The world economy is entering what George Magnus, a senior economic adviser to Switzerland’s UBS bank, has described as “a once-in-a-generation crisis of capitalism, the footprints of which can be found in widespread challenges to the political order” (Financial Times, 12 September 2011). The three largest imperialist centers—the U.S., European Union and Japan—are locked in a seemingly intractable downward spiral in synchronized, but distinct, crises.
Popular anxiety about a looming collapse has been magnified by the inability of the ruling elites to provide any semblance of a rational plan to reverse or even manage a rapidly deteriorating economic situation. This is reflected in a significant decline in the popular legitimacy of individual political leaders and their parties, as well as in the core institutions of capitalist rule.
After two decades of economic stagnation following the implosion of a 1980s real estate bubble, revelations that the Japanese government had deliberately withheld vital information on the diffusion of poisonous radiation from the Fukushima nuclear disaster pushed public confidence to a new low. Meanwhile, the Eurozone debt crisis, which continues to metastasize, threatens to trigger a global financial meltdown. Attempts to redress the problems created by the accumulated debts of Europe’s financiers through savage austerity attacks on working-class living standards are encountering growing, and potentially seriously destabilizing, resistance.
Even in the U.S.—the biggest and most powerful imperialist country, with the most backward working class—popular disenchantment with the system of unregulated “free enterprise” is reaching proportions not seen since the Great Depression of the 1930s. The widespread appeal of the politically primitive “Occupy Wall Street” movement (which correctly identified the social dominance of the top “1%” as the core problem in American society) points to the possibility of major eruptions of political and social unrest in the coming period.
The following is the text of a presentation given in Toronto by Tom Riley on 24 September 2011.
The accumulation of “stresses” in the global financial system in recent months recalls the run-up to the September 2008 collapse of Lehman Brothers—an event that very nearly led to a total international meltdown. It turns out that all the claims over the past few years about how government stimulus, bank bailouts and tightened regulations had put the global economy on the road to a solid “recovery” were false. The bankers were rescued when their bad debts were nationalized, and the injection of government stimulus funding into most major economies averted a complete collapse. But the problems that led to the banking crisis and subsequent recession three years ago have not disappeared, and the stop-gap measures taken to stave off disaster appear to have only magnified the problem.
It is clear that at the moment the big three capitalist economies—the U.S., EU and Japan—are stalling. It is also clear that the “emerging markets” of Brazil, Russia, India and the Chinese deformed workers’ state—all of which depend on exports to the more developed capitalist countries—cannot save the day. Some prominent bourgeois economists—notably Carmen Reinhart of the Peterson Institute for International Economics in Washington, and Harvard’s Kenneth Rogoff—have declared that we are at the beginning of the “Second Great Contraction,” the first, of course, being the “Great Depression” of the 1930s.
The business press is now reluctantly acknowledging that the “recovery” is over and the global economy is likely to be in a slump until consumers get out there and start spending again. In the meantime, everyone is supposed to grit their teeth and get ready for the kind of painful austerity we have been seeing in Greece. Everyone, that is, except the ultra-rich, the people who reaped most of the rewards from the speculative bubbles that triggered the crash in the first place. They are described as “job creators” who must be exempted from the general belt-tightening.
But they are not creating jobs—corporate America is currently sitting on something like $2 trillion in liquid assets, and businesses around the world are canceling orders, trimming payrolls and shrinking inventories in preparation for the coming storm. The jobs that have been shed over the past few years have, on the whole, been relatively well-paid compared to those that have been created—many of which are only casual or part-time. Right now the total real unemployment rate in the U.S. stands at roughly 20 percent and is likely to get worse. Capitalists only “create jobs” and expand their operations when they see an opportunity to turn a profit—and at this point, with all economic indicators pointing down, that day seems a long way off.
The long string of capitalist victories over labor during the past few decades has produced a global economy with unprecedented levels of inequality. On 1 July 2011, the Associated Press reported: “Workers’ wages and benefits make up 57.5 percent of the economy, an all-time low. Until the mid-2000s, that figure had been remarkably stable—about 64 percent through boom and bust alike.” This provides a rough index of how unevenly the pain has been distributed so far.
