World economic crisis: The consequences for workers’ struggles in Europe

Opportunities for socialists will develop in the next period.

The European Bureau of the Committee for a Workers’ International (CWI) will be meeting in early April. Capitalist economists are debating not if a recession is developing in the world economy but its depth, breadth and consequences for their system. CWI International Executive Committee members will be looking at these questions too, but with the aim of weighing up the political consequences and the effects on the struggle of workers to combat the blows that will hail down on them. The theses below, prepared by Peter Taaffe, will be under discussion at that meeting.

9,200 words. pdf version.

The consequences for workers’ struggles in Europe

The present world situation is characterised by the worst economic scenario for capitalism since the Great Depression of the 1930s. In turn, this has aggravated the already weakened position of the dominant world power, US imperialism. Together with the fall-out from the Iraq war, this has laid the basis for political convulsions and a fundamental change in geo-politics in the next period.

The CWI, in broad outline, foreshadowed the present economic situation. It charted the developments of world capitalism in the recent period and the inevitability of a crisis, which would strike firstly in the financial sector, with big repercussions in the so-called ’real economy’. The very factors, capitalist globalisation and the growth of world trade, which helped to boost the economic upswing have now turned into their opposite in internationalising the crisis. Given the unplanned character of capitalism, nobody – not even the most farsighted Marxists – can predict the timing or the depths of crises in advance. However, the CWI maintained, in the face of extreme scepticism (sometimes echoed within our ranks), that the looming crisis would be deeper and would last longer than anything experienced in the previous period since 1945.

The recession in the US – and this is what it is – has already confirmed this prognosis. If anything, we have been cautious about the character of this recession. Not so the spokespersons and former idols of world capitalism. Warren Buffett, the richest man in the world, bluntly declares that the US is already in recession. Alan Greenspan, US Federal Reserve president during the boom and therefore an infallible oracle, is now seen as a false god – a "serial bubble blower". He has also stated bluntly that the US "faces zero growth".

US economic indicators have plummeted not just in the financial sector but in manufacturing as well (see Socialism Today and the socialist for a detailed analysis). States which make up one fifth of the US economy are mired in recession and, according to the bourgeois economist Nouriel Roubini, this could quite easily tip over into a depression. The estimates of the cost of the subprime crisis, together with the developing monoline bailout, as well as losses in car loans, commercial loans, credit cards, etc, could, he says, be anything from $1 trillion to almost $3 trillion! There is an abundance of facts and figures in our journals and on the CWI website but the detail Roubini provides of the possible fallout is enough to keep the bourgeois awake at night. He wrote on 5 February:

"To understand the risks that the financial system is facing today I present the ’nightmare’ or ’catastrophic’ scenario that the Fed and financial officials around the world are now worried about. Such a scenario – however extreme – has a rising and significant probability of occurring. Thus, it does not describe a very low probability event but rather an outcome that is quite possible.

"Start first with the recession that is now enveloping the US economy. Let us assume – as likely – that this recession – that already started in December 2007 – will be worse than the mild ones – that lasted 8 months – that occurred in 1990-91 and 2001. The recession of 2008 will be more severe for several reasons: first, we have the biggest housing bust in US history with home prices likely to eventually fall 20 to 30%; second, because of a credit bubble that went beyond mortgages and because of reckless financial innovation and securitization the ongoing credit bust will lead to a severe credit crunch; third, US households – whose consumption is over 70% of GDP – have spent well beyond their means for years now piling up a massive amount of debt, both mortgage and otherwise; now that home prices are falling and a severe credit crunch is emerging the retrenchment of private consumption will be serious and protracted. So let us suppose that the recession of 2008 will last at least four quarters and, possibly, up to six quarters. What will be the consequences of it?…

"This is the worst housing recession in US history and there is no sign it will bottom out any time soon. At this point it is clear that US home prices will fall between 20% and 30% from their bubbly peak; that would wipe out between $4 trillion and $6 trillion of household wealth. While the subprime meltdown is likely to cause about 2.2 million foreclosures, a 30% fall in home values would imply that over 10 million households would have negative equity in their homes and would have a big incentive to use ’jingle mail’ (i.e. default, put the home keys in an envelope and send it to their mortgage bank). Moreover, soon enough a few very large home builders will go bankrupt and join the dozens of other small ones that have already gone bankrupt thus leading to another free fall in home builders’ stock prices that have irrationally rallied in the last few weeks in spite of a worsening housing recession."

This was followed on 29 February by the following:

"These are staggering amounts that would totally wipe out all of the capital of the US banking system and lead to a systemic banking crisis. So, in the worst case scenario if the losses on mortgages are $1 trillion (or in an extreme case $2 trillion) rather than the current estimate of $300 billion and, if on top of these losses the additional credit losses from consumer credit, commercial real estate, leveraged loans, etc. are another $700 billion the total losses for the financial system would add up to at least $1.7 trillion ($1 trillion plus $700 billion) and as high as $2.7 trillion ($2 trillion plus $700 billion). $1.7 trillion adds up to a maximum fiscal bailout cost of about 12% of GDP (not 7%) while $2.7 trillion adds up to a maximum fiscal bail-out cost of about 19% of GDP.

