We continue publishing here the latest analysis of the world situation by the International Marxist Tendency. In this third part, we look at the development of the situation in the "BRICs" - Brazil, Russia, India, and China - which were held up by many bourgeois commentators as being possible saviours of the world economy. Now, however, we see contradictions and tensions emerging in all of these countries.
Since the end of the Second World War, the most important motor force for the world economy has been the growth in world trade. However, the UN agency UNCTAD now predicts that world trade is likely to remain sluggish for many years, and this will have profound effects on emerging economies that have depended on exports.
The exaggerated hopes that Asia could act as the motor force of the world economy have been dashed. China’s growth is slowing and India is falling still faster. The European economy remains stalled and Japan’s prospects are already fading. The Japanese government has attempted to revive a stagnant economy by pumping in money. But this policy is completely unsound. Japan’s government debt amounts to 250% of GDP. The BRICS are all in the same position and even IMF predictions for the South East Asian economy have had to be scaled sharply downwards. The IMF now talks of “a structural slow-down occurring” in emerging economies.
Growth in the so-called emerging markets has slowed. This is not difficult to understand. If Europe and the USA are not consuming, China cannot produce. If China cannot produce, then countries like Brazil, Argentina and Australia will not be able to export their commodities.
The speculative money that flowed into the BRICs in the last period is now flowing out, causing a steep fall in the value of their currency. The Indian rupee, the Indonesian rupiah, the Argentinean peso, the Brazilian real and the South African rand have all registered sharp falls. Nigeria’s finance minister warned that the end of US quantitative easing will rattle emerging markets and lift their borrowing costs. The same point was made by Najib Razak, the Malaysian prime minister, who predicted that money will flow back to the USA.
Strong economic growth and rising living standards blunted the class struggle for much of the past decade, but in both Brazil and Turkey growth has plummeted. In fact, across the developing world growth has slowed markedly to levels that make it difficult or impossible to permit the entry into the labour markets of the new generation of youth.
The crisis of the BRICS is organically related to the slowdown in China. The emergence of China, which was seen by some—even some who called themselves “Marxists—as a guarantee of the future of world capitalism, has only served to sharpen all the contradictions. For a period, the explosive growth of the Chinese economy provided oxygen to world capitalism. Now this colossal advantage turns out to be a colossal problem. The massive investment in Chinese industry was bound to express itself as a mass of cheap commodities, which had to find a market outside China. For global manufacturers, the avalanche of cheap Chinese exports over the past decade has exacerbated the crisis of overproduction.
The combination of a vast supply of cheap labour from the countryside and modern machinery and technique fuelled by state subsidies has enabled China swiftly to develop a powerful industrial base. It has destroyed jobs and capacity all over the world, shuttering factories in competitor nations. Foreign companies learned to tremble at the flow of cheap goods from China. Initially, there was a very high rate of profit, but as Marx explains, all that happens is that other capitalists pile into the market and the rate of profit reaches more normal levels. We see this happening in China. The period of explosive growth has reached its limits. Now China finds itself faced with the same problems that afflict every capitalist economy.
China's low-cost goods have come to dominate many sectors. But once the bulk of global manufacturing in a given industry has moved to China, overcapacity quickly follows. Now they are increasingly worried about rising overproduction (“overcapacity”) in the Chinese economy. This poses a significant risk to what is now the world’s second-biggest economy.
During the global financial crisis, China helped save the capitalist system by launching a colossal stimulus package that provided a supply of oxygen to the world market. As a result, China's economy steamed along, growing 8.7 per cent and 10.3 per cent in 2009 and 2010. This was the biggest experiment in Keynesian economics in history. But now the contradictions have become apparent. Now many of the industries that were beneficiaries of the stimulus—from steel to shipbuilding to metals smelting—are paralysed by huge overcapacity, or, to give it its correct name, overproduction. The slowdown in China's economic growth spells enormous losses and the necessity for a painful process of elimination.
The Financial Times (17/6/2013) comments: “From chemicals and cement to earthmovers and flat screen televisions, Chinese industry is awash with excess capacity that is driving down profits inside and outside the country and threatens to further destabilise China’s already shaky growth”.
China produces nearly half of the world’s aluminium and steel and about 60 per cent of the world’s cement, but new productive capacity is being added rapidly, even as the economy slows down and export markets dwindle. Though China's steel production is running at record levels, only about 80 per cent of the country's production capacity is being used. Industry chiefs and government officials say more excess capacity needs to be shut down in order for the sector to come back into balance.
