Written: June 1977
Source: The Unbroken Thread
Transcription/Markup: Emil 1998
Proofread: Emil 1998
The last 30 years marked a period where the imperialist industrialised states built up industry on a scale, and at a pace probably greater than any time since the inception of capitalism.They retreated from direct military domination of the colonies, because of the revolt of the colonial peoples; but in the former colonial areas where capitalism and landlordism have been maintained they exercise an even greater domination, economically. Thus collectively the ex-colonial powers of the EEC, the USA and Japan exact super-tribute from the exploitation of the colonial peoples. They do this through the disparities in the terms of trade, where the price of industrial goods, consumer and capital goods have increased in price far more than the food and raw materials mainly exported by the under-developed countries. This is so even in the case of oil, where the price has gone up more than four times. This increase in price followed the oil embargo of 1973 due to the Arab-Israeli war. Despite the screams of anguish by the imperialists, and further increases in oil prices since that period, these increases do not completely compensate for the increase in price of capital and manufactured goods since the war.
The disparity is even more marked for the non-oil producing under-developed countries, because the oil costs, plus more, are added to the cost of capital and consumer manufactured goods.
Thus the economic basis was laid in the colonial world for a period of upheaval; of revolutions, counter-revolutions and coups unexampled in history. It must be the most disturbed period for the colonial world in the history of capitalism in all its main areas: Asia, Africa and Latin America.
This will seem peaceful in comparison with the titanic conflicts and upheavals of the next two decades.
In the countries where capitalism has been overthrown, especially China and Russia, the last 30 years have seen a temporary consolidation of the power of the Stalinist bureaucracies in a totalitarian proletarian Bonapartist system. In all the three main economic and social areas of the world, a new epoch is opening up. From the point of view of Marxist theory this development of the economy was a preparation for the coming period of social convulsions. This is so in the industrialised capitalist world, the ex-colonial world and the Stalinist states. The world economic upswing of capitalism, with its apparently endless industrial growth, with only incidental interruptions of production in the form of minor recessions in one country or another, is now at an end. This period has been explained in a series of documents only by the Marxist tendency, and there is no need to repeat that analysis here.
But as argued in the material, all the factors making for an unprecedented boom were the same factors preparing the way for economic and social catastrophes and upheavals. The accumulation of fictitious capital resulted in a world-wide explosion of inflation. The inter-penetration of trade intensified the world division of labour. The gap increased between the under-developed and the developed world.
The further disparity between the relatively 'weak' countries of Italy, Britain and France and the relatively 'strong' countries of West Germany, Japan and the United States, increased the instability of the workings of the world-wide capitalist system.
The leap forward in the increase of world trade by a rate of 12.5 per cent per annum in its turn led to a partial dismantling of tariffs and other impediments to a free exchange of goods and this gave impetus to world trade and to the world division of labour. This has now slowed down. World trade in 1976 and in 1977 (projected according to the calculations of the OECD (1), UN, and the capitalist powers) will increase only at the rate of 5 per cent per annum. That is an enormous drop. Together with the other factors, it marks the end of the epoch of economic upswing. Now a new period of booms and slumps is ushered in.
But because of the growth of productive forces, together with the growth of the social and economic contradictions in the intervening period, the rhythm of the booms and slumps will no longer be that of the classical period of capitalism of a decade or so ago. They will be of a much shorter duration, between two and six years. This is already shown in the first simultaneous slump (1974-5) since the second world war. This has resulted in the re-appearance of a permanent army of unemployed in the capitalist countries, which will further aggravate the hopelessness of the position of the tens and hundreds of millions of unemployed and under-employed in the under-developed countries.
The recession or small slump of 1974-5 has been succeeded by the boomlet (in most capitalist countries) of 1975-6. But in all of these countries the 'boom' has not been anything in the nature of the upswing of the post-war period. Supplementing the unemployment of labour has been the underemployment of resources. Only 80 per cent of industrial capacity has been used in most of the industrialised capitalist countries. Inflation, even in the economically 'strong' countries still remains an ever-present threat. In Britain and Italy it is between 20 per cent and 30 per cent, in France 15 per cent, Japan and the United States 8 per cent to 10 per cent and even West Germany 4 per cent to 6 per cent (at the time of writing in June 1977).
