1. On a world scale developments are unfolding with lightning speed. If we just take events over the past twelve months, this becomes immediately evident. The new millennium opened with a revolution in Ecuador, which was only derailed by the absence of leadership. The whole of Latin America is in a state of economic, social and political crisis, reflected in the fall of Fujimori following mass demonstrations in Peru; strikes and demonstrations in Bolivia. To this must be added the end of almost eight decades of rule by the PRI in Mexico.

2. The election of Chavez in Venezuela was symptomatic of the impasse of capitalism and a growing revolutionary temper of the masses which is causing alarm in Washington. The Americans fear that Chavez could go the same way as Castro. Under conditions of slump it is not at all ruled out that he might lean on the masses to nationalise the economy, as happened in Cuba. Above all, the continuing guerrilla war in Colombia presents a threat to America's interests. The guerrillas are making further headway, and the government forces are powerless to halt them. Under the pretext of an alleged war against drugs, Washington has stepped up its military involvement, sending money, arms and "advisers" (the "Colombia Plan"). This is how they started in Vietnam. The USA might find itself drawn into the conflict, with far-reaching consequences.

3. As Trotsky explained before the Second World War, US imperialism has dynamite built into its foundations. The demonstrations in Seattle and Washington were a warning to the American ruling class of what they can expect in the next period. These contradictions will serve to intensify the anti-corporate mood in America, and prepare the ground for the entry of the American working class onto the stage of history. Already, the narrow election of George W. Bush, at the beginning of this new downturn, will usher in a period of heightened class struggle in the USA.

4. On every continent we see the same tendency towards instability. The wars in the Congo and Sierra Leone, with the intervention of Britain and other foreign powers underline the chronic crisis that afflicts the whole of sub-Saharan Africa and threatens to plunge it into barbarism. In South Africa, the pro-capitalist policies of the ANC government are pushing COSATU into opposition and it has faced general strikes against its privatisation policies.

5. In Iran, the sweeping victory of the "reformers" in the elections marked a new stage in the Iranian revolution, which is still unfolding. In the Autumn we saw the overthrow of Milosevic after a wave of strikes and demonstrations in Yugoslavia. Above all, the heroic uprising of the masses in Palestine is an indication of the explosive situation which has developed on a world scale.

6. Only in a minority of developed capitalist countries is the illusion of calm and tranquillity preserved. This is a reflection of the boom in the United States, which has continued longer than we had anticipated. The continued expansion in the USA has acted as a support for the other capitalist countries, absorbing their imports and providing a profitable outlet for investments. This fact undoubtedly has had a determining effect on perspectives which we have to take into account.

7. There is no doubt that the continuation of the boom has assisted those governments that have been in power. This is the fundamental explanation, for example, for the victory of Aznar in Spain, and it is the main reason for the confidence of Blair at the present time. It affects the psychology of all classes. However, even on this front, there are storm clouds on the horizon.

8. The violent swings on the stock exchange over the past twelve months, and the sudden decision to lower US interest rates, are evidence of a growing financial instability and a nervousness among investors, central banks and governments. But there is also a new volatile mood among the masses, as shown by the crisis over the result of the Presidential elections. By all the laws, Gore should have won easily, yet he lost to the Republican Bush. True, Gore revealed himself as completely incompetent, but since Bush is even more incompetent, this cannot have been the decisive factor.

9. The election revealed the existence of a ground swell of discontent and general malaise in American society. After nine years of boom, many Americans are not happy. This is not like the 1950s and 1960s. This is a boom at the expense of the working class, based on ever-increasing exploitation and merciless pressure. There is a growing awareness of inequality, of huge fortunes being made by a minority at the expense of the majority. The richest twenty percent in the USA now possess over half of the wealth, while the poorest twenty percent has only four percent. 74 percent of Americans consider that the big monopolies have too much influence over their lives.

10. The most important thing to see is that there is already the beginnings of a ferment of discontent. Recent labour disputes, from the Verizon strike, the struggles of janitors, teachers and even the actors' strike, along with the mass demonstrations in Seattle and Washington, reflect this new situation. George W Bush, having won the election, will wish he hadn't. This right wing Republican will have to preside over an America embittered and divided by a severe economic crisis. The outline of the future divisions in American society could already be seen in the crisis over the election result. Millions of trade unionists, blacks and Hispanics feel cheated by the election of Bush and rightly see his policies of cutting back state healthcare, privatising public education and rolling back women's rights as a gearing up of the counter offensive against American workers.

11. In the last analysis, economic perspectives are the most decisive element shaping social and political processes. It is necessary to keep this question under continuous review, bearing in mind the enormous difficulty in making a precise prediction about the tempo of economic processes. Therefore, we begin with a brief appraisal of economic perspectives, which should be read in conjunction with the other material we have published on this subject.

The World Economy

12. We have dealt with the processes in the world economy in detail elsewhere. We will therefore confine ourselves to a few brief comments. As always happens in a boom, the bourgeois economists and politicians have concluded that the present economic expansion can continue forever. This is the delusion of Blair and Brown, who seem to imagine they can now walk on water. But pride comes before a fall, and in this case, the fall, when it comes, will be a precipitate one! The present world boom has served only to mask temporarily the continuing economic decline of British capitalism relative to its rivals. When the slump finally comes - as it must - it will hit Britain particularly hard, and with it, all the illusions in New Labour.

13. The present world economic boom is in its ninth year and has lasted longer than we, or the serious bourgeois strategists, originally anticipated. This is due fundamentally to the continuing boom in the United States, which has served to keep the rest of the capitalist world afloat. Rather than being a salvation for capitalism, the longevity of the boom means that the inevitable slump, given the build up of immense contradictions, will be more profound. The longer the slump is put off, the deeper and more prolonged will be its character when it finally comes.

14. There are clear indications that the present boom is nearing its limits. The American bourgeois, alarmed by the recent slowdown of the economy, are increasingly concerned about the prospect of a 'hard landing'. The early warning signals of an approaching slump are already visible. Prior to the January cut in interest rates, demand in the USA was falling; in December consumer confidence was at its lowest for two years and retail sales were much weaker than intended. Unemployment insurance claims were rising rapidly; car sales were falling. More importantly, inventories were building up and although they are still quite low by historical standards, if this trend were to continue, it would eventually lead to a cutback in production, leading to a slump. Already manufacturing activity in the USA, as defined by the National Association of Purchasing Management, fell to its lowest level since the end of the previous recession.

15. According to the latest figures, job cuts in the US internet companies rose 19% to a record 10,459 in December compared with the previous month, according to a US-based recruitment company, Challenge, Gray and Christmas. It was the seventh consecutive month that lay-offs were up. December's job cuts were the largest since Challenge started keeping records 12 months ago.

16. The US economy is officially slowing down fast. According to the Commerce Department, the US gross domestic product grew at an annual rate of 2.7% in the third quarter, its slowest rate of growth since the second quarter of last year. Some economists put the figure now at 2%. One of the hallmarks of the nine-year boom was the double-digit growth in corporate investment. But that has also slowed down dramatically. The slowdown in corporate investment was confirmed by the National Association of Business Economics' latest quarterly survey. It stated that pressure on corporate profit margins was the most intense since mid-1991. Again, the fall in housing construction and capital spending were seen as key factors in the economic slowdown.

17. For Marxists, the classical symptom of capitalist crisis is overproduction, which tends to occur at the peak of the boom, just before a collapse. Even the bourgeois economists are forced to admit the appearance of overproduction (or overcapacity) in a whole range of industries. According to the Financial Times: "For companies that only a year ago were running production lines at full capacity, boasting about internet-enabled inventory management and struggling to meet demand, the challenges of overcapacity, overgearing and overstocking have arrived with frightening suddenness.

18. "The shock of decelerating growth seems greater because of the record length of this economic expansion in the US...

"Lenders began to pull in their horns two years ago but the extraordinary, technological-led surge in US equity indices tended to cover up the increasingly delicate credit situation....

"The sharp decline in the Nasdaq Composite index since March, the failure of a number of over-ambitious technology companies and recent profit warnings and revisions have added to an air of corporate malaise."

19. The seriousness of the situation was becoming clear to all by the end of the year. The number of business bankruptcies has hovered between 9,000 and 10,000 a quarter since the beginning of 1999, but lawyers who specialise in this field have revealed that their own internal evidence suggests a wave of business failures is now being prepared:

20. "Moody's, the credit ratings agency, is forecasting that world-wide defaults on speculative-grade, or junk, bonds will rise from 6% to 9% 12 months from now, with the majority concentrated in North America. The last time there was such an increase in defaults, in the late 1980s, the result was recession, says David Hamilton, an analyst in Moody's risk management department." (Financial Times, 12/12/2000).

21. The slowdown in the US was further underlined by figures produced by the New York-based Conference Board Index of leading economic indicators, a composite of 10 forward-looking economic and financial signposts. This index fell 0.2% in November, after a 0.3% fall in October and a 0.1% drop in September. The index has in the months of November and December declined by the sharpest rate since March 1995. "It's consistent with what we're seeing overall throughout the economy," said Mike Fort, manager of the index.

22. Regarding the wonders of the 'New Economy' and its ability to avoid overproduction, the same FT article had the following to say: "Slowing growth is also putting to the test the theory that improved technology would allow companies to manage their inventories better, almost eliminating the build-up of stocks when demand levels off. 'That's turning out not to be the case: inventories are turning up in a number of industries,' says Jeanne Terrile, director of strategic research at Merrill Lynch, citing the semi-conductor, electrical component and steel sectors as areas facing inventory corrections. '[Inventory] is still behaving in a sort of old-fashioned way,' she says....

23. "Outside the technology sector, where share prices have been stagnant for longer, the increasing risk-averse investment climate has further constrained companies' options. David Cote, chief operating officer of TRW, the automotive and aerospace components group, says the paths open to his company are limited by its steep debt ratio, and the fact that the automotive sector, which accounts for two-thirds of sales, is already entering a downturn."

24. The threat of recession eventually forced the Fed to act. This was a reflection of the seriousness of the situation. The recent reduction of half a point in US interest rates had all the hallmarks of a panic reaction: previous adjustments in interest rates were limited to one quarter of a percent, even after the crisis in Russia or the failure of Long Term Capital Management in 1998, which Clinton described as "the worst for 50 years". The US economy was slowing down and Greenspan clearly feared a recession if something was not done.

