The Crisis of the Capitalist Powers

The upswing of capitalism after the Second World War became the main determining factor of world history for an entire generation.

It is essential to understand that the precondition for this upswing was the defeat of the revolutionary wave at the end of the war. The development of the productive forces is not autonomous or independent of the class struggle. The crisis of proletarian leadership, which was responsible for a whole series of defeats, bears the central responsibility for prolonging the life of world capitalism.

Lenin and Trotsky had explained that, if the class struggle is left out of account, capitalism can always regenerate itself out of a crisis in which productive forces are destroyed. For the bourgeoisie, the human misery of depressions and wars has its positive side—in restoring the rate of profit and creating a renewed market for capitalist production.

By the dialectic of the system, the devastation of Europe and Japan in the war provided a market especially for capital goods and thus stimulated the post-war upswing. UN economists have estimated that the reconstruction of Europe exerted an effect on the world market for about ten years.

Also, through the destruction of previously accumulated investment in buildings, machinery, communications, etc., the war had allowed the rate of profit on new investment to be temporarily raised.

The bourgeoisie internationally was spurred on in the reconstruction of Europe by their fear of the consequences of the strengthened position of Stalinism in Eastern Europe.

To re-consolidate their power in Western Europe, the bourgeoisie could not afford to leave the population languishing in hunger, homelessness and unemployment. Defeated revolution always turns to counter-revolution. But the strength of the European proletariat at the end of the war, its volatility held in check only by its own leaders, resulted (in most countries) in the bourgeois counter-revolution taking place in a democratic form.

Thus a big injection of capital investment into Western Europe was accompanied by a period of political and social reforms, and improvements in the living standards of the population. In Britain, for example, where Labour came to power in 1945, the essential measures of what became known as the ‘welfare state’ were introduced.

The expansion of production after the war was by no means a new phenomenon. There had been a boom also after the First World War. But in the 1920s and 1930s, each new cycle of growth had soon run up against the internal contradictions of the system, a crisis of profitability and overproduction.

The revolutionary turbulence of the inter-war period was maintained by the repeated cycles of boom and slump, in which capitalist production crashed against the barriers posed by private ownership of the means of production and the nation-state. Each new boom quickly faltered on the limits of the capitalist market, made all the more inflexible by the competition between the great powers.

After the Second World War, in contrast, the upswing extended over 25 years, with only minor interruptions. It is impossible to understand this development without recognising the change in the international situation brought about as a result of the war.

The scale and duration of the post-war upswing was made possible by the fact that United States imperialism emerged from the war as the undisputed dominant world capitalist power.


The foundations of the American economy had been laid in the period of the rise of capitalism as a world system. The American bourgeoisie enjoyed the advantages of a relatively late development in which they were able to use the latest productive techniques. At the sated time they had the benefit of a market on a continental scale, which, because of its great distance from Europe, was relatively insulated for decades from competition by the other powers.

The geographical position of America also ins. from the destructive effects of the First World war_ The Second World War brought US imperialism even more profound advantage. The productive of America were virtually unscathed by the war, while they underwent enormous development on the basis of war industry.

Meanwhile the war shattered the economies of almost all the other capitalist powers. At the end of the war, 50% of world capitalist production and 70% of trade was in the hands of the US capitalist class. At the same time they had in their vaults 75% of the world’s monetary gold (i.e., gold used as money).

Thus US imperialism was in a position of overwhelming advantage at the beginning of the post-war boom. It was in a position to cash in on the reconstruction of Europe and the expansion of production and trade world-wide.

World market

Before the war each power had attempted to protect its own industries against more efficient competitors, by means of barriers to free trade. Now the US ruling class wanted the whole world market open to its own goods, and therefore compelled the systematic dismantling of tariffs and other impediments to trade.

Hence the US-sponsored GATT (General Agreement on Tariffs and Trade) which, from 1948, set about dismantling protectionism from the world market.

Thus the unrivalled power of US imperialism allowed a partial overcoming of the contradiction between the development of the productive forces and the constriction of these productive forces within the framework of the nation-state. World capitalism for a time was able to overstep one of its own inherent limitations.

In a way never before seen, the national markets became inter-penetrated. During the 1950s and early 1960s world trade expanded at an unprecedented rate of 12% a year.

The monopolies (especially, to begin with, those based within the US) underwent enormous further development as multi-national corporations. At the same time the American market—the biggest in the world—was opened to the industries of Western Europe and Japan.

To set in motion the post-war upswing, the bourgeoisie found it necessary and advantageous in another respect also to ‘go beyond’ the ordinary limits of the capitalist system, private ownership, investment and profit.

The upswing was financed by the expansion of credit on a scale never seen before.

Advanced by banks, other financial institutions and the state directly, credit allows the capitalists more scope for investment than the quantity of profits which they have so far accumulated. It is paid out in anticipation of being repaid out of future production.

At the end of World War II, the US ruling class imposed the dollar as the effective means of payment in international trade. The unrivalled power of the US economy enabled it to do this. As a guarantee that paper dollars were “as good as gold”, the US government promised that dollars could be exchanged for gold with the US Treasury, at a fixed price of $35 an ounce.

Confidence in the dollar provided the foundation for the whole spiral of credit that then developed. On this basis the US administration extended vast sums of dollar credit to finance reconstruction in Europe, through the Marshall Plan and other measures ($24 billion up to 1967). Used to purchase US goods, these dollars also stimulated the American economy.

But this was only the beginning of the explosion of credit. To constantly expand the market for goods, and thus sustain the momentum of upswing of production, the US ruling class in particular continued vastly to expand the supply of paper money and credit. The state in effect printed money so as to spend more than it had in its reserves or collected in taxation. The term for this is `deficit financing’. Equally credit extended by private banks expanded massively.

The US government debt increased between 1946 and 1974 from $270 billion to $700 billion; while private debt increased from $153 billion to $2 000 billion. Annual production in the meantime had expanded only from $208 billion to $1 395 billion.

Other capitalist countries also resorted to deficit financing and the expansion of credit. Thus both national and international economic activity was sustained by a flood of credit.

The upswing was also repeatedly stimulated by the opening up of new markets; by the enormous extension of the division of labour on a world scale; and by the development of entirely new industries such as plastics, electronics, etc.

For a period of more than two decades these factors allowed capitalism to outgrow the limits of capitalism itself—in a spectacular spiral of production and increasing world trade.


The post-war period saw the penetration and extension of capitalist relations all the more thoroughly into the economic life of the colonial countries. In fact the intensified exploitation of the colonial peoples, now undertaken collectively by the imperialist powers, was itself a key factor in sustaining the boom.

In the under-developed countries the imperialist bourgeoisie grasped the advantages of cheap labour, while also imposing super-exploitation in the form of unequal terms of trade. The products of the colonial world were—and are—exchanged for less than their equivalent value in products of the industrialised countries. We will expand on these relationships in later chapters.

It has already been shown how capitalism failed to secure the all-round development of the economies of the colonial countries; how imperialism has obstructed and distorted their development; how in this epoch of monopoly capitalism they have fallen further and further behind the metropolitan countries.

At the same time the struggles for independence, the change from direct colonial rule to neo-colonial domination, and the resulting partial industrialisation of the under-developed countries, in fact contributed to the expansion of the world market and in this way added a further stimulus to the post-war upswing.

Using dollar credit the US bourgeoisie bought heavily into the rising industries of Europe, Japan, and elsewhere. Profits were piled on profits, success upon success. These parasites became intoxicated with the idea of ‘The American Century’.

Shedding its former policies of isolationism, the US state now took on the role of ‘policeman of the world’, to protect imperialism against the expansion of ‘world communism’, and against the struggles of the colonial masses.

But the inability of the capitalist system in this epoch to uplift the conditions of the peoples of the colonial world, subjecting them instead to worsening poverty, led to a wasting of the economic substance of US imperialism in repeated and protracted wars.

Between 1946 and 1968, the US government spent some $58 billion on military activities abroad and $36 billion in grants to foreign military forces, to prop up NATO and various military-police regimes.

The post-war decades were the greatest period of development of world capitalism—but the rising intensity of the colonial revolution throughout these years demonstrated how shaky has been the social basis of the capitalist system in this epoch, when considered world-wide.


Above all it was the Vietnam war which demonstrated that capitalism has built a mansion on chicken legs. Combining the most savage barbarities with the most devastating techniques of modern science, US imperialism nevertheless proved incapable of defeating the struggle of the Vietnamese people.

In the Vietnam war the US dropped 13 million tons of high explosives—more than six times the total weight of bombs which they dropped in the course of World War 2, and enough to excavate both the Suez and Panama Canals ten times over. They used 90 000 tons of gas and liquid poisons. 20 000 square km of forest were laid waste and the crops on which 2 million people depended were destroyed. Between 1 and 2 million people were slaughtered.

