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International Perspectives: The Crisis of Globalisation

International perspectives document passed by the International Executive Committee of the League

1. We are at a “historic moment”, that is, a situation where quantitative changes turn into a qualitative transformation. The biggest financial crisis since 1929 has opened a new phase of development. The period of “globalisation”, characterised by the rapid internationalisation of production, trade and finance, under the hegemony of the United States, is drawing to a close. In recent weeks, the system has received a series of seismic shocks, aptly described by some commentators as a “financial Armageddon”. The major world economies are now heading into a recessionary phase. Already workers face deteriorating conditions, pay cuts and spiralling inflation, the threats of unemployment and home repossessions loom large, too. Governments and capitalists are demanding working class people pay for a crisis they did nothing to cause.

2. The massive weakening of US financial power goes hand in hand with increased rivalry between the major world powers as they jostle to shift the worst effects of the crisis onto each other. A major round of capital centralisation is also under way; the stronger corporate monopolies will take over the weaker ones that are unable to survive the recessionary phase. Ahead of us lie increasing political instability, sharpening inter-imperialist rivalries and major class struggles.

3. There can be no doubt that these are times rich with revolutionary potential. Times when millions of people suddenly realise the system works against their interests. They know that today there is “socialism” for the super-rich, ìsocialism” for Wall Street, where losses for the billionaires are socialised and the financiers are bailed out but, for workers, for small farmers and peasants, for the oppressed and destitute, there remains dog-eat-dog capitalism; homes repossessed by the banks, wages slashed by inflation, mass job losses and cuts in social welfare and aid to poor countries. Today, more than at any time in the last twenty years, the goal of real socialism for all humanity, won through workers’ revolution, can be related directly to the immediate experience and the burning needs of millions.

4. However, there are major obstacles and great dangers ahead, too. Many of the working class’s traditional political organisations have become almost indistinguishable from straightforward parties of big business, embracing the eternity of the market economy, handing over social welfare, education, and health to the profiteers. Most of the trade unions have embraced pro-business policies, dropping all pretence of standing for a different society not based on the market economy. The sight of the financial system writhing in agony spurs them only to offer concessions to help the system to recover, rather than mobilising to speed it to the graveyard. They propose or support measures taken to bail out the bankers at the expense of working class taxpayers.

5. In the context of labour movements not fighting but rescuing the financiers, the road is opened to ultra-right populists to make electoral headway. Aided by media campaigns against ethnic and religious minorities, refugees and immigrants, they are turning them into scapegoats for capitalism’s problems.

6. Even in the new, supposedly more left-wing, parties that emerged in the last decade or so, the continued strength of reformist ideas, and the stranglehold of bureaucracy, hamper resistance to the crisis and could bring serious defeats in the coming struggles. In short, there remains an acute crisis of working class leadership. The working class will have to change its organisations and its leadership if it is not to suffer heavy defeats in the period ahead

7. However, the biggest defeat would be not to struggle at all, to imagine that quieter times will come when the crisis passes, that only little, limited, local tasks are on the order of the day. In fact, our future for years ahead will be determined by the outcome of the political and economic struggles that face us today and in the period immediately ahead. The task of revolutionaries in this deepening crisis is to pose sharply the need for an anti-capitalist, revolutionary programme and new, revolutionary, workers’ parties. The crisis and the period ahead are historic ones for the fate of capitalism and nothing but the posing of the big questions and the big solutions will be adequate.

From the Credit Crunch to the Great Crash of 2008

8. This year the Credit Crunch became a full blown financial meltdown. In 2007, there was a crisis of liquidity in the banking system. In 2008, this became a crisis of solvency, a question of the survival of the major western private financial institutions. Some of the titans of American finance, no longer able to balance their books, were forced into bankruptcy, into accepting takeovers from their rivals, or begging humbly for nationalisation. These included AIG, the world’s largest insurance company, Fannie Mae and Freddie Mac, which together accounted for over 50% of the American mortgage market; all three have now been nationalised by the US government. Other casualties, in the US and further afield, included Lehman Brothers (bankrupt), Merrill Lynch (sold), Washington Mutual (bankrupt), HBOS (taken over), Bradford and Bingley (sold/nationalised), Fortis (nationalised) and Wachovia (sold).

9. Stock markets in 2008 have seen sharp falls. London’s FTSE 100 has fallen to its lowest level for four years, well below the symbolic 5,000 mark and over 20% down on its January 2008 level. In New York, the Dow Jones Industrial Average has lost a third of its value since October 2007. The Shanghai stock exchange experienced speculative frenzy up to October 2007 but, by June 2008, had lost 50% of its value. The stock exchanges in Hong Kong, Sydney, Paris, Frankfurt and Bombay have all suffered sharp falls across the year, too. Tokyo lost 25% of its value in a major stock market crash between 5-10 October.

10. This comes despite the announcement of unprecedented government attempts to shore up the credit system. In the United States, under the Paulson Plan, eventually passed through Congress after legislators were positively terrorised by threats that world capitalism itself was in danger of collapse, the US government will buy $800 billion dollars’ worth of bad debts from the private financial institutions. In Britain, a far smaller economy, the Brown government also announced a huge relief package of £400 billion, 1/3 of British GDP and the equivalent of some $800 billion dollars.

11. Dominique Strauss-Kahn, head of the International Monetary Fund, said on 11 October that the world economy was “on the brink of systemic meltdown”. Those banks, like HBOS, which are more dependent on the international markets to raise funding, rather than having a large deposit base, are particularly exposed, hence the big runs on that bank’s share price prior to the Lloyds TSB takeover (the shares have been very volatile since too).

12. Even after the Paulson and Brown bailouts, inter-bank lending remains practically frozen, three-month sterling and euro Libor interest rates are still at fourteen-year highs. Another problem is that the full effects of major bankruptcies, like Lehman Brothers, have not yet fully worked their way through the system. For example, in the Credit Default Swap market, firms selling derivatives that were effectively a form of insurance policy in the event of a “default” or bankruptcy by Lehman Brothers are now liable to pay out some $400 billion dollars. A failure to pay by one institution could bankrupt another, creating another domino-like effect in the system, as bank after bank goes under.