25. After the cut, the Dow Jones Industrial Average and the Nasdaq index which mainly deals in new technology shares (and which had fallen by 55 percent from its 2000 peak) both soared to dizzying heights. However, Greenspan's decision was not greeted with unalloyed joy by capitalist commentators. The serious economists were worried by the move. They had hoped that the slowing down of the US economy might produce a "soft landing". But Greenspan is more concerned with keeping the speculative bubble on the stock exchange going at all costs. Thus, the present recovery on the stock markets creates the danger of an even bigger slump later on, as The Economist pointed out in its editorial:

26. "A shock which blasts America's stock markets back upwards, which may encourage investors to believe that the Fed will protect them from risk even if it means keeping demand in the economy growing faster than supply, not merely delays the necessary economic adjustment, it runs the risk of worsening the existing financial stresses. Later, when adjustment can be delayed no longer, the jolt is all the more shattering, [....] Erring on the side of too much stimulus carries with it not just the danger of higher inflation, but also - more seriously - the risk of a worse recession down the road." (The Economist, 6/ 1/ 2001)

27. These developments will have major implications for the world economy. The recent revival of the beleaguered euro is due to the fears about the US slowdown and the consequences for the bloated current account deficit. At the moment the USA consumes one quarter of world production, sucking in imports from the rest of the globe. This has been the reason for the recovery of some of the crisis-ridden economies of South East Asia, which still continue to suffer from large over-hangs of bad debt. "Crisis victims such as Korea, Thailand and the Philippines are heavily dependent on exports of electronics to the US, as are financially stable countries such as Singapore and Taiwan", states the FT, 7th November. As a consequence, the trade deficit in the US in this financial year is predicted to reach over £400bn, which is clearly unsustainable in the longer term.

28. As we have explained elsewhere, investment is the life-blood of the capitalist system. As long as investment in production is maintained, the boom can continue. The present boom has witnessed staggeringly high levels of investment which in turn have led to a wave of technological innovation and increased productivity. This, in turn, has meant high rates of profit. It is the prospect of high profits that has sustained the current investment boom. But this now appears to be reaching its limits.

29. The spate of announcements from the corporations about weak profits has sent a collective shudder through the capitalist class. Investors appear to be suffering from manic depression: the earlier manic optimism that drove share prices went through the roof has turned into depression and pessimism, as they begin to realise the illusory nature of their hopes. In the last couple of months, the world's stock markets have tumbled by as much as 20%. After spectacular rises, which bear little or no relation to the real economy, the trend is clearly downwards. Major companies have been downgrading their profit outlook. Intel, Dupont, Apple Computer, Invensys, Xerox, and many more have issued profit warnings, which has put the skids under share prices globally and technology shares in particular. According to IBES, the information firm, 70% of US earnings pre-announcements have so far been negative. Incidentally, this slowdown appears to be world-wide. The leading indicators for the Group of Seven leading industrial nations dropped 0.6% in August, their third decline in a row and the biggest monthly fall since 1990.

30. Although the return on shares in US companies had more than doubled since the first quarter of 1991, the return on capital has increased by only 13% over the same period. Moreover, the profits of the capitalists can only be extracted from the labour of the working class. Machinery (including computers and internet) can never produce surplus value, but only transmit to commodities the value of the dead labour stored up in them. The huge investments in computers and the internet is changing the ratio of dead labour to living labour and this must ultimately express itself in what Marx characterised as a tendency of the rate of profit to fall.

31. At the heart of the present boom is the struggle for greater labour productivity: that is, the struggle to squeeze a larger amount of surplus value from the working class. In part, this is achieved by new technology which enables a greater amount to be produced in a shorter time. Ever since the mid 1990s, the American capitalists have been struggling to increase productivity through new technology and the Internet. Investment has shot ahead at 8% a year, boosting worker productivity, and pushing profits even higher. However, as new companies strive to compete on a similar basis, the rate of profit is evened out and eventually reduced. The competition between capitalists for diminishing markets is intensified. They cannot boost profit margins by increasing prices. An increasing number of companies are already facing bankruptcy. A slowing economic growth will also slow productivity and squeeze profits even further. There will be more layoffs and closures, thus further reducing demand. This is the scenario facing the US economy which compelled Greenspan to cut interest rates in an attempt to avoid a recession. However, this measure will not remove the central contradictions, and , as we have pointed out, will only aggravate them.

32. The previous tone of unbounded optimism in the pages of the financial press has given way to gloomy foreboding: "The present slowdown contains all the usual hallmarks of the day after the night before", states The Independent (28/12/2000). "The boom in the new economy investment has created an overhang of untapped capacity for which there is little if any demand. Lenders and investors are running for cover, as they always do in such circumstances, and businesses across the land are tightening their belts for leaner times, if not yet outright recession. Quite how bad things get depends as ever on what happens in the US."

Asia

33. Ten years ago the bourgeois commentators placed all their hopes on Asia. No more. The slump of 1997 completely shattered these illusions. And although there has been a partial recovery in Asia, made possible by the strength of demand in the USA, Asia has by no means recovered its previous position. Indonesia, Thailand and the Philippines remain severely depressed. And even countries like South Korea, which have achieved high rates of growth, still suffer from huge debts and other problems inherited from the slump which prevent them from regaining their economic and social equilibrium. In one country after another, the class struggle has been placed on the order of the day, as shown by the wave of strikes and general strikes in South Korea and the revolutionary situation in Indonesia.

34. The continuing revolution in Indonesia and the general strikes in South Korea are indicative of the crisis in these areas. At this time, an illegal strike of more than 12,000 bank workers have paralysed the retail-banking sector. Despite threats to arrest the leaders, the strike is on the point of escalating to 70,000 other bank workers.

35. What is worrying the strategists of Capital are the colossal imbalances that have emerged in the world economy. More than at any other time, the American economy, and therefore the world economy, is a hut built on chicken's legs. Everything seems to indicate that the present boom in the USA is already running out of steam. That much is understood even by Greenspan. But given the lop-sided development of the present boom, which renders the whole world dependent on America, a recession in the USA - or even a marked slowdown of the US economy - can precipitate a world economic downturn. The USA is by far the most important importer in the world. A reduction in demand in the USA will have the most serious consequences for the rest of the world because no other country can provide a substitute for the US market.

36. The second biggest economy in the world, the Japanese, remains in deep trouble. This is despite all the empty euphoria that Japan has "turned the corner". The latest figures show a 0.8% fall in industrial production. The Japanese are still desperately attempting to lift their economy out of the stagnation of the last decade. However, the economy remains weak despite the huge injections of liquidity. Since the property crash of 1989, what was once one of the main motors of the world economy has been stalled. The problems of world capitalism are underlined by the crisis in Japan. All the attempts to revive it through Keynesian methods have failed. The Japanese have pumped in more than 100 trillion yen over the past decade, with a further 10 trillion yen announced in September. Despite this growth has been less than 1%, while Japan's debt is heading towards 130% of the GDP. The difficulties have led to splits and divisions within the ruling party, and a growing political instability. The vote for the CP has increased.

37. The yen slumped to a 16-year low against the dollar in December as Japan's businessmen declared that they were losing confidence in the outlook for 2001. The latest report by the Bank of Japan warned of a deflationary spiral, prompted by the continued weakness of consumer demand and the impact on exports of a slowdown in the United States. In December the Nikkei fell below the 14,000 mark, while the market had dropped about 30% this calendar year.

38. In late December it was revealed that retail sales declined for the 44th month in succession, household spending dropped and unemployment hit an eight-year high. Tokyo consumer prices fell 1% year-on-year, the largest annual decline since comparable records began in 1971.

39. "Japan's businessmen are also becoming nervous about their prospects in other Asian countries, which are also expected to show sharp falls in gross domestic product growth next year", states the financial pages of the Evening Standard (13/12/2000). "The manufacturing sector also expects to be no more confidant by March. A slowdown in manufacturing would have a bad knock-on effect on retail and utility companies, putting further downward pressure on the economy."

40. Once the slump begins to take hold, there will be no stopping it. It will spread from one continent to another. How deep the coming slump will be is difficult to estimate. However, given the accumulation of contradictions over the past period, all indications are that it will be the most serious of the post war period. Some bourgeois economists fear that it could be as deep as 1929. Whatever the eventual scenario, a new world slump will have major implications internationally, and introducing a new period of deepening social, economic and political convulsions. The same phenomena that we see now in Asia, Africa and Latin America will spread to the advanced capitalist countries. And Britain, because of its exposed position, will find itself in a deeper crisis than most.

Britain and Europe

41. Even before the end of the boom, there has been a general tendency to greater instability - economic, social, political and military - on a world scale. This is an anticipation of things to come. Everywhere one looks, there are tensions, wars and conflicts. One crisis is rapidly followed by another crisis in rapid succession. After the war over Kosovo came the overthrow of the Milosevic regime. Then came the Intifada in the Middle East and the renewed danger of war in the region. In fact, there is not a single stable regime in the Middle East. This instability is shown by the developing revolution in Iran. In the next period there will be a movement towards social and political instability and revolution throughout the region. This poses a mortal threat to US imperialism, for which this is a key area both from an economic and strategic point of view, which explains Clinton's desperate attempts to force an agreement between Barak and Arafat.

42. The boom in the West has partly been at the expense of the working class, and partly at the expense of the ex-colonial countries. The merciless squeezing of the Third World, and the opening up of their markets to imperialism, in turn creates colossal instability. This is a finished recipe for conflict, and poses the question of a new stage in the colonial revolution. Fear of explosions in the colonial world is what explains the latest changes in strategy of the imperialist powers: the insistence on their "right" to intervene in any country, and the development of small, mobile military units, armed with the most modern weapons, able to intervene against revolutions in any part of the world. This is the rationale behind the plan for a so-called European rapid deployment force, in which France and Britain have taken the lead.

43. The collapse of the USSR and the end of the Cold War has, among other things, brought out the contradictions between Europe and the USA. On the economic and diplomatic front, there continue to be growing frictions between Europe and America. After conflicts over beef, bananas and patents, they are now locked into a dispute over the European Airbus, which threatens to undermine the interests of Boeing. The Americans are threatening to take the Europeans to the WTO for violating rules of 'competition'. The Europeans are threatening to retaliate. These tensions between Europe and America will inevitably intensify under conditions of world economic downswing. This will have profound political and military consequences.

44. The Kosovo war illustrated vividly the crushing superiority of US military might, which reduced the Europeans to a secondary supportive role on their own territory. The European capitalists do not trust Washington to defend their interests. As a consequence, the Europeans are taking steps to organise their own European Defence Force, independent of the USA. In this process, France is trying to set the agenda, hoping to re-assert its leading role in political and military affairs. These pretensions are causing new frictions with Germany, which, having long since established its economic preponderance, now aspires to achieve a corresponding political weight in world affairs. The European continent is dominated by a united Germany, a mighty industrial power with a population of 80 millions at the centre of Europe. It has achieved this domination through its own economic strength. It is the real master of the European Union.

45. In an attempt to offset the crushing power of Germany, France and Britain are gradually drawing closer together. The discussions between Chirac and Blair on military co-operation, co-ordinated but distinct from NATO, are a pointer of things to come. They mark a first step in a future bloc between Britain and France against their German counterpart. It is an attempt to forge a new balance of power in Europe. But this attempt is complicated by Britain's real position as the poor relation of US imperialism. Since the Second World War, Britain has been reduced to a virtual client state of the USA. This reflects the decline of Britain and the colossal might of America. This humiliating dependence lays at the bottom of the so-called special relationship of Blair and Clinton, or whoever else is the occupant of the White House.

