The following article was first published in Proletarian Revolution No. 58 (Winter 1999).

The Specter of Economic Collapse

A hundred and fifty years ago, as Europe faced a wave of revolutions, Karl Marx and Frederick Engels wrote in the Communist Manifesto that "a specter is haunting Europe, the specter of communism." The beginning of capitalism's industrial expansion had created a working class whose role in socialized production drove it to oppose private ownership and strive for a classless society.

Today, another specter haunts the world, the specter of financial collapse and economic depression. The reason the specter is not communism is that the leadership of the working class in every country accepts the capitalist system and is thus unable and unwilling to defend workers against the capitalists' attacks.

Waves of financial crisis have crashed upon one country after another: from Southeast Asia in the summer of 1997, through Japan and South Korea in the fall, to Russia this year, and now threatening the shores of Latin America, India and even Europe and North America. The bourgeoisie fears that its celebrated "New Economy" of computerization and globalization is going under -- less than a decade after the sinking of the East-bloc "communism" that appeared to be Western capitalism's only mortal enemy. The foundations of capitalist prosperity have been undermined by the system's own internal contradictions: periodic crises of overproduction and the long-term tendency of the rate of profit to fall.

Depression conditions already prevail in Russia, sections of East Europe, much of Africa and Latin America, and many Asian countries. Aside from the U.S. and Western Europe, the world is undergoing conditions worse than anything since the 1930's. And even in the U.S., where pundits and politicians like to claim that the "free market" immunizes the economy from the world's economic ills, profits are now declining again -- the first time this has happened since the recession of the early 1990's.

The renewed mass protests in Indonesia, where millions face starvation as a result of that country's economic plunge, are only the initial actions that millions of people worldwide will be forced to take. The regime's brutal repression also points to the state repression that workers in every country increasingly face, as capitalist ruling classes defend their state power against the very real threat of revolution.

Nothing the bourgeoisie can do can keep its economy above water for long. One of the leading capitalist journals, the London Financial Times, concluded its year-end analysis of 1998 this way: "The world needed a good deal of luck to struggle through 1998. It will need just as much in 1999." (December 23) And the Economist journal summed up the year by saying that "the world teetered on the edge of the worst financial crisis since the 1930's." (January 2)

The bourgeoisie has no strategy for economic progress or stability. Only the international working class, whose fundamental interests are tied to no nation, no capital and no claim to profit, can save the world from the linked threats of depression, fascism and war which define capitalism in its epoch of decay. The politically advanced workers, the cadre of the future international proletarian revolutionary party, have to prepare themselves theoretically and programmatically for the critical period to come.

To further this task, the LRP is publishing as a pamphlet a collection of articles which have appeared in this magazine over the last 15 years, resurrecting and developing the scientific analysis of capitalist economy developed by Karl Marx. The theory spelled out in these articles has proved invaluable in understanding the drive toward crises in general and foreseeing the nature of the current crisis. The pamphlet also presents an opportunity to test our theory and conclusions against the experience of the present conjuncture.

The LRP has been studying the world economy since our organization was formed in the 1970's, when the falling rate of profit tendency reasserted itself at the end of the long boom that followed World War II. All capitalists face the tendency to decline inherent in their system. But the giant banks and monopolies of the imperialist countries are better able to absorb the impact of the crisis and shift its burdens onto weaker capitalists and the masses of working people.

Background to Today's Crisis

So the deepening crisis claimed the least developed national economies as its first victims. The "third world" debt emergency of the late 1970's and '80's saw nations only recently freed from direct domination by colonial powers unable to achieve the economic development necessary to repay their loans from the imperialist banks. The imperialists in turn saw the opportunity to tighten their grip on these neo-colonies. Led by the International Monetary Fund and the World Bank, imperialist financiers extended loans at extortionate rates of interest, demanding in return intensified attacks by the neo-colonial bourgeoisies on their workers and peasants, and increased access to their markets.

