[Marxism] Reality catches up with the catastrophists

Louis Proyect lnp3 at panix.com
Wed Dec 17 11:15:42 MST 2008


http://www.marxist.com/crisis-world-capitalism-gathering-speed.htm
The crisis of world capitalism is gathering speed
By In Defence of Marxism Editorial Board    	
Wednesday, 17 December 2008

The crisis is unfolding relentlessly and with gathering speed. In 
November the USA shed jobs at the fastest pace in 34 years. World GDP 
has registered a sharp fall. The recession was preceded by a financial 
crisis (the so-called credit crunch). However, this was merely a prelude 
to the real crisis. As always, the bourgeois economists draw the 
conclusion that the cause of the crisis is a lack of credit. In reality, 
the lack of credit is caused by the crisis.

The crisis is unfolding relentlessly and with gathering speed (Drawing 
by Latuff)During the boom, everyone is prepared to borrow and lend, 
confident of obtaining handsome profits. As always there was a large 
element of speculation in all this. The dizzying rise of stock market 
prices bore no relation to the real situation. It must be borne in mind 
that, in the last analysis, the profits of the capitalists can only be 
derived from the unpaid labour of the working class. As long as surplus 
value is extracted, the capitalists, landlords, bankers and stock 
exchange speculators, can all make a profit. The illusion is created 
that this merry carnival can go on forever. But this process sooner or 
later comes up against the inherent contradictions of the capitalist system.

The second phase has now begun - the crisis of the real economy. 
Millions of workers face short-time working, cancellation of overtime or 
sackings and closures. The bosses are demanding wage cuts, under threat 
of closure. This means a general reduction in living standards, which in 
turn means a new fall in demand, with more closures, unemployment and 
new cuts. Falling activity means a fall in tax returns, which in turn 
must mean new cuts in social spending.

Payroll employment in the USA fell by 533,000 in November - the biggest 
monthly drop since December 1974. Unemployment has risen to 6.7 percent. 
However, this understates the seriousness of the situation. A broader 
definition that includes people who have given up looking for work, 
would mean a figure of 12.5 percent. There is now a spate of closures. 
The Bank of America is to sack 35,000 workers after it took over Merill 
Lynch. Dow Chemicals is closing 20 plants with the loss of 5,000 jobs in 
the USA and Europe. A further 2,300 jobs will go in 3M. Anheuser-Busch 
InBev is axing 6 percent of its US workforce (three quarters in St. Louis).

Nobody now repeats the nonsense that the crisis would be confined to the 
USA. This is an international phenomenon. The big Japanese company Sony 
is to shed a further 16,000 workers, cut back on investments and 
outsource some of its production. It has halved its annual profits 
forecast as a result of a slump in demand for its LCD televisions. The 
Anglo-Australian mining company Rio Tinto is cutting capital expenditure 
and selling assets to pay back $10 billion of debts. It will cut 14,000 
jobs by the end of 2009. Woolworth, a major department store in Britain, 
is closing after a hundred years, with the loss of 30,000 jobs. The list 
is never-ending and growing all the time.

The growing alarm of the ruling class is reflected in the succession of 
panic measures adopted by governments and central banks, which are no 
longer aimed at preventing recession but only of blunting its effects. 
But despite all these measures, the crisis is deepening and spreading 
all the time. The world economy has entered a downward spiral, and 
nobody knows where the bottom lies or when it will be reached.

In the past the bourgeois economists denied the possibility of a 
recession. Now the only question before them is whether it will be a 
deep recession or a depression. For the millions affected by factory 
closures, bankruptcies, sackings and evictions, however, the difference 
is merely semantic. The bourgeois and their pet economists imagine that 
all crises are caused by the lack of "confidence" and that therefore a 
few encouraging speeches (accompanied by large donations of public cash) 
will solve the problem. They do not understand that confidence does not 
drop from the skies but reflects actual conditions. Contrary to this 
superficial and idealist explanation (which explains nothing), we reply: 
it is not the lack of confidence that causes the crisis, but the crisis 
that gives rise to a lack of confidence.