The roots of the current crisis can be traced to a pronounced decline in the rate of profit beginning in the mid-to-late-1960s—a decline related to the growth of what Karl Marx called the organic composition of capital (see articles in 1917 Nos.31 and 32). The capitalist offensive launched in the 1970s aimed at improving profitability by weakening unions, pushing down wages and wresting back concessions made in the post-World War II period. The smashing of the U.S. air traffic controllers’ union in 1981 and the defeat of the British miners’ strike a few years later represented significant milestones in this campaign. Hobbling the traditionally protectionist unions also made it easier to push through a series of “neoliberal” trade agreements to increase capital mobility and gain greater access to the economies of many “underdeveloped” nations.
Soon major corporations began moving production facilities from the “advanced” to “newly industrializing” countries to take advantage of lower wages, lower taxation rates and the absence of environmental and other regulations. Workers in the imperialist countries were told that they needed to make concessions in wages, benefits and working conditions in order to remain “competitive.” In auto and other industries that remained in the “advanced” capitalist countries, heavy investment in robotics and computerization simultaneously increased productivity and reduced the workforce.
The deregulation of transport, communications and, most importantly, finance was another significant aspect of the neoliberal turn of the 1980s. Exchange controls were abandoned and restrictions on issuing credit eased. An increasing percentage of economic activity involved “financial services”—paper shuffling—rather than the production of new value in the form of actual goods and services. In the U.S. the percentage of corporate profit accruing to the financial sector quadrupled—from less than 10 percent in 1980 to roughly 40 percent by 2007. Manufacturing output tripled during the same period, but as a share of total GDP it fell by a third—from 21 to 13 percent. Today total U.S. public and private debt is estimated at $57 trillion—roughly four times the national income. Eighty percent of this debt, which works out to $185,000 for every man, woman and child, has been accumulated since 1990.
The 2008 banking crisis grew directly out of the preceding housing bubble and the fraudulent “securities” and financial instruments associated with it. Mortgage companies vied with one another to issue what insiders referred to as “NINJA” loans—NINJA borrowers had “No Income, No Job and No Assets.” Of course no one would loan money to such people…unless somebody else assumed the risk. And that’s how it worked. The dubious mortgages were sold to investment banks, which bundled them together into bonds and resold them to hedge funds as high-interest “mortgage-backed securities.” Mortgage-backed securities had traditionally been pretty safe investments—because the banks and trust companies issuing them were on the hook in the case of a default. So they were rather careful about who got a loan for how much.
In the new “financialized” economy, the hedge funds bought “credit default swaps” (a form of insurance) to cover the risk of default. At every step the issuers of these various pieces of paper collected substantial fees and, as long as the housing bubble kept inflating and prices kept rising, everything was fine, because the loans could be refinanced to take advantage of higher valuations. All of these “financial instruments” were certified as Triple A investment grade after supposedly being carefully evaluated by credit ratings agencies (which were hired by the investment bank that issued them in the first place). When the bubble burst, a lot of people lost their homes, but the debts remain, and the interest charges keep piling up. Clearly much of this behavior was consciously fraudulent—but when the perps are billionaires, it is unusual to see them being held to account.
The easing of credit that produced the housing bubble helped offset the fall in real wages that had begun in the 1970s, but inequality continued to grow and has today reached unprecedented levels. Government fiscal policy aimed at restoring capitalist profitability played a role. During the past decade expenditures on “homeland security” and military adventures abroad pushed up costs, while tax breaks for those at the top simultaneously reduced revenues. In a column written a few months ago, Mark Bittman of the New York Times observed that while a quarter of American children go to bed hungry at least some of the time:
“The richest 400 Americans have more wealth than half of all American households combined, the effective tax rate on the nation’s richest people has fallen by about half in the last 20 years, and General Electric [GE] paid zero dollars in U.S. taxes on profits of more than $14 billion.”
—New York Times, 29 March 2011
How is that possible? Well, GE’s tax department has a staff of 975 and spends an additional $20 million a year on outside lobbyists, most of whom specialize in helping write tax legislation. And, of course, GE is just one of many corporations doing essentially the same thing.
By the way, guess who President Obama appointed to head his “Council on Jobs and Competitiveness”? None other than GE Chairman Jeffrey Immelt, whose personal “compensation package doubled to $15.2 million last year, while this year, GE is seeking major concessions from the unions that represent its shrinking American workforce” (San Francisco Chronicle, 5 April 2011).