Capitalism has historically made use of depressions to rescue profits -- by pushing down workers' wages and forcing weaker capitalists to sell their property at bargain prices. But in this century the world's banks and monopoly industries have grown so large that the fall of a few threatens to drag down the rest. And the working class is an even greater problem for the bourgeoisie: in the imperialist countries, it has undergone retreats and is rife with self-cynicism, but it has suffered no major defeat for decades, of the order of Indonesia in 1965 or Chile in 1973. In the U.S., for example, the "Vietnam syndrome" stands for the ruling class's fear of subjecting American working-class soldiers to a bloody war, knowing as they do the explosiveness of a class that is not aware of its own strength. Likewise, workers cannot be trusted to sit through a depression without resisting massively. So the ruling classes has sought to delay the onset of crisis.

The bleeding of the neo-colonies since the debt crisis has provided one method. But that was not enough. In the U.S., the capitalists' desire to avoid depression led to government interventions to forestall economic collapses: the rescue of Chrysler in 1979 under Jimmy Carter, the effective nationalization of the Continental Illinois Bank by Ronald Reagan, and the Savings & Loan bailout by George Bush. Reagan also pioneered the deregulation of finance to allow much riskier profits. As well, he greatly expanded military spending, in order to force-feed economic growth as well as drive the U.S.'s Russian rival to the wall.

With the system's profits declining, capitalists turned to speculative financial deals that boosted their income on paper without significantly expanding production or productivity. (Productivity is averaging less than 1 percent annual growth, despite the fact that the U.S. economy has allegedly been booming for over seven years.) The long-term result of speculation and unprecedented state and corporate borrowing was the balloon of fictitious capital whose collapse looms ahead today. From the 1970's on, the imperialists also moved to take advantage of cheaper labor abroad, locating a great deal of their own industrial production in the neo-colonies, and lending enormous funds to build up the economies of several countries, including South Korea, Thailand, Brazil and Mexico.

Most importantly, the imperialist ruling classes launched an escalating offensive against the gains won by workers in their post-war struggles. Massive privatizations dismantled nationalized industries, sweeping budget cuts dismantled welfare and other benefits. In the U.S., the first steps were taken under the Democratic president Carter. But it was Republican President Reagan, and British Prime Minister Thatcher whose names became synonymous with this sharp turn to austerity.

Reagan and Thatcher's free-market rhetoric, domestic austerity and aggressive pursuit of exploitation abroad became known as neo-liberalism; it set a pattern that was soon followed by both openly capitalist and social-democratic parties across the world. In the U.S., these policies have been loyally continued by the Clinton White House, with budget cuts, the dismantling of welfare and attacks on health care hitting the oppressed hardest. As a result, industrial wages have been declining for a quarter-century. (The slight upturn in real wages in the past year or two is temporary, reflecting the uneven effects of the world financial crisis and consumer spending boosted by overblown stock market values.)

The Fall of Stalinism

Elsewhere, the most dramatic consequences of the growing economic crisis were the end of the Japanese boom in the late 1980's and the collapse of Stalinist rule in the USSR and Eastern Europe. Indeed our analysis of Stalinism proved essential to developing our understanding of Marxist economic theory. In magazine articles and in our book The Life and Death of Stalinism, we argued that Stalinism represented a statified form of capitalism. We saw that the contradictions of cyclical crises of overproduction and the tendency of the rate of profit to fall that Marx identified as core contradictions of capitalist economy were exaggerated under Stalinism. Its highly concentrated state ownership of capital severely limited the Stalinist rulers' ability to use market competition to set worker against worker and drive down wages and working conditions; it also prevented the Stalinists from purging the economy of its weakest elements by forcing the least profitable enterprises to collapse. Instead, the rulers propped-up inefficient industry. While this avoided short-term cyclical crises, it expanded the bubble of fictitious capital (the overvaluation of enterprises) and debt, contributing to long-term economic stagnation.

This analysis enabled us to identify Russia's Stalinist economy as the weakest link in the chain of the world imperialism. While both pro-capitalist and pro-socialist theorists were almost unanimous in calling Stalinism as economically robust throughout the 1960's, '70's and '80's, we -- almost alone on what passed for the Marxist left -- predicted its downfall, its rulers' turn to Western market methods and their inevitable failure.

