We are making available to our readers the final version of the 2010 World Perspectives document, which was amended and passed unanimously by the World Congress of the IMT in Marina di Massa on August 7, 2010. Part One analyses the world economic crisis, looking into the different factors that led to the most serious crisis of capitalism since the 1930s.
Two decades have passed since the fall of Stalinism. In this period we have experienced an unprecedented ideological offensive of the bourgeoisie. The pressure of bourgeois and petty bourgeois ideology on the workers’ movement has increased a thousand fold. Alien ideas have had an effect inside the international labour movement. Many people deserted the movement altogether. Others remained but were infected by moods of scepticism and cynicism about the perspective of socialism.
In this period of confusion, ideological backsliding and apostasy, revisionist ideas flourished, reflecting the pressures of capitalism. Such periods are not exceptional. We have seen all this before and we have heard all the same arguments. In general, the revisionists have never improved on the arguments that Bernstein put far better one hundred years ago: that capitalism has solved its problems, that economic crises are a thing of the past, that class struggle and revolution is no longer on the agenda, that we need “new ideas” to replace the “old” ideas of Marx and Engels, and so on and so forth.
Our International stood firmly against these tendencies. We stand for Marxism, and for a revolutionary class policy. Events have proved that we were right to do so. Our 2006 World Perspectives document stated that we have entered a period of extreme turbulence on a world scale, a period of crisis, wars, revolution and counter-revolution: a period in which the economic, social, and political crises all condition one another. We believe that this general characterisation of the period was correct, and the present situation closely reflects this.
We live in a period of turmoil and crises, a period in which the whole situation can be transformed in a matter of weeks or even days. The general instability was manifested in a particularly dramatic way by the financial collapse that was quickly followed by a world economic slump on a scale not seen since the Second World War. On the political plane, the revolutionary events in Honduras and, above all, Iran, which to many seemed to drop like a thunderbolt from a clear blue sky, showed the inevitability of sharp and sudden turns in the situation. Now Greece stands on the brink of financial collapse and social upheaval.
This very turbulence makes the task of perspectives more difficult. It is well known that whereas classical physics could easily explain and predict the laminar flow of liquids, it could not explain or predict turbulence, which has a complex and chaotic character. In a situation like the present, which has a clearly transitional character marking the difference between one historical period and another, a correct theoretical analysis is more necessary than ever – but also more complicated than ever.
“It is in just such periods that all sorts of transitional, intermediate situations and combinations arise, as a matter of necessity, which upset the customary patterns and doubly require a sustained theoretical attention. In a word, if in the pacific and “organic” period (before the war) one could still live on the revenue from a few ready made abstractions, in our time each new event forcefully brings home the most important law of the dialectic: The truth is always concrete.” (Leon Trotsky, Bonapartism and Fascism, July 1934)
This is a period of (“small”) wars, revolutions and counterrevolutions, which can last years or decades before a final denouement is placed on the agenda. This general analysis, however, by no means exhausts the question. There is a danger of a one-sided and mechanical interpretation of perspectives, which, if it is not corrected, can lead to serious mistakes. The general characterization cannot explain all the numerous changes, the vicissitudes of the economic cycle, the ebbs and flows of the class struggle, the various crises and splits in the mass organizations.
However, we must maintain a sense of proportion. Because of the absence of the subjective factor despite the overall favourable balance of class forces, a rapid movement in the direction of workers’ power or brutal reaction is ruled out in the advanced capitalist countries at the present time. That does not mean that revolutionary upheavals are off the agenda, far from it. Given the extreme instability inherent in the situation, revolutionary events will occur in one country after another. However, as a result of the lack of a revolutionary leadership, these will also be accompanied by defeats and reverses. This unstable situation can last, with ebbs and flows, not months but years.
This is not a simple question, but a complex, dialectical process. The transition from one period to another, very different one will produce convulsive changes in the relationships between classes and between states. These pressures inevitably come to bear on our own organization and members. Trotsky wrote in On the Policy of the KAPD, November 24, 1920:
“A whole series of offensives followed by retreats, of uprisings followed by defeats; transitions from attack to defence, and throughout: critical self-analysis, self-purification, splits, re-evaluations of leaders and of methods, new splits and new unifications. In this crucible of struggle, and on the anvil of revolutionary experiences never before equalled, a genuine Communist Party is being forged. A contemptuous attitude toward this process as if it were a tussle among “leaders” or a family squabble among opportunists, etc – such an attitude is proof of extreme nearsightedness, not to say blindness.”
Marx explained that the key to all social development is the development of the productive forces. The present crisis shows that the development of the productive forces on a world scale has gone beyond the narrow limits of private property and the nation state. That is the most fundamental reason for the present crisis. But the slump was delayed for a long time, and there was a period of economic growth, although this was at the expense of the working class and the masses, particularly in the ex-colonial countries.
In a broad historical sense, this was true long ago. Already in 1938 Trotsky wrote. “Objectively speaking, the conditions for world Socialist revolution are not only ripe and mature, but they are rotten ripe!” The situation has revealed its bankruptcy from a historical point of view. Yet we are left with a paradox. If this is true, why is it that the forces of Marxism still remain a tiny minority?
In the last analysis, the weakness of the genuine Marxist tendency is rooted in the objective situation that developed after the Second World War, which was different to the perspective that Trotsky had worked out theoretically in 1938. The outcome of the Second World War could not have been predicted by anybody. Not just Trotsky, but Hitler, Stalin, Churchill and Roosevelt all miscalculated.
The victory of the USSR in the War led to a colossal strengthening of Stalinism for a whole period. The overthrow of capitalism in Eastern Europe and later China (albeit in a deformed and Bonapartist fashion) further deepened this process. For decades the road to the Communist workers was blocked. Only now, with the collapse of Stalinism, has the situation changed, opening up new possibilities.
The defeat of the revolutionary wave in Europe that started even before the end of the War (Greece, Italy) was the political premise for the recovery of capitalism. In contrast to the situation after the First World War, the American imperialists were forced to underwrite European capitalism with the Marshall Plan. The destruction of the War created the conditions for a post-War reconstruction boom. The new technologies developed during the War (chemicals, plastics, nuclear power etc.) provided new fields for investment.
These and other factors provided the basis for a massive economic upswing in capitalism, which in turn provided the basis for the strengthening of reformist illusions in the working class in the advanced capitalist countries. As a result, the path to the reformist workers was also blocked for a whole period. This was not understood by the leaders of the Fourth who had a mechanical interpretation of Trotsky’s perspective and consequently made serious mistakes that destroyed the International.