As the housing bubble was expanding, there was a lot written about the genius of the “financial engineers” who designed these innovative new products, and the notion was floated that perhaps we had somehow arrived in a “post-industrial society” in which money made money. But in fact, debt and accumulated interest are nothing but claims on real goods and services produced by actual working people. Some of what is produced must necessarily be used to replace the human and material inputs consumed in the production process, and so the magnitude of what remains constitutes the absolute limit on aggregate industrial and financial profits. This value is fixed, not infinitely expandable. The contraction of the financial system was inevitable, and the largely fictitious profits suddenly evaporated as the whole ponzi scheme began to unwind.
Among the first banks to fail when the September 2008 financial crisis broke were those of tiny Iceland. When the island’s conservative rulers proposed to cover the bankers’ bad debts, the resulting explosion of popular anger brought down the government. The new social-democratic administration sought to push through the same policy. But again the resistance was so great that the government ultimately backed down and let the banks go bust. Nothing too radical really, but several leading financiers were charged with criminal activity, and creditors and bondholders ended up getting a rather severe “haircut.”
Iceland has been the exception, however. In virtually every other jurisdiction, the state stepped in to honor the claims made by the holders of “toxic” assets. In the U.S., the bankers got a $700 billion bailout with which to “recapitalize.” Presented as absolutely essential to stabilizing the economy, this was effectively a lifeline to the biggest speculators.
While the bankers immediately celebrated by paying themselves hefty bonuses, the U.S. government proceeded to finance the expanded deficit by increased borrowing (in some cases from the very same institutions that had just received the handout). The parasites who run the financial houses began to express concern that perhaps the government would not be able to continue to cover its expanding debt, and last month Standard & Poor’s downgraded the U.S. government’s credit rating a notch for failing to tackle “structural issues” with sufficient aggressiveness. In particular, the ratings agency complained that the government was proposing “only minor policy changes on Medicare and little change in other entitlements, the containment of which we and most other independent observers regard as key to long-term fiscal sustainability.”
In pitching his “Jobs Bill” to Congress earlier this month, Obama, whom the trade-union bureaucracy has backed as the supposed defender of working people and the poor, openly talked about “reforming” (i.e., shredding) what remains of the U.S. “social safety net” (i.e., Medicare, Medicaid and Social Security).
Every call to “rescue” Greece, Italy or the Bank of America from default is in fact a proposal to protect wealthy speculators from taking a hit. Bank “rescues” have two stages: first, transfer outstanding liabilities to the public and, second, announce that workers, students and pensioners are going to have to sacrifice in order to balance the budget. As Richard Wolff, writing in the Guardian on New Year’s Day , aptly observed: “Like someone convicted of murdering his parents who demands leniency as an orphan, corporate America demands conservative government and austerity on the grounds of excessive budget deficits.”
What we are seeing in Europe and North America today parallels the “Structural Adjustment Programs” imposed by the IMF [International Monetary Fund] in many “underdeveloped” capitalist countries in the 1980s—where massive state borrowing (much of which ended up in the pockets of the elites) was paid off by lowering the standard of living of most of the population. The resulting social upheavals were routinely dismissed in the Western press as “IMF rioting.”
A Gallup poll released just this week showed that Americans favor increasing taxes on the rich and corporations by a margin of more than two-to-one. In February 2011, the University of Maryland’s Program for Public Consultation released a study showing that the three most popular proposals for reducing the federal deficit were: 1. cutting the Defense Department budget; 2. cutting spending for the occupation of Iraq and Afghanistan; and 3. cutting funding for the CIA and other intelligence agencies. The same study found approval for increased funding for job training, education and environmental protection (Marketplace Morning Report, 17 February 2011).
Such sentiments, which are nothing more than ideas about how to improve capitalism, are too radical to be discussed seriously by the mainstream media. Only a mass popular radicalization on a scale capable of destabilizing capitalist rule would put them on the agenda for the bourgeoisie. This was the context for Franklin Delano Roosevelt’s “New Deal” in the 1930s. Today, with the rate of profit severely depressed and no immediate threat posed by a potentially insurgent workers’ movement, even mildly “progressive” reforms are off the agenda.