It is necessary to bear in mind that unless the capitalists sell their 
commodities, no surplus value can be realised. The ability to find 
markets is limited by the limited consumption of society. Sooner or 
later a point is reached where markets are saturated and no buyers can 
be found. In the crises of 1990-91 and 2001 demand did not fall much. In 
the first case the rapid development of Asia (China) provided a cushion 
that prevented the recession from developing into a slump. After this, 
the huge increase in credit and the speculative housing bubble kept the 
whole thing going. But the basis was completely unsound.

This situation could not be maintained. In effect, the capitalists 
avoided a deep slump for two decades but only at the cost of creating 
the conditions for an even more serious recession in the future. This 
explains the alarm with which the bourgeois view the present crisis.

During the boom, when big profits are being made, people will buy and 
sell, loan and borrow, cheerfully acquire debts in excess of their 
earnings. If anybody notices that this is all based on speculation and 
swindling, nobody minds. Are we not rich? Are we not all making money? 
Live for today and to the Devil with tomorrow! But when the boom reaches 
its limits - which it must do - this "irrational exuberance" turns into 
its opposite. Confidence evaporates together with the mirage of 
never-ending enrichment. Instead of the old cheerful optimism, we have 
panic and despair. Not greed, but an equally primordial emotion, fear, 
becomes the predominant mood of the market.

Contradicting all their previous analyses, the bourgeois economists now 
say that this recession will be longer and deeper than anything since 
the Second World War. The capitalists are paying the price for the 
"irrational exuberance" they displayed in the previous period. Terrified 
of the social and political consequences, they are resorting to 
desperate policies, which will only serve to exacerbate the problems in 
the long run. At every juncture the spokesmen of the bourgeois announce 
that the "worst is now over." Such declarations, which were also made at 
regular intervals after the Wall Street Crash of 1929, are always 
followed by further falls on the stock markets and further cutbacks in 
production.

The bourgeoisie has dug itself into a deep ditch, from which it will not 
be easy to extricate itself. The banks are sinking under the weight of 
bad debts. Nobody knows how much these are and therefore nobody knows 
which (if any) of the banks is viable. This is why the economists say 
that this recession is not "normal". Some economists now look back 
nostalgically to the "good old days" of the gold standard, but a return 
to the gold standard is impossible now. It would lead to a complete 
collapse and an even deeper slump than the Great Depression of the 1930s.

Before the Second World War the world economy was based on the gold 
standard, which made sense as a means of regulating money markets. 
Governments had to hold a certain quantity of gold bullion as a backup 
to their national currencies. Ultimately, creditors could demand 
repayment for debts in gold, which, like every other commodity, has an 
objective value.

The abolition of the gold standard was only possible because after the 
Second World War, the USA held two thirds of the world's gold in Fort 
Knox and its industry was intact. It could dictate its conditions to the 
rest of the world. Everybody wanted dollars because at that time the 
dollar was as good as gold. The dollar became the international currency 
(with the pound sterling as a second-class partner). This was a factor 
in the upswing of world trade after 1945 - the real basis of the 
economic upswing in world capitalism at that time.

Now, however, all that has changed. The USA has been transformed from 
the world's biggest creditor to the world's biggest debtor. The dollar 
remains the world currency, but nobody can be sure how much it is really 
worth. Unimaginable amounts of fictitious capital have been pumped into 
the world economy over the last two or three decades. The world market 
in derivatives alone is more than 500 trillion dollars, most of it of a 
speculative and fictitious character. The derivatives market amounts to 
36 times the value of total US GDP [US GDP stood at $13.8 trillion in 
2007] or roughly 10 times the value of entire world output.

The unprecedented expansion of credit in the last period served to 
maintain high levels of demand in the USA and other countries. But now 
this has reached its limits. The whole process is thrown into reverse. 
Now nobody wants to lend money and few wish to borrow. Society is seized 
with a parsimonious and miserly mood. The masses have no money to spend 
- only debts to repay. Those who previously lent money cheerfully are 
now calling in their debts. Many of those who took out mortgages to buy 
homes are unable to pay and find themselves evicted. Since the price of 
their homes has fallen, they are saddled with huge debts, which unlike 
house prices, do not fall.