We saw that these contradictions of Stalinist statified capitalism were an extreme manifestation of the contradictions of capitalism in its imperialist epoch of decay, and that the domination of the Western imperialist economies by monopolies and the state had similar effects as the rule of the Stalinist bureaucratic capitalists. Thus we explained how the economic laws that Marx developed in Capital worked under the conditions of the imperialist epoch which he did not live to see. And amid Western capitalist triumphalism over the collapse of Stalinism, we predicted that the same crisis which brought down Stalinism would soon infect the Western capitalist economies.

With the fall of Stalinism, the now-unchallenged Western imperialists turned to more intensive austerity: opening up China to wider superexploitation along with regions of the "third world" that could no longer bargain between Russia and the West for international aid. "Free trade" agreements like GATT and NAFTA have further opened up the neo-colonies to plunder, and to increased international competition among workers over jobs and working conditions. Accompanying this was a stepped up attack on the welfare state at home. The result was some boost in profits but no significant increase in productivity, plus of course falling living standards for masses worldwide. In 1997 the acute crisis of industrial overproduction exploded in Southeast Asia and began rolling across the globe.

Fears of Depression

Since the financial crisis first hit in mid-1997, bourgeois analysts have been waxing cold and hot over the state of their economy. At first there were trepidations; then came assurances that the U.S. is in great economic shape when the first tremors on Wall Street led neither to an immediate crash nor to stagnation like Japan's. Then, when Russia's economy gave out last summer, worries of "global economic meltdown" made headlines again. But by mid-Fall, triumphalist noises were again heard from Wall Street and Washington, only to be followed by new rounds of ideological booms and busts.

Alan Greenspan, head of the U.S. Federal Reserve Bank, is a one-man barometer of ruling-class vacillations. In December 1996 he complained about the stock market's "irrational exuberance." Then in June he told Congress that "it is possible that we have ... moved beyond history," that is, conquered the business cycles that have plagued capitalism for two centuries and entered into an epoch of endless growth. But this Fall he had to lower interest rates twice to keep growth from slowing, and then to engineer Wall Street's bailout of the multibillion dollar Long Term Capital fund, managed by a team of economists who had just won the Nobel Prize for their now-collapsed theories! When markets calmed down after the bailout, the New York Times (November 18) quoted a "senior official of an international organization":

In those weeks it could have gone either way. And the fact is, we got lucky -- at least for a while.

Working-class people have no cause to jump on to any roller-coaster of expectations. We have to prepare for the worst. No sustained capitalist recovery of the order of the post-World War II boom is possible, and a great depression even deeper than that of the 1930's is inevitable if capitalism continues to rule the world. The financial crisis of the past year and a half marks a new stage in the post-boom economic decline and has brought the world economy to the edge of depression.

It is even possible that a stock market crash like that of 1929 could occur at any time. But not every means the bourgeoisie has of postponing depression has necessarily been exhausted. Capitalist confidence in the viability of superinflated stock-market portfolios has been shaken. But the capitalists' states and central banks might further delay a cataclysmic crash by issuing new loans to postpone bankruptcies and debt defaults, boosting state spending once again and controlling capital movements. The ruling class is aware of the need for drastic action, and may be able to plug the financial dikes until leaks start springing up in too many places at once.

Most importantly, the low level of working-class struggle, organization and political leadership internationally gives the capitalists opportunities to postpone their crisis further. They can potentially squeeze more profits out of the proletariat by deepening their downsizing, austerity and speed-up campaigns. This can help sustain illusions in their system's invulnerability and future profitability -- a key to maintaining the fictitious capital bubble on the world's stock markets.

But all these efforts can at best only postpone depression for a relatively short time, not prevent it. As has been true for a half-century, the intertwining of the major capitalist entities internationally means that the collapse of any one of them risks bringing down the entire financial structure. Hence there is no possibility of gradual recovery from the conditions of overproduction; further wipeouts are inevitable even in the imperialist countries themselves. Japan is the weakest link in the imperialist "triad" at this point, and given Japan's major financial links with the U.S. and Europe, the inevitable Japanese depression will not be limited to that country alone.

Further, the anarchy of bourgeois economics, reflected in the rivalry among imperialist states, prevents a coordinated response by the ruling class internationally. At moments of crisis, even conscious awareness of the overall interests of global capitalism cannot forestall nationalist steps like protectionism, competitive currency devaluations and other measures of economic warfare that in the end only tighten the economic noose. The looming trade war between the U.S. and the European Union over banana imports shows the arrogance of U.S. imperialism in dealing with even its economically powerful rivals.