Nevertheless the workers and peasants inflicted a humiliating defeat on US imperialism, in the course of which they also overthrew landlordism and capitalism in the whole of Vietnam.

The victory of the Vietnamese revolution was a turning point in history, shattering illusions in the invincibility of US imperialism. But it was not only in relation to the colonial revolution that the brittle basis of imperialism was becoming exposed.

Marxism teaches that, in the course of development, things turn into their opposite. Thus, precisely for reasons Marx had explained, all the factors which fuelled the upswing of world capitalism turned dialectically into factors of crisis in the system.

In the post-war boom the inner contradictions of capitalism had not been removed, but only softened and postponed, preparing to burst out again on a higher scale than ever.

The combined and uneven development of capitalism worked in a way unforeseen by the bourgeoisie, not only in the colonial world, but in the industrialised countries as well.

The Decline of US Imperialism

Over a decade or two, the former industrial powers devastated in the Second World War, especially West Germany, recovered strength. New industries were created on the basis of the latest machinery and technique. Even more spectacular was the rise of Japan as an industrial power on the basis of cheap labour and the massive investment of technology.

Contemptuously referred to after the war as the ‘kept pet’ of American imperialism, Japan now rose as a major rival to the US in world markets.

It is important to emphasise that the very predominance of the US economy now turned to its disadvantage. It is the case of the muscleman turning to fat, and getting a thumping at the hands of younger and more vigorous competitors.

A similar process had brought about the downfall of Britain from its former position as the greatest of the world powers a century or more ago to what is now only a second-rate power.

A combination of factors worked together in this process. Britain had established its predominance by being the foremost country of the industrial revolution. It led the field in the development of new techniques, more advanced machinery, and production on an ever larger scale.

But because machinery has a life of some years, while constant innovation is taking place, those who industrialise later have a relative advantage. They immediately reap the benefits of the most up-to-date machinery and technique.

This advantage of late development on the basis of capitalism has not, as we have seen, allowed the countries of the former colonial world to catch up with their former colonialist masters. In a world economy dominated by monopolies they are doomed, with few exceptions, to fall further and further behind.

But, as between the industrialised countries, the benefits of the latest technology can still secure a relative advantage. Of course, under the pressure of competition, the wealthiest of the powers would generally be able over time to maintain and extend its lead—if all else were equal.

However, where the predominance of one power is enormous—as in the case of Britain previously, and the US after the Second World War—there is a tendency for the ruling class to rest on its superior position, and fail to invest in industry and fail to innovate.

Especially where giant monopolies dominate the economy, partially holding the pressures of competition at bay, the bourgeoisie turns all the more eagerly to the most parasitic means of reaping profits—speculating on the stock market, speculating in land, concentrating on financial manipulations and revenue in the form of interest, etc.

Thus the manufacturing base of the economy, which was the original source of their power, becomes eroded and they are so outstripped by more vigorous rivals that their’ decline becomes irreversible.

The decline of British capitalism has unfolded over the whole of the 20th century. In the case of the USA, the process has manifested itself clearly over the last two decades or so.

The position is clearly shown in relation to the productivity of industry, which is a measure of investment. Over the period 1870 to 1950, productivity in the US rose at an annual average rate of 1,8%, compared with 1,2% in Britain, 1,1% in Germany, and 1% in Japan.

Since 1950, however, America’s annual productivity growth has averaged 3-5% lower than West Germany’s or Japan’s. Since 1974 it has risen only 0,25% annually, and then only by running inflation at twice the level of West Germany and Japan.

At present, Japan (with a population of 115 million) buys more new plant and equipment each year than does the USA (with a population of 220 million). The average machine in a Japanese factory is now 6 to 7 years younger than an American one. Consequently, for ex-ample, while Ford makes 2 engines per employee, Toyota is making 9.


The declining position of the US economy is reflected in its gross output. In 1950 the US produced 52% of OECD production, but by 1979 it produced only 34%. The combined production of the EEC countries now exceeds that of the US.

Meanwhile the rise of Japan as an industrial power has been phenomenal. In 1960, for example, Japan produced only 168 000 cars; in 1980 it produced 11 million-40% more than the US.

The US share of the world markets has been declining rapidly. In 1960 it had 16% of world exports; in 1980 it had less than 11%. America is now rivalled by West Germany as the world’s single biggest exporter. The decline of the US position in the world economy is similarly reflected in finance. American banks’ share of total deposits in the world’s top 100 banks fell from 29% in 1970 to only 15% by 1978.

Its former position of world dominance has turned in-to a disadvantage for the American bourgeoisie in another way as well. There is no way that American imperialism can now extricate itself from its international role as policeman and chief butcher, especially in relation to the under-developed countries. On the contrary, its preparations for aggressive interventions in various parts of the world are being massively increased.

The US has promised military help to about 100 capitalist regimes. Its military spending has been running at around 5% of production (GNP), and Reagan plans to raise this level to 7%. Meanwhile the shrewd Japanese capitalists, sheltering under the American military umbrella, have been spending only 0.9% of GNP on armed forces, and, under pressure to spend more, have now raised this to–1%!

The decline of American capitalism relative to its European and Japanese rivals helped to precipitate the economic crisis of world capitalism which was being prepared throughout the period of the post-war up-swing.

During the decades of boom the ideologists and propagandists of the bourgeoisie internationally convinced themselves that the problems of capitalism had been solved. They now maintained that, with the aid of state intervention, they could ‘control’ and ‘manage’ the system. By means of state spending and deficit financing they could avoid the slumps and catastrophic depressions of the past.

The ideas of Marxism were pooh-poohed and held to have been disproved by history.

Dazzled by the seemingly endless expansion of capitalism, these people were totally blind to the real processes at work beneath the surface. They could not see that a Frankenstein monster of inflation was being prepared—by the very factors that had fuelled the post-war upswing.

Over 100 years ago Marx explained the role of money in the circulation of commodities under the capitalist system. He pointed out that if you put two pound notes, dollars, rands, etc., where one should be, the goods in circulation will soak up the extra currency and rise accordingly in price.

The vast quantities of credit created by the capitalist governments and banks since the war—$200 000 million in the case of the US alone!—inevitably resulted in an explosion of inflation.

This had been largely held at bay while production in the world capitalist system was growing more or less continuously and at a rapid pace. The vast increase of commodities in circulation offset for a time the inflationary effects of deficit financing. But as world capitalist production began to run up against the limits of the world capitalist market, as eventually it did, the inflation latent in the system burst through the door.

In the OECD countries inflation averaged only 3% during the 1960s, but in the crisis-ridden 1970s it averaged 8%. The effect of inflation is devastating not only on the living standards of the working people, but also on the stability of the whole economic system. The declining position of US capitalism, together with the crisis of inflation, has brought an enormous instability especially into the international money system.


The steady expansion of world trade during the boom years had been dependent on the willingness of the various countries to accept the dollar as the medium of world trade. The dollar continued to play this role—and to be accepted under US pressure as having a stable value—even though in reality it was being increasingly debased and undermined.

As the mountain of dollar credit built up, the US economy was growing weaker in relation to its rivals.

Because of its massive outpouring of dollars (buying up foreign industry, military and economic ‘aid’ programmes, etc) US imperialism had been running vast deficits in its balance of payments. Within these deficits, however, it maintained a surplus of exports over imports.

But, in 1971, given its declining position in world markets, the US balance of trade fell into deficit. Simultaneously its total balance of payments deficit for the first time exceeded its total gold reserves.

By now the convertibility of the dollar into gold at its official price was an obvious fiction.

Thus the scene was set for a crisis of the dollar, which was pushed to the precipice as the holders of dollars around the world sought to exchange them for other currencies or threatened to demand their conversion in-to gold.


Faced with the danger of a collapse of its currency, the US administration was forced in 1971 to cut the dollar loose from its link to gold, and declare it in-convertible. The dollar was now ‘floated’ with its ex-change rate relative to the other leading currencies to be determined in the international money market.

This effectively meant an immediate devaluation of the dollar by 12%, reflecting the weakened position of US capitalism.

Devaluation of a currency gives a relative advantage to industry in that country-by lowering the price of its exports on world markets. (Simultaneously, however, it ordinarily leads to inflation because the prices of imports from other countries correspondingly rise.)

Not only did the crisis of the dollar jeopardise the stability of the whole international monetary system; it also threatened to produce the first trade war since the 1930s, because the industries of all the capitalist powers were squeezed by the small recession taking place in 1970-71.

Now all the factors of crisis began to pile on top of each other. Most of the capitalist governments resorted to policies of further deficit spending in order to boost the economy out of recession. In the 1960s the money supply in the OECD countries had grown at an average rate of 8% a year. Now it shot up to 20% by early 1973, thus giving a sharp twist to inflation.

Troubles never come singly, as the saying goes. World capitalism was now hit by the ‘oil shock’. Imperialism had been accustomed since the Second World War to paying less than $2 a barrel for its oil. This was a particularly clear expression of the way in which the under-developed countries have been subjected to stagnant or barely rising prices for their raw materials, while the prices of industrial goods from the metropolitan countries have risen steeply.