46. The collapse of Britain's old power is shown in its relations to Europe. In the past, the other European powers (with the exception of Germany for the past hundred years) were more backward than Britain. British imperialism in effect dominated Europe and used its power to keep Europe weak and divided ("the balance of power"). But as a result of its long-term industrial decline, Britain has long ago lost that position and has been relegated from the first rank of world powers.

47. So degenerate has the British ruling class become that it has turned the former workshop of the world into a parasitic rentier state, as France was before 1939. However, in its blindness the British ruling class has never been reconciled to Britain's status as a second-rate power. They imagine that Britain can be a great economic power through the City of London, although it is likely that even the London stock exchange will end up - like the bulk of British industry - in foreign hands. On the other hand, they imagine that they can maintain their influence in world affairs by tying themselves with the USA, and pretending they have some sort of "special relationship", when the only relationship that exists between them is that of a pet poodle and its master.

48. On all these questions, it goes without saying that the Labour leaders faithfully reflect the views of the ruling class. They do so even more blindly than the Conservatives. This is nothing new, but it is particularly true of the present leader of the Labour Party, who is himself a consummate bourgeois. Thus, at present the British capitalists have an ambivalent attitude towards the question of the euro. While the big majority of the industrial capitalists favour entry into the euro zone, other sections are not so sure. Contrary to expectations, the euro has been weak since its launch, and may not even last. The British bourgeois are therefore somewhat hesitant about it, and this attitude is faithfully reflected by Blair.

49. The ridiculous posing of Blair, who tries to lecture the European leaders, cuts no ice. The only reason that Chirac humours him is that France needs Britain as a counter-weight to Germany. But the French bourgeois are in no doubt that the key power in Europe remains Germany. The recent agreement at Nice to proceed with enlargement of the EU marked an important shift in alliances. "At the centre of this shift is the Franco-German alliance", notes the Financial Times. "Once the driving force behind the EU, now adjusting awkwardly to a more assertive unified Germany." (12/12/2000). France stuck by its pledge to oppose further concessions to Germany. However, Germany has its own separate national interests to pursue. It wishes to match its economic superiority with political and military superiority. It will insist on a leading role in Europe, at the expense of the other powers. At the same time the Big Four treated the small countries with contempt, riding roughshod over the interests of "small" countries.

50. The move towards European integration has gone a long way. But this has its limits. The national interest of each separate capitalist class asserts itself in times of growing difficulties. The idea of a European currency, in the form of the euro, is fraught with big difficulties. When the economies were moving forward, a certain degree of integration could take place. With a world downturn, the euro will be pulled in different directions, as the tensions within Europe mount. Rather than acting as a source of strength, the European currency will be a source of instability. It is doubtful that it will survive a new world slump. Under certain conditions, the EU itself could begin to break up, at best holding together as a customs union against the other economic blocs of America and Japan.

The British Economy

51. This is the profoundly unstable international background that forms the backdrop to developments in Britain. As our tendency has explained in the past, the period since the war has witnessed a continuation of the long-term decline of British capitalism relative to its rivals. Despite the forcast that Britain will have overtaken France and Germany in GDP per capita by the end of 2001, both its main European rivals have considerably larger industrial sectors than Britain. This has completely altered the balance of forces to Britain's disadvantage. The responsibility for this situation lies with the British bourgeois who have failed to reinvest the surplus made from the labour of the working class. However, this decline was largely masked by the colossal expansion of the world economy.

52. The British bourgeois, which was the most far-sighted in the world at one stage, has lost its world role and become increasingly inept and parasitic. Rather than engage in productive investment, it squandered its resources on all kinds of quick speculative returns and foreign investments. In the latter period they turned towards service industries at the expense of Britain's manufacturing base. The policies of Thatcherism destroyed 20% of manufacturing industry. Sections of the ruling class, representing the interests of finance capital, talked about services totally replacing manufacture:

53. "Manufacturing has shrunk as a slice of the economy", states The Economist (21/10/2000), "while services have boomed. While in Germany manufacturing industry still accounts for a quarter of output, in Britain it is down to a fifth." The haemorrhaging of manufacturing jobs has continued relentlessly, especially in car production, steel and engineering. Today, manufacturing employs 4.3 million. Forcasts say that as few as 3.7 million people will be employed in manufacturing by the end of 2002.

54. Over the last two years more than 200,000 manufacturing jobs have disappeared. Recently, 400 jobs were axed at Sony in Pencoed, South Wales, while 2,000 job losses were announced at Vauxhall and 1,200 at the textile firm Coats Viyella, a 60% reduction. Cammell Laird announced 250 shipyard lay-offs on Merseyside. Ford has announced the closure of car production at Dagenham, while thousands of jobs are in the balance at Nissan in Sunderland. Tens of thousands of jobs in component suppliers will also be affected. It is the abject failure of the trade union leaders to offer a fighting alternative that has seen these jobs go. Even where a plant has been saved, as in Longbridge, the trade unions have co-operated in bringing in new working methods to the detriment of the wages and conditions of the workers. In December Corus, formerly British Steel, who have already sacked 4,000 workers in the last year, announced that a restructuring of its European plants will affect a further 6,000 jobs. There are fears that at least one UK plant, Llanwern in South Wales, will close down. These figures represent a deepening crisis in British manufacturing industry, and a clear malaise affecting British capitalism.

55. However, the idea that Britaiun has become a 'de-industrialised' or 'post-industrialised' economy based on services is false. In fact manufacturing output has increased by over 30% since 1974, despite the slaughter of industries and jobs. The bourgeois have attempted to restructure propduction in their favour with all manner of 'initiatives': just-in-time production and distribution, 'flexibility', the growth of s-called 'network cultures', outsourcing and contract manufacture. The British bourgeois have led the way in introducing these so-called new production processes, even being held up as a model for other economies to follow.

56. At the same time, the British bourgeois has also been engaged in an orgy of mergers and take-overs. Within the first few months of 2000, the corporations had beaten their own records. This reflects the growing monopolisation on a world scale - an unprecedented concentration and centralisation of capital. This process has assumed an extreme character in Britain, where the big monopolies are engaged in a frenzy of take-overs. While the value of mergers and acquisitions in Europe broke all records in 1998, it actually doubled in 1999, with the UK in the forefront. Britain is the most "acquisitive" nation in Europe, responsible for $386bn worth of take-overs. In second place is Germany with $261bn. This again reflects the utterly parasitic nature of British capitalism. The British bosses are increasingly abandoning productive activity in favour of large-scale asset-stripping, as a means of enriching themselves without having to resort to the painful necessity of production.

57. "There is no better way to gauge the changes in British business than by looking at the changing face of the FTSE-100 list of leading companies by market capitalisation", states The Economist. "Last month the list was revised, with some dramatic changes, spurred by new economy shares but also reflecting the relative decline of famous old-economy companies. Out went such stalwarts as Scottish & Newcastle Breweries, Associated British Foods, Hanson (what is left of it), Corus (formerly British Steel) and Rolls-Royce, which makes jet engines (nothing to do with cars now). In came high-tech companies with names like Dimension Data, Electrocomponents and Baltimore Technologies, which few outside the City or the electronics and telecoms industries have yet heard of. When the list is next reviewed in a few months even ICI, once synonymous with British industry, will probably drop out."

58. In terms of industrial strength, Britain has been overtaken by her European rivals, especially Germany and France. This trend is set to continue as investment declines in relation to its rivals. A recent CBI survey showing the investment intentions of British bosses showed investment falling for the 11th quarter in a row. The CBI forecast a drop of 6% in manufacturing investment this year following last year's fall of 15%. (The Guardian, 26/10/2000).

59. "This is a major cause of concern, as it will lead to a shrinking industrial base and a reduction in the long-term supply capacity of UK manufacturing industry," said Nick Reilly, head of the CBI's economic affairs committee. Ironically, the same Nick Reilly is Managing Director of Vauxhall, in which capacity he recently announced the closure of the Luton plant with the loss of 2000 jobs. Yet while British capitalism's investment at home trails behind its major competitors, its investment abroad has reached record levels. Last year, while manufacturing investment has declined, British companies overtook the Americans as the largest foreign direct investors in the world. Some $200 billion was invested abroad. At the same time it attracted record levels of inward investment. Britain's trade deficit now stands at around £12 billion.

60. This is the main reason why Britain's labour productivity is lagging behind the world's most competitive powers. Costs of production are around 20% higher than they are in the Euro area. Corporate profits, which had risen dramatically in Britain in the past, have now fallen to their lowest levels in five years as a result of the high pound and weak investment, according to the Office for National Statistics. In the ONS survey the ratio of profits to capital employed by British companies fell in 1999, from 12.8% to 12%, the lowest rate since 1994. Comparing different countries, the survey showed that during the 1990s profits of British companies rose from £71.6bn to £116.1bn, an annual growth rate of 6%. In the same period in the US, profits grew faster, at a rate of 8%, in Germany at an average of 4% and in Japan they declined.

61. The accelerated decline of British capitalism means that Britain will be hit particularly hard by a slump. The British capitalists will simply not be able to compete on world markets with her better equipped rivals. Under such conditions, all the pipe-dreams of Blair and Brown will be shattered.

The Employers' Offensive

62. Profits rose over the last decade primarily due to the increase in relative and absolute surplus value. There has been an employers' offensive, which, given the abject failure of the trade union leaders to organise a fight-back, has driven down terms and conditions. There has been a 'counterrevolution' on the shop floor, with new flexible working practises introduced across the board. Short term temporary contracts, part-time working, new shift patterns, team working, quality circles, de-skilling of labour, and other forms of so-called flexibility, have served to squeeze every ounce of surplus value from the labour of the working class. The regime of increased exploitation in the workplace has secured for the bosses a greater proportion of unpaid labour. Over the last 12 months, productivity in manufacturing rose by a huge 5%, as fewer workers produced the same as before.

63. "Profits in America and Britain are at a 20-year high", states The Economist, "but workers are feeling more insecure than ever." The capitalist squeeze is producing unheard-of stress levels in the workforce. "The natural counter-part to a free market economy is a politics of insecurity", states John Gray. And he adds: "We stand on the brink not of the era of plenty that freemarketeers project, but a tragic epoch."

64. This greater intensity of work has witnessed the introduction of new workplace methods of exploitation. Management by stress and 'lean production' methods are simply new variants of Taylorism of the pre-war period. All this is dressed up in the jargon of Human Resource Management. They are simply refined forms of capitalist exploitation. They have in turn introduced a nightmare of speed-up and toil across industry. The battle cry of this employers' offensive has been Global Competition, Flexibility, and Deregulation! Capital has been relentlessly driving down standards by pitting worker against worker in the dog-eat-dog competition of capitalism. "Deregulation may leave the consumer or the workforce helpless, but it is part of a growing global consensus", states Joe Rogaly in the Financial Times. "So is the notion of 'flexible labour markets,' for which read 'crushing the workforce beneath the heel'."