In times of retreat in a war, the importance of good generals is even greater than during an advance. With good generals you can retreat in good order, maintaining your forces intact. But bad generals will turn a retreat into a rout. The mistakes and deviations of the so-called leaders of the Fourth International meant that the organization created by Trotsky was completely routed.
However, the main reason why revolutionary Marxism (Bolshevism or “Trotskyism”) was thrown back is to be found in the objective conditions in the advanced capitalist countries of Europe and the United States (the situation of the colonial and ex-colonial countries was completely different).
We must face facts: for a whole historical period the forces of genuine Marxism were thrown back. It will take time, patient work and above all great events that will shake the proletariat and its organizations, to change this situation. The mere repetition of general propositions and abstract formulae is wholly insufficient to explain the concrete reality of the stage through which we are passing.
Most people want to get back to the “good old days”. The leaders of the working class, the trade union leaders, the Social Democratic leaders, the former Communists, the Bolivarian leaders, etc., all encourage the idea that this crisis is something temporary. They imagine it can be solved by making some adjustments to the existing system. And when we talk of the subjective factor, of the leadership, we must also understand that for us the leadership of these organizations is not a subjective factor. It has become an important part of the objective situation, which for a time can hold the process back.
At this moment in time, the bourgeois economists and politicians, and above all, all the reformists, are desperately seeking some sort of revival to get out of this crisis. They look to the recovery of the business cycle as salvation. They are constantly talking about the “green shoots” of recovery. The reformists imagine that all that is needed is more control and regulation, and that we can return to the previous conditions. This is false. This crisis is not a normal crisis, it is not temporary. It marks a fundamental turning point in the process. However, that does not mean that there cannot be a recovery of the business cycle. Indeed, all the latest data indicate that some sort of recovery has begun.
The most fundamental answer to that question must be found in the dialectical contradiction between the objective situation and the way in which this is perceived by the masses. Human consciousness is innately conservative. The masses stubbornly cling to the existing forms and ideas of society until they are compelled to abandon these ideas on the basis of the massive hammer-blows of events. But sooner or later, consciousness catches up with reality in a series of explosions. This is the basic mechanism of revolution.
In the advanced capitalist countries the workers’ consciousness has been shaped by the experience of the past half century, during which they learned to consider full employment, rising living standards and reforms as the normal conditions. It is therefore natural that they believe that the present crisis will be only a temporary aberration, after which “normal” conditions will be resumed. But in fact, the last fifty years was not a normal period but an historical exception. It will take time for the workers to understand this, but eventually they will learn a harsh lesson in the school of life.
The last two years have seen the deepest crisis since the Second World War. Now the bourgeoisie is desperately trying to recover the economic equilibrium, which has been shattered by the collapse of the boom. The problem that they face is that all the measures that they have taken to restore the economic equilibrium will completely destroy the social and political equilibrium. They are hoping that the economic crisis is already surmounted.
The recent contraction in production was the sharpest in a hundred years. The US economy was the motor force for the boom. Now that motor has stalled. In May, 2009, the rate of capacity utilization for industry in the USA declined to 68.3 percent, 12.6% below the average for 1972-2008. The national debt has piled up, the currency is being debased. As a result, the foundations of the economy are being further undermined. There will be new shocks, which can put an end to the recovery before it has been consolidated.
It is clear that some kind of recovery in the business cycle has already begun. But the recovery is uneven and feeble and full of contradictions. It is impossible to predict the timing of the process. For that, we would require not scientific perspectives but a crystal ball. Economics never was an exact science and never will be. But it is possible to understand the fundamental processes and the general direction we are moving. And it is equally clear that a weak and jobless recovery based on increased borrowing and more savage cuts will not solve any of the problems facing capitalism. On the contrary, it will prepare a new and deeper economic crisis, and above all a deeper social and political crisis.
US Federal Reserve Chairman Ben Bernanke and his colleagues have cited “tentative signs” of the recession easing in some consumer spending, home building and other reports. After four consecutive quarters of contraction, US GDP grew by 3.5% in the third quarter of 2009, and an estimated 5.7% in the fourth quarter. Nonetheless, the economic picture remains grim and concerns that there could be a “double dip” recession remain. Overall, the US economy declined 2.4 percent in 2009, the largest drop since 1946. A slowdown in growth is projected for the first quarter of 2010, as 60% of the late-year growth was the result of companies rebuilding stockpiles depleted by the recession, which has a positive knock-on effect throughout the economy. However, this kind of growth has its limits. With consumer spending projected to remain muted, eventually the stockpiling will come to an end.
More important from the perspective of the Marxists, is the effect this constant instability is having on workers' consciousness. The American economy lost jobs every month for 23 months in a row, a steeper fall than during the Great Depression. In October, 2009, the average work week remained at just 33 hours, the lowest on record, giving employers plenty of room to extend existing employees’ hours, not to mention to expand usage of existing industrial capacity before adding new workers or building new factories. According to the Bureau of Labour Statistics 11,000 jobs were lost in November 2009, after months of losing hundreds of thousands of jobs at a time. This was the smallest monthly total since the recession began in late 2007, and the overall unemployment rate fell slightly from 10.2% to 10.0%. The fact that such results were hailed as a success is itself a sombre comment on the seriousness of the situation.
The US government has pumped in vast sums of money and this is reflected in a growth of employment in education, health services, and government. However, savage cuts in state and local budgets are now beginning to drag on the economy. Even the services sector, which accounts for some 2/3 of the economy, has been shrinking, as fewer people have money to spend on non-essential expenses. The subsidies to the big automobile companies have led to a modest expansion in manufacturing activity. But the statistics suggests that increasing activity in manufacturing has largely been because of the replenishment of depleted inventories, and does not represent a long term solution.
The US unemployment rate has now surpassed 10 percent for the first time since 1983, and will probably hover around that level for some time. In some states in the so-called rust belt, for example, Ohio and Michigan, it is substantially higher. If those working part time or no longer looking for work were included, the real rate would be closer to 17.5%. One in five American men of working age are unemployed. For immigrants and blacks it is even worse. 34.5 percent of young African American men are unemployed. The youth are also severely affected. For example, in Maryland, the unemployment rate for workers under twenty was approximately 50 percent in August 2009, while the picture was even worse in Washington, DC with 55 percent of those under twenty terminally unemployed. This disastrous situation has important implications for the future.