However, since oil can be produced in relatively few countries, it lends itself to a cartel on the part of the producers. Hence the creation of OPEC, as the oil-producing countries tried to bolster revenues cut by the declining value of the dollar.

At the same time, the post-war upswing of capitalism had brought about a big increase in the dependence of the advanced capitalist countries on imported energy. In 1952, for example, the USA was 99% self-sufficient in energy; but by 1972 this had fallen to 85%. Western Europe was 86% self-sufficient, but by 1972 only 41%.

These conditions prepared the way for the steep rise in oil prices, amounting to 136% from 1973-74. (However, even this and the subsequent sharp price rises have not been enough to compensate for the massive in-creases which have taken place in the prices of manufactured goods.)

Against this background the world crisis of capitalism set in with a vengeance in 1974-75. In the OECD countries taken together, total production actually fell, while unemployment doubled.

Underlying the whole crisis has been the falling rate of profit. This manifested itself from about the early 1960s onward, while the upswing of capitalism was firmly under way, and while the mass of profits continued to rise. Eventually, combining with inflation and overproduction, it led to a dramatic fall-off in investment, and a period of stagnation opened up.

The growth of investment in all sectors of the capitalist world fell from an annual average of 6% in the 1960s to less than 2% thereafter. In the developed countries productivity had grown by an average of 5,3% per year between 1960 and 1973. From 1973 onwards its rate of growth fell to 1,7% and is not expected to rise much above that again.

In most capitalist countries the onset of the crisis was marked not by an absolute fall in production, but by a sharp fall in its rate of growth. In the OECD output had risen 60% during the 1960s; in the 1970s it rose only 40%.

The growth of world trade fell from its former average of 12% a year to only 4% a year from 1973-78, and even lower after that. Given the gigantic productive forces of modern capitalism, the world-wide division of labour and the acute inter-dependence of countries through the world market, this fall in growth represented a crisis for capitalism more severe than any in history.

In previous crises overproduction—when markets are glutted with commodities for which there are no buyers—has led to a general fall in prices. Falling prices have been an important ingredient in eventually restoring the strength of the system for a new cycle of expansion.


But the characteristic of the present crisis is that   has continued—and indeed risen—precisely dicing a period of overproduction and industrial stagnation. For this new phenomenon the bourgeois economists coined the term ‘stagflation’.

On the one hand this is the result of the fact that for decades production was bouyed up on a flood of fictitious capital, arms spending and deficit finance. On the other hand it is the result of the profiteering activities of the monopolies, which prey like vultures on the wounded but living flesh of society.

Through inflation and rising unemployment, the crisis of capitalism has immediately been transIated into falling living standards for the mass of the working class. Hence the resurgence of the class struggle in sharper and sharper form in the industrialised countries. In this way the bourgeoisie is confronted by the most important contradiction of its system.

Class Struggle and Economic Crisis

The unprecedented expansion of world capitalism since the war brought with it the massive growth of the working class. At the same time, with the crushing of small businesses under the juggernaut of the monopolies, and the constant elimination of peasants from the land, the size and social weight of the petty bourgeoisie in the developed countries has steadily declined. The industrial workers, meanwhile, have been concentrated together in ever larger numbers.

While the upswing of capitalism brought a relative calm into the class struggle in the industrialised countries for almost a generation, this had its other side. Over time the wounds of past defeats were healed, the workers recovered confidence, and maintained a constant pressure for improved living standards and other reforms.

These gains in turn consolidated the strength of the class, and allowed the workers time to develop their organisations systematically and on a massive scale.

Lenin, in the conditions of the early part of the century, had believed that it was impossible for more than about one-third of the workers under capitalism to be organised in trade unions. This was because, in the intensity of struggle between the classes, such organised strength would quickly lead the workers on to challenge the survival of capitalism itself.

Conditions after the Second World War, however, allowed a different development. In Britain the number in trade unions multiplied to more than 12 million at its peak—over 50% of the workers. In Italy about 55%, in Belgium over 70%, and in Sweden 90% of industrial workers are unionised!

Growing sections of white-collar workers are also in unions and, to a greater extent than ever before, feel themselves part of the working class.

With the bourgeoisie of the advanced capitalist countries enjoying a deluge of profits, the workers were able to use their organised power to win a whole series of social reforms. Improved housing financed by the state and local authorities; a national health service; improved pensions, child benefits, sickness and unemployment pay—all these became standard in most of the industrialised countries. All these gains depended on the expansion of capitalism during the post-war upswing.

In fact, as we have seen, the upswing itself was only possible through the capitalist system overstepping the limitations inherent within it. By developing the productive forces beyond these bounds, capitalism gave the working class of the industrialised countries a tiny glimpse of the abundance which is possible on the basis of modern science and technique.

In this sense the ‘welfare capitalism’ of the post-war upswing represented a foretaste of the material advances which will become generalised world-wide and massively extended on the basis of a socialist transformation of society—but which the capitalist system can-not sustain.

With a long period of rising living standards, and with bourgeois-democratic; rights secured, the mass of the working class in the industrialised capitalist world obviously did not seek the road of revolution. On the contrary, reformist ideas gained an enormous hold, while reformist leaders became entrenched at the head of all the mass organisations.

For decades the hurricane of revolution swept only through the colonial and ex-colonial world.

But with the turn of world capitalism from boom to crisis, the working class of the advanced capitalist countries has been forced into struggle once again in order to defend its gains. Every advance of the post-war period has been cut back or threatened, and living standards are everywhere in decline.

With the crisis of profitability, the ruling class in all the capitalist countries has taken to the road of attacks on the real income of the working people. From reforms they have turned to counter-reforms, trying to offload the crisis of their system onto the workers’ backs.

With the crisis of inflation, the bourgeoisie has abandoned its former policies of deficit spending. The ideas of Professor Keynes, that by such means capitalist crisis could be avoided, have led to calamity and are discredited. Instead the bourgeoisie has turned to a new witch-doctor, Professor Friedman, and his ideas of `monetarism’.

The monetarist policy attempts to turn back the clock to the capitalism of the 19th century. It proclaims the virtue of the ‘balanced budget’, in which state expenditure is limited to what is raised in taxes. In this way, so it is alleged, the disease of inflation can be eliminated and the health of the economy restored.


Under the cover of appeals to ‘common sense’ and `good housekeeping’, the bourgeoisie in reality is mounting a slashing attack on the material standards of the working class. Cuts in state expenditure are combined with a relentless campaign by the state and the employers to cut the workers’ real wages. By this means, and by tax cuts for the rich, they hope to restore the rate of profit of capitalism and so regenerate investment and production.

In the last half of the 1970s, not only the bourgeois parties but also the right-wing reformist leaders of the social-democratic parties, turned to policies of monetarism. However, the most extreme form of monetarism is represented by the Thatcher government in Britain and by the Reagan administration in the USA.

These governments have shown that the bourgeoisie is quite prepared to cut down productive forces, smash whole industries and induce mass unemployment in the hope of restoring the basis of profitability in its system.

Under the Tory government, Britain—once the industrial workshop of the world—is being turned into an industrial desert. Combining with the irreversible decline of British capitalism already under way for generations, the policies of Thatcherism have turned recession into a catastrophic slump. In the Great Depression of 1929-31, industrial production in Britain fell by 11%. Since 1980 it has fallen 20%!

In the United States the Reagan administration, following essentially the same policies as Thatcher, has made a swingeing attack on public expenditure. His programme includes the elimination of public service employment programmes; cuts in health services, social welfare, education and youth training; reduction in federal social security payments, food stamps, Medicaid, unemployment benefits, etc.

At the same time there is a reduction in company taxation and in personal income tax which will amount to a 20% bonus for the very rich.

A whole series of capitalist governments have followed a similar path. Now, in West Germany for instance, against a background of rising unemployment and falling real wages, the Social-Democratic government seeks to impose DM18 billion of cuts in the course of 1982.

In turning away from the disastrous policies of Keynesianism, the bourgeoisie has shown a grain of sense. The rampant inflation inevitable on the basis of deficit financing is a mortal threat to the capitalist system.

But, as every schoolboy and schoolgirl knows, no marks are awarded for getting your sums only slightly right. The policies of monetarism are shot through with the contradictions of capitalism, and are leading no less surely to disaster.

In the first place, monetarism fails to reckon with the power of the working class. Although, with the help of mass unemployment, the bourgeoisie have managed to curb wage settlements, they have been unable to force the working class to the depths of cheap labour and impoverishment which they believe necessary to revive the system.


Moreover, to the extent that they do succeed in cut-ting real wages, they come up against the other side of the contradiction—because thereby at the same time they cut the market still further. With capitalist production already straining against the limits of the world market, monetarism thus turns a dose of economic ‘flu into double pneumonia.