The bankers, who yesterday were anxious to lend money to anyone, are now 
anxious to hoard money and not to part with a cent. This miserly and 
distrustful attitude applies not only to private house owners and small 
businesses, but also to other banks and big firms. They are not prepared 
to lend money to other banks because they are not sure the money will 
ever be returned. Nor are they prepared to advance money to firms to buy 
raw materials and equipment. They are quite prepared to pull the plug 
and force businesses to close as if they were matchboxes, throwing 
thousands out of work without blinking an eyelid.

Since credit is the life-blood of the capitalist system, the 
interruption of the supply of credit means that not only "bad" 
businesses will be made bankrupt but "good" ones also. The drying up of 
credit threatens the whole productive process of society with slow 
strangulation. The effects can be seen in a sudden spate of bankruptcies 
and closures, affecting not only small businesses but also major 
companies, like Ford, General Motors, Sony, Nissan and many others. The 
main reason for this is the collapse of demand, aggravated by the drying 
up of credit. Suddenly there is too much steel, too much cement, too 
many cars, too many empty offices, too much oil... In other words, what 
we are seeing is a classical crisis of overproduction.

The big US car companies attempted to boost their share of the market by 
ferocious discounting. This worked temporarily but only at the cost of 
cutting into profit margins. Ultimately, the result was bankruptcy. Now 
they are compelled to go, cap in hand, to the US government, which 
initially agreed to give them a large slice of taxpayers' money to keep 
them afloat. Coming after the bailout of the banks, this was an 
unprecedented action, especially if we bear in mind that the Republicans 
were supposed to be the Party of Free Market Economics par excellence. 
It was a measure of desperation.

This proposal of a generous donation to the big car companies was 
dictated by fear of the social and political consequences of firms like 
Chrysler and GM going bankrupt, which would mean the loss of millions of 
jobs. It was also a protectionist measure, directed against foreign car 
manufacturers. If it is passed, it will undoubtedly lead to similar 
measures in Europe and Japan. However, the government insisted on wage 
cuts in return for the package, which the unions rejected. The 
Republicans therefore voted against the proposal, which was defeated in 
the Senate. This is a repeat of the earlier conflict between the White 
House and Congress over the bank bailout. It exposes deep contradictions 
at all levels of US society.

We are entering into a period of growing protectionism and tensions 
between the main capitalist nations. The tendency towards protectionism 
will be even more pronounced under Obama, who will be under pressure to 
"save American jobs". Let us remember that the Democrats were always 
inclined towards protectionism. This will provoke retaliation from 
America's rivals. Already Volkswagen is demanding state aid. Others will 
follow.

The crisis is revealing deep fissures in the EU. The British and French 
are putting pressure on Germany to reflate its economy (that is, to 
increase its deficit in order to create more demand for British and 
French goods). But Germany is resisting. They see no reason why Germany 
should pay the price for other people's problems. But the participation 
of Germany is absolutely necessary if the plans for recovery in Europe 
are to be successful. They must all reflate simultaneously, or else 
Germany would benefit "unfairly" from the efforts of the others.

But these proposals have not been well received in Berlin. The German 
Finance Minister, Peer Steinbrueck derided the general yearning for what 
he called "the great rescue plan" as futile, saying such a plan "doesn't 
exist" and dealing with the unprecedented crisis is a puzzle that will 
be solved by trial and error. The European authorities who believe the 
answer is lavish spending programs are saying, in effect, "let's get the 
Germans to pay because they can," he added.

In reality, what Herr Steinbrueck said was correct. He pointed out that 
while policies can ameliorate the situation, the recession is 
unavoidable, whatever any government does. The policies of Brown and 
Bush amount to an attempt to reflate the bubble that caused the present 
mess in the first place. They have thrown billions at the banks in the 
hope that they will begin to lend again. But they have failed. The 
bankers are not prepared to lend under the present circumstances and no 
amount of interest cuts or state subsidies will make any difference. In 
any case, the scope for such cuts is minimal. In the case of the USA it 
is practically zero. One by one, the bourgeois in the richest countries 
in the world are using up all their resources in a vain attempt to halt 
a recession that is unstoppable.