And in this epoch, even a depression is not enough to recharge a failing world economy. The bourgeoisie's only real "solution" is brutal repression of the masses, and world war.

Program for the Crisis

Decaying capitalism cannot afford any lasting improvements in the masses' living and working conditions. Indeed, it cannot even sustain the miserable levels it currently imposes on billions of people. As we explain in the adjoining article, The Socialist Answer to the Economic Crisis, a world of peace and plenty is possible. The world economy could be made to produce for the masses' needs and put an end to want and suffering. But for this to be achieved, capitalism will have to be overthrown by workers' revolutions.

Mass struggles against the capitalist attacks are inevitable, and revolutionaries look to initiate and further these struggles wherever possible. Because of the depth of the economic crisis, workers will find that their struggles for partial economic demands are not sufficient to resolve the capitalist crisis. Broad political solutions are necessary.

But workers will only come to revolutionary socialist ideas through their own experience. For that reason, revolutionaries accompany their explanations of the need for socialism with a program to advance from the masses' immediate struggle toward socialist conclusions. This program would include demands like:

Repudiate the Imperialist Debts!

In countries like the United States where the class struggle is still at a low level, these policies cannot be raised agitationally for the masses to take them up today. But to prepare for a movement that would be open to such transitional demands, revolutionaries can explain in their propaganda to the most politically advanced workers how these demands can be used in the course of future mass struggles.

In many countries, however, from Indonesia to South Africa, where the crisis is already acute and the masses are mobilized, transitional demands are essential for revolutionaries to use today in seeking to guide the current mass struggles in a revolutionary direction. Still, the crucial issue at this stage for revolutionaries is the misuse of transitional demands as a radical reformist program.

To examine this problem further, we will take a closer look at one particular demand, Repudiate the Imperialist Debts! The demand to reject paying back the massive debts held by the banks is not in the transitional programs of earlier generations of Marxists because it has become a burning issue only in recent decades.

Today, state debt is used by the capitalists everywhere as a weapon against workers. In the imperialist countries, national debts are a cover for slashing social services like welfare and education while directing the wealth taxed from the working class into the pockets of the bankers. So we raise the slogan Repudiate the Debt! -- that is, reject debt payments to the banks -- as a demand that all popular leaders should fight for. If these leaders refuse to struggle for this demand, that further exposes their pro-capitalist allegiances and shows workers the need to struggle to seize the wealth of the banks and big industries.

The debt crisis is clearest in the case of the neo-colonies of the "third world," which are being bled dry by the imperialists' demands for debt repayments. This year the world's poorest countries have been forced to hand over $750 million a day. Yet even this massive transfer of wealth doesn't reduce the total debt; it simply covers the ever-increasing amount of interest owed, so the total debt actually grows. Thus between 1980, when the debt crisis first exploded, and 1994, the total debt of the world's poorest countries increased by some 250 percent to a total of $2.5 trillion.

The imperialist vampires are literally sucking the neo-colonies dry. The human costs of this crisis -- in the form of famine, epidemics of treatable diseases and wars over scarce resources -- are barely quantifiable. It is staggering to consider, for example, that while the total cost of meeting basic health, nutrition, education and family planning needs for the whole of Africa is estimated to be $9 billion a year, the governments of sub-Saharan Africa pay the imperialists $15 billion annually in interest.

Therefore, revolutionaries should raise the slogan Repudiate the Imperialist Debts as an internationalist demand that workers in the imperialist countries should fight for against the banks and governing parties in their countries. As well, it must be raised as a demand on the neo-colonial governments to expose their refusal to challenge imperialism.

A struggle to repudiate the imperialist debts would strike a blow against the capitalist system. If successful, massive amounts of wealth would be freed that could be used to address the masses' needs. The opposition the capitalists would put up against such a struggle would go a long way to proving the need to overthrow them.