Then again, when even a slight upturn in the economy does take place, the organised workers immediately fight vigorously to recover everything which they have lost. Even a small increase in employment, a rise in orders to the factories, and the stepping up of overtime, produces an immediate change in the psychology of the workers.

The uncertainty and demoralisation engendered by unemployment is shed overnight. A rash of strikes for higher wages breaks out. The bourgeois are left moaning pathetically about the need for “a permanent change of attitudes” by the working class!

With every improvement in wages, of course, the capitalists hasten to recover their profits by raising prices even further. Thus the rate of inflation takes a further leap.

For the bourgeoisie in this period contradictions are lurking round every corner. The wooden-headed Thatchers and Reagans, imagining themselves back in the last century, thought they could make the working class alone pay the price of unemployment. After all, in “the good old days,” when workers were thrown out of jobs onto the streets, what did it matter if they starved to death?  For this the bourgeoisie has always shown the most ruthless and callous disregard.


But the strength of the workers, fighting through their trade unions over many years, has won the right of unemployment pay. Try as they might, the bourgeoisie has not succeeded—and will not succeed—in taking this away.

Therefore, the policies of monetarism—intended to cut state expenditure have precisely the opposite result. Because monetarism contributes to an enormous increase in unemployment, it leads at the same time to a massive growth in the funds necessary to pay the unemployed.

Thus we have the howling irony that even the most fanatical monetarist regime has presided over a sharp increase in the rate of government spending. In Britain under the Tories, government spending in 1980-1 was 44,5% of production (GDP)—compared with 41,5% in the last year of the Labour government!

In Sweden, where a bourgeois government was elected in 1976, following 44 years of social-democratic rule, deflationary policies to deal with the crisis have produced the same result. Not only has unemployment risen sharply, but the government has been compelled to come to the assistance of ailing industries. Public spending has grown by leaps and bounds to reach an estimated 67% of GDP in 1981. The public sector deficit is now more than 12% of production.

In fact in the OECD countries as a whole, current government spending has risen fairly constantly from about 25% of GDP in 1960 to about 35% by the end of the 1970s.

Even in Japan public expenditure has risen from 20 to 30% of production between 1970 and 1980. In West Germany, despite cuts, the budget deficit is now over Dm500 billion.

But if anything demonstrates the futility of monetarism, it is the situation in the United States. `Reaganomics’ set itself the impossible task of trying at one and the same time to increase military spending, cut taxes, cut welfare—and balance the budget.

Welfare services there have always been miserly in comparison with the major countries of ‘Western Europe. Nevertheless, three-quarters of the Federal budget is “relatively uncontrollable,” increasing automatically each year. Despite Reagan’s cuts, in 1982 Medicare, social security, food stamps, etc., will constitute 48% of the total budget outlay.

In addition, some $220 billion is allocated for defence spending in 1982. Federal spending as a percentage of GNP is running above 23%.

Falling profits and stagnant employment have led to falling tax income for the government. At the same time, failing industries have to be baled out. In September 1981, the US Treasury was obliged to ask Congress to raise its debt limit by a further $16 billion, bringing the total government debt to a million million dollars!

By November, Reagan was faced with record levels of unemployment as a direct result of his monetarist policies. Unable to slash this spending, unwilling to sacrifice financing his military build-up, he was forced to retreat from his promise to ‘balance the budget’ by 1984. Every subsequent assessment projects that deficit spending will in fact increase to record levels.

Probably Professor Friedman will not be in the running for any more Nobel Prizes in economics!

No way out

Nevertheless, the bourgeoisie in general will be obliged to cling on to monetarist policies, although there is absolutely no way out for capitalism on this road. The consequences of a return to policies of massive deficit financing and reflation would result in an explosion of inflation, even eventually to Latin American proportions. This would spell catastrophe for the world capitalist system.

But if the crisis has revealed the bankruptcy of the policies of the bourgeois, it has also highlighted the bankruptcy of reformism. The right-wing reformists in the leadership of the labour movement in the West have gone over to monetarism, even if in a diluted form.

But the left reformists, unwilling to break decisively with capitalism, are left with only the discredited policies of Keynesianism for nourishment.

Marxists support the demand for massive government spending to create jobs and raise the living standards of the working people. But in contrast to the left reformists, Marxists constantly explain that on the basis of capitalism this will inevitably lead to rocketing inflation, and in fact push the system towards a 1929-type crash.

Therefore it is necessary for the labour movement, not to rely on a programme of half-measures, but to fight for a socialist programme linking the struggle for reforms to a complete overthrow of capitalism and the transformation of society.

In the heady years of the post-war upswing, it was difficult for the bourgeoisie to pursue ‘wrong’ policies—everything turned to gold. Now every policy of capitalism is wrong, and turns to disaster. Keynesianism and Friedmanism; deflation and reflation; devaluation and revaluation—all have been tried, with each about-turn leading to worse consequences.

The power of the monopolies enormously aggravates the underlying contradictions. Monopoly capitalism is a monstrous tumour sapping the life-energy of society.

With the rate of profit falling, the monopolies have turned their attention more and more away from the development of industrial production, and seek instead every means of grabbing a ‘fast buck’. Ruthlessly they snatch every dollar of profit possible out of stock market manipulations, buying and selling property, conspiring together to raise prices, parasiting on the state, and engaging in currency speculations on a staggering scale.

Chasing short-term gains on the company balance-sheet, they engage at a time of crisis in frenetic take-overs of smaller companies and mergers between the monopolies themselves. In the USA, $11 billion were spent on mergers in 1975. In 1980 the figure was $44 billion; in the first half of 1981 alone, $35 billion. In just a few weeks in July 1981, American banks raised $38 billion in loan commitments to support take-overs.

In the world of high finance, far removed from the comprehension of the mass of the producers in society who work for their living, the capitalist gangsters engage in vast currency manipulations, speculations and swindles. The equivalent of about $1 300 000 000 000 circulates in the currency markets of Europe, changing hands between central banks, multi-national corporations and wealthy individuals.

The deposits in the international banking system now exceed the domestic money stocks of most of the major capitalist countries. Astronomical sums are moved rapidly from one country to another and from one currency to another, resulting in wild fluctuations in the ex-change rates.

The extent of speculation is shown by the fact that the value of exchanges on the currency markets of Europe are 15 times the value of world trade!

The stability of the world money system after the Second World War was the result of the dominance of US capitalism and the dollar. That can never be restored, and the present situation is a nightmare of instability and chaos. Only the socialist revolution can bring this insanity to an end.

The parasitism of the monopolies, their turning away from the production of real wealth, is illustrated by their refusal to invest. The policies of monetarism, designed to raise the rate of profit and stimulate investment, also run aground on this rock. Similarly, when capitalist governments devalue their currencies, in order to secure an advantage for industry, the monopolies typically cancel that advantage by merely raising their prices at a stroke. In this way they earn super-profits, without regard for the effect on industry.


It might be thought that the gigantic resources of the monopolies would result in increased spending on research and the development of new technology. But in the USA spending on research and development, as a share of total production, has fallen steadily since about 1964. In Britain it has been falling since 1967. In France, West Germany and Japan it has levelled off in recent years.

Moreover, only a fraction of the fruits of research and development are turned to productive purposes. This is especially the case with British capitalism, whose share of world markets will have fallen 40% in the five years up to 1982.

Using figures supplied by a former chief scientific adviser to the British government, the Economist (17/1/81) has calculated that British manufacturing industry invests less than one-third of what would be needed just to keep its products up-to-date and to hold on to existing markets. (This figure alone is enough to refute the lying claims of the bourgeois, trumpeted round the world in the ‘popular’ press, that the working class is responsible for the declining competitive position of the country’s industry.)

The failure of the monopolies to invest means their failure to create employment. Over the whole of the 1970s, for instance, 6,5 million jobs (net) were created in the private sector of the US economy—but not one of them was created in the 1 000 biggest companies!

The gigantic productive forces generated by the 25 years of capitalist upswing, now stand as a formidable obstacle to the regeneration of the capitalist system. Even one of the great chemical monopolies, such as ICI, has the capacity to produce for the Whole world market. Just the shipyards of Japan can glut the world market for ship-building. And so on, in every sector.

The productive power of modern industry has the consequence that the economic cycles – of world capitalism are now much shorter than in the past. With every partial upturn and expansion of the market, it is quickly saturated again with a flood of goods.

During the 1970s, the economic cycles lasted between 2 and 4 years—compared with a normal cycle of 10 years at the time of Marx and Engels. This puts a big obstacle in the way of investment, especially since, even during the upturns, little more than 80% of existing productive capacity is put to use. In turn, sluggish investment tends to shorten the upturns still further.

Thus instead of the productive energies of modern industry serving the needs of mankind, they clog up in the constricted arteries of the system of private profit. At the same time the inability of capitalism to integrate production and distribution in the world economy in a planned and harmonious way, means that the productive forces choke up also in the coils of the nation-state.