"Now 12% of GDP is not spare change and, certainly, 19% of GDP is a staggering amount (ten times higher than the fiscal bailout cost of the S&L crisis). Of course some of the losses would be taken by the shareholders of the banks and financial institutions; but a clean and fair fiscal bail out of the financial system – that reduces the fiscal costs – would imply first wiping out all of the shareholders of these institutions (as their capital/equity is fully destroyed by such losses) and a formal nationalization of a good part of the banking and financial system. And thus in such a scenario one has to ask again the question: what are the implications of a potential nationalization of a good part of the financial system of the most advanced capitalist country in the world?"

Precisely! The fear of such a situation has motivated the Federal Reserve, in conjunction with other central banks, to intervene on three occasions in the last six months. The latest proposes a lending line of $436 billion in a desperate attempt to unblock the credit system – the arteries of modern finance capitalism – which threatens, in the words of Marx, to "jam" the whole system. We are only in the first stages of this crisis as far as Europe and the rest of the world is concerned (the US is now in its 18th month of the subprime crisis). This is an economic tsunami and like the natural phenomenon of 2004, which took time to travel across the Indian Ocean to Sri Lanka and India, so there is a time lag between the US and the rest of the world. The delayed effect will not be measured in hours, naturally, as with the physical tsunami, but in months and, in some areas, possibly a year before the full impact is felt in the rest of the world.

Roubini’s ’catastrophic’ scenario is disputed by those such as Martin Wolf of the Financial Times. Yet even he has advanced the likely scenario of a "small depression". Roubini answered his doubts:

"It used to be said that ’a million here, a million there and soon you are speaking about real money’. In this case we need to amend the saying to ’a trillion here, a trillion there and soon you are speaking of staggering amounts of money and massive fiscal bailout costs’. Martin Wolf says that a fiscal bill of 7% of GDP is modest and affordable. But the analysis above suggest that the fiscal bill of bailing out a banking and financial system that suffers a systemic crisis would be at least 12% of GDP and as high as 19% of GDP. Even for a rich country like the US 19% of GDP (or $2.7 trillion of additional public debt) is not spare change nor is a ’fiscal bagatelle’. And saddling every US household with an additional $30,000 of debt in perpetuity is not small burden either. And all this is true even leaving aside the other $10 trillion plus of losses in the net worth of the US private sector (fall in the value of residential real estate and commercial real estate, and in the value of the stock market) that a severe recession and financial crisis would imply."

The collapse of Bear Stearns, the US investment bank, further underlines the scale of the crisis. As with the Bank of England over Northern Rock, the US Federal Reserve has effectively nationalised this, the fifth largest US investment bank. Wolf is at pains to say that the bailout of the financial system is not the same as the ’crony capitalism’ shown in ’emerging economies’ in the 1997 Asian financial crisis. Roubini answers: "This is actually ’crony capitalism’ of the worst kind, and as bad as the one that plagued emerging market economies and led to their severe financial crisis in the last decade."

The very fact that a public spat – albeit ’friendly’ – can take place amongst the more serious bourgeois economists over the prospects for their system is a measure of how severe this crisis is likely to be. There is no dispute as to whether a recession will take place, only its depth and time span. However, this crisis is not likely to be of short duration but, on the contrary, will last longer, will be deeper and is likely to have a more severe effect than any of the previous recessions since the Second World War. Even if the economic contraction is only half what Roubini is estimating, it will still be severe enough to produce huge social and political convulsions.

Lessons of Japan

Our comparison between the Japanese economy in the 1990s and the US today is now drawn on heavily by bourgeois economic commentators. Japan was in a deflationary trap for 12 years, only managing to partially crawl out of the morass in the immediate period before the onset of this crisis. The Japanese bourgeois resorted to a series of measures of a quasi-Keynesian character – even floating, at one stage, the so-called ’helicopter theory’; the dropping of yen from the skies to the population – all to no avail. Yet Japan was in a much more favourable position than the US today, with its accumulated savings which it could draw on to cushion the effects of its economic woes, while not being sufficient to break out of the financial Bermuda Triangle in which it was imprisoned. The US has no such advantages, it is in hock; it is a massive debtor to the rest of the world. Moreover, foreign capitalism, particularly Asian capitalism led by China and Japan, have already bailed out the US economy by using their huge reserves to plug the yawning deficits of the US.

The US bourgeois, while welcoming this lifeline, at the same time blocked the Chinese and Middle East capital from swallowing whole chunks of failing US industry, for instance, the vetoing of the attempt of Dubai to buy US ports. Forced now to rest even more on foreign capital, the US has been compelled to relax restrictions on US assets being taken over by ’foreigners’, including the Sovereign Wealth Funds of China and the Middle East, the latter powered by huge reserves of petro-dollars. Yet this serves to underline the colossal economic weakness of US imperialism and the contradictions that flow from this.

Moreover, looming events are likely to further undermine the position of the US. Just as in a boom, one economic factor acts on others in an upwards spiral effect, conversely negative factors operate in the same fashion in reinforcing a downswing, recession or slump. The subprime crisis has produced a banking crisis, which in turn has produced a credit crunch – including an interbank crisis – and now a ’credit collapse’, in the words of the former chief economist of the INF, Kenneth Rogoff. This in turn has interacted on other sections of the financial sector, which is now reacting on the real economy in the US, and will do so even more in the next period.