“Only about two-thirds of cement capacity was used last year, according to a survey from the China Enterprise Confederation.
“Usha Haley writes: ‘There is enormous overcapacity and no gauging of supply and demand and we found that subsidies account for about 30 per cent of industrial output. Most of the companies we looked at would probably be bankrupt without subsidies.’
“In almost every industry companies' investment and growth plans have been predicated on the belief that the government would never allow growth to drop below 8 or 9 per cent. But that is no longer the case. China's growth fell to 7.5% and later increased to around 7.8 per cent. But even this was its slowest pace in 13 years.
“Overcapacity in the auto industry is rampant and in the case of Geely, which bought Volvo in 2010, more than half of its net profits came directly from subsidies in 2011. In fact, subsidy income for Geely that year was more than 15 times greater than the next biggest source of net profits—‘sales of scrap metal’—according to analysis from Fathom China.” (FT, 17/6/2013)
The scale of overcapacity and the slowdown in Chinese growth suggest many more firms will face bankruptcy. This will have profound effects on the psychology of every class in China.
Perspectives for class struggle
All the successes of China’s economy were based ultimately on the labour of the Chinese workers, toiling for low wages in conditions resembling those of Victorian England. Nowhere is inequality so resented as in China, which was supposed to be a “socialist” country. A new class of Chinese bourgeois has emerged, revelling in luxuries unknown to the vast majority of the population.
China is run by a tiny elite of super-rich oligarchs who have enriched themselves by plundering the state and brutally exploiting the labour of the Chinese workers. But the base of the Chinese capitalist class is very narrow. Out of a population of around 1.354 billion, there are only 1.2 million millionaires (in US dollars). That is: 0.1% of the population. The number of dollar millionaires is rapidly growing but shows also how weak the capitalists are in China. 1.2 million Millionaires are less than the absolute numbers of millionaires in Britain or Italy.
It is true that beneath them there is a layer of sub-exploiters and sub-sub-exploiters: factory managers, directors, foremen, engineers, bureaucrats and officials in the State and Party institutions. Together with their families, they form part of the establishment. But even after taking this into account, the overwhelming majority of the population is excluded from the economic wealth and the power that comes with it. The obscene wealth of the ruling elite and their children (the “Princelings”) is bitterly resented by the population. The all-pervasive corruption that flourishes at every level is an additional cause of indignation.
The highly publicized trials that often lead to the death sentence for officials who have gone too far with their corrupt practices are a way in which the ruling elite attempts to assuage the anger of ordinary Chinese, while at the same time trying to prevent the corruption that is an inevitable concomitant of a bureaucratic and totalitarian regime from consuming an excessive amount of the wealth created by the working class.
The new generation of young workers is not prepared to put up with the low wages and bad conditions that the older generation of former peasants recently arrived from dirt-poor villages were willing to accept. The growing mood of discontent in Chinese society is expressed by the rising number of strikes, demonstrations and suicides in the factories. In a totalitarian society, where discontent is forcibly suppressed and there are few legal safety valves, explosions can occur suddenly and without warning. It is no accident that for the first time in history the Chinese state spends more on internal security than on defence.
Unlike the majority of European states, the Russian state does not yet have a serious debt problem. Thanks to oil and gas exports and the growth of the economy in the last period, it has built up considerable financial reserves. But this has now reached its limits. In common with the other BRIC countries, the Russian economy is also in decline, with an estimated rate of growth of around 1%.
This is the background to a rising mood of discontent, not only among the working class but also in a wide layer of the petty bourgeoisie, reflected in the rise of the anti-Putin opposition. As a result of the expansion of credit, the majority of workers and young people now find themselves burdened with heavy debts. The same is true of companies and municipalities. The result is falling investment and economic stagnation. For the first time, sectors of the economy like the automotive industry are experiencing serious problems with sales.
The economy is being propped up by the state through Keynesian methods of direct state investment in infrastructure, or in projects like the 2014 Sochi Winter Olympic Games and the FIFA World Cup in 2018. This modern equivalent of the Egyptian Pharaohs' pyramid-building is possible only on the basis of the exploitation of low-paid workers and the high price of oil and gas. However, a long period of high oil prices has had inevitable results in new technologies for oil and gas production in the USA (“fracking”). Putin’s “imperial energy” project has turned into a farce. His hysterical reaction to the antics of Greenpeace in the Barents Sea was a clear sign, not of strength, but of panic.