We noted how, during the post-war upswing, the bourgeoisie was able partially to overcome these limitations. In the balmy climate of expanding production and trade, some capitalist powers took a number of small steps towards the greater integration of their economies. The creation of the European Common Market (EEC) was an example of this.

However, with the first squalls of economic crisis the bourgeoisie of each country runs for shelter under the protective roof of its own national state, and is ready to resort to any means to defend -its competitive position.

This is not fundamentally altered by the existence of `multi-national’ or `trans-national’ corporations. While these straddle the national boundaries, they are themselves heavily entangled with the various national states, and only aggravate the problem.

If there is ‘no honour among thieves’, there is certainly no chivalry among the bourgeois. Each capitalist government manoeuvres to achieve an advantage over its rival economies, by manipulation of currency exchange rates, veiled or not-so-veiled measures of sup-port for domestic industry, barriers against foreign goods, etc.

Each such step forces retaliation by the competitors. A temporary advantage for one leads quickly to the mutual disadvantage of all. The futility of economic policy conducted on a national plane in this epoch is quickly revealed. Yet, driven by the manic compulsion of the profit system, the bourgeoisie has no alternative but to fight for its life on this basis.

Interest rates

The absurdities are illustrated by the recent situation which developed over interest rates.

With typical narrowness of outlook, the Thatcher government in Britain aggressively raised interest rates in an attempt to reduce borrowing and cut the amount of money being injected into the economy. This was supposed to ‘squeeze inflation out of the system’, and thus eventually bring the British economy out of its coma.

In the first place, by raising the cost of borrowing, this measure led to a further decline of investment, in-creased bankruptcies especially of small firms, and a steeper slump of production. It also had international repercussions with exactly the opposite effect on the British economy to that intended.

When interest rates in one country are raised, this induces the financiers and speculators to buy that currency because it brings them a greater return on their deposits in the banks. The value of the currency rises in the international money market, while the relative value of the other currencies tends to fall.

Thatcher’s policy of raising interest rates in Britain put pressure on the dollar and provoked immediate retaliation by the US Treasury. Carter raised interest rates sharply and they were raised still further by the Reagan administration, pursuing the same monetarist nostrums as the British Tories.

Now the international reverberations were redoubled. Because the dollar is the pricing currency of oil and many other commodities in world trade, other countries (including Britain) immediately faced an increased bill for imports as the dollar appreciated against the pound, the mark, the franc, the yen etc. OECD economists estimated that the effect of US interest rates in the first half of 1981 was to increase import prices for a typical European country by 20%. (The even more serious effect on the under-developed countries will be dealt with later.)

By plunging the US economy further into recession, Reagan’s high interest rates policy had the result of further deflating the world market. This accentuated trade friction among the industrial powers. At the same to protect their own currencies and ward off inflation, these and other countries followed suit in raising their own interest rates. Thus the world recession of 1979 to 1982 was deepened.

The collective effect of these measures has been to delay a new upturn of capitalism by probably 12 months.

The cycles of the capitalist system are not ended, but the fundamental perspective is one of a general decline—a drawn-out death agony of the system. Against this background, as far as the eye can see, there will be short and weak ‘booms’ followed by short recessions tending to become deeper.

In the whole of the OECD, economic growth is likely to be only 2% in 1982, while unemployment will continue to rise. In Western Europe, where output declined by 1% in 1981, it is expected to rise only 1,5% in 1982. Japan’s growth will probably be several percent higher, but nevertheless much lower than the rates achieved in the past.

The position may be even more dismal in these countries, depending on the economic situation in the USA. There, on the most “pessimistic assumptions” of the OECD forecasters, real GNP could actually fall, or rise only 0,5%.


The bourgeois economists themselves now have the expectation of no more than short cycles of sluggish production at least as far as the end of the century. However, it would be a mistake to believe that this condition can be extended indefinitely.

Within the general crisis of capitalism acute economic contradictions are accumulating, which—quite possibly within the space of this decade—will lead ultimately to a catastrophic world slump. That will mean a depression far exceeding the proportions of 1929-31.

The entire capitalist system is balancing on a balloon of international debt which could be punctured at any time. In the US, for example, the level of debt in the economy is such that 47% of the ‘corporate cash flow’ is taken up by interest charges and repayments of debt. It is now inherent in the situation in all the industrialised capitalist countries that the collapse of even one major corporation, leading to the collapse of even one major bank, could set in motion an unstoppable avalanche of economic disasters.

But it is the situation in the under-developed world which has the bankers, financiers and indeed the bourgeoisie as a whole in a cold sweat. The debts of the under-developed world have risen from $62 billion at the end of 1970 to $416 billion at the end of 1980!

Every day these countries fall the equivalent of R95 million deeper into debt to the imperialist countries and the international banks. They have absolutely no prospect of ever repaying these debts, and in fact must continually borrow more just to pay the interest!

Reflecting the anxiety of the bourgeoisie over the in-stability of its system, the Economist warns:

If this overborrowing were ever punctured, there could be crashes in property prices from California to Hong Kong, in companies from Detroit to Seoul, in state corporations from Milan to the North Sea, in overstocked materials from Oregon timber to Nigerian oil, in government credit from Washington to Tokyo, in financial consortia and their clients everywhere. The downward multiplier from all that could make 1929’s little local stock market difficulties look like a controlled parachute drop.

But the world capitalist system could equally be driven over the precipice by the onset of a serious trade war between the industrial powers. The present situation is pregnant with such a possibility, which will grow all the greater as the years go by.

Because of the immense scale of the productive forces of modern industry, production in all the major countries is inevitably geared to the whole world market. Even regional markets of 200-250 million people which, in the past, provided the basis of industrialisation of the major powers, are now inadequate to their giant industries.

At the same time the world market is stagnating. It is estimated that world trade actually fell in 1981, and only a’ small growth of trade is anticipated in 1982. The hopeless impasse for capitalism which this represents is shown with particular clarity in the case of the motor industry.

Even the small recessions of the 1970s have had dramatic consequences, especially for the older capitalist powers. In 1980, for example, production of motor cars in the USA was down to 1959 levels. The motor industry is the source of employment for one in every six Americans. With the downturn of car production, for instance, the US capitalists closed down 20 tyre plants between 1975 and 1980.

In Britain, in 1980, the output of cars was less than half the total for 1972. In mid-1981, for example, General Motors decided to give up altogether the manufacture of spark plugs, alternators and air-cleaners in Britain.

Meanwhile the Japanese motor industry has outstripped not only its British and American rivals, but also countries such as West Germany. The basis of this is greater investment in more advanced machinery, combined with cheaper labour.

Some Japanese production lines are so automated, that cars are almost entirely assembled by robots governed by computers. At the same time, a Japanese car worker is obliged to work 300 hours more every year, for a wage which is one-third less per hour than a West German worker.


Thus Japan is heavily penetrating the West German market in cars, motor cycles, electronics and even ball bearings. Simultaneously, Japan has captured 29% of the US car market, and 30% in Belgium and Holland.

Under the pressure of competition, the motor car industries especially of the older powers face the prospect of ruin on a capitalist basis. Thus the British Financial Times has voiced the prediction that by 1990 Japan may be the only mass producer of cars left in the capitalist world!

But that is a nightmare perspective for the other industrialised countries, when one considers that the jobs of 35 million people around the world are directly or in-directly dependent on motor vehicle production.

Nor is the problem confined to this industry alone—in every sector of manufacturing a similar development is taking place. In fact the Economist (27/12/80) baldly declares that steel production, textiles, the motor industry—in fact all the main manufacturing industries—would only be maintainable in the West by “depressing their people towards competing with Indian standards of life”!

That is a brutally frank statement of the inhuman consequences with which the capitalist system now threatens the working people. But it is absolutely false as a real perspective for the advanced capitalist countries.

The process will be cut across by economic, social and political convulsions, nationally and internationally, on a greater scale than ever in history. In the first place, for the ruling class to plunge the working class of the industrialised West into conditions of mass privation will be impossible except by crushing and destroying the workers’ organisations. That is ruled out except by the route of civil war, which the bourgeoisie in any event cannot be certain to win.

Moreover, even economically such a development would have disastrous consequences for capitalism. Such a savage slashing of living standards would cut the world market down to the roots and ensure a collapse of production, no less in Japan than in the industrialised countries of the West.

Long before their manufacturing base is devastated by crisis and competition, at least sections of the bourgeoisie in the industrialised countries, together with the state, would try by all means to squeeze out the ex-ports of their rivals. Policies of protection of national industry against the biting winds of international free trade would become irresistibly tempting to the bourgeoisie.

Already over the last ten years the number of articles in world trade affected by some device of protectionism has doubled from about one-third to two-thirds. In the first six months of 1981, capitalist governments introduced more protectionist measures than in the previous six years.