2009 ended with total job losses of 4.2 million and an average unemployment rate of 9.3%. That’s compared to an average of 4.6 percent in 2007. Over 7.2 million jobs have evaporated since the recession began in December 2007, three times the number lost during the 1980-82 recession. The official unemployment rate for January, 2010 remained at 10 percent, with 85,000 more jobs being lost in December, far more than the 8,000 many analysts expected. When the “underemployment rate” is figured in, taking into account those workers hired part-time but wanting full-time work as well as those who are too discouraged to actively seek work, the rate goes as high as 17.3 percent.
At the end of 2009, those unable to find work for six months or longer rose to 5.6 million, or 35.6%, a new record. For workers, the so-called jobless recovery is no recovery at all. There are six workers looking for every job available. Since the American economy needs to add around 125,000 jobs each month just to keep up with population growth, this optimism of the bourgeois represents the triumph of hope over experience.
The Federal Reserve believes unemployment will stay high well into 2011, and most economists do not think it will return to “normal” levels (around 5 percent) until 2013. Over 5.2% of all jobs have been cut since the recession began. Heidi Shierholz, an economist at Economic Policy Institute in Washington, has said that the US suffers from a “jobs gap” of nearly 10 million. To close that gap and get back to pre-recession levels in two years would require more than 500,000 new jobs per month, a pace of job creation that has not been seen since 1950-51.
It is the effect of this situation on workers' consciousness that most interests us. What kind of recovery is it when nearly 16 million people can’t find work? How can the GDP rebound when there are millions fewer jobs than there were two years ago? The answer is simple: the capitalists are making fewer workers do more work for less pay. According to the Department of Labour, productivity – the amount produced per worker per hour – rose by 9.5% in the 3rd quarter, after rising 6.9% in the 2nd. Wages and benefits were up just 1.5 percent in 2009, the weakest showing on records that go back to 1982. Less purchasing power means fewer goods can be bought; in an economy 70% reliant on consumer spending, this means that an eventual slowdown is inevitable.
Public borrowing is spiralling out of control. Sooner or later this will feed through to higher interest rates and inflation. These are mortal dangers to a sustained recovery. Under these conditions, even when the recession ends, the economies of the USA and other key capitalist countries will remain feeble and unemployment will remain at high levels. The crisis is being used by the capitalists to force the workers in the advanced capitalist countries to accept a new, lower standard of living. This is a finished recipe for explosions of the class struggle in the years ahead.
For almost 200 years capitalism has moved through a periodic cycle of booms and slumps. However, the present situation is not a “normal” manifestation of the boom-slump cycle, but a transition between entire periods of capitalist development. We have entered a period in which the overall curve of capitalist development is downward. This, of course, does not mean that there can be no development of the productive forces.
Lenin explained that there is no such thing as an impossible situation for capitalism. There is no such thing as a “final” crisis of the system. The bourgeois will always find a way out of even the deepest crisis unless and until the system is overthrown by the conscious action of the working class. They will undoubtedly get out of the present crisis. The question, however, is this: how they do this and at whose cost? Even in periods of downswing, there can be temporary revivals, just as a dying man can rally, and even create the impression that he has completely recovered. Such rallies are followed by even more serious relapses, until humanity and civilization as we know it sink into barbarism, if the proletariat does not succeed in opening a revolutionary way out.
This is a moment to reflect on fundamentals and work out the most likely line of development. It is necessary to understand the fundamental processes at all levels, not merely incidentals and episodic trends. This is a complex, dialectical process, which we must follow carefully through all its stages. As Trotsky explained in The Curve of Capitalist Development (1923): “Still more, a transition from one epoch of this kind to a different one must naturally produce the greatest convulsions in the relationships between classes and between states.” That is the kind of period into which we have entered.
Ted Grant predicted that in the event of a deep slump, the bourgeoisie would use the colossal resources that it has accumulated over the last fifty years to avoid total collapse. This is exactly what they are doing. The present crisis, which caught the bourgeois completely by surprise, has provoked a wave of panic in governments all over the world. In order to prevent the worst effects of the crisis, they have resorted to unprecedented measures. The bourgeoisie fears the social and political effects of a deep slump and has been forced to use up a big part of its reserves to prevent it. It was able to do this because it had accumulated a layer of fat over decades of economic growth. But this is now reaching its limits.
For decades the bourgeois economists argued that the state must not interfere with the market, which was considered to be a self-regulating mechanism. But when the crisis hit, the only thing keeping the system afloat was state intervention. Aggressive fiscal and monetary stimulus in the US and China, and, to a lesser extent, in the Euro zone and Japan, has so far prevented a complete collapse on the lines of 1929. But such measures cannot produce a sustained economic recovery and the measures they are taking will create new contradictions that will be even more difficult to surmount.
A “crisis of credit”?
The bourgeois economists cannot explain the recession. They say it was caused by the credit crunch and the resulting squeeze on demand. However, Marx pointed out that it is not the lack of money (“liquidity”) that causes a crisis, but the crisis itself that causes a lack of money. The same is true of credit. Marx explained that credit enables the capitalists temporarily to go beyond the limits of the system. But an increase in credit does not signify a sustainable increase in production. It can temporarily increase demand and consumption, but only at the cost of aggravating the slump when it finally comes. We see this precisely in the present crisis, in which the crisis of overproduction has been enormously exacerbated by the sharp drop in demand in the USA, as a result of the sharp contraction of credit.
The bourgeois have resorted to borrowing on an unprecedented scale, building up huge deficits. Now they are going still further and increasing the money supply through what they call “quantitative easing”. This is theoretically unsound and disastrous in practice. It assumes that the problems of the economy are of insolvency and lack of credit. If this were true then it should be possible to get out of the crisis by providing cheap credit and by printing and spending more money. But it is not true.
There is always a grain of truth in the arguments of the bourgeois economists, although they are one-sided and undialectical. They are not capable of seeing all sides of the process. Milton Freidman was correct when he argued that Keynesian deficit financing would cause an explosion of inflation. But the Keynesians were also correct when they pointed out that cutting state expenditure and lowering wages will have the opposite effect: reducing demand and aggravating and prolonging the slump. However, their solutions are no solutions: one cannot solve the crisis by increasing state expenditure through borrowing and creating huge debts to be paid with interest in the future. Nor is it possible to conjure money out of mid-air without eventually driving up inflation. This was tried in the 1970s, when it led to an explosion of inflation and a huge upsurge of the class struggle in one country after another. Thus, the bourgeois are trapped between the devil and the deep blue sea.
