the middle classes. This in turn will ultimately seal the fate of the right reformists. These self-styled "realists" will be swept aside by the tide of events.

The crisis of reformism has also had an effect on the "Lefts." Without the anchor of a revolutionary perspective, they are thrown hither and thither by every wind that blows. The collapse of Stalinism has confused and demoralised them, since many of the left reformists were really fellow-travellers of the CPs, with no separate ideology of their own. Nevertheless, the collapse of the "Left" will only be a temporary phenomenon. The crisis of the reformist parties, especially when in government, will prepare the way for a swing to the left and the emergence of mass left reformist currents everywhere. It is the task of the Marxists to penetrate these currents and, by patient explanation and friendly criticism, win over the workers to a genuine Marxist programme.

For almost three generations, the main obstacle in the way of winning over the advanced workers to Marxism was the colossal authority of Stalinism. This was, without doubt, the most counterrevolutionary force on the planet. The Stalinists were responsible for the betrayal of the Spanish revolution, for the shipwreck of the revolutionary movements in Greece, Italy and France in the period 1943-8, and for the derailing of May 1968 in France. Now the situation has undergone a fundamental change. The collapse of the Soviet Union has set the seal on the national-reformist degeneration of the "Communist" parties, which has been going on for decades. Without the authority of Moscow, they have become purely reformist parties, not even paying lip-service to Marxism. However, this frightful degeneration also opens up big possibilities for us, which we must grasp. The best of the Communist workers and youth are very critical of the leadership, and no longer have the old prejudices against Trotskyism. They are open to our ideas, and willing to discuss. Even some of the old generation of Stalinists, stunned by what happened in Russia, are looking for an explanation. Some of the best of them can find their way into the ranks of Marxism and be revived.

The French events

The explosion of the class struggle in France is the clearest indication that the change in the situation is beginning to register in the consciousness of the workers. This movement comes at a time when the right has an overwhelming majority in parliament as well as the Presidency. Yet, ever since Balladour's victory, there have been wave after wave of struggles — Air France, the students, the fishermen, and, above all the impressive mobilisation of the public sector workers.

The French bourgeoisie faces an insoluble dilemma. On the one hand, they want to maintain the link with Germany and reach convergence under the Maastricht Treaty. But this means an all-out assault on the conditions and living standards of the working class. Balladour had already been forced to back down, haunted by the fear of another May 1968. But the traditional policy of the French bourgeoisie is one of cynical deception — giving apparent concessions in order to prepare the ground for new attacks. Chirac won the election on the basis of demagogic promises to cut unemployment and increase living standards.

The real policy of the French ruling class was soon revealed in Juppé's vicious programme of cuts. They tried to push this through in one go, provoking the criticism of the Belgian bourgeois, that they should have carried it out bit by bit. But in the first place, the French bourgeois could not wait. Without an immediate onslaught on living standards, convergence is impossible. And January 1999 is only three short years away. In the second place, all the caution in the world did not save the Belgian ruling class from mass strikes and demonstrations last December which will be continued in January. The practical value of such well-meaning advice is thus open to some doubt!

The stakes involved here are quite high. There is even the threat of the break-up of the EU as at present constituted. Indeed, they may even precipitate a breakup, if Germany and its satellites decide to go ahead without Britain, Italy and Spain. The anxiety not to be left out of the "central core" of Europe explains Chirac's determination to launch a savage attack on pensions, health and jobs, which triggered the biggest mass movement since 1968.

The government initially tried to take a tough line. "The welfare reforms are a single package,' Alain Lamassoure, the government's spokesman, said on November 28th, after four days of crippling public-transport strikes, "If any one of its elements is called into question, the whole package will collapse." Twelve days later, after the strike had spread to virtually the whole of the public sector. The broad sweep of the movement and the lightening speed with which it developed took the ruling class by surprise.

