Friday, 28 March 2008

Class War Erupts in Iraq

The Background

About a year ago I argued that the US policy in Iraq was emerging. That policy was for the division of Iraq into three – the Shia South, the Sunni Centre and the Kurdish North. Whether this division would result in three separate states, three states within the context of an Iraqi Federation, or the attachment of the South and centre to other states was not clear, though this latter was probably not in the US interest. Such a solution was probably the best hope of avoiding a prolonged Civil War that would not only prevent Iraqi oil from flowing freely on to the world market, but had the potential to spill over into neighbouring states threatening the US’s long term strategic interest, and its links to its main Sunni allies in the region in Saudi Arabia, Kuwait and the Emirates. The main oil reserves in Iraq are in the Kurdish North and the Shia South though according to reports a few months ago large natural gas deposits have been discovered in the Iraqi Western desert. Iraqi Kurdistan is effectively already a separate state. With little violence in the area, and effective administration it has been developing rapidly over the last few years. The South also was not a hotspot for sectarian violence being overwhelmingly Shia. The main violence in the area was from Shia insurgents with the support of Iran targeting British forces, which was bound to subside as soon as those forces withdrew as they have now done. The main source of sectarian violence was within the Sunni triangle, and particularly Baghdad with intermingled Sunni and Shia populations. Although, these populations have historically co-existed and intermarried the US occupation as with most other colonialist regimes encouraged division between them as part of a policy of divide and rule.

This policy might have been intended to allow a bourgeois secular force to emerge under US military tutelage, but it clearly was counterproductive. Instead it led to increasing destabilisation. If Iraq was to be effectively divided into three then the issue of the Sunni Triangle had to be dealt with. With no oil wealth in the region the Sunnis would inevitably kick up about Iraqi oil wealth being retained in the oil producing regions. That problem was effectively assuaged by a promise by the US’s rich Sunni client regimes to bank-roll the Iraqi Sunnis, and an open commitment to intervene in any attempt by Iraqi Shia to overrun the Sunnis. But the second problem was that Baghdad was divided between the Sunnis, and a large Shia minority, a minority that was under the influence of Sadr. If a Sunni state was to be established the question of this large Shia minority in Baghdad would have to be addressed, or continuing sectarian violence would threaten to blow the whole scheme apart.

I suggested at the time that it was likely that the US troop surge would focus on attacking Sadr’s forces in Baghdad under cover of a general assault on insurgents, and that such a policy would be sold to the Shia politicians in the South on the basis of at the same time weakening their main Shia rival. Why would they accede? Because those Shia politicians represent the Iraqi bourgeoisie such as it is, whereas Sadr represents the poor, workers and peasants. His forces, in the absence of a strong Labour Movement, are the Jacobins. Historically, it is the Jacobins, precisely because they are based objectively on these social forces that represent the most extreme Left-Wing, that push the revolution forward, but, and for that reason are ultimately crushed by the forces of the bourgeoisie, unless like the Bolsheviks they are sufficiently well organised and draw behind them sufficient class forces.

In the intervening period the US surge attempted to draw out Sadr’s forces, but Sadr responded by playing dead. His forces under cover of ceasefire strengthened themselves in the South. Despite provocations, probably under US tutelage, against Shia in Baghdad, Sadr’s forces maintained their discipline rather thn get drawn into an open fire fight with the US. At the same time following intense diplomatic manoeuvres by the US with the surrounding Sunni states, and the signing of new deals, the provision of new weapons systems for Saudia etc. the US made a settlement with Sunni forces who were provided with arms and money for their militia in return for clearing out Al Qaeda whose politics also represented a threat to those Sunni leaders. Behind large concrete walls separating the Sunni and Shia communities the Sunni militia were built up by the US, while the main Shia militia of Sadr was subdued.

Class War

The final piece of that plan is now unfolding the final subjugation of Sadr’s forces as the government sets out effectively to disarm Sadr and his Jacobins. The current conflict in the Shia South is presented variously as being the actions of a constitutionally elected Government dealing with unconstitutional and illegal militia, or more intelligently and honestly of the forces of SCIRI dealing with the Mehdi Army through its influence in the Iraqi Government, and army, in other words as a sectarian/religious conflict within the ranks of the Shia. But the outbreak of what could be a serious Civil War within the Shia is no more at root about religious differences than was the English Civil War. That is merely a superficial veneer. The conflict is a social conflict between the forces of the Shia bourgeoisie tied in some degree to Iran, and the Sadrist Jacobins who whilst having some relations with Iran are far more nationalist in orientation.

But if this is essentially the outbreak of class war how should Iraqi socialists, and the Iraqi Labour Movement respond? Unfortunately, the weakness of those forces limits their options. What is clear is that the Iraqi Labour Movement has more in common with the social forces that back Sadr than they do with those backing the Government. The Labour Movement has to find a way of relating to those forces without in any way giving political support to Sadr, and his clerical-fascist movement. In the aftermath of WWI and the success of the Russian Revolution revolutionary Marxists, convinced that World Revolution was at hand, established Communist Parties as separate organisations to the existing Workers Parties. They expected that workers would flock to these new parties given the collapse of the Second International. Many did, though only in Germany was a party established that was anything like the Bolsheviks that had mass support amongst the workers. In France and Italy the existing Socialist Parties changed their names, but little else, and became wracked with division and splits. By the early 20’s it was becoming clear that not only was the European revolution postponed, but the Communist Parties were not winning the battle of democracy, were not winning the majority of workers to their banner. They remained attached to the old Socialist Parties in large measure. The Communist International developed the policy of the United Front.

The United Front

Trotsky outlined the idea in a number of speeches and articles. The policy was essentially developed for France, but was applicable to other countries with similar conditions. Trotsky points out that where the Communist Party already has the crushing majority of workers already supporting it there is no need for the United Front. The Communist Party simply develops its Programme and acts upon it. Similarly, where the Communist Party is very small – and Trotsky here was talking about parties of less than 200,000 or so compared to the sects of today that number in the hundreds not thousands – then likewise the United Front was not applicable, because the Communist Party would effectively not have the bargaining power with the forces of the bourgeois workers parties. Where, however, neither the Socialists nor the Communists had such a crushing majority of support the United Front was applicable. The idea was simple. The Communists say to the Socialists, look you do not accept the idea of the Dictatorship of the Proletariat, you are not prepared to struggle for the Revolution, you remain tied to the bourgeoisie. On that we will continue to disagree. However, as representatives of workers there are things which affect workers here and now on which we can agree. We both agree on the need to defend wages, to defend the 8 hour day and so on. We propose to you on these specific issues to form a United workers front against the bourgeoisie. To the extent that the bourgeois workers parties agreed to such a struggle workers would become stronger and more mobilised, and the Communists would benefit. To the extent that the bourgeois workers parties refused such an approach they would be exposed in the eyes of the workers as defenders not of the workers but of the bourgeoisie.

Could the Iraqi Labour Movement propose such a United Front to the Sadrists? There are clearly problems. Although, the bourgeois workers parties were tied to the bourgeoisie there is a clear difference between them and the clerical-fascist politics of the Sadrists. Yet the principle is effectively the same. The tactic is not to make an alliance with the leaders of such a movement, not to give any credibility to their reactionary politics, but to find a route to the masses that support them, and thereby to break them away. There is no essential difference here in proposing such a United Front to fight for specific economic demands than for Communists to propose a common struggle over a wage claim with a Catholic Trade Union. Sadr’s social politics are determined by his religious beliefs, but his economic politics have to be responsive to the objective reality of his social base. In addition to the military response to the attack against his forces, Sadr’s other first response was to call for a General Strike.

The Iraqi labour movement has to find a route to that social base whilst continuing a relentless struggle against Sadr’s politics. The weakness of that Labour Movement limits its options, but a proposal for a United Front to fight for a Programme of economic demands might well at the present time be possible. Unemployment in Iraq is sky-high, inflation is high too. This presses heavily on the weakest sections of Iraqi society, and is probably one of the reasons support for Sadr has increased. It is thought that in the upcoming elections Sadr’s supporters might win a majority, which is why the Iraqi bourgeoisie is now taking the option of open warfare. There are a number of economic demands that could key into this situation.

A Programme of Class Struggle

Iraqi oil is in state hands. This is preferable to it being in the hands of private owners, but it is not ideal from the perspective of the Iraqi Labour Movement. It means that the revenues are absorbed by the Iraqi bourgeois state, and its US sponsor. There is no reason why this state should use these revenues to benefit the Iraqi masses. On the contrary they are likely to both enrich the Iraqi bourgeoisie and the foreign companies gorging themselves in Iraq, and to build up the forces of that state to further repress the Iraqi masses. Yet the vast resources of the Iraqi oilfields in the Shia South provide the basis for a programme of economic reconstruction that could give work to the unemployed, and considerably improve the living conditions of people in the area. The US and its clients have proved themselves, over the last five years, not only incapable of such a programme, but have manifested the most vile corruption. Only Iraqi workers have the motivation, and ability to bring about such a transformation.

In proposing a United Front the Iraqi Labour Movement should propose to the Sadrists the introduction of Workers Control in the oil industry. This should ensure that oil revenues are diverted directly by the workers to essential Public Works, and Job Creation schemes. In order to administer such funds, and to develop the necessary programme of Public Works it is necessary that neighbourhood committees be established to draw up a list of work that needs to be done, that brings together and organises unemployed workers with the necessary skills to undertake this work. It requires the establishment of co-operative enterprises to produce necessary materials etc. for the completion of such Public Works, and the establishment of Workers Control in the larger enterprises engaged in such supply. It requires the establishment of factory committees that organise all the workers whether they be Sadrist, socialist or non-aligned, Trade Unionist or non-Trade Unionist to struggle for the establishment of such Workers Control, and to oversee it once established. It requires the establishment of Peasant Committees linked to the Factory Committees and Neighbourhood Committees to organise the provision of food and other supplies to the towns. It requires the establishment of Workers Militia to defend such actions against the inevitable attacks of Government and Occupation forces, of the attempts by rival militia and criminal gangs to steal from the workers and peasants. In addition it requires the establishment of monitoring committees to check prices, and to develop a workers cost of living index against which workers should seek compensating increases in wages through the establishment of a sliding scale. There are undoubtedly many other such economic elements of a Programme that could be developed by workers in Iraq.