There is nothing fundamentally new in the present crisis, except for its extraordinary extent and depth. This in turn is only a reflection of the contradictions accumulated in the previous boom. In any period of upswing, speculation and swindling flourishes. But when the bubble bursts, the swindles are exposed and confidence collapses. The bourgeois who participated so eagerly in the merry carnival of money-making, dress themselves in rags, pour ashes on their heads, and beat their breasts, proclaiming that they have learned their lesson and will never sin again – until the next frenzy of money-making. Just a year after the most acute phase of the crisis, the top officers of the most heavily bailed out corporations are already lavishing themselves with extravagant bonuses and perks, sparking public rage and outcry.
The bourgeoisie was obliged to carry through a large-scale financial policy designed to prevent the economic crisis from descending into a deep slump. As a result, the deficits in the state budget have reached monstrous proportions and private enterprises and banks have been artificially kept in operation; in order to avert an even broader collapse. All this is for the political purpose of reflating the fictitious commercial-industrial prosperity of the boom years. But this leaves out of account the small detail that it was this that caused the financial collapse in the first place.
The boom was accompanied by an orgy of speculation that was without parallel in its scope and size. The “respectable” bankers participated enthusiastically in this. Enormous quantities of fictitious capital were injected into the system in the so-called housing bubble. That was only one example of massive speculative activity based on non-existing values (fictitious capital). The stock exchanges of the world soared to unheard-of heights. The worldwide market in derivatives was valued at almost $700 trillion just before the collapse, as these figures show:
Global OTC derivatives market, end of June 2009
(In billions of US dollars)
June 2007: 516,407
Dec 2007: 595,738
June 2008: 683,814
Dec 2008: 547,371
June 2009: 604,622
These figures are from the Bank for International Settlements Quarterly Review (December 2009). But, incredibly, now they have rebounded to levels similar to those of the boom years.
This shows the other side of the “recovery”, which is based almost entirely massive amounts of state financing, based on borrowing. It is a desperate attempt on the part of the bourgeois to get out of the crisis by reflating the “bubble”. This is completely irresponsible from the standpoint of orthodox economics. It prepares the way for inflation and rising interest rates, which will lead to a new and even steeper collapse in the future. This is causing alarm among that section of the bourgeois economists who have not entirely lost their heads. Sooner or later the system will face a painful period of “adjustment” as this fictitious capital is squeezed out of it.
During a boom everyone is willing to lend and borrow as if there were no tomorrow. Credit is easy to come by. But as soon as the economic cycle reaches its end, credit always dries up; everybody becomes parsimonious and wants ready cash, not promises to pay. In place of reckless abandon and irresponsible squandering, a miserly spirit rules. Instead of lending more money, the bankers demand prompt payment of debts. This pushes small and not-so-small firms into bankruptcy and contributes to the downward spiral. Thus, credit and all the other factors that pushed the economy upwards, combine to push it downwards. Dialectically, everything turns into its opposite. What took years to build up can take days to unravel.
To cushion the impact of the financial meltdown, the Federal Reserve slashed lending rates even further to near zero percent and poured money into the banks to spur lending. The US government launched a $787 billion stimulus plan of tax cuts and increased government spending on big public works projects to help boost economic activity. But so far the effect on job creation has been negligible. Just 650,000 jobs have been created or saved, less than were lost in the single month of January, 2009.
Following Britain and the US, the EU also launched stabilization plans. Even the Swiss bourgeois injected massive amounts of capital into their banks, and took emergency measures to prevent a collapse in confidence in the country’s banking system. The bourgeois appear to have succeeded in postponing a deep slump for a certain period, but only at the cost of further disorganizing the financial and “quantitative easing”, which must lead to inflation at a certain stage, with dire consequences for the economy and a new and even more uncontrollable fall at a later date.
Central bankers have injected huge amounts of liquidity into the money markets in an effort to keep the world’s banks lending to one another. The banking system is now almost totally reliant on public funding, yet despite all these measures, the banks so far remain unwilling to offer credit to any but the most secure of businesses and home buyers. The reason is that they know that the crisis may not yet be over and they are not sure that they will ever get their money back. While nominal interest rates are close to zero, firms and households have reacted slowly because for a time, prices have been falling, and therefore real interest rates remain higher.
The US government has already committed the staggering amount of $11 trillion on subsidies: guarantees, investments, recapitalization and liquidity provision. But all the government efforts to fight the downturn have had only a mild effect, without solving anything fundamental. This is because they do not deal with the fundamental cause of the crisis, which is not the lack of credit but overproduction. All the government programmes to stimulate demand will be insufficient to balance supply with demand, which is a central problem of the unplanned and anarchic capitalist mode of production.
Marx and Engels explained in the Communist Manifesto (1848):
“Modern bourgeois society, with its relations of production, of exchange and of property, a society that has conjured up such gigantic means of production and of exchange, is like the sorcerer who is no longer able to control the powers of the nether world whom he has called up by his spells. For many a decade past, the history of industry and commerce is but the history of the revolt of modern productive forces against modern conditions of production, against the property relations that are the conditions for the existence of the bourgeois and of its rule. It is enough to mention the commercial crises that, by their periodical return, put the existence of the entire bourgeois society on its trial, each time more threateningly. In these crises, a great part not only of the existing products, but also of the previously created productive forces, is periodically destroyed. In these crises, there breaks out an epidemic that, in all earlier epochs, would have seemed an absurdity – the epidemic of over-production. Society suddenly finds itself put back into a state of momentary barbarism; it appears as if a famine, a universal war of devastation, had cut off the supply of every means of subsistence; industry and commerce seem to be destroyed. And why? Because there is too much civilization, too much means of subsistence, too much industry, too much commerce. The productive forces at the disposal of society no longer tend to further the development of the conditions of bourgeois property; on the contrary, they have become too powerful for these conditions, by which they are fettered, and so soon as they overcome these fetters, they bring disorder into the whole of bourgeois society, endanger the existence of bourgeois property. The conditions of bourgeois society are too narrow to comprise the wealth created by them. And how does the bourgeoisie get over these crises? On the one hand, by enforced destruction of a mass of productive forces; on the other, by the conquest of new markets, and by the more thorough exploitation of the old ones. That is to say, by paving the way for more extensive and more destructive crises, and by diminishing the means whereby crises are prevented.”
