The speculative bubble turns to jelly

The present "down" in the capitalist economy did not come out of the blue. The sorry story of the speculative bubble which dominated the stock markets at the end of the 1990s provided every advance warning in the book.

The fact that this was a speculative bubble was exposed by the massive 400% increase registered by the prices of the so-called "technology shares" in 1999 alone. Companies which had no assets and had never made a penny in profit were suddenly worth several dozen billions of pounds. Such astronomical prices made no sense whatsoever, even if one took at face value the fairy tales which were circulating at the time about the so-called "New Economy" and its expected glorious future. Indeed very few of these companies were likely ever to achieve the level of profits implied by the price of their shares. In those days, few economists dared to challenge the dominant fashion. Those who did, often by making a parallel with the similar technology- driven speculative bubble which developed before the 1929 Wall Street crash, were dismissed out of hand as gloom-and-doom merchants.

In the end the bubble did burst, of course, or rather it turned into jelly. Rather than collapsing abruptly, share prices followed a prolonged downward slide. Stock markets in the rich countries peaked and started declining almost simultaneously. London led the way in December 1999, followed by New York and the rest of Europe in April 2000. In the first two weeks of that month, the Nasdaq share index (which reflects the prices of US technology shares) dropped by 11%. Then, on Friday 14 April, it lost another 10%. This signalled the end of the bubble.

The losses in paper value have been dramatic. Over the period up to January this year, share prices had dropped by one third on average and by around 80% in the case of technology shares. Just to take one spectacular example, Yahoo, the internet services and search portal, which was once valued at $132bn, has been reduced to $11bn. And the slide does not seem to be over yet. Leaving aside the small hiccup which shook the markets after September 11th, experts are still warning that many technology shares remain overpriced. And they seem to be right, judging by the case of Energis, Britain's biggest carrier of internet traffic, whose shares lost 66% of their value in two days, in January, after the company announced that its profits were likely to be lower than initially predicted.

This does not mean that big shareholders have had to get themselves a proper job in order to scrape an honest living. After all, share prices are still around 50% above their 1995 level. Not to mention the fact that a falling stock market offers speculators just as many opportunities for making a quick buck as a rising one. But this fall does mean that some companies, including in manufacturing and other sectors whose activity has nothing to do with the stock market, had to cover their losses either by taking out of their operating profits or by borrowing, i.e. by mortgaging their future profits.

After March 2000, despite the slow collapse of the stock market bubble, politicians and experts kept arguing that this was just one temporary incident on a sunny day. By December 2000, however, there were increasing references to a slowdown in the US economy, but experts still predicted what they called a "soft landing". Some, however, were more pessimistic. For instance, a business weekly like The Economist, which had finally dropped its past celebration of the "New Economy", was writing: "The evidence of economic slowdown is unmistakable (..) The question is whether this slowdown should be greeted with alarm. (..) The fate of the whole world economy hangs on America. The American economy may yet get its soft landing. But only a fool would take this for granted: the risk of a much bumpier touchdown is real."

At about the same time the Financial Times was worrying about the findings of a survey published by the Office of National Statistics in Britain. According to this survey, company profits had increased by an average 6% a year throughout the 1990s. The worrying point for the FT was that most of that increase had taken place during the first half of the decade, while during the second half, profitability had been going steadily down. In other words, the situation was deteriorating not only in the financial sphere but also in the real economy.

Three months later the picture drawn by a report published by Morgan Stanley, the merchant banker, was even bleaker. This report predicted that the growth of world trade for 2001 would be less than half that of the previous year (in fact this proved over-optimistic since the final figure was a growth of less than 1% in 2001 compared with 12.4% in 2000!). Moreover this report also expected the growth of world GDP to see its sharpest reduction since the 1974 crisis. And it concluded: "This challenges the essence of the New Economy - a growth potential which was thought to be well in excess of the more sluggish underlying trends of the past two decades. A slowdown for this type of an economy is a much bigger deal than had it occurred for a more slowly growing economy - especially if it occurs just when most had finally become convinced that it would last forever." In not so many words, Morgan Stanley's analysts were therefore telling the capitalists that they'd better forget about their absurd fantasies concerning the New Economy.

