Economy History History & Theory

World Economy Heads for Slump!

By Ted Grant
Written in July 1987

20th July 2016, marked the 10th anniversary of the death of the great Marxist teacher Ted Grant. It gives us enormous pride to pay tribute to him by publishing an article of his written in 1987, until now not available in electronic media form, taken from the Militant newspaper he founded in 1964. Ted was a man who only lived for the cause of the working class and the socialist revolution. He spent his entire life studying and applying the ideas of Marxism to the development of society in order to arm the advanced workers and youth for the struggle against capitalism. It is therefore fitting that we publish this very informative article, in which Ted, utilising the methodology of Marxist economics, details the enormous contradictions of the world economy and the impasse that capitalism had reached even in 1987.

A matter of months after the publishing of this article there was, on October 19, 1987, a collapse of share prices on the New York stock exchange of 22%, far exceeding the stock exchange collapse of 1929. Unfortunately the majority of the leadership of Militant had by this time, under the impact of the defeats of the working class in the UK in the late 1980s, began to abandon the ideas and methods of Marxism, whilst of course still utilising its terminology. They saw the stock market crash of 1987 as their saviour, believing falsely that Ted had predicted a 1929 type slump, when of course  this slump failed to materialise, it undoubtedly disorientated a whole layer of leading comrades in Britain and internationally. Seemingly unable to learn or even to admit their initial mistakes on the world economy the majority comrades later attempted to blame Ted, whilst cynically utilising his enormous authority built up over decades, for the failure of this slump to arrive and so rescue them from the demoralisation that gripped them in the wake of the defeats of the working class.

Ted clearly address this demoralisation among the leaders of Militant by stating “Every active worker must understand the situation in which they find themselves, understand the process taking place in the world, not to be put off by a conservative reaction, because that will prepare an even greater reaction on the part of the working class.”

 Also it is quite clear that Ted’s position on a “new” 1929 was more balanced:

 “It is certainly correct to raise the POSSIBILITY, not the certainty, of another 1929. All the factors that made 1929… BUT AT ALL TIMES WE MUST MAKE A CAVEAT. We must take into account the enormous resources that have been created by the labour of the working class, by science and technique, in the course of the last 50 years. Under conditions of slump, capitalism may have to use up much of these resources.”
Here in this article can be found the origin of the split in Militant and the CWI, the majority faction are now reduced to a tiny insignificant rump on the fringes of the labour movement, whose own ultra left sectarianism has seen them locked out of the Labour Party precisely when it is being flooded with new fresh workers groping for a socialist solution to the impasse of society. Marxists, armed and prepared for this day by our comrade and teacher Ted Grant, stand poised to intervene in the struggles that are now unfolding in the labour movement generally and Labour Party thanks to his effort and analysis utilising the Marxist methodology, exampled by this article, which even to this day, nearly 30 years after it was written, will greatly enhance the level of political and economic understanding of all thinking workers and youth.

We are now nearing a new turning point in the development of capitalism, a qualitative change in economic and political perspectives. On the surface, Britain is in a period of boom. The same is true for America, and for Western Europe.

But the basic crisis of capitalism, which has been spoken about by Marxists for three generations now, means that the capitalist system has reached its limits. Rather than developing the productive forces, because of the restrictions of the nation state on the one hand and private ownership of the means of production on the other, it has become an absolute fetter on the development of production.

Of course this does not mean that there will be no further increases, and then falls, in production, but that the rhythm of slumps and booms will be ever more convulsive.

The enormous economic upswing of world production between 1950 and 1975 seemed to have cancelled out the laws of capitalism. Capitalism partially succeeded in this period in overcoming the organic crisis of capitalism, which has existed now for about 60 or 70 years, by an enormous development of world trade of about 12.5 per cent a year. This in turn gave a huge impetus to the development of the productive forces, to a greater extent than ever before in history.

Organic Crisis

In addition, the organic crisis of capitalism has been disguised to a certain extent by the simultaneous crisis of Stalinism in Russia and Eastern Europe, shown by the recent reforms of Gorbachev. All the major journals of capitalism, the Financial Times, The Economist, The Banker etc hammer home the point that centralised planning does not work. Of course, BUREAUCRATIC planning does not work once you have a sophisticated, developed economy. But democratic workers management of industry and the state would work.