The point is that these demands provide the basis for making an appeal to the Sadrists for such a United Front. The condition would have to be that the Iraqi Labour Movement and socialist organisations maintained a strict political and organisational separation, that it was made clear that no concession would be made to Sadr’s reactionary politics including physical confrontation on the street to defend women and gays from attacks by clerical-fascist gangs be they attached to Sadr or anyone else. Would Sadr respond? Maybe not. Rather as Trotsky pointed out in the 1920’s a small communist party is in no position to effectively bargain with a larger organisation. But, unlike the situation of communist forces which simply have to recognise their weakness and work within the confines of a bourgeois workers party, and Trade Unions, the Iraqi Labour Movement cannot simply integrate itself into Sadr’s movement. But there is a precedent, and its is that of Italy under Mussolini. There Trotsky advised that the Communists had to find a way through such methods of creating a route through to the poor, and the working masses that had been drawn into giving support for the fascists, and thereby to exploit the necessary contradiction between that social base, and the objective historical function of fascism.

"The dispersed condition of the Italian proletariat precludes for our Italian comrades the possibility of their posing as an immediate task the overthrow of fascism by force of arms. While carefully preparaing the elements for the future armed struggle, the Italian Communists must, to begin with, develop the struggle through broad political channels. Thier immediate and preparatory task, which is, moreover, a tsak of enormous importance, is to begin to disintegrate the plebeian and especially the working class sector of fascist support and to fuse together ever broader proletarian masses under the partial and general slogans of defence and offence. By means of a dynamic and flexible policy the Italian Communists can accelerate in the extreme the downfall of the fascists...."

TRotsky - "Political Perspectives" from "The First Five Years of the Communist International Vol.II p298

If Sadr were to agree a powerful social movement could be created to mobilise around such economic demands, and to mobilise in a way that places no faith in the Iraqi bourgeois state. Within the context of such a struggle the Iraqi working class would be strengthened, and the Labour Movement would be likely to benefit from that proportionately more than would Sadr. If Sadr refuses the Labour Movement loses nothing but is able to use such rejection to propagandise to the workers and peasants about the nature of Sadr’s vacillation in defending their interests.

Iraq, the US and Iran

If the US does want, and succeeds in bringing about a division of Iraq, if it does so by marginalising Sadr’s forces through the medium of the Iraqi state and the influence within it of SCIRI, which is closely tied to Iran, what does this tell us about the US’s longer term plans, and its relationship to Iran? At first glance, the US position appears contradictory. On the one hand a victory for SCIRI, and the establishment on some basis of a Shia state in the South plays into the hands of Iran who would effectively be master of such a state, were it not even to seek incorporation. This contradicts US strategic interest in the region, which is to ensure that Iran’s influence is minimised as a possible rival to US interests. Whether Iran can be classified as “sub-imperialist” is debatable. The difference between imperialism and colonialism is this; colonialism is the expansion of merchant capital into foreign territory. It is driven not by any objective necessity, but from subjective motives, be they the greed of the merchant and the ruling class to which they are attached, or an assessment of political, strategic interest, for instance against the possibility of attack, the cutting of of trade routes etc. Imperialism, however, arises from the objective neccessit of economic relations. It arises when Capital has exhausted the potential within its national boundaries of profitably exploiting Labour Power, and is forced to seek Labour Power oversees to exploit.

Within that context it is difficult to describe Iran as “imperialist” or even “sub-imperialist”. Inside Iran there is considerable unemployment, economic growth is slow to non-existent. There remains considerable scope within Iran for the profitable employment of Capital without the need to seek such opportunities outside its boundaries. Iran has made considerable investment in Afghanistan on its borders, but this investment, largely in infrastructure appears more to do with trying to build social stability, and political influence on its border than a necessary drive of Capital to expand. If Iran can be described as anything it is expansionist rather than imperialist. Even then its expansionism, where it is not directly defensive and strategic, rather like that of Stalinism appears more to do with gaining political influence, of winning support for its world view, than any desire to gain economically, for instance in its support for Hamas, and Hezbollah.

Yet even such expansionism poses a threat to US global ambitions. The US requires of not compliant regimes in the region, at least regimes that are either docile, or else too weak to pose a threat to its influence, and its main strategic requirement – a stable and reliable supply of (preferably cheap) oil to the world market. A victory for Iran’s clients in Iraq is contradictory to that aim, but it is a necessary and unavoidable contradiction. The US would clearly prefer a secular, pliable, bourgeois client in Iraq, but its expectations that such a figure might emerge were quickly thwarted. It has to proceed with what it has, and hope that it can achieve its aims in the longer term, possibly if SCIRI and the Sadrists exhaust themselves – rather as SPECTRE tried to play off Russia and the US in order to seek world domination in James Bond films. In addition with US and British forces out of Southern Iraq there is no possibility of an attack on such forces there in response to an attack by the US on Iran. Such an attack that removed the Iranian leadership and led to chaos and weakness in Iran would undermine at the same time SCIRI in Iraq, and open up the possibility of some strongman/men emerging with whom the US could do business by the back door.

The response of the Bush administration to its own Intelligence Assessment of Iran a few months ago is illustrative. The Administration effectively dismissed the Assessment that Iran had ceased trying to build a nuclear bomb. It emphasised the fact that it had BEEN trying to build one, and that the assessment didn’t say it wouldn’t again try. In addition the US has emphasised the role of Iran in Iraq providing itself with another pretext for an attack. With oil now at over $100 a barrel, and forecasts that it might rise in the next year to $200 a barrel the US cannot afford to allow Iran to emerge as a powerful player in the Region. It will be forced to act. The question is when. The likelihood remains that Bush will try to save his record by a successful attack on Iran to remove the regime without making any promises in advance to bring democracy as it did in Iraq. It will settle for chaos and weakness. The initial response will be a spike in oil prices, but at today’s elevated levels such a spike is likely to be less pronounced. Moreover, the reduced threat to its other clients in the region who are by far more important suppliers may take out some of the risk premium from the price.

What is clear is that whether such an attack takes place on Bushes watch or that of whichever of his successors is in office, such an attack – short of the Iranian regime falling by other methods – is inevitable.

Sunday, 16 March 2008

Vote Labour in London's Mayoral Elections

Socialists are faced with an appaling choice of who to vote for for London Mayor. Were it just a question of a vote between Livingstone and German I might possibly vote for German, more likely I'd not waste my time on either. One is a right-wing demagogue, the other a leading member of a tiny sect with reactionary politics. But the vote is not a personal popularity contest - or unpopularity contest its a vote between two organisations that claim to represent workers - one that actually does, and the other that merely has illusions that it might some day. Given the choice of voting for a mass Workers Party that remains based on the working class and its Trade Unions, that still organises around 200,000 workers as members, that remains tied through its Branch network to working class comunities at a grass roots level, or voting for the representative of a tiny sect that refuses to support workers in struggle against clerical-fascists, and which has been in alliance with those fascist forces throughout the Middle East, the issue for any self-respecting socialist should be obvious.

I'd be voting for the Labour Party irrespective of who the candidate is. A look at the SWP shows why no self-respecting socialist should support them. Having collapsed the Socialist Alliance, of which it was the largest organisation, several years ago the SWP typical of its centrist nature engaged in a huge Zig to the Right. It established Respect as a two-class Party drawing in not just Stalinist demagogues like George Galloway as front men, but alongside its support for clerical-fascist regimes and organisations in the Middle East, accommodating to the most reactionary communalist politics in Britain that led it to subordinate any remnants of socialism it had in its political armoury to its overriding goal of “building the Party.”

At meetings supported and sponsored by the SWP they even went along with the idea that women could not be in the same room as men, and so on. They subordinated their position on abortion and gay rights to the reactionary politics of the Islamists and Galloway who they had jumped into bed with. AS with other front organisations such as the UAF they were happy for this Public Face to be presented provided that in the background they were pulling the strings, and provided that out of the forces, hopefully, drawn into the organisation, the SWP would have its own private pool within which to swim, and build its own organisation. Again as with the UAF this accommodation to Islamism also fed into the nasty streak of anti-semitism, masquerading as Anti-Zionism, that runs like a yellow streak through the SWP’s politics.

One of the greatest critics of these politics in the SWP, and of the SWP as an organisation, which is throughly undemocratic, was the AWL, which spent an almost unlikited amount of column inches on – correctly – denouncing it, if perhaps in doing so giving them for too much of the oxygen of publicity than they deserved. Yet now the AWL are arguing for a first preference vote for the SWP. Its actually, not presented that way its presented as a vote for German as against Livingstone on the basis of the need to oppose the terrible record of Livingstone over the last 8 years. Given the collapse of the AWL into petit-bourgeois socialism and Third Campism, which precedes not on the basis of Marxist class politics, but on the basis of subjectivism and moralism such a way of presenting the issue is not surprising. It’s also not surprsing that on this basis they end up coming to the wrong position, and worse.

Subjectivist politics are necessarily opportunist. Faced with the fact of the SWP’s political record, and what they have said about it what is the AWL’s response. They effectively ignore that record in order for it to fit with their position de jour? There are two basic reasons for the AWL’s position. Firstly, like every other sect in Britain the AWL is tiny. If there is any possibility of becoming bigger every sect will jump at the chance. Of course, ultimately every such attempt fails because being sects the leaders of every sect only wants unity on their own terms. The AWL argue that although the SWP had terrible, reactionary politics yesterday their separation from Galloway means their politics have been miraculously transformed so that they are not so bad today. In fact, this St Paul like conversion not only means its possible to vote for the SWP, but that socialists SHOULD vote for them in good faith at the possibility of creating Left Unity! If I thought the AWL were serious about that I would be appalled. Look at any number of the AWL’s publications where they set out what is wrong with that – why for Marxists Unity at any price cannot be accepted. But I doubt they are. What they mean is the SWP’s turn opens up the possibility under the cover of such an approach to snatch some of the SWP’s members away from it. Secondly, going back to the early 1980’s there is a history of hostility between the AWL and its predecessor Socialist Organiser and Livingstone. At that time I was a fairly prominent member of SO so I know the history pretty well. Let me be clear in terms of the politics of that dispute I was then, and I am now wholly on the side of SO and the AWL.

Livingstone’s politics then and now were bad. But, I suspect that given the subjectivist and moralistic politics of the AWL they have allowed that relationship to colour their decision. How else can you rationalise the support for a Party with the reactionary position of the SWP as against support for the LP, which despite its present right-wing leadership remains the mass Party of the working-class, a Party which the AWL still has members in, and a Party it has supported in elections with far more right-wing candidates than Livingstone?