An old-fashioned capitalist crisis

By mid-2001, however, official production figures, no matter how unreliable, left no doubt as to the real nature of the situation. While GDP was still increasing at a very low rate, industrial production was definitely going down. By the end of the year, manufacturing production had dropped by nearly 6% in the US while industrial investment had been cut by over 12%. In Britain the picture was more or less the same with a drop of 5.4% over the year.

At that point, the politicians were still blaming September 11th. But their excuse was wearing increasingly thin. As the Financial Times noted in a survey entitled "2002 and beyond", "the Washington-based National Bureau of Economic Research, which fixes dates to US recessions, says this one began as far back as March 2001. Despite some signs of a nascent recovery over the Summer, the forces that tipped the US into a downturn - the bursting of the technology bubble in the stock market, the slowdown in consumer spending, the slump in business investment - were all well entrenched before September 11th." At least it is somewhat reassuring to see that the state officials in charge of monitoring the US economy are not as bigoted as the US president!

Two questions remain unanswered, however. First, what are the causes of this slump and second, how serious is it likely to be? Merely talking about a recession, as most experts do, does not say very much in this respect.

Most commentators argue that the present situation is solely the result of financial disorders in an otherwise sound "real economy". This is the case with The Economist, for instance. However, behind this journal's argument a very different story has began to emerge. So, for instance, in an editorial dated January 26th, it says: "The doom-mongers (including The Economist) who predicted a deeper downturn have, many argue, been proved wrong. Perhaps. But what the optimists have lost sight of is that (..) the root cause of this crisis was the bursting of one of the biggest financial bubbles in history. It is wishful thinking to believe that such a binge can be followed by one of the mildest recessions in history - and a resumption of rapid growth. (..) America's bubble was more than just a surge in share prices. At its heart was a borrowing binge, based on the expectation that rapid growth in profits, share prices and wages would continue indefinitely. This money financed the boom in investment and consumer spending."

So The Economist sticks to the argument that the cause of this recession is the collapse of the stock market bubble - in other words, a purely financial cause. However it has to admit that, behind these financial disorders, the health of the "real economy" was primarily the result of a very unhealthy "borrowing binge" which also fed the speculative bubble. On this account at least, The Economist is only making a statement of fact. The level of indebtedness has reached unprecedented levels in the industrialised countries over the past two years. For instance, US companies spend, on average, the equivalent of 53% of their profits to service their debt. And in Britain, the overall household debt is now, £700bn, equivalent to a record 118% of total household income. This means that on average, every household owes £5,300 on top of its mortgage.

But if the "real economy", in other words the production of material goods, only increased thanks to unsustainable borrowing, as The Economist points out, this means that manufacturing, in particular, has been producing more goods than it was able to sell for a long time. And this, in fact, can be illustrated by many examples. For instance, a study of business investment in the industrialised countries, published by merchant banker Goldmann Sachs, shows that the increase in investment during the 1990s was mostly confined to computers, electronics, telecommunications and software (or IT products), while productive investment went down in most industries. But this massive investment in IT products was based on the assumption of an ever-expanding market, which, of course, just did not exist. As a result, a large part of this investment will have been wasted for lack of customers. In telecommunications, for instance, this report estimates that, over the past four years alone, as much as £690bn worth of investment have been wasted in facilities, such as fibre-optic cable networks for instance, which will never be used because they would not be profitable.

In other words, what we are faced with today is not just a financial crisis but a crisis of over-production in the real economy. Or to put it more precisely, the speculative bubble which developed in the late 1990s was the symptom of a crisis which was already in the making in the production sphere. The collapse of this bubble was the trigger which brought the chickens home to roost. Then the downfall of the stock market made things even worse. In order to keep shareholders happy, companies began to announce massive savings plans - meaning job cuts - so as to generate expectations of improved future profits in the hope that this would boost the price of their shares. But at the same time, as floating capital retreated out of the stock market towards safer shelters, companies found it increasingly difficult to raise new funds, which again resulted in more restructuring, job cuts and factory closures.