Geo-political factors have also fed into this situation, above all the catastrophe of Iraq. The formal declaration of independence by Kosova could also trigger a renewal of ethnic civil war in the Balkans. The neo-conservatives did a crude calculation before the invasion of Iraq and concluded that the country had at least $12 trillion of untapped oil reserves. Even if the war was to cost $1 trillion, ’at the extreme’, this would be a price ’worth paying’. Cheap Iraqi oil would fertilise a world economic renaissance while also allowing the US and its allies to break the power of OPEC, they reasoned, by bringing down the price of oil to $10 or even $6 a barrel. Hugo Chávez would be brought down, with the additional bonus of the mullahs in Iran also ’biting the dust’. However, to paraphrase the Scottish poet Robbie Burns: "The best laid plans of mice and men have gone astray." Oil prices are at a record high, $110 a barrel at the time of writing. There has also been a flight to gold, now at historic values around $1,000 an ounce, as a safe store of value, as Marx argued. The hike in oil prices compounds the economic problems of world capitalism. Every recession since 1945 has been preceded by an increase in the price of oil.


Despite the claims of ’success’ by Bush and his proconsul Petraeus, the troop ’surge’ in Iraq has not succeeded in its objectives. American casualties decreased initially – they have risen again in the recent period – largely because the US financed Sunni militias who previously supported and sustained al-Qaida to turn on their erstwhile allies. Iraq is, however, more divided than ever, with both the Sunni and Shia militias murderously unreconciled to each other and the US occupation. When the US forces are compelled to withdraw, even to the regional bases that they have planned, the underlying ethnic divisions and tensions could break out into a Sunni-Shia civil war once more. Even if Iraq does not completely break up, it could end up like Lebanon; a patchwork quilt of savagely competing ethnic spheres of influence and enclaves. The Kurds were the only section of the Iraqi people who gave unqualified support to the US invasion. We warned at the time that the US would betray the Kurds when its vital interests are at stake. This has been demonstrated in Turkey’s invasion of Kurdistan that was acquiesced to by the Bush regime, which had previously condemned the PKK as a ’terrorist organisation’.

Turkey is ultimately a more important prop for the US in the region than the Kurdish entity in the north of Iraq. Erdogan’s party, Justice and Development (AKP) has sought to paint itself in the colours of an Islamic version of the German Christian democracy, linked to religion but presenting itself as ’democratic’. It had even drawn increased support recently from the Kurdish minority in Turkey but that now has been severely undermined by the invasion. The conflict with the Kurds will now probably intensify within Turkey and could spread to neighbouring states with sizeable Kurdish populations, Syria, Iran and the northern part of Iraq itself.

Moreover, the already catastrophic costs of the military invasion of Iraq to the US and its legacy has escalated exponentially as former World Bank chief economist Joseph Stiglitz has pointed out. He has cogently argued in a recent book that the ultimate cost will be nearer $3 trillion, two or three times greater than even the ’doomsday scenario’ balance sheet proposed at the time of the invasion. Ten days US expenditure in Iraq is equal to the total annual aid of the US to Africa! Given the underlying economic weakening of the US economy, how to sustain its bloated military spending presents a dilemma.

Comparisons have been drawn between the US and the Roman Empire. Following Fidel Castro and Hugo Chávez, many on the neo-colonial world now refer to the US simply as the ’empire’. Even bourgeois commentators, as we know, especially the neo-cons, have been happy with this comparison as it previously implied a continuation of untrammelled military might, which would allow the US to impose its will on the rest of the world. This was the prevailing view as the US appeared unstoppable in the aftermath of 9/11, firstly in Afghanistan and then in the ’shock and awe’ of the initial phase of the Iraq invasion. However, the war brought to the fore the inter-imperialist rivalries which have festered in the previous period. We should remember that US imperialism managed to prevail upon its allies – notably Japan, Germany and Saudi Arabia – to pay for the first Gulf war at the beginning of the 1990s. In an entirely different situation in the present world with half the governments of Europe and the overwhelming majority of the population of the continent opposed to the Bush cabal and their war, the US was not in the same position to get others to foot the bill. The consequent massive impost on the US economy has undoubtedly been an additional factor, as Stiglitz has argued, in compounding the economic problems of the US and thereby of world capitalism.


But the deeper that the US is drawn into the morass of Iraq, the more adventurist Bush and his entourage have become. It is not excluded that the bombing of Iran could take place before his dying regime disappears from the scene of history. The Iranian hardliners behind Ahmadinejad have been strengthened by the sanctions following Iran’s refusal to comply with demands to abandon its nuclear programme. This has been underlined by the Iranian ’elections’, in which the hard-line fundamentalist forces behind Supreme Leader Khamenei and Ahmadinejad have been strengthened, despite the large-scale unemployment and poverty which persists. A warning of the consequences of the bombing of Iran has been flagged up in the resignation of the Admiral William Fallon, Commander of US forces in Iraq and Afghanistan. This is an indication that the overwhelming majority of the US military top brass are clear that the US cannot fight two substantial wars at the same time. The bombing of Iran would lead to an aggravation, to say the least, of the imbroglio in the Middle East. Iran would also intervene much more forcefully in Iraq, which could lead to the complete shattering of the fragile ’unity’ of the country into three separate entities. It would also almost certainly lead to a heightened confrontation between Hezbollah and Israel, which fuelled by the worsening of the position of the Palestinians and the deadlock of Annapolis could lead to a new Middle East war. This, in turn, could threaten the plans of the US to maintain bases in the region as launch pads for the defence of the oil resources of the Middle East and the regimes which protect their interests, which are still vital for lubricating the US and world economy.