Undoubtedly, this crisis in the East has had an effect on the intellectuals, the ideologues of capital, who say “that is not the way out”. The fact that the “mixed economy” was not able to prevent the development of the crisis of capitalism meant that it too has been abandoned. The bureaucratic nationalisations in Britain, France, Germany and even in America, measures which in reality are not socialism but state capitalism, do not work for the same reason that bureaucratic planning does not work in the Stalinist states, but with the additional fact that the major part of the economy is in the hands of monopoly capital which determines the development of the economy. Because the mixed economy does not work and does not prevent the possibility of slump there has been a big swing against state ownership, not only in the countries where the Tories are in power but also where the so-called socialists are in office.

Thus in Spain and Sweden there have been denationalisations and in France the Socialist Party is not putting up a vigorous struggle against the denationalisation that Chirac wants to carry out. To a certain extent “Socialism” has been discredited and under these conditions the idea has developed that “untrammelled capitalism” is the means to develop the economy. The capitalist countries will suffer all the consequences of this in the next slump.

For the process, whereby capitalism was able to partially overcome its organic crisis between 1950 and 1975, has now reached its limits. This is proved by the nature of the “boom” that capitalism has experienced from 1981-7. This has dragged on for 6 years, but in the language of the bourgeois economists it has not been a boom but a “growth recession” in the sense that production has only crawled ahead at the rate of just 2-3 per cent overall. This compares to the period of economic upswing when growth in output of 6-8 per cent was quite normal in the countries of Western Europe and when American output too grew in some years by 8 per cent. In Japan, there was sometimes a 12 per cent or even a 17 per cent annual growth.

This latest “boom” should have collapsed long ago. We thought it had reached its limits, and predicted its end 2 or 3 years ago. In fact, the boom WOULD have collapsed before now if it had not been for the massive armaments programme of the United States, now reaching $375 billion a year, and the budget and trade deficits built up by the USA.

This colossal arms expenditure puts into the shade Hitler’s re-armament programme prior to 1939 which absorbed 7 million unemployed. In the USA the capitalists claim to have created 30 million new jobs in the last 30 years. But 9 out of 10 of these new jobs are in the service industries, completely dependent, in reality, on the development of industrial production.

Germany reached the limits of its armaments boom in 1939 and was faced with a choice of either going to war (Hitler had always intended going to war) or a collapse of the economy. Now the enormous armaments boom in the USA, which is principally for the benefit of the military-industrial monopolies in America but is also a means of propping up American imperialism against the colonial revolution and of course against the mortal enemy of Stalinism, has also reached its limits.

Armaments Boom

The armaments boom of Hitler prepared the way for either war or a devastating slump in Germany and in the West. In fact, at that time America was not spending much on armaments, about 1 or 2 per cent of GNP. But in 1938 they had a slump that threatened to rival the slump of 1929-33 and therefore they saw in war a solution to their problems. But today (as explained later in the article) the capitalist powers cannot find a way out through world war as they could have in a different period – not while the trade unions and the political parties of the working class continue to exist and the democratic rights which go with them – although there will be “little” wars, perhaps, like the Vietnam war.

America’s armaments boom was a form of “negative Keynesianism “ (During the post-war upswing the momentum of production was maintained by expansion of state and private credit to artificially enlarge the market for goods, partly through social welfare spending: a method first proposed by the capitalist economist Keynes ). Now the USA arms boom is based on “guns instead of butter”. Reagan’s deficit financing, spending more than the state income, has not gone to improve the infrastructure, social services, pensions etc. On the contrary, growth has been at the expense of those sectors and at the expense of the working class in the USA where real wages have fallen by 14 per cent in the last ten years.

Nonetheless, a by-product of the American arms boom and the state budget deficit was an expansion of the world economy, of Western Europe and particularly Japan by expanding the market in the USA. The US government sucked in goods from other countries. Japan and Western Europe have had their market increased by at least 1% as a result of the expansion of the American market. Along with this the USA has built up an enormous trade deficit, i.e. excess of spending on imports over earnings from exports.

To finance the massive budget deficit, America sucked in enormous amounts of capital from her rivals and even the under-developed world, but predominately from the developed world and especially Japan, by paying sky-high interest rates. That in turn (because of the demand created for the dollar) drove up the value of the dollar to the highest level it had reached for decades, in comparison to the currencies of the other developed countries. This further weakened America’s trading position (cheapening imports and making exports more expensive) building up enormous contradictions for the future.