Investment under these circumstances has been at a far lower rate than in previous booms. The 'entrepreneurs', ie the monopolies, are not interested in an extensive increase in capacity when they cannot see a future market, and when they cannot make use of already existing capacity. Consequently the rate of increase of production too is smaller than after previous recessions or small slumps.
With the complete discrediting of the theories of the 'witch doctor' Keynes, there is a reluctance to increase state expenditure by 'priming the pump', for fear of inflation getting out of hand. This explains the 'deflationary' measures of Britain, France and Italy and also why, despite pleas from the 'weaker powers', the governments of West Germany, Japan and the USA have refused to entertain the idea of 'reflating'. They prefer to trample their capitalist rivals and weaker brethren in the bog, lest they too be sucked into the mire. Thus Fukuda, the Prime Minister of Japan, observed brutally: 'What would be the point of making the strong weak, by reducing them to the level of the weaker powers?'
Thus the summit of the seven powers in May solved not a single one of the burning problems facing the capitalist world. It brought no cheer to the weaker powers, and nothing to the under-developed regions of the world. Nor did it strengthen the 'stronger' powers. They were all looking to their own resources and flailing round like drowning men who could just keep afloat. They pushed under their stricken companions afflicted with cramp, in their frantic efforts to get a lift back to safety.
The large economically dominant powers, West Germany and Japan, with a substantial surplus in their balance of payments, and the United States with its crushingly dominant continental economy, were not prepared to increase state expenditure and thus budget deficits in order to lessen the balance of payments deficits of the weaker economies of Italy, Britain and France. This would mean sucking in imports and thus lessening their surpluses, but would give a twist to the spiral of inflation nationally and internationally.
At the same time the 'strong' powers were demanding cuts in state expenditure and deflation, in the weaker states. This with the reluctant agreement of their weaker rivals. The latter were fearful of uncontrolled inflation and thus were slashing the reforms of the past, described as the 'social wage'. State expenditure was formerly regarded by the bourgeoisie as a painless way of increasing the market. Now they wish to curb inflation by cutting down state expenditure and at the same time hold down the wages of the workers in order to increase the mass and rate of profit of the capitalist class.
In all capitalist countries the tendency of the rate of profit to fall has manifested itself in a steep decline. Hence the pre-occupation of the ruling classes to increase the rate of profit. In West Germany between the 1960s and 1970s the rate decreased sharply. That decline is continuing according to The Economist (26 February, 1977): 'In the early 1960s, German industry earned on average a net return after tax of just over 6 per cent on sales. In 1967-71 the average return came down to 5.3 per cent and in 1972-5 it was only 4.1 per cent…In 1970, German employers had to pay about DM 42 billion for social security contributions. By 1975, this total has almost doubled.'
The decline in the markets, simultaneously with a decline in the rate of profit led in West Germany, as in the other main capitalist countries, to a decline in manufacturing investment. In 1970 gross fixed investment in industry was DM 35.5 billion. This was an increase of 17 per cent on the previous year. Investment as a percentage of sales was 6.9 per cent, and investment per employee was DM 4,280. In 1976, which was recovery year after the recession 1974-5, gross fixed investment had dropped to DM 26.5 billion, only slightly higher than the recession year of 1975. Investment in 1976 was 1 per cent higher than in 1975. Investment as a percentage of sales actually dropped slightly to 4.6 per cent. Investment per employee was DM 3,685.