Import controls

At the present time these are still relatively mild and veiled. There are both open and surreptitious forms of import controls. There are trade credits; state subsidies (for example, for steel); informal quota arrangements; `tit for tat’ agreements on mutual trade; appeals (especially to the Japanese) for ‘voluntary restraint’ in curbing exports to Europe and America.

The bourgeoisie knows that the advance of its system for 25 to 30 years has rested on the enormous expansion of world trade and the elimination of trade barriers. Now the whole situation is turned upside down.

In this period capitalism is in the grip of a mortal contradiction. In the cut-throat battle for survival each capitalist class faces what is really a choice between jumping from a high building or waiting to be pushed. Free trade is becoming ruinous; protectionism is only an alternative route to disaster.

A generalised trade war would inevitably result from the imposition of heavy protectionist controls by even one important industrialised country, because its rivals would at once be compelled to retaliate. This would quickly lead to a devastating world depression.

It is testimony to the bankruptcy of capitalism as well as the bankruptcy of reformism, that the left reformists in the labour movement in the West today present themselves as the foremost advocates of import controls as the means of rescuing ‘national industry’!

There is no way out of the contradictions of capitalism—except for the working class to take power and carry through the socialist revolution world wide.

The Crisis of Leadership

A new epoch of social revolution has now opened in the capitalist world. In the struggles already under way in the industrialised countries, and in the still greater struggles which lie ahead, the balance of class forces is more favourable to the working class than ever before in history.

Certainly, the bourgeoisie has dropped its smiling mask of the past few decades, and is beginning to con-front the working class with the bared fangs of reaction. However, the forces of potential reaction traditionally relied on by the bourgeoisie have been reduced to a tiny proportion of society.

In the 1920s and 1930s, it was the urban middle class, driven mad by unending crisis, which provided the mass base for fascism. Today the social weight of the middle class is comparatively minute. The workers’ organisations absolutely tower over it.

This weakness is in turn reflected in the feebleness of the forces of fascism in all the developed countries, despite the onset of mass unemployment. The fascist organisations are fragmented, and comprise mainly lumpen-proletarians of the lunatic and thug variety. They represent an entirely insufficient basis for bourgeois counter-revolution in the coming period.

In any event, the bourgeoisie would not be willing to entrust its fate to the likes of Hitler and Mussolini again, because in the 1930s this ended with capitalism losing half of Europe.

The core of the state, and the bedrock of capitalist reaction, is the military-police apparatus. The bourgeoisie is compelled to base its long-term strategy for dealing with the workers’ movement on the strengthening of these forces. In the course of the clashes and polarisation of the classes over the coming years, the ruling class will be obliged to rely increasingly on the military, and prepare for military-police (or bonapartist) dictatorships in all the advanced capitalist countries.

However, they are presently held back from this course by the realisation that, unless the workers’ movement is first smashed, by a whole series of de-moralising defeats, it will be impossible to effectively use the military in this way.

In the past, the social foundation for the army has been the peasantry—but in the advanced capitalist countries today the peasantry has been entirely eliminated or vastly whittled down. Scarcely one person in twenty now works on the land.

The armies of the major capitalist powers are now constituted mainly from the proletariat (under bourgeois and petty-bourgeois officers) and are recruited particularly from the unemployed youth. The fact that the ranks of the military are now ‘workers in uniform’ confronts the bourgeoisie with a major headache. They realise that their armed forces would crumble in their hands if an attempt was made to drown in blood a really concerted mass movement of the workers.

Even in a largely peasant country like Iran, the army disintegrated completely under the pressure of the masses and brought the collapse of the Shah’s regime. It would be a thousand times more difficult for the ruling class to use the army successfully against a determined mass movement in Europe or the United States.

In the period since the Second World War, the strength of the working class has led to the chronic in-stability of military-police regimes in Europe. The Portuguese Revolution of 1974, in which a section of the military in fact played a prominent role, demonstrated the new balance of class forces—and Portugal is the least developed country of Europe.

In Spain the dictatorship of Franco underwent internal disintegration over many years and eventually had to give way to a semi-bonapartist parliamentary regime. The junta of the Greek colonels survived barely seven years. Today there is not a single military-police dictatorship in Western Europe.

The strategists of the capitalist class have learned the lesson that it is one thing to use the army to take power—but it is an entirely different thing to hold on to power in that way. Even Napoleon warned that you can build a throne with bayonets but you cannot sit on them!

Therefore, while it is possible to do so, the bourgeoisie prefers to rule by leaning on the collaboration of the reformist leaders of the workers’ own organisations.


The most crying contradiction of our age is that, on the one hand, the working class of the industrialised countries possesses immensely powerful organisations which would make it possible to take power peacefully and carry through the socialist transformation of society. But, on the other hand, these organisations are saddled with a leadership which is utterly incapable of rising to the tasks posed by history.

This fact guarantees a tortuous, convulsive and con-fused process of the revolution, and would ultimately make inevitable a bloody settlement of the question of power between the classes.

In the last analysis the whole crisis of mankind is sum-med up in the crisis, of proletarian leadership. This essential conclusion drawn by Trotsky towards the end of the 1930s applies with redoubled force and urgency to the situation today.

The 25-30 years’ upswing of world capitalism after the war completed the degeneration of the social-democratic and ‘Communist’ party leaderships. They became absolutely hardened in the ideas and methods of national-reformism, of class collaboration and com-promise with capitalism. They drew the conclusion that the proletarian revolution was an anachronism, a curiosity of the past, and that gradual reforms of capitalism were all that the working class required.

They accepted entirely the bourgeois idea that the living standards of the working class could rise indefinitely on a capitalist basis, and that the eventual transition to socialism, if it ever came, would be a matter for the dim and distant future.

Resting on the passivity of the working class during that period, reformists entrenched their bureaucratic grip on the trade unions and workers’ parties, while themselves becoming integrated with bourgeois society and the state.


Bourgeois and petty-bourgeois elements at the same time sought careers for themselves in the workers’ organisations, and became accustomed to occupying seats in Parliament as ‘Labour’ or ‘Socialist’ MPs.

The degeneration of the CP leaderships proceeded along essentially similar lines. The only real difference has been that they have coupled it with the old Stalinist methods of ruthless bureaucratic dictatorship in the par-ty itself.

In Italy, France and Spain, where Communist Parties have a mass base in the working class, the leadership went over openly and unashamedly to reformist ideas under the label of ‘Euro-Communism’. It is no small irony that they repudiated even a nominal adherence to the ideas of Lenin and the socialist revolution just on the eve of the new period of world capitalist crisis.

Thus the Italian CP leadership advanced the idea of an ‘historic compromise’ with the capitalist class, and all the ‘Euro-Communist’ leaders cling to essentially the same idea. But if other ‘Communist’ parties still hold nominally to ‘Marxism-Leninism’, this is a difference of posture on the part of the leadership rather than a difference of essence. There is today not a Communist par-ty in the world whose leadership puts to the working class the task of taking power. None of them possesses a single grain of the method and revolutionary ideas of Lenin.

The practical consequences of a degenerated leader-ship were revealed with complete clarity in the French revolutionary events of 1968. Those events were a brilliant anticipation of the new epoch of convulsions which has now opened up.

With three million organised in trade unions, at least ten million French workers joined the general strike. Factories were occupied. The army and police were paralysed, while open support for the workers’ movement was indicated within their ranks.

Thus the possibility of a peaceful transformation was posed. White-collar workers, small farmers and all other strata of society except the big bourgeoisie were affected by the revolutionary mood.

State power was within the grasp of the French working class. But the CP leadership, at the head of the big-gest unions, hastened to call off the general strike, brought the factory occupations to an end, and ensured that the capitalists retained power.

It was the enormous strength of the proletariat—which had not been defeated but was held in check only by its own leaders—together with the depth of the ferment in society, and the fear of the bourgeoisie of provoking a further movement, that prevented the consequent Gaullist reaction from taking an extreme form.

In Portugal in 1974, once again the capitalist state apparatus came within an inch of being overthrown. In fact the forces of the state broke into splinters, and the ruling class found itself without any basis of support. Peasants seized the land from the landowners and workers occupied factories. Under decisive leadership there would have been nothing to stop the working class from taking and consolidating power.

However, it was the leaders of the Socialist and Communist parties (the latter an unreconstructed Stalinist party under the direct influence of Moscow) who held the movement back from victory and allowed the forces of the bourgeoisie gradually to regroup.

Even now, however, the strength of the working class prevented the bourgeoisie from carrying out a vicious reaction. It has been able to proceed only painstakingly and feebly towards the consolidation of a right-wing regime. One of the consequences of the revolution has been that 84% of the Portuguese workers became organised in trade unions.

While reformist leaders have been able repeatedly to bar the workers’ movement from power, the bankruptcy of reformist policies in this period of capitalist crisis means that there is no resolution of the problems of the mass of society. Thus the working people are driven again and again into action.