In effect the bourgeois are trapped. Whatever they do now will be wrong. 
If they do not intervene to pump money into the banks and failing 
businesses there will be a deep slump with massive unemployment as in 
the 1930s. But if they resort to Keynesian methods of deficit financing, 
they will create huge debts that will undermine any future recovery and 
act as a tremendous drag on productive investment, creating the 
conditions for a long period of cuts and austerity.

The unsoundness of the policies pursued in the previous period is now 
revealed by a colossal hangover of debts. This has meant that the 
recession will be deeper and longer than it would otherwise have been. 
The bourgeois has now to pay the price for the "successes" of the last 
twenty years. Whole countries now face insolvency. Iceland is already 
bankrupt. Bank liabilities now represent 700 percent of the GDP of 
Switzerland, hitherto regarded as a safe haven for capital. The figure 
for Britain is 430 percent. That of the USA is just under 100 percent - 
after the huge bailout of the banking sector.

The intensification of the recession will mean a sharpening of tensions 
between Europe and the USA, between the USA, China and Japan and between 
Russia and the USA. In the past such tensions would have led to a world 
war. It was the Second World War that solved the economic crisis of the 
1930s through massive arms spending and the wholesale destruction of the 
means of production during the war. However, the situation now is 
entirely different. The collapse of the USSR and the colossal power of 
US imperialism mean that a world war is ruled out. With an annual arms 
expenditure of about $600 billion, no power on earth can stand against 
the USA. But there will be constant "small" wars, like the wars in Iraq, 
Afghanistan, Somalia, the Congo and so on. The conflict between Russia 
and the USA can lead to wars like the war in Georgia.

The diplomatic clashes and tensions will add a further ingredient to the 
general instability. The uncontrollable spread of terrorism is a symptom 
of the underlying crisis. All these phenomena, which sentimental 
pacifists bemoan, are merely an expression of the underlying cause, 
which is the contradiction between the colossal potential of the 
productive forces and the narrow limitations of private property and the 
nation state. The bigger powers (especially the USA) will try to use 
their muscle to intimidate their rivals and grab markets and sources of 
raw materials, but the capitalists cannot find a way out of the crisis 
by taking the road of war as they did in 1914 and 1939. Therefore, all 
the contradictions will be expressed internally, through a growth of the 
intensification of the class struggle.

The eyes of the bourgeois are now fixed on China, from whence they hope 
that salvation may come. But China is now firmly embedded in the 
capitalist world market and must suffer the consequences of the downturn 
along with all the rest. In order to keep unemployment at its present 
levels a growth rate of at least eight percent is required. If growth 
falls below this level, the prospect arises of serious social conflict. 
The latest IMF estimate for China's growth in 2009 is now only 5 
percent. Dominique Strauss-Kahn, managing director of the IMF, said: "We 
started with China at 11% growth, then 8%, then 7%, then China will 
probably grow at 5% or 6%." This is still high when compared to the 
growth rates in the USA and Europe. But it is a sharp fall in comparison 
to the kind of growth rate of around 10 percent enjoyed by China in the 
last period. And it is not clear that even this level will be reached.

China has a large internal market, probably about 300 million. But this 
is insufficient to absorb the huge productive capacity that Chinese 
industry has built up over the last two or three decades. The falling 
demand in the US market is hitting China's exports. The contraction in 
Chinese industrial production deepened in November with steel production 
down 12.4% from a year earlier, steel mill product deliveries down 
11.3%, generation of electricity off by 9.6% and petrochemicals output 
down as well. In November year-on-year exports fell sharply by 2.2 
percent, whereas analysts had expected them to rise by 15 percent. To 
understand the change, it must be remembered that between 2000 and 2006 
China's exports grew at an annual rate of 26 percent. In the same month 
imports fell by 18 percent. This was the first time since 2001 that 
imports have fallen.