What was particularly notable was the strength of the movement outside Paris. Towns like Marseilles, where the right wing National Front got 20% of the vote, or Bordeaux, which elected Juppé, were in the vanguard of the movement. These fresh layers of the class showed tremendous militancy and inventiveness. In Bordeaux, the dustbin collectors organised a special collection for the workers' area while the strike was still on, as an answer to the mayor's manoeuvre of hiring private contractors to clear up the rich neighbourhoods. The Electricity Supply workers of the EDF decided to offer free electricity to the organisations of unemployed and homeless people. This shows how the workers are prepared to challenge bourgeois society, and are already beginning to draw some revolutionary conclusions.

Everywhere, the youth were in the forefront. The students actively participated, starting with the strike at Rouen university in October. The students instinctively understood the need to link up with the workers. Libération writes about the surprisingly high number of "jeunes universitaires" supporting the strike. More important still, a whole new layer of young workers aged between 25 and 35 has entered the unions. The presence of these layers on the demonstrations, bringing with them all their energy and creativity, transformed the mood of the older activists. The reawakening of the youth was duly noted by the authorities. One article quotes the boss of the Paris Underground (RATP) as saying: "I can't understand why they still continue with the strike. The young workers in particular tended to have a romantic vision of this movement. very few were socially aware before the strike and so not many were unionised. But every big demo gave them more and more strength." This is the final answer to those sceptics who argued that the new generation was somehow "less conscious" than the generation of '68. Once the class begins to move, the youth inevitably finds its proper place in the front line of struggle.

At its height, the movement assumed an impressive sweep, involving practically the whole public sector: railways, civil servants, education, dockers, Air France, banks and insurance companies, hospitals, job centres, were all involved. Even the police were affected, as in 1968. The main police union, the FASP, issued a communique, stating that "they want to use us as a wedge between the France of Labour and the France of Privilege." The traffic police distributed strike leaflets in place of fines.

In effect, the working class placed itself at the head of the nation. According to the opinion polls, on the first of December, 62% of the population backed the strikers, while only 8% were opposed and 65% "did not trust" the government. The latter's attempt to organise counter-demonstrations of "transport users" were a dismal failure. Only 2,500 turned up for the first, and 500 for the second. The middle class demonstrated its sympathy for the strikers in many ways. On the 9th of December, Le Monde carried an article with the suggestive title "Indignant Educationalists Support Strike, Remembering a Certain Month of May" (i.e. of 1968). A woman lecturer, who considered herself "independent" commented: "I am a history lecturer, almost at the end of my career... Today history is on the march! " And she compared the movement to 1968 and 1936. Pierre Bourdieu, lecturer at the College de France held a meeting with 600 workers present to explain why the intellectuals supported the strike. Artists, writers and actors expressed their support. The Theatre Gerard-Phillipe in Saint-Denise carried the advertisement "This theatre is open to support the strikers." In Nanterre, the director of another theatre held a general meeting of actors and stage hands to discuss the situation, and every evening they handed out a leaflet to the audience entitled "The Dream of a better world." Such examples may be multiplied at will.

Feeling their collective strength, and sensing the support of broad layers of the population, the strike acquired a tremendous impetus and confidence in itself. Le Monde (16/12/95) reported that 60,000 francs had been donated to the strikers at the Gare d'Austerlitz alone, and quoted a woman striker as saying "When you see this, when you are applauded by passers-by during the demonstrations, how can you call a halt?" This was the general feeling of the movement. Once they were on their feet, the workers wished to go to the end. In mass meetings in Marseilles, Avignon, Chambery, Nimes and Paris, there were big majorities in favour of continuing the strike following Juppé's first offer. There was every possibility of taking the movement forward.

The strike revealed the colossal power that lies in the hands of the working class. Even without the active participation of the private sector, the country was rapidly paralysed. The government of the "strong man" Chirac was swiftly brought to its knees. From the beginning, the workers understood the need to generalise the movement. The slogan "Tous Ensemble" (All Together!) was echoed in every demonstration. With proper leadership, it would have been a simple matter to call a general strike and bring down the government. Under such conditions, not a change of government, but the socialist transformation of society would be on the order of the day, as the mass of workers felt themselves masters of the situation. The central role of the workers' General Assemblies could have been the starting point for Committees of Action, broadened to include the elected representatives of the students, unemployed, housewives, farmer, soldiers. Linked up on a local, regional and national basis, such elected organs of struggle would be the instrument, not only for coordinating the struggle, but for taking power.

