"Here is the social-historical foundation of a revolutionary situation. Of course it is a question of the struggle of living historical forces and not an automatic accumulation of arithmetical quantities. And this alone makes impossible a passive prediction of the stages of the process and the timing of the denouement. A finger must be kept on the pulse of the British economy and politics, and while not omitting overall perspectives for a moment, one must attentively follow all the partial fluctuations, the flows and the ebbs, and determine their place in the process of the capitalist decline. Only upon the basis of such a general orientation can the revolutionary party conduct its policy, the flexibility of which is expressed by the fact that while it does take partial fluctuations into account, it in no way loses sight of the basic line of development."
Leon Trotsky, February 11, 1926 (From Volume Two of Writings on Britain)
What are perspectives?
In the twelve months since the publication of our last perspectives document the political landscape of Britain has altered dramatically. Events internationally have continued to develop at breakneck speed too, from the continuing revolutionary developments in Argentina, and the revolution and counter-revolution unfolding in Venezuela, to the prospect of war in the Middle East. However, alongside these international developments, a year ago events in Britain were developing at a painfully slow rate. At times they looked like a slow motion replay of a snails' race. Now that has begun to change.
For a period of some years we attempted to chart and analyse the profound discontent that was being built up beneath the apparently calm surface of British society. In particular, we laid heavy emphasis on the accumulation of pent-up anger, bitterness and frustration in the workplace as a result of the ‘counter-revolution on the shopfloor'. British capitalism's concentration on increasing absolute and relative surplus value through new management techniques, speed-ups, and dependence on overtime - in other words the maintenance of the capitalists' profits at the expense of the sweat, stress and strain of the working class - could not continue indefinitely without provoking a response. At a certain stage new movements of the working class were inevitable. These movements, we explained, would have major repercussions inside the organisations of the working class, beginning with the trade unions, and then at a certain stage inside the Labour Party as well. This was the basis of our general perspective, within which we attempted to take into account each change and turn in events, whilst keeping our finger on the pulse of the economy, politics and the outlook of the working class.
We are now at a fundamental turning point. The accumulated anger of the British proletariat has begun to burst through the surface. The sleeping giant of the British working class has begun to stir. Even though we are still at a very early stage in this process, already there have been important consequences inside the trade unions, where a transformation has begun to take place, with the election of a whole series of new left leaders.
It is always necessary before proceeding to make an analysis of the present situation to review our previous perspectives. Not simply to correct this or that detail, which may have become outdated, superseded or proven incorrect by the march of events, but more importantly to look at the general trends we described, the broad processes at work in society. Did we analyse these correctly? Are events moving in the direction we thought likely? Answering these questions is an important starting point in preparing ourselves, orienting the tendency to intervene in the new situation which is unfolding before us.
This document should therefore be read in conjunction with previous perspectives. In relation to many detailed points these perspectives have been largely borne out. More importantly, in relation to the general process at work in the economy, in politics, and in the movement of the working class, they bear out how vital Marxist theory is for workers and youth who want to struggle to change society. By understanding the process, hidden beneath a thin veneer on the surface of society, we should not be blown off course by sudden and sharp changes in the situation but meet them fully prepared.
In preparing for the new situation developing in Britain, Trotsky's Writings on Britain, particularly his writings on the general strike, on the trade unions, and Where Is Britain Going? are required reading for every comrade. These are living, vibrant ideas with enormous relevance to British workers today, full of lessons which every thinking worker should study and absorb.
At the same time, this document must be read in conjunction with the latest World Perspectives. It is not possible to understand events in Britain in isolation from the rest of the world. The word globalisation has been rammed down our throats in the media for the last decade. Marxists have long understood that we live in the epoch of the world market, world relations and world politics. This fact dominates all our lives. For this reason we also live in the epoch of world revolution. The struggle of the working class of Britain is inseparably tied to the struggles of the workers internationally - far more than in any other epoch.
Events in one part of the world economy inevitably affect the rest. Political changes, diplomatic developments, wars, revolutions and counter-revolutions have repercussions in every country. The movement of the working class in one country after another has an impact on the workers' movement everywhere.
Here we find the purpose of Marxist perspectives. Using the method of Marxism, dialectical materialism, Marxism attempts to uncover the connections between events, not in order to make predictions, but in order to understand the different and often contradictory processes at work in society. To the degree that we can understand these processes, and which direction they are heading in, we can arm ourselves and advanced workers with an understanding of what is happening and why. This, as Leon Trotsky explained, is the superiority Marxism has over all other trends in the labour movement, "the benefit of foresight over astonishment."
If we look back over the past year or so, there is not one single event, but in reality a chain of events in the economy, in international relations and in the movement of the working class, which signal a turning point in the situation. Consciousness, which tends to lag behind, has begun to catch up with a bang!
To many commentators in the British media the magnificent one million strong national strike by members of UNISON, the T&G, and GMB on July 17, 2002 was 'a bolt from a clear blue sky.' They were suffering from a case of astonishment over foresight. Page after page and broadcast after broadcast was devoted to convincing us that such militant action was an aberration, a one-off. According to them, the fact that London Underground was brought to a standstill by a strike the following day was unconnected, and caused by the 'hothead left-wing leadership' of the RMT. How does the RMT come to have a left wing leadership? On this they are silent. They admit no connection between these events and the election of left leaders in a whole series of unions.
The magnificent strike of the firefighters, the first such action for a quarter of a century, left them speechless, except to say there was no connection with any of the other developments taking place. There will be no return to the "bad old days" of the 1970s we were all assured - after all, the trade unions are now social partners not militant workers' organisations. Simon Jenkins in the London Evening Standard (July 18, 2002) for example: "I doubt if London is in for a run of industrial disputes. Too much has changed. The public sector is not the monopoly it was. Union leaders may be more left-wing but few other than Mr Crow wield much power and he is only an occasional pain in the neck." Or even the editorial of The Guardian (July 19, 2002): "It is a bit premature, to say the least, to extract a lasting trend from events as disparate as a strike over safety at London Transport, a dispute over a trade union leader trying to hang on to his job too long and a strike by low paid council workers."