65. Parallel to this has been the introduction of just-in-time production and outsourcing. This is aimed at lowering costs and squeezing the system to the limits. However, as the experience of America has shown this has not had the required effects, and has build into the system tremendous instability. Any breakdown along the chain of production can have disastrous effects. Paradoxically, this puts greater potential power in the hands of the working class. A strike in one area can affect a whole combine, as was clearly shown in the GM strikes in the USA.

66. However, the bosses also want to use these new methods to break up and weaken the power of the traditionally stronger and more organised sectors of the class. In the car industry, for example, the capitalists have hived off one sector after another, splitting up the workforce into separate companies and undermining their bargaining strength. Ford plans further outsourcing of its jobs. The Halewood Transmission plant is to become part of a joint venture with the German firm Getrag, along with the Bordeaux and Cologne transmission plants, leading to the likely withdrawal of Halewood from the Ford National Joint Negotiating Committee. The same separation is being undertaken with the establishment of Visteon.

67. While unemployment has fallen, a huge reservoir of permanent unemployment continues to exist. Unemployment has fallen as more and more workers are forced to take the lowest paid and most menial jobs. As a result some low paid workers, such as student nurses, are forced to take second jobs just to make ends meet. This has meant a huge leap in insecurity and stress at work.

68. Call centres, which have mushroomed in the last five years as part of the 'new' economy, have been described as the modern Satanic Mills. According to a recent report by the CBE, a training consultant company, the monotonous nature of the work coupled with employees' lack of control over their work produced severe stress levels among call centre workers. Six per cent of call centre workers suffered from "serious psychiatric problems" - double the rate for the general working population.

69. "You cannot turn human beings into machines", said Jim Bennett of CBE, "making their function little more than a production line of repetitive operations and still expect them to perform all the human and inter-personal skills required in customer service roles."

70. This all-out attack on the working class, eradicating many of the gains of the past, has led to growing frustration and anger in the workplaces. For workers, it has been a race to the bottom. Despite the prolonged boom, there is no 'feel good' factor on the shop floor. This accumulation of bitterness is an explosive mixture, which at a certain stage will lead to sharp changes in mood, and abrupt changes in the situation.

71. At the present moment, there is a low level of strikes. However, this does not mean that the working class is happy and content with its lot. The existence of the most repressive anti-trade union legislation in the western world has played a role. The union leaders hide behind these laws to avoid strike action, and this has undoubtedly been a major factor in holding back the movement. There have been a growing number of ballots for strike action, showing a willingness of the workers to strike. In many cases, the mere threat of strike action has been sufficient for the bosses to make an acceptable offer, thus avoiding a strike. Thus the figures for strikes do not adequately reflect the real situation, or the boiling mood of anger in the working class, which sooner or later must express itself in action. At the moment the trade union leaders are doing everything in their power to suppress and dissipate this mood. But the more they do this, the greater will be the explosion in the future.

The Blair Government

72. The present situation in Britain represents an unavoidable stage. Having elected a Labour government for the first time in 19 years, the working class naturally were prepared to extend it a degree of tolerance and good will for a time. This was undoubtedly one of the factors that has contributed to a low level of industrial activity. But this phase is already over. Now there is a confused and rather contradictory mood, as the working class slowly takes stock of the situation and begins to draw conclusions.

73. The complete rout of the Tory Party in May 1997 was a reflection of profound discontent within society. It was not the result of Blair's policies, but rather in spite of them. Labour would have won a landslide victory whoever would have been the leader. In fact, a left leader with a radical programme would have achieved an even bigger majority. The Blairites, who wanted a coalition government with the Liberal Democrats, poured cold water over any expectations that Labour was going to offer fundamental change. Everything was done to alienate Labour's traditional supporters. "We can't promise what we can't deliver", was the Blairite refrain. But no matter what Blair said or did, it made no difference. The workers saw this election as the chance to defeat the Tories after 18 years of attacks on living standards, anti-trade union legislation, privatisation and cuts in the welfare state. They had had enough of Toryism. They voted massively for a change.

74. However, Blair came to power offering more of the same. Despite certain concessions on the minimum wage, rights at work, and more money for health and education, the New Labourites pursued pro-capitalist policies. They did next to nothing for the workers that elected them, and did everything to appease big business: immediately handing over powers to the Bank of England, continuing with Tory spending limits, attacking benefits, and continuing with privatisation plans. CCT was abolished, but it was replaced with the monstrosity of 'Best Value' that continued the horrendous squeeze on local authority workers. The Blairites have kept most of the Tory anti- union laws and continued with PPP or PFI, leading to partial privatisation of hospitals and schools. Despite previous opposition they are pushing ahead with the privatisation of the London Underground and air traffic control. Even where some feeble reforms have been introduced, they have been niggardly in the extreme, as in the case of the minimum wage.

75. This is at a time when the class divide in Britain has widened dramatically. The gulf between rich and poor has never been so glaring. According to the new Office of National Statistics report on social inequality, the wealth divide in Britain continued to grow right through the 1990s. "We reckon that 10 new millionaires are being created each week with fortunes of £20 million or more", states the Sunday Times. In contrast, the DSS reported that 100,000 more children sank into poverty in the first two years under Blair. The total number of children living in poverty in Britain is now 4.5 million - more than one in three. The number of pensioners living in poverty has risen by almost 100,000 since Labour came to power.

76. At the same time, we see the revolting spectacle of the parasitic 'fat cats' enriching themselves with huge salary increases and share options, while nurses and low paid workers get next to nothing. The privatised utility cartels are raking in billions at the expense of ordinary people. This has provoked widespread resentment not only in the working class, but also in the middle class. Following the Paddington and Hatfield rail disasters, opposition to privatisation has never been greater. The great majority now would be in favour of re-nationalising the railways. Such is the level of popular indignation that a strike on the London Underground against privatisation would get massive support from the public. This shows how far out of touch the Blairites are. Slowly but surely there is a change of mood in society, preparing the way for a big swing to the left in the next period. Blair and co. are oblivious to this and are maintaining their rightward course. This makes a social collision inevitable in the next period.

77. The mood within the working class is beginning to harden against Blairism. Workers were naturally prepared to make sacrifices to get a Labour government elected, and then to extend a fund of credit to the government after it was elected. One could not expect anything else. But the honeymoon period evaporated as soon as the workers realised that little, if anything, had changed. This disillusionment has reflected itself in a string of election results where the Labour vote collapsed in spectacular fashion. Labour did badly in the local and European elections. It did badly in the election to the Scottish Parliament and the Welsh Assembly, opening the way for coalition deals with the Liberals. In Wales, it suffered its worse defeat for generations, losing its former strongholds in the Rhondda, Llanelli and Islwyn to Plaid Cymru where in the past a Labour defeat would have been unthinkable.

78. In the election for London mayor the official Labour candidate was humiliated and pushed into third place behind the Tory candidate. Labour lost control of Sheffield and Oldham, while its vote in Liverpool was at a record low. Although it held the recent by-elections in Scotland and the North, there is no enthusiasm for Labour. In Falkirk West, Labour managed to hold on by the skin of its teeth, but saw its majority reduced by 14,000 votes to less than 800. In this rock-solid Labour seat, there was a 19% swing to the Scottish Nationalists in a historically low turnout. If repeated in the general election, Labour would be humiliated. This was the result of Blairite policies at a national and local level, and it served notice on the government that the attitude of the workers is changing.

79. The support for Labour is haemorrhaging in its key heartlands and the local Labour Parties are increasingly falling into disrepair in many areas. "What has Labour done for us?" is the question many Labour voters are asking. There is disquiet amongst Labour MPs at the high levels of abstentions, with even right wingers expressing alarm at what is happening. This has prompted the right wing Labour MP, Peter Kilfoyle, to openly voice concern at the direction of the government. But with 10% lead in the opinion polls, Blair hopes to turn this into solid votes in the general election.

80. The Blairites have become completely divorced from reality. They are cocooned in their ivory towers hobnobbing with the bourgeois and surrounded by up-and-coming careerists. They have created more quangos and think tanks than the previous Tory government. The right wing leadership has become completely separated from the rank and file. They are ever more influenced by the civil service Mandarins, who pressure them from all sides. The disastrous decision to give the pensioners a 75 pence increase shows how far out of touch they have become. Now they are promising more, but as always, this appears to be too little too late.

81. Blair has built a small clique around himself who take all the decisions. Even the majority of the cabinet is excluded from this inner circle. This has clearly created frictions, which can lead to open splits in the future. For the present, Blair dominates the cabinet like a tin-pot dictator. He sees himself as the grand Statesman surrounded by his courtiers. This shallow and ignorant middle class upstart has no tradition or roots in the Labour movement. Even compared to Wilson and Callaghan, he is a lightweight. They were also right wingers, but had some feel for the movement. Blair has none at all. He is a committed bourgeois politician, loyal to the capitalist system. For the moment, the ruling class have no alternative but to back him. As long as he is able to do their bidding, they will continue to do so. As the pronouncements of the CBI on 'red tape' indicate, they are determined to push him all the way to carry through their interests. The question is: how long can this last?

82. In reality, Blair has already been shown up, certainly for the majority of Labour and trade union activists, but also, to a certain extent, for a section of the Labour voters. They are disenchanted with New Labour and do not trust Blair - but they cannot see any alternative. New Labour is bad, they reason, but the Tories would be even worse. It is this that keeps Blair where he is. Inside the Labour Party no alternative is being offered. The Lefts are invisible.

83. The Cabinet and the PLP seem to be united around Blair. Certainly the so-called 'paid staff' the ministers and junior ministers back Blair, but there has been oppoisition within the ranks of the PLP. There have been parliamentary revolts over disability allowances, single parents, air traffic control and other issues. And recently Clive Soley came within a handful of votes after two ballots of losing his position as Chair of the PLP. Blair and the machine were were forced to call in every member of the 'paid staff' to prevent defeat. This developing opposition can play a key role in a movement against a second term Blair government.

84. As long as this situation continues - where the anger and discontent of the masses finds no point of reference and no organised vehicle through which to express itself - the present state of uneasy and unstable equilibrium can be prolonged. It is the chronic weakness of the subjective factor that is delaying the process. But the process is still there and will occur in any case. This artificial situation cannot last indefinitely. Events will shatter the stalemate and prepare for a big move to the left both in the unions and in the Labour Party.

The Tory Party

85. The continuing crisis within the Conservative Party is itself a reflection of the crisis of British capitalism. Once the most far-sighted ruling class in the world, the British bourgeois are now increasingly short-sighted and inept. In the past, the landowning aristocrats (the Tory grandees) dominated the Tory Party. This allowed the British bourgeois to rise above their short-term interests, and plan their rule over decades, and even centuries. Now that has completely changed. The days of Churchill, Eden and Macmillan have given way to Thatcher, Major and Hague. The era of the 'grandee' is at an end. Now the Tories are dominated by the petit bourgeois upstarts, with their narrow outlook, lack of historical mission and empirical approach.