Predictably, the union leaders did everything in their power to limit the movement, and prevent it from coalescing into a revolutionary general strike. No serious effort was made to extend the strike to the private sector. Ironically, Force Ouvriere, which was formed as a scab union as a result of a split in the CGT, was forced to put forward a "left" face in order to retain its base in the public sector. Its leader Marc Blondel has adopted a radical stance in words,even raising the question of a general strike. This has caused an internal conflict in the FO. On the other hand, the CFDT, which had a radical position in 1968, has moved to the right, and adopted an openly strike-breaking stance. This, in turn, has led to a ferment of discontent in the rank-and-file. Many CFDT workers openly defied the leaders, participating in demonstrations with CFDT stickers on their foreheads. The main leader of the CFDT, Nicole Notat, was actually kicked out of a demonstration by her own members. The sections of the CFDT involved in the strike disowned the general secretary and are demanding an extraordinary congress. Under these circumstances, the CGT is gaining ground. But it is clear that the December strike will have the effect of provoking a critical mood and internal struggles in the organisations of the French working class, especially the CFDT.

The Socialist Party leaders, typically, offered nothing to the strikers, except the lame advise to "wait for elections." If it was up to them, Juppé's reforms would now be on the statute book. But the workers ignored these so-called political leaders, and took matters into their own hands. Unlike the well-paid parliamentarians, the workers cannot wait. Despite this, the Socialist Party is advancing in the polls. At a certain stage, the working class will draw the conclusion that industrial action is not enough, and move onto the political plane. the Socialist Party and the Youth will begin to grow again, opening up new possibilities for the tendency. The sects in France have repeatedly "buried" the SP. They have lost a lot of ground, and are only the shadow of their former selves. We can safely leave them to play at constructing phantom armies, while we establish a base in the SP, and, where the opportunity, presents itself, in the CP, which still retains the allegiance of a significant layer of worker activists.

The strike ended in a partial victory. The railway workers got big concessions — at least for the time being. But many activists felt, correctly, that they had been robbed of the complete victory that was within their grasp. Although the government was forced to retreat in a number of areas, in reality, the union leaders walked out of Juppé's "social summit" having won effectively nothing from that meeting except the fact that it had taken place and the promise of more meetings. The central welfare "reform" — including the transfer of overall responsibility for health and welfare spending from a union-chaired committee to parliament, and restriction on doctors and hospital budgets — remains in place.

The frustration and anger of the workers was reflected in the demand that they be paid for the days lost through strike action. Even after the strikes had ended, the question of retrospective pay for the strikers has become a new bone of contention. Despite the firm words of the government spokesman, Alain Lamassoure, in the early stages of the strikes — 'the whole point about being on strike is that you do not get paid' — the problem has in fact been delegated to sector and regional management. The demand for back pay for the strikers shows both a high level of class consciousness and a willingness to continue the struggle. The bourgeois is thoroughly alarmed by this new development which threatens to destroy the fragile truce almost before the ink is dry. The pro-Chirac daily Le Figaro writes: "Many of our readers are indignant about strikers getting paid, and they are right — in principle. But can France afford a new round of strikes? The answer is obviously not."

The French ruling class, terrified of the movement of the workers, is forced to grit its teeth and accept a temporary retreat with the aim of regrouping and preparing for a further attack in the future. In his New Year address to the nation Chirac adopted a conciliatory tone and called for more "consultation and dialogue." This was said to have been well received by the union leaders, including the more "militant" ones, who imagine they see a difference between the "reasonable" Chirac and the "hard-liner" Juppé. In reality, the imagined divisions between the President and his Prime Minister is a convenient division of labour, rather like the division between Clinton and the Republican Congress. There is no difference over substance, but, at most, differences over tactics and timing. Even if, as is likely, Chirac decides to dispense with Juppé altogether, it would make no fundamental difference. The behaviour of the bourgeois and its representatives is dictated by the profound crisis of French capitalism, which compels it to launch an all-out attack on the conquests of the working class. All other considerations are of an entirely secondary nature.