13. The Paulson Plan, radical as it appears, assumes that the American banks have merely $800 billion dollars of bad debts. The true figure could be much higher. If so, the plan is insufficiently “bold” to solve the existing problems. A more serious defect is that the policies proposed treat the crisis as if it were merely a technical problem within the financial sector. In fact, it was the downturn in the American economy itself, together with rising prices for goods from China, that triggered the crisis in the sub-prime mortgage market that then mushroomed into the Credit Crunch.

14. The whole premise of the Paulson Plan, that it will be sufficient to ward off a serious recession if the banks start lending again, assumes that there are profitable lines of credit ready to be opened if only the banks were not insolvent. Even the ever-optimistic IMF now predicts that world economic growth will slow to 3% in 2009, a figure that is recessionary once world population growth is taken into account. In the United States, corporate profits have declined over the last four quarters and unemployment has risen by 2.2 million in the last twelve months to 9.4 million. The question the plan begs is why the banks, as profit making institutions being salvaged from bankruptcy by the state, should start extending loans to consumers who are facing job losses or businesses facing a crisis in profitability.

15. Significantly, the British government also put aside £50 billion to recapitalise all the High Street banks by taking share options in them, in other words, it offered to part nationalise any of the banks that could no longer balance its books. As a starter, they have injected up to £37bn into Royal Bank of Scotland, Lloyds TSB and HBOS. This move, in effect, to nationalise two of the largest British banks, is quite extraordinary; the government will have a controlling share and seats on the boards. The Bush government has said it will adopt its own “recapitalisation” programme, exchanging state investment in the banks for equity options, and European leaders also agreed not to let “any bank” collapse in the period ahead and to use nationalisation to achieve this.

16. The drive to at least part-nationalise the entire financial system, effectively eliminating competition between the banks and providing the security of further government funding for their operations indefinitely, could be sufficient to ease the credit crunch. But it will not stave off a recession in the so-called “real economy”. The crisis of profitability in the rest of the economy will now be the main driver of the crisis, as jobs are lost, wages are slashed and work intensified, so that capital can get through the crisis. A round of large-scale centralisation of capital in productive industry will also begin. The collapse in the car market, for example, has pushed GM and Chrysler into merger talks to avoid having to file for protection under Chapter 11 Bankruptcy. Obviously, American capitalism has not yet lost enough of its historic industrial icons. We are, in short, moving from the crisis phase to the crash phase of the cycle.

17. The global recession is already marked by sharp price volatility where inflationary crises switch quickly to deflationary crises and vice versa. Rapidly increasing inflation, specifically in terms of food and fuel costs, has been making life increasingly difficult for workers and peasants across the world. Since the start of 2006, the average world price for rice has risen by 217%, wheat by 136%, maize by 125% and soybeans by 107%. A series of food riots, notably in Bangladesh, Pakistan, Egypt, in many west African states, Haiti, Mexico and South Africa, have forced governments to introduce subsidies and controls, which attempt to alleviate the worst effects whilst using classical bourgeois methods to try to contain the inflation, in other words, by keeping wages down. On the other hand, the falls in the price of oil and a range of industrial inputs are signs that manufacturing is envisaging a major slow down.

19. Indeed, as global demand falls, deflationary pressures are already hitting the economy. The world oil price has fallen to $80 dollars a barrel in anticipation of contracting demand; hit, in particular, by reports of falling growth rates in China and India. Other indicators also suggest that a decline in economic activity is underway. In the week to 9th October alone, the Baltic Dry Index, which monitors world shipping rates, dropped by 50% and it is down 75% since May. Because 90% of the world’s trade by volume is shipped, this indicates a sharp drop in demand, reflecting both the short term impact of the lack of credit to finance trade and a long term anticipation of declining demand for bulk freight from China.

20. Should this pattern continue, as seems likely, the reduced growth predictions for the major world economies could prove to be far too optimistic. China’s growth rate has come down from 11% to 9% in recent months, blowing the myth of “decoupling” from the major western economies as well as the idea that China can take over as the locomotive of the world economy. Nor should it be forgotten that the fast developing economies like China and India require high growth rates just to keep up with population growth and urbanisation. In the case of China, this is reckoned to account for some 6.5% of growth or 8% to keep up with current expansion of working age population. Already, India has had its growth forecasts cut, from 8.5% to 7%, or lower, by the Asian Development Bank.

21. The Eurozone is predicted to have stagnant economic output this year, and Ireland is the first of its members to be “officially” in recession (two quarters of consecutive contraction in GDP). Japanese and German exports have also been hit. It is the sheer scale and depth of the current crisis in the world economy that make the usual methods of capitalist economic management, raising or lowering interest rates to fight inflation and stimulate growth respectively, increasingly impotent.

22. The Bush and Brown governments had little choice but to resort to massive anti-cyclical measures, that is, cutting interest rates and pumping capital into the system, even though this could lead to inflation, because the alternative (“pro-cyclical” measures, that is, raising interest rates, starving the system of credit) would have meant the apocalyptic collapse of the international finance system. As Ben Bernanke said recently “there are no atheists in foxholes and no ideologues in financial crises”. One former Federal Reserve economist added, “The alternative is complete financial Armageddon and a great depression… Where do they go after this? Well, the U.S. government could nationalise the banking system outright.”

23. The drive to a major world recession is being driven forward by the over-accumulation of capital, which had evidently reached stratospheric levels as a result of the anti-cyclical credit based measures mobilised to put off previous American recessions. The global character of the crash we now face testifies to the central role of America in world economic output over the last period. 24. Globalisation’s contradictions are breaking apart and now only destruction and devaluation of capital on a huge scale, via a world recession, and the reorganisation of the international financial system itself, can restore relative equilibrium to the capital accumulation process. Whether such a future recovery will be strong or long lasting is contingent on the political and class struggles ahead. Nonetheless, we can say now that it will be impossible to recreate the conditions that ensured the longer relative equilibrium of the globalisation phase, that is, the opening of markets to US capital and commodities after the collapse of the Soviet Union and the deflationary effect in the US itself of cheap goods and cheap credit as a result of the restoration of capitalism in China.