A look at their coverage of Livingstone demonstrates the relationship. Moreoever, when I was writing blogs fort he AWL I had access to their Internal Discussions. I rad their discussion on the 1980 Mayoral eelction. Yhey were going to oppose Livingstone’s candidacy, but given the fact that not only was it certain that Livingstone was going to win, that he would have been the Labour candidate had it not been for the shenanigans in the LP to prevent it, and that he was likely to simply be a Labour mayor formally outside the LP for a time, almost the entire Left was supporting him, some of their comrades convinced them that to do so might look just an incy bit sectarian?

But as I said this is not a beauty contest between Livingstone and German - God forbid - but a contest between two organisations that claim to represent workers, one that actually does, and the other a sect with reactionary politics - in fact some time ago in a discussion on the AWL’s board an SWP member stated that long standing AWL militant, Jim Denham, had said that the SWP itself were clerical-fascists. I think that statement is wrong the fact that the SWP allied themselves with such forces, that they have accommodated their politics to them does not make them fascists themselves per se, merely gutless opportunists with reactionary politics. But the fact remains that although they might have broken with those forces – or more precisely those forces under Galloway’s tutelage, having milked the SWP have broken with them - they are still in bed with them in relation to their political position on Iraq, on Gaza, Lebanon etc. Its that this politics determined their attitude to fighting Islamism in Bradford, that it leads them to accommodate to it in respect of the way women are treated even at their own meetings, or meetings they support etc.

Under such conditions, of course socialists vote for the real workers Party and not the nasty little sect. Petit-bourgeois if it salves their conscience salves their conscience might vote for German as some kind of tokenistic politics of protest, but its not the politics of a serious workers organisation, and the logic of it leaves you in the position of calling for support for the LibDems in a number of such contests where on paper they have more radical politics. But that's where Subjectivist, Opportunist politics made up on the hoof leads you. By making the basis of who to vote for the respective merits of individuals - German and Livingstone – rather than the class basis of the parties they represent it is quite clear that in some election there may be some Liberal candidate, who purely as an individual has a more Left, programme and record than the other candidates. Using the AWL’s subjectivist methodology they are put in the poistion of supporting the representative of an openly bouregois party, just as they support the petit-bourgeois Greens in some elections.

In response Sacha Ishmail replied to me,

"Of course they were responsible (for their involvement in Respect and its politics AB). But what sense does it make to call on a workers' party/a group like the SWP to break with the bourgeois elements of a popular front if the fact that they were involved makes them forever untouchable, regardless of changes in position?"

There are a number of points. Firstly, I don’t think Respect was a PF. I think the definition is wrong. A PF is a Governmental/Administrative body in which parties representing both the bouregoisie and proletariat take part, and in which the workers parties are constrained thereby to support the policies of the bourgeois parties. A Party – other than one in which the Party forms a Bonapartist regime, and through which the workers party is forced to act as a Left cover for the bourgeoisie e.g. the Kuomintang – or a campaign group e.g. an anti-fascist group does not come under that rubric, precisely because the workers parties are free to continue their own activity and propaganda. If the SWP chose not to do so that was THEIR decision not something they were constrained to do as a result of participating in Respect. Secondly, are the AWL seriously trying to tell us then that the split in Respect was the result of the SWP seeing the error of their ways and pulling out rather than a result of Galloway deciding he’d used the SWP to the best he could, and now was the time to drop them????

But, there is a further point. Are the AWL seriously trying to tell us that they believe the SWP leopard has changed its spots, or as I suggest above is it really that this change of heart on behalf of the AWL is just an opportunist tactic to try to take advantage of the SWP’s current position, to poach some of its members. Either way the AWL’s political and tactical Zig here is as illustrative as the similar Zigs and zags of the SWP itself. Either this Zig is thoroughly Opportunist or else it is yet another symptom of the effects of isolation and defeatism. In the late 20's the CPSU was divided into three sections. The Left, Centre, and Right the main figureheads being Trotsky, Stalin and Bukharin respectively. The Trotskyists (and Zinovievists who joined them in the United Opposition) were isolated with an alliance between the Stalinists and the Bukharinists. Under pressure of economic events and also in part because the United Opposition, which saw the, mainly working-class, supporters of Zinoviev join, the more ideological, but mainly petit-bouregois and student, supporters of Trotsky, had begun to win workers to the United Opposition, Stalin made a tactical Zig to the Left adopting many of the policies of the Opposition. Faced with the possibility of exclusion from the Party the Zinovievists saw this move as their excuse to capitulate to Stalin. But many within the Left also argued that this change of line was genuine, and a basis for building an alliance between Stalin's Centre faction and the Left. Trotsky argued against determinedly. The leopard had not changed its spots, and the Zig to the Left would be followed by a Zag to the Right. Allying themselves for short term tactical advantage with the Stalinist Centre would be a bad mistake. He was right, those that followed it were crushed. Like their predecessors the AWL declare on the basis of this Zig to the left, and despite the SWP’s continuing politics, the politics that aligns them with the clerical-fascist Resistance in Iraq, and their support for their co-thinkers in Iran, in Lebanon and in Gaza, that leaves the SWP still supporting those clerical-fascist forces against workers, women and homosexuals in those countries, THESE PEOPLE ARE ON THE SAME SIDE AS US!!!

If we analyse the matter in accordance with Marxist class politics the course is clear, and the starting point has to be the nature of the parties not the individuals concerned. Marxists argue for a vote for Labour because whatever its deficiencies, and as a bouregois workers party it has ALWAYS had many, it is the mass party of the working class. The starting point for all Marxists must be to build the maximum unity of the class, and as Marx put it in the Communist Manifesto, ”The Communists do not build their own Party separate from the Workers Parties” Just as Marxists have to accept that although the Trade Unions are imbued with all kinds of bourgeois and reactionary prejudices, yet Marxists accept them and try to change them rather than setting up their own sectarian unions, so too that applies to the Workers parties, especially where as in Britain those parties are built up from those same Trade Unions. If we want to win workers away from those politics we can only do so by taking them from where they are, working with them in their mass organisations such as the LP, going through the process with them, and educating them in that process. Standing outside that process in sectarian organisations that may or may not have the benefit of Marxist purity will only further deepen the separation between the working class and the Marxists that has arisen over the last 80 years as a result of such Leninist sectarianism during that period. Marxists are supposed to learn the lessons of the class struggle. 80 years of that mistake should have been sufficient for even the most dogmatic Leninist to have learned the lesson.

The AWL on the one hand still describe the LP as a Bouregois Workers Party. They still have members in the LP yet when their back is agaisnt the wall they want to deny the logic of their analysis.

Sacha ishmail commented.

”Ah, so the Labour Party actually represents workers, does it? It's a real workers' party? Wow.”

Yes, of course the Labour Party is a Workers Party – what is a REAL Workers Party? Marxists understand things in dialectical terms they do not analyse phenomena in absolute, static terms, but in their process of development. There is no absolute or REAL Workers Party but several varieties all of which represent moments in that process of development. The LP is a Workers Party in the sense that the German Democrats were when Marx and Engels joined them. The sense that it is a Party to which the mass of Workers give their support. But it is more than that the Democrats were an openly bourgeois Party in terms of Programme and membership. The LP is also Workers Party in the sense that Engels set out in his advice for the US socialists i.e. one in which socialists organise on a minimum programme, which the Marxists are able to work up. Is it a Marxist Party? No, of course not, but neither Marx nor Engels thought that the Workers Party had to be a Marxist Party. If they did their comments about the relationship of Marxists to the Workers party make absolutely no sense. Does the LP carry out bourgeois policies? Yes, absolutely it’s a bourgeois workers party i.e. one based on the working class, but still – like the working class itself – dominated by bourgeois ideas. You could have a Party for whom that was not true, but under the present conditions of class consciousness it would be the size of the AWL, and just as irrelevant to and separated from the class struggle.
And if the LP is not a Workers Party then what the fuck are they doing with some of their members supposedly still in their, what the fuck are they doing recommending workers vote for it in other elections.

In much of its politics, for example in relation to Iraq, the AWL is characterised by Opportunism, its current turn to the SWP is another manifestation of that. Yet its attitude to the LP and other workers organisations is marked by Ultra-Leftism. Its position in respect of Venezuela matches its attitude to the LP. Faced with the fact of 5 million workers joining the PSUV despite the AWL calling on them not to do so, but to join the PRS, the AWL came to the conclusion that just as the members of the LP must mostly be middle class, the workers who had joined the PSUV must all be careerists. It’s the politics that flows from a petit-bouregois socialism that cannot deal with a mass working class organisation that does not fit its ideal type. Instead of dealing with the REAL Venezuelan working class and its new Party, just as it cannot deal with the actual LP, the AWL called on workers to support the PRS party and C-CURA Union Federation of Cirino. The PRS is/was an insignificant neo-TRotskyist sect better known by other Trotskyists outside Venezuela than it is by workers in Venzuela - and pretty much the same could be said for the SWP. TRying to posit such forces as in anyway serious alternatives to the mass workers parties in either Venezuela or Britian is sectarian fantasy, and tilting at windmills. Cirino’s own members in both the C-CURA and in the PRS also decided his position was hopelessly sectarian too. Both rejected his position and joined the PSUV!!!!

The SWP is not a workers party, it’s a nasty little sect with reactionary politics. Labour might have some reactionary politics, like the working class it remains dominated by the dominant bourgeois ideology. Why would any materialist let alone Marxist be surprised by that? But its certainly not a sect by any stretch of the imagination. Nor is it, or has it allied itself with mediaeval reactionaries. In the LP branches there is huge debate and dissent about even forming an alliance at local Council level with the Liberals, yet the SWP members are so brainwashed as Leninists into following the Party line that en bloc they swallowed a change of line to form an alliance with clerical-fascists, to subordinate any socialist politics they might have had to the most crass reactionary bullshit without blinking an eye, and with very few defections. It would be interesting to know what democratic debate and discussion went on inside the AWL itself prior to this opportunist Zig towards the reactionaries of the SWP given what the AWL members themselves have had to say about the SWP until yesterday.

And in defending the vote for the SWP the AWL have exposed their entire methodology. It is full of contradictions as they tell different stories to fit different aspects of their argument. On the one hand they want to argue that “Support for the SWP” will act to apply left pressure on the LP, whilst on the other they want to argue that voting for the SWP is safe because their vote will be so derisory as not to threaten the possibility that the Tories might win!!! But you can’t have it both ways. If the vote is derisory then far from putting Left pressure on it will further strengthen the Right in the LP who will be able to point to the derisory vote of the Left. If it’s a sizeable enough vote to enable the Left to say look you need to tack Left then it will be sizeable enough to split the working class vote and let in the Tories.