“The fundamental cause of crisis in capitalist society, a phenomenon peculiar to capitalist society alone, lies in the inevitable over-production of both consumer and capital goods for the purpose of capitalist production. There can be all sorts of secondary causes of crisis, particularly in a period of capitalist development – partial over-production in only some industries; financial juggling on the stock exchange; inflationary swindles; disproportions in production; and a whole host of others – but the fundamental cause of crisis lies in over-production. This in turn, is caused by the market economy, and the division of society into mutually conflicting classes.” (Ted Grant, Will There Be a Slump? 1960)
This is what Ted Grant wrote decades ago in Will There be a Slump? It has been shown to be correct. The real cause of the crisis is overproduction: there is a global glut of capacity (housing, automobiles and consumer durables). It will take years to work out this glut. It is this, not the lack of credit that is obstructing the expansion of industry. When the politicians complain that, after all the money they have received, the bankers are not lending, the latter reply that when they offer to lend money, there are no takers. Naturally! A fictitious boom based on state expenditure will very quickly run up against the limits of demand. Now that workers can no longer borrow against high house prices, there is even less room to artificially expand demand.
The motor force of any real recovery is manufacturing and construction. But this is prevented by overproduction in these sectors as well (also referred to as “oversupply” or “overcapacity” by modern bourgeois economists). Everywhere, office blocks stand empty and construction is at a virtual standstill. With falling demand on a world scale, the capitalists are compelled to resort to mass layoffs, part-time work and factory closures. This is graphic proof of the inability of capitalism to absorb the colossal productive potential that it has created. For example, there is world overproduction in steel. There is “too much steel” (for the limits of the capitalist system, that is). This is, to a large extent, related to the sharp fall in the production in cars.
Business Week asks an interesting question: how can overproduction exist?
“For economists, overcapacity is a tricky concept. Human wants are unlimited, so how could the world ever produce too much of a good thing? The key is what people can pay. In many goods sectors, prices still aren’t low enough to bring forth enough. There will have to be some combination of falling prices and destruction of productive capacity before supply and demand come into balance. […] The question is how that balance will be achieved.” (Business Week)
This question goes to the heart of the matter. Capitalism is unplanned production for profit, not rationally planned production for the satisfaction of human needs. There is no reason why the supply of cars, steel, food or anything else should coincide with what the economists call “effective demand”. The whole history of capitalism is the history of crises caused by the contradiction between the enormous capacity of capitalism to produce for the sake of profit, and the necessarily limited purchasing power of the masses (“demand”), which gives rise to periodic crises of overproduction.
In the modern epoch, overproduction manifests itself as overcapacity. During the crisis the levels of capacity utilization fell sharply in all the developed capitalist countries, for example:
The Industrial Production and Capacity Utilization Data from the Federal Reserve give the following figures:
2009 April (low point): 68.28%
2009 December: 72%
1982 December: 70.8%
i.e. capacity utilization almost halved between February 2008 and February 2009.
(Regional Economic Outlook: Asia and Pacific, IMF, October 2009)
A study from "NLI research" estimated Q1 2009 capacity utilization to be 50.4%.
The capacity utilization rate in the euro area at the end of July 2009 stood at 69.5%, well below its long-term average of 81.6%. Especially hard hit were the producers of capital goods (67.6%). In the automotive industry, capacity utilization even went to below 60%.
These figures are from the European Central Bank.
These are the official statistics of the Turkish Statistical Institute press release (12 January)
Q3 2008: 78.9%
Q3 2009: 67.5%
These are official figures according to Statistics Canada
Q4 2007: 73.12%
Q1 2009: 58.09%
Q4 2009: 67.20%
(Bank of Thailand)
These are record post-War lows. In some of the poorer countries, however, the situation is even worse, with capacity utilization of 50% or less.
The automobile industry is a clear example. In 2008 global capacity utilization in industry fell to 70.9% – a rate 10% below its average from 1979 to 2008. This is a historic low, and equal to the level reached in December 1982. The magazine Autos (31/12/08) carried an article with the title, “Automakers’ Overcapacity Problem,” and the subtitle, “Automakers have to cut factory overhang without losing their ability to ramp back up when people start buying cars again.” This expresses the capitalists’ dilemma very clearly. The world automobile industry has the capacity to produce 94 million vehicles every year. On the basis of present sales, this is about 34 million too many, equivalent to the output of 100 plants.
Global overcapacity in the auto sector of approximately 30% means that the big car makers could close one third of their factories and would still find it difficult to sell everything they produce. Automakers expect sales to revive, starting in 2011. But no one realistically thinks they can take out 34 million vehicles’ worth of production by then. Above all, automakers are relying on population growth and an increase in sales in 2013 as people start replacing old vehicles. Even then there will be “too many” factories.
For this reason, General Motors has elaborated a massive restructuring plan that includes cutting more than 21,000 US factory jobs. Timken Co., the bearings and specialty steel maker, has indicated it will cut about 4,000 more jobs. The same phenomenon is being repeated in one form or another as hundreds of thousands of “excess capacity” workers are being thrown out of their jobs. These are among the best-paid jobs, often with union representation, while the few jobs that are being created are usually non-union and offer cut-rate wages and few, if any, benefits.
The fact this is a crisis of overproduction has now penetrated the heads of even the most obtuse bourgeois who for years have denied the possibility of such a thing. An article in the right wing Conservative paper, The Telegraph (15 August, 2009), states this very clearly:
“Too many steel mills have been built, too many plants making cars, computer chips or solar panels, too many ships, too many houses. They have outstripped the spending power of those supposed to buy the products. This is more or less what happened in the 1920s when electrification and Ford’s assembly line methods lifted output faster than wages. It is a key reason why the Slump proved so intractable, though debt then was far lower than today.”
Toyota, Honda and Nissan have cut back on their profit margins. They are slowing production, cutting contract workers, and postponing plans to open more factories. At the same time, they aim to re-establish their market share once US demand revives. The problem is that they will face stiff competition from the US car industry, which is in a deep crisis. In North America the car industry has the capacity to build some seven million more vehicles than the market can absorb. That is why the bourgeois are so gloomy. They know that unless and until overproduction is eliminated, no serious and sustained economic recovery is possible.