The growth of the economy in the last period enabled Putin to follow a kind of semi-paternalistic policy. That is what gave his regime the appearance of stability. But this cannot continue for long. The majority of new workers are faced with low wages and bad working conditions. There has been a steep increase in the numbers of illegal or semi-legal migrants from Central Asia. Social and political stability is already showing signs of strain, and this determines Putin's policy—and also that of the opposition.
The main aim of the liberal opposition is to wrest petty-bourgeois elements from the arms of Putin. The main figure in the opposition is now Alexey Navalny. In the last election for Moscow's mayor in September 2013, he won 27.24%, as against 51% for Putin's candidate, Sobyanin. The Communist Party candidate and leader of the “left” wing of the Party, Ivan Melnikov, obtained only 10.69%.
A lawyer and small investor, Navalny was expelled from the Liberal Party Yabloko for nationalism. His programme includes a struggle against corruption, “cheap government”, low taxation, the introduction of a visa regime for the countries of the former Soviet Central Asia and the deportation of unemployed non-citizens.
The reintroduction of capitalism has led to an extreme polarisation of wealth. The latest Credit Suisse Wealth Report shows graphically how much of world wealth is still concentrated in US hands in terms of absolute numbers of dollar millionaires, and the amount of accumulated wealth that is concentrated in their hands.
But it also highlights the fact that Russia now has the highest level of wealth inequality in the world, apart from small Caribbean nations with resident billionaires. Worldwide, billionaires collectively account for 1%–2% of total household wealth; in Russia today, 110 billionaires own 35% of all wealth.
The increase in tension between the classes was partially and temporarily alleviated by economic growth. But now that has slowed sharply, reflecting the general crisis of world capitalism. The IMF slashed its GDP growth forecast for Russia in 2013 to +1.5%, compared to 5% to 8% growth before the financial crisis. The situation in Russia is pointing towards a social explosion, even in the short term.
Lenin said that the first condition for revolution is that the ruling stratum should be in crisis and unable to continue ruling in the old way. There is a general mood of pessimism in the establishment, at times bordering on panic. Putin's main idea is to build a strong police state before the crisis breaks.
Lenin’s second condition for revolution is a ferment in the middle layers of society, which swing between revolution and counterrevolution. The mass demonstrations against electoral fraud, which were predominantly middle class in character, indicate that this process has already begun.
The third condition, that the workers should be prepared to struggle and make sacrifices to change society, has not yet matured in Russia. But the advent of economic crisis and growing disillusionment with Putin means that it is only a matter of time before Russia experiences social explosions similar to what have taken place in Turkey and Brazil.
The problem is one of leadership. The complete inability of the so-called Communist Party to offer an alternative to the masses means that the protests have been led by bourgeois Liberals and petty bourgeois democrats. But this movement is only a symptom of a growing unrest, which sooner or later must be expressed in a social explosion. In time, the Russian working class will rediscover in action the real traditions of the October Revolution and Bolshevism.
India and Pakistan
The Indian bourgeoisie had delusions of grandeur. Prime Minister Monamhan Singh claimed that India’s “cruising speed” was 8-9%. Now it is about half that. Private investment has dried up. Inflation is more than 10% and rising. The rupee fell 13% in the space of three months in 2013. The Economist (24/8/13) warned: “Tycoons who used to cheer India’s rise as a superpower now warn of civil unrest”.
This prediction is already becoming reality. The ferment in Indian society is reflected in a series of mass movements on different issues. First there was the anti-corruption movement, which was followed by mass demonstrations against rape and attacks on women. Both were largely petty-bourgeois in character but revealed an undercurrent of discontent with the conservative Hindu-nationalist foundations of the Indian state.
These manifestations were like the froth on the waves of an ocean; that is to say, symptoms of far deeper and stronger currents below the surface. The discontent of the masses, who have not benefitted from the growth in the Indian economy, is turning into anger. That was shown by a series of peasant insurrections and above all by the two-day general strike in February 2013.
On the other side of an artificial frontier, Pakistan has been reduced to a level of misery worse than anything it has seen since Independence. Economic collapse, terrorist attacks, suicide bombings, power cuts, price hikes, suicides of impoverished families, the selling of children and human organs, the torture and murder of women. All this brings to mind Lenin’s statement: “Capitalism is horror without end”.