There are emerging signs of overproduction and overinvestment in China, 
whose internal market, though considerable, is not big enough to absorb 
the colossal productive potential built up over the last two or three 
decades, and which is now reaching its limits. The first warning of a 
crisis was the sharp fall on the stock exchange, which has lost about 60 
percent of its value. But the crisis is not confined to the stock 
markets. House prices are falling, construction is slowing and industry 
is slowing faster than GDP. Car sales in November in China fell by over 
10% year on year. Power generation, generally regarded as a reliable 
index of economic growth, fell by 7 percent.

These figures have altered the views of western economists on China. The 
previous optimism is fast turning to pessimism. The Economist (13th 
December 2008) stated: "Optimists even hoped that these huge emerging 
markets (India and China) might provide the engines that could pull the 
world out of recession. Now some fear the reverse: that the global 
downturn is going to drag China and India down with it, bringing massive 
unemployment to two countries that are, for all their successes, home to 
some two-fifths of the world's malnourished children."

It is true that China has huge reserves, which it can use to foment 
public works schemes to develop the infrastructure. In November the 
government announced a four trillion yuan (nearly $600 billion) fiscal 
stimulus package. But according to some estimates, this would add up to 
an increase of GDP by just over one percent. This is insufficient to get 
the kind of results that China needs. Beijing only has one other option: 
to try to solve the crisis by exporting more. This brings it into a 
direct collision with Europe and the USA, which is pressurising China to 
reflate in order to import more. Paulson visits Beijing to ask China to 
revalue the yuan, but Beijing is more likely to support a devaluation, 
which will deepen the contradictions between China and the USA.

The leaders are afraid that the worsening economic situation will 
produce what one of them referred to as "a reactive situation of 
mass-scale social turmoil". The Economist (13th December 2008) reports: 
"Each week brings fresh reports of factory closures, particularly in the 
industrial belt around the Pearl River Delta in Southern China. Unpaid 
workers have been staging violent protests." The same journal adds: 
"Indeed, demonstrations and protests, always common in China, are 
proliferating, as laid-off factory workers join dispossessed farmers, 
environmental campaigners and victims of police harassment in taking to 
the streets."

The slowdown in China is hitting Japan, for whom the Chinese market has 
become increasingly important. In the three months to September the 
Japanese economy shrank at an annualised rate of 1.8 percent. Other 
emerging economies are even less able to provide the necessary stimulus 
to the world economy than China. All will be dragged down in the next 
period. This signifies social and political convulsions on a huge scale. 
The chaos in Thailand is a further indication of this.

After a five-year period in which India grew at 8.8 percent, exports 
fell in October by 12 percent compared to the same period last year. 
Hundreds of small textile firms have gone out of business. But big firms 
are also in crisis. The car industry has suspended production. Sales of 
the Ambassador, India's most popular car, have slumped. Pakistan already 
stands on the verge of bankruptcy. The central bank has revised its 
projected figures for growth to 7.5 percent and this is too optimistic. 
The real growth may fall to 5.5 percent - the lowest since 2002.

With a budget deficit of about 8 percent of GDP, India, unlike China, 
has very little room to manoeuvre. If China needs a growth rate of 8 
percent in order to absorb the seven million people entering the labour 
market each year, how can India absorb a workforce that is expanding at 
a rate of about 14 million annually? Its main growth has been in sectors 
like information technology, which does not employ large numbers of 
workers. A rapid growth in youth unemployment in India will produce 
explosive conditions in society. "And as in China unrest and even 
insurgency are widespread." (The Economist)

The fall in world demand is being expressed in a general fall in 
commodity prices. Oil has fallen from a peak of $147 to about $40 in a 
few months. This will affect all the oil producing economies in the 
Middle East, Iran, Indonesia, Nigeria, Mexico, Russia and Venezuela. 
Russia has the third highest surplus in the world but this has fallen by 
$144 billions since August. There is a flight from the rouble, 
underlining the fears of the bourgeois for the future. The ruling clique 
is trying to distract the attention of the masses from the crisis 
through foreign adventures (such as Georgia). But the developing crisis 
must sooner or later express itself in a crisis of the regime and the 
growth of opposition, strikes and protests.