US imperialism

At the same time, irrespective of who becomes president following the elections in November, US imperialism, as the major military power and still the strongest residual economic power as well, will be compelled to retreat from the unilateralist policy of the Bush era. The unipolar world of the neocons has disappeared to be replaced with a more ’consensual’, ’multipolar’ policy, which is likely to be adopted by whoever wins the presidency. McCain, the Republican candidate, is a hawk on international issues – declaring he would remain in Iraq for a hundred years – and allegedly ’liberal’ on domestic issues. It is unlikely that he will win, given the economic catastrophe which is now associated firmly in the minds of the American people with the Bush regime.

Seventy-eight per cent of the population believe that the US "is on the wrong track". Like the post-Thatcher Tories, the Republicans have the mark of Cain because of the disasters of Bush. Therefore, the Democrats are likely to inherit both the domestic and the international mess he has left behind. Their policy internationally will be shaped by the setbacks for US imperialism of the last eight years. They have no choice as the strongest military and economic power but to continue to intervene worldwide but from a weakened position. So-called ’benevolent liberal imperialism’ will become the new doctrine. The US can still be compared to Rome, not in its rise – the ’heroic’ period – but in the phase of stagnation and disintegration of its empire. Rome was able to maintain its position militarily for centuries, even though the economic foundations became more and more rotten as slavery itself proved to be an outmoded economic force. Society stagnated and even partially disintegrated under the weight of the barbarian hordes. Society could only progress by liquidating outright slavery and replacing it with peasant labour, albeit with the military apparatus and exploitation of feudalism. Rome could not be saved because there was no class existing then capable of showing a way forward. The ’proletariat’ of Rome lived at the expense of society, unlike the modern working class, which has been the foundation of the economic rise and continuation of capitalism. It retains its historical role, despite the blighted rotten leadership at the head of their organisations, particularly the trade unions.

The US, the ’new Rome’, will have to share influence and power with the rising forces which implicitly challenge its rule, particularly in Asia and especially China. We have commented on this issue many times but the dreamy prognostications of the bourgeois commentators that are shared by the Chinese elite that we can experience the ’peaceful rise of China’ are unrealistic. In the latter part of the 19th century, British imperialism was challenged by the rising power of Germany, which had caught up with it economically by roughly the turn of the 20th century. Then in the intense competition for markets, raw materials, influence, etc, they confronted each other in the First World War. This was followed by an incipient clash between the former dominant power of Britain and the new giant of the US. Trotsky, for a period, expected that a war could even take place between the US and Britain. This did not materialise because of the change in the situation in the 1920s and 1930s, particularly the threat posed by the progress of Russia, the new appetite of Germany to regain its former position, etc. A new world war – because of the nuclear balance of terror – is ruled out in the modern era. But clashes on secondary issues which threaten to get out of hand, such as the issue of Taiwan, are posed.


China is much more of a ’strategic threat’ to the US than Japan ever was in the 1980s. Not only have we seen the burgeoning of its economic power but also its military spending and economic prowess. This is still far inferior to the US at this stage but projected into the future the present growth of China will bring into collision with the US. However, the very factors responsible for the success of China – the growth of industry and, with it the working class – will cut across this perspective. The idea that China with others – the so-called BRICs – could offer a lifeline to world capitalism, which we answered and was put forward by bourgeois commentators only a matter of six months ago, is no longer recognised as a serious option.

The severe contraction in US consumer spending will impact dramatically on China. Moreover, a contraction of imports by its very nature will result in a slowing of China’s growth rate, nor will the ’slack’ be taken up by Chinese domestic consumption. In fact, China itself could be a trigger for deepening the economic woes of world capitalism, compounding the downward spiral, which would feed back into China itself. The consumer base of China is too small to cushion the effects of the world economic downturn on the country itself. The situation that the US and the world confronts, and also the workers’ movement internationally, is not just one but a chain of crises, stretching into the future. The immediate cause of upheavals in China, which given the existing high social tension would result in a revolution in China, may not come just from a weakening of growth but from inflation. This has increased considerably recently. Also, a trigger could come from the effects of a natural disaster or, as the recent experiences have shown, from a combination of a natural disaster such as the heavy winter and the seizing up of the transport system at the Chinese New Year.

The question of the global environment and the threat posed by global warming is also an important factor that must be included in the horrific situation opening up for world capitalism. The consequences of global warming and climate change in provoking famine, drought and land erosion will threaten millions and force further migration and increase conflict for natural resources. Even sections of the bourgeois recognise the threat posed by this potential catastrophe. However, without a world plan of production it will not be possible to resolve this question which is assuming greater importance and urgency.

Not least of the countries that will be affected – perhaps even more than the rest of the world initially – will be the US itself. Naomi Klein has commented that "class is back". Forty-eight per cent of the population now declare themselves against the ’haves’ who live at the expense of the ’have nots’. This represents a doubling of this sentiment in the space of 25 years. The burgeoning of ’jingle mail’ (keys to houses vacated by their owners and sent by post), with a possible two to three million families losing their houses, has shattered the idea of the ’property-owning democracy’, advanced by Thatcher and American bourgeois politicians like Reagan. This was a modern expression of the ’tied cottage’ concept, which the English bourgeois during its rise propagated in the nineteenth century. Through ’company houses’ and shops, this was perceived as a means of binding the working class to the capitalists and their system. Monopoly prices and the eviction of strikers from company houses shattered these ideas as the working class strove for class independence.