Although the strikes and demonstrations were called off over the Xmas period, the undercurrent of unrest remains. As the Independent on Sunday (7th Jan.) put it, with the transport running more or less as normal "it is easy to forget the scale of last year's unrest and the depth of the discontent it revealed. But the truce is no more than a truce, and the calm is deceptive".

Some of the labour unrest has persisted long after the main transport strikes ended. Marseilles' first buses for four weeks ran on Thursday 4th of January after police took over three of the city's bus depots, leading to violent clashes with the workers. Transport in the city was still only sporadic even after that. At the other end of the country, the postal sorting office in Caen is only just functioning again, after an on-off agreement over Christmas. One line of the Paris suburban rail network is still disrupted. What we have here is only the end of the first round. That is understood by workers and government alike. For the reasons outlined above, Chirac has no alternative but to continue to attack living standards. The present uneasy truce will not last. At a certain stage, new social explosions are inevitable.

The main gains are not to be measured by the concessions that have been won by the railway workers, which will inevitably be taken back when the balance of forces changes. It is a decisive shift in the consciousness of the workers and youth of France. Lenin used to say that, for the masses, "an ounce of practice is worth a ton of theory." In the space of only a few weeks, the situation has been transformed. This is what we mean by sharp and sudden changes in the situation. This can be seen even in things which may appear anecdotal, such as the singing of the Internationale on the demonstration — something that in recent years was only done by the sects after the May Day demonstration was over. This detail shows that the French workers are in the process of rediscovering their traditions. This is a colossal gain! Nothing will remain the same after this. Le Monde, which followed the movement with particular interest, quoted a significant remark by a striker: "Whatever comes out of this, tomorrow will not be like yesterday. We will demand respect. If they mess us about, we'll occupy again!" (Le Monde, 12-13th Dec. 95)

All European movement

There could be no greater mistake than to underestimate the importance of these events, or to react in a routine manner to this situation. The French events mark a turning point in the international situation. It struck terror into the hearts, not only of the French bourgeoisie, but among the ruling classes of the whole of Europe. The question "What is going on in France?" was being asked by every government. Der Spiegel stated that "Chancellor Kohl is watching the situation in Paris with considerable concern." In Bonn, for some time now, the question is being asked whether France has become "the sick man of Europe" (see Le Monde, 5/12/95). The Swedish Svenska Dagbladet was worried that the fate of Maastricht, and maybe Europe, was being played out "on the streets of France." The Italian bourgeois was particularly preoccupied with the events in France, because of the very fragile situation there. They have not forgotten that 1968 was the prelude to the social explosion in Italy the following year. In fact, there were strikes and student demonstrations in Italy at the same time. La Stampa published reports on France with a special logo based on the symbol of the French Revolution of 1789 — the "Marianne."

Foreign bourgeois commentators attempted to reassure themselves with the thought that this was a peculiar "French disease," the product of the national character, or the mistakes of the government in Paris. In a comment that combines provincial smugness and ignorance in equal measure, the Svenska Dagbladet, described it a "typically French nervous crisis, which will all be sorted out once the French get tired of ranting." The Italian press complained about the "harshness" and "brutality" of the Juppé programme. As if it were possible to cut public spending without such things!

In his 1931 article The Role of Strikes in the Revolution, Trotsky correctly characterised the 1930 strike wave as the first indication of the revolution in Spain. He described it as "an inevitable stage," through which the "workers become conscious of themselves as a class." Trotsky understood the consciousness of the class, not in a static and formalistic way (do the workers have a "high" or "low" consciousness?), but showed concretely how consciousness develops in the struggle itself. He explains how before 1930, after a difficult period under the dictatorship of Primo de Rivera, "the overwhelming majority of the Spanish proletariat does not know what organisation means. During the time the dictatorship lasted, a new generation of workers grew up, lacking in independent political experience. The revolution awakens — and in this lies its force — the most backward, downtrodden, the most oppressed toiling masses."