The Ukrainian economy is in crisis and the country has to borrow $16 
billion from the IMF. The economic crisis is deepening the political 
crisis, which has an endemic character. The impasse of the regime 
expresses the complete failure of capitalism to solve the problems of 
the Ukraine or any other of the former Soviet Republics. The pro-US 
government has avoided elections but in reality it is hanging by a 
thread. Most of the other former Soviet Republics are in an even worse 
position.

The sharp fall in the price of oil will intensify the pre-revolutionary 
ferment in Iran, where the regime of Ahmadinejad is hanging by a thread. 
There is already widespread discontent and anger among the youth, but 
also among the workers and middle class. There has been a wave of 
strikes. The fact that the Americans have decided to withdraw from Iraq 
means that they will be forced to open negotiations with Iran and Syria 
to cover their rear. This deprives Ahmadinejad of his main card - 
anti-American chauvinism and war-mongering rhetoric. Deprived of the 
external enemy, the contradictions within Iran will come to the fore 
with revolutionary implications.

In the poorest countries of Africa elements of barbarism have begun to 
appear and in some cases threaten to engulf society and push it back to 
savagery. In the Congo five million people have perished in a murderous 
civil war. In Zimbabwe people are faced with the horrors of starvation 
and cholera. In Sierra Leone over 70 percent of the population live on 
70 cents a day and two-thirds of the women are illiterate. To the 
nightmare of hunger and poverty are added the scourge of malaria and 
AIDS. Everywhere the productive forces stagnate or decline, creating 
more unemployment, poverty and despair.

It is not difficult to portray the whole world as a nightmare or a 
lunatic asylum. These are the symptoms one associates with the senile 
decay of a system that has outlived its historical usefulness, like the 
Roman Empire in the period of its decline. But there is another side to 
the picture. There is ferment in society and the beginnings of revolt. 
This naturally begins with the youth, which on the one side are the 
first victims of the crisis, in the second place are highly sensitive 
barometer for the moods of discontent that are maturing silently in the 
bowels of society.

It is true that the suddenness of the crisis has shocked not only the 
bourgeois but also the workers. There will be a certain tendency to 
cling to jobs and even accept cuts in the short term, especially as the 
union leaders offer no alternative. But there will also be a general 
mood of anger and bitterness, which will sooner or later find its way to 
the surface. It is inevitable that the first layers to move into action 
will be the youth. It was always the case. The youth, beginning with the 
students, are always a sensitive barometer of the moods developing in 
society. They can anticipate big movements of the workers, as in 1901-3 
in Russia and 1968 in France.

In Italy and Germany there have been big protest movements of the youth. 
In Spain the students strikes this autumn were organised and led by the 
Marxist-led Students' Union. There have also been upheavals of the youth 
in Hungary and earlier in France. But in Greece this movement has 
acquired an explosive and semi-insurrectionary character and was 
combined with a general strike of the workers. This is a serious warning 
to the bourgeois of what can happen in other countries. It shows the 
falsity of the argument that the onset of economic crisis will 
inevitably lead to a paralysis of the working class.

The bourgeoisie would like to resort to repression. This is shown by the 
recent declarations of Cossiga in Italy, which have a clearly 
Bonapartist character. But Greece shows the limitations of this policy. 
It was the murder of a young school student by the police that brought 
the masses onto the streets. The right-wing government considered a 
state of emergency but Karamanlis could not use force to impose order on 
the streets because that would have taken Greece to the brink of a civil 
war. He had to back down. The government was paralysed.

What the Greek events show is the weakness of reaction and the enormous 
strength of the working class at the present time. If the leaders of the 
Greek labour movement had had a revolutionary policy, they could have 
taken power. But without adequate leadership the movement will be 
reduced to pointless rioting, which the government will eventually bring 
under control. Nevertheless, the movement was a serious warning to the 
Greek capitalists of the mood of rage and frustration that exists in 
society. The ND government is finished. A new stage in the class 
struggle is opening in Greece. And tomorrow the same process will emerge 
in one country after another.