US foreclosures

The profound social upheaval that lies behind home repossessions, what the Americans call ’foreclosures’, will profoundly affect the consciousness of wide layers of the population, particularly the middle and working classes. Taken together with the brutal private finance and insurance-based health system in the US, with the costs of sudden illness compounding the loss of houses by some workers, this is preparing the ground for massive social eruptions in the US. Already, the bourgeois press is talking about the development of ’Bushvilles’ in the US – an echo of the ’Hoovervilles’, named after US President Herbert Hoover, in the 1930s and precursors of the present shanty towns.

An indication of what is to come for the American working class is shown by the declaration of General Motors that it intends to sack 70% of its workforce, even after the union leaders have accepted a rotten deal, ostensibly to avoid redundancies. On top of this, powerful protectionist sentiments, which are already reflected in the growls of Congress, under pressure from the trade unions, to restrict imports, will rise with the increase in joblessness. As one bourgeois commentator pointed out, if unemployment, which has increased from 5% to 6% in the last few months, rises to 10% then "all bets are off". The collapse of the dollar, moreover, has not resulted in a big bonus for US exports. Like Britain, the US economy has been hollowed out through deindustrialisation, the relocation of factories and production overseas, what is now called in Europe ’caravan capitalism’. This means it no longer has the same industrial platform and economic edge to take full advantage of a low dollar. At the same time, the euro and the yen have risen remorselessly. This will add to the economic woes of the eurozone. It has not yet been severely affected, although the subprime crisis has had an effect. But a slowdown will develop, maybe this year. For some countries, for different reasons, the straitjacket of the euro could be so constricting that they abandon it or force others out. A high euro will cripple the cost of German exports, which are a lifeline for its economy.

Already there is a political and social polarisation in the US, reflected in the increased turnout and interest in the primary elections – particularly in the Democrat primaries – and the enormous interest in Obama from those who have never voted before, women, black workers, etc. Either Obama or Clinton is likely to defeat McCain. While Iraq has not faded from the consciousness of the American people, clearly the economy is to the forefront. Even those unaffected by the crisis as yet will feel insecure and blame the Bush administration and his party for their plight.

In a rational world, this would be the election to lose. Witness Spain; Zapatero the candidate of the socialist party (PSOE) was victorious over the right-wing Popular party (PP) by a narrow squeak. Yet hardly had the cheers died down when the looming economic meltdown was featured heavily in the Spanish press. Domestic, economic and international factors could take the lustre off an Obama or Clinton presidency very quickly. This is why the CWI in the US has continued to energetically pursue a policy of combating the idea of ’lesser evilism’. However, in the situation of the US this year, that is not enough. We clearly have to support the independent stand of Ralph Nader in a joint ticket with others like Gonzalez. In the past, the US was behind those countries in which a class feeling has come to the fore. Now, there is a pronounced anti-corporate, anti-rich mood developing, which is an important factor behind the Obama phenomenon.

Israeli-Palestinian conflict

Even if an Obama presidency was installed, or Clinton for that matter, the fundamental contradictions at the heart of US imperialism would remain. On a bourgeois basis, for instance, the situation in the Middle East, particularly the Israeli-Palestinian conflict, is intractable. This is highlighted by the recent round of tit-for-tat rocket exchanges across the Gaza-Israeli border, the pounding of Gaza and the reaction to this of the Palestinian masses, not just in Gaza but in the West Bank as well. Gaza is now the biggest open-air prison in the world. The third and fourth worlds co-exist in the plight of the Palestinian masses when set against the position in Israel. The average income of the Palestinians is $800 a year and for Israelis is $24,100.

The explosive tensions in Gaza have resulted, on the one side, in the break-out of the population into Egypt and, on the other, in the attacks in Jerusalem by an Israeli-Arab. Before this event, the rage of the Palestinian masses was at fever pitch, leading to joint demonstrations of Fatah and Hamas supporters on the West Bank demanding a common front against Israel. This rage against the oppression of the Israeli state has probably resulted in a throwing back of support for a ’two-state’ solution, at least on the part of the Palestinians. This in turn has led to a return to the floating of the idea of the ’South African option’. Palestinian population growth far exceeds that of the Israelis – if the West Bank and Gaza were taken together with Israel itself. Therefore ’one person, one vote’, as happened after the freeing of Mandela in the 1990s in South Africa, is now on the table, although largely supported by bourgeois and petty-bourgeois forces. Even Olmert, the Israeli prime minister, has used this in order to frighten the Israeli population into making concessions to the Palestinians, including territorial concessions on the West Bank. This, he says – through some kind of ’two-state solution – is the only way to avert the ’South African’ option.

In reality, however, there is no real prospect of the Israeli ruling class conceding ’one person, one vote’ for the Palestinians, as this would effectively lead to the dismantling of the Jewish state. On the other hand, the Palestinian population will never accept the present situation. Only the working class in the region – and particularly its most important components in Egypt and Israel – is able to show a way out of the impasse. Without this, we will see the deadly tit-for-tat spiralling of violence that has marked the region in the past period continue and deepen. The Egyptian workers, through their recent strike wave, inflicted more terror on the ruling classes of Egypt and throughout the region than the Islamicists, including the main opposition force in Egypt, the Muslim Brotherhood.