All wings of the U.S. ruling class agree that American military supremacy is their most important competitive advantage. It was not under George W. Bush, but Bill Clinton, that the U.S. Secretary of State brazenly asserted that America has an inherent right to the “unilateral use of power” to ensure “uninhibited access to key markets, energy supplies and strategic resources” (johnpilger.com, 1 November 2004).
That, in a nutshell, sums up the motive for imperialist military intervention abroad. Naturally, for public relations purposes, the pursuit of “national interests” (i.e., corporate interests) has to have a more transcendent rationale. When George W. Bush invaded Afghanistan and Iraq, he was acting to “protect the homeland.” President Obama likes to cultivate a more “humanitarian” image, and so for Libya we heard about “RTP”—the “Responsibility to Protect.” But in fact, as usual, it was the “Right to Plunder.” Lesser imperialist powers allied with Washington (like Britain, France, Germany, Australia and Canada) participate in particular ventures to a greater or lesser extent, depending on how they calculate the risks and benefits.
There is of course no guarantee that attempts to forcibly seize “energy supplies and strategic resources” will succeed. The total cost to the U.S. Treasury of the wars in Iraq and Afghanistan may top $3 trillion by some estimates. Some well-meaning people suggest that money currently being spent on the Afghanistan conflict should instead be spent on reconstruction at home. Such notions reveal profound illusions about the nature of capitalist rule. The U.S., Canada and the rest of the NATO axis have not spent the last decade trying to establish control of Afghanistan because they care about liberating women, or providing clean drinking water or economic opportunities for Afghans. They have spent blood and treasure in pursuit of significant material interests.
During the recent self-righteous commemorations of “9/11” there was little mention of the fact that Osama bin Laden and the other core cadres of Al Qaeda were originally recruited, trained and equipped by the CIA in the 1980s to fight a Soviet-supported nationalist regime committed to modernizing Afghan society. The Soviets’ withdrawal from Afghanistan in 1989 touched off years of bloody internecine conflict among the various gangs of mujahedin “freedom fighters,” which only ended when the Taliban, backed by Pakistan, emerged on top in 1996.
Washington initially welcomed the Taliban as a stabilizing factor in a region that had become much more strategically important after huge oil and natural gas deposits were discovered in the vicinity of the Caspian Sea. The Taliban’s brutally repressive, misogynist, theocratic rule was not a problem—but its lack of subservience soon chilled relations. The 9/11 attacks provided the opportunity to launch a “War on Terror” that began with the invasion of Afghanistan. The idea was to use it as the launching pad for a string of imperialist military bases across what had formerly been Soviet Central Asia.
But things did not work out as planned. Despite a decade of helicopter gunships, hi-tech drones, Hellfire missiles and B-1 bombers, the NATO coalition has been unable to either subdue the Taliban fighters or assert effective control of Afghan society. In fact, a few weeks ago they were having difficulty hanging on to the U.S. embassy. At this point, therefore, in a strategic sense, we can say that NATO has lost the war in Afghanistan. As revolutionary internationalists we welcome this setback. We give no political support whatsoever to the Islamic reactionaries of the Taliban, but we welcome the defeat of the NATO imperialists and their puppets.
After invading Afghanistan, the next stop for the U.S.-led “War on Terror” was the invasion of Iraq. (Because of domestic political calculations, Canada’s Liberal government officially sat that one out, but contributed what it could.) In Iraq, as in Afghanistan, it proved much easier to depose the existing regime than to establish effective control over a hostile population. Revolutionaries opposed the occupation of Iraq from the beginning and, as in Afghanistan, defended all blows struck against the occupiers and their hirelings by indigenous resistance forces. In Iraq, as in Afghanistan, the imperialist crusaders have failed to achieve their central strategic objective—the creation of a stable client regime to provide a base for the direct military control of the enormous oil resources of the region.
NATO’s most recent “humanitarian” mission was to provide logistical and military support to what the capitalist press hails as the “Libyan Revolution.” As we noted in a statement published at the time, unlike the uprisings in Tunisia and Egypt which were more or less spontaneous in origin and directed against long-time imperialist clients, the Libyan revolt was initiated by a group with a longstanding connection to the CIA. Right from the start, the imperialists clearly saw the “Libyan Revolution” as an opportunity for “regime change”—i.e., getting rid of Muammar Qaddafi. It is worth recalling that in 2002 a leaked Pentagon document had Libya on the list of seven potential targets for a nuclear first strike. The others were China, Russia, North Korea, Iran, Syria and Iraq (Daily Mirror [London], 11 March 2002).