Formulated in the words of an unreformed advocate of capitalism, an academic economist quoted in a January issue of the Financial Times, "this is an old-fashioned 19th-century business cycle. Despite our attempts to fine tune, it is not easy to offset the tendency of an economy to expand too far and hit the buffers." But isn't this statement a candid admission of the system's impotence to control its own operations rationally? And isn't it ironical that the fantasy of the "New Economy", which was meant to prove that an ever-expanding economy is possible under capitalism, should have been stopped in its tracks by an "old-fashioned 19th-century business cycle"? So ironical, in fact, that it led one of the Financial Times' columnists, to conclude that "it is increasingly plausible that far from heralding a fundamental transformation of profitability, the 1990s were merely a period of recovery" - meaning, just another episode in the on-going boom-and-bust cycle of capitalism. Coming from a loyal champion of capitalism and a former advocate of the "New Economy", this is an admission that indeed, nothing has changed in the old crisis-prone capitalist system and that today's recession is just a repetition of so many others in the past.

A blind and irrational system

As to what this recession has in store for the economy in general and the working class in particular, this remains an open question which will only be revealed with time.

If the future is bleak in the USA, it would seem even bleaker in Britain, despite Blair's claims to the contrary, judging from the comment made earlier this month in The Guardian by an economist with HSBC, who said about British manufacturing that "weak global demand is not the only negative force pulling down on the sector. Large parts of UK manufacturing have been in recession for the past five years. UK manufacturers are likely to be worse placed to benefit from a recovery than their competitors." And indeed the chronic under-investment which has been a feature of British industry for decades is likely to result in more factory closures and more job cuts as companies move to maintain their profits and those of their shareholders - that is, if the capitalists are allowed to have their way, of course.

The most vital point for the working class, however, is that whatever form they take, economic crises are not exceptional "accidents" under capitalism. On the contrary, they have always been the normal form of its operation. If today's economists end up having to refer to "old-fashioned 19th century business cycle" to describe the present recession, it is precisely because the fundamental contradictions of capitalism have not changed since it emerged in the 19th century.

Fortunately, unlike the modern proponents of capitalism, revolutionary communists are well-equipped to understand these contradictions. Marx's method was based on the materialist idea that, in the last resort, what determines the workings of an economy is the conditions in which material goods are produced by human labour. This is why the financial sphere, which nowadays mostly involves electronic transfers of information between computers and creates neither material goods nor value, only provides an indirect image of the state of the "real economy" and often a very distorted one.

The apologists of the "New Economy" were carried away by the illusion of a constant creation of wealth provided by the on-going rise in share prices on the stock markets. But they would have been better advised to take a few leaves out of old Karl Marx's writings. This would have led them to take a hard look at what was then happening in the "real economy". They would have realised that the frantic speculation which was pushing share prices up was due to an over-abundance of capital which had deserted the production sphere; that the relative dynamism of the IT industries was the consequence of fierce competition for a market which was not saturated yet, but was nevertheless limited; and finally that the apparent prosperity of the stock market was not reflecting the poor state of most non-IT industries.

Another important idea that Marx left us is that the operation of the capitalist economy is primarily blind and, therefore, erratic and irrational. It is an economy based on producing goods for a market whose size, by definition, is unknown since production is not determined by actual needs (which could be measured) but by people's ability and willingness to pay (which is unpredictable). What is more, it is an economy which is shaped by the fierce struggle of individual capitalists and companies to maximise their profits at the expense of their rivals, regardless of the consequences for the economy as a whole. And since this competition results in increased production in order to reduce costs, the risk of over-production is built into the operation of the system itself and with it the occurrence of economic crises.

More importantly, Marx showed that it was through these crises that capitalism achieved economic progress, by forcing the least productive factories into bankruptcy. So that these crises are not just built into the capitalist system, they are also the only "normal" mechanism through which it can improve its capacity to create wealth - for the simple reason that no capitalist will ever invest in new facilities as long as he can make a profit out of the old ones.