Trotsky wrote: "The strike is the form of their awakening. By means of the strike, various strata and groups of the proletariat announce themselves, signal to one another, verify their own strength and the strength of their foe. One layer awakens and infects another. All this together makes the present strike wave absolutely inevitableÉ Only through these strikes, with all their mistakes, with all their 'excesses' and 'exaggerations,' does the proletariat rise to its feet, assemble itself as a unit, begin to feel and to conceive of itself as a class, as a living historical force." (The Spanish Revolution, p. 159.)

The main thing to see is the lightening speed with which the mood of the masses changes under these conditions. This is the essence of a revolution. People's attitudes are transformed in 24 hours. That was clearly shown in the French events. This was no ordinary strike, and these were no ordinary demonstrations. It was the result of the crisis of capitalism , which compels the bourgeoisie to attack the working class, and the inevitable reaction of the proletariat.

In the same way as in Spain in 1930, not just the organised workers but broad layers of the class, including formerly backward and "privileged sections are drawn into the struggle. The difference between white collar and blue collar ceases to have any significance. In Belgium, even the pilots joined in the demonstrations, and clashed with the police.

The Belgians were particularly worried, and with good reason, about the events in the neighbouring country. The Belgian case is important, because it explode all the nonsense about the movement being the result of "French national peculiarities" and the subjective errors of Chirac-Juppé. Unlike them, the Belgian government had adopted a relatively cautious policy, which is something like the "death of a thousand cuts." They ceaselessly reminded the Belgian public of this fact which, according to this theory, ought to rule out the possibility of Belgium catching the "French disease." Unfortunately, the fact remains that the Belgian workers organised a general strike (the first since 1936) one year before the French. Secondly, the French strike had an immediate effect on the Belgian workers. There were big demonstrations and strikes of the public sector in December which are set to continue in January.

We are thus dealing, not with a purely French phenomenon, as dull-witted and superficial observers try to assert, but with the beginning of a new chapter in the European revolution. A revolution is not a single event. It is a process which, with ebbs and flows, can extend over a period of months, or even years, as in Spain, where the revolution lasted from 1931 to 1937. It is true that the movement in France has its specific features, which will not necessarily be repeated everywhere in the same way. Marxism does not at all deny the existence of national peculiarities, even in the workers' movement. In the case of France, there is a long tradition of spontaneous revolutionary movements. This is also true of the other "Latin" countries, whereas the tradition of the countries of Northern Europe is more one of proceeding through the official organisations. Such differences may affect the forms or the pace of the struggle, but not the fundamental questions. The same attacks against the workers' living standards will inevitably produce the same results.

It cannot be emphasised too strongly that the movement is only in its earliest stages. It is a big mistake to confuse the first month of pregnancy with the ninth. but it is an even bigger mistake to deny that the act of conception has taken place. Marxists must always maintain a sober attitude to events. We have to see that, in and of themselves, even the stormiest strikes solve nothing. Even the biggest strike movement has its limitations, as we see in France at the present time. Only sectarian idiots imagine that a strike must go on indefinitely. Beyond doubt, the movement in France had the potential to go much further. But that presupposes a leadership with a revolutionary perspective. Without such a perspective, it was inevitable that the movement would be called off. The task of the Marxists is precisely to explain to the advanced workers the need for a revolutionary transformation of society as the only way out of the crisis. Our slogans, as Trotsky explained, must deal with the present situation, but must also point out what needs to be done, even when these ideas are not fully understood by the workers.

Given the depth of the crisis, new movements will emerge unexpectedly, possibly in the coming months, certainly in the next few years. It is impossible to be precise about the timing, except to say that, in general, the process will be long drawn-out. A rapid outcome is ruled out, for the reasons already given. These were the first stirrings of the French revolution. The workers have had a taste of their power. That is the principal gain. they will not be content to sit back and wait for the next elections, while their living standards are destroyed. They will move again and again both in France and in all the other countries in Europe. The determination of the ruling class to inflict a decisive defeat on the workers' organisations will create the conditions for new and bitter battles, which will radically transform the workers' outlook.