86. The parvenus who now run the Tory Party reflect the views of the backwoods men and backwoods women of the Tory rank and file. Thatcher, like Blair another middle class upstart, changed the traditional balance of forces within the Conservative Party, in effect leaning on the middle class rank and file - shopkeepers, estate agents and insurance clerks - to strike blows against the upper echelons who had hitherto controlled the Party. For a time this tactic appeared to work. Thatcher ruled the Party with a rod of iron. But the old internal stability was lost. The collapse of Thatcher opened up a crisis in the Tory Party, and the splits and divisions that have plagued the party for more than a decade. This places the Tories in grave difficulties. With Blair faithfully carrying out the dictates of Big Business, the traditional party of Capital is no longer needed - at least for the time being.

87. The Tory Party, despite having experienced a certain electoral revival over the fuel protests, is clearly still in disarray. With Blair carrying through Tory policies, the Tories are desperately looking for new ground to build up support. Hague is desperately seeking to play the 'law and order' card, capitalising on the asylum issue, while dabbling in the waters of racism. Widdecombe is continually brought forward in an appeal to a reactionary audience. This reflects the impasse of Toryism and their current desperation to lessen Labour's lead. However, as the general election approaches, the Tories' chances of winning are diminishing by the hour.

88. The main problem for the Tories is that Blair has stolen their clothes. He does the bidding of the ruling class without question, and this is of great benefit to them at this stage. Blair is their man. For this reason, there is nothing Hague can do but move further to the right. By his demagogic statements on law and order and racism and his Little Englander position on Europe, he hopes to appeal to the Tory faithful. But this does not coincide with the position of Big Business. Given these difficulties, the bourgeois are backing Blair at the present time. He will be of use to them so long as he can hold the line within the Labour Party.

89. The splits in the Tory ranks, especially over Europe, have become the dividing line between the past traditions and the new breed. The rank and file of the Tory Party, dominated by the pro-hanging and racism of the 'blue-rinse brigade', in the past were kept in check. Now they are well represented in the leadership. The Clarke wing is very isolated and realises increasingly that the old Tory Party is no more. It is no accident that Clarke has joined the all-party European Campaign, or that he has had secret discussions with the Blairites. Blair has repeatedly made appeals for this section of the Tories to join New Labour. Under conditions of deep social crisis, the Tory Party can split, with the One Nation Tories going over to Blair as part of a new political realignment. Hague will probably be forced out after an election defeat, with someone like Portillo taking over the Tory Party leadership.

90. This perspective is still possible. But it is not the only variant. In the coming election the Tories will inevitably regain some of the lost ground. Part of the middle class voters who traditionally voted Tory are disenchanted with New Labour and will tend to drift back to the Conservatives. This is particularly the case in the rural areas where the clumsy policies of the Labour right wing have alienated many ordinary people who, if Labour had had the correct policies, could have been won over. The rural poor have always hated the Squireocracy. But Blair has succeeded in pushing them into the arms of the Squireocracy, as shown by the so-called Countryside Alliance.

91. Nevertheless, the rural areas are too small to make a fundamental difference in a general election. And although the Tories will increase their votes and seats, it seems unlikely that they could defeat Labour at the next election. A defeat at the polls would provide the opponents of Hague to move against him, probably putting Portillo forward as someone more likely to win next time. A consummate and unprincipled opportunist, Portillo started on the extreme right of the Tory Party, then swung "left". In the future he will swing sufficiently far back to the right to be able to win the leadership, while making overtures to the former "Grandees" as someone capable of uniting the Party.

92. The Tory Party will not easily disappear from the scene. It is the traditional party of British capitalism and has close ties with Big Business, although it bases itself on the middle class, and to some extent on the most backward layers of the working class. Portillo is a more serious representative of Big Business than Hague. By contrast, Hague is a typical middle class lightweight who does not enjoy the complete confidence of Big Business. The present lurch to the right, which he has engineered in a desperate attempt to curry favour with the Tory Party faithful, threatens to split the Party, especially on the issue of Europe. By eliminating Hague and installing a more astute and trustworthy bourgeois, the Tory Party might hold together sufficiently to win the election after next.

93. In the longer term, the impasse of British capitalism is bound to find its reflection inside the Tory Party in a most convulsive crisis. Although they are highly unlikely to win the forthcoming election they could win the one after. Blair's second term will not be as comfortable as his first. He will be faced with an economic crisis for the first time and the bourgeoisie will demand deep cuts and an all-out attack on living standards. This will provoke uproar in the party and the unions. The Tories might come to power at the following election, perhaps under a new leader. Under conditions of crisis, if the Conservative Party is not capable of winning a sufficient majority on its own, the question of some kind of National Government will be put back on the agenda. Either variant is possible, depending on the concrete circumstances: the depth of the slump, the class balance of forces, the relative strength of the parties in parliament, and above all the internal situation in the Labour Party.

94. However, such a government would be inherently unstable. It would not be like the National Government that lasted from 1930 to 1940. The collapse of Britain's position in the world is far worse now than then. The empire has gone, and most of the old layer of fat has been dissipated. Only the general upswing of world trade has concealed the frightful extent of Britain's decline in the world. A serious slump would rapidly bring out all the hidden contradictions. The class struggle will assume a very bitter and intense character.

95. While there is no basis for a return to the old-style mass fascist movements of the past, the British ruling class under such conditions would be preparing to move in the direction of Bonapartism. The outline of future Bonapartist reaction can already be seen in the right wing of the Tory Party, the so-called Euro-sceptics, with their rabid chauvinist tendencies, their constant call for "law and order" and their willingness to appeal to racist prejudices - and amongst elements around last years so-called 'Peoples Protest' over fuel tax, and above all the Countryside Alliance.

96. Such a Bonapartist movement, arising out of a split in the Tory Party, could form the mass basis of reaction in Britain. It would absorb the fascist sectlets on the fringes, posing a threat to the Labour movement. But this is the music of the future, not an immediate perspective. Mass reaction is certainly not on the horizon in the near future in Britain or any other country. Long before this would be posed, the working class will have had many opportunities to take power into its hands and transform society

The Labour Party

97. Although it has been forced far to the right by the Blairites, the Labour Party continues to be a workers' party, based upon the trade unions. However, the pro-capitalist policies of the leadership, and their attacks on internal democracy, have reduced the inner life of the Party to a very low ebb. Many Labour activists, despairing of any possibility of change, have voted with their feet. Although the great majority of activists are opposed to Blair, they have no point of reference. However, such is the mood of anger and indignation in the ranks that as soon as even a lukewarm opposition to Blair develops in the Cabinet or the PLP, a left wing can crystallise very quickly. This is inevitable in the coming period. and we must bear this perspective clearly in mind in order not to be blown off course.

98. It is true that the process of political differentiation within the party, despite the latent opposition to the leadership, is still at a very early stage. The Blairites still have overwhelming control of the PLP and the Party machine. But the real situation was revealed by the revolt over the Livingstone affair, which erupted apparently without warning. In reality, this was a continuation of the process we have charted which began with the defeat of Mandelson in the NEC elections and continued with the crises in the party in Scotland and in Wales. Important as it was, the Livingstone affair was one more episode in this process. As we predicted, after this the mood has died down temporarily. Many activists in the London Labour Party were dismayed by the stitch-up and have fallen into inactivity for the time being. But they still see no alternative outside the Party. There will be other similar processes in the future inside the Labour Party. Meanwhile, all the fussing and fiddling of the sects around the Livingstone affair has led to nothing.

99. The main reason for the delay in the process is the objective situation and the continuation of the boom. The continuing world boom has saved Blair and Brown. It has allowed them to maintain their grip on government and the party, despite periodic crises. Here we have a striking paradox. Although the Blair government has been a government of counter-reform and austerity, it has presided over a buoyant economy that has allowed it a prolonged breathing space. It has claimed the credit for the fall in unemployment, and this has had an effect. It has given the leadership room for manoeuvre, which it would not otherwise have had. For this reason, it was not a government of crisis like in 1924 or 1929-31, as we originally put forward in our previous perspectives. The temporary prolongation of the world boom has prepared the ground for a second term of office for Labour.

100. On the other hand, the role of the Lefts has also been a major factor. There have been parliamentary revolts over single parent benefits, student fees, pensions, and other issues, but nothing to threaten Labour's majority. The left reformists have no perspective and are offering no clear alternative to the policies of Blair. Under these circumstances, it is unlikely that what remains of the Campaign Group will play the leading role in the formation of the Left. It is more likely that one or other of the "soft Lefts" will be pushed into semi-opposition under pressure from below. Splits in the PLP and even the Cabinet are inevitable in the coming period. This will encourage the mood of opposition in the Party ranks, which in turn will push the Left to adopt a more forthright opposition stance.

101. For the time being, the Blairites continue to dominate, despite the discontent within the rank and file, as a result of the lack of a consistent opposition within the Party. The policies and actions of Blair have led to widespread demoralisation among the activists. This has left the ranks of the party depleted, with few quorate GCs or ward branches. The participation of the membership is very low at this stage. This was reflected in the very low participation in the vote for the NEC elections. The numbers voting were 50% lower than the year before. The Lefts proved incapable of capitalising on this discontent, although they were able to maintain their presence on the NEC. This low level of political life within the party will change, but for now it has served to maintain the right wing. With participation at a low point, the bureaucracy can have an undue influence, and are able to manipulate things to their advantage - at least for the time being.

102. Under these circumstances, the trade unions assume a very great importance. The unions were always the key to the Labour Party. This is now truer than ever. At the Party conferences - most notably the national and London conferences - the opposition to the leadership has come mainly from the trade unions. To judge from reports, the CLP delegates were mostly inexperienced first-timers and were easily manipulated by the Party officials. The CLP delegates at this stage on the whole stood to the right of the trade union delegations at this conference. This is a complete reversal of the situation in the past, where the CLPs were on the left of the party while the trade unions bolstered the position of the leadership. This led many of the Lefts to advocate the abolition of the trade union block vote - a position we always opposed.

103. Blair has created a machine in his own image in Millbank. He has purged most oppositional elements as public representatives of the party, and staffed the party at national and regional level with Blairites. In this, he has acted no differently to Gaitskell. But there is a difference. Gaitskell had the support of the trade unions and maintained himself in control by wielding the union block vote. At present the union leaders are willing to back Blair, but that support will not last. Lacking a firm base of support in the ranks either of the unions or the Party, Blair imagines he can gain total control over the Labour Party through the apparatus alone. But this is a vain illusion. It shows how far out of touch with reality the leading clique is. This itself will guarantee future conflicts and splits.