Qaddafi originally came to power in a 1969 coup which overthrew the pro-imperialist monarchy headed by King Idris. He quickly moved to close British military installations at Tobruk and El Adem and also kicked the U.S. Airforce out of the Wheelus base near Tripoli, which had served as part of the Strategic Air Command encirclement of the Soviet Union. After the Americans departed, Qaddafi invited the Soviets to use the base. Over the years his regime also gave substantial material support to a wide variety of “anti-imperialist” movements, including the Nicaraguan Sandinistas, the Popular Front for the Liberation of Palestine and the Provisional Irish Republican Army.
The Qaddafi regime also nationalized Libya’s oil resources. This was depicted as a “socialist” measure, but in fact, like the nationalizations carried out by Nasser in Egypt, or more recently by Chávez in Venezuela, it was a case of the state acting on behalf of a weak national capitalist class. The relative autonomy enjoyed by Qaddafi and other left-nationalist regimes in the 1970s and 80s was largely due to the existence of the Soviet counterweight to NATO. With the victory of capitalist counterrevolution under Boris Yeltsin in August 1991, that changed.
There is no question that Col. Qaddafi ruled a rather nasty police state. But this is not why he was on the imperialist hit list. Libya sits on the biggest oil reserves in Africa, and Libyan oil is of a particularly high grade—which makes it extremely profitable. Under Qaddafi’s rule, a substantial portion of oil revenues went into domestic development projects, which is why Libya scored relatively high on the UN’s Human Development Index of literacy, life expectancy and standard of living. Qaddafi’s only real “crime” from the standpoint of imperialism was insubordination and a tendency to what the U.S. State Department calls “resource nationalism.” Had he been a more reliable agent of foreign oil corporations, he would very likely still be in his palace in Tripoli.
One of the first acts of Libya’s “revolutionaries” was to call for NATO intervention. When Qaddafi’s regime failed to immediately implode, NATO commenced its “humanitarian” bombing to complement the special forces dispatched to lead the “rebels.” The legal cover for this unprovoked attack on a sovereign nation was a UN Security Council motion claiming that Qaddafi’s forces were intent on killing large numbers of civilians. But as Richard Haass, president of the U.S. Council on Foreign Relations, commented: “The evidence was not persuasive that a large-scale massacre or genocide was either likely or imminent.”
Donald Trump, speaking to Fox News, explained the Libyan mission as follows: “We are NATO. We back NATO in terms of money and weapons. What do we get out of it? Why won’t we take the oil?” Why not indeed? The lead story in the business section of the New York Times (23 August 2011) the day after the “rebels” arrived in Tripoli was “Scramble Begins for Access to Libya’s Oil.” The article observed that “Western nations—especially the NATO countries that provided crucial air support to the rebels—want to make sure their companies are in prime position to pump the Libyan crude.”
Of course, as George W. Bush discovered in Iraq, it is sometimes easier to declare victory than to achieve it, particularly as many of the rebels employed by NATO to fight Qaddafi’s army turn out to be Islamic radicals with a history of connections with Al Qaeda. So the story may not be over just yet.
Like the disastrous speculative bubbles created by the “banksters,” the predatory imperialist attacks on insufficiently obedient neocolonial regimes are ventures in which costs are socialized, while benefits are privatized. The across-the-board austerity measures being imposed on working people throughout the “developed” capitalist world, like the vicious attacks on uncooperative neocolonies abroad, do not result from mistaken policy choices or the short-sightedness of individual politicians. The brutal Bush/Cheney “shock and awe” rhetoric has given way to Obama’s sonorous “humanitarian” banalities, but the fundamentals remain unchanged.
That is because capitalism has a logic—the interests of the many will always be sacrificed for the few at the top. Ordinary people lose their homes; daycares and schools are closed; pension funds are looted; wages slashed and public assets privatized—all so that bankers and other speculators don’t have to take a “haircut” on their bad investments.