Against this is put the argument that because its an STV vote its safe to vote for the SWP first because their second round votes will go to labour. But what does this tell us about the AWL’s method. The argument is "Vote for German to win knowing it won't happen." But isn't that what the AWL Majority argue against doing in relation to Troops Out Now in Iraq i.e. arguing for one thing whilst actually meaning another. The difference is this. When I and the AWL Minority talk about Troops Out Now we make it clear that we mean that the working class should mobilise to kick out the troops, and we do mean what we say when we call for that. But when the AWL call for a win for German its clear they do not mean that at all, they DO NOT want a win for German, or even a substantial vote, because if German got more votes than Livingstone or even a substantial number the vote would be split and the Tories would win.

The fact of STV does not change the basic argument. This is a contest between a Workers party and a nasty sect with reactionary politics. The fact that the SWP has made a tactical zig for this election only tells us that it will quickly make a zag in the other direction. There is no more reason for Marxists to be fooled and go along with that than there was for them to be fooled by the Left turn of the Stalinists in the late 20's. The SWP's politics remain as reactionary as they were.
The call is not for a vote for Labour First and the SWP second, but vice versa. A first vote for Labour, and a spoiling vote for the SWP second would make sense. If no one gets 50% of the vote and the SWP go out it will then go to the second choices of the other candidates. That means that it will be a matter of which voters are more politically savvy Labour or Tory, and what happens with the Liberals. If the Tory voters are savvy - and they usually are - they will cast their second round votes for the SWP. That way if the Labour and Liberal voters cast even a significant number of votes for Boris then Boris will win. Voting for German is not risk free. Just ask the French voters who as a result of the votes of the sectarian Left ended up with a choice of voting for either Chirac or Le Pen. In asking people to vote for the SWP first you presumably hope they will win. At least you must hope for a substantial vote. If that splits the workers votes it is at least possible the top two could be the Tories and Liberals leaving them to fight it out from 2nd and 3rd preference votes. In fact a similar system of voting a few years ago for the elected mayor in Stoke left the BNP only a hair’s breadth from victory.

For Marxists the main concern cannot be these electoral consequences, but nor can Marxists ignore the effects of a victory for the bourgeoisie. That is one reason Marx and Engels perpetually stressed the importance of Workers Unity why they argued against Marxists setting up their own sectarian alternatives to the Workers Parties. Marxists attitude to unity of those organisations of the class is different to the attitude they take in relation to their own organisation. On the one hand they are in favour of establishing the Workers mass organisations – the Trade Unions, the Co-operatives, and the Workers Parties on as broad a scale as possible in order to bring about and maintain that fighting unity of the working class. But for the Marxists themselves, because their main function is to act as the educators of those mass organisations of the class, ideological clarity is paramount. Marx and Engels attitude to ordinary workers was completely different to that they took to other political ideologists in the workers movement. The AWL gets this completely backwards. On the one hand they demand almost Marxist purity from ordinary workers in the LP, and shun it for not meeting that requirement, whilst now being prepared to cosy up to the SWP and its reactionary politics for the sake of Left unity.

In left-Wing Communism Lenin says that the purpose for Marxists of elections is not to win, but to use the period of more intense political activity to better win workers away from Bourgeois democracy, to make Marxist propaganda. Comrades from the AWL might want to ponder to what extent they will be able to talk to SWP members in any meaningful way during this period given the thoroughly undemocratic nature of the SWP. They might also want to question to what extent that lack of democracy and the SWP's history of such activity will allow them to conduct broader propaganda within the working class compared to the much bigger platform provided by the labour campaign for talking to workers both inside and out of the Party.

Lenin was partly wrong. He was right that the most important thing for Marxists is to disavow workers of their faith in bourgeois democracy that its necessary to get them to organise themselves independently, he should have said to also take that to its logical conclusion and to claw back where possible the means of production through co-operatives as Marx and Engels proposed - Lenin himself was not averse to it as he wrote in a number of places, but his tactics for the conditions of Russia were necessarily different, which is why in “What is to be Done?” he makes clear that his argument is specific to Russia, and why at the Second Congress of the Comintern he said that it was a historical document specific to the fight against the Economists which others had miunderstood (and which today's Leninists continue to misunderstand) - to establish their own Workers Democracy from that new material base as an alternative, but he was wrong in what he saw as the limits of parliamentary action. He often, for example in “The Proletarian Revolution and the Renegade Kautsky” conflates the political power of Government with the State Power of the permanent state apparatus rather than recognising the potential contradiction between them.

It is necessary for Marxists to utilise that contradiction wherever possible, and thereby to educate workers in the necessity of establishing their own organisations, and democracy, to demonstrate the resistance that will be made to any meaningful change, and the need to prepare to defend themselves against that state. But, that is a road on the other side of a bridge that the working class has not yet even entered the path towards. The first task is to rebuild the workers mass organisations, to utilise those organisations to rebuild self-confidence and self-organisation within the working class within the workplaces and communities, and in the process to raise the workers level of culture and class conscioussness. Votes for irrelevant sects stand in relation to that as North stands to South.

Sunday, 9 March 2008

The World Economy - First Draft

The Nature of World Economy – Combined and Uneven Development

The world economy is characterised by a combined and uneven development. The uneven development precedes capitalism, and is merely a reflection of the fact that labour productivity develops within the context of given historical and geographical conditions. The first human civilisations developed in the Nile Valley and Mesopotamia, around 7,000 years ago, for the simple reason that the climatic and topographical conditions there were conducive to human settlement. The climate meant that little was needed in the way of adequate shelter or clothing. The soil fertility from the alluvial soils meant that crops grew easily. The consequence was that, relatively, only a small portion of the working day – what we might call necessary labour – was required to meet immediate consumption. This meant that time was available to develop other aspects of human society specific to civilisation. The development of science and art to a degree which was qualitatively different from that which had gone before – Man as an intelligent, thinking being has existed for at least 70,000 years, and consequently produced art, communicated etc. during all that time but it is only with the advent of civilisation that this becomes qualitatively different. These changes in themselves then affected labour productivity, and social relations, the most obvious being the potential for the development of classes. In the meantime the harsher conditions of Northern Europe meant that for much longer Man was confined to living in caves, migrating from place to place before settled agriculture develops. In North America such development did not occur at all until the last European invasion, and settlement. A widely varying climate, together with topological conditions, which favoured the growth of certain crops, and the usually ready availability of foods from migrating herds, and naturally occurring roots and other foodstuffs encouraged the continuation of hunting and gathering. In short Man’s development throughout the world has occurred at different paces for the simple reason that different conditions exist in different parts of the world, and change over time. Each new mode of production does not enter the world separated from this history, but begins from it, and develops out of it. And for the same reasons even when every country has adopted the same mode of production the same causes mean that some will be more developed than others.

Prior to capitalism each country could exist almost within its own cocoon. Contact with other societies was peripheral. The first civilisations traded between each other mostly in the form of wedding gifts exchanged when the members of one tribe or clan married the members of another. Even when trade does develop to a greater extent, it is the surplus that is traded rather than production being geared specifically for the purpose of trade. What is traded is not Exchange Values, but Use Values. It is only with Capitalism that we have the production of Exchange Values i.e. the production of commodities specifically for sale at a profit. Trade then becomes not the exchange of products surplus to requirements, but the exchange of products whose only reason for existence is to be exchanged, and exchanged such that the owner realises a surplus value on their sale. It is this that gives the world economy, once capitalism has developed in at least one country, its combined character. No longer do different economies exist in a condition of glorious isolation, but each is pulled together by the very process of capitalist economy into a single whole.

It no longer matters that some countries are still at a level of feudalism, or even at a level of hunting and gathering. The battering ram of capitalism’s low prices breaks down all Chinese walls, and where resources can be exploited profitably it will do so even if it means rolling over the bones of the inhabitants. But more than that not only modes of production preceding capitalism are drawn into the web of the world economy, those countries that have abolished capitalism remain enmeshed in it. The world economy develops under capitalism because of the division of labour. The more capitalism develops the more it is forced to extend the scope of the division of labour globally – hence globalisation. It is only through this process, by which capitalism bursts through the constraints of national borders that it raises the productivity of labour to unheard of heights. No society – no matter how efficient, no matter what gains it might gain from co-operative production – can raise labour productivity higher than capitalism within that context of a global capitalist system unless it too interacts with that world economy, unless it too becomes a part of that global division of labour. This is the crux of the argument over the theory of “Socialism in One Country”.

”In the first place, it would have been more correct to say that the entire history of mankind is governed by the law of uneven development. Capitalism finds various sections of mankind at different stages of development, each with its profound internal contradictions. The extreme diversity in the levels attained, and the extraordinary unevenness in the rate of development of the different sections of mankind during the various epochs, serves as the starting point of capitalism. Capitalism gains mastery only gradually over the inherited unevenness, breaking and altering it, employing therein its own means and methods. In contrast to the economic systems that preceded it, capitalism inherently and constantly aims at economic expansion, at the penetration of new territories, the surmounting of economic differences, the conversion of self-sufficient provincial and national economies into a system of financial interrelationships. Thereby it brings about their rapprochement and equalizes the economic and cultural levels of the most progressive and the most backward countries. Without this main process, it would be impossible to conceive of the relative levelling out, first, of Europe with Great Britain, and then, of America with Europe; the industrialization of the colonies, the diminishing gap between India and Great Britain, and all the consequences arising from the enumerated processes upon which is based not only the program of the Communist International but also its very existence.

By drawing the countries economically closer to one another and levelling out their stages of development, capitalism, however, operates by methods of its own, that is to say, by anarchistic methods which constantly undermine its own work, set one country against another, and one branch of industry against another, developing some parts of world economy while hampering and throwing back the development of others. Only the correlation of these two fundamental tendencies – both of which arise from the nature of capitalism – explains to us the living texture of the historical process.

Imperialism, thanks to the universality, penetrability, and mobility and the break-neck speed of the formation of finance capital as the driving force of imperialism, lends vigour to both these tendencies. Imperialism links up incomparably more rapidly and more deeply the individual national and continental units into a single entity, bringing them into the closest and most vital dependence upon each other and rendering their economic methods, social forms, and levels of development more identical. At the same time, it attains this “goal” by such antagonistic methods, such tiger-leaps, and such raids upon backward countries and areas that the unification and levelling of world economy which it has effected, is upset by it even more violently and convulsively than in the preceding epochs. Only such a dialectical and not purely mechanical understanding of the law of uneven development can make possible the avoidance of the fundamental error which the draft program, submitted to the Sixth Congress, has failed to avoid.”

Trotsky – “The Third International After Lenin” p19.

Source:Draft Program of the Comintern

Capitalism and the World Economy Today - Planning

The broad outline developed by Trotsky remains valid. However, we might wish to recognise that although capitalism remains anarchistic – a function of the continuation of competition (although monopolistic competition) as a driving force – it has been forced over the last 100 years, increasingly to try to bring some semblance of order. The development of the Federal Reserve in 1913 was a direct result of the fact that by that time the US economy had already become dominated by huge monopolistic/oligopolistic companies who called for the establishment of the Bank. The increasing size of the minimum Capital requirements for efficient production meant that some semblance of economic stability was required. Today Central Banks such as the Fed, and the Bank of England are the essential mechanism by which the Capitalist state intervenes in the economy to provide that kind of stability through demand management, alongside the state’s own activity which comprises between 40 and 50% of all economic activity in all developed capitalist economies. Although competition remains at the core of Capitalism as different capitalists and groups of capitalists seek to maximise their own profits, at the level of the individual enterprise, and at the level of the state – and increasingly at the level of the world economy – capitalism is increasingly characterised by conscious planning. Not conscious planning in a socialist sense, not the conscious planning of the production of Use Values to meet human needs – other than to the extent that as Lenin pointed out even Capitalism cannot produce without some concern for the ultimate requirements of consumers – but conscious planning to meet the needs of Capitalism itself to produce profit, to accumulate Capital, and to provide the conditions of social stability in which that can occur.

Even small businesses are required to have a Business Plan if they wish to borrow money from a bank. The businesses that characterise modern capitalism the huge oligopolies could not exist without planning. In the 19th century, and even in the orthodox economics text books of today capitalism is conceived as a system of many competing Capitals each of which allocates Capital according to the signals sent to it by the market. This is the world that the apologists of Capitalism be they the Libertarians of the Austrian School, or the ideologists of neo-Liberalism would have us believe. In the case of the Libertarians it appears more a pious wish of the petit bourgeois for society to be the way they would like it to be, the way they believe it was once. In the case of the neo-Liberals they know that this is not the way things are, but it provides a basis for their political agenda. Whatever they may proclaim about a commitment to Free Trade, to Laissez-Faire, they know that modern capitalism cannot exist without the closest of links between the major capitalists, and the capitalist state, know that the direct involvement of that state is vital for the functioning of capitalist economy, and over the last 30 years those same neo-liberals have overseen state intervention on an unprecedented scale.
Not only has the role of the Capitalist state grown enormously over that period in terms of its role as employer, the provider of transfer payments etc. but straightforward Keynesian demand management has occurred on a level that even Social Democratic governments in the post-war period would have fought shy from. This has been most notable in the country most associated with “Neo-Liberalism”, and not by coincidence the most sclerotic of the advanced capitalist economies – the US. In 1987 the greatest Stock Market crash in world history occurred, and was sparked by the fact that the world’s speculators got worried by the US’s twin deficits. Huge deficits on its Trading Account with the rest of the world, and the deficit of the Government’s own budget. From 1949 to the late 60’s/early 70’s the world had been in a long wave upswing of economic development. As in all such periods after the initial development, workers had found their power increasing as the demand for Labour increased. Political ideas, developed during the previous period, alongside straightforward raw worker militancy were able to grow. In short in the class war Labour became stronger and Capital weaker. As long as overall economies grew, the absolute amount of profit increased even as the rate of profit declined – a function both of the increasing organic composition of Capital, and of a rising share of wages in total output. But again as in previous cycles when this long uptrend begins to falter conflict increases. Workers demand pay rises, but bosses are more inclined to resist as their profit margins fall so low that they are more inclined not to invest further Capital. Increasingly, more militancy can provide no solution to workers problems. Political solutions are required. It is not surprising that it is during this period we see the outbreaks such as the Prague Spring, the events of May in France, and in Britain we see the successful Miners Strikes of 1972 and 1974, alongside failed attempts to control workers organisation such as “In Place of Strife”. But, in Britain at least, the Miners Strike of 1974 marks the high water mark. Increasingly, workers struggles become defensive rather than offensive. The State even under a Labour Government is forced to cut back spending, and in order to try to rescue the rate of profit wage and price controls are introduced. The dam is eventually broken by the strike of Ford workers, and the Winter of Discontent, but only to lead to the election of the Thatcher Government. The next period is characterised both by economic downturn, and on the back of that the ability of overtly ideological governments in the US and Britain to smash the power of workers, and thereby to raise the rate of profit.

The basic idea behind this relationship was worked out by the Soviet economist and statistician Kondratiev (See: Kondratiev and the Long Wave) at the beginning of the 20th century. Trotsky disagreed with Kondratiev, because he believed that his formulation was too mechanistic, but Trotsky himself put forward a similar schema in his work “The Curve of Capitalist Development”, which can be found in “Problems of Everyday Life”, particularly page 278 where he provides a graph of the relationship of political and social events such as War and revolution, reforms etc. linked to the conjunctures of the economic cycle. (See:The Curve of Capitalist Development

The history of Thatcher’s government in its ideological development here is interesting, but is also matched in large part by that of the US. Thatcher and her closest allies like Keith Joseph were influenced by Hayek. Indeed Hayek himself organised influential people to advise Thatcher as the documentary “Tory, Tory, Tory” set out. Hayek as a Misean had a fairly naïve conception of inflation and economic crisis. The Misean view of Economic Crisis is taken actually one-sidedly from Marx. In fact, its been said that every theory of crisis uses one aspect of Marx’s theory. But they fail to grasp the totality. Marx after showing why capitalist crisis always has its roots in Production, and the overproduction of Capital goes on via historical example to demonstrate how the crisis can be SPARKED by something exogenous to production for example a Credit Crisis. The Miseans, who believe naively in Say’s Law and the idea that the market will automatically clear and self correct if left to its own devices, are forced to explain crises purely in terms of such exogenous events, in particular the role of the State in intervening in the economy, and the role of Central Banks in creating too much credit, increasing the money supply. The Misean definition of inflation is not rising prices, but rising money supply. Marx does indeed set out why the dynamic of Credit markets can at different junctures of the cycle lead to a superabundance of Credit, and how this can exacerbate the over-production, and thereby exacerbates the crisis once it breaks out. The Miseans define this period as a “Crack-Up Boom”. The solution for Miseans is that Money Supply must be tightly controlled at all times, and must be based not on a fiat currency, but on real money – Gold. In many ways it is a repetition of the ideas which led to the crisis of 1847 in which the restrictions of the 1844 Bank Act led to a refusal to increase Money Supply when it was needed, which led in turn to the hoarding of cash, increases in interest rates, and an unnecessary curtailment of economic activity, which was only relieved when the Bank Act was suspended.

These ideas run completely counter to the ideas of Keynesianism, but they fitted perfectly the needs of the Thatcher and Reagan governments. Both set about slashing money supply as well as Public Spending on the pretext of controlling inflation. The consequence was inevitable. Inflation, which responds to changes in Money Supply only after a two-year lag, remained high, whilst the reduction in Public Spending together with high interest rates brought about a huge curtailment of economic activity and rise in unemployment. That was the prerequisite for undermining the economic power of Labour. It set the basis for both Reagan and Thatcher to begin attacking workers organisation classically Thatcher’s defeat of the Miners and Reagan’s dismissal of the Air Traffic Controllers. By the mid to late 80’s the working class was defeated and demoralised.

At that point neither Reagan nor Thatcher needed Misean economics anymore, and both slid seamlessly into what is often confused as being the same thing – Monetarism. There is, however, a huge difference between the Monetarists and the Miseans. Whilst the Miseans believe that crises occur due to the collapse of a crack up boom resulting from excess money supply, the monetarists explanation of the Depression, for instance, is that it was the fault of the Federal Reserve and other Central Banks whose monetary policies were too restrictive, that had they pumped liquidity into the economy the crisis could have been avoided. In short, the Monetarists believe in State intervention as much as do the Keynesians, but the Monetarists believe that the intervention has to be via monetary policy which encourages Supply, and thereby output and employment which feeds through to increased demand, and reject intervention through Public Spending on the basis that such spending “crowds out” private investment, raises interest rates, and thereby reduces Supply, employment and ultimately demand whilst at the same time raising prices.

It is not that by the mid to late 80’s Capitalist states rejected the idea of intervention either in theory or practice, but that they found (temporarily) a technically better form of achieving that intervention, and a method that at the same time allowed them to appear to not be intervening at all. In the US Paul Volcker who had slashed the Money Supply is replaced by Alan Greenspan. Greenspan himself a former devotee of Ayn Rand, and who had himself written on the need for sound money based on Gold, responded to the ’87 Crash by pumping liquidity into the system. It was the beginning of 20 years of Greenspan’s rule at the Fed, during which time he was on many more occasions to bail out speculators who had made bad bets, by cutting rates and injecting liquidity. One reason that the US Stock market rose so spectacularly despite the lacklustre performance of the US economy itself, was the fact that investors and speculators began to realise that it was a one-way bet – a feature of the current discussions over the Credit Crunch and Northern Rock, the development of so called moral hazard – because if the market began to fall significantly the Fed would step in and cut interest rates – the so called “Greenspan Put.” Far from the state’s activity during this period being one of non-intervention, as the Neo-Liberals try to portray, it has been marked by intervention on a scale unprecedented in the history of Capitalism. At the end of 1999 for instance all Central Banks pumped huge amounts of liquidity into the system JUST IN CASE there were problems with the so-called Millennium Bug. That liquidity was one of the reasons for the hyperbolic rise of Technology Shares at the time, and the subsequent collapse, which resulted in the Federal Reserve cutting rates to the historic low of just 1%.

From 1990 onwards the world’s number 2 economy – Japan – was in deep recession. The blow-up of inflated asset prices in the Stock Market and property markets had a dramatic effect on Japanese Banks who were tied into Japanese Companies and property in the same way that Hilferding describes Finance Capital in Germany. Banks Balance Sheets were ripped up as the value of their assets tumbled, and the loans they had made to companies went bad. Although banks failed the State was forced to intervene to nationalise or effectively nationalise banks in the same way that Britain has done with Northern Rock. Economic activity collapsed in the domestic market – Japan continued to export lots of its products – as unemployment rose – an unheard of phenomena in post-war Japan, and consumers who had seen their investments in Japanese companies collapse, slashed spending. Prices fell causing a deflation. The consequence was normal. Consumers seeing falling prices cut back their spending further betting that they could buy goods cheaper if they waited. The Bank of Japan slashed interest rates to zero, but still prices fell, as even zero interest rates are positive during a deflation. The Government intervened with classic Keynesian demand management not to eh extent of billions but to the extent of trillions of YEN in Public Expenditure programs and Capital projects. That Keynesian intervention continued not for just a few years, but right up to the present period, with some of the spending being cut back in recent years, but with continued intervention to keep the Yen low to support exports.

Trotsky’s analysis needs to be updated in one more essential aspect. That of the relation of developed capitalist economies to the least developed. At the time that Trotsky was writing this relation was characterised predominantly by Colonialism. One of the reasons the early Comintern placed a high premium on the slogans of National Liberation and Self-Determination was the fact that such struggles of oppressed nations against colonialist/imperialist powers were almost invariably progressive. They were an integral part of what the Communists saw as an unfolding world revolution, and large revolutionary parties with the backing of a Workers State could intervene in such struggles both to ensure the leading role of the Communists, and to drive such struggles down a revolutionary path. This overrode the concern that Marxists should always have for trying to ensure that the greatest unity of the working class is maintained, and which mitigates against separation, mitigated against Lenin’s dictum that objectively small states were reactionary vis a vis large states, and that the interests of struggles in small states should always be subordinated to those in the large states. In the circumstances of today where colonialism is largely a historical relic, where the world is increasingly pulled together as a global economy which requires a global response by a unified working class, and where given the weakness of Marxists it is far more likely that such struggles will be led by reactionary petit-bourgeois forces the attitude of Marxists to such struggles should be more circumspect.

The basic requirement for efficient Capital accumulation is the existence of a Capitalist state. The state provides a level playing field for all capitalists within its remit, establishes the necessary property laws, and acts to protect Capital against its enemies. But the requirement for a Capitalist state is the existence of a ruling capitalist class – ruling at least socially and economically, if not politically. When Capital first expands beyond its own boundaries it finds itself operating in countries where this is not the case. It finds pre-capitalist modes of production. The first form of Capital to expand into such territories is Merchants Capital. As such its modus operandi is to buy low and sell high. It takes production relations as it finds them and buys from domestic producers at prices low enough to guarantee itself a profit – often with the military power of its state standing behind it to ensure such low prices, or as in the case of the East India Company the military power of its own army. Merchants Capital rather than developing the economy tends to under develop it. It destroys without building anything in its place. Rather than creating Surplus Value it makes a profit simply through swindling. Consequently, such social relations do not lead to the development of the colonial economy, and cannot lead to the development of a domestic capitalist class. The only basis on which a Capitalist state can exist under such conditions is if the Colonial power projects its own state on to the foreign soil.

But this changes as industrial Capital supersedes Merchant Capital. Industrial Capital bases itself on the production of Surplus Value. Even to the extent that it takes over from Merchant Capital in securing for itself raw materials etc. it seeks to achieve this not on the basis of taking the existing social relations as they stand, but on the basis of transforming those social relations, of producing on a Capitalist basis. Just as an increasing division of labour in its home country created a growing market, so capitalist production in the foreign country creates a domestic market there, and leads to endogenous economic development. Alongside it grows a domestic capitalist class, which ultimately provides the basis for the establishment of a domestic capitalist state, and thereby removes the need for foreign rule. It is by far a more economical method of operation for the developed Capital. Although, this state inevitably looks to the protection of domestic Capital, seeks to project its interests at least initially into its environs, in so doing it also protects ALL capital operating within its remit against class enemies. Moreover, the old Colonial power remains the most important trading partner the limits of state activity are constrained by the laws of economics – not too mention the ability of the old colonial power to intervene through a range of political and military channels. If your economy depends on selling cotton to Britain then that sets limits on what can be done. If you are dependent on Britain for the provision of Capital equipment, or loan Capital etc. then this too constrains your relation.

But, of course what this process means is that over time these relationships change. Former colonial powers such as Britain and France were superseded in the post war period by the USA as the dominant economic power, not on the basis of the old colonial relationship, but on the basis of a new imperialistic economic relationship. In place of old dependencies, a new one was established, backed up by the overwhelming military power of the US to intervene by alternative methods when required, and only checked by the countervailing influence of the USSR. With the collapse of the USSR that constraint was removed, and temporarily new vistas opened up for the US hegemon. Globalisation flourished, and the US could conceive of its Project for the New American Century.

Economic Crisis and the Long Wave

Unfortunately, for the US things might not work out the way it planned. For the last twenty years the position of the US as world hegemon, and its currency acting as world money have given it considerable advantages in dealing with the problems it faced. Those problems essentially were these. During that period the world economy was in a period of Long Wave downturn. Relatively, economic growth was lower than the Kondratiev trend, and consequently unemployment was higher. Yet, even with that, and even with the defeat and demoralisation of the Labour Movement, not only wage rates, but unit Labour Costs were significantly higher in the US (and other developed economies) than they were in the newly industrialising economies of Asia. The differences were significant. To have reduced wages in the US sufficiently would have meant something like the Great Depression, but that would have its problems too. US capitalists had been forced under FDR to intervene to avoid social unrest, and the potential for the system itself to be put in jeopardy. There was a solution. Capital could compete with Asian Capital, if it too located its production in these Asian markets. But the process of de-industrialisation that would set in place would itself threaten the stability of the domestic economy and social system. Moreover, there would be no point in simply continuing to produce huge volumes of consumer goods, even at much reduced prices, unless US consumers had jobs to provide incomes to buy those consumer goods, because no sufficient alternative markets were available in the newly developing Asian economies. But here the power of the dollar as reserve currency, and the size of the US economy came in.

In place of the huge manufacturing centres arose huge retail centres. In place of manufacturing jobs arose jobs in retail, and services. The Capital involved in such enterprises APPEARED to produce Surplus Value, whilst the workers employed continued to have wages – though usually much reduced from what they had previously been – in order to continue to spend in these retail palaces. The difference was that where in the past that Capital merely shared in the Surplus Value produced by US producers, now at best they shared in the Surplus Value produced by manufacturers in Asia. Some of this capital was able to sell its output to overseas consumers – particularly that involved in the financial sector of Services – but in large part it could not. Consequently, the huge US Trade Deficit that had caused the Crash of 1987 was just the beginning. The US continued to suck in imports without the ability to export sufficient goods and services to pay for them. Its trade deficit continued to grow financed by borrowing from the newly developing economies that were making money from selling it products, and from Middle Eastern oil states. It seemed a perfect solution, but in reality it was no different than a Café owner who every day lends money to someone just so that they can buy a cup of coffee from them!
Had it been any other country than the US it would not have been possible. But the huge size of the US economy meant that these lenders always had their eyes on its assets for repossession just like the loan shark that lends to the bad credit risk with a large house. In buying US Government debt these lenders were slowly buying up the US on the back of a fairly confident belief of being paid back. But although the US economy was and is huge, big is not the same as strong or healthy. It appeared that way as the huge injections of liquidity fuelled an asset price boom in Stocks, and Property, leading to increased foreign investment in US stocks that appeared a one-way bet. The dollar, although it had been falling since 1985, was still relatively strong given the underlying weakness of the economy, and the huge deficits, because the world and his son had to acquire dollars in order to buy anything on the world market such as oil, that was priced in dollars. But, it was all a sham, like those European aristocrats that live in a huge mansion, but inside everything is rented, the car is on HP, and the bank is about to foreclose on the mortgage.

Even the figures were fiddled. The unemployment rate far understated the real picture. Many people who had been unemployed for long periods and had run out of welfare simply disappeared from the figures because they stopped registering. The Government uses different sets of figures, which are notoriously unreliable, and on one measure are adjusted by as much as half a million people in one go. The figures for growth were fiddled too. By using so called hedonic pricing the rate of growth was hugely overstated. The Austrian economist Kurt Richebacher has done some good work in disclosing just to what extent the figures were fiddled.
For instance:Great Macro Profit Illusion

There was another consequence. Although, higher unemployment and weakened Labour organisations meant that pressure could be put on wages they could not be reduced sufficiently without causing social unrest on a scale that would threaten the system. In Britain and Europe more than in the US – in the US wages for auto and related workers have been slashed by two-thirds in some cases (See:Delphi and GM) – workers chose to take welfare rather than poverty wages. Yet jobs still needed to be done. In both the US and UK, and other European countries Capital did the obvious thing. It imported cheap labour. In the US it not only brought in legal labour from Mexico and South America, but also closed its eyes to huge numbers of illegal immigrants. In Britain and Europe the same process took place, and many of these workers as illegal immigrants found themselves not covered by union organisation or even legal safeguards such as Minimum Wage, or Health and Safety laws. Yet it is clear that without these workers much of the infrastructure of the advanced capitalist economies would crumble. The alternative – to pay much higher wages – was not acceptable to Capital because, having transferred a large part of the economy into these service sector jobs, the whole point was that they were a cheap replacement for the higher paid manufacturing jobs that had been transferred overseas. Yes, much is made of the idea that jobs could migrate from low skilled manufacturing to more highly skilled employment, but the problem with this argument is fairly obvious. Not everyone can earn £1 million a year as a futures trader for an investment bank, a top flight computer programmer, a premiere league footballer, and so on because the reason these high paid, high value jobs do pay such wages is because of the complex labour they represent, labour that requires a high degree of skill that not everyone has. The number of such jobs created has to be much, much smaller than the number of low-skilled jobs destroyed. To pay the kinds of wages demanded by domestic workers for low skilled jobs would have meant that it was not possible to produce goods and services at a profit. In the public sector it would have meant huge increases in taxes to cover the costs.

But the use of immigrant labour in the context of a continued assault on the living standards of the poorest domestic workers could only have one result – increasing antagonism and a growth of racism amongst the white working class. Whatever, the surveys might show it is impossible to deny the growth of such ideas manifest in the growth of racist parties such as the BNP. The BBC series “White Britain” has illustrated the manifestation of that within working class communities, for instance the documentary “Last Orders” about a working class community in Bradford. It is unlikely that capital has deliberately fuelled such racism. The bourgeoisie only need such divisions in the working class at times when the working class pose a threat to its rule, and at the moment that is unfortunately not the case. The bourgeoisie is able to rule effectively through the normal channels of bourgeois democracy. Racism, and the development of fascist parties cause unnecessary social conflict, and increase its overhead expenses, but they are an inevitable consequence of its chosen method for dealing with the economic contradictions it finds itself in.
The way the problem could be overcome is clear. Provided the US could avoid a serious economic crisis for long enough US wages would fall gradually whilst wages in developing economies would rise. US real wages have been falling for more than 20 years, whilst in China wages are rising at around 10% a year. A managed fall in the dollar would gradually reduce the trade deficit by making imported goods more expensive whilst making US exports cheaper. The problem being for foreign lenders that they would be getting paid back in devalued currency, they might own US assets whose dollar value remained the same or even increased, but whose value in their own currency had fallen. Meanwhile, those areas of the US economy which continue to be at the leading edge such as in technology, particularly military technology would continue to have a competitive advantage. In the meantime it is against the Euro that the dollar has fallen most throwing the burden of paying for the crisis of US capitalism onto its supposed European partners. Together with the US’s position on Trade – for instance its development of NAFTA as its own sphere of economic influence – which has seen repeated bouts of Protectionism against European companies – for example over steel, in relation to Aerospace, and also in keeping out Chinese and Middle Eastern companies from strategic investments e.g. CNOOC and UNOCAL, and Dubai Ports proposed take over of US Ports – a growing competition between the major economic blocs can be seen.

But capitalism remains a crisis-ridden system it proceeds not on the basis of a planned and orderly development, but on the basis of contradiction. The beginning of the new Kondratiev upswing, whilst being the basis for the resolution of the US’s problems – because a rising tide would lift all boats – has also proved to be a double edged sword. That new upswing, which began in the late 90’s has like all previous cycles seen a huge rise in the prices of raw materials and foodstuffs. Initially, this rise is accommodated. In part it only reverses the previously low world prices, in part the development of new technologies etc. means that businesses use these resources more efficiently – oil demand for instance now rises far less in proportion to an increase in GDP than it did in the 1970’s – and higher rates of productivity combined with continued relatively low wages offset the higher material costs. But, that can only continue for a certain time. The more the upswing continues, the more demand for materials outstrips available supply the more prices rise. In the case of some resources such as oil where the world is simply running out of supply this can be particularly marked. Eventually, if these rising costs are monetised – i.e. if states increase money supply to accommodate the rising costs – the result has to be inflationary pressures. And of course, in the US, in Britain and in Japan – Numbers 1,4 and 2 in the world economy – money supply had been increasing phenomenally, over the last 20 years of state intervention to offset the effects of the downturn.

In the meantime the rise of financial services within the booming service economy, alongside deregulation of Credit Markets, had seen the development of all sorts of new financial products that even the top bankers admitted they did not fully understand. The purpose of these derivative products, like much of modern capitalism was intended to reduce risk by sharing it out, by providing insurance against sudden shocks, in the same way that a bookie lays off bets. The difference is that generally the bookie laying off the bet, and the other bookies that take it on know the odds. In the case of many of the products being sold no one knew the underlying value of the assets being bought. In the case of the US sub-prime mortgages that were bundled up into packages, and then sold to financial institutions around the world this didn’t matter provided US property prices were continuing to rise. In that case even if the mortgagee failed to pay – which given they were sub-prime i.e. bad credit risks was likely – the lenders would be more than recompensed by foreclosing on the property, which could now be sold at a higher price.

As long as the US economy could continue to benefit from the benevolence of strangers in the form of Credit, as long as the US State could continue to pump out Credit at interests rates so low that it was actually paying people to borrow money, as long as this both financed consumer spending to keep people employed in service and retail jobs, and fuelled rises in house prices and stock prices, which in turn gave the appearance of higher wealth against which yet more loans could be raised, the whole Ponzi scheme could continue. But that was a big if.

The US recession of 2001 had been the result of rises in US interest rates in 2000 from their historically low levels. The sudden slowdown provoked an even bigger cut in interest rates, and by 2003 the US had come out of recession, in part dragged along by the rapid rise in the world economy. But, the consequence has been a more rapid fall in the value of the dollar. From its high of 80c to the Euro it has fallen in half to $1.53. It has only avoided falling further against the Yen due to the continued near zero interest rates in Japan, and intervention by the Bank of Japan to keep the Yen low in order to sustain Japanese exports on which the Japanese economy depends. And it has only not fallen against the Remnimbi because the Chinese Stalinists pegged their currency to the dollar. Against real money – Gold – the dollar has fallen by around 75% since 1999 – Gold was around $250 an ounce then compared to nearly $1,000 an ounce today. This is an indication of the incipient inflation within the world economy.

The US responded once again by raising interest rates through 2006 and 2007 by 25 basis points per month. In June 2007 Brian Durrant wrote in the “Daily Reckoning” newsletter,

“If you were tuned into BBC 1’s dumbed down 6 o’clock show masquerading as a news programme you would have missed it. But while the world’s gaze was fixed on the stage-managed junket called the G8 summit, something sensational was happening in the US Treasury market that may have lasting implications for your investments.

For the last twenty years, the yield on US ten-year Treasury bonds has been falling steadily. This reflected a mounting confidence that the inflation dragon had been
vanquished. Yields have fluctuated, but each successive peak in yields has been lower than the preceding one. Those peaks provide the points of contact for a downtrend line that has survived for 20 years. Traders that have bought Treasury bonds when yields were on the line made money time after time. Accordingly the line has been a source of great confidence. Such trends give traders something to hang on to.

But when a trend that has been in place for so long breaks, there is pandemonium in dealing rooms. This is what happened in the US Treasuries market on Thursday
June 7. Once the downtrend line had been crossed at the yield of 5.05% on 10-year paper, there was indiscriminate selling of US Treasury bonds. By the end of the New York session, 10-year yields came to rest at 5.13%. Then Asian traders took up the mantle and initiated a fresh wave of selling pushing yields to a high of 5.24%. At that point the cost of money had effectively risen by 5.7% in 30 hours.

The yield on 10-year US Treasuries is the single most important interest rate around. It provides the basis for the yields on a range of securities throughout the world. So what caused this trend line to break? There was no economic news of importance released on the day, rather the accumulated evidence that the next move in
Fed rates would not necessarily be down, forced the trend line to cave in. For more than a month now official data has shown that the US and world economy had been growing faster than anticipated. Earlier in the week investment bank heavyweights Goldman Sachs and Merrill Lynch abandoned their forecasts that the Fed would cut rates this year.

To some traders the breaking of the trend line marks the end of an era of ever-cheaper credit. Hitherto the stock market has gained enormously from cheap credit. It has made it worthwhile for companies to buy back their stock at a record rate. It has also enabled the private equity industry to go on its buy-out binge, taking out public companies at values significantly higher than priced by the market. Moreover the long-term optimism engendered by low stable bond yields allowed the rapid development of credit derivatives. These have made it easier for lenders to spread their risks. This in turn reduced the rates at which companies could borrow to levels close to the virtually risk-free rate at which the US Treasury borrows.

It follows that higher bond yields have a habit of dragging down share prices. The last time bond yields were as high was in mid-2002 when stock markets were in free fall. Also the only other time in the last five years when US 10-year yields were above 5% was last summer when equity markets got a bout of the jitters.

In the last three months the cost of 10-year money has risen from 4.5% to a high of 5.33%. If bond market losses are compounded in the future, it will force a more widespread flight out of risky investments that have been founded on cheap money and low volatility. Possible positions under threat include high yield currencies, investments in emerging market government bonds and commodities that have been enjoying a price squeeze. Although it is too early to say that we are at the end of the four-year rally in equities, we may be at the beginning of the end.”

The consequence was inevitable. US sub-prime borrowers began to find that they could not pay their monthly repayments. Even other lenders who had taken out mortgages on fixed rates found that when those fixed periods ran out their payments increased by huge amounts. Although this was the consequence of the policy of maintaining the economy through encouraging consumer spending via the accumulation of debt it had a further benefit for Capital. In the Post War boom period, workers in the advanced capitalist countries had been able to accumulate assets. Home ownership increased, and workers even began to accrue real wealth in the form of pension funds, and even Capital in the form of Mutual Funds and even directly owned shares. Yet as Marx sets out in the Grundrisse for Labour to really be Labour it has to be not-Capital it must be totally devoid of ownership of real wealth in the form of Capital. As long as workers own Capital they are to some extent shielded from the ability of Capital to force them to work at low wages or starve. In order to make workers purely wage slaves Capital needed to denude them of any accumulated wealth by also making them debt slaves. The tactic is one that ruling classes have employed often in the Past (See:Fool Me Once). The latest figures from the Federal Reserve in the US show that US homeowners now have only 48% equity in their own homes.

To begin with the rampant demand for housing slowed, the speculation in housing - “flipping” - where people would buy properties on large mortgages merely in order to sell them again a few months later at a large Capital Gain left some speculators – many of whom were not rich just ordinary people who thought they had found the goose that laid the golden egg - facing losses, and with a pool of houses to clear. US house prices began to tumble by around 30% with still much further to go. People simply walked away from their houses. But, the value of those houses was now less than the mortgages on them, mortgages that had been bundled up into financial products and sold to financial institutions around the globe, who in turn bundled them into yet further products, which they in turn sold on. This was the beginning of the Credit Crunch that collapsed Northern Rock, and has seen even banks as big as the huge Citibank hit trouble. The problem was not a problem of liquidity, but of confidence. Without, the ability to accurately value the underlying assets on which the derivatives were based no one could have confidence that any institution that owned this paper was actually credit worthy. Not knowing if they would need quickly to mobilise as much cash as possible themselves every financial institution began to hoard what cash it had, and only to lend to other financial institutions at very high interest rates. In fact it was pretty similar to the crisis of 1847 caused by the restrictions of the 1844 Bank Act.

The problems are severe, but should not be overstated. There is a similarity to 1847, but the situation is not at all the same. The Bank Act prevented the necessary provision of liquidity to the system. Today central banks first response was to make available huge amounts of liquidity, and also to once again – at least in respect of the US and UK, which have the biggest problems – reduce interest rates. Moreover, the problem is considerably constrained. First of all, the problem is largely limited to the financial sector. But already, that problem is being addressed. Although, the sums involved are large the fact is that Capitalisation of the banks involved through new investment by Sovereign Wealth Funds is more than capable of dealing with the shortfalls. Even within the US financial sector companies like Warren Buffett’s Berkshire Hathaway with huge cash reserves have been capitalising on the situation by buying up other financial companies on the cheap, and have now moved in on the market of the Monolines in the safe area of Muni Bond insurance. Outside the financial sector enterprises are generally awash with cash with huge reserves on their Balance Sheets. An example is Microsoft that has just offered to buy Yahoo. The secondary problem is the effects on the real economy. But this too should not be overestimated. Its true that during the long Kondratiev downturn from the mid 70’s to the late 90’s, the US acted as consumer of last resort in the world economy – or at least it did from the late 80’s onwards – and that US consumers were able to continue doing that by borrowing, and using their house as an ATM. But this borrowing largely offset the fact of falling or stagnant real wages. It did not constitute by any means the whole of consumer spending. The fact that it has now been removed is not only then limited, but is to some extent counteracted by the fact that along with the World Economy the US has been growing, demand for Labour has been rising, and consequently, there has been an increasing pool of wages available to spend as consumption. In addition, the falling dollar – and even the Remnimbi has been partially freed to float higher against the greenback – has had a marginal impact on the US Trade Deficit as it raises import prices, and reduces export prices – though this is a double edged sword because it has led to an even larger increase in the dollar price of oil and other commodities.

In 2007 in the third quarter the US grew at 5%. That growth rate has slowed considerably to just .6% in the fourth quarter of 2007. It is possible that in the first quarter of 2008 it may experience negative growth. Possibly it will experience negative growth in the second quarter too, which is the technical definition of a recession. But, the slashing of interest rates by the Fed by some 2.25 points, and the likelihood of a further 75 basis point cut in March, in fact the futures market is now discounting a possible 100 basis points cut, alongside the Keynesian stimulus package of $150 billion announced by the Bush government means that any recession if it occurs is likely to be shallow and short lived. In the meantime Europe continues to grow steadily, which has led the ECB and Bank of England to keep interest rates on hold fearful of inflationary pressures as demand pressures mount, and costs from raw materials rise. Already, the strong growth in Germany has seen increasing militancy from German workers, and successful strikes achieving large pay rises. In China and throughout Asia workers militancy is on the rise alongside rising wages and inflation. The Chinese Stalinists with an economy still booming at 10% a year far from fearing recession are increasing rates and introducing controls to try to slow down growth. India too is emerging as a new world power symbolised by the fact that not only does it now produce the world’s cheapest car, and has bought Jaguar and Land Rover, but also has in Infosys one of the world’s leading IT companies. In Russia the huge windfalls from oil and gas have fed into the development of state industries such as aviation.

Although a recession in the US would affect China because of the large volume of its exports this too should not be overstated. As said earlier much of those exports are paid for by Credit to the US from China. A reduction in exports would be matched by a corresponding lessening of the need for Chinese Capital to flow out in the form of US debt. Moreover, China itself has a massive domestic market that is growing rapidly as Chinese living standards rise. Having kept its currency pegged to the dollar for so long China is now experiencing inflation in its import prices because of the rise in those prices in dollar terms. China would actually benefit from a rise in the Remnimbi to reduce its imported inflation and reduce pressure on Chinese consumers. China also has the benefit of a largely nationalised and planned economy through which the State can mobilise its vast economic resources to huge infrastructural programmes such as the planned new highway through to central Asia, and into other sectors of the economy to take up the slack should any arise. The growing integration of China with other rapidly growing Asian economies and with Japan, not to mention its bilateral ties with raw material producers in Latin America, the Middle East, Central Asia, and increasingly Africa mean that this state control of the economy opens up many avenues that are not open to a capitalist economy.

Global Strategic Competition

Were it not for the huge destruction of Capital that the US has been experiencing as a result of its invasion and Occupation of Iraq – now running into trillions of dollars compared to the $2 billion it was forecast to cost – the US would be much better placed to deal with its current plight, but that Occupation itself is not wholly a flight of fancy by Bush and his neo-con advisors. It reflects the necessary interests of US imperialism on the world stage in its strategic competition with China, and Europe, and also with the remaining potential power of Russia, not to mention an increasingly assertive and nationalistic Japan. The colonial Empires of the past were very inefficient. The cost of maintaining huge armies in the colonies, as well as the cost of the huge administrative bureaucracies that accompanied them far outweighed any financial benefits that were accrued. There was very little in the way of financial benefit in Britain’s continued Occupation of the North of Ireland, and although the US only has one colony in the form of Iraq the cost of its war and Occupation there now calculated at around 2 trillion dollars will far outweigh any immediate economic benefit it could conceivably derive. There are clearly other motives for the maintenance of such relations.

The motives lie in the global competition that exists amongst the major world powers. It has been argued, correctly, that the US did not invade Iraq in order to obtain Iraqi oil, because it could simply have bought the oil from Iraq. That is true, but the US is not dependent upon just Iraqi oil. It is dependent upon the supply of oil to the world market not being severely curtailed in order to push up prices massively. The US needs to ensure that oil from the Middle East does not come under the control of other major powers that might use it for their own strategic advantage. If anyone is to have control over strategic resources the US wants to make sure that it is the US. That is what is meant in part in its Plan for a New American Century when it speaks of “Full Spectrum Dominance”.

Although the US has used globalisation to offshore considerable amounts of manufacturing, the US still has a large manufacturing base. That base still requires raw materials. The US economy is highly dependent on oil, and on natural gas reserves of which inside the US have effectively been exhausted – even if the US opened up the reserves in ANWAR etc. these account in total for only around 6 months consumption, it has vast quantities of oil shale, but the cost of extraction is prohibitive. The US also needs to protect its huge Capital investments made throughout the globe, and to be able to continue to have political influence to back up its search for markets for its goods. IN the same way that every capitalist enterprise is forced to engage in expenditure which itself produces no profit – the faux frais of production – in order that it can realise the profits on its production, so too capitalist states are forced to engage in such expenditures. Sometimes capitalist firms in periods of intense competition are forced to act in ways that are destructive, to force down prices to levels where losses are made, and so where Capital is destroyed rather than accumulated. So too capitalist states are at times forced to act in similar ways whereby Capital is destroyed in imperialist wars. Such is the lunacy of capitalism as a system.

In the run up to both World War I and II it was not possible until the last minutes to know what forces would be fighting on what sides. The imperialist powers jockey for position to look for their best interests. In WWI by waiting until it joined the fray, and coming in on the side of Britain which at that time was losing, the US acted to prolong the War, and thereby further bankrupt its European competitors Britain, France and Germany. In WWII Germany hoped to be able to forge an alliance with a weakened Britain to attack its real target Soviet Russia in order to lay its hands on the immense resources, whilst the US again remained outside the fray in order to gain from the devastation the other contending powers inflicted on each other. Similarly, in WWI Japan kept out of the European conflict and was able to build up its Empire in Asia.

In the post WWII era the strategic alliances were dominated by the conflict between NATO and the Warsaw Pact. Although, the US was the economic hegemon it did not hold that position militarily. On a global scale the military, and diplomatic power of the Soviet Union played a countervailing role. The USSR was able to build alliances by providing economic, and military assistance to national liberation movements, and to nationalist regimes in order to promote its strategic interests. Although, the USSR had entered into agreements with the West for “peaceful coexistence”, although Stalinism acted to constrain the actions of Labour Movements in the West it was an uneasy peace as the continued Cold War demonstrated, and which on November 7th 1987 nearly became accidentally a very hot War.

Given the economic power of the US, and the perceived threat from the USSR there were sound reasons for Western Powers and Japan subordinating their individual interests to the global interests of imperialism, which meant in practice the interests of the US. Provided such conditions continued it was in the interest of the US itself for its subordinate partners to grow economically too because such growth meant that the cost of maintaining imperialist military power could be shared out, and the development of these economies meant increased markets for US goods, and openings for US Capital to exploit. Indeed, during this period by far the greatest overseas investments of imperialist powers were in the economies of other imperialist powers.

Global competition between imperialism and the USSR meant that national liberation movements in Latin America, South-East Asia, Africa etc. even if they did not promise socialism, still threatened the dominance of capitalist relations. The resultant instability and inability to rely on the stability of a capitalist state meant that there was a high risk to any capital investment, a risk that required much higher rates of profit to warrant accepting. The collapse of the USSR changed all of those underlying relationships, and made possible Globalisation. It is in that context that the current Kondratiev upswing is taking place, and it is within that context that global capitalist competition now takes place. That competition is no longer the kind of competition between nation states as was the case in WWI and II, but competition between fairly well defined economic blocs – Europe, US, China-Japan-Asia, and increasingly Russia who given the threats it perceives from NATO, and especially following the separation of Kosovo is likely to increase its attempts to rebuild a sphere of influence with economic and diplomatic alliances in the Region.

It is unlikely that this is seen in the war rooms and boardrooms as consciously leading to some new imperialist war. Each bloc will make shifting alliances, and look to further its own economic interest – at a very low level for instance we see US policy makers calling on the ECB to cut interest rates, whilst the ECB blames the US for getting into a mess, and calls for it to do something to strengthen the dollar. At the same time Chinese strategists have developed a theory that war between the US and Europe is inevitable, and seek to stay outside any such conflict for their own advantage, having in the meantime built up their own strategic stockpiles of materials, oil etc. Russia is increasingly assertive and still has massive stocks of nuclear weapons. Even Japan has seen growing nationalism, and calls for its policy to be changed in relation to its military, giving it the power to intervene on the world stage. It seems likely that Taiwan, following the recent elections and election of the KMT, will draw closer to China if not actually rejoin the Mainland, and China’s growing economic power is matched by its huge military manpower, and its increasingly sophisticated weapons, such as those used to shoot down a satellite recently. This growing, if yet low level, militarism and national and regional assertiveness is a symptom of the growing economic tensions within the world economy. So long as these tensions can be mollified by the benefits of a growing world economy and the prosperity that goes with that manifest in rising living standards alongside, rising profits these tensions can be contained. But as WWI demonstrated most clearly at the point that such a boom in the world economy begins to falter these tensions are likely to burst through the constraints. If the Kondratiev wave holds true then, fortunately, we are still perhaps 15-20 years away from that point, but the only force capable of preventing the kind of convulsion that such periods have provoked in the past is the working class, and at the moment the working class and its leadership are weaker than they have been since the middle of the 19th century, both organisationally and ideologically. In that context 20 years is not a lot of time.