Because of the general nature of the crisis, we are dealing here, for the first time in half a century, with a revolution on a European scale. The movement can pass from one country to another, as the Belgian strikes showed. The slogan of the Socialist United States of Europe now acquires an even greater relevance than before. The dream of a capitalist united Europe is in tatters. In every European country there will be revolutionary developments in the next period, and we must prepare our forces for this.

Above all, Marxists must be on their guard against any element of conservatism and routinism. They must not allow themselves to be deceived by the apparent surface calm, the low level of strike, etc., in some countries. This is an entirely temporary phenomenon, which can be brought to an end quite suddenly. The Marxists would have no reason to exist as a separate tendency in the Labour Movement if we were unable to see further than the average trade union activist.

Britain and Spain

In Britain, the crisis of the ruling class is shown by the crisis of the Tory party, which has reached unprecedented dimensions. A few years ago, there was a tendency to write off the Labour Party. It was alleged that Labour could never win another election. This nonsense was accepted uncritically by the Taaffites and other sectarians. Instead, there is an unprecedented swing to Labour at the present time, as our tendency predicted. Of course, Blair, in common with the other reformist leaders, is completely out of touch, enthusiastically embracing the "market" at a time when, not only the workers, but wide layers of the middle class are turning against it. Nevertheless, there is now the beginnings of a sea-change in British society, reflected at this stage on the political front. With mass unemployment, vicious anti-trade union laws, and above all, the abject capitulation of the union leaders, the movement on the industrial plane has been slow to develop. Nevertheless, we have important illegal strikes of the postal workers, a formally backward section, against the employers, the government and their union leaders. The same process is shown by the strikes on the railways, the Liverpool Docks and the fire fighters. This is the shape of things to come. A Blair government will be a government of crisis. It will mean a period of social turbulence which will inevitably find an expression in the ranks of the trade unions and the Labour Party, creating more favourable conditions for the work of the British Marxists.

In Spain, the González government has carried out an openly pro-bourgeois policy, and is now paying the price. It seems likely that the Popular Party will win the next elections. This will open up a new and stormy situation in Spain. The apparent inertia of the working class (which did not prevent the semi-insurrectionary movement in the shipyards in Cadiz just a few months ago) will inevitably be succeeded by big movements in the tradition of the Spanish working class. Any accident can lead to an explosive movement.

Aznar will take the victory as a mandate to launch an onslaught on what is left of the gains of the workers. This, in turn, will provoke enormous indignation and a movement of the class which can easily assume semi-insurrectionary characteristics. The Spanish working class will not be the last to move, and the Spanish Marxists must be prepared for the inevitable reaction against the PP government.

The reaction of 1933 prepared the Asturian Commune of 1934. Of course, there are differences. The movement will be more protracted, but within this general situation, changes in the mood of the class can take place with lightning speed. In a relatively short space of time, there can be a swing from the PP to the left. The violent swings between reaction and revolution are symptomatic of the underlying process. In the same way, the Italian general strike did not prevent the election of Berlusconi. But that also was only an ephemeral stage in the Italian revolution.

Aznar's social base is even less than that of Lerroux in 1934. The peasantry is now a small minority, and the working class is the big majority of the population. As we saw in Marseille, once the working class gets on the move, it has an effect even on those backward layers who supported the reaction. After some delay, these processes will be reflected inside the PSOE. In opposition, the party will come under the pressure of an aroused working class. A large number of corrupt elements who joined the party to get well-paid jobs will drop out, and be replaced with younger fresh workers who will be open to Marxist ideas. Under such conditions, the PSOE can move sharply to the left, and move in the direction of left reformist, or even centrist positions. Even at the present time, we see the growth of a left opposition inside the Workers Commissions (CCOO). In the recent CCOO Congress in Catalonia, this trend got 49% of the votes. Similar oppositions will arise later on in the UGT and the PSOE and may even become the majority. The right wing will be vomited out. At a certain stage, we will see the election of a left socialist government, which would mark a decisive turning point, as happened with the Allende government in Chile. The choice will then be between revolution and counterrevolution. Under such conditions, which will develop over a period of five, ten years or more, with inevitable ups and downs, there will be ample possibilities to build a mass Marxist tendency.

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