In this respect, there is nothing to change in Marx's analysis today. The operation of production under capitalism remains just as blind as it was in the 19th century, and even more so since it is operating on a much larger scale today. It is just as crisis-prone. All sorts of mechanisms may be used today in order to delay the time when these crises break out - for instance by handing over to the capitalist class the population's savings through compulsory pension schemes or by means of massive injection of capital by state treasuries. But these crises do happen in the end, except that they tend to happen on a much larger scale and more brutally. If anything all this makes the ups and downs of the capitalist economy even more unpredictable than they were in the 19th century.

This is why, despite all the sophisticated mathematical models which are routinely fed into computers in an attempt to "predict" future economic developments, governments and experts are regularly left looking stupid with their ridiculous predictions.

Indeed which computer model could have predicted that Enron, one of the biggest energy corporations, would cook its books in order to boost the price of its shares and that it would end up facing bankruptcy as a result? And yet this is what happened. And how could anyone have been sure that this would not result in a panic in Wall Street as has happened so many times in the history of the stock markets as a result of bankruptcies which were much less spectacular? Yet the odds are that there are many other large companies which resort to the same methods as Enron, for the same reason and with the same risks. But how can these risks be taken into account when the data which would make this possible is deliberately concealed and protected by commercial confidentiality?

Likewise, which computer model could have predicted that mobile phone manufacturers would be foolish enough to increase production without taking into account the fact that we have only two ears to use their devices? This, by definition, escapes rational prediction because it is irrational behaviour. But such irrationality is part and parcel of the workings of capitalist competition and cannot be fed into computers which tend to be "stupidly" rational!

What is true for Enron and the mobile phone manufacturers is true for the capitalist system as a whole. No matter what, it is fundamentally unpredictable because it is dependent on the irrational behaviour of a relatively small number of individuals who might be prepared to go to any extremes if it could help them to increase their profits.

There are some things which have changed since Marx's days, however. Indeed, since the beginning of the 20th century, the world capitalist market has virtually ceased to expand. The whole planet, including its most remote areas, has been integrated into this market. This, in and of itself, has imposed severe limitations on the ability of the capitalist system to expand the productive forces, for lack of new markets.

The only exceptions to this rule have been provided by the two World Wars. The enormous destruction which took place during these wars, particularly World War II, opened up new markets and allowed a short-lived respite to the system - but at what cost for mankind!

But leaving out these two exceptional periods, the increased competition between capitalists for existing markets which were already virtually saturated has made the economy more unstable and pushed profits down. As a result the capitalists have been increasingly reluctant to invest their funds in the productive sphere. "Investors", as the papers call them, have increasingly used their capital for short-term lending, in order to reduce risks to a minimum. The result of this has been an increasing volume of capital roaming the planet in search of quick and fat returns, thereby making the system even more unpredictable.

Three decades of crisis

This is the context in which the present crisis - or rather the permanent crisis of which the present recession is the latest development - is taking place.

The relative prosperity of the post-WW II period was short-lived. It came to an end, in 1971, when a world currency crisis uncovered a crisis of over-production which had been looming for some time already: the expansion of the consumer goods industries, which had been the driving force of the economic growth during the previous decade, had saturated the market. In fact, over the two years before 1971, unemployment had already increased by a third in the rich countries. The peak of the recession was reached in 1974. For the first time since WWII the world's industrial production declined, by 10% over a period of 10 months. Trade between the rich countries dropped by 13%. By 1975, private investment in the industrialised countries had dropped 13% compared with 1973, 11% of all industrial fixed capital was out of use and unemployment had nearly doubled (to 15 million, not counting, for instance, one million ex-immigrant workers who left Europe during that period).

More importantly for what was to come next, a huge flow of capital came out of the production sphere. Faced with the uncertainties of the crisis, many capitalists chose to withdraw altogether. But they soon found another outlet to make profits, by lending money to Third World countries at extortionate interest rates. This parasitic activity proved extremely profitable until the early 1980s. However, while Third World borrowers serviced their debt regularly, they were increasingly forced to borrow more money in order to do it. Eventually, the mountain of debt which had built up in the Third World became unsustainable. The first cracks appeared in 1981 and, in August 1982, Mexico decided unilaterally to delay its repayments for three months. Soon Brazil followed Mexico's example. The exposure of the rich countries' banks to Third World debt was on such a scale that the Western governments intervened to bail them out in order to avoid a banking crisis. These states took over the role of the banks through the IMF and a massive flow of private capital headed back to the industrialised countries.