If this were the case in just one union, or just one strike, then it could be an accident, an isolated development, a question of personalities or special circumstances. However, the election victories of the left are not confined to one union but spread across every single union to hold such a ballot. Industrial action, especially the strike of the firefighters, although not on the same scale as in the 1970s, has dramatically increased. With only one or two exceptions, these are the first such national strikes in a decade.
In truth our ‘expert' journalists and analysts are taken by surprise because they have an empirical and impressionistic outlook. On the one hand they stubbornly refuse to see the connection between these events, seeking an explanation in the existence of some secret conspiracy of 'reds under the bed' and left wing agitators. On the other, they have been entirely seduced by the previous apparent stability, taken in by the bourgeois propaganda that the class struggle had ended - with capitalism the victor, naturally.
This shortsighted view is shared by the right wing in the labour movement, and in reality by the lefts, who also lack a perspective. One despairing supporter of defeated right wing union leader Sir Ken Jackson, speaking at the TUC, compared it aptly to the film, the Perfect Storm: "There is a certain amount of rain and a certain amount of wind, but it is coming together in a way that no one meant or could have foreseen."
On the contrary, the process of change that has now begun in the trade unions, the new upsurge in militancy, although still at a very early stage, was not only predictable but also inevitable. Only by seeing the connections between events, being armed with Marxist theory against the propaganda of the capitalists, by understanding what Trotsky called "the molecular process of revolution" which takes place now in the open, now beneath the surface, can workers and youth be prepared for the mighty events - and for the ebbs and flows in those events - which will unfold in coming years.
The current world situation is characterised by profound instability. The world economy, international relations, diplomacy and politics are in turmoil. The root cause of this tremendous volatility is the fact that capitalism has outlived itself on a world scale. The productive forces now strain against the limitations imposed upon them by the private ownership of the means of production and the division of the world into competing nation states.
The development of society, as Marx explained, is fundamentally dependent on the development of the productive forces. Over the last decade of boom, despite all their profligate waste, the American capitalists, along with the capitalists of all countries, have invested colossal sums in new technology and new machinery. As a consequence, inevitable because of the inherent contradictions of capitalism, we now have massive overproduction and overcapacity to produce.
Even the conservative economists of the Organisation for Economic Co-operation and Development (OECD) are now forced to concede that the US economy has not entered a new upturn but is experiencing a 'double-dip' recession. This will have profound consequences for the entire world economy.
The new slump will see much of the economy's overcapacity destroyed, but it will not be possible to simply pick up where they left off, with high rates of growth, in the new recovery that will inevitably follow the slump at a certain stage. There will not be a permanent slump any more than there could be a never-ending boom as the capitalists had dreamed. The boom-slump cycle is like breathing in and out for capitalism. Once a new equilibrium is reached, through the destruction of the slump, there will be a new recovery. This will be a much weaker period of growth however, and it will be accompanied by rising unemployment and a further intensification of the exploitation of the working class in all countries.
This new situation unfolding before us - a world dominated by war and slump - is unprecedented in the half a century since the second world war. For a period of decades the capitalist system experienced a considerable upswing, the reasons for this have been explained in previous documents. At least in the advanced economies there was full employment and rising living standards. This accounted for a relative social peace between the classes, and as a consequence, the further degeneration of the workers' organisations. There were notable exceptions to this social peace, of course. The revolutionary movement in France in 1968, for example, where ten million workers occupied the factories and even the theatres and could have transformed society peacefully were it not for the role of the workers' leaders, especially the leadership of the Communist Party.
At the same time the stand off between US Imperialism and Russian Stalinism ensured a relative stability between the nations, again with notable exceptions. These 'exceptions' occurred towards the end of the upswing and demonstrate something which Trotsky explained - it is not boom or slump that causes peace or revolution, but the change from one period to another, the instability and insecurity that inevitably accompany such change and disturbance.
These remarks of course concern the advanced capitalist countries. Meanwhile for the majority of humanity, living - or more accurately - existing in the more backward economies, particularly of Asia, Africa and Latin America, there has been never ending misery. The masses endure one indignity after another to prop up capitalism in the 'west', demonstrating the inability of capitalism to offer any way forward in a single one of these countries and on a world scale.
Now the world economy is entering its first simultaneous slump since 1974. This on its own would strike fear into the hearts of the strategists of capital. However, to this must be added the profound instability in the relations between nations. Economic and political instability are in reality two sides of the same process.
The US, as the world's lone superpower since the collapse of Stalinism, holds in its hands the most powerful weapons of mass destruction known in human history. Aggressively and arrogantly US Imperialism now stamps its authority on the world. Following their intervention in Afghanistan - which has solved nothing and aggravated everything - comes a new assault on Iraq. There are important economic factors involved in the intervention of the US in the Middle East, not least the control of oil supplies. Above all their intention is to strike fear into the hearts of the masses in these countries and the whole region. If they do not do the bidding of US Imperialism they will be bombed to kingdom come.
For the last period the world economy was kept afloat by the boom in the US. The steep falls of the stock market in 2000 and 2001 meant that the US boom was effectively running on one engine. That engine was being fuelled by consumer spending, which, in turn, was based on a massive expansion of credit and indebtedness. The net wealth of US households has fallen by 20% in the last two years, but American consumers continued to spend. They have been spending tomorrow's money today, i.e. they were spending credit. This has its limits, which is now being reached. Despite all the claims of "sound fundamentals" - a sure sign that slump is on the way - profitability has fallen and investment with it. There appeared to be some signs of recovery early last year. In reality this was only a case of returning to the downhill path, after the shock of September 11th.