In Latin America the revolution has already begun. This is not an 
accident, and we explained it a decade ago, when we decided to orient 
the IMT towards Latin America. In this continent capitalism has broken 
at its weakest link. The Venezuelan Revolution has reached a critical 
point, where its future direction must be resolved one way or another.

The crisis of capitalism hits Latin America hard, although it is 
unfolding unevenly, affecting some countries more than others. Brazil, 
the economic giant of the region, expects to grow by 4 percent (which is 
probably optimistic) whereas Mexico, closely linked to the US economy, 
is expected to grow by only 0.4 percent. However, at different rates and 
at different times, all will be affected.

In October, the IMF forecast a growth rate of 3.5 percent for Latin 
America in 2009. Two months later, the World Bank cut its estimate to 
2.1 percent and Morgan Stanley is predicting a fall of 0.7 percent for 
the seven biggest economies of the region. In the last two months there 
have been stock market and monetary crises and shortages of credit. This 
has followed a fall in exports and sharp falls of commodity prices. The 
slowdown in China affects demand for Venezuelan oil, Peruvian minerals, 
Argentine soya and Brazilian iron ore and orange juice.

The crisis in the USA affects the continent in a more direct way. Whole 
towns, villages and even regions of countries like Mexico, El Salvador, 
Honduras, Colombia and Ecuador depend on the remittances of their 
nationals working in the USA or Europe. Since the immigrant workers are 
the first to be sacked, these are now forced to return home. So these 
countries are at the same time deprived of foreign currency and obliged 
to absorb an influx of labour when unemployment is already rising.

The reformists have argued that the "Venezuelan model" would guarantee 
immunity from the problems associated with the "neo-liberal model". But 
this is a reformist illusion. Because the revolution has not been 
carried through to the end, Venezuela is still subject to the 
vicissitudes of the capitalist world market. The falling price of oil 
means that the reforms of the past period are under threat. Morgan 
Stanley predicts an economic contraction in both Venezuela and Argentina 
in 2009, of 1 percent and 2 percent respectively. This will mean that 
the reforms and misiones will be in difficulty. In addition to the 
general crisis of capitalism, the Venezuelan economy is suffering from 
sabotage and a strike of capital aimed at destabilising the Bolivarian 
government and causing mass discontent. Despite all the appeals to the 
capitalists, private investment is practically non-existent and there is 
a flight of capital. Only the state sector maintains the economy.

Sooner or later the Revolution will have to decide whether to advance 
and carry out the socialist transformation of society, or else be driven 
back, one step after another, to ignominious defeat. The demand for 
drastic measures against the counterrevolution and expropriation under 
workers' control is growing, and matters must be settled. In the past US 
imperialism would have intervened militarily to abort the process, but 
now this is very difficult. The US is bogged down in Iraq and 
Afghanistan and cannot open another front in Latin America, which would 
have revolutionary consequences inside the USA itself.

It is now a question of either-or for the Venezuelan Revolution. The 
forces of the counterrevolutionary bourgeoisie have taken heart from 
their partial advance in the November election, which has given them 
important points of support from which to launch a new offensive. The 
economic crisis will give them further impetus. Chavez has called for 
more expropriations and proposes to stand again for President. Chavez 
could use his majority in the National Assembly to approve this even 
without a referendum. This would provoke clashes on the streets, which 
would pose the question of power point blank. The battle lines are drawn 
that will settle the fate of the Revolution one way or another.

This will be a period of enormous turbulence and instability - a period 
of revolution and counterrevolution that can last for years, with ebbs 
and flows. In the past, a pre-revolutionary or revolutionary situation 
would not last long. It would either end in the victory of the 
revolution or of the counterrevolution in the form of fascism or 
Bonapartism. But under present day conditions that is not the case. In 
the past, the bourgeoisie in Europe and elsewhere had important reserves 
of support in the population, particularly the class of small peasant 
proprietors. This is no longer the case. The middle layers of small 
proprietors has been whittled away by the development of capitalism, 
while the working class has grown and become the majority of society in 
many countries. In the past the students were drawn from rich families 
and were inclined to fascism. Now in most cases, the students are on the 
left. The ruling class is not strong enough to move towards reaction, 
but the working class is being held back by its leadership. This means 
that the present situation of unstable equilibrium between the classes 
can last for some time.