Another reason for the rich countries to bail out their banks was the recession which took place in 1981-82, cutting industrial production in most Western countries. The coincidence of the two crises implied a risk which went far beyond the banking system. The return of capital previously lent to the Third World provided some breathing space to Western companies. Or so it was hoped. However, this inflow of capital did not result in increased productive investment, but rather in a huge increase in expensive short-term loans to industrial companies, thereby threatening industrial profits.

At this point the states intervened once again. But instead of taking measures to force the capitalists to re-invest their huge funds into production, they offered them more ways of making profits out of the financial merry-go- round. This was the era of financial deregulation. Obstacles to the movement of capital were removed. The stock markets were reformed in order to channel as much capital as possible towards private companies. Taxes were drastically reduced for high earners. At the same time, in the countries where there was a large state-controlled sector, governments embarked on large-scale privatisation, both to make up for the loss of income tax and to provide the capitalist class with ready-made profit-earning companies in which all major investments had already been made out of public funds.

For a few years, thanks to this artificial lifeline, the capitalist economy seemed to be in better shape. But this impression was misleading. The considerable flow of capital into the financial sphere soon fed a huge speculative bubble, both on the stock market and in real estate. And in 1987, after only five years of so-called prosperity, the bubble burst, resulting in a stock market crash which affected every industrialised country. Although this crash was spectacular, its impact was relatively short-lived and the stock market soon recovered. But the "real economy" did not. By 1990, another even more spectacular crash hit Japan, marking the beginning of another recession which spread across the world until 1992.

The Major recession

Britain was not excepted from this. Between 1990 and 1992, the recession hit, compounded at the time by the high valuation of the pound. By April 1992, John Major, who had just been re-elected as prime minister, announced that an economic recovery was "just around the corner" - to justify his generous pre-election sweeteners to the well-off electorate and the City. The huge budget deficit that began to grow as a result was never compensated for by growing employment bringing in more income tax. In September 1992, when the pound was forced out of the European Monetary System and devalued, the supposed opportunities that this would open to British export industry proved to be minimal. In fact manufacturing output grew very little - and this small growth was largely due to companies using the pound's devaluation as an opportunity to increase their export prices. But manufacturing investment went down 3.2% over the following year.

Then yet another recovery was announced in May 1993, when Lamont, Major's Chancellor, declared the crisis "officially over", and again in September, it was "over" once more, when Major claimed that Britain was leading Europe out of recession. Of course economic indicators can be used to prove everything and its opposite. At the time, unemployment may have gone down according to official statistics by a few tens of thousand. However the unemployed count was still officially 3m (4.2m unofficially) and 2m jobs had been lost since 1990. Indeed the haemorrhage of jobs in manufacturing continued: in 1993, Rover Cowley closed down two-thirds of its site; 20,000 railworkers lost their jobs in the run up to privatisation; not to mention the 200,000 mining jobs which had disappeared by this time. But over the period of Major's five-year term, from 1992 to 1997, temporary and part-time work became the norm for a significant section of the working class, while those in permanent jobs experienced an increase in the intensity of their work. Agreements with union leaders, in the context of significant cuts in the workforce, initiated various forms of flexible working practices.

Of course, this brought its returns to every profit-making sector. Between 1992 and 1997, manufacturing net profit increased by 7.6%. During these five years, all other sectors registered a year on year increase in profits. But by 1994 Major was already having to administer a record public sector spending deficit of £50bn and a debt repayment of £25bn. And this was not because social security spending was increasing, as was implied by the launch by Major of an offensive against the unemployed and especially the youth. In fact the social security budget had risen hardly at all in real terms.