Similar figures could be quoted for all industrialised capitalist countries. The contradictions pile up. Yesterday the capitalists were intent on expanding the market through measures such as reducing tariff barriers and state restrictions on a freer flow of foods and trade between the capitalist countries (through the General Agreement Tariffs and Trade). Internally they used state expenditure to boost the home market. Now they are faced with the major problem of limited markets both at home and abroad, while saddled with surplus capacity. Industrial investment, which for a period creates its own market in an economic spiral, has fallen. The whole spur to increased production has sagged. The production of machinery and buildings creates a market for materials, steel, building materials and so on. Extra workers employed mean increased purchasing power, which means more sales for consumer goods, a further possible market for new machinery. The extra workers in steel and building (or increased earnings etc), create a further market and so on.
The measures of the British Labour government, and those of the French and Italian governments, have restricted the market and consequently, despite lavish inducements, investment has not reached the real level of 1970 in Britain, Italy and France. It is lagging far behind previous figures under world boom conditions. The economic miracles of Japan and West Germany have ended with investment little above the recession figures of 1974-5. The USA is in an even worse predicament, considering its enormous capacity.
The slump of 1974/5 was the first serious world check to the development of productive forces since the early post-war period, although the fall in production was not high in comparison with the inter-war period. Painfully the bourgeoisie has recovered economically in the boom of 1976-7. But the boom has nothing of the character of the world rhythm of production in the post-war period. One of the economic witch-doctors of capitalism writing in The Economist of 30 April 1977 says:
"The best guess is that the world is not set for slump. If the trade cycle has changed from seesaw to sluggardliness, by the same token (?) output is unlikely to plunge into the same kind of sharp downturn that followed real booms. (!?)
"More likely is a steady climb off the plateau in the second half of 1977. At an annual rate (for OECD countries) of perhaps 3-4 per cent, sustained into 1978."
In other words the boom has been sluggish. The bourgeoisie has foresworn another dose of economic opium, increasing state expenditure, because it means inflation under both boom and slump conditions. They have painfully learned that to increase state expenditure might give them an economic 'high' for a year or two (or even possibly only months), only to bring more inflation on Latin American lines, more unemployment and all the nightmare reality of 'stagflation', stagnation and inflation, or even worse 'slumpflation'.
But cutting state expenditure and cutting real wages would lead to the distressing 'withdrawal symptoms' of deflation, once the opium is withdrawn from the sick economy of world capitalism. So The Economist hopefully argues that by missing the boom, they can also miss the inevitable aftermath of slump, and permanently maintain a slow plateau of growth. The superstitious representatives and idealogues of the bourgeois have these utopian fancies. If the production does not increase then the market will continue to stagnate. Investment will fall even if the measures to hold down real wages succeed, and because they succeed!
Marx divided production into department 1, production of means of production (capital goods, machinery, buildings etc), and department 2, production of means of consumption (consumer goods). The two sections are inter-dependent. A fall in one means ultimately a fall in the other.
The whole system of capitalism, where every factor interacts on every other factor, requires rising production, investment and an increased market in a spiral. In the end through credits this would exceed the limits of the capitalist system and lead to bust. But without a real boom the limits would be reached even sooner! Greater overproduction of capital and consumer goods would be the consequence and hence slump would take place even sooner.
Serious commentators of capitalism expect a world slump, beginning (as could be expected) in the United States, towards the end of this year or during the course of next year, 1978. All the economic factors point towards this with all the political and social consequences. However, at the first signs of a break in the economy, with more bankruptcies and rising unemployment, in a panic the capitalist governments would again reach for the dope syringe as a 'solution'. President Carter and Denis Healey have both hinted at reflation towards the end of the year if necessary to restore production. In other words the very measures that have meant a crisis of inflation will once again be resorted to by the capitalists. This over a period would exacerbate the problems of inflation, which by raising prices causes dissatisfaction among both workers and the middle class, by cutting the purchasing power of the masses. In the end it has the same consequences. In addition faith in the currency is undermined. Inflation delays slump for a relatively short period only to make it worse when production collapses.
Either way there would be resistance, even if delayed, by the working class at still further cuts in real standards of living. Even if the slump is delayed for a short period, that would open up a period of bitter battles between the classes. Even more bitter will be the reaction to empty factories side by side with enforced idleness of the workers.