Crisis of reformism

The crisis of capitalism manifests itself also as a crisis of reformism—of the social-democratic and Communist parties in the industrialised capitalist world.

Because these are traditional mass organisations of the working class, the bankruptcy of their leadership does not lead directly to the mass of the proletariat abandoning these parties and seeking new ‘revolutionary parties’ constructed from scratch. The workers return again and again to the very mass organisations whose leaders have led them to defeat.

This is something which all the ‘Marxist’ sects have utterly failed to understand, and are incapable of understanding. Drawn mainly from the petty bourgeoisie, from students and intellectuals, there are now literally swarms of little groups and grouplets, warring among themselves, calling themselves ‘Marxist-Leninist’, ‘Maoist’, ‘Trotskyist’ and a whole exotic combination of labels. All of them proclaim their mission to create ‘mass revolutionary parties’ which are to be sucked out of their own thumbs. In reality they are all completely by-passed and ignored by the mass movement.

Alien to the working class in background, outlook and the arrogance of their pretentions, the sects are incapable of grasping the psychology and real needs workers as they move into action to defend standards and seek a way out of the crisis.

Above all, in a serious confrontation with the capitalists, the workers understand the need for unity and the strength that comes from numbers. The whole experience of the past 30 years, where the active layers of the working class have struggled through the trade unions and the labour parties for reforms, has reinforced the idea that the size of their organisations has been more important in battle against the bosses than this or that leadership or programme.


In fact, of course, from the standpoint of the Marxist understanding of the process, this position is inadequate. In the new period it will be quite impossible to sustain the struggle for reforms and for the defence of the working class without linking it to a programme for social revolution. Strength of numbers is indispensable, but on its own it will not suffice. Without a revolutionary leadership, the mass working-class organisations will repeatedly find themselves led up the blind alley of class-compromise, and thus open themselves to the dangers of defeat.

But it is through the mass organisations—the trade unions and the traditional parties of labour—that the working class as a whole will take to the road of struggle. Already this is amply demonstrated in all the industrialised countries.

What is true of the working class generally is, in this regard, true also of its most active and far-sighted contingents. Again and again they seek to use the old organisations as an effective weapon against the class enemy and its governments.

But again and again they come up against the obstacle of the entrenched reformist leadership of these organisations, and are forced to struggle to change the leadership. Already, to varying degrees, there is turmoil and polarisation between left and right in all the mass workers’ parties of Western Europe—at a time when the crisis is still only in its early stages.

The whole of the working class has not yet been driven into struggle. The active layer, moving into the trade unions and the workers’ parties, is only an anticipation of the mass inflow of the proletariat into these organisations which is still to come.

In the course of the coming years there will be struggle after struggle to transform and re-transform the workers’ organisations, to equip them for the tasks which only the working class can fulfil. In the course of these struggles, out of a whole series of experiences, the active fighters of the labour movement will be drawn unavoidably to the method’ and programme of Marxism—that is, provided the Marxists are there to patiently explain and resolutely fight for their ideas.

Just as the economic crisis of capitalism is likely to be long drawn out, the process of awakening and sharpening of the class struggle will also be extended. It will not proceed in a straight line. The working class learns from experience, and above all from the experience of active struggle.

It is impossible for the mass of the proletariat to proceed directly to revolutionary conclusions, especially in this epoch. The mass of people always seek the path of least resistance as a way out of their problems, and the scope for illusions in ‘alternatives’ to the socialist revolution is still far from exhausted.

There will be a testing out of all the apparent alter-natives to Marxism. This is made unavoidable in the advanced capitalist countries by the experience of the working class over the past three decades.

Revolution or Reaction

It will require a number of sharp shocks, and even defeats, before workers and their families in their hundreds of thousands and millions draw the conclusion that the method of struggle of the past—limiting their movement to pressure for reforms—can no longer advance their position or secure their needs.

For vast masses of the working people in the countries of the West, where the strength of their organisations has won bourgeois-democratic rights and freedom from police tyranny, their impression of ‘Marxism’ and ‘communism’ is the repulsive totalitarian Stalinist regimes of Eastern Europe, Russia, etc. Bourgeois propaganda tirelessly drums home that these are the inevitable result of revolution.

As the bourgeoisie is forced, in the coming period, to mount one attack after another on the democratic rights and freedoms of the working class, these mists of confusion will gradually be cleared away. In the course of struggle to defend democracy, to end the nightmare of capitalism, layer after layer of the working people (and through them the middle class as well) will come to understand that the only solution is the socialist revolution and the creation of a democratic workers’ state.

But it will require a whole process of development of the class struggle before it becomes clear that genuine Marxism, genuine socialism, is inseparable from workers’ democracy and stands in irreconcilable conflict with Stalinism.

Above all, the revolutionary process will be long drawn out because of the weakness of the forces of Marxism in the world today. Revolutions are not over-night changes. Revolution is a whole tumultuous sequence of changes, reverses, and further changes. Whether a workers’ revolution results in victory or defeat has always depended on the question of leader-ship.

The Russian Revolution was victorious within the space of only nine months precisely because of the strength of the Bolshevik Party, the firm roots which it had laid in the workers’ movement, and the quality of its leadership.

In Spain in the 1930s, the revolution unfolded over six years before it was finally defeated. As Trotsky pointed out, the Spanish proletariat could have taken power on at least ten occasions, had it not been for the obstacles placed in its way by its own leaders.

At the present time, the process in the advanced capitalist countries will be still further drawn out, to an extent which the great teachers of Marxism in the past could not have foreseen. They pointed out that a revolutionary situation, in which the struggle between the classes rises to an unbearable pitch, leads quickly to a resolution of the issue in favour either of the ruling class or the proletariat.

But today, for example, in Italy there has been a pre-revolutionary situation extending for more than ten years. This is the result of the enormous power of the working class and its organisations; of the weakness of the forces of bourgeois reaction; and of the complete in-capacity of the workers’ leaders to resolve the situation by leading the class to power. One revolutionary opportunity after another has been squandered, which in an earlier period would have been enough to open the way to counter-revolutionary defeat. Yet it is still impossible for the bourgeoisie in Italy to form a stable government.

The process of the socialist revolution in the West is likely to unfold over a period of one or even two decades. But at the same time, this will be a period of enormous turmoil and upheavals, of sharp turns and sudden changes in the situation.

Because the crisis of capitalism is now endemic, and each policy of the bourgeoisie leads in turn to a new impasse; because all the varieties of reformism are bankrupt, but have not yet sufficiently exposed this fact in practice to the working class; because of the rapid sequence of feeble booms and deepening recessions, each leading to new expectations and new disappointments—there will be a contradictory process of repeated turns and changes in the class struggle and volatile swings of mood.

With the issue of power between labour and capital unresolved, there will inevitably be a protracted see-sawing as the workers’ movement is dragged down again and again by the deadweight of its reformist leadership.


As the impotence of reformism becomes revealed there will be the development of mass centrist trends within the workers’ organisations—leaders and groupings which vacillate between revolutionary phraseology and reformist practice. This will give enormous opportunities for the crystallisation of Marxism as a mass force, provided a firm cadre of Marxists works correctly in the mass organisations.

In fact, the drawn-out character of the process provides a precious advantage for the forces of Marxism, which, beginning from very small resources, would otherwise be swamped in the revolutionary flood.

The Marxist perspective bases itself on the general lines and direction of the process which is mainly deter-mined by the crisis of the capitalist system. But within this general framework we must be prepared for extremely contradictory developments and paradoxical zig-zags.

Under the pressure of events, different classes and sections of classes move in different directions. Among the workers, the first onset of the crisis has led to the radicalisation of the active layer. Hence, for example, the upheavals in the British Labour Party, the struggles of left against right, and the emergence of a strong left-reformist current among the rank and file. The speed of this process has been accelerated by the existence in the Labour Party of a Marxist tendency.

However, the process of radicalisation and polarisation is still at an early stage. The Party and several of the main unions are still dominated by a right-wing bureaucracy which rests on the passivity of the broader masses of the class, inherited from the past. Nevertheless, this base is being steadily eroded as more and more workers are impelled into action to defend their living standards, and come up against the suffocating barrier of the right wing.


In the country as a whole, developments are still more convoluted and contradictory. Reacting to the cuts in living standards inflicted on the working class by the last Labour government, more backward or unorganised layers abstained or followed the middle class in voting for the Tories—and so inflicted on themselves the Thatcher government with its vicious anti-working class policies and still more savage cuts.

Now, on the rebound, confused by the manipulations of the bourgeois press, radio and TV, many of these have swung over to support the new Social-Democrats—the split-off from Labour—whose leader-ship comprises precisely the most hardened of the Labour right-wingers whose policies had alienated these voters in the first place! It requires a whole sequence of experiences before clarity among the masses is reached, and class consciousness matures.