Another reason for the continuation of the boom in the last few years has been the fall in the price of raw materials, oil and foodstuffs. The advanced capitalist countries have prolonged the boom by shifting the burden on to the backs of the colonial world, by worsening their terms of trade with advanced industrial countries. Colonial countries have received less for their predominately raw material exports, and had to pay more for their manufactured imports.

To cover the difference, they have borrowed from the big banks in the advanced capitalist countries. This has meant an enormous increase in the foreign debts of the colonial countries. One thousand billion dollars worth of debt has been incurred in Latin America, Africa and Asia.

Worse Off

With worsening terms of trade, interest on debt etc, there has been an estimated drain of $750-$1,000 billion dollars from the underdeveloped to the developed world in the last few years. Now the real average per capita income in 1984-87 is 14 times higher in the developed world than in the underdeveloped. This is the result of the growth of the developed world and an actual decline in growth in Latin America and Africa and in some of the countries of Asia. In the underdeveloped world people and countries actually became worse off in absolute terms – in Africa, Latin America and in most of the countries of Asia apart from Hong Kong, Singapore, Taiwan and of course South Korea.

These factors, the USA arms programme and the shift in favour of the advanced capitalist countries, gave an initial impetus to the so-called “boom”. But even with all these factors production has only crept forward. There has been nothing like the growth reached during the world economic upswing of 1950 to 1975.

At the same time, as an indication of the complete sickness of capitalism, in the period of boom 80 per cent of productive capacity in all the advanced capitalist countries has been used. That means, in reality, that capitalism is in a crisis of over-production. Because monopolies dominate production and cut back production rather than blindly throwing more goods onto the limited market, the tendency to “over-production” reveals itself in a crisis of over capacity. For example, only 68 per cent of steel capacity in all the capitalist countries is being used, and this in a boom. What is it going to be like in the slump that is coming?

This overcapacity has continued despite the capitalists’ policy of destruction of ship-building, textiles, steel etc that revealed itself at the time of the last slump. In the early history of capitalism workers enraged at their exploitation, known as Luddites used to destroy the machinery they worked on, now, in the terminal decline of capitalism, it is the capitalists who are the Luddites! During this boom the EEC has reduced steel capacity by 31 million tons. Now the EEC is demanding that another 20 million tons of steel capacity be destroyed.

All the factors are being gathered together for a slump, most likely within the next two or three years, a slump much deeper than anything experienced in the post-war period.

With the armaments boom reaching its limits. America has become the biggest net debtor in the world with a foreign debt of $410billion, 4 per cent of GNP. In 1986 the USA had a budget deficit of $200 billion and a trade deficit of $170 billion. In 1986 the total USA debt, federal and private, topped 7 trillion dollars a trillion dollar raise in a year. The total debt is 1.7 times the Gross National Product, the highest ratio since the depression of 1929-33. This is a time bomb ticking away under USA capitalism.

Trade Deficit

America’s accumulated trade deficit for the 1980s totals $630 billion dollars. Manufactured goods account for 68 per cent of all USA exports and 75 per cent of USA imports. The USA trading deficit in manufactures makes up 84 per cent of the total deficit. Now in the USA, service industry employs 75% of the workers with only 25% in manufacture (though incorrectly, they include transport and building in the service sector.

All these figures show the complete change in the situation that has taken place in the world economy. The Wall Street Journal recently spoke of the disintegration of the world economy. It tried to find analogies with what happened with the collapse of the economic domination of British imperialism in the 1870s and 1880s, which prepared the way for the First World War and the slump of 1929-33. It identified three fundamental factors which it said were the disintegrating forces of the world economy then, which are present today: rapid changes in the world economy producing protectionist pressures: the stagnation of the domestic economy: and the end of the “hegemonic” position of any one power.

Japan today challenges America on a world scale; Japan’s Gross National Product per head of population is higher than the USA. Japan now has a $50 billion trade surplus with the USA even though the dollar has plunged by over 40 per cent against the Japanese yen, making Japanese exports to the USA more expensive.

With home industry providing less profitable opportunities, Japan has also become the world’s leading exporter of finance capital, $650 billion in 1985 compared to the USA’s $600 billion. In 1986 Japan invested $50 billion in US government bonds and $15 to $20 billion in Eurobonds to become the world’s largest creditor. Japanese banks make up 45 per cent of all foreign banking in the USA and conduct 40 per cent of foreign currency transactions in Britain.