The revolution never moves in a straight line. There will inevitably be 
ups and downs in the movement, as there were in the Russian and Spanish 
Revolutions in the past. Between February and October 1917 there were 
periods of enormous upswing, but also other periods of tiredness, 
despair and even reaction (July-August). The same was true in Spain 
between 1931 and 1937, where we had the Two Black Years (El Bienio 
Negro) in 1934-5. But in a situation where the pendulum is swinging to 
the left, such "lulls" are only the prelude to a new and even stormier 
revolutionary upsurge.

The objective situation that we have now entered will be far more 
similar to the interwar period, or the 1970s, than to the last twenty 
years. Similar conditions will tend to produce similar results. The 
masses will be far more open to our ideas than they were in the past.

The degeneration of the mass organizations has reached unheard-of depths 
in the last period. The Social Democrats have abandoned all pretence to 
standing for socialism and the former "Communists" have abandoned all 
pretence to standing for communism. It is an irony of history that 
precisely at this moment they have renounced all claims to stand for a 
revolutionary change of society. Now history is taking revenge on them.

The striking successes of the Marxists in Rifondazione Comunista in 
Italy and in the French Communist Party are an indication of the 
profound change that is taking place. In the past such a turn in events 
would have been unthinkable. It shows the existence of deep discontent 
in the rank and file. The same discontent exists in all the mass 
organizations. It will grow as the crisis unfolds and the policies of 
the leadership are exposed in practice.

It is true that consciousness tends to lag behind events, but sooner or 
later it catches up with a bang. That is precisely the meaning of a 
revolution. We are approaching that critical point now. There is a 
general development of an anti-capitalist mood in society, not just in 
the working class but also in the middle class. People who never 
questioned capitalism before are now increasingly discontented. This is 
a very dangerous situation for the ruling class. And the crisis has only 
just begun.

The occupation of the Republic Windows and Doors factory in Chicago 
(which has now been settled) shows the revolutionary potential that is 
being prepared in the USA itself. These were mainly poor paid Latino 
workers. The factory was forced to close because the banks were refusing 
credit, and the bosses were not going to give the workers redundancy 
pay. This is what sparked off the occupation. The workers said: "we have 
no money to pay our mortgages; we will lose not only our jobs but our 
homes!" So they occupied. But then the question of property was raised. 
The idea took root among the workers: these assets belong to us! This is 
how consciousness is rapidly transformed in the course of struggle.

In Belgium the big banking concern Fortis collapsed, and the company was 
plundered by French and Dutch capitalists. Fortis was regarded as the 
"People's Bank". 700,000 people had shares in it. But the shares 
collapsed and lost 90 percent of their value. This provoked a wave of 
anger directed against the banks. Everywhere we see the same indignation 
against the bankers and capitalists, who are obliged to lean on the 
leaders of the working class to hold onto power.

In the crisis of capitalism, the workers' parliamentary leaders cling to 
the ruling class and the trade union leaders cling to the parliamentary 
leaders. In such periods the ruling class prefers the reformist workers' 
leaders in government. Their policy is to use and discredit. They will 
use these leaders to do the dirty work and then cast them aside like a 
dirty dishrag. Then they will say to the masses: "Now you see what 
socialism means!" Thus, a contradiction opens up between the tops of the 
movement, which are moving to the right, in the direction of class 
collaboration, and the rank and file, which is moving to the left, 
looking for radical solution and militant action. Sooner or later this 
internal contradiction must be resolved. The coming period will see all 
sorts of crises and splits in the traditional organizations of the 
working class.

Big possibilities are opening up for the Marxists, and the social crisis 
is still at the early stage. As the crisis develops, the radicalization 
of the working class will reach levels not seen for decades. Ideas that 
were listened to by tiny handfuls will find a mass audience. The basis 
will be laid for the creation of mass Marxist tendencies everywhere. 
This is ultimately the only guarantee of the future socialist 
transformation of society.

London, 15th December




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