To hide the truth about falling profits, in order to maintain the value of their shares and their dividends, the US monopolies pursued a crude policy of lying and cooking the books. The result was the bankruptcy of Enron and others, which served to expose the weakness of the US economy. Their 'logic' was easy to follow. The boom was supposed to continue forever. Therefore the fall in profits must have been a blip. If they covered it up, sooner or later profits would improve again, and in the meantime they would have maintained confidence. It was a giant confidence trick.
Although Christmas spending has been weaker than expected, they will once again convince themselves that a recovery is underway. In reality there can be no real recovery until the levels of profits recover. Investment has fallen month on month throughout the last twelve months. Two million Americans lost their jobs last year. In a desperate attempt to maintain growth in the economy the Federal Reserve has cut interest rates to their lowest level since the early 1960s. If you combine the interest rate with the level of the consumer price index, then real interest rates (the cost of paying back loans compared to the decline in value of money in your hand eaten away by inflation over the same period) are actually negative. While profits are falling however, no matter how low interest rates get the capitalists will not invest in production. They will not borrow to invest when there is not only little chance of making a decent return on their investment, but also they cannot even afford to pay back their current debts. American Airlines have filed for bankruptcy unable to pay up on debts of a billion dollars.
After all interest rates of zero have not helped the ailing Japanese economy. Faced with twelve years of recession, with no real recovery, the Japanese capitalists have pumped the equivalent of the GDP of France into the economy in an effort to stimulate growth through Keynesian measures, but to no avail. They are terrified that Japan's experience could be repeated in America. The decisive factor in Japan's crisis is the enormous level of debt inherited from the 1980s boom.
In the US low interest rates have fuelled consumer credit and above all an unsustainable property boom, just as in Britain, Australia and elsewhere. House prices have been climbing at a rate of over ten percent in the US (in Britain the rises have now approached 30 percent!). When this house of cards crashes it will have a massive impact on consumer spending dragging the whole economy down still further.
American consumer spending has been responsible for mopping up much of the world's overproduction. This is testified to by the trade deficit running at an historic $37 billion per month. When US consumers stop spending - as they will when they can't afford to pay their debts, when their jobs are threatened, when the value of their houses fall, and when the instability of war hits home - the world economy will be hit for six.
War with Iraq, rather than providing an opportunity for economic recovery through arms expenditure as some economists have claimed, will have a negative impact on consumer spending, and will drive the price of oil upwards with drastic consequences for the world economy. Politically and economically this war, will solve nothing, Instead it will add a new element of instability to an already volatile international situation.
Whilst it is impossible to predict the exact nature of the slump, what the capitalists fear is not slump in itself. They know, at least some of them know, that sooner or later they will recover from a slump. What they fear more is the prospect of the slump leading to a rise in protectionism. The development of world trade, the much-vaunted globalisation, has played a central role in the development of the world economy over the last fifty years. The growth of international trade, the lowering of tariff barriers and so on, enabled capitalism to partially and temporarily overcome the limitations of the nation state. That could all unravel in the next period. In the last two years there has been virtually no growth in world trade. Intensified struggle for shrinking markets could lead to new tariff barriers and other protectionist measures. The US has already introduced such policies in relation to steel, textiles, and other commodities. If this policy becomes generalised it can result in tit-for-tat measures, even trade wars and competitive devaluations resulting in an even more severe crisis.
At the heart of this developing crisis is overproduction. Marx explained that this is the root cause of every capitalist crisis. Capitalism's insoluble dilemma is that if the workers' wages increase then the market is expanded but the capitalists will not invest because of the limitations of their profits. On the other hand if they increase their profits by limiting the wages of the working class, then the capitalists will not invest because of the limitation of the market. Ironically it has been the massive overproduction of new technology, computers, chips, and mobile phones that has led to the crisis in the US. This sector we were told just a few years ago would be the saviour of the world economy. By some mystical process, never explained, Information Technology would transform the economy, and end the boom-slump cycle. At the very least it was going to provide the basis for a new expansion for decades ahead. This was the New Paradigm. Instead, the fact that even the newest industries have fallen foul of the basic contradictions of capitalism in just a few short years demonstrates the decline, disease and enfeeblement of the capitalist system.
The Marxists explained that in economic terms these developments were nothing new anyway. Marx long ago explained that capitalism means the constant revolutionising of the means of production, in order to increase their profits. Capitalism always seeks new fields in which to invest the surplus value they extract from the working class, and at the same time they are always seeking new markets in which to sell their goods. Despite all their pipedreams about first Russia and then China becoming new markets for their goods, they neglected the fact that a market is not just a number of people with needs. It is a number of people with money to spend. Despite their vast populations, there are not many with enough money to spend on US consumer goods.
There remained the new field of investment, new technology. As always under capitalism a new field of investment offers spectacular returns, and consequently all the capitalists pile in producing more and more. Meanwhile the rate of return falls back towards the average, and eventually there is overproduction. Rather than being the saviour of the world economy, new technology has been the field in which overproduction, the ultimate cause of the current crisis, began.
This overproduction is not confined to the IT sector, however, but now applies to all commodities. The overproduction of cars, which has reached unprecedented levels, has resulted in price wars in the US, and further devastation to car plants in Britain.
We have explained previously how even during the boom the world was dividing into rival trading blocs, the US and NAFTA, the European Union, and Asia and Japan. This is an indicator of the trade wars that will develop in the future. Under conditions of ferocious competition for shrinking markets the tensions between these blocs will intensify.