Japanese capitalism is a peculiar capitalism. The Japanese capitalists have succeeded partly because they refuse to waste resources on arms spending, which is still a little over 1% of GNP and also because Japanese capitalism is a highly monopolised capitalism which is intimately connected with the state.

Despite all the bleating of Thatcher, Chirac, and Reagan and so on about the “free market economy”, it was with the help of the state that Japan produced the cars, motor bikes and electrical equipment etc which took away the market from their competitors.

At the same time, Japan has protected its home market by having more real barriers to trade than any other countries. While the average tariff rate in Japan has been reduced to 3 per cent, compared to 4 per cent in the USA and 4.9 per cent in the EEC, the real barriers are the non-tariff trade barriers.

Contradictions Piling Up

All the contradictions that make for a devastating slump are piling up. The price of stocks and shares is not in proportion to the economy. On the stock exchange, an average USA company’s shares are trading at 5 times the value based on earnings. It is fictitious capital – not present capital – value but, as Trotsky explained in the 1920s “memories of deceased or expectations of capital still to come”. Enormous quantities of fictitious capital are being piled up. The value of speculative trading in foreign currencies every day amounts to twenty times the value of world trade in goods.

The bankers and stockbrokers are under the illusion that the increase in prices in stocks and shares will lead to an increase in production to match it. In fact they will have to come down with a bump as they came down in the past. Stocks and shares will have to come into line with the real economy.

Inevitably when capitalism goes beyond the limits of the capitalist system the pendulum swings back. Marx already explained in relation to credit that it results in production developing beyond the limits of the capitalist system. Expanding consumer credit to unprecedented levels initially increases the market but then inevitably limits it. You can’t spend your money twice. If you spend your money on mortgages, hire purchase and so on, you can’t spend it again.

At the same time, the USA government’s budget deficit and the debts being piled up by the colonial countries threatens financial collapse. In the USA, in this time of alleged boom, 135 banks failed in 1986 and 1,486 banks were in difficulties. Two Canadian banks failed, the first failures in Canada since 1923, Japan’s 6th largest bank was rescued from failure. In Hong Kong there has been a collapse of the banks, and this is one of world’s finance centres.

The USA’s banks have loaned out $1,400 billion, the seven biggest banks $550 billion, much of it to the colonial countries which will never be able to repay. $375 billion was added to the debts of the Latin American countries between 1975 and 1985. Ironically, nearly half of that disappeared in investments by Latin America into the USA and the other developed countries of the world!

All these events are the first heat lightening of the coming storm. New contradictions have been generated over the last 6 to 7 years especially. Japan’s comparative advantages are becoming disadvantages. There is not only a surplus of capacity but also a surplus of capital building up in Japan. What we have seen with regard to GEC in Britain, one of the biggest manufacturers with £1,000 million in the banks collecting interest rather than being invested in industry, we now see in regard to the big monopolies in Japan. They have colossal surplus of capital lying idle in the banks. There is nowhere they can invest it profitably in Japan and nowhere abroad. While in America we see the same phenomenon as in Britain with the feverish speculation in takeovers and mergers, because there is no profitable investment possible in new industry. There has been $88 billion worth of mergers in 1986 and they expect there will be $135 billion in 1987.

Worse Off

Another condition of slump appearing at the present time is the cut in the top rates of taxes. This is something that Thatcher and Reagan think they invented but in fact it is nothing new. In 1926 the reactionary Premier Poincare cut taxes by 50% in France and in the USA President Coolidge slashed the top rates in half allegedly to encourage production by giving the capitalists money to invest. That is not a nice augury – for three years later, in 1929, a devastating slump in production began. Yet then, from 1924 to 1929 there was a genuine boom in production: today there is not even that. The capitalists today will not invest. Tax cuts will not solve any of the problems of capitalism.

The organic nature of the crisis is revealed by the fact that even in this alleged boom there has been an increase in unemployment. There has not even been a fall in unemployment in any of the developed countries, except in the USA on account of an increase in service sector jobs. This level of unemployment is not the “normal” reserve army of labour of capitalism in its heyday which would disappear in a boom, but a permanent drain on the economy and on society.

At the same time, wages have been held down, further cutting the market for the capitalists. They are faced with the insoluble problem of capitalism that they want to increase their profits and therefore they hold down the wages of the workers. But as a consequence they cut the market on a world scale. In 1986, overall growth in world manufacturing trade was only 3% in volume terms – the lowest for 30 years, despite the USA’s trade deficit of $170 billion. And it is expected to slow down further to 2.5% in 1987.