But even a repudiation of the imperialist debts would not solve the problems faced by the neocolonial masses. The debt is only one means by which the imperialism superexploits the neo-colonies, along with their direct exploitation of labor in sweatshop factories, and their unequal trade relations. Moreover, the small capitalist classes of the neo-colonies are tied by a thousand threads of economic interest to the imperialist system, and would themselves vigorously oppose a struggle against the imperialists' superexploitation. Thus the struggle against the imperialist debts could also prove to workers the need to overthrow capitalism in the neo-colonies and support the spread of socialist revolution internationally.

Given the seriousness of the debt crisis, it is not surprising that there are several ongoing campaigns for canceling debts, including Jubilee 2000, an organization based on churches and charities in several countries (including Britain, South Africa and the U.S.) which aims for the cancellation of "third world" debts by the year 2000. There are also efforts to relieve the devastated Central Americans of their debt burden. All these efforts focus on pleas to the rich countries to cancel the poor countries' obligations.

As one leader of Jubilee 2000 put it:

This is not about developing countries reneging on debt repayments which would affect their credit rating negatively. It is about those who provided the credit canceling the debt. (Jackie Boulle, program director for the South African National Non-Government Organization Coalition, Cape Times, November 6.)

Jubilee 2000 also spreads illusions in imperialism's intentions:

Governments of the wealthiest nations, including the U.S.... should require that the debt be canceled in a way that benefits ordinary people and without conditions that lead to more poverty and environmental destruction. ("Frequently Asked Questions," Web page of Jubilee 2000/USA.)

Relying on the nobility and self-interest of the imperialists is typical of such a middle-class "moral crusade." The international financiers cannot be appealed to as responsible men of honor; they are blood-suckers who must be challenged, defied and defeated.

The Central American hurricane has brought the debt issue to the forefront. Many bourgeois spokesmen, like the British journal The Economist, have been forced to ask, "Does it make sense to give [Honduras and Nicaragua] disaster aid with one hand, while hindering recovery by insisting on (far bigger) debt-service payments with the other?" (Editorial, November 14.) The answer is obviously No -- but the thrust of the editorial is to point out that the problem is much more vast. After all, "millions in some third-world countries live, year in and year out, with a horror called extreme poverty, and many die of it." Can emergency relief be extended to all such countries? "Reasonably, the rich world thinks not." Reasonably indeed -- otherwise profits don't flow.

The U.S. in particular has done nothing about the immense Central American debts. Since the hurricane disaster, imperialist countries like France, Spain and Britain have written off part of what they are owed, and even blockade-battered Cuba has canceled Nicaragua's debt. The United States, however, is the major beneficiary of the debt payments. The food, clothing and machinery it is sending is worth $80 million, about a tenth of what it collects from the debt annually. The U.S. has also sent Tipper Gore, George Bush and Hillary Clinton to shed tears and warn of the potential flight of more refugees to the U.S.

If the "anti-debt" campaign sounds like an imperialist public relations stunt, aimed to take credit for debt cancellations that will be enforced in any case by inability to pay, that's what its initiators want. It was first pushed by the World Bank and International Monetary Fund in the early 1990's, when these imperialist lending institutions faced a skyrocketing growth in debt-payment defaults. They set up a Heavily Indebted Poor Countries (HIPC) program, which offers partial debt relief under the condition that the countries continue to comply with the notorious IMF/World Bank policy prescriptions that impose horrific austerity formulas on the masses. This form of debt relief is designed to maintain imperialist domination and profiteering. Jubilee 2000 nevertheless takes the HIPC initiative as a starting point for its own goals.

The Revolutionary Party

The campaign for debt cancellation has to be taken out of the hands of liberal do-gooders who will never challenge imperialism. In countries victimized by the criminal burdens of the debt payments, communists should counter the deals with imperialism with the demand for repudiation of the debt. In the imperialist countries, the working class should demand the cancellation of debts owed to "their own" bankers and governments. These demands should be placed on the leaders of mass movements, so that the mobilized workers and peasants of the poor countries can learn that a program so necessary for their survival and well-being can only come through socialist revolution, the creation of states run by the working class.

This is an example of how Marxist theory, applied to the growing international economic crisis, is a guide to revolutionary action. The key to the success of the working class confronting the looming crisis lies in building a revolutionary party of the most class conscious and organized workers to lead the struggle. That is what the League for the Revolutionary Party is dedicated to.

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