25. The pace and scale of the capitalist crisis will have tremendous consequences, not only for the world economic and political order, but for the class struggle, too. Already there has been a wave of resistance to price rises, particularly food prices. Workers’ struggles have risen in 2008. There have been one day general strikes in Greece (February), South Africa (August), and India (September), Belgium (October) and an attempted general strike in Egypt (April) that was subjected to brutal repression. A wave of strikes, demonstrations and, whenever the police intervened, several days of rioting, has rocked many countries in Asia, Africa and Latin America.

Deglobalisation and the weakening of US hegemony

26. The meltdown of the financial system and the unprecedented scale of state intervention have shaken the very foundations of the post-1980s world order that came to be known as globalisation. After the collapse of the Bretton Woods system in 1972, the deliberately magnified recession 1981-2 (after the Volcker Shock of sky high interest rates), and the waves of financial deregulation carried out by Reagan and Thatcher, the collapse of the Soviet Union and the restoration of capitalism in China appeared to have created a new economic order. Globalisation proved to be a relatively long historical phase of nearly two decades marked by:

• Financial deregulation (the Big Bang of 1986) and with it a massively increased role for credit and speculation in maintaining year on year growth, particularly through the diversification of financial instruments into forms such as derivatives.

• Opening up of new markets in the non-imperialist countries, the former workers’ states, to international trade, capital and credit markets.

• The internationalisation of the productive forces, including the relocation of whole industries to cheap labour markets, and the development of an entirely new industrial base in China. Maintenance of cheap credit, particularly in the US, by “re-cycling” trade surpluses from oil states and China.

• The wholesale privatisation of state industries, public utilities and social services in the imperialist and non-imperialist world.

• Dominance of neoliberal ideology and economic policy in the imperialist countries and the imposition of such policies on the semi-colonial world through international financial institutions such as IMF, World Bank.

• Push for “free trade” and the dismantling of tariff barriers in the semi-colonial world to the advantage of the imperialist exporters, overseen by GATT and then the WTO.

• Increased role and power of international financial institutions under the strict control of the US and, to a lesser extent, the EU.

27. Globalisation was the result of the development of the productive forces in the epoch of imperialism that led to intensifying over-accumulation of capital especially in the USA. This resulted in an increasing flight of capital from the productive to the financial and speculative spheres and the opening up and subordination of markets and locations for the super exploitation of labour around the globe for imperialist, particularly US, capital. All this could only happen under the hegemony of US imperialism, after WWII the strongest imperialist power and after the collapse of the USSR the only superpower. However, despite the features of globalisation that allowed for a relatively long period of stability, the reproduction of capital, even in this period, necessarily led to the reproduction and intensification of its own economic, social and political contradictions.

28. During the globalisation period, the United States became more and more dependent on the rest of the world for its domestic wealth, as its industrial production declined vis-a-vis the emerging markets and its European and Japanese imperialist competitors. Financial parasitism, speculation and a property boom offset stagnant domestic investment in new production, but this explosive cocktail built up contradictions that exploded in the 2008 Crash. Globalisation also created conditions favourable to the rise of powers like Russia and China as well as a stronger challenge to US hegemony from the G7 countries.

29. As US economic power waned, it became more aggressive in asserting its interests but this undermined its role as the hegemon of globalisation and Washington now finds it harder to impose its will on the world. It is militarily over-stretched and has suffered reversals in Iraq, as Iranian influence on political life has increased, in Afghanistan, where the Taliban remains undefeated, and in Lebanon, where its ally, Israel, suffered a major military defeat in 2006. The Georgian war also brought closer a period of intensified rivalry with Russia leading inevitably to talk of a new Cold War between east and west. China too, thanks to its “economic miracle” of the last two decades, its industrial strength, increasing technical strength and military capability, is also now in a stronger position to limit US hegemony. 30. The contradictions lodged within globalisation’s development thus created contradictions that pointed to the unravelling of the “globalised” world order. Its eventual negation, as we are seeing now, was not extraordinary or inexplicable but could be largely anticipated. As we said with some prescience in 2004: “But while investment remains stagnant the global economy remains utterly dependent for its dynamism on the ability of the US consumer and government to suck in goods from abroad by piling debts and deficits higher and higher. Like the stock market bubble before it, the housing market bubble and a ballooning current account deficit are unsustainable and a major correction is inevitable. A sustained and deep recession in the US would turn deglobalisation from threat to reality.”