The capitalists are faced with an insoluble dilemma. Reagan’s armaments boom, which in accord with the unplanned nature of capitalism was sheer accident and not planned at all, did result in a “boom” throughout the developed world, providing an enormous market in the USA. But as explained this only built up enormous contradictions for US capitalism, weakening America’s trading position. So the dollar was allowed to devalue with the intention of increasing the USA’s exports by making them cheaper.

But all the capitalist nations have massive surplus capacity and they are all clamouring for markets. The dilemma is this: if the falling dollar increases US exports, it must mean an increase in imports in Japan, West Germany, Britain and other countries, and decrease exports for these countries. Thus the USA is demanding a 20% share of Japan’s market in semi-conductors by 1991 even though Japan’s share of the American market is only 15%. But Japan cannot provide a market for further substantial US imports. Total imports presently take 5% of Japan’s home market.

Similarly, all the other capitalist countries cannot allow their exports to decline or their home market to be taken over by further US imports. They will not be able to accept that. And therefore there is an undeclared trade war, with competitive devaluation of each country’s currency, just as happened from 1929 to 1939.

Dollar Falling

The dollar has fallen 35% in two years: against the yen 42% and 48% against the deutschmark. Out of 52 countries’ currencies, 20 manufacturing countries have risen against the dollar since 1985.

The trade war has begun with devaluation. But as a first tremor of what will come in the future we have the dispute over semi–conductors between the USA and Japan. There is enormous overproduction in computers and semi-conductors in Europe, the USA and Japan.

As a side show we had the trade dispute between Britain and Japan. But the British capitalists are too weak to imagine that they could take on Japan and therefore were forced to compromise. They did not even get the backing of the EEC. They ran to their alleged brothers and partners in the EEC who just pushed them off on to “officials” to discuss the question. In other words they were not backing Britain at all because they were afraid of an open trade war.

The dilemma they face is that unilateral action in relation to tariffs always triggers retaliatory actions. That is why the idea that is still being put forward by the Labour leaders, especially the Stalinists, that through import controls capitalism can solve its problems, is false.

Trade wars put the burden on the weaker nations. The USA has 25% of world imports but the exports of the USA are only 6% of the Gross National Product (GNP). So if it comes to a trade war, America will be affected but not as much as the other capitalist economies – Britain exports about 33% of her GNP and West Germany the same, Holland, Sweden and Belgium 50%. They will be hit harder in a slump than American imperialism, although the latter will be hit hard.

The bourgeois economists point out that the USA trade balance could improve this year – not because of the fall of the dollar, but because of the slower domestic growth. Protectionist pressures in the USA will mount and attacks on the EEC’s Common Agricultural Policy are likely to become more violent. Trotsky, speaking during the inter-war period spoke of agriculture as the “kept whore” of industry in Germany. What he meant by that is the capitalists deliberately subsidised agriculture for social reasons, in order to subsidise the peasantry. There is very little peasantry now but in Germany, France, Britain and other countries the farmers have been subsidised throughout this period, on the one hand as a market but also for social reasons to balance the rural areas against the industrial areas.

Inevitably, the moment it comes to a slump, those countries which have currencies that have appreciated will then devalue. The Japanese will depreciate the yen, the Germans the deutschmark or if they do not do that they will turn to open trade protection to keep out the goods of the other countries.

Some of the serious capitalist commentators are really worried. They say that the “liberal economic order” is now at stake.” “Free trade” is only possible when world production and trade are expanding. When it is a question of a general crisis of capitalism the law that operates is “every man for himself and the devil take the hindmost”.

The industrial countries’ imports are the major part of world trade: the proportion actually rose in the 1980s. Imports from the underdeveloped world fell from 20% to 13% of the world total. That is a programme for revolution in the underdeveloped world. The smaller countries in Asia – South Korea, Singapore and Taiwan – which were given a privileged position in the US market in the post war period to head off the threat of revolution, and which therefore are largely dependent on the US market, will suffer greatly once tariff barriers are mounted against their goods.

Moreover, with a trade war, Japan will become one of the weakest countries, because she has built up an enormous productive apparatus that is completely dependent of foreign markets. Therefore Japan will be affected the worst of all. They already have 3.5% unemployment. With 30 million jobs in services a slump would be an absolute catastrophe in Japan.