Not so long ago the capitalists of Europe were claiming they would avoid a recession. Now they are not so smug. Except for the British capitalists, who even now are vainly making the same empty boast. The European economy is already in recession. In Germany unemployment has risen to over eight percent of the workforce. The introduction of the Euro has not saved them. Its purpose was to stimulate trade between European nations, thereby developing the productive forces and the profits of the capitalists. Having been introduced just as unemployment takes off and the economy has gone into decline, it has meant that member states have been unable to use the mechanisms used in the past to ameliorate conditions, such as devaluation, and public borrowing and spending. Instead the entire burden of the crisis has been placed on the shoulders of the working class, with massive cuts in spending, attacks on pensions, wages and conditions. This has already resulted in big strike waves on the continent, in Germany, even general strikes in Greece, Spain and Italy, where three million workers took to the streets of Rome.
The limitations being imposed on each of the nation states of Europe along with the cutthroat competition between them for markets could even lead to the break down of the whole single currency experiment, though not the EU as a trading bloc. The conditions of a prolonged boom expanding markets and profits for all might have enabled them to succeed and even go further. The development of slump however will tend to throw this process into reverse. In reality the European Union is a glorified trade bloc of European nations against the US and Japan.
In theory, Europe and America are allies - one big happy family of democratic nations, united in the common interest of defending "western civilisation". In practice, the antagonism between Europe and America is growing all the time. The struggle for diminishing markets on a world scale has led to a sharp increase in protectionist tendencies, such as those illustrated by the actions of the Bush administration in relation to steel, textiles and agriculture.
Preparations are now supposedly underway to form a European defence force. The European bourgeoisie wants to build up its own military force because it does not trust the Americans to defend European interests. On this score they are correct. The interests of the US bourgeois and their European counterparts are not only different, but often contradictory. At the same time, there are many contradictions between the rulling classes of the main European powers themselves. This means that a real common foreign and military policy is impossible to realise.
When trying to analyse the different tendencies involved in international relations, it is important to be careful to distinguish between the public propaganda about the so-called European ideal and the interests and cynical manoeuvres of the different national capitalist classes that are constantly seeking to gain an advantage at the expenses of the others.
In the last analysis, the idea that Europe could rival the USA on a capitalist basis is absurd. In reality, the USA has forced Europe to accept its dictates, as it did in the war in Kosovo, without the slightest regard for its European "allies".
Since the European capitalists will be compelled to participate in foreign military adventures anyway, would it not be better to do so under their own flag, instead of constantly being blackmailed and bullied by Washington? Such is the rationale behind the idea of a European defence force.
However, the decisive questions relating to a European defence force are never stated. First, who pays for it? And second: Who will control it, and decide where and when it is to be used?
Some people have apparently tried to argue from a "left" point of view that a European defence force would be progressive since we Europeans are more civilised than the American imperialists and would use military force to uphold peace and democracy, or words to that effect. Clausewitz correctly pointed out that ‘war is only the continuation of politics by other means.' The bourgeoisie will wage war only to further its own selfish interests, whether they are American British, German or any other nationality.
It is rather strange to argue that "we Europeans" are more civilised than the Americans. Such an argument leaves out of account the conduct of British, French, German, Dutch or Belgian imperialism in the past. History hardly provides much evidence of our supposedly "civilised" conduct! The only difference today is that the European imperialists are too weak to show their teeth as they did in the past.
The force itself is still only an embryonic project. It is supposed to consist of 60,000 troops with Britain and Germany paying 15 percent each, and France slightly more. Its role is supposed to be confined to "peacekeeping, crisis management and humanitarian operations." These days virtually all armies are supposed to be engaged in such activities, just as in George Orwell's 1984, the ministry of war was called the ministry of peace. But as Kosovo showed, a "humanitarian" "peacekeeping" mission can be very effective as a means of bombing and occupying territory.
Here, however, we arrive at yet another contradiction. The notion of "European interests" is itself an abstraction. The interests of the German, French and British capitalists do not necessarily coincide. The fact that France, despite its long colonial involvement in west Africa, has not lifted a finger to help Britain or the UN "peacekeeping" mission in Freetown testifies adequately to this.
Since a standing army is not envisaged, but each country will be asked to provide troops as and when required, there is plenty of scope for future quarrels. In fact, they have tacitly recognised this by stating that no country will be obliged to contribute soldiers to a mission whose objectives it does not support! This does not augur well for the future of the force as an effective fighting operation.
The move towards a European defence force is an expression of the growing tensions and rivalry between Europe and America. This leads us on to yet another contradiction. If the European defence force gets off the ground, what role will be left for the US-dominated NATO?
The Americans, fearing loss of control, are insisting that the new force must only be used in situations where NATO (i.e., the USA) does not want to get involved. They are also concerned about the inevitable duplication of planning, intelligence and procurement. But the Europeans are determined to pursue their own interests. Already, it seems, Lord Robertson has warned Tony Blair that the new force could spark off a transatlantic crisis.
The French, pursuing their old ambitions, want to loosen America's influence in Europe. Britain, and to some extent Germany, have resisted this in the past, but this may now change. If the new force does get off the ground it will inevitably lead to a crisis, and even a split in NATO at a certain stage. This is an expression of the growing tensions between Europe and America.
Should we welcome this development? There is nothing progressive about either NATO or the proposed European defence force. From the standpoint of the European working class, the attempt of the European bourgeoisie to place their armies on an equal plane with those of the USA can only signify one thing: new and deep cuts in living standards. Such a policy would be ruinously expensive and, in the context of a world economic crisis, could only signify further attacks on social spending.
The first problem is that a European defence force, if it is to be effective, must be properly armed and equipped, at least up to the latest American standards. Who will pay for this? At a time when the working class is being told there is no more money for schools, hospitals and pensions, we are also told that more money is needed for bombs, tanks, satellites and warplanes. But it is clear that one thing excludes the other.