31. Sure enough, the Great Crash of 2008 is turning “deglobalisation” into a reality; a new phase of historical development is underway. The features of this new period are slowly coming into view and they are striking for their inversion of some of the core assumptions underpinning bourgeois politics during globalisation. Firstly, the unprecedented level of state intervention, from the nationalisations to the Paulson Plan bail out, have brought the era of ever greater financial liberalisation to a close. Indeed, as noted above, the nationalisation of a large proportion, if not the whole, of the banking sector, in the imperialist countries, cannot be ruled out if government bail outs fail to fix the banks’ solvency crisis. 32. Secondly, these events constitute an historic weakening of US financial strength. Indeed, how America will finance the Paulson Plan is far from clear. It could simply print more US treasury bonds and sell these internationally but, so long as the dollar is declining in value, it is selling a depreciating asset on the market place. Another possible source is the Sovereign Wealth Funds; holdings, reserves and assets built up by the exporting states of the Middle East and Asia. These have some $3 trillion at their disposal and have provided emergency funds for Citigroup, Merrill Lynch and Morgan Stanley during the Credit Crunch. But, as funds controlled by states, there are obvious political consequences for America’s using them as a source of credit. In short, who funds the American deficit, and what they demand in return, will be a key question in the immediate period ahead. 33. Thirdly, the financial meltdown comes after a revival in the use of trade tariffs and protectionism. The Doha trade round suffered irrevocable collapse due to US demands for greater access to Chinese and Indian markets in foodstuffs and the dismantling of their agricultural subsidies, while insisting on defending its own tariffs and subsidies. As the price of purchasing food on the world market sky-rocketed over the last year, a number of food producers in the semi-colonial world imposed restrictions on exports unilaterally, in open violation of trade rules, as they could not afford to buy at world market prices. Fourthly, the Great Crash of 2008 will also have profound consequences at the political-ideological level. Neoliberalism, the doctrine that, in the words of the character Gordon Gecko in Wall Street, “Greed is good”, is now fatally discredited. As long as the victims of greed were in the Third World or in the US “underclass” they could be ignored. When they are the so-called middle class, the consumers in the home market, the voters in congressional and presidential elections, things are different. Suddenly, the entire US media is denouncing the greed of Wall Street. The superiority of the free market in all spheres of life, the hostility to state regulation, the incontrovertible need to denationalise all and everything, all these central ideological assumptions of globalisation are now shattered. The need for state interference and control of the market will be increasingly accepted. This will give grounds for new bourgeois state and market theories such as neo-Keynesianism and Statism. But it will also give new legitimacy for socialism and planning and therefore open up opportunities for Marxists, too, providing they do not mimic the reformists. 34. Finally, the crisis has also brought the “nation state” back into the limelight. In the 1990s, much of the mainstream globalisation literature spoke of its decline, even its extinction. Theorists like Hardt and Negri mimicked this within the anticapitalist movement. Although this was always a ridiculous ideology, it did reflect a real trend towards multilateralism and international regulation through institutions like the WTO, IMF and the EU. In times of crisis, however, “every bourgeois government turns nationalist”. In the European Union, the powerful states, France, Britain, Germany and Italy held emergency bi-lateral summits, outside the EU structures, to the consternation of officials in Brussels. The Irish government also acted unilaterally by guaranteeing all deposits held in Irish banks in the event of a default by an Irish bank, sparking widespread criticism from other EU leaders unwilling to offer the same guarantees. The reason for these moves is quite simple; for imperialist and semi-colonial bourgeoisies alike it is necessary to protect their home economies and, insofar as they are able, their access to foreign markets and raw material sources, if need be, by excluding or, at least, limiting, access by their rivals. 35. In sum, deglobalisation can be understood as an emerging process, heralding a new phase of capitalist imperialism marked by the return of state intervention, protectionism and intensified competition between regional power blocks, made possible and necessary by the decline of US economic power. The annihilation of the leading US investment banks, the deep crisis of its financial system, the astronomical financial indebtedness of the US to the other powers, the desperate need to find at least $800 billion for the Paulson Plan bail-out, all this demonstrates that the US no longer has the economic underpinning to play the role of hegemon with the degree of absolutism that was possible after 1991. Of course, we are not witnessing the total liquidation of that hegemonic role. The US remains by far the most powerful single imperialist state, stronger, indeed, than all the others put together because of its continental unity and its overwhelming military power. But we are in a period where other powers, notably the European Union, Russia and China, will increasingly be able to check it and carve out their own spheres of economic, political and military influence. Prospects

37. The political geography and landscape of the future world order will be determined by the struggles between the classes, and the states, that lie ahead. In the short term, the response of the G7 powers is to attempt to save the US from meltdown, knowing that its collapse would have a catastrophic effect on the rest of the world economy. At the same time, they will each jostle to push the worst effects of the crisis onto other states. In the aftermath of the Wall Street Crash of 1987, America successfully exported its crisis to Japan by devaluing its currency against the yen and boosting American exports as a result. No such solution appears possible now as the highly inter-connected character of the world trade system developed in the globalisation period binds the fates of all states more closely together, hence, the global character of the coming recession. 38. Whatever the short-term policy decisions of the G7, we will not see a return of absolute US economic hegemony, but an increasing drive to form economic blocks, spheres of influence, inter-imperialist conflict and a sharper and more overt struggle for the re-division of the world. Once the current crisis eventually passes, the other powers will, at the very least, push for a more regulated system of global finance. 39. American military power cannot be challenged openly in the short term. Its drive to dominate the geo-strategic hot spots of the world will continue whoever wins the presidential election but this will be done in a more emollient, consensus-seeking way amongst the imperialist blocks and with China. The entire Middle East-Central Asian region is particularly important not only for its natural resources but also because aspiring world hegemonic states, such as China, India, Russia, France-Germany are all located in surrounding geographical areas and also recognise its strategic importance. From War on Terror to New Cold War