If it were not for the threat to the capitalist system presented by the planned economies of Eastern Europe and Russia, the second most powerful country in the world, then undoubtedly the world would be on the road to war, between Japan and the EEC, between Japan and the USA or possibly between the European powers and the USA.


There is no “collective imperialism” as it is sometimes imagined. The contradictions now between the USA, the EEC and Japan are greater than the contradictions that led to war in 1914-18 and 1939-45. The reason for the drive to war in the 1930s was that world trade in industrial products by the eve of World War Two was less than at the eve of World War One. The world output in industrial products had doubled in the inter-war period but trade had actually dropped. But now there is the immense power of Russia and Eastern Europe, which rules out war under present conditions.

The contradictions between capitalism and the planned economies of the Stalinist states represent the basic contradiction of this epoch. But full-scale war by the capitalist powers against the USSR is ruled out at present. If this was nuclear war then there could be no winners, as everyone would be dead. The “victors” would not add to the market or gain any loot. The capitalists don’t want this. They cannot launch a conventional war either as the Russians, because of the balance of forces, would win easily.

An actual war by the capitalist powers against the USSR could only take place following the physical destruction of the organisations of labour and trade union movement in the USA, Western Europe and Japan. This could only come about through civil war and the installation of uncontrollable military-police dictatorships in the major capitalist countries.

But at the same time international competition is greater than it was in the period before 1939. A trade war will undoubtedly break out, probably next year. Because there is no way out, with war ruled out, there will be a slump. A slump is absolutely inevitable in the period that lies ahead, prepared for by a trade war.

This year and possibly next year they will avoid a slump, a slump being an actual fall in production. Production will probably crawl along as it has done at the rate of 2-3%. In Britain it is projected to be 3%, France 2%, USA 2.5%, Japan from 2.5 to 3%, and West Germany 2%. Next year, in 1988 they may also avoid a slump. But if they do then in 1989-90 there will be even bigger falls in production. In the last slump of 1979-81 there was only a fall of ½% in production. In the next one there are likely to be falls in production of 2, 3 or even 4%, if it is a “normal“ slump. This is in compared to 1929-33 when production in the USA fell by 40% and in Britain by 11%.

Another 1929?

It is certainly correct to raise the POSSIBILITY, not the certainty, of another 1929. All the factors that made 1929 are there at the present time: the undeclared trade war through competitive devaluations; the stock market speculation; the consumer credit explosion; the massive debts; the advanced overcapacity, which never happened in the pre-war period in the same way. There was overcapacity for a time, but the constant, continual overcapacity means that capitalism has reached its limits and whichever way they turn there might be another 1929. What is likely is that there will be a deeper slump in one to three years time than any slump in the post-war period.

BUT AT ALL TIMES WE MUST MAKE A CAVEAT. We must take into account the enormous resources that have been created by the labour of the working class, by science and technique, in the course of the last 50 years. Under conditions of slump, capitalism may have to use up much of these resources.

Can they defer the onset of a fresh recession, given the accumulation of the US budget and trade deficits? It is possible, temporarily, but it would depend on a whole series of circumstances. Are the capitalists prepared to waste the resources of the last 50 years? They will do, but only under the impact of a political movement of the working class. In the “First Five Years of the Communist International“, Trotsky makes that position quite clear – when there was an enormous offensive of the workers of Germany, France, Italy or Spain, the bourgeois drew back for a time and gave concessions in hours, wages, conditions and so on. Then within a matter of months or years as the case may be, once the movement had receded, they took back what they had given and a bit extra as well.

That is the situation that they could face – and faced with revolutionary developments it is possible that they would carry through Keynesian measures. We must remember that in future there will be big leftward swings of the Labour Party and of the Socialist parties in Europe, possibly even the “Communist” party in France. There will be upheavals in the Italian “Communist” Party. The “left” leaders will be talking about socialism, about revolution, and will remember all the things of the past once the crisis assumes organic form.

Could America force Japan and Germany to reflate, i.e. to increase money in circulation to try to “prime the pump” of growth? Of course they tried that and got a dusty answer, just as when Europe and Japan asked the Americans to reflate about ten years ago. America refused and took no notice of what the Europeans where saying. Now Japan and West Germany aren’t going to pull the chestnuts out of the fire for American imperialism at the cost of their own economies. Therefore, at this point in time they are not prepared to reflate, which would result in an explosion of inflation and stimulate again the class struggle in those countries.