The masses’ hopes for improvement under a PPP government were cruelly betrayed. Now the right-wing government of the Muslim League is carrying out further attacks. They are plundering the state through the privatizing of state-owned enterprises like Pakistan International Airlines, the postal service, railways, WAPDA (Water and Power Development Authority), and other companies.
As a result, there will be more sackings, more unemployment, more poverty and more economic dislocation. The misery of the people is aggravated by the monstrous religious sectarianism, communal massacres, the bloody proxy wars in Baluchistan, the drone attacks in Pukhtoonhua, etc. The Pakistani secret service (ISI) continues to operate like a state within a state, stirring up conflicts, murder and violence to serve its dark intrigues. As a way of diverting attention from the terrible suffering of the masses, the degenerate Pakistan ruling class is playing with fire in conflicts in Afghanistan and with India. The conflict in Kashmir continues to poison relations between the two countries like an infectious ulcer.
On a capitalist basis there is no way out. Neither the Muslim League nor the PPP nor a military dictatorship can succeed. Only the Socialist Revolution can show a way out of the hell in which millions of people are living in Pakistan, India, Bangladesh, Nepal and Sri Lanka. The terrible conditions of life are becoming intolerable. The objective conditions are being prepared for a revolutionary upsurge on the lines of the Revolution of 1968-69. That Revolution was derailed by the lack of leadership. But the growing forces of the IMT in Pakistan, under the most difficult conditions imaginable, offer the hope of future victory. We must redouble our efforts to strengthen the forces of the Pakistan Marxists to ensure that victory.
After thirteen years of bloody fighting, the imperialists are striving to extricate themselves from the Afghan morass. When the US-led coalition army went into Afghanistan, we predicted that their initial success would eventually end in failure. We wrote at the time:
“The swiftness of the collapse of the Taliban's defence, and the ease with which the Northern Alliance entered Kabul, has led many to conclude that the war is over and that the Taliban are finished. This is a serious misreading of the situation. […]
“The Taliban have lost their grip on power, but not their potential for making war. They are very used to fighting a guerrilla war in the mountains. They did it before and can do it again. In the north, they were fighting in alien and hostile territory. But in the villages and mountains of the Pushtoon area, they are in their own homeland. The prospect opens up of a protracted guerrilla campaign which can go on for years. The first part of the allied war campaign was the easy bit. The second part will not be so easy. British and American troops will have to go into the Pushtoon areas on search and destroy missions, where they will be sitting targets for the guerrillas. Casualties will be inevitable. At a certain stage this will have an effect on public opinion in Britain and America.
“The Americans had hoped to be able to carry out a quick, surgical strike against bin Laden, relying mainly on air power. Instead, the conflict is becoming ever more complicated and difficult, and the prospect of an end is postponed almost indefinitely. They will have to keep troops stationed not only in Afghanistan but in Pakistan and other countries in order to prop them up. […]
“This is a far worse and more dangerous position than the one in which the Americans found themselves on September 11. Washington will now be compelled to underwrite the bankrupt and unstable regime in Pakistan, as well as all the other ‘friendly’ states in the region, which are being destabilized by its actions. If the aim of this exercise was to combat terrorism, they will find they have achieved the opposite. Before these events, the imperialists could afford to maintain a relatively safe distance from the convulsions and wars of this part of the world, but now they are completely entangled in it. By their actions since September 11, the USA and Britain has got themselves dragged into a quagmire, from which it will be difficult to extricate themselves.”
This was written on November 15, 2001 (Afghanistan after the fall of Kabul: Is the war over?). Twelve years later there is no need to change a single word of what we wrote then.
With a per capita GDP of $528 in 2010/11, Afghanistan is among the 10 poorest countries in the world. In 2008, 36 percent of the population lived below the poverty line; more than half of the population is considered vulnerable. At 134 per 1,000 live births, infant mortality is highest in the world. Life expectancy is 48.1 years. 75 percent of the population is illiterate. It is also the world’s largest supplier of opium.
The vast amounts of money spent on a useless war would have been sufficient to transform the lives of the people. Instead, the imperialists have devastated the country and are now compelled to leave, having solved nothing. They are negotiating with the Taliban, who will inevitably have a big say in any future government in Kabul. Nothing has been achieved except to further destabilise the entire region, starting with Pakistan.