104. The blindness and arrogance of Blair was exposed in the Livingstone affair. Livingstone, as shown by his brief sojourn as Mayor of London, is an opportunist who can swing in all kinds of directions. Lately, under the pressure of the union rank and file, he has supported strike action against the privatisation of the London Underground. On the other hand, he has brought in Tories and Liberals into his administration, as well as an anti-union boss to run the Underground! In reality, it would have been easy for Blair to reach a deal with Livingstone. However, this "control freak" could not trust Livingstone whom he saw as a potential future oppositional leader inside the Labour Party. This would have been possible, if Livingstone had stayed in the Labour Party. But his personal ambition overruled all other considerations.

105. The Livingstone affair indicated the potential for organised opposition within the party. However, as we pointed out in advance, the failure of Livingstone or the Left to organise a cohesive opposition meant that the movement would inevitably dissipate. His decision to stand independently sealed the fate of a campaign within the Party. A whole layer of Party activists left in disgust. Even so, an opposition did surface at the London Labour Party Conference but failed to win the chair of London. Other controversial issues, such as the readmittance of Livingstone back into the party, were eventually sidelined into workshops. The complete lack of any perspective on Livingstone's part has been shown by his conduct both during and after the election. when he did not hesitate to reach agreements with Tories and Liberals in a completely unprincipled manner. In the end, this has led to a temporary set-back for the Left.

106. Even so, an opposition did develop at the London Labour Party conference, where opposition reared its head in a significant way. The chair decided to put the debate on readmitting Livingstone into an afternoon workshop, but was immediately challenged by the FBU. The conference voted 55% to 45% in favour of the FBU proposal being debated on the conference floor ( a two-thirds majority is need to defeat the chair), a defeat but a significant vote. When debated in the workshop, Livingstone's readmittance was carried by 3 to 1. The Blairite held onto the chairs' position. Despite all the help of the Millbank machine, the left candidate still polled 40% of the vote. And finally, the RMT managed to get an emergency motion onto the conference floor to oppose PPP of the tube, and this was carried by 5 to 1 on a show of hands, in an electric debate with only one Blairite brave enough to defence PPP. Following on from this, there was a meeting organised of the left in SE London, which attracted 65 party members, and a steering committee was set up to coodinate opposition in the London Labour Party.

107. The leadership has temporarily stifled the voice of opposition in the CLPs through the Policy Forums. These so-called forums are totally manipulated by the right wing and the Millbank machine. The decision of the national party conference was referred to the December NPF, but was completely buried with a flat refusal in a question-and-answer session by a junior Minister to contemplate a link of pensions with earnings. Despite this stitch-up, the trade unions went along with the farce. Brown showed his contempt for the unions when he said after the vote on pensions at last year's Labour annual conference: "I'm not going to give in to the proposal that came from the union leaders today... It is for the country to judge, it is not for a few composite resolutions to decide the policy of this government and this country."

108. Blair has taken the party further to the right than previously. His total embrace of the 'market' has endeared him to the ruling class. This has led to a situation where a section of the bourgeois to believe that the Labour Party could serve as a vehicle for their interests. It has been revealed that Labour has received donations amounting to six million pounds from three rich fans: two million each from Lord (Paul) Hamlyn and Christopher Ondaatje - two wealthy publishers - and Lord Sainsbury, former chairman of the big grocery chain, currently a science minister in the House of Lords. Labour has never before received such big donations from Big Business. Millbank first tried to hide these donations, fearing the reaction of the rank and file. But when it became impossible to deny, Blair and Brown issued shameless statements to the effect that they were "proud" that the Party was getting such donations from millionaires. This shows the whole attitude of the Blairites and their relations with the ruling class. These are not trifling sums! And the bourgeois do not give money to a political party for nothing. He who pays the piper calls the tune.

109. Blair has done everything possible to please Big Business. So for the time being the ruling class is happy with him. Why should they change horses? But they are also acutely aware of the dangers involved in a party based upon the working class, even when it is in the grip of the right wing. It is only a small minority of the Big Business fraternity who back New Labour - and that will not last. The big majority of the bourgeois do not trust the Labour Party. They have been prepared to tolerate a Labour government in the past as a second eleven, allowing them to do the dirty work for capitalism. Once they had fulfilled their role, they were thrown out and replaced by the direct representatives of Capital. Despite all Blair's efforts to win the plaudits of Big Business, its attitude to Labour has not substantially changed. At the present time the billionaire press is supporting Blair because it suits their interests. But as soon as it becomes clear that Blair cannot control the Labour Party or the unions, that position will change. They will begin to attack Labour and build up the Tories, who remain their traditional party.

110. Because the Labour Party is in the last analysis based on the working class, it is an unreliable tool for the bourgeoisie. Blair also recognises this. That is why he has been busy attempting to change its class character, to turn it into a British version of the US Democrats. However, this has proved an extremely difficult task indeed. Although he has got rid of Clause Four and shifted policy far to the right, the bedrock of the party remains the trade unions, and through them the working class. What is written in class struggle cannot easily be eliminated by constitutional changes. Even the traditional right wing is not sure about attempting to break the union link, as a realignment will not produce a moderate outcome. A political realignment will produce a radicalised militant Labour Party.

111. Despite everything, the ruling class is not convinced that New Labour is their party. If it was a question of Blair himself there would be no problem, but what they fear are the class forces that stand behind the Labour Party. Thus, although temporarily they are willing to back Blair, their policy remains that of "use and discredit". If Blair is to change the class basis of the Labour Party it must mean a fundamental break with the trade unions. There is no middle way. However, each time this has been raised it has caused a wave of protest from the unions and the party's activists. Even the right wing trade union leaders have balked against taking this step. They are reluctant to surrender entirely their influence over the Labour Party. There are limits beyond which they will not go. And this organic link with the unions poses the threat (from the point of view of the ruling class) that the pressures from the working class will find their reflection inside the Labour Party, and that Blair will not be able to keep control.

112. Despite all his efforts, Blair has failed to destroy the party's trade union base. The unions still retain 50% of votes at national conference. They would even dominate the NPF if they wanted. The attempt to use OMOV to undermine the unions clearly backfired as lefts were regularly elected to the NEC. In fact Blair had to rely on the union block vote to secure Dobson and Alun Michael as his candidates in London and Wales. The rank and file could not be relied upon to deliver the correct result.

113. In this respect, the 'Blair Project' has failed. The trade unions have remained an organic part of the party. Blair has been forced to back away, at least temporarily. It is a question that cannot remain unresolved. The latest Blairite to raise the question was Tony Robinson, the actor-come-politician, who was elected to the NEC. He angered trade unionists with his call for the block vote to be scrapped and its financial ties to be severed. Ironically, given the drying up of funds from corporations, last year the leadership was forced to take a begging bowl to the unions.

114. The Blairites cannot reconcile themselves to the party of the working class. They have changed tack and are attempting to undermine the Labour Party through destroying the GMCs. Blair wants to destroy the remaining elements of party democracy. Despite the opposition, proposals are likely to be brought forward at the next annual conference. No doubt, on the basis of a post-election victory rally, they will urge greater 'modernisation' of the party. How far they will get away with their plans will depend on the opposition mainly in the unions. Even the union leaders can see the dangers in completely dissolving the party into the mass.

Coalition politics

115. It is an unprecedented situation when the leader of the Labour Party is a man who believes that the Labour Party should not exist. He has stated publicly that the creation of the Labour party was a mistake. And this is not just words. Before the last election, Blair was already making plans for a coalition with the Liberals. But his calculations were upset at that time by the fact that - unexpected to him - Labour won a huge majority in parliament, This, plus opposition in the Cabinet, forced Blair to drop his plans for a Lib/Lab coalition. But that idea not been discarded and will undoubtedly be dusted down again, especially if Labour is re-elected with a small majority.

116. Just how close the coalition came to fruition was revealed by Ashdown in his Diaries. Everything was being put in place for this constitutional coup. The rank and file were not to be consulted, but presented with a fait accompli, as was the case with the decision to bring the Liberals onto a Cabinet Committee on constitutional matters. However, to proceed with the coalition would have led to a split in the Labour Party and the Cabinet. The 'coalition' around Blair would have broken down. The time was not right. The plan had to be put on ice. Now the Blairites calculate that if they get a small majority at the next election, they can bring out the coalition card. They hope to build upon the experiences of Scotland and Wales - precisely at a time when there is growing dissatisfaction with these deals. Any attempt to form a coalition after the next election will lead to big opposition and a polarisation within the movement. Precisely an issue like this could lead to a split in the Cabinet, opening the way for the emergence of an opposition. We must be alert to this danger and be prepared to take a lead in the opposition to coalition politics from the beginning.

117. This is a risky strategy that could take the movement into uncharted waters. If not immediately, then as the crisis unfolds splits and divisions are inevitable. As events develop and opposition mounts in the party, the ruling classes' attitude to the Labour government will change. Under conditions of growing social and economic crisis, the bourgeoisie cannot afford to rely upon a weak and ineffectual government plagued by divisions and under pressure from the working class. It will need a strong government with an iron determination to carry through a programme of deep cuts in spending.

118. The ruling class will exert pressure for an all-out assault on the working class as in the inter-war period. Blair will be called upon to take draconian measures. The 'counter-reform' policies of the present Blair government will look like a tea-party in comparison. But as opposition rises to these measures, the ruling class, as in 1931, will take action to split the Labour Party. It is under conditions like these that the idea of some kind of National Government can arise. True, they will not lightly adopt this tactic, as an open split in the Labour Party would be a dangerous move from their point of view. Whether - or more correctly when - they would decide to go down this road would depend on many factors: the depth of the crisis, the balance of forces within the Labour Party, the possibility of getting a Conservative government with a sufficient majority etc. However, in the next period it seems very likely that, under pressure from the contending classes, the Labour Party will tend to split, and the Blairites will move towards some kind of coalition with the "One Nation" Tories and Liberals.

119. It is true that Blair has had to proceed with great caution on this question. He has mainly concentrated on cultivating links with the Liberals. But he has also made repeated appeals to "progressive" Conservatives to join Labour. This is logical, since a coalition with the Liberals alone would not be a very solid base for him. A coalition with Labour would in fact destroy the Liberal Democrats, whose rank and file would be immediately split by such a move. The Liberals have only been able to maintain themselves for so long because they remained outside the government. They thus enjoyed the luxury of posing as a "left" party of opposition. Once this illusion is destroyed, they would rapidly splinter and go into decline.

120. Of course, many different variants are possible. But everything points to a split between the right and left of the Labour Party in the next period. Such a split would send shock waves through the Labour movement, propelling it far to the left. and opening up enormous possibilities for a Marxist tendency. However, even before such a scenario, the attempts by Blair to 'bourgeoisify' the Labour Party will meet with growing resistance. This process has so far been delayed by the prolongation of the boom and the logical inclination of the working class to extend a measure of confidence, or at least tolerance to "their" government. As a matter of fact, it would be a mistake even now to suppose that Blair has been completely exposed to the masses. It is always a mistake to confuse the level of consciousness of the masses with that of the advanced workers and activists. As a general rule the mass of workers learn only slowly and painfully through their own experience. But the experience of the second Blair government will not be like that of the first. Sharp divisions can open up within the Party on any number of issues.