Anyway, even if Europe and Japan doubled their growth rates, which they will not do, it is estimated it would cut the US trade deficit of $170 billion by a mere $20 billion.


However, circumstances might arise where Japan might go for arms expenditure as a means, of course, of boosting the economy rather than as a means of fighting with other countries. What gave Japan an enormous advantage over the last 40 years was the mere 1% that she wasted on armaments in comparison with the 6-7% that the other capitalists spend on arms. Even now she hasn’t allowed herself to be cajoled into spending much. It is a fraction over 1% now of GNP that they spend on arms. Therefore it is possible that the military industrial complex in Japan might go for arms expenditure. If they did build up the arms economy, it could have the same temporary effect as in the USA, although under present conditions and with the present world situation, the result would be an enormous inflation in Japan.

The capitalist countries will increase trade with Russia. Even the Americans have now done a 180 degree somersault from when they were deliberately trying to limit trade with Russia by threatening all sorts of reprisals against the economies of Western Europe and Japan if they traded in goods that were allegedly of defence significance. Now they are hurriedly scrapping the list and will trade with Russia. But this will not solve the problem. All it indicates is that the capitalist countries are in a desperate position for markets.

At all events, the economic policies of the different capitalist powers aimed at avoiding a slump will only exacerbate the problems in the long run and will only serve to make the slump deeper when it finally comes.

All this indicates the background to the situation that is developing in Europe and in the world. Capitalism is at an impasse. From a period of developing relatively the productive sources, it is now a reactionary brake against their development. This is the eve of great movements of the working class, of great developments everywhere. The working class is fresh, there have been no really serious defeats in any industrial country, nothing like the defeats that there were in the inter-war period in Germany, Spain, Italy, France and other countries. There will be an enormous change in the political situation, enormous movements of the working class.

Already, as a portent of the storm and stress ahead, we have had the movements in Scandinavia, Spain, France, Germany, Holland, Belgium, Canada, the USA, Australia and so on – movements which, of course are usually not reflected in the capitalist press. All these are a dress rehearsal for the future. Capitalism has held down the wages of the workers, but it will pay the price in future political and social upheavals. Even the reaction in France has failed to stem the tide. After eight months, faced with a movement of the students and workers, Chirac had to capitulate and make concessions temporarily for the students for fear of what would happen. Now in Spain, in reality, the socialist revolution has begun.

In fact the crisis of capitalism has had peculiar consequences on reformism. The material basis of reformism, from its origin in the 19th century, has been in periods of capitalist upswing, when reformist leaders could promote illusions in the “evolutionary” transformation of society. In previous crises of capitalism, the attempt to preserve their credentials under the pressure from below has driven reformist leaders to the left.

This is what we might have expected in the present crisis, with a corresponding influx of workers into the socialist parties, including the development of the Stalinist parties where they are important, such as Italy and France. Instead we have the peculiar fact, dialectically, that the crisis of capitalism is the crisis reformism, and above all a crisis of left reformism, as well.


But this is explicable. The bourgeoisie as a whole jeered at the Marxists in the period of economic upswing. The Great God Keynes, they said, had solved all their problems: there would never again be difficulties under capitalism, never again unemployment, poverty and all those horrors of capitalism that we have seen during the last 10 or 15 years. The reformists based themselves on that perspective as well.

But now Keynesianism has completely collapsed, and all the problems it claimed to have solved have returned with a vengeance. The reformists, incapable of facing up to this, are stripped of any “theory” on the basis of which to promise reforms. They simply echo the economic ideas of the capitalists. On the right-wing, their programme becomes one of little more than counter–reforms. At the same time there is a complete rout of left-reformism in all the main advanced countries.

But on the basis of future events, with the enormous movements of the working class against capitalism, left reformism will arise again from all sorts of intellectuals, and workers’ leaders as well, with demagogic appeals for socialism and so on – but without the fundamental programme for transforming society.

There will be revolutions in the under developed world and revolutions in the west, that is inevitable. Every active worker must understand the situation in which they find themselves, understand the process taking place in the world, not to be put off by a victory of Thatcher, of Chirac or whoever else it might be in Europe, not to be put off by a conservative reaction, because that will prepare an even greater reaction on the part of the working class.

In fact, this analysis shows that there is a world revolutionary process taking part simultaneously – a crisis in the underdeveloped world, a crisis in the Stalinist countries and a crisis in the developed world also – an unprecedented situation in history which will prepare changes in the consciousness of the working class across the globe.