The working class must oppose wasteful arms expenditure, counterposing a programme of useful public works: not more guns and tanks but more hospitals, houses, schools and nursery schools are what are needed.
The development of slump in the next period will tend to throw the process of European integration into reverse. The utopia of European integration is only the screen behind which the capitalists of the big European nations, particularly Germany and France hide their ambitions to dominate Europe's immense markets. The decision to include ten new member states is a recognition of Europe's main capitalist powers' intention to spread their domination through the Balkans, southern, central and Eastern Europe.
The ambivalence of the British ruling class towards the Euro and Europe in general is a reflection of the splits in the British bourgeoisie. Those linked to manufacturing industry recognise the vital importance of Europe's markets for their goods. They favour joining the Euro as an antidote to the high value of the pound, which contributes to making British goods less competitive. The parasitic finance wing of capital, on the other hand, sees the future of British capitalism as a satellite of US imperialism. The British ruling class may dither and hesitate, dreaming of a renewed role as a world power, but while they fiddle the Euro is struggling, and whilst not burning, the streets of Rome become very hot beneath the feet of three million workers.
Bank of England Governor Eddie George, speaking on behalf of the city of London, has thrown further doubt on Britain's compatibility with the eurozone economies, with little more than six months to go before the Treasury decides whether its five tests for entry have been passed.
"What you have in the eurozone at present is substantial weakness in the German economy in particular... and that has an impact on the whole of the eurozone which is more pronounced than the situation here," he explained.
"In those circumstances, I don't think there's any reason at all to
assume that interest rates should necessarily converge."
In the next period the contradictions between the nation states of Europe, Germany and France in particular, between whom Britain will attempt to manoeuvre, will intensify.
The formation of the EU was a tacit admission by the bourgeoisie that the old national states have outlived their usefulness and become transformed into reactionary barriers to the free development of the productive forces.
We are in favour of the unification of Europe, but we recognise that on the basis of capitalism, as Lenin explained, a united Europe is only a reactionary utopia. We are opposed to the Europe of the big banks and monopolies that represents a future of unemployment, cuts and misery for millions. On the basis of capitalism as we have always explained there can be no united Europe.
The past is now behind us. We have entered a new period on a world scale. Instead of New Paradigms, and New World Orders the future unfolding before us will be dominated by wars, slumps, revolutions and counter-revolutions. Such crises already exploded in the more peripheral countries of world capitalism, Indonesia, Ecuador and so on. They have spread to Argentina, and now impinge on the shores of Europe and the US. Even Britain, which on the surface appeared to be immune to the disease of capitalist crisis, has now entered a new period of storm and stress. The British proletariat will play its full role in the struggles of the working class internationally. In the decades in front of us the fate of humanity will be decided by those struggles.
The British economy is the second biggest in Europe, with a GDP of around £1,000 billion. Only Germany is bigger. However bald statistics can be used to mask the real situation. This figure tells us little about the continuing deterioration of British manufacturing industry which has been partially hidden by the development of services, banking and speculation. It is true that the UK economy has grown faster than Europe and even the US over the last year. Inflation and unemployment are low. Such figures have no doubt served to bolster Blair and Brown's delusion that they had succeeded in abolishing the boom-slump cycle.
This has been the mythical Holy Grail chased after by every bourgeois politician and economist. There is no such cure. Booms and slumps are like breathing in and out for capitalism. In the words of the song "you can't have one without the other". In reality it is precisely the weakness of Britain's economy, its heavy reliance on services and the financial sector, which has masked the further destruction of manufacturing industry. However, as a result, Britain is more dependent than ever on the world economy. Recession internationally will hit Britain very severely indeed.
Blair and Brown have persisted with the delusion that Britain can escape the effects of a world slump. Now their words of foreboding about the "dangers ahead" suggest that reality has begun to penetrate even the skulls of the Labour leaders. In the next period all their delusions about abolishing boom and bust, and abolishing the Labour Party, will be blown apart. Participation in the single currency would not save the British economy, which fundamentally suffers from decades of under investment. Besides the Euro and the eurozone economies have troubles of their own. At the same time remaining outside won't save them either. Britain's manufacturers complain that remaining outside the Euro with an overvalued pound is crippling them. The main reason for their lack of competitiveness however, is their failure to invest in updating machinery and skills in the economy.
We have charted the destruction of Britain's manufacturing base over many years. The last century witnessed the slow, inglorious decline of British industry. From the workshop of the world Britain has been transformed into a sweatshop. Dark Satanic mills have been replaced by dark satanic call centres.
This decline has continued apace even during the recent years of boom. The last car to be produced at Ford's Dagenham plant rolled off the production line last year, marking the end of 70 years of production. Vauxhall's Luton plant, with a similarly long history, was closed too. These two examples illustrate quite clearly the continuing destruction of manufacturing industry in Britain. A further quarter of a million manufacturing jobs were destroyed in the first half of last year.
Steel production was always considered an important indicator of the strength of an industrial economy. Judging by the furore surrounding Bush's implementation of a massive tariff against imported steel to protect the US steel industry (which is a foretaste of future trade wars) it still is. Previously Britain dominated the world in this vital sector. Now Corus, the privatised remnants of the British steel industry has fallen out of the FTSE 100 index of the biggest companies. In the 1970s British steel employed 250,000 people. Today Corus employs just 25,000 in Britain, and another 25,000 overseas. They are more concerned with mergers, like that with Brazilian steelmaker CSN, than with investing in production. In fact, such mergers and acquisitions are the main concern of Britain's capitalists. In this sector at least they dominate the world. They prefer to buy up already existing production, in order to asset strip - and the same applies to privatisation, which is a licence to print money rather than to invest in public services - instead of the risky business of investing to develop production.