The reason for Major's deficit was the overt channelling of public finances straight into the coffers of the private sector via tax cuts for high earners and subsidies to companies. If the capitalist class was getting richer by the day, the Treasury was getting a lot poorer! And to make further cuts in public expenditure, which also ultimately handed more profits to the private sector, Major now opened up those parts of public services not previously contracted out or privatised to further private contracting. Market testing in the Civil Service, while cutting tens of thousands of jobs (12,200 in the MOD and 7,000 in social services alone) gave contractors the chance to reap state benefits and not even pay the price for it. For instance the cleaning contract in Glasgow's DTI building was given to a company which cut workers' hours from 35 to 12 a week, allowing it to avoid paying National Insurance Contributions - just one of many instances of this particular trick..

How to make the working class pay

The price for the private sector bonanza was paid in full by the working class through precarious employment and wage freezes. The public sector wage freeze actually began in 1993 and continued to 1995. VAT was placed on all fuel bills and there was a phased increase in National Insurance contributions. The government also suggested a cap on wage rises of 2.5% when official inflation was around 2.4%, which brought signal workers out on strike just at the dawn of privatisation of the railways - in Summer 1994. But probably the most iniquitous attack on the working class was the introduction of the Job Seekers' Allowance (JSA) - which cut entitlement to unemployment benefit from 12 months to six months, and introduced a lower rate for under 25s. This was finally implemented nationally in October 1996.

Of course when the JSA and compulsory "Restart" interviews for long term unemployed were imposed, strangely enough, unemployment fell dramatically by almost 1m - not of course that 1m jobs had been created! If those who were no longer legally entitled to claim were included, the headcount came to 5m - which was in fact more than the previous year!

It should be added that Major's tenure in government also presided over an unprecedented exacerbation of the housing crisis. Between 1990 and 1995, 350,000 "owner occupiers" who had bought their council homes or bought private homes in the 1980s had their homes repossessed because they could not meet their mortgage payments when interest rates suddenly increased. On top of this, the 1996 Housing Act withdrew the right of the homeless to a tenancy in the public housing sector and forced them into the hands of private landlords.

It was against this background of an increase in profits for companies due to the blatant increased exploitation of the working class - directly through job and wage cuts, increased work intensity and the replacement of secure jobs by so-called McDonald jobs (i.e. casualisation) and indirectly through cuts in public services and benefits - that Blair's government got into power.

Of course the bosses' journal, the Economist got it right when it said that the electorate would face "five more years of conservatism under Tony Blair". But by now how much further could the screw be turned on workers in order to keep profits up? The capitalists were demanding more direct measures from the government to maintain their profits. So Blair's Chancellor, Gordon Brown, in his very first budget in July 1997 immediately made cuts in corporation tax - and imposed a further two-year wage and spending freeze on the public sector to help pay for these concessions.

The first Blair recession

But these measures did not prevent new talk of a downturn cropping up within 12 months of Blair's election. This was a bit of a problem for the government which had asserted that it was single-handedly going to take on the inbuilt contradictions of the capitalist economic system, thereby ending forever the cycle of "boom and bust"! However factories were closing up and down the country, including the Fujitsu factory in Blair's own constituency, which announced its closure in September 1998 with the loss of 600 jobs. The trade deficit in September 1998 was the largest since July 1990, when the recession was "official".

At this point, the CBI predicted at least 100,000 job more job losses in manufacturing before the end of 1999. These jobs cuts indeed occurred right across the spectrum: from the car industry, the steel industry, computer companies, semiconductor plants, cement plants and the pharmaceutical industry to retail outlets such as C&A, MFI and even the Automobile Association.

But the so called profits slump which was used as the justification for this cut and thrust aimed at the working class was in fact hardly reflected in reality. Executive salaries continued to increase in the same companies which were declaring their workers redundant. British Steel (not yet restructured as Corus) was making an annual profit of £1bn, but, having seen profits slip very slightly by £100m in the first quarter of 1998, proceeded to cut 2,400 jobs and announced a further 4,000 redundances, claiming this was the only way to remain in profit. In fact their real aim was to push profits up by disposing of less profitable operations, regardless of the devastating social effect that this would have on workers, subcontractors and whole areas.