41. In the past ten years, the US has increasingly looked to the use of the “military option” to maintain its hegemony, that is, using its overwhelming military superiority to force regime change in those “rogue states” that in one way or another refused to accept it. As a result, despite its tremendous military strength, the US is increasingly overstretched. Most of its troops are currently committed to the Middle East and central Asian regions, engaged either in full scale occupations in Iraq and Afghanistan or in strengthening military and defence ties with its client states, such as Saudi Arabia and, increasingly, the Caucasus region. The latter was thrown into sharp focus by the US role in the Georgian conflict. Securing American influence in these states is a key component of American strategy; the aim being to install pro-Western regimes that will allow the stationing of American military bases in order to encircle Russia and China. The US missile defence shield and the expansion of NATO eastwards are the other aspects of this policy. No wonder, then, that, given US encroachment and the Georgian conflict, there is talk of a “New Cold War”.42. Clearly, at the moment, Russia is considered by the US to be a qualitatively more dangerous foe than China and this is principally because Moscow has been more aggressive in asserting its own interests on the world stage. It has done so even if it meant conflict with the West, such as its aggressive use of its natural reserves to bully neighbouring pro-Western regimes. In contrast, China chooses diplomatic silence on many western strategic concerns, so as not to disrupt its economic and trading ties with the west, whilst establishing its own foreign policy “red lines”, such as Taiwan, and quietly building up its sphere of influence. Nonetheless, the “axis of democracy” that is being assembled by the US across the Pacific, from India through to Japan and Australia, is clearly designed to encircle and isolate China on the geopolitical terrain. The US has strengthened military ties with these states, and recently brokered a deal to allow India to gain access to nuclear materials without signing the nuclear non-proliferation treaty. China is similarly using its new economic strength to build upon its historic relationship with states such as Nepal, Burma (post-86) and Pakistan, while Pakistan-China relations have been historically close since the 1950s, it is nonetheless significant that they have survived the war on terror. 43. Over the last ten years, Latin America has seen a massive anti-neoliberal radicalisation that found political expression in the emergence of left populist regimes. Distracted by the Middle East, the United States suffered a loss of its hegemony in the region it still considers its “own backyard”. In recent months, however, it seems that Bush, the CIA and the US embassies, have returned to their time-honoured strategy of sponsoring coups and civil unrest in the most radical states, Venezuela and Bolivia; attempting to aid domestic reactionary forces to bring down their left leaning populist governments. The US supported the stolen 2006 election in Mexico that created a revolutionary situation across the country, as the masses took to the streets to demand populist Luis Obrador be allowed to take office. This year, in Venezuela, Hugo Chavez exposed a coup attempt amongst a section of the Army General staff supported by the CIA. In Bolivia, the US has sponsored the far right secessionists’ attempts to break up the country by force of arms. The expulsion of the US ambassadors from those two countries, and Chavez’ removal of several Drug Enforcement Agency agents, points to the perfidious role that all these agencies play in Latin America. Significantly, the attempt to destabilise, and even dismember, Bolivia, has drawn a sharp response from states with more conservative populist or reformist regimes; Chile, Argentina and Brazil 44. Russia and, although more cautiously, China, are working to establish themselves as hegemonic powers at least within their own regions and to exclude the US from their spheres of influence. The weakening of US hegemony was dramatically demonstrated by the outcome of the Georgia crisis. Although the Americans were able to mobilise Nato and EU condemnation of Russia, the Russians won the military battle outright and crushed the Georgian army, a major ally for the US in the Caucasus. The incident destabilised the Ukraine and makes Nato’s advance into the former USSR much less likely, in the short term at least. The fact that Russia stood up to the US is a very important new development that indicates a growing tendency towards inter-imperialist rivalries between the two countries. Since then, Russia has openly defied the US by its naval manoeuvres with Venezuela, signalling that it can confront the Americans in their “near abroad”. That the United States has failed, thus far, in its attempts to remove Morales and Chavez, and has had to watch Russia organise joint military exercises with Venezuela, provides further evidence of US weakening and the beginnings of a new phase of division of the world amongst the great powers.45. Nevertheless, the US has succeeded in its plans to set up the forward bases for its Missile Defence Shield in Poland and the Czech Republic and launched a campaign to use any and every international organisation possible to condemn Russia’s actions. Importantly, Washington was able to use the Georgian crisis to divide the EU powers. After intense pressure from the US, Sarkozy and his ministers became some of the most vociferous critics of Russia’s actions and sided with the British against the Germans, who wanted to adopt a more balanced approach of apportioning blame on both sides. This further exposed the divisions within the EU and how far it still has to go to become a unified imperialist supra-state. The US is also developing alliances with the new EU member states, such as Poland and the Czech Republic, that tend to be more cautious on ever greater political union. 46. Iraq has recently undergone a phase of relative stabilisation. Its main features are a reduction in the number of coalition deaths, the restoration of police and Iraqi government controlled military units to authority and the defeat of key organisations in the resistance movement, primarily the Mahdi army. But this is a very fragile stability. It is based on allowing the Shi’ite confessional parties hegemony in the government and the armed forces whilst, at the same time, entering into alliances with former Sunni rebels, the Iraqi Awakening movement, and taking them into the security forces in an auxiliary role. But central Iraq, and the capital in particular, are now divided on ethnic lines; appearing on maps as a patchwork quilt of “ethnically cleansed” zones. The federal government is very close to Tehran politically so that any US or Israeli attack on Iran would blow Iraq up too. The devolution of US power to the hitherto puppet government has had the effect of encouraging it to demand ever more insistently a date for US withdrawal and it has, indeed, been given a pledge that combat troops will be removed from Iraqi cities by June 2009 and from the rest of the country by the end of 2011 “if security conditions in Iraq remain relatively stable”.47. America’s ability to maintain the occupation successfully, and to claim victory in the 2007 08 “surge”, is in large measure due to the terrible crisis of leadership of the resistance forces in 2005-06. The lack of a working class based, secular, non-sectarian mass resistance force doomed the resistance to fragment along ethnic grounds, and consequently to suffer a series of defeats. The Sunni chauvinist civilian bombing campaign attributed to al Qaeda drove many resistance forces back towards the occupiers. Muqtada al-Sadr proved a broken reed rather than a historic resistance leader. Twice, government/US offensives on his strongholds in Sadr City and Basra forced him to climb down and promise to dissolve his militias, the last such instance was in August. Nevertheless, the whole US occupation, with its massive civilian loss of life (up to I million) and the deaths of 4,500 US and coalition soldiers, over 1,000 private contractors, 6,925 Iraqi government police and 3,898 Iraqi soldiers can hardly be proclaimed a victory; not least because what will come after the US withdrawal is unforeseeable. A reliable, pro-US regime is surely the least likely outcome. 48. The mainstream political forces in the USA, with Obama and the Democrats in the lead, are now focused on winning the “good war” in Afghanistan. There is growing consensus amongst the US military and politicians that, in order to defeat the Taliban resistance forces, they will have to fight them in Pakistan as well. Bush’s approval of sending Special Forces into Pakistan, and the constant incursions by spy planes and helicopters, has obviously led to diplomatic conflicts with his ally and could potentially develop into more serious clashes, particularly given the sympathy of sections of the Pakistan army for Islamic radicalism. Both Obama and McCain are committed to increasing operations in Afghanistan, so the conflict is likely to intensify in the year ahead and could therefore further destabilise Pakistan too. The United States