While the advanced industrial countries will be severely affected by the economic crisis, it signifies a catastrophe for the neo-colonial world of Africa, Asia and Latin America. The commodities boom, which went hand in hand with world growth, benefited some of the countries – in effect their elites – in the neo-colonial world. But it left the conditions of the poor masses largely untouched. A new crisis will however plunge millions into outright hunger. The huge increase in some food prices like wheat and rice has already provoked demonstrations and riots from Mexico to Africa. While prices of some foods will drop as a consequence of the crisis, others, like wheat, may not because of the diversion of much arable land towards the production of biofuels.

Africa, where millions cling to a precarious existence, will probably be the continent most affected by this. A period of increased social turmoil is now opening up here, in which the forces of Marxism, particularly established, well-known organisations in Nigeria and South Africa, will enjoy success.

Asia was supposed to be immune from a crisis of the kind which has now hit the world economy, as opposed to in 1997 when the IMF was forced to bail out a number of economies and where social movements developed in the region, most notably Indonesia. At that time, Mahathir Mohammed in Malaysia adopted protectionist measures. In that country today, even before the effects of a world recession are fully felt, Malaysia has experienced a political earthquake in the recent elections. (See separate article on The heavy falls on Asian stock markets are a pre-cursor of severe economic and political crises in this continent, not only in China and India.

Latin America revolt

Latin America is at the heart of the worldwide revolt against neo-liberalism. Most interest up to now has been concentrated on the ’arc of instability’ in the Andean region, particularly Venezuela, Bolivia and Ecuador. Venezuela has reached a crucial stage following the December 2007 defeat of Chávez – the first in his nine-year rule – on the referendum for a new constitution. It is now clear that the stalling of the revolutionary process and the consequences for the masses in terms of living standards, rights and conditions were the main factors in considerable sections of former supporters of Chávez abstaining in the referendum.

Half or a third of a revolution irritates the ruling class, while it does not satisfy the demands of the working masses. Comrades who have recently visited Venezuela, as well as our comrades in the country, report that even the improvements of the past, in health, in increased food consumption, have now been undermined. As we predicted, the decision to refuse to grant a license to the opposition broadcasting network RCTV allowed reaction to mobilise a section of the middle class – students, in particular – against Chávez’s alleged ’threat to democracy’. For the working masses, however, the far more substantive issue was the increased burden they were compelled to carry through food shortages, price rises, etc.

On top of this has come the assassination of the FARC leader in Ecuador. Following this, Chávez deployed Venezuelan troops to the Colombian border and the threat of a war was posed. However, it is unlikely to come to this; Colombian military clout is greater than Venezuela’s is at the present time. Faced with difficulties ’at home’, governments under pressure – and Chávez is – resort to mobilise the ’nation’ against the threat of foreign intervention and war. Uribe has claimed that the laptops captured in the assault and bombing of the FARC base show that Chávez was hand-in-glove with the FARC leadership. Colombia is an outpost of US imperialism. More assistance to the army and the police has been supplied by the US to Colombia than to the rest of Latin America and the Caribbean put together. Plan Colombia – although first formulated by the Clinton regime – is aimed not at crushing ’narco-terrorism’ but to eliminate the incipient revolt of the Colombian masses to the most repressive regime in Latin America now. Colombia is considered to be the ’Israel’ of Latin America; the fangs of US imperialism ready to sink into the neck of any regime that threatens their interests.

Clearly Venezuela poses a threat to the US and its acolytes in Latin America. It has a certain attractive power to the masses ground down by the policies of neo-liberalism, especially in the neo-colonial world. There are illusions internationally in the Chávez regime, but not perhaps as many as there were and still are in Cuba. After all, the Cuban revolution created a planned economy, with elements of workers’ democracy in the first instance. This does not exist and never has in Venezuela, which even its alleged ’friends’ now recognise.

Cuba and Venezuela

There is, at the same time great interest – in the wake of the resignation of Fidel Castro as president – in Cuba. It is seen as the last remnant of ’socialism’. The film ’Sicko’ by Michael Moore has emphasised in a very graphic fashion the advantages of the planning of the resources of society, particularly in the health sector, even in a ’besieged fortress’, which Cuba still is. As we have spelt out in other material, without workers’ democracy Cuba could go under, with the first beginnings of a return back to capitalism after the next US presidential elections. Whether Obama or Clinton is elected does not make a fundamental difference. The pressure on Congress and the next president is such that the embargo will either be lifted or significantly moderated, allowing more American tourism to Cuba and bigger trading operations for the US monopolies hungry to exploit its markets and resources. The Cuban exiles, concentrated in Miami, will not have sufficient clout to stall this process. Two thirds of the Latino population in Florida are non-Cuban. The wider interests of US imperialism now demand a lifting of the embargo and a ’peaceful’ process of steps towards capitalist restoration.

Cuba is at the crossroads and we must intervene in the process, even in a bloc with those Cuban forces who wish to maintain the elements of the planned economy and extend them, but on the basis of a programme of workers’ democracy. If both Cuba and Venezuela were to face significant setbacks – the overthrow of Hugo Chávez and the liquidation of the elements of the planned economy in Cuba – this would be an undoubted blow against the ideas of socialism and opposition to neo-liberalism in Latin America. We cannot shut our eyes to the deleterious effects of such a development.

But on the other hand, the international scenario is not that of 1989 and the collapse of the Berlin Wall, which led to Cuba’s ’special period’ of shortages and near collapse. Capitalism, as was shown previously, is facing its most serious crisis in more than half a century. The worldwide revolt against neo-liberalism will continue, even if there is not a significant collapse in the productive forces in the next 12 months. Class tensions have reached such unbearable levels – with unparalleled insecurity – that huge outbursts of the working class and the poor masses are inevitable even without a serious economic crisis.