The continuing assault on working-class living standards has been met with considerable resistance to date—from the spontaneous outpouring we saw in Wisconsin last winter, to the repeated militant mass strikes waged by Greek workers. Today, the supposedly “class neutral” capitalist state—which actually functions as the “executive committee of the bourgeoisie”—is seen by tens of millions of working people as nothing but a weapon wielded by the privileged and well-connected to destroy gains painfully accumulated over generations. It is a short step from this recognition to understanding that any serious resistance to these encroachments must necessarily pose the question of power.
The massive disorders that erupted across England last summer revealed a disintegrating society with a generation of angry and despairing youth who feel they have no future and therefore nothing to lose. Britain’s rulers claimed to have been shocked, but in fact planning had been underway for such outbursts for some time. A 2007 document produced by the British military projected the likely consequences of growing social inequality:
“[T]he gap between rich and poor will probably increase and absolute poverty will remain a global challenge….Absolute poverty and comparative disadvantage will fuel perceptions of injustice among those whose expectations are not met, increasing tension and instability, both within and between societies and resulting in expressions of violence such as disorder, criminality, terrorism and insurgency.”
—”The DCDC Global Strategic Trends Programme, 2007-2036,” 3rd ed., British Ministry of Defence, January 2007
The same report discussed the likelihood of “the resurgence of not only anti-capitalist ideologies, possibly linked to religious, anarchist or nihilist movements, but also to populism and the revival of Marxism.”
The revival of Marxism on a mass scale would be a very welcome development, particularly given the extremely degenerate quality of most ostensibly Marxist groups today. In 2008, the U.S. Communist Party, like much of the international left, called for workers to support Obama and the Democrats. In 2010, the self-proclaimed “hard communists” of the Spartacist League (the Trotskyist League up here) spent a few months avidly alibiing the American military occupation of Haiti. When NATO attacked Libya this year, many leftists, including the International Marxist Tendency (who are meeting down the hall) and the French Nouveau Parti anticapitaliste, one of the biggest “far left” groups in Europe, openly supported the imperialist-backed “rebels.”
Yet the squalid opportunism of many who claim Marx’s legacy cannot detract from the profound insights regarding the inner contradictions of the capitalist mode of production contained in Das Kapital. In recent months, a few prominent bourgeois thinkers have made favorable references to Marx’s magnum opus. Nouriel Roubini, a New York University economics professor (known on Wall Street as “Dr. Doom” for correctly predicting the collapse of the U.S. housing bubble and the consequences for the American financial system years before it occurred) mentioned Marx in an interview with the Wall Street Journal last month. Roubini observed that Marx was right about the inherent tendency of capitalism toward cyclical crises, and commented: “At some point capitalism can…destroy itself. That’s because you can not keep on shifting income from labor to capital without…having an excess capacity and a lack of aggregate demand. We thought that markets work. They are not working. What’s individually rational…is a self-destructive process” (International Business Times, 14 August 2011).
Contrary to Roubini, who is no Marxist, capitalism will not simply destroy itself. And neither can it be fixed by tinkering with tax policy or heftier injections of stimulus. The pathologies manifest in economic crises and neocolonial wars are expressions of the profound irrationality of capitalist society. The pursuit of profit maximization has not only produced extreme social polarization and immense human suffering, but it also threatens the entire biosphere upon which life itself depends. The melting of the polar ice caps, the massive BP oil spill in the Gulf of Mexico and the nuclear catastrophe at Fukushima (which has now released more than 20 times as much radiation as the bomb that destroyed Hiroshima in 1945) can all be traced to the drive to enhance “shareholder value.”
The irrationality of the global capitalist order can only be transcended through the expropriation of the ruling class and the reorganization of the means of transport, communication and production into an integrated planned economic system on a world scale. This cannot be accomplished without a series of convulsive social struggles—socialist revolutions—that rips power from the hands of the capitalist class, smashes their coercive state agencies and institutes a new social order in which production is organized on the basis of meeting human need.
The essential precondition for such a transformation is the creation of a revolutionary party deeply rooted among the workers and oppressed. The Bolshevik Revolution of 1917 proved that with such a leadership ordinary working people are capable of reorganizing society from top to bottom. It is this example that we of the International Bolshevik Tendency look to, and it is to this project that we seek to recruit a new generation of revolutionary fighters.