49. The US is already suffering from the onset of the recession, with tent cities in some states and a new phenomenon of “car sleepers”, that is, people with jobs but no way to get a house. Unemployment is growing and already many are reliant on soup kitchens and food handouts. Class struggle politics has been put on hold for the elections by the loyal Democrat-inclined union leaders (except for the important 27,000 workers at Boeing) but after the election, whether McCain or Obama wins, we can expect to see an increase in strikes and working class protests. 50. Although the election of a black president would, undoubtedly, be of historic significance and could be expected to unleash a wave of enthusiasm and expectation, Obama and the Democrats will not offer any real alternative to the US working class, or the Black and Latino population of the inner cities, or for youth campaigning against war and for the restoration of human rights. They are simply a second capitalist party that is no less controlled and run by corporate interests than the Republicans. Indeed, their purpose is always to renew illusions in a capitalist America whenever experience of a Republican administration has begun to alienate significant sectors of the population from the system. The long-standing identification of the majority of US workers with the Democrats, via their trade unions, and via organisations of the black community like the NAACP, is a shackle that must be broken if workers are not to witness another neoliberal, imperialist Democratic presidency like that of Bill Clinton in the 1990’s, this time taking place against the backdrop of a deepening economic recession. 51. The key for the labour movement, and all the movements of the racially oppressed, the super exploited and the jobless poor, is to sever their ties to the Democrats. It was a confession of bankruptcy when the US Labor Party, formed by the longshoremen’s union and three others, refused to challenge the Democrats at the polls and continued to fund Democrat candidates. US workers need to break from the Democrats and form a workers’ party that can fight against any cuts to jobs or pay in the coming recession, against the occupations of Iraq and Afghanistan, against racism and discrimination against Black people and Latinos. Such a party is an urgent necessity as both Republicans and Democrats will make the workers pay for the recession through lay-offs, wage cuts, slashing welfare, poorer health services and more wars in which working class men and women will be killed. The campaign for such a party must go among the working classes, the unions, the unorganised, migrant workers, black and Latino communities to offer a break from the bosses’ parties and real “change”. 52. Without expressing the slightest confidence in Obama, such a party would, nonetheless, have to recognise that millions have placed their trust in him and call on them to mobilise around the demand that he protect the working class and racially oppressed from the effects of the recession and halt the wars and blockades of US imperialism around the world. Of course, socialists must entertain no illusions that Obama will realise such demands, although a massive social and trade movement, ready to take direct action for them, might force some concessions. Any such “gifts” should, as the phrase goes, be received on the points of our spears, that is, accepted as a first instalment without demobilising our forces. 54. More importantly, such a campaign by organised labour and the oppressed could not only recreate a mass trade union movement, but also politicise this movement, proving the necessity of class independence from all capitalist parties and politicians. It could lead swiftly to the creation of a mass Labor Party. Through such mass agitation, it will become clear that to achieve power such a party cannot be a passive electoral vehicle but must be a combat party whose members are leaders in every arena of class struggle. 55. From the outset, the process of creating a workers’ party in the United States must be a thoroughly open and democratic one, it must be taken to the masses of workers, unionised and non-unionised, employed and unemployed and, above all, to the black and Latino workers, and to the poorest white workers. Organised US labour, at least until the most recent moves to recruit immigrant workers, has restricted itself far too exclusively to the labour aristocracy, the skilled workers and semi-professionals, the people whom Obama and the Clintons refer to as “the middle class”. Thus, and thus only, can the unity of the working class be made unbreakable and the scourge of racism be banished. 56. But such a party must not end up aping the reformist Labour, Social Democrat or Socialist parties of Europe that are today implementing cuts and neo-liberal policies. Any US reformist party would soon be cajoled and coerced by Wall Street and big business into attacking the working class and migrants, just as the British Labour Party is doing. What US workers need is a revolutionary party founded upon a transitional programme. The present crisis, with its demonstration of the inability of capitalism to meet the basis needs of the masses in the US as elsewhere and the weakening of US hegemony, opens up the possibility of just such a development. European Union

57. The European Union is the power with the greatest potential to challenge the hegemonic role of the United States. However, to realise that potential it would have to become a pan-European imperialist supra-state and there are important obstacles, including the re-ordering of power-relations inside the EU itself, to any such development. Over the last period, the evolution of the EU into a unified imperialism, under German and French leadership, has been severely hampered. This is despite the fact that the EU is now the largest economic area of the world, European industry has advanced at the expense of the US, Germany is the world’s largest exporter of manufactured goods and the Euro a serious challenger to the US-dollar as world money.58.The most important setbacks to the transformation of the EU have been in the political sphere; the rejection of the EU-constitution and, after that, of the EU Treaty, the ability of the US to split the EU over Georgia and, more strategically, to obstruct he development of a “partnership” between Russia, Germany and France. At the heart of this lies the fact that the EU has not overcome the diverging interests of large or medium sized imperialist states within it; the cohesion of the EU into a supra-state will require the subordination of national ruling classes (including the ruling classes of imperialist states) to Germany and France. It is clear that the attempt to achieve this via the relatively slow process of concessions and negotiations that produced the draft constitution/treaty has failed but has not yet been replaced by an alternative strategy. 60. Therefore, while the zigzags of EU-politics will continue in the short term, at some point these will have to give way to bolder manoeuvres such as a serious attempt to form a “core Europe” around which the broader EU would function as a “near abroad”, forcing Britain to choose between the US and the EU and, perhaps, to reconsider the question of the Euro. Thus, what we see in Europe is not only a crisis of neo-liberalism but also a crisis of political direction of the European bourgeoisies, the lack of a common strategic vision of Europe.61. The ruling classes in Germany and France (but also other states) have to address the problem that the EU needs a basis beyond the capitalists and some sectors of the middle class. They need to find a way to win over larger sections of the working class, of the labour aristocracy in particular, and the petit-bourgeoisie to an imperialist project. A return to a form of Keynesianism, the need for a “strong state”, stronger regulation, an emphasis on regionalism, combined with a strong dose of anti-Americanism and racism, might serve as a social-chauvinist basis for a new Europe. It is obvious that Social Democracy, the ETUC and the ELP are much better suited to play the role of the ideologues and promoters of such a “social Europe” than a collection of “selfish” national bourgeoisies.62. However, there are many “ifs” in this. Firstly, the developing recession will affect the whole of the continent, including both countries in almost permanent crisis such as Italy and the “success stories” of Eastern Europe, which are likely to be particularly affected. Secondly, it will be met with mass resistance in many countries. France and the French working class can play a key role in frustrating plans to force the costs of the crisis onto the working class and become a trigger for a united working class response on the continent over the next period, including the potential evolution into pre-revolutionary or revolutionary situations. Thirdly, the past decades have led to a deep-going recomposition of the working class and the labour movement in general, including a crisis in the mainstream reformist parties of social democracy, the creation of new “traditional” and left reformist parties but also the emergence of class struggle opposition, anti-capitalist wings and, with the NAP in France, the prospect of a larger centrist party. 63. The oncoming crisis will not only mean that the reformist mass parties of different sorts may become an important force for “rescuing” the ruling class, but also parties that the working class (or sections of it) may try to use to defend itself against the effects of the crisis. The results of this will include instability, splits, ruptures, the formation of new parties or revolutionary fractions, in short, a fertile ground for rallying all those willing to fight the capitalists’ and the state’s attacks and to build a party independent of all wings of the ruling class.The left in Europe