The British coal industry was almost destroyed by Thatcher in the 1980s. What remains of the privatised coal industry in Britain is on the verge of closure. As a result, compared to the past, Britain now has a much depleted steel industry and coal industry, and the same is true of the shipbuilding and car industries.
Employment in manufacturing in Britain now represents just 14 percent of the total. This is a damning indictment of the destruction of British industry over a whole period. The British economy is heavily dependent on banking and services. In 1990 the UK had a trade surplus of £7billion in insurance, finance and computer services. By 2000 that had grown to £28billion.The triumph of finance capital over manufacturing is reflected in their political dominance too. Not just the Tories, but also the Labour leaders now do the bidding of the city of London.
Having said that, manufacturing industry remains decisive, despite the shortsighted approach of British capital. It represents 62 percent of all returns on exports. It is not possible for the economy to survive on the basis of services alone. This was the delusion of Thatcher and co, which has been continued under Blair and Brown. Surplus value is created in industry. Capitalism is above all the production of commodities. Services meanwhile are parasitic by nature. They consume surplus value. There has to be manufacturing to create the wealth to spend on services, as Mike Legg (Chairman of the Engineering and Machinery Alliance) points out "it creates the wealth and spending power that feed the service sector." (Financial Times 05/02/02)
Manufacturing output is falling at a 3% annual rate, bringing overall growth in the economy down towards just 1%. Of course, the forecasts for 2003 remain optimistic. The economic experts expect 3% growth in manufacturing and 2.5% growth in the economy as a whole.
But leaving aside the likely economic recession in the rest of the world - world trade, the former motor of world capitalism, did not grow at all in 2001 and barely registered in 2002 - there is little justification for expecting the UK to resume 2-3% growth next year. UK businesses resolutely refuse to invest in Britain. What investment takes place is often to move production to cheaper locations abroad.
Investment is falling at a near 10% rate (See Chart) and imports flood into the country to compete with UK industry. As a percentage of GDP business investment has fallen from 15 percent to 12 percent since 1999. Property prices are an indicator of the state of the economy in more ways than one. While house prices have enjoyed meteoric rises, commercial property prices rose by just two percent last year. In reality, Brown and the Treasury know the real truth about British industry. There has been so little investment over the last decade that despite working the longest hours and having the shortest holidays in Europe, the productivity of British workers remains well below that of France, Germany or the US.
The Treasury's own recent study shows that American workers are 30% more productive, French workers are 25% more productive, and German workers 15% more. Only Japanese workers do worse with the collapse in output. No matter what productivity improvements are squeezed out of British workers they cannot compete with productivity levels in their competitors' economies, which is boosted by both squeezing the workforce and investing in new machinery. In the last five years, productivity has improved by nearly 2% in the US and Germany, but only by 1.4% in the UK.
Between 1995 and 2000 manufacturing output grew by 27% in the US but only by 11% in Britain. Approximately speaking the US economy now produces almost twice as much as it did in 1973 with the same number of workers, whereas Britain produces about the same amount with the workforce cut by one half. This means that the US economy has invested in new machinery and increasing productivity in order to expand output and gain a bigger share of the world market. Meanwhile Britain's capitalists have concentrated on squeezing us harder to get more profits but a declining share of the world's markets. This is the real meaning of the counter-revolution on the shopfloor over the last two decades. It has been a desperate attempt by capitalism to increase Absolute and Relative Surplus Value.
A recent report by The Institute of Management Services acknowledged that "the superior performance (in improving productivity) in manufacturing relative to services reflects efforts by manufacturers to further reduce staffing levels while simultaneously boosting output."
While British workers work longer hours than their counterparts in Europe and the US, their productivity while in work has been increased through a remarkable increase in toil. This pressure could not continue indefinitely without provoking a response from the working class. It is not the ‘laziness of British workers' but the failure of British capitalism to invest which makes British manufacturing uncompetitive.
This is also illustrated by the UK Treasury survey, which shows that US capitalists invest 46% more in capital equipment per worker than their British counterparts. In the high-tech sector they invest nearly three times as much! The French capitalists invest 75% more and the German capitalists 50% more.
The other factor that drives productivity is the skills of the workforce. Britain's short-sighted capitalists prefer cheap unskilled labour. According to the Treasury study, 57% of UK workers have no qualifications compared with 54% in the US, but only 32% in France and just 20% in Germany. No wonder the profitability of UK companies has fallen sharply in the last five years and is now back to the lows of the early 1980s. Profit levels are £30 billion below what they would have been if they had grown at the same rate as GDP.
The UK's poor productivity and company profitability demonstrate that to a large extent British capitalism gave up on industry and manufacturing a long time ago. Instead, the UK has increasingly become like a rentier economy. It is an economy that does not make much any more, and what it does make is largely foreign owned, the result of foreign investment. Instead, British capitalism concentrates on selling things others make or on lending money to others to make them, or else it lives off the income 'earned' from investments it makes abroad. This is increasingly an economy that survives through business services and finance. That sector alone now contributes nearly 29% of each year's national income. Financial services contribute 9% towards annual income and they now provide the single biggest area of employment outside the public sector.
Investment is not into the productive sectors of the economy or even into the public sector to maintain the infrastructure (railways, roads) and services (health, education) that are vital to make the private profit sector work. Despite the headline figure of the second biggest economy in Europe - which in any case depends on what measure you use - anyone travelling on Britain's roads or railways would conclude that Britain was at best a second rate economy.
Although Britain's GDP per person is high, so are prices and the cost of living. At what the economists call purchasing power parity levels Britain's per capita GDP is ninth out of the 15 EU economies. At the same time Britain is amongst the most unequal of all industrialised countries. GDP per capita is just a statistic. The wealth is not really divided up evenly amongst the population. The share of total income received by the poorest tenth of the population is under 3 percent, while the richest tenth share nearly a third between them.