A broadly similar contradictory process has led to right-wing governments In the United States, in Sweden, in Jamaica and in a number of other countries

 In Spain, where the downfall of the Franco regime led to a flowering of the trade unions, the Socialist Party and the Communist Party as mass organisations, the bankruptcy of the leadership led to a severe—if temporary—demoralisation of the active workers. In turn, this has affected the whole working class. Thus the trade unions have lost three-quarters of their membership during the past few years; the membership of the Socialist Party fell by 100 000; and that of the CP by 80 000.

It was in these conditions that the Spanish generals were tempted to carry out the coup in February 1981. However, it was realised by the more far-sighted strategists of the bourgeois, and by the king, that a military regime would lead to a backlash of revolt by the proletariat, and possibly provoke a revolutionary situation. Therefore the ruling class drew back, and the coup was aborted.

The volatility of the situation in Western Europe is shown by the 1981 election in France, which produced an outright victory for the workers’ parties for the first time in history. The French constitution was designed by de Gaulle to ensure a high degree of autocratic power for the bourgeois President. Now this office has fallen into the hands of the Socialist Party, who also hold an absolute majority in the Assembly!

A similar historic victory has been won by the Socialist Party (PASOK) in Greece. There is also now the possibility of the Spanish Socialist Party winning_ the next election—despite the acute fears of the leadership of what the consequences of their own victory would entail.

In the United States, where the trade union bureaucracy has clung to the tail of the capitalist Democratic Party, and where the voters have had to make their choice between the two bourgeois parties, there is now a groundswell in the trade union movement for the creation of a Labour Party.

That would represent a turning point in the history of the United States and of the world. Beginning with a reformist leadership and programme, a mass workers’ party in the US would polarise and evolve towards the left even more swiftly than its counterparts in Europe.

It was little more than a year ago that Reagan came to power on a popular mood of confused anger, discontent, and chauvinist hysteria. But already he has been faced with a trade-union led demonstration against his policies which mobilised half a million people in Washington alone. Sharp turns and sudden changes are characteristic of the present period.

In Western Europe, as in the USA, possibilities for new reactionary developments are by no means exhausted. In fact, in France and Greece, where enormous expectations have been aroused among the workers by the election of Socialist governments, disappointment is unavoidable. This is because the Socialist leaders are determined to remain within the framework of capitalism, and are therefore unable to sustain the promised reforms. This will prepare a swing back towards the right, as the crisis of the economy deepens.


It is particularly the petty bourgeoisie which swings radically from one side of the spectrum to the other, but sections of the working class are also drawn in tow as a result of the failure of the working-class leadership.

Nevertheless, each swing towards reaction in turn leads to a sharpening of contradictions, intensifies the class struggle, and whips the workers into action against the class enemy.

Because of the relationship of forces in society it is now ruled out that the bourgeoisie can take to the road of fascism. The fascist organisations are now capable of being no more than jackals running at the heels of a military-police reaction. It is on the latter that the bourgeoisie will be compelled in the coming period to stake its existence.

The ruling class will have absolutely no alternative but to try to defeat the workers’ organisations, roll back the social and political rights of the working class, and constantly depress living standards. When the role of the reformist leaders in holding back the workers’ movement begins to be played out, the bourgeoisie will have no alternative but to try to impose military-police dictatorship in all the countries of capitalism.

But, as in Spain in the 1930’s, this course would lead unavoidably to civil war. That is the prospect on the agenda in all the advanced capitalist countries in the next period, if it is not forestalled by the victory of the socialist revolution.

In revolution as in civil war, the outcome will turn above all on the calibre of the proletarian leadership. Only if the mass organisations of the workers are guided by the programme of Marxism, by the programme of the international socialist revolution, will a way forward be found out of the chaos and misery of capitalist society.

The forces of Marxism will arise mainly out of the fresh contingents of the proletariat, especially the youth, pouring into the mass organisations in the coming years. It is from these organisations that the future revolutionary International of the working class will arise, bearing the heritage of Marx, Engels, Lenin and Trotsky.

The myriad, so-called “Trotskyist” sects are of no importance to this process. In fact, they are merely an irritating nuisance to the labour movement, and have served to surround the name of Trotsky with a bad smell. The fact that some of these sects posture as the “Fourth International” is irrelevant. The Fourth International whose foundations were laid by Trotsky in the years before the Second World War, never arose as a mass force. Such a development was prevented by the peculiar course of the war, followed by the defeat of the post-war revolutionary wave; and by the whole period of the post-war upswing of capitalism.

As Trotsky always explained, an International is essentially a method, a perspective, and a programme. As an organisation, it can only develop in this epoch as a mass force of the international proletariat. The heritage of ideas, method and programme represented in the work of Marx, Engels, Lenin and Trotsky, has been defended, extended, and deepened over the past forty years by only a slender force of Marxists within the international labour movement.


The organisational apparatus of the Fourth International underwent a complete degeneration and disintegration in the years after the Second World War. It splintered into innumerable sects and sub-sects, increasingly petty-bourgeois in composition, each more incapable than the other of orienting to the processes at work in the working class.

Confused and demoralised by the new world situation and the post-war upswing, these sects retained only the name of Trotsky while abandoning his ideas and method. Capitulating to the ideas of Keynesianism, many of them drew the conclusion that capitalism had solved its problems and that the working class was no longer a force for socialism. Others stubbornly maintained that the upswing of capitalism was in fact not taking place, and asserted year by year that a new world war and world revolution would shortly explode.

All of them completely lost their bearings. Chasing after every passing phenomenon, impatient for results, seeking always a short-cut, utterly without the scientific perspective of Marxism, they underwent irreversible decline.

Abandoning the working class, they turned uncritically to the student movement, then to the guerrilla armies of the colonial world, to Guevarism, Maoism, terrorism, and every new apparent panacea. Without the anchor of the Marxist method, they only split and splintered among themselves.

Today there are at least 15 different organisations claiming to be the Fourth International! In each and every case, these are the deluded fantasies of intellectual sects. It is best to leave them to their own fate.


The real forces of Marxism—of Trotskyism—are taking shape within the mass organisations of labour in many countries. Most notably in Britain and Sri Lanka, but also in Spain, Sweden, Ireland, India and other countries, signs of the influence of Marxism within the working-class movement are becoming apparent.

As the history of the international workers’ movement has repeatedly demonstrated, the forces of Marx-ism are capable of rising to mass proportions from the smallest beginnings, in the course of a revolutionary crisis in society. There is an enormously optimistic perspective for the growth of the Marxist tendency internationally in this period.

In that way alone can the crisis of the proletarian leadership be resolved and mankind find its way to the socialist and communist future.

But more than this hangs on the question of the proletarian leadership in the coming years. The victory or defeat of the socialist revolution will determine also the future survival or the complete annihilation of mankind.

Inherent in the crisis of world capitalism is the prospect of world war. At the time of the First World War Lenin explained—in answer to the bourgeois argument that this was the “war to end wars”—that if capitalism survived it would guarantee yet another world war, and yet another, and another, until it was overthrown. The Second World. War was the grisly proof of the correct-ness of Lenin’s analysis.

Facing intolerable contradictions of its economic system at home, the bourgeoisie of each major power has repeatedly sought a “way out” through war—through conquest and redivision of the world market. However, the change in the international situation since the Second World War has placed a new obstacle in front of this tendency of capitalism.

A Third World War would inevitably mean a nuclear war, fought essentially between the USA and Russia. Because this course would annihilate Europe, and would quickly lead also to the complete destruction of human life—in fact leaving the planet to the plants and the insects—it is ruled out as a deliberate and conscious policy of the bourgeoisie.

But there is nevertheless a deadly danger of nuclear war inherent in this epoch of crisis of capitalism.

The existence of bourgeois democracy in the advanced capitalist countries has been the product of the strength of the working class combined with the ability of the bourgeoisie, riding on the wave of progress of its system, to afford material concessions.

The parliamentary regimes in these countries allow the bourgeoisie the most direct influence and control over the conduct of state policy that is possible under capitalism.

Paradoxically, because it is forced to attack the living standards of the working people, the bourgeoisie will also be compelled in the period ahead to attack bourgeois democracy, and, if necessary, to replace its parliamentary rule with military-police dictatorship. But regimes of generals, while in the last analysis they serve to defend the property and profits of the capitalist class, at the same time raise themselves above any restraining hand.

Should the working class be defeated in the coming period, resulting in a series of military-police dictator-ships in the advanced capitalist countries, it is entirely possible—and indeed inevitable—that one or other fanatical general will reach for the nuclear button in the crazy pursuit of a “first strike” advantage against Russia.

Thus in the course of the next decade or two decades, the issue of the socialist revolution—and with it the issue of the survival of mankind—will be resolved in struggle. Before the Second World War, Trotsky said that mankind faced the choice between socialism or barbarism. Today it is the choice between socialism or annihilation.

Those are the alternatives contained in the mighty development of the productive forces of modern society. That is the ultimate contradiction, which only the triumph of the forces of Marxism can resolve.

Continue to Chapter Four