121. The Blair wing represents an openly bourgeois tendency. They are slavishly obedient to the dictates of the ruling class, and the latter is demanding a complete break with the unions and a complete break with outlook, traditions and everything the Party stood for in the past. The Blairites even at present lack a real base of support in the Party, and any attempt to use the Millbank machine to carry through a purge will lead to a split. But Blairism will not be deterred by that. These middle class careerists are indifferent to the fate of the Labour Party and would be quite prepared to see it destroyed. That is what distinguishes them from the old-style Labour right wingers like Roy Hattersley. Even elements like that will be forced to break with Blair sooner or later and move to the left - at least in words.

122. Even now the hairline splits and divisions are present. The reaction of Prescott over the revelations in the Ashdown Diaries is symptomatic of opposition over the 'Project'. These ex-Lefts are prepared to swallow Blairism as long as it suits them. But once things start to get messy, these people, who have more roots in the movement, will come under increased pressure to make a stand. Things are relatively calm at the moment, but as things hot up, the contradictions will mount. Individuals will reflect these new pressures, and begin to articulate the opposition of the rank and file. The more far-sighted representatives of Capital have already understood the process:

123. "Divisions lower down the Labour hierarchy may also emerge as the party's MPs begin to fear for their political future", states the Economist. "If the latest polls are right, one in four Labour MPs can no longer be sure that they will survive the next election. On ICM's figures, for example, Labour could expect to win at most 310 seats, more than 100 less than in 1997. Labour MPs whose careers are in jeopardy may well be more inclined to rebel against the party leadership."

124. Whether Blair can hold things together or not remains to be seen. However, as the Economist continued: "The trouble is that since he became leader Mr Blair has relied on his party's respect, rather than its love. If respect is eroded, he may find he has few bonds of loyalty to fall back on." (23/9/2000).

125. The apparent calm in the Labour Party is deceptive. The working class is trying to assimilate the lessons of the past period. There is a ferment of discontent simmering just beneath the surface. The problem is that it has not had a point of reference. This cannot be provided by a small group, as the sects and Scargill foolishly imagined. But once the split starts to open up at the top, everything will be transformed. It would take just one leader to stand out, and he or she would provide a catalyst for the whole movement. Once the process of inner differentiation starts, it would be unstoppable. We saw how Livingstone's challenge to Blair transformed the situation in London over night. A similar figure on a national scale would have an electrifying effect under the circumstances. It would herald a generalised revolt of the rank and file in the trade unions and Labour Party. The muted and disorganised opposition that exists today, would be multiplied a hundred fold.

The Left reformists

126. The left reformists are currently at a low point. Many of their supporters have deserted to Blairism in order to further their parliamentary careers. With the retirement of Benn from Parliament, who was the key left reformist figure, the Labour left are left without any person of substance. In addition, Scargill's departure into the political wilderness has left them with few links with the trade union field. They have been reduced to a rump in parliament, and engage in forums and networks as a substitute for a real campaign to organise the left within the movement.

127. The collapse of left reformism is an international phenomenon. It is connected with the fall of the USSR. To the degree that the Lefts had any ideas, they were usually filched from the Stalinists. In addition, the latter provided them with what links they had in the unions. Now that this support has been removed, they are all at sea. Without any theory, perspective or understanding, the lefts are caught unaware by events. Because of their empirical approach, they are unable to trace the underlying processes in society, and feel very isolated and despondent.

128. As with the sects, they are full of gloom and doom. In addition to their lack of theory, they have no confidence in the working class. This is a psychological trait which they share with the Stalinists who spoke of "socialism" as a distant prospect, while in practice capitulating to reformism and capitalism. Insofar as the Lefts offer any alternative to the right wing, they dress themselves in the stinking rags of Keynesianism, long cast off by the strategists of capital, which they have fished out of the dustbin. This is merely laughable, when these ideas have been shown to be false in practice. But many of them do not put up any fight against the right wing. They have just capitulated and moved to the right, abandoning basic ideas concerning nationalisation and the 'alternative economic programme'. In an accommodation with the 'soft' right, they have established the Grassroots Alliance on a minimal programme, to stand for elections in the party.

129. They are flabby politically, they are flabby organisationally as well. The two aspects are organically linked. As we explained before, the regeneration of the left within the movement is unlikely to come from this quarter. It seems more likely that a future left current would emerge from the traditional Tribunite soft Left, improbable as that may appear at present. Former "Lefts" like Prescott, Short, and Cook have completely capitulated to Blair. Nevertheless, there are all kinds of frictions which in the future can result in resignations and splits under the impact of events. At the moment, these figures are tied to Blair, but on the basis of big events, can easily come into conflict with him when it suits them. The question as to who will lead the Left cannot be predicted in advance and is of a secondary nature. It is an accidental question. But necessity expresses itself through accident. Once the split opens up, it will have a profound effect in the rank and file.

130. The idea that a left can be created outside of the mass organisations is a total fallacy. Obviously, it is huge events that will transform the political situation and throw up a left wing. But this cannot be created artificially as the sectarians imagine. As we predicted, the experiment of Scargill has been a total failure. The SLP is a rump of a rump, composed now of mainly Stalinist leftovers. This organisation has no future and will disappear in the course of developments. Likewise the Taaffites of the 'Socialist Party', who imagined they could substitute themselves for the class, have ended up in disarray. The limited forces they had have been squandered. Left with a few hundred members, they are busy trying to puff themselves up by standing in election campaigns and seeking deals with the Socialist Alliances when it suits them. They have learned nothing and forgotten everything. They are now a dwindling sect on the outer fringes of the Labour movement. Any points of support they still hold onto are due to the past political capital of the organisation. But this they will inevitably squander in the coming period.

Scotland and Wales

131. In the post war period Scotland became, along with Wales, a bastion for the Labour Party. However, the disillusionment with reformism at a local and national level, exacerbated by the crisis of British capitalism, resulted in the re-emergence of Scottish Nationalism in the 1970s. The Stalinists played a role in this revival with their nationalist poison affecting the Labour movement. The failure to answer the national question with socialist measures has seen the SNP rise to become the second biggest party in Scotland.

132. As in Wales, the Labour Party in Scotland was regarded increasingly as part of the establishment. This played into the hands of the nationalists, who picked up the majority of their support from the rural areas at the expense of the Tories and Liberals. Whereas in England, disappointment with Labour governments reflected itself in a protest vote for the Liberals, in Scotland it went to the nationalists. For a whole period the SNP was dominated by its nationalist rural base that projected the image of Tartan Toryism. Later, with the ascendancy of the radical wing, this image was dropped and the SNP increasingly adopted a left demagogy in an attempt to cut into Labour's traditional heartlands. The SNP has always been a party based upon the petit bourgeois, with a bourgeois element, but also with a radical wing, some of whom could be won to socialism if a strong Marxist tendency existed in Scotland. Unfortunately, the antics of Tommy Sheridan, with his mixture of adventurism and opportunism, are more likely to win over leftward-moving workers and youth to nationalism than vice-versa.

133. The ebb and flow of Scottish nationalism has been influenced by the fortunes of Labour and the development of the class struggle. In periods of heightened class struggle, support for the SNP has tended to drain away. However, in times of disillusionment with Labour or times of lull in the movement, the nationalists have made gains, as we see at the moment. The 1997 general election saw an overwhelming swing towards Labour in Scotland, not least with its promise of Scottish devolution. At bottom, the problems of the Scottish people are linked to unemployment, poor housing, education and health. To the degree that Labour can address these, the support for nationalism will dwindle. Conversely, the failure to address these problems will intensify the national problem. The policies of right wing Labour have alienated a significant section of the workers and youth in Scotland.

134. The granting of a Scottish Parliament was a step forward, which we supported. The election to the Parliament under proportional representation prevented Labour gaining an overall majority, although it was the largest party. This suited the Blairites who were desperate to form a Lib/Lab coalition as a springboard to a similar undertaking nationally. Such an outcome was inevitably going to play into the hands of the nationalists who demagogically presented themselves as being to the "left" of Labour.

135. The new Lib/Lab coalition, with the SNP as the official opposition, is the worst of all worlds. It allows the nationalists effectively to exploit the discontent with the Executive as the coalition continued with warrant sales, sale of council housing, and cuts in local authorities. Water rates and council tax continue to rise, affecting the poorest sections of the community. Local government, after 18 years of Tory squeeze and cuts is getting more of the same from New Labour and the Executive. In Edinburgh the council is trying to find cuts of £12 million, while in Glasgow they are slashing £24 million from the budget and cutting jobs. At the same time they are using PFI to carry out improvements to the glee of big business.

136. Although Scotland has received inward investment from multinationals, 20,000 manufacturing jobs disappeared in 1999, and the trend is continuing. On a capitalist basis, the Scottish Parliament will not be able to satisfy the aspirations of working people, especially on the basis of a Lib/Lab coalition. This can only serve to play into the hands of the nationalists.

137. The increased support for the SNP in opinion polls has also been reflected in a series of by-elections. The most recent in Falkirk West saw a swing of 19% to the nationalists. Although Labour retained the seat, Canavan's 1997 majority of 14,000 was reduced to 800 votes on a very low turn out. This reflects the disillusionment with Labour, not only with their pro-capitalist policies, but their bureaucratic imposition of candidates and control freakery. Discontent has been reflected within the Scottish Labour Party as well as the trade unions. The Canavan affair sent shock waves through the party. As with Rhodri Morgan in Wales, it shook the party establishment which then made overtures to Canavan. Unfortunately, he has no perspective or idea of how to fight and has remained outside of the party.

138. The Labour left had a golden opportunity to challenge the successor to Donald Dewar in a membership ballot, but lacking confidence in the rank and file and themselves preferred to crack a deal for a left to be made deputy leader. With the advance of the SNP divisions are surfacing already in the party. There is growing unease with Blairism, which is playing into the hands of the nationalists.

139. The Scottish Socialist Party (SSP), which is an amalgamation of all sorts of left elements, has managed to score around 5% in elections in Scotland. This undoubtedly reflects a profound despondency with the Labour Party, with a section of youth and workers consciously voting SSP as a left protest. It is clear to us that the policies of the SSP are neither Marxist nor revolutionary. They are an odd mixture of left reformism, nationalism and community politics. They are not even a centrist current. Nevertheless, those who vote for them do not understand this and think that they are voting for Marxism or at least the extreme left. This has a certain symptomatic importance. What we have to see is that if five percent of voters in Scotland are prepared to vote for the SSP it shows that there is a constituency for Marxism even at this stage. Tomorrow this move to the left will be reflected inside the Labour Party, not only in Scotland but throughout the British Isles.