Many manufacturing companies blamed the "strong pound" - as if history was repeating itself. They no doubt expected that everyone had forgotten that when the weak pound and low interest rates prevailed in the mid to late 1980s, one of the largest job-cutting programme seen in decades was embarked upon by British capital.

And if one took the time to scrutinise the situation of companies blaming the strong pound - and demanding that Britain joined the euro as soon as possible (a cry taken up even by the leaders of the engineering union), it became obvious that their directors were just lying through their teeth - because most of them had holdings in Europe through which they could take advantage of this same "strong pound" which was apparently eroding their profits in Britain. What they were losing on the swings they were gaining on the roundabouts.

The other string to the capitalists bow was, of course, to keep wages low. when they did not actually impose wage cuts directly. And the government obliged them in this respect when it set the initial rate of the minimum wage, finally introduced in April 1999, at £3.60/hr and £3/hr for 18-25s - low enough for it to act as a downward pressure on all wages.

Capitalist profits also received a major boost from state subsidies. Having frozen public expenditure, by following the Tories' plans to the letter, Blair had plenty to spend on ingratiating himself with the bosses out of the public purse. His government provided subsidies for multinational giants such as Siemens (£44m even though it closed the brand new factory it built with this money, shortly afterwards), Ford, BMW, and so on. The so-called "New Deal" for the unemployed provided employers with massive subsidies in exchange for non-jobs. Not to mention the elaborate system of regional subsidies which provided sustenance for a host of retailers, as well as industrial developments and call centres.

So while unemployment figures showed official totals of 1.3m - aided by the continuation of Major's Jobseekers' Allowance system which kept legitimate claimants off the dole count - the real number of job seekers in late 1999 was 4.2m - the same number as during Major's "recession". But in fact the other main purpose of the JSA was coming to the fore now. By extending the system of interviewing claimants to single mothers, older unemployed etc., the Benefits Agency was actually becoming an adjunct to those private employment agencies providing cheap labour. Indeed Reed Employment even obtained a contract from the government to run a number of its "back to work" schemes. Moreover, the new tax credit system meant to take low-paid workers out of the poverty trap helped the bosses by providing cheap workers and keeping the low-paid in poverty as they proportionately lost a part of their housing benefit...

The bill for the working class throughout the period was high. And the so-called reforms meant to benefit workers such as the minimum wage and the 48hr Bill both had stings in their tails. Indeed, the legislation which was meant to limit the working week to 48 hours, including overtime, allowed employers to impose annualised hours agreements, thereby cutting workers' real wages. It also "allowed" workers to opt out of the agreement, and given the low level of wages this has meant that by February 2002, according to a TUC report, 350,000 more workers were working over 48 hours a week than in 1992, when there was no legal limit! Indeed the UK tops the league for long working hours, with an average of 43.6 hours compared to an EU average of 40.3hrs.

So yes, the degree of exploitation of the working class has increased. And so has the degree of poverty. By late 1999, 40% of all children born in Britain were in families below the poverty line, 39% of households had no savings and 12% had no bank or building society account. Recession? Yes, for the working class there has been a continuous downward slide. This was, of course what prompted Blair to proclaim his "crusade against poverty", to end child poverty in twenty years... No urgency, then...

The millennium bug

The year 2000 heralded even more job losses. Dunlop and Continental tyre plants announced 1,400 redundancies in Birmingham and Scotland. 10,000 jobs were to be cut by Glaxo Wellcome and SmithKline Beecham, British Airways announced 6,500 job cuts, Ford announced 1,350 redundancies at Dagenham with another 1,900 to come. Rover at Longbridge threatened closure, though in the end the notorious sale to the Phoenix consortium brought a temporary reprieve to most, but not all, of the workforce. In fact, massive cuts were implemented throughout 2000 in all car companies operating in Britain. The Vauxhall Luton plant was also to close; only Jaguar and Toyota were unaffected. But other sectors came in for the knife as well. Sony, Hitachi, Matsushita, and Panