As we step into a new year, the world is facing a decisive turning point. The crisis of capitalism is reaching a new level—one that threatens to overthrow the entire existing world order that was painfully put together after the Second World War. 10 years after the financial collapse of 2008, the bourgeoisie is nowhere near solving the economic crisis.
All the sacrifices and pain of the last 10 years have not solved the crisis, but only increased the suffering, impoverishment and desperation of the masses, while a tiny minority of parasites have acquired obscene levels of wealth. But politics in the last analysis is concentrated economics. A decade ago we predicted that all the attempts of governments to restore the economic equilibrium would only serve to destroy the social and political equilibrium. We see this in one country after another.
In Europe, we have the simmering Brexit crisis—in itself a highly destabilizing element in the situation. It has thrown Britain into a deep crisis with no clear end in sight. Not long ago, Britain was perhaps the most politically stable country in Europe. Now it is one of the most unstable countries.
A few weeks ago on Channel 4 News, the well known conservative political commentator Matthew Parris was asked if he thought that the present crisis was the most serious one in British history. He answered as follows:
I can remember the Suez crisis of 1956. That was a very serious crisis, and I have since lived through other ones. But always in the past, no matter how deep the crisis, I always had the sensation that someone, somewhere, had a plan—clear idea of how to get out of the crisis. I no longer have that feeling.
In just over a week’s time, the British Prime Minister Theresa May will present her ill-fated deal for the approval of the British Parliament. Her chances of success resemble those of a snowball in hell. But, having defeated the deal so painfully put together with EU, what will happen next? The possibility of Britain leaving the EU without a deal is a finished recipe for unprecedented economic, social and political chaos—not just in Britain, but throughout Europe.
It is a measure of the complete bankruptcy of the British political establishment that such a scenario could even be contemplated. But the clock is ticking, and Britain is running out of time. Whatever alternative is proposed will be disastrous. The only question is the degree of the disaster. The stage is set in any case for a very stormy period for Britain.
But the crisis of Europe does not end there. In Germany, which for decades was the real motor force behind the European economy, the long domination of the two major political parties—the Christian Democrats and Social Democrats—is on the point of collapse. Angela Merkel giving up her position as leader of the Christian Democrats was merely a symptom of the underlying political tensions that are a portent of a growing social polarization.
The same phenomenon can be observed in many countries. In France, the electoral victory of Emmanuel Macron was heralded as a great victory for the political centre. Like St. George and the Dragon, Macron miraculously came down from the clouds to slay the evil Dragon of extremism of the left and right. But it did not take long for the man who was widely believed to walk on water to sink beneath the stormy waves of the class struggle.
The absurd illusions of the political commentators who saw in this petty political narcissist a savior, not only for France but for the whole of Europe, evaporated like a drop of water on a hot stove. The collapse of Macron’s popularity has been far swifter and more catastrophic than that of his unfortunate predecessor, François Hollande. The polls that gave him over 70 percent support at the time of his election, were below 20 percent in December.
This dramatic turnabout was the direct result of something that was not supposed to happen: the direct revolutionary action of the masses. In a matter of weeks, the workers and youth of France succeeded in demolishing the false image of invulnerability of the French president, who was reduced to pleading with them to allow him to rule. The man who boasted that he would never surrender to “the street” was forced to carry out a humiliating u-turn. In the end, though, that will not be enough to save him.
For decades, the destinies of Europe decided by two countries: France and Germany. In the beginning, the French ruling class, with its exaggerated sense of importance, wanted to tie Germany to its side, providing the economic basis for a united Europe, while France would provide the political leadership. A vain hope! In the end, it is economic power that decides politics, not vice versa.
Nowadays, only a fool can fail to understand that it is Germany, and not France, that decides all the fundamental questions in Europe. Macron’s ambition that he would dictate to Berlin (and even to Washington!) was soon exposed as the ridiculous illusion it always was. Merkel’s crisis will not serve to increase the power and authority of the French president, who now finds himself in the unenviable position of the emperor who paraded his nakedness under the guise of a suit of new clothes. Even when hiding behind a gilded desk, his political nakedness is clear to all.
The growing split between France and Germany is based neither on religious principles, morality, philosophy or humanitarianism, but on hard cash, which under capitalism replaces the heart and soul as the real motor force of society. Under conditions of capitalist crisis, there is no way that this split can be healed. It threatens to provoke an existential crisis at the very heart of the European Union.
Macron displays a most touching sympathy for the problems of Italy and other Mediterranean nations who have regrettably fallen into debt in recent years. Wrapping himself in the flag of European solidarity, he pleads with the EU to show humanitarianism and generosity. After all, did not our Lord himself say: “and forgive us our debts?”
It is a well-known fact that few pleasures in life can compare with the gentle art of spending other people’s money. When Macron pleads for debt forgiveness, he is well aware that those who must forgive are not to be found in Paris, but in Berlin. And those who pull the strings of the Bundesbank are not overly keen on forgiving debts, or anything else, as the people of Greece will willingly testify.
In his own country Emmanuel Macron, the rich man’s president, was hellbent on carrying out a policy of deep cuts together with tax relief for the rich. But Macron’s surrender to the gilets jaunes (yellow vests) protesters, promising a €10bn ($11.4bn) package, will mean that France’s budget deficit is set, like Italy’s, to overtake the limits allowed by the Eurozone. This fact goes some way to explain the different attitudes adopted by the rulers of France and Germany.
All the factors are combining to accentuate the centrifugal tendencies, aggravating the contradictions and tensions between nations that the EU was formed to prevent. To add fuel to the flames we have the simmering crisis caused by the flood of refugees knocking on Europe’s doors. This, in turn, has opened up new fault lines between Germany and its Eastern European satellites.
Poland and Hungary are in a direct confrontation with the European Union over the question of immigration, backed from the sidelines by the right-wing government of Austria. In Germany, the reactionary anti-immigrant Alternative for Germany (AfD) party is gaining ground, particularly in four eastern German states.
The stage is therefore set for a grand political drama in Europe. The crisis over Brexit is merely the curtain raiser. The federalist vision for Europe has sunk without trace. Far from moving towards greater unity, the European Union is fragmenting before our very eyes.
The political tensions between France and Germany are merely a surface expression of deep-seated economic divisions between the north and south of Europe. Recently, a new block has emerged—yet another fault line alongside the many other cracks that threaten the European Union with a breakup. Some have baptized it a new Hanseatic league, harking back to the powerful group of merchant states around the Baltic area that dominated a great part of Europe’s financial life in the mediaeval period.
A chasm has opened up between the poorer countries of southern Europe and the more prosperous economies of the north. Denmark, Sweden, Finland, Estonia, Latvia, Lithuania, the Netherlands and Ireland are relatively small countries in the broader European context, but they have clubbed together to resist the claims of southern European countries on Europe’s budget to cover huge deficits.
After years of austerity, cuts and terrible suffering, Greece has been reduced to ruin by the iron embrace of Berlin and Brussels. Nothing has been solved, and the crisis has now spread to Italy, where the accumulated deficit amounts to 130 percent of GDP. The anti-EU coalition in Rome approved a budget that violated the limits imposed by Brussels, provoking an open confrontation. For the time being, the cracks have been papered over. But the crisis of Italy remains, and has far more serious implications for the EU than Greece ever had.
When all is said and done, Greece is a relatively small economy on the periphery of Europe. By contrast, Italy is the third biggest economy of the eurozone. The Italian government hoped that by pumping money into the economy, they could make it grow again. But if the Italian treasury had been forced to pay huge fines, it would have wiped out whatever impact the extra spending might have had.
Staring down the barrel of a gun, Luigi Di Maio, the leader of the Five Star Movement (M5S), and Matteo Salvini of the Northern League saw that discretion was the better part of valor, swallowed hard—and threw in the towel. In the end, a shaky agreement was cobbled together. The European Commission grudgingly agreed to a compromise plan.
Italy undertook to trim its nominal budget deficit from 2.4 percent of GDP to 2 percent. The commission reluctantly agreed that the structural deficit, which leaves out one-off measures and cyclical effects, should remain unchanged next year. “The solution on the table is not ideal,” European Commission Vice President Valdis Dombrovskis grumbled. That was an understatement of genius.
The deal allows the Commission to avoid legal action against Italy—“provided that the measures are fully implemented.” That subordinate clause indicates that the clash with Italy has not been resolved—only delayed. Next year’s budget did not offer solutions for the country’s long-term problems.
Why did the European Commission agree to an unsatisfactory deal? The answer is to be found, not in economics, but in politics. They had just allowed France’s president to get away with promising up to €10bn in extra spending to quell the rebellion of the gilets jaunes. That threatened to push France’s budget deficit next year well over the euro zone’s limit of 3 percent of GDP. They were therefore scarcely in a position to put much pressure on the Italians, whose projected deficit was actually below 3 percent of GDP.
But there were clearly other, more serious considerations. In an interview with Corriere della Sera, a daily, the Italian Prime Minister, Giuseppe Conte, said he had reminded the commission that his government “faced a duty to maintain social stability in Italy.” That was a scarcely veiled threat: either you stop putting pressure on us, or Italy will face a social explosion that will have repercussions beyond our borders. The warning was not lost on the men in Brussels.
It may be said that Italy is too big to fail. But one must add that it is also too big to save. There is not enough money in the Bundesbank to bail out ailing Italian capitalism. This drama has not yet been played out to the end.
In the 1920s, Trotsky predicted that the centre of world history, which had already passed from the Mediterranean to the Atlantic, would in future pass from the Atlantic to the Pacific. That remarkable prediction is now a fact. Europe is falling behind America and China in the race for new artificial intelligence technologies. In 2019, India will probably overtake both Britain and France (at least in absolute terms) to become the world’s fifth-largest economy. The future of world history will be finally decided, not by Europe, but the Pacific.
But this process itself is full of contradictions. The fate of the world economy depends to a large extent on China, which until recently was one of its main motor forces. But China depends to a large extent on exports. Falling demand in Europe and the USA has created a crisis of overproduction in steel and other key sectors of the Chinese economy. China’s growth rate has slowed to about 6.5 percent.
Though this may seem like a high figure when compared to the miserable rates of growth in Europe and the USA, it is alarmingly slow when compared to the past. It has been generally accepted that anything less than an 8 percent growth rate for China is dangerously low, since that is the rate required to keep up with the growth of its population.
In order to stimulate exports, China has resorted to dumping large amounts of cheap steel on the world market. This has led to a serious crisis of steel in Europe, and howls of protest from the Americans in particular. It is one of the main factors that led to the present trade war between the USA and China.
China has now emerged as a world power that is increasingly coming into conflict with the United States. The trade war between these two countries is a clear manifestation of this fact.
Nevertheless, the USA still retains its dominant position in the world economy and politics. The combination of rising interest rates and a soaring dollar has served to attract large amounts of speculative capital to the USA, with disastrous effects for the so-called emerging markets in Latin America, Asia and the Middle East. Their fragile economies finding themselves at the mercy of the all-powerful dollar, which is squeezing them, aggravating indebtedness and snatching away precious investments.
In the last period, the so-called emerging economies acted as a stimulus to world economic growth. Now they have shuddered to a halt. Turkey, Argentina, Brazil and other formerly resilient economies have collapsed into recession, or, in the best-case scenario, stagnation.
Donald Trump’s slogan “make America great again” is a kind of imperialist manifesto, the subtext of which reads as follows: “we will make America great again at the expense of the rest of the world.” Behind the swaggering, boastful rhetoric lies a clear threat to the rest of the world: do as we say, or face the consequences.
President Trump has very little time for America’s European allies, whom he correctly sees as midgets compared to the gigantic power of the USA. He is irritated by the pretensions of the Europeans, their fussing about the world stage, and their ridiculous attempts to influence US foreign policy. They buzz around his head like so many annoying flies. And whereas previous American presidents were content to pretend to pay them some attention, his instinct is to swat them hard so they will cease to bother him.
Trump’s policy, in essence, is not very different to that of his predecessors. They also did not hesitate to use America’s economic and military strength to impose its will on the rest of the world. But they did so in a different way: some might say with more finesse, others would say, rather more truthfully, with extreme hypocrisy.
While proclaiming the virtues of democracy, justice, peace and humanitarianism, they did not hesitate to trample underfoot every manifestation that contradicted America’s real or perceived interests. Donald Trump does exactly the same, but does not bother to proclaim values in which he has absolutely no interest, and which in any case play absolutely no role in the foreign policy of American imperialism, or any other brand of imperialism.
Trump has cast aside the hypocritical mask of decency to reveal the real, ugly face of American imperialism for the edification of the entire world. To that extent, one might say that he is refreshingly honest.
America still remains a colossus on the world scale. Its economic and military power is truly vast. But America’s power is not unlimited. Its limits have been demonstrated with brutal clarity in Iraq, Syria and Afghanistan. And President Trump has not been slow to draw the conclusions.
Trump’s whole instinct is inclined towards isolationism—a very old and honored tradition of a certain sector of the American ruling class. As we have observed, he is completely uninterested in the affairs of his European “allies” (in a moment of unaccustomed sincerity, he described them as “enemies,” as opposed to the Russians, who were mere “rivals”).
As a matter of fact, he does not even have much time for NATO, and would rather see it disbanded, along with the United Nations, NAFTA, the World Trade Organization, and all other unhealthy manifestations of extra-national organizations.
But since, regrettably, he has to listen to the opinions of his numerous annoying advisers, he has been compelled grudgingly to accept the existence of this inconvenient military alliance, while loudly demanding that his European “allies” put their hands in their pockets to finance it, thus relieving the burden of American taxpayers whose votes are more important to him than the opinions of people in Paris, Berlin and London.
Nevertheless, he has decided unilaterally to withdraw American troops from the Middle East. This will show the Europeans that he means what he says, and perhaps finally force them to put their money where their mouths are. A similar motivation is behind his seemingly paradoxical attitude towards Vladimir Putin. During his presidential campaign, he lost no opportunity to praise the man in the Kremlin, calling him a “real smart guy,” and a man with whom one could do business.
These remarks did not go down well with the US military establishment, nor with the hawks of the Republican Party. And they provided his political enemies with a golden opportunity to attack him, alleging Russian complicity in his presidential campaign. The campaign on so-called Russian interference in the election has rumbled on relentlessly ever since, although it has generated more heat than light.
The idea that the victory of Trump was caused by Russian interference would not seem credible to a six-year-old child of average intelligence. It is merely a reflection of the inability of the Democrats to accept that the American public was utterly alienated from the existing political establishment and motivated by a deep desire for change.
Under pressure from his adversaries, Trump was forced to blow hot and cold in relation to Russia. But his decision to withdraw from Syria indicates that he has not changed his position since the election. Once again, Trump’s isolationist instincts have prevailed. John Kelly, the White House Chief of Staff, and Jim Mattis, Secretary of Defense, resigned in protest. But protests and resignations have had no effect on Trump in the past, and there is no reason to believe that this time will be any different.
But isolationism by no means signifies abstentionism. That is rendered impossible by the unstoppable trend to unify all the disparate economies in the world into a single world market. Globalization is merely an expression of a phenomenon that was already predicted by Marx and Engels in the Communist Manifesto over 150 years ago.
That prediction has been brilliantly borne out by the history of the world, particularly over the last 50 years. No country, no matter how big and powerful, can escape the irresistible pull of the world market. All the talk about national sovereignty, gaining control of our own frontiers and so on is just so much hot air.
Hanging over the whole unstable equation like a menacing storm cloud is the imminent threat of a new world recession. This is now accepted by all serious economists. The question is not if it will happen, only when.
The global economic instability is reflected in the constant gyrations of the stock markets. Following falls in October and stagnation in November, the S&P 500 slumped by 15 percent between 30 November and 24 December. Despite a brief recovery of 5 percent the day after Christmas, the index finished the year 6 percent below where it started. The first trading day of 2019 showed further instability, with falling stocks in Asia and turbulence in Europe.
The unexpected news of a slump in Apple’s sales caused a wave of alarm. The company issued a warning of a sharp slowdown in China’s economy, and weak sales in other emerging markets. This meant that revenues in the fourth quarter would undershoot expectations by up to 10 percent. Following soon after was news that China’s manufacturing sector contracted in December, which unnerved investors globally. S&P 500 futures dipped before Wall Street reopened on 3 January.
These feverish swings on the stock exchanges of the world are an indication of extreme nervousness and increasing worry about the future perspectives of the world economy. While it is true that the movements of the stock markets do not accurately reflect the state of the real economy, they nevertheless serve as a useful barometer to measure the current state of mind of investors.
A recent article in the Economist voiced its concern:
But the rotten performance of stock markets last year, which has been maintained at the start of this one, can be traced in part to growing worry about the state of the world economy, and to its two biggest economies in particular.
The article continues:
According to the Economist Intelligence Unit (EIU), our sister company, America will grow by 2.3% this year. That is substantially down on an estimated growth rate of 2.9% for last year, as the Federal Reserve tightens monetary policy and as the effects of last year’s tax cuts ebb. China’s forecast growth rate is much higher, at 6.3%, but that is still down on its estimated 2018 performance—and plenty fear worse because of the trade war with America and China’s campaign to rein in debt.
Europe presents a gloomier picture still. Britain, which is due to leave the European Union in March, is forecast to grow by a tepid 1.5%; France faces less uncertainty but fares no better. Italy, a perennial economic disappointment, is tipped to notch up growth of just 0.4%. That makes it the seventh-worst performer in the EIU’s table of forecasts. Those below it are all forecast to contract in 2019, none more precipitously than Venezuela, which has been in freefall for years.
As one might expect, the Economist necessarily tries to find some crumbs of comfort, pointing out that India was expected to grow at the same rate as last year (7.4 percent). But as we know, every silver lining has a cloud and it is not for nothing that economics is known as the dismal science. With a rye sense of humor, the author concludes:
But the economy that is expected to perform best in 2019—Syria, with forecast growth of 9.9%—is a sobering reminder that a high number can reflect the worst of starting points.
There is growing alarm in the ranks of the most serious bourgeois economists. This alarm is well founded. The total return (capital gains or losses plus dividends) from the S&P 500 index of leading American shares was negative for the first time in a decade. Matters were even worse in other markets. The Shanghai index fell by a quarter. There is a stampede of investors from risky assets (including the so-called emerging markets) into safer havens. Treasury bonds and gold outstripped stocks. Anticipating hard times, the capitalists are now hoarding cash instead of investing in production.
Everything suggests that, when it comes, the next recession will be far worse than the crisis of 2008. The main reason for this is that, over the last decade, the bourgeoisie has used up all the instruments that have been traditionally utilized to prevent recessions, or to limit their duration and depth.
The capitalists have basically two weapons to hand with which to confront recession. The first of these is the lowering of interest rates. But in their desperate attempts to climb out of the last recession, they have reduced interest rates to historically unprecedented levels, typically in the region of zero. The scope for further rate reductions is therefore negligible. Even in the USA, where the Federal Reserve has increased rates several times over the last year or so, the margin for maneuver is still very restricted.
The second weapon is to increase the amount of money in circulation through intervention by the state and central banks. But here there is a problem. Vast amounts of money were pumped into the economy over the last decade to bail out the private banks. All that has been achieved has been to transform what was originally a gigantic black hole in the spreadsheets of the banks into a gigantic black hole in the public finances.
Everywhere they have piled up huge deficits, which act as a gigantic drag on the economy. The bourgeoisie is struggling to reduce the debts, not increase them still further. Given this fact, there is no way that the bourgeois can yet again plunder the state in order to drag itself out of the hole.
The dilemma of the bourgeois is illustrated by the fact that the European Central Bank announced the end of monetary stimulus (“quantitative easing”), at the very time when there are signs that the European economy is slowing. But the European bourgeois, obsessed with the problem of Brexit and immigration, seem oblivious to the danger. The ECB is doing the very opposite of what is needed from a capitalist point of view. All this raises serious questions about the future of the euro and, ultimately, the EU itself.
The situation on the other side of the Atlantic is no better. The year 2019 has been celebrated by America’s political rulers by an unsightly brawl that led to the partial shutdown of the government on 22 December. During a televised meeting in December with Nancy Pelosi and Chuck Schumer, Democratic leaders in the House and Senate, Mr. Trump was heard to say: “I will shut down the government if I don’t get my wall.” And he was as good as his word.
It is true that such shutdowns have occurred before. But none have lasted as long as this. This reflects a deep crisis in the whole political system, with a Congress controlled by the Democrats, bitterly hostile to the President. Predictably, an agreement has been stitched up at the last minute. But Trump is threatening to veto the deal. And none of the underlying contradictions have been resolved.
To add to the general chaos, there is a continuing and bitter dispute between the President and the US Federal Reserve as a result of the latter’s insistence in raising interest rates. But while the politicians bicker about economic policy, the markets are set to deliver their verdict without consulting the men in Washington.
Donald Trump is a man who seems to have been lucky most of his life. A lucky man tends to be a gambler. Since past bets have been successful, why not continue gambling? But history shows that, for every gambler, the day must come when his lucky streak runs out. Trump had the good fortune to enter the White House at the time when the US economy was doing pretty well. He could claim the credit for things that were really none of his doing. But those who supported him could not see the difference. His luck held.
He could argue, with some degree of correctness, that his tax-cutting measures helped to boost the economy for a time. But in economics, as in nature, sooner or later everything turns into its opposite. The short-term effects of President Trump’s stimulus package, which came into force a year ago, are wearing off at a time when there are clear signs of economic slowdowns in China and Europe. Trumps imposition of tariffs, and the threat of further trade disputes act as a further deterrent to investment. Profit forecasts have been scaled back.
The nervousness of the stock markets reflects concerns about the real economy. The USA is about to enter the most turbulent period in its entire history. And Donald’s lucky streak is about to come to a bumpy end.
Society is increasingly divided between a small group of people who control the system and the overwhelming majority who are getting poorer and are in open rebellion against the system. Everywhere we look we see growing discontent, anger, fury and a hatred of the existing order. This expresses itself in different ways in different countries. But everywhere we see that the masses, the workers and youth are beginning to move, to challenge the old order and fight against it.
2018 saw an upsurge in the mass movement in many different countries: Iran, Iraq, Tunisia, Spain, Catalonia, Pakistan, Russia, Togo, Hungary and of course, France. The recent events in France provide a crushing answer to all the cynics and skeptics who doubt the ability of the working class to change society. Like a thunderbolt from a clear blue sky, the workers and youth took to the streets and in a couple of weeks brought the government to its knees. If that movement had been equipped with a serious leadership, it could have brought down the government and prepared the way for a root-and-branch transformation of French society.
In the absence of a clear leadership and program, it is possible that the movement will die down for a time. But the underlying contradictions remain. The government of Macron is like a ship that has been holed below the water level. It can continue to float for a while, but its days are numbered. The workers and youth now feel the power of collective class action. They will not be bought off by partial and temporary concessions. Sooner or later, they will move into action again, this time with a clearer vision of what is needed: a militant program to kick out a hated president and to fight for a government that will act in the interests of the working class.
This spontaneous movement of the masses is the prior condition for socialist revolution. But in and of itself, it is not sufficient to guarantee success. In 1938, Trotsky wrote that one could reduce the crisis of humanity to the crisis of leadership of the proletariat. That statement is even more true today than when it was written. The history of war gives us many examples where a big army of brave soldiers has been defeated by a far smaller force of disciplined troops led by experienced officers. And the war between the classes has many points of similarity with war between nations.
The cowardly evasions and half measures of the reformists, far from solving the crisis, will merely impart to it and even more convulsive, painful and destructive character. It is the task of revolutionaries to ensure that this long and painful death agony of capitalism is cut short as soon as possible, and with the least possible suffering for the working class. For this to occur, decisive action is necessary. Only the Marxists are capable of providing the leadership that will guarantee such a peaceful and painless outcome from the present crisis.
It is true that the forces of Marxism on a world scale have been thrown back for a long period by objective factors. The betrayals of reformism and Stalinism allowed capitalism to survive, but their actions were made possible by the ability of capitalism to achieve a relative stability and to make certain concessions to the working class.
But this period is now at an end. For decades we have been swimming against the stream. Just to maintain our forces intact in that period was a considerable feat. But now the tide of history has begun to turn. Instead of swimming against the current, we are beginning to swim with it.
All the old certainties are disappearing. The old illusions are gradually being burnt out of the consciousness of the working class. The masses are being forced at last to face reality. They are slowly beginning to draw conclusions. That is our great strength, and the great weakness of capitalism and reformism.
Our international lacks the huge financial resources of the reformist parties. But in the most important field, we are immeasurably stronger than any other tendency in the world. We have the ideas of Marxism. And it is the power of ideas that can change the world. We must have complete confidence in our ideas, program and perspectives, and confidence in the working class, the only class that can change society. Above all, we must have confidence in ourselves, for if we do not do this work, nobody else will do it for us.