140. This does not at all signify that the SSP will be able to counterpoise itself to Labour, as they probably imagine. Their leading figure, Tommy Sheridan, is keen to make a name for himself and has build a reputation around the opposition to the poll tax and warrant sales. Without him, the SSP would fall apart. They have attempted to build an alternative to the Labour Party, hoping to draw in Canavan and others, but have failed. They are so desperate to establish themselves that they are now in negotiations over fusion with the SWP in Scotland. However, those negotiations are being hit by dogfights over who sells what paper, 'shadow branches', acceptance of the slogan 'full independence for Scotland' and differences over the class nature of the state in Cuba.They are a sect and will remain one - or more correctly at least one. While Blairism is dominant in the Labour Party they can certainly obtain votes from disillusioned Labour voters. As soon as the Labour Party begins to move to the left, they will split and disintegrate.

141. In Wales the national question was very muted as compared to Scotland. Nationalism has never had a strong following in Wales. The different histories of Scotland and Wales play a role in this. In addition, paradoxically, the issue of the language has reduced the appeal of the nationalists for the majority who speak no Welsh. However, the domination of the right wing combined with tremendous discontent with the Blair government has produced a backlash, which has benefited the Welsh nationalists.

142. In an opportunist move, Plaid Cymru deliberately dropped any references to independence and concentrated on social issues. The vote for Plaid was clearly a protest vote against Blairism. The Labour government has done little for the working class and has led to widespread disillusionment, as elsewhere. Blair's pro-capitalist policies have played into the hands of the nationalists, as in Scotland. In the same way, the inability to solve the problems of the working class is responsible for the revival of the national question.

143. The Welsh working class has a proud record of militancy. However, especially after the defeat of the miners' strike, the movement has been firmly in the grip of the right wing. The working class strongholds of Wales have been dominated by Labour's right wing for many decades. The recent victory of Plaid Cymru in the Rhondda, Llanelli and Islwyn came as a shattering blow, and has shaken the movement to its foundations. There have been defeats in the past, but nothing on this scale.

144. To add grist to the mill, the actions of the Blairites in their attempt to rig the selection procedure for the Welsh Assembly led to a huge backlash inside and outside the party. This grew into an enormous groundswell of support for Rhodri Morgan in the campaign for leader of the Assembly. Although Morgan is a right-winger, as can be clearly seen by his decision to form a Lib/Lab coalition, he was seen as independent from the Blairite machine. Alun Michael, on the other hand, was obviously a Blair stooge.

145. The whole affair broke apart the Welsh Labour Party. The entire situation changed, as in London with Livingstone. The working class was incensed at this imposition, and a series of unions were forced to ballot their members. The majority of those balloted voted for Morgan, but Michael was effectively imposed. This one act resulted in a massive division within the Labour movement. Michael could not hold down the dissent. He had no democratic mandate, and was eventually forced to give up. It was a complete humiliation. He was forced to leave before he was kicked out. The whole episode shows the lengths the Blairites are prepared to go to rig the outcome. But it also shows the fragile basis on which they operate. They clearly overstretched themselves. They will do this more and more in the future, which will completely undermine their slim base, and prepare for their downfall.

146. The Welsh Assembly fiasco, in which Labour failed to win an absolute majority, has seen a massive reaction against PR. The decision of Morgan to enter into a Lib/Lab coalition has also embittered the Labour movement. As in Scotland, these contradictions are building up into an explosive mix.

147. The Blairite grip on local government, with their absolute contempt for ordinary workers, has led to the fiasco in Cardiff City Council, where the new cabinet structures have seen power being increasingly concentrated into the hands of a clique. Their programme of cuts went hand in hand with hostility to the local authority unions. In addition, the unelected mayor Goodway and his coterie voted themselves a 200% increase in their allowances. The revolt of six councillors against this corruption resulted in their suspension. This act led to an uproar in the labour movement that led to the councillors being reinstated and hailed as heroes.

148. The whole episode has inflamed the situation. Obviously it will die down, as with the Livingstone and Alun Michael episodes, but again it reflects the instability of the situation. These contradictions will produce new revolts. These events will further polarise the movement and prepare the way for a massive swing to the left at a certain stage. Such a development will undermine the nationalists, and push them into crisis.

The Trade Unions

149. The trade unions are potentially the most powerful force in Britain. Despite the fall in membership over the last two decades, mainly due to the loss of manufacturing jobs, the trade unions embrace 7 million workers. While union membership has risen over the last two or three years, the potential for growth is enormous. The strength of the unions is mainly concentrated in sectors on the margins of production: local government, civil service, teachers etc. The majority of workers are now outside the unions. A large number of part-timers, teleworkers and contract casuals are non-unionised. In addition, these are very exploited sectors, mainly consisting of young people. The potential for militancy here was clearly demonstrated in the recent spate of strikes in call centres. This gave the lie to the oft-repeated accusation that the new generation of workers are not prepared to fight.

150. Millions of workers could be won to their ranks if the leadership were prepared to launch an effective campaign. The same phenomenon exists in the USA, where Business Week estimated there were 40 million workers who were open to organisation. The key obstacle to this and a real fight-back against the employers' offensive has been the crass leadership of the unions. As Trotsky once remarked they constitute the most conservative force in British society. They have lost all conception of changing society - if they ever had any - and see themselves as mediators in the class struggle. They see themselves as 'realists', accepting that capitalism is the only possible state of society, and that workers must generally accept what capitalism is able to afford. For them, 'social partnership' or class collaboration is the only answer.

151. Although frustration and anger is rife in the workplaces, the trade union bureaucracy acts as a colossal brake on the movement. In reality, they fear the movement of the working class, and seek to channel it into harmless directions at every stage. The attitude to the threat of closure of Longbridge, Dagenham and now Vauxhall in Luton is one of wringing their hands because they have not been consulted and pointing out how moderate and pliable the workforce is. Even where the trade union bureaucracy is forced to take some form of action, as in Longbridge where a mass demonstration of over 100,000 workers marched through Birmingham, the mood of anger, which was a starting point for militant action, was channelled harmlessly behind a rival capitalist deal. The idea of occupation and nationalisation were presented as impractical. The workers instead were asked to make huge sacrifices in terms and conditions in support of their 'British' bosses.

152. This approach is not only confined to the right wing union leaders, but also affects the so-called Lefts. The treatment of the Liverpool dockers by the 'left' TGWU leadership was a case in point. Despite overwhelming support internationally, the union leaders were not prepared to risk sequestration of their assets. Meanwhile, Bill Morris took a position on the board of the Bank of England.

153. The trade union bureaucracy has used the fear of the anti-union laws to blunt any struggle. Earlier on they attempted to keep the movement in check by urging members to 'wait for a Labour government'. Then they urged the members not to "rock the boat" Now they are again directing their members to work for a labour victory in the next election. However, the trade union members are making a balance sheet of the present government. They can see that, apart from certain concessions on employment rights and the minimum wage, the Blair government has continued where the Tories left off. They have retained the anti-union legislation, and have bowed to the pressure of big business.

154. For their part, even the union leaders must be getting frustrated with the attitude of the Blairs, Browns and Mandelsons. They had hoped for a return to the good old days of tripartite agreements and deals done in "smoke-filled rooms". Instead, the Labour leaders have treated them with contempt. they are far more concerned with winning the plaudits of "public opinion", that is, big business, which will go along with partnership only on its own terms. "There is a large degree of mutual interest", states John Monks. "'Partnership' has become the common currency of industrial relations and in general that is a very good thing", says Digby Jones, Director General of the CBI.

155. If any left leader were prepared to make a stand they would receive enormous support. There exists a tremendous undercurrent of discontent in the workplaces and in the trade unions. But there is no focal point for this opposition, as was the case in the past. In the 1960s and 1970s, the Stalinists through the Liaison Committee for the Defence of Trade Unions were an important force to mobilise for unofficial action. Today, the Communist Party has collapsed. Where they exist in the unions, they are invariably on the right wing. There is no organised opposition at this stage. Bickerstaffe, who has now retired to a more comfortable environment, engaged in verbal radicalism, but also trailed behind the right wing. UNISON's opposition to PFI was never seriously taken into the Labour Party. Every time it came to a crunch, the union bureaucracy was prepared to horse-trade to get any controversial issue off the agenda. They act as a 'left' cover for the policies of the right wing. It is likely that Bickerstaffe got out in time because he has a vague idea of what is coming.

156. The vacuum in the trade unions is obvious for anyone to see. Even at the TUC, there are a layer of Lefts in a whole number of unions who have their heads down waiting for something to happen. The NUM, although down to around 6,000 members, given its traditions, could play a key role in organising this latent opposition in the trade union movement as well as in the Labour Party. When the NUM delegates speak, everybody listens. When Scargill spoke at the TUC he had the biggest ovation of the conference. But Scargill is not able to capitalise on this. On the contrary, he has become a barrier. Caught up in his Stalinist past and obsessed with his failed venture in the SLP, he his determined to maintain a tight grip. When he retires, a new militant leadership can possibly develop that can provide a catalyst for the opposition in the trade union field. That can be decisive in the period that is opening up.

157. There has been a loss of confidence on the part of the activists in the trade unions since the militant days of the 1970s and early 1980s. This was particularly the case after the defeat of the miners' strike of 1984/5. This laid the basis for a swing to the right and the policies of 'new realism'. The older layer of militants have been badly affected by the setbacks of this period. Lacking a Marxist perspective, they drew the most pessimistic conclusions. This mood even affected a layer of Marxists in the unions who had not thoroughly assimilated the perspectives and came under the influence of temporary moods among the activists with whom they were in contact. Many former militants have either gone over to the right, dropped out, or have their heads down. But on the basis of events, a new layer of activists will emerge.

158. Although things have been very difficult on the trade union front, we need to look below the surface of events and examine the underlying processes at work. We need to take a balanced and dialectical view of the changing moods in the working class. The number of strikes is an important indicator, but that is not the only source of information to gauge the mood in the working class. In any case, the mood differs from industry to industry, depending on the concrete conditions. While strike figures have been low, the number of strike ballots has been quite high. Not only that, but many have recorded votes for industrial action. The main reason why strikes have not taken place is because employers have been forced to grant concessions. The vote for strike action has been sufficient to make gains. The employers' offensive has certainly not been all a one way process!

159. The simmering discontent has burst through the surface in a number of cases. The strike of local authority workers in Scotland - a series of one day strikes by UNISON, and a section out indefinitely over pay - has resulted in widespread sympathy and the recruitment of thousands of new union members. In the London borough of Hackney, local authority workers in the T&G, GMB and UNISON have balloted for strike action over £20 million cutbacks, 500 redundancies and service privatisation. Over 94% of T&G members endorsed the action, as did 80% of UNISON members and 70% of GMB members. They will engage in strike action beginning with a one-day strike on 20th December. In Dudley also, 600 hospital workers are taking action over the proposal to transfer workers' contracts from the NHS to private contractors under a PFI scheme.

160. In the Post Office, there have been a rash of strikes, usually unofficial and illegal,