German strikes

This is evidenced by the sharp turn in the situation in Germany with the public sector strikes, which in an opinion poll enjoyed 74% support of the general population, part of the ’shift to the left’ that even capitalist observers comment on. These strikes have been motivated by the intense class hatred of the masses for the super-profits piled up by the bosses and have taken place before the real effects of an economic crisis strikes Germany. While the boom still appears to be continuing, albeit against the background or redundancies and wage cuts in some industries, the prevailing view of the working masses is ’we want our share’. A significant drop in the economy coming after this rather than leading to a period of quiescence will lead to fury on the part of the masses in Germany. It will mean a return to the stormy periods of the past, with the emergence of a new, combative generation of young people and workers. The continuing splits within the SPD over collaboration with DIE LINKE (the ’Left Party’), as well as the rise of the latter – it has recently entered three regional parliaments, with a presence in 10 overall – is a symptom of the changed situation.

On the other hand, the underlying situation in France is explosive, as symbolised by the small factory struggles which the working class has resorted to, for instance locking in their bosses in their own offices. In turn, sections of the employers have sought to prevent strikes by buying off the working class with increased but substantial one-off payments. Sarkozy’s poll ratings have plunged as a mass revulsion has developed against the ’president of bling’, as evidenced by the recent local election results. Sarkozy’s ’centre-right’ received only 47.5% in the second round while the Socialist Party (PS) got 49.5%. This, and the array of town and city councils they have captured, do not denote support for the PS but is a ’vote of censure’ for the government. A period of increased industrial and social struggle is now likely in France. These represent a significant defeat – less than a year after the presidential elections – for Sarkozy and his UMP party. In the first round, the LCR got 4% in the polls and our small forces were successful in winning a similar figure in the council elections in Rouen. The LCR is presented with a big opportunity now if it avoids the mistakes of the past in laying the basis for a new significant party of the working class. Its leading public figure Besancenot is the fifth most popular public spokesperson in France. However, they are uncertain about what kind of party, including what kind of appeal, they will make. We have an opportunity to intervene in this process with our small forces finding a bigger echo. The upcoming discussion at the European Bureau on the tactical questions posed in France at this stage will form a vital part of the discussion.

On the other hand, Spain, precisely because it benefited more than other countries in Europe from favourable EU money and a massive house building programme, probably faces in the next period a ’hard landing’. A measure of the scale of the construction boom in Spain is that in the last few years Spain has used half of the cement used in buildings in Europe. The housing crisis there is more akin to the US, with a significant plunge in house values because of ’oversupply’, than it is to Britain, for instance, at this stage. Zapatero managed to scrape back to power largely because of the polarisation that took place, which in turn arose from the fear of the masses of a brutal PP government coming to power. Smaller parties were squeezed completely, including the ’United Left’, which lost seats and ended up with just two deputies.

Ireland is in a similar position to Spain. Its high growth rate is set to collapse to 1.6% this year. This in itself is a formula for a huge social disaster and a favourable opportunity for the Socialist Party in Ireland.

General strikes

Belgium, Greece – with the general strikes of two million workers and demonstrations of 50,000 in Athens – Portugal, which is being convulsed, and not least Italy all face big upheavals in the next period. Berlusconi had a 12%-15% lead in opinion polls but that has now shrunk during the election campaign got underway. But he is likely to return to power in an alliance with other right-wing bourgeois forces, particularly the ’post-fascist’ party of Fini in the April elections if he has a clear majority. However, the bourgeois correctly fear that a Berlusconi government could more than previously spark a massive opposition movement of the working class, who are seething at the deterioration in their position. They have no means of ventilating this given the move to the right of the Partito della Rifondazione Comunista (PRC) and many of the union leaders. The concern of the bourgeois is shown by their comments at a recent meeting in Milan. The FT reported: "Entrepreneurs might often lean to the right, but they would settle for a strong leftwing government able to implement policies and survive." They prefer a coalition of Berlusconi and Veltroni in a German-style ’grand coalition’. A measure of what the Italian masses can expect is shown by the outburst of Berlusconi’s proposed ’finance minister’; if the right wins the election, then a regime of ’shock therapy’ will be introduced. This is against the background were the perception of the masses in Italy is that their conditions have already been significantly undermined, with "most families" claiming big reductions in the past ten years. Five to six million Italians are forced to work two jobs in order to make ends meet. There is significant disillusion and boiling anger of the masses but no political channels in which to express this. The PRC continues to swing towards the right in its latest attempt to form an opportunist bloc more akin to a liberal capitalist formation than the workers’ party it was in the previous period. It has slid in the opinion polls to between 5% and 7% but may still retain a significant electoral presence because of the even greater swing towards the right of other formations (see article on

The world economic crisis will exercise a profound effect on Russia and Eastern Europe. The growth of Russia in the recent period is largely due to external factors, particularly the rise in the price of oil. Severe world deflation will lead to a plunge in its price, which will severely impact on the Russian economy. The capitalist Kremlin and the colossal kleptocracy on which it rests have perfected a state with dictatorial Bonapartist powers. This is not just to check rival gangs lusting for power and the wealth which goes with it, but ultimately the masses who they correctly fear will rise against them when the economy, and thereby their grip on power, falters. Putin’s regime, bequeathed to Medvedev, is in Liebknecht’s words applied to the German Kaiser’s regime, "Absolutism with the fig leaf of a parliament." Huge social convulsions will ensue if Russia goes into an economic tailspin.