The new epoch which began in 1974 of short booms followed by slumps is an epoch of storm and stress. The relative development of the productive forces by the bourgeoisie for a period of a quarter of a century or so, also gave relative stability to the main capitalist countries in the period since the post-war years. Marxism has always explained that a period of social revolution opens up when the ruling class and their economic system become a drag and a fetter on the development of the productive powers of society. This also applies to the development of society under a ruling caste, as in the Soviet Union, which hampers the development of productive forces. Then opens up a period of political revolution. Trotsky had assumed in 1938 that this was exactly the period which the world bourgeoisie and also the Stalinist bureaucracy had entered.
Owing to the peculiar development of events, and the treacherous role of Stalinism and reformism, the bourgeoisie gained a breathing space, and for reasons explained in other material the development of productive forces (relatively and to a certain extent absolutely) gained an impetus. Now, generally, the productive forces cannot be contained within the confines of the national state and private ownership.
Hence during the next decade on a world scale a new period of upheavals and titanic class clashes is on the order of the day. A period of social and political convulsions in all three spheres - the capitalist West, the former colonial world, and the Stalinist bloc - is inevitable. It was for such a period in 1917-21 that Lenin and Trotsky tried to prepare the forces of the Communist International. Trotsky prepared for a similar period which would follow the outcome of World War II. He predicted the inevitability of this cataclysm in 1938.
These political upsurges did take place, but for lack of Marxist leadership and Marxist mass organisations, the bourgeoisie succeeded every time in avoiding complete overthrow. Capitalism was restabilised albeit on a more shaky basis. Stalinism, as a governmental system in Russia with extensions in the Communist parties of other countries, also recovered from its crises and even expanded its power and influence.
But the old dialectics of world development have been burrowing beneath the apparent stability of Stalinism and capitalism. Five to six decades of economic progress in the industrialised world, in the Stalinist states, and even to a limited extent in the ex-colonial world, have ploughed the field for the revolutionary crop which will follow. Marxism sees in the development of productive forces the key to the development of society and of history. While productive forces are being developed it gives a relative stability to any class society. In the last twenty-five years there has been phenomenal development of productive forces, especially the most important productive force, the working class.
The new organic crisis which is maturing marks a new stage in the development of post-war capitalism. It opens up a new period of struggle between the classes over the next five, ten or twenty years which poses the problem of the entire fate of mankind. In its train, the upswing brought an immense accumulation of fictitious capital in the shape of so-called Euro-dollars. More than $150 billion of worthless currency were foisted on Europe by the United States during the period of her overwhelming economic supremacy in the early post-war period. Supplying the necessary 'liquidity' in the period of upswing, the paper money served to fructify industry, but it was also one of the factors leading to world inflation.
In a period of economic storms it acts like unbattened-down lumber on a ship, which causes holes in the hull and sides as it moves from one side to another with the waves. So the Euro-dollars are moved from one country to another in order for the monopolies to profit from the successes or the difficulties of the economies of the capitalist industrialised nations. So also the enormous waste of resources in unproductive arms expenditure, which also acts as fictitious capital, while imposing crippling burdens on the peoples of the world. This has reached the fantastic level now of �1,000,000,000,000 ie a million million pounds every six and a half years.
There is the stark contrast between poverty, hunger and starvation in the colonial world, and the profligate waste of resources in research and production of ever more devilish means for the extermination of mankind. This ominous threat suspended over the head of mankind makes ever-more imperative the need for the masses to take the fate of society and the world into their own hands.
The twilight of capitalism, through its incapacity to serve the needs of the masses, not only in the colonial world but now also the developed world, makes this a period of inevitable disillusionment with capitalism and of class awakening on the part of the proletariat.
(1) The Organisation for Economic Cooperation and Development (OECD), founded in 1961, incorporated the main capitalist powers aiming to expand trade and coordinate aid.