There are 3.9 million children in Britain living below the poverty line. There are 150,000 16 and 17 year olds who receive nothing, not in education, training or work, they are too young to claim job seekers' allowance. Many of the parents of the millions of children living in poverty are not even unemployed. 1.75 million children live in households where one or both parents work, and yet their income falls below the poverty line by more than £50 per week. So much for the minimum wage, and Brown's stated, yet hardly ambitious aim of reducing child poverty by half in the next half a century.
Half of all parents on Income Support are paying off loans from the social fund, which lends rather than grants money for things like household repairs. British capitalism is very democratic. Even the poorest are forced to get up to their necks in debt. The Citizens' Advice Bureaux are dealing with new cases of bad debt worth more than £1.2 billion each year.
Door-to-door loan merchants are leeching fortunes out of the poorest estates in Britain. Offering loans at massively inflated interest rates compared with the banks, which would refuse the unemployed and the low paid, they charge anything between 100 and 1000 percent for their loans. A survey conducted on three streets on the Meadowell estate on Tyneside found residents paying out more than £60 a week each to such credit companies. Their average income meanwhile is £200 per week. In total the residents of these three streets are paying out £375,000 a year to companies like Provident who made a pre-tax profit of £150 million on loans like these last year.
These facts, which can be added to at will, are sufficient to illustrate the terminal decline of British capitalism. On the basis of this miserable, diseased system there is absolutely no way out for the working class and the mass of the population.
Far from the fundamentals being sound, the weakness of the British economy - the decline of which has been masked by the world boom, but which has not halted - means that Britain will be hit hard by a new slump. Blair, Brown and co who imagine they have solved the boom slump cycle will find they have no more solved the contradictions of the capitalist system than they have solved the problem of Ireland.
The heavy reliance of the British economy on banking and services, and the decline of her manufacturing base mean that Britain is especially dependent on the world market. This is reflected in the record trade deficit. Falling exports saw Britain's trade in goods fall into its deepest deficit since the state began collecting records in 1697 during the reign of William of Orange. Imports in 1697 were £3,344,000 while exports and re-exports were £3,391,000, giving us a surplus of £47,000. Today, the economy is worth around £1,000bn a year, and the trade deficit in goods was running at well over £100m a day in October. UK trade in manufacturing, food and oil was in the red by £3.6bn in October, compared with a shortfall of £2.7bn the previous month.
Meanwhile, Brown predicts a rebound in Britain's exports next year on the back of a stronger global economy. There is no evidence to suggest such a recovery in the world market, on the contrary, all the evidence points in the opposite direction. Brown's statement nonetheless confirms the extent of the reliance of the British economy on the world market. The Labour leaders have placed all their faith on the world market, but that horse will prove to be lame.
The value of Britain's goods exports fell by almost 4% in October, while imports were up by just over 1%. Over the latest three months, which statisticians consider a better guide to the trend than one month's figures, both exports and imports were down - by 8.2% and 1.6% respectively.
Even though the deficit in goods was partially offset by a surplus in services, officials said that the country's underlying trade picture was deteriorating. In the three months to October, the figures showed a deficit in goods of £9.8bn - another record. The Office for National Statistics said that total exports had fallen by £4bn over the latest three months, with the collapse in the demand for hi-tech goods blamed for a hefty drop in overseas sales of computer components, such as microchips. Exports to the Irish Republic, which became a European base for US computer firms in the 1990s, fell by £1.4bn as a result of the global downturn since the end of the dotcom boom almost three years ago.
Traditionally, the balance of payments became a worry to the government because excess demand sucked in imports. The trade gap was an early warning of inflationary pressure building up in the economy. This would prompt them to increase interest rates, as would the dumping of sterling on world markets, which would follow a continuation of such poor trade figures. Such an increase now would result in a further collapse of investment, and of consumer spending, sending the economy spiraling into recession.
This time, however, the problem is exacerbated by the weakness of exports, with the widening of the deficit a reflection of the competitive - and deflationary - pressures in the global economy. This would usually prompt a cut in interest rates to try to boost spending and investment.
The bourgeois economists cannot agree on what to do next. Some argue that Britain should join the euro. Others argue for a devaluation. Raise interest rates, cut interest rates. Blair and co prefer the Mr. Micawber approach - "something will turn up". In the end, whatever they did would make no difference. Something will indeed turn up - a slump.
Weak global demand, the strength of the pound and the failure of Britain's capitalists to invest means that industry in Britain just as elsewhere has already been in a recession for the past year. This has been masked, however, by consumer spending, which continues to defy gravity.
The successes of the UK economy under Labour since 1997 were made possible in the first place by the great stock market boom of the late 1990s. That boom drove up the wealth of the rich massively. On average, the wealth of UK households reached four times their annual income. Of course, that ratio was much higher for the rich. With the rich and the middle-class feeling rich, they spent money and the economy went forward. Brown and co's claims to have fixed the economy appeared to have a ring of truth about them - but only if you were taken in by the glitter on the surface.
The bubble of the stock market has long since burst. Stock market prices are down 60% since their peak in March 2000 and the bonuses of the fat cats in the City of London have been cut, while the big investment houses are sacking their workers (the lower-paid ones of course). The wealth ratio has fallen back to just three times, a 25% loss (on average and higher for the rich). If the stock market continues its decline in 2003 it will be on course to be the longest bear market on record.
But there is still one bubble left in UK capitalism - the property market. While UK industry stagnates and the financial sector cuts its throat, house prices go on rising at a 30% rate. This cannot last. And while it does, in the words of the deputy governor of the Bank of England, Mervyn King, it is causing 'major imbalances' in the economy.
Sir Eddie George, the governor of the Bank of England, has confirmed that the fear of stoking the boom was one reason why they had held back from lowering borrowing costs.