66. Across Europe, the traditional left parties are in an advanced state of crisis. The total collapse of Rifondazione Comunista in the Italian elections on 13-14 April is the most catastrophic example of this. RC and the Italian Communists no longer have a single seat in parliament. Berlusconi and his noxious racist allies the Lega Nord and the Alleanza Nazionale now have a 101 seat majority in the Chamber of Deputies and a 38 seat majority in the Senate. Since the elections, there have been pogroms against Roma and African migrants in Rome and other cities. However, judging from recent anti-Berlusconi mobilisations, a militant left resistance, coming from the two or three splinters from Rifondazione and the Cobas union federation, may be crystallising. 67. A still likely defeat for the British Labour Party at the next general election will also demonstrate the malaise that has come upon social democracy. In France, Sarkozy neutered the Socialist Party, co-opting some prominent socialists into his cabinet. Over the last eight years, social democratic and reformed ex-communist parties across Europe have suffered defeats in elections. Now, most observers say that there is a general demoralisation and sense of confusion amongst the centre left. Because politics abhors a vacuum, they are often losing votes to the right wing conservatives, or even the racist, populist far right. For instance, in Austria, many workers who previously voted for the SP÷ cast their vote for the far right, anti-immigration populist parties. Only the Iberian peninsular remains solidly social democratic with no sign of it changing any time soon. 68 Although the majority of social-democratic parties in Europe find themselves in crisis, they still have an organic connection, more or less strong, to the working class movement, especially to the working class aristocracy and the trade union bureaucracy. Given this, and their tradition of Keynesian economic policies, they could become an important instrument with which the bourgeoisie could try to implement anti-cyclical economic policies that are financed largely by the workers themselves. 69.While this could produce a partial stabilisation of their organised support, it would also be likely to lead to further frictions within the parties between left reformist and “Blairite” wings and even provoke further splits. At the same time, the integration of parts of the working class movement could also lead to divisions within the class itself, forcing the costs of the crisis onto the less-organised and less secure. In particular, the poison of social chauvinism, presented as a solution during the crisis, could be used to justify attacks on part-time and agency workers and, above all, immigrant workers. 70. The support that Social-Democratic parties give the bourgeoisie is not restricted to the implementation of the bourgeois agenda and acting as bourgeois agents inside the working class; it also extends to acting as a force that can integrate and control different protest movements. This could result in an increasingly important integration of the upper leadership of the trade unions on a national as well as on a European level (European Social Partnership). It is quite likely that the trade unions will see some growth as the working class looks for instruments to defend itself against the attacks and this could also mean stronger control by the trade union and social democratic bureaucracy.70. At the same time, the integration of militant and fighting layers of the working class into the trades unions also means that they provide the basis for being able to challenge the bureaucratic leadership of these forces. An understanding of the Comintern slogan “To the masses” is therefore essential for the coming period. While this slogan demands that revolutionary forces work inside the mass organisations it never meant adaptation to the reformist programmatic understanding of the bureaucracy. It remains essential to place united front demands on the leaderships of trades unions and bourgeois workers’ parties in order to challenge their bureaucratic and ideological domination.71. Nevertheless, developments in recent years have also created situations in which the vanguard of the working class broke away from social democracy in some countries, notably Germany and France, and tried to build their own parties. This ongoing process could be accelerated as a result of the economic crisis, especially amongst the under-privileged layers of the working class. Revolutionaries have to try to give leadership to these parts of the vanguard by using concrete slogans such as the new workers’ party tactic. 72 In Germany, the right wing has advanced further in the SPD with the ousting of Beck. At the same time, the LINKE have entered into a formal agreement to give parliamentary support to an SPD/Green government in the provincial government of Hessen. The LINKE attract a significant number of votes in the East, but also in the West and have made inroads into a section of the TU bureaucracy and the labour aristocracy in the West. In the coming period, after some stalemate, the inner divisions in the SPD will sharpen strongly73. Likewise, the election results and recent opinion poll figures for the German LINKE show it could become both a vehicle for expressing discontent and a governmental junior partner sooner than expected, as a result of the crisis and the social instability it will create. At the same time, its political evolution also shows that such new parties can quite quickly turn into bourgeois workers’ parties, only on a smaller scale. Whilst the party may lack activists, it could, in a severe crisis, become the vehicle through which a section of the German working class mobilises and seeks new leadership for its struggles. It is already, however, severely limited in what it will offer such workers. It has adopted right-wing policies wherever it can participate in coalition with the SPD and has an evasive, or worse, attitude to immigration. Its leader, Oskar Lafontaine, recently praised the Bush-Paulson bailout of the banks and criticised the churlishness of the German government for not praising it enough. Neither could the LINKE bring itself to give any support to striking train drivers earlier this year. 74. In France, the Nouveau Parti Anticapitaliste/New Anti Capitalist Party (NPA) is being born out of the fusion of the LCR with a vanguard thrown up by the struggles of the last few years, young people, older people, workers and other forces. The movement involved in building the NPA has organised meetings with over 1,000 activists at its day schools and at events to build the new party. The LCR shoulders the burden of the NPA alone for the moment because the French Communist Party has rejected it, whilst Lutte Ouvriere (LO) ignores it, preferring an election bloc with the SP. However, the recent expulsion of the LO minority has seen them orientate to the new formation, as a rejection of the LO’s recent adaptation towards the Socialist Party. Whilst the new party will no doubt provide a powerful pole of attraction in the fight against Sarkozy, there are question marks over how it will be able to accomplish its stated aim, which is to defeat Sarkozy’s reform package. 75. The LCR will be dissolved on January 29th and the NPA formed officially on the following day. The language of Olivier Besancenot on the new party’s character remains vague; he says it will be “a revolutionary party in the contemporary meaning of the word”. For the time being, this lack of a clear perspective is replaced by the personality of Besancenot, who enjoys a high media profile and popularity. He certainly comes across in the media as a tribune of working class people, clearly articulating their opposition to Sarkozy’s reforms. Polls rate him more favourably than SÈgol’ne Royal, the SP’s presidential candidate. But such personality politics cannot last forever; a new party must have a political programme. Since Besancenot emphasises that the party will not be Trotskyist or Leninist but that it will be ecologist, feminist, Guevarist (whatever that means in France today), it seems that it is on this question that revolutionaries need to have out the tough arguments. Whether the LCR will be sufficiently pluralist and open to allow such a debate, especially to allow voices from their left to be heard, remains to be seen. 76. In Britain, the SWP’s RESPECT project ended in ignominious failure, torn apart by a power struggle between John Rees and George Galloway. In the London Mayoral elections, SWP leader Lindsey German received a derisory vote, a result not of an objective shift to the right so much as the collapse of the left party initiative associated with the anti war movement and anti racist struggles. Now, internal division within the SWP manifests itself as manoeuvres against German and Rees, and the humiliating (for them) admission by the SWP in internal documents that they may have to get involved in the Socialist Party’s Campaign for a New Workers’ Party. Respect Renewal staggers on with its maverick leader, whose latest quirk was to declare his warm support for Gordon Brown’s bailout of the banks. Galloway has occasionally warned his “Trotskyist” allies that he is “not so left wing as many think”. The League for the Fifth International can justly assert that such a thought never entered our minds. 77. The Campaign for a New Workers’ Party (CNWP) initiated by the Socialist Party of England and Wales, also seemed to have sunk into a torpid state until the summer. It then appeared that, via its influence on the executives of several unions, it was in discussion with key trades unions, possibly leading to a conference later this winter. A Convention of the Left, held in Manchester in late September, attended by several hundred militants, intends to promote local conventions and a recall conference at the end of November. Union executive members, deputy general secretaries and one general secretary, Matt Wrack of the Fire-fighters (FBU), attended the Convention. When questioned about a new party initiative, Wrack evaded making a call for a new workers’ party, citing the other wrecked left unity initiatives and electoral fronts over the last 10 years as a warning. It seems, too, that Bob Crow of the Rail, Maritime and Transport union, is once again backing off from firm commitments despite identifying himself with the call for a new workers’ party at rallies earlier in the summer. 78. The political/social movements that have defined the last period of politics, the anti-capitalist and anti-war movements, are in a deep state of stagnation. The anti-war movement’s size has dwindled. This is a result of the failure to stop the war, the normalisation of the occupation in Iraq and the lack of affinity with the Afghan resistance, with Afghanistan generally seen as the “good war”. Nonetheless, many on the left in Europe, including in Germany and also, to a limited degree, in Britain, have made a turn towards the Afghanistan question because of the NATO deployment there 79. The ESF in Malmˆ was poorly attended and important sections of the European left were missing, with little or almost no representation from the LCR, SWP, RC or the LINKE. The decline of the anti-capitalist movement is therefore not just a matter of the reduced numbers of people on demonstrations, but also the result of a conscious attempt by sections of the European Left Party (the former CPs and their left Socialist allies) to strangle the ESF as any kind of serious fighting organisation. That the left in Germany refused to hold it, shows how little support it really has from the labour bureaucracy, even from the LINKE. A series of balance sheets and perspectives from various figures in the movement (Bernard Cassen, Samir Amin, prominent present or former Fourth Internationalists etc) all bemoan the decline of both the WSF and ESF but none dares to propose a definite initiative to turn it into an organ of resistance to the present crisis.80. However, each gathering of the ESF is also in part a reflection of the national terrain on which it takes place. Florence (November 2002) was very vibrant and led to the enormous mobilisation of February-March 2003. The next ESF in Istanbul could still have the potential to be more left wing, with more people at it and a clearer anti imperialist focus. It could attract far bigger forces from Russia and Eastern Europe as well as West Asia. The potential for a significant upsurge in the class struggle between now and 2010 could also put some more life into the ESF and the anti-capitalist movement in general as new forces emerge to take action. The anti-EU counter summit in Brussels in April, as well as the anti-Nato demonstration in Strasbourg in March, could be a focus for a left willing to fight. There should be no declaration of the death of the social movements until an active intervention into these events has tested their ability to revive themselves. Russia’s return to the world stage