Capitalist crisis and mass consciousness

The most problematical issue confronting the workers’ movement in this general scenario of capitalist crisis and decline – and of political paralysis of bourgeois parties – is what effect this is likely to have on the consciousness of the masses. Of course, the working class will not react in a uniform manner in every country. Where there is no mass working-class party or combative trade unions, the masses could initially be stunned. The right-wing European trade union leaders continue to act as a brake on the workers’ movement. Tied to neo-liberal capitalism, they are unwilling and incapable of resisting the onslaught of the employers. This has provoked fissures – including breakaways, as in Germany towards the GDL, the train drivers’ union – within the official union structures. In Britain, a distinct left trend within the unions, typified by the rail union, RMT, and the main civil service union, PCS, have been successful in resisting the bosses’ attacks. Consequently, they have increased membership. However, this irks the right wing because it puts their own ineffectiveness in sharp relief. This could lead to attempts to force these unions out of the TUC. New formations are therefore possible as in Brazil with Conlutas, and in a number of other countries. In Europe at least, the main beneficiaries in the first period, in some countries at least, could be the racist, nationalist, anti-immigration far-right parties.

Brutal capitalist globalisation has resulted in the unprecedented movement of peoples both within continents and between them as well. The phenomenon of shanty towns that we see in the neo-colonial world can now seriously take root in the advanced industrial countries under the whip of capitalist crisis. Europe is seen as a ’Eldorado’ for some ’incomers’, while others – for instance, in Britain – repelled by what they consider is the general decline within their own countries are fleeing for richer pastures abroad. For instance, Australia is attracting British immigrants at the present time, suffered worse than most countries from the 1930s economic depression with one of the highest unemployment levels in the world.

The objective decline of capitalism, combined with mass struggles, will reshape the consciousness that in the past period was still affected by the collapse of Stalinism, the ideological campaign of the bourgeois and the boom. Even so, as we predicted, new parties of the working class have begun to take shape, notably in Germany, in Brazil and will develop throughout Europe in the next period. Other important formations have developed: the Socialist Party in the Netherlands, the Left Bloc in Portugal. There have also been the important developments in Greece of Synaspismos and the alliance SIRIZA. The degree to which these have become ’mass formations’, whether they are yet real workers’ parties, should be analysed and discussed further at the bureau. At the same time, capitalist state intervention, quasi-Keynesian ideas, will lay the foundation for the beginning of reformists trends, typified by Lafontaine, the leader of die Linke in Germany.

The ruling classes are preparing for a sharp collision with an aroused working class and labour movement. The governments of all bourgeois societies are ultimately the executive committees of the ruling class. Significant anti-democratic actions have either been considered or are being introduced at the present time and the persecution of militants who challenge the system is an increasing feature of the situation in some countries. Part of our preparation for the future is the CWI’s opposition to the attacks on civil liberties and democratic rights, skilfully combining this with the struggle on wages, to defend and improve living conditions, etc.

Anti-corporate, anti-capitalist mood

There is now a heightened anti-corporate, anti-capitalist consciousness which has developed and will deepen in the next period. But, as a number of our CWI sections have shown, with increased recruitment there is now a small but significant layer of young people and workers who are looking for socialist explanations and answers to the problems facing the working class. The sharpest expression of this is perhaps in the neo-colonial world with individuals and even whole groups collaborating with the CWI in Brazil and South Africa. At the same time, we have the spectacular success of the comrades in Pakistan who in the teeth of a difficult objective situation have managed to grow considerably. Even more impressive in a sense is the success of the Sri Lankan party, the USP, which despite the twenty-year savage civil war has not only flown our flag but has grown significantly. These successes in the neo-colonial world are an anticipation of what we can expect in Europe and the other advanced industrial countries in the next period.

We repeat: we are not crude determinists. Increased economic problems for capitalism do not automatically guarantee a higher degree of consciousness on the part of the working class. The absence of a political point of reference which is the position in most European countries – Germany being the exception – means that all kinds of backward features will initially come to the fore, perhaps including the growth of the far right. But as the experience of Germany and Russia in the early 1990s shows, this can act as a whip and spur some young people in particular into seeking those ideas and parties who can counter them. Moreover, this will take place alongside a considerable radicalisation of the working class. The CWI will grow, as will the labour movement under the hammer blows of events.

In answer to this perspective, the question could be posed, ’Why do we not see a significant radicalisation in Japan despite the twelve years deflationary trap that country was in, with its reduction in living standards?’ There are many historical and cultural reasons why movements did not develop in Japan. But above all this was against a background of a still growing world economy with the expectations that Japan would find a way out of this situation ultimately. But the whole world is now in the embrace of a world economic crisis.

This will exercise a much more profound effect on the consciousness of the working class and will move them in the direction of seeking answers to their problems. It will therefore present bigger opportunities for socialists and the revolutionary current represented by the CWI. We are in a new stage which will be characterised by sudden and abrupt changes in the situation. Germany shows there will be waves of strikes, which will pose big opportunities. Theory is a guide to action. The greatest, most correct perspective itself is not an automatic guarantee of success. It is therefore vital that the sections of the CWI seize all the opportunities which will develop in the next period.

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