"The risk of cutting interest rates now is if it would exacerbate larger risks further down the road... of a larger shock later on," he said.
Much of the surplus value created by British workers is being sucked into property speculation or investment overseas instead of being invested in improving productivity and profitability in productive sectors or into exports. As a result, the Bank of England fears that inflation will stay higher than in Europe or the US because of the property boom, forcing the Bank to keep interest rates higher than in Europe or the US (UK 4%, US, 1.25% and Europe 3.25%). In turn these high interest rates will stop companies borrowing to invest, so economic growth will weaken. The economic gurus at the OECD demand that the Bank of England increase interest rates to reduce borrowing and spending. They imagine this would allow the economy to achieve a soft landing. It would result in an almighty crash, with a collapse in investment and spending. With rates at 4 percent, a rise of just one percent would represent a rise in monthly mortgage payments of 25 percent. The consequences for spending would be calamitous. Yet the Treasury itself is forecasting such a rise over the next twelve months. Even if the onset of a slump encouraged them to cut rates instead as Eddie George points out that would only extend a little more credit, resulting in a greater crash later. Doing nothing will not cause investment to rise, any more than doing something would. Jobs will be lost and the property bubble will burst. All this could happen just at a time when the world slips into a new recession.
The Bank of England admits that consumer spending on the basis of credit is all that is keeping the economy afloat. Such growth is unbalanced and unsustainable but, says Eddie George, "We have taken the view that unbalanced growth is better than no growth at all."
As a result the level of indebtedness has reached record proportions in Britain during the boom. Consumer borrowing has been growing by 14 percent a year. While outstanding home loans now amount to £400 billion, other personal debt, credit cards, overdrafts etc, now total over £80 billion. As Marx explained credit takes the market beyond its limits. It is spending tomorrow's money today, and consequently when tomorrow comes there will be nothing to spend. This is a binge, and as we all know from experience, there is always a morning after the night before. As ever it will be the working class who will be asked to pay for capitalism's hangover.
Hanging over the British economy right now is an unsustainable property boom, or more accurately, property bubble. House prices have reached record highs, with prices rising in some parts of Britain by 30 percent last year alone, almost reaching the 34 percent record at the end of 1988. One year later prices collapsed. (See Chart) This is a crisis of capitalism's own making. But it will be the working class who will be asked to foot the bill. Capitalism peddled the myth that the boom was never going to end. Interest rates fell to 40-year record lows. Borrowing was easy. So why not buy a new house? The statistics are clear, but you only have to look at the TV schedules dominated by such programmes as The House Doctor, Hot Property, and Location, Location, Location to see the obsession with housing in the British economy.
Of course if everyone starts buying houses then inevitably prices rise, and if they rise so much that the house you bought just a few years ago is now worth far more than you originally borrowed, why not borrow a bit more of that spare equity, to buy a new car, a new television, or to pay for a holiday? The Centre of Economic and Business Research calculates that such equity withdrawal amounted to almost £40 billion last year, £10 billion in the three months from April to June alone, financing six percent of consumer spending. A colossal speculative house of cards has been built which must sooner or later crash.
Yet in a desperate attempt to place one more card on top of the already wobbly structure the banks come up with scheme after scheme to convince you to borrow. The Northern Rock Building Society is prepared to loan up to £1 million on the basis of a self certification mortgage, i.e. a mortgage where they don't bother to check your income before they lend you the money. Bristol and West have just introduced a 40-year mortgage for 110 percent of the value of your property, where you can borrow up to four times your income. Some lenders will offer you a loan for six times your annual income. This is a desperate attempt to keep the property bubble from bursting. It is also a recognition of the fact that workers are already struggling to pay for their housing needs. There is a chronic shortage of rented accommodation, and workers on average wages cannot afford to buy. In the past you could typically only borrow three times your income for a mortgage. With average house prices in London now over £200,000 however, you would need to earn over £60,000 per year to get a 95% mortgage on a modest family home.
In fact the housing shortage and the cost of housing have already played an important part in generating the new mood of militancy. Workers in London in particular, but not only in London, have been on strike precisely over wages to pay for housing. This is true of several disputes over London weighting. Even the firefighters have explained that in many cases they cannot afford to live near their fire stations, and have to take on second jobs to pay their bills.
This bubble will burst. With jobs under threat people will not buy new houses. Already prices are reaching a limit, which explains all the new schemes to entice you to borrow. With average prices, in London particularly, reaching seven times average income, they cannot rise much more. The rise of 30 percent will be followed by a fall of similar proportions. Many thousands will be trapped with negative equity (owing more than the value of their property). Some will lose their homes. Now it is only a question of whether slump in the economy will lead to a crash in property prices, or whether the bursting of the property bubble and the collapse of consumer spending which will follow will push the economy deeper into recession.
For all their pipedreams Blair and co will not prevent a slump. Old King Canute had more chance of holding back the tide.
In any case, even before the slump there have been important political developments, affecting all classes in society. There is a renewed mood of militancy developing in the working class. At quite an early stage there have been important changes taking place in the trade unions. Political and economic developments, at home and abroad, in the next period will have dramatic consequences for British society.
The boom did little to benefit the lives of millions of workers. The onset of a new slump, factory closures, rising unemployment, will hit workers hard. However it is not simply conditions of boom or slump, which determine the outlook of the working class. It is above all the uncertainty caused by change, the movement from boom to slump and vice versa which disturbs the outlook of workers and indeed all classes in society. We do not welcome a slump because of the consequences for the lives of millions of workers. Nor do we await a slump, anticipating that such a development will mean an explosion of strikes and militancy. On the contrary, the first effect, of a deep slump in particular, is usually to check the movement of the working class, because of the fear of losing their jobs and their houses. However, this is not a black and white, automatic response either. What is decisive is the situation that existed before the onset of slump. In the event of a deep recession following a per