Global overcapacity leads to falling prices for consumers, but increased competition and falling profits for the capitalists. Here we are talking not of a falling rate of profit, but a fall in the mass of profit, which must lead to a cutback in production, increasing unemployment, bankruptcies and factory closures. In a shrinking global market, domestic producers must compete with imports. Carmakers and steel producers face a "vicious circle" – a downward spiral of declining output, prices, and profits. Falling car production means a fall in demand for steel, electricity, oil, and many other components involved in car production.
According to Michelle Hill of the consulting firm Oliver Wyman, in order to recover profitability, the US automakers will have to close at least a dozen of their 53 North American factories in the next few years. The only way to eliminate overcapacity is by the systematic destruction of the productive forces: factories are closed as if they were matchboxes, workers are thrown out of work, and machines are left to rust until, eventually, new markets and fields of investment emerge.
This is what the bourgeois economists call “creative destruction”. It resembles the Greek mythological figure Procrustes, who cut off the limbs of his guests to make them fit in his bed. The central contradiction is between the confines of the nation state and the world market, which has long ago outgrown the narrow limits of national markets.
Expansion of world trade
The main factor that enabled capitalism to avoid a deep slump for so long was the huge upswing of world trade (“globalization”). The period between the World Wars was characterised by a wave of protectionism and competitive devaluations that depressed world trade and intensified the slump for a decade. For reasons we have explained elsewhere (See Ted Grant: Will there be a Slump?), the period that followed 1945 was completely different. At that time, the USA possessed two thirds of the available gold in the world and its industries were intact, whereas Europe and Japan were still struggling to emerge after the War.
The dollar was “as good as gold” and became the world currency (with the pound sterling in second place). The Marshall Plan and the post-War reconstruction boom in Europe led to a new economic upswing that lasted for more than two decades. The unparalleled expansion of world trade enabled the bourgeois, partially and temporarily, to resolve one of the most fundamental contradictions: the limitations of the nation state. As a result, science and technology grew faster than at any time in history. Capitalism showed, probably for the last time, what this system of exploitation was capable of achieving. On the basis of huge investments, the bourgeois achieved results that would have astonished Marx and Engels.
This process has been deepened and intensified in the last two decades. The collapse of the USSR and the Stalinist regimes of Eastern Europe, and the entry of China into the world market, and the emergence of India as a regional economic power signified the participation of about two billion more people in the capitalist world economy as never before. This fact, in itself, represented an enormous stimulus to world trade and a further intensification of the world division of labour. Every country is now dependent on the world market and that is the meaning of “globalization”.
But that is now reaching its limits. For the first time since 1982, world trade has fallen steeply – 14.4% in 2009. Although it is expected to grow again in 2010, this was a very serious collapse, which reveals the other side of globalization. Integration in the world market means that all the so-called emerging economies are now subject to the fluctuations of the latter. They have all been affected by the recession and falling demand in the USA, where consumption has fallen and protectionism is increasing. Globalization manifests itself as a global crisis of capitalism. This fact is now realised by the more serious strategists of capital:
“The scale and speed of synchronized global economic contraction is really unprecedented (at least since the Great Depression), with a free fall of GDP, income, consumption, industrial production, employment, exports, imports, residential investment and, more ominously, capital expenditures around the world. And now many emerging markets are on the verge of a fully fledged financial crisis, starting with emerging Europe.” (Financial Times, 3/05/09)
These lines express a fundamental contradiction. In a slump, prices, profits and wages fall in a vicious downward spiral. In the last three months of 2008, consumer prices in the US fell at a staggering annual rate of nearly 13%. Prices fell for all sorts of goods, ranging from clothing to TVs to furniture, as retailers advertised sale after sale. Given the collapse of aggregate demand (consumption, residential investment, capital expenditure in the corporate sector, business inventories and exports), the stimulus from government spending is totally insufficient to revive the economy in a sustainable manner. Even with the over $11 trillion in government bailouts and guarantees (most, if not all of it, borrowed), the US financial system is effectively insolvent.
The capitalists are compelled to unload their commodities on a saturated market by savage discounting, even selling at a loss. They are trying to do the same in world markets. Protectionism is an attempt to export unemployment. In a period of boom, the bourgeois can reach an amicable agreement to share the loot. But in a slump, the slogan of the hour is: “every man for himself!” They do not care what happens to the others. This is dangerous for capitalism because it was precisely protectionism and competitive devaluations that turned the 1929 Crash into the Great Depression.
Protectionist tendencies are already emerging. Western European governments are giving their carmakers money only if they agree not to close plants at home. Companies like Volkswagen and Renault are planning to cut back production in Spain, Portugal and Italy in order to keep plants open in Germany and France. The US automakers are cutting back on their European operations for the same reason.
The most serious conflict is between China, the USA and Europe. China has an interest in keeping the yuan pegged to the dollar in order to boost its exports. It allowed the yuan to rise by 21% against the dollar in the three years to July 2008, but since then it has more or less kept the rate fixed. As a result, the yuan’s trade-weighted value has been pulled down by the dollar, while many other currencies have soared.
Protectionist measures, through the artificial devaluation of currencies, have increased the chaos in the world market. First, the dollar fell in value against all currencies, which automatically lead to a drop in the value of American products and an increase in the value of all other products. With a market dominated by big American companies and money deposited in the coffers of the US, China has no alternative but to keep their currency linked to the US dollar (and many American economists are beginning to say that this is the real value of the Yuan). At first, the Euro rose in value, as well as the currencies of countries like Brazil and South Korea. The crisis in Greece again shook this whole market and the Euro lost value rapidly, along with the currencies of Brazil and South Korea, while the Yuan remained pegged to the dollar! German exports gained new strength as a result, while increasing the contradictions within the Euro Zone. There is one thing that is consistent everywhere: the value of gold has risen from about $700 (early 2008) to more than $1,000.
In order to deflect pressure in the run up to the G20, China announced some vague measures to the effect that it was going to change its currency exchange policy.
Over the ten years to 2008 China’s exports grew by an annual average of 23% in dollar terms, more than twice as fast as world trade. If it continued to expand at this pace, China could account for around one-quarter of world exports within ten years. That would be more than the 18% share of world exports that the USA achieved in the early 1950s (it has since dropped to 8%). An IMF working paper published in 2009 calculated that if China remained as dependent on exports as in recent years, then to sustain annual GDP growth of 8% its share of world exports would have to rise to about 17% by 2020.