64. Russia has emerged from the chaotic liberalisation and sharp contraction in its productive forces in the 1990s as a growing economic and political force increasingly prepared to re-assert itself. One part of this is aggression towards its smaller, pro-western neighbours but it has also included increasing diplomatic and economic ties with countries like Saudi Arabia, Syria, Iran, India and Venezuela. “Philanthropic” acts, such as writing off nearly 75% of Syria’s debt to Russia, combined with business proposals such as the creation of a consortium between PDVSA and Gazprom, reveal that Russia’s plans are to try to create a coalition of states across the world united in their hostility to US dominance. The more powerful of these states, such as Saudi Arabia and India, are able to act relatively independently insofar as they act as regional powers with ties to both America and Russia. Russia is using Gazprom to make deals with as many gas and oil producing nations as it can, including in central Asia and North Africa. Strategically, it wants, as does the US, to control these crucial energy reserves. 65. Russia’s military power is also increasing. In September 2008, Russian lawmakers gave preliminary approval to increase military spending in 2009 by 25%. This is part of a three-year deal to increase military spending year on year, funded primarily by energy revenues. The Russian budget has grown by 400% since 2001. As one Russian minister, Sergei Ivanov, revealed in 2007, Russia has plans for “a new generation of intercontinental ballistic missiles, nuclear submarines and possibly a fleet of aircraft carriers”. Re-armament is also going hand in hand with more authoritarian government. The continued presence of Putin in the upper echelons of the government and the partisan interference in the election process by the media testify to Russia’s new authoritarianism. The brutality with which the social and workers’ movements are repressed by fascists and the state shows the urgent need for progressive forces across Europe to organise to provide effective solidarity with the Russian working class and left. The semi-colonial world

81. As the crisis sets in and takes root in the very core of the imperialist world system, the third world will be the first to be sacrificed. Already a massive “food deficit” and energy crisis is gripping many countries that are unable to provide enough food and where constant power cuts threaten the standard of living and even the nation’s ability to sustain the economic life of the country. As a demonstration of how fragile the progress made under globalisation really was, 100 million people face being thrown back into absolute poverty, according to the UN.82. Although the semi-colonial world will in general be hit very hard by the economic crisis, some aspects of it, for example the price of food, will be felt immediately whilst other features will appear later. Previous investments in industry will be massively reduced, causing closures and unemployment. Trade will decline because the products

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