However, such predictions are to be regarded with caution. Similar predictions were made in the past about Japan, which at its peak in 1986 achieved 10% – a figure similar to that reached by China this year. Subsequently, however, Japan’s share fell back to less than 5%. Its exports were undermined by the sharp rise in the yen, which appreciated by more than 100% against the dollar between 1985 and 1988. The combined export-market share of the four Asian tigers (Hong Kong, Singapore, South Korea and Taiwan) also peaked at 10% before falling back.
It is likely that China’s exports will grow more slowly over the next decade, as demand in rich economies remains subdued. However, its market share will probably continue to increase. Projections in the IMF’s World Economic Outlook imply that China’s exports will account for 12% of world trade by 2014. But at a certain point it will come up against the barrier of protectionism.
The authors of the above-mentioned IMF paper analysed the global absorption capacity of three export industries – steel, shipbuilding and machinery and concluded that to achieve the required export growth, China would have to reduce prices, which would be increasingly hard to achieve, either from increased productivity or a squeeze in profits. In many export industries, particularly steel, margins are already very small.
China’s exports fell by around 17% in 2009 as a whole, but other countries’ exports fell by even more. As a result China overtook Germany to become the world’s largest exporter and its share of world exports jumped to almost 10%, up from 3% in 1999. In the first ten months of 2009 America imported 15% less from China than in the same period of 2008, but its imports from the rest of the world fell by 33%, lifting China’s market share to a record 19%. So although America’s trade deficit with China narrowed, China now accounts for almost half of America’s total deficit, up from less than one-third in 2008. This has given a fresh impetus to protectionist tendencies:
“Trade frictions with the rest of the world are hotting up. On December 30th America’s International Trade Commission approved new tariffs on imports of Chinese steel pipes, which it ruled were being unfairly subsidized. This is the largest case of its kind so far involving China. On December 22nd European Union governments voted to extend anti-dumping duties on shoes imported from China for another 15 months.” (The Economist Jan 7th 2010)
“Foreign hostility to China’s export dominance is growing. Paul Krugman, the winner of the 2008 Nobel economics prize, wrote recently in the New York Times that by holding down its currency to support exports, China ‘drains much-needed demand away from a depressed world economy’. He argued that countries that are victims of Chinese mercantilism may be right to take protectionist action.” (ibid.)
The Chinese point out that their imports have been stronger than their exports, increasing by 27% in the year to November, when its exports were still falling. America’s exports to China (its third-largest export market) rose by 13% in the year to October, at the same time as its exports to Canada and Mexico (the two countries above China) fell by 14%. On the other hand, China’s merchandise exports have collapsed from 36% of GDP in 2007 to around 24% in 2009 and China’s current-account surplus has fallen from 11% to an estimated 6% of GDP. This means that China helped pull the world economy along during the course of last year. But these arguments will not silence the protectionist chorus.
The conflict between China and the US is becoming more intense. Foreign demands to revalue the yuan are becoming louder and more insistent. A bitter debate has developed on the world stage over China’s policy of pegging its currency to the dollar. Powerful imperialist forces confront each other on this question. The ruling class in the US is divided over this issue.
The Obama government and economists such as Nobel Prize winner Paul Krugman advocate a way out through the adoption of protectionist measures to “Buy American” and increased pressure for the devaluation of the Yuan.
Paul Krugman argues that China’s policy of currency exchange devaluation and rising trade surpluses has a “depressing effect” on economic growth in the United States, Europe and Japan. In his opinion, if the Chinese currency were revalued there would be a “significant impact” for the global recovery. It would make Chinese exports less competitive and, in his argument, would therefore lead to job creation in the US.
Paul Krugman is the spokesman of the nationalist, protectionist bourgeoisie, especially small and medium companies producing non-durable consumer goods (footwear, garments, fabrics, etc.) that remain in the US and suffer direct competition from Chinese exports.
Stephen Roach and The Wall Street Journal represent the liberal, pro-globalization wing of the American bourgeoisie. This section of the ruling class is worried, and rightly so, that bullying China into revaluation of the yuan might start a trade war, the withdrawal of Chinese reserves from US bonds, and a general slide towards protectionism which could bring the whole of the world economy back into recession. Those bourgeois economists who favour a more “internationalist” doctrine of accumulation of capital, that is, those who are more directly linked to international financial capital, are in a better position to see the ramifications of the global economy and even the complex interests of the US imperialist economy in the world.
Stephen Roach says so very clearly: “Washington’s scapegoating of China could take the world to the brink of a very slippery slope… the consequences of such a blunder – trade frictions and protectionism – would make the crisis of 2008-09 look like child’s play.” (Financial Times, March 29)
In an international situation marked by a huge economic crisis, two souls occupy the same body of bourgeois imperialism. The tendency to protectionism, which emerges as an “easy” solution in the world among the bourgeois, is confronted with and living with its Siamese twin, international finance capital, which has global interests.
As a matter of fact, they are both right and they are both wrong. The protectionists want to make other countries pay for the crisis (they want to export unemployment to China). The free traders warn that this could bring the world economy down. But at the same time, a situation of massive indebtedness of US consumers, companies and the state cannot be allowed to continue forever and it is what led to the recession.
While singing the praises of free trade, all the bourgeois in the world are preparing for protectionism. These tendencies will increase in the next period, as every capitalist nation tries to export unemployment and unload its problems onto its rivals. This opens up a scenario more similar to that of the 1930s than the period after 1945.
The development of the productive forces in China and SE Asia has strengthened the working class. The illusion was created that the economic growth of China had no limits. But by participating in the capitalist world market, China is now subject to all the contradictions of world capitalism. The Chinese economy is heavily dependent on trade. China has a trade surplus of 12% of GDP, and according to official statistics it exports close to 40% of GDP, although according to some calculations, once you remove the imports of parts which are then assembled in China and re-exported the real figure is closer to around 10% of GDP.
Overproduction on a world scale affects Chinese exports. Millions of Chinese workers have been laid off and factories have been closed. The world economic recession has had the effect of destroying large parts of China's export industry, particularly in light industry, assembly plants, etc. These were overwhelmingly in the private sector. In a number of sectors of heavy industry, like steel, coal and others, the government has introduced plans for “rationalising” production, forcing the “consolidation” of hundreds of small companies into a few (mostly state-owned) giants.
Like other countries, China has resorted to a stimulus programme, together with a massive expansion in credit by state banks. This has meant an enormous injection of money into the economy. It has been largely directed towards investment, which accounted for 90% of growth during the first half of 2009. Most investment (almost 50% of GDP) is dedicated to the production of more capacity and machinery to produce more goods for export. Another large part of investment goes on residential construction and infrastructure investment.
The main reason why the Chinese leadership has adopted this course is fear of social unrest which would threaten its own position, power and privileges. There are splits within the CCP and in the state, but these are not between those who want to go back to a planned economy and those who want to continue the consolidation of capitalist property relations, but rather between those who think that a social welfare network and state investment are needed in order to maintain social stability, and those who think that the economy should be further “liberalised” in order to maintain economic growth and therefore social stability.
This does not mean a rolling back of capitalism, but rather the attempt to create strong Chinese-owned companies able to compete in the world market, as well as to somehow attempt to control overcapacity. The destruction of small companies and the concentration of capital is part of the normal process of capitalist development.
“With massive excess capacity in the industrial manufacturing sector and thousands of firms shutting down, why would private and state-owned firms invest more, even if interest rates are lower and credit is cheaper? Forcing state-owned banks and firms to, respectively, lend and spend/invest more will only increase the size of nonperforming loans and the amount of excess capacity. And with most economic activity and fiscal stimulus being capital – rather than labour-intensive, the drag on job creation will continue.
“So without a recovery in the US and global economy, there cannot be a sustainable recovery of Chinese growth. And with the US recovery requiring lower consumption, higher private savings and lower trade deficits, a US recovery requires China’s and other surplus countries’ (Japan, Germany, etc.) growth to depend more on domestic demand and less on net exports. But domestic-demand growth is anaemic in surplus countries for cyclical and structural reasons. So a recovery of the global economy cannot occur without a rapid and orderly adjustment of global current account imbalances.” (FT, 3/05/09)
This analysis was confirmed by remarks made in January 2009 at the World Economic Forum in Davos, Switzerland, by Zhu Min, Executive Vice-President of the Bank of China Group, who told a panel discussion that even rapid growth in Chinese consumption cannot make up for weaker spending in the US. (BusinessWeek). In terms of the world market, China is far less important as a consumer than as a producer. Toy manufacturing in China is faced with a disaster because export orders are drying up and the home market cannot absorb what the factories are producing. Therefore, the USA and Europe is putting pressure on China to reduce its overcapacity by switching from investment to domestic consumption.
The huge expansion of credit has allowed firms to borrow cheaply in order to invest in deposits with a higher rate of return. The massive liquidity boost which the government implemented last year has resulted not only in GDP growth but also to a surge of speculative investments
Average housing prices recently hit $2,200 per square metre in Beijing, one-third the average annual income in the capital. In Shanghai, prices are even higher, having shot up 60 per cent in 2009. Many State Owned Companies, awash with liquidity, diverted funds to speculation in raw materials, the stock exchange and complicated derivatives operations. The Shanghai stock exchange as a result grew by more than 60% in 2009.
Thus we have speculative spending and a continued increase in the phenomenon of overcapacity, which has led to falling prices in some sectors. Steel prices in China are falling, reflecting a global fall in demand. Trade fell in Asia, with a fall in exports of about 40-50% in Japan, Taiwan and Korea.
Here's a very interesting comment about overcapacity in China, written by an Australian economics journalist referring to comments made to him by Yu Yongdin [a former member of the monetary policy committee of the Peoples' Bank of China, a former Director of the Chinese Academy of Sciences Institute of World Economics and Politics, and President of China Society of World Economics:
“He believes China is trapped in a cycle where constantly rising growth in investment is constantly increasing China’s supply, but consumption has conspicuously failed to grow fast enough to absorb it. And so China is forced to increase investment in order to provide enough demand to absorb the previous round of increased supply, thus creating ever-widening cycles of oversupply.
“In this manner, the investment share of gross domestic product has increased from a quarter of GDP in 2001 to at least half. ‘There is sort of a chase – demand chasing supply and then more demand is needed to chase more supply,’ he says. ‘This is of course an unsustainable process.’
“From 2005 China’s overcapacity problem had been ‘concealed’ by ever-increasing net exports – but that strategy was interrupted by the financial crisis. Then came last year’s globally unprecedented stimulus-investment binge, which might not have been so worrying if it were delivering things that people needed. But the Government’s hand in resource allocation has grown heavier since the crisis without reforms to make officials more responsible for what they spend.
“As a result of the institutional arrangements in China, local governments have an insatiable appetite for grandiose investment projects and sub-optimal allocation of resources,” as Yu previously said, in his Richard Snape lecture for the Productivity Commission in November.
“So there are now airports without towns, highways and high-speed railways running parallel, and towns where peasants are building houses for no reason other than to tear them down again because they know that will earn them more compensation when the local government inevitably appropriates their land. (China's runaway growth train on a dangerous course)
China’s employment has hardly grown, because investment in export-led growth is highly capital-intensive: in 2005, the excess capacity in China’s steel industry was 120 million tons – more than the annual production of Japan, the world’s second-largest producer. That was the position already during the boom. During the slump, China’s unemployment rose rapidly. The official unemployment, which only counts registered urban workers, was estimated in November 2008 at 8.8 million, or 4.3%. But the real figure is much higher. A survey by the Chinese Academy of Social Sciences put the figure for urban unemployment at 9.4%.
Though growth in the cities has been rapid in recent years, the countryside has lagged behind. Peasants were forced to emigrate to seek urban factory jobs. According to a recent government survey, more than 15 per cent of China’s 130 million migrant workers have returned to their hometowns recently, where they are now unemployed. Another 5 million to 6 million new migrants enter the workforce each year. About 26 million Chinese were sacked from their jobs in the manufacturing sector due to the global economic crisis and forced to return to their villages.
This means there are roughly 25 to 26 million rural migrant workers who are now looking for employment. In the countryside, many poor families rely on remittances sent home by migrants working in factories or on urban construction sites. The situation is increasingly explosive. Many factory workers have already taken to the streets. The protests in July and August of 2009 against privatisation and lay offs were particularly significant.
The workers were fighting against the impact of capitalist restructuring of State Owned companies and in one case went as far as lynching the manager sent to take over the factory by the new private owner. This shows the mood of anger that is developing beneath the surface and can lead to an explosion when least expected. The discussion of the class nature of China is important. But we must follow carefully the movements of the Chinese workers and peasants. The Chinese proletariat has been enormously strengthened in the past period, and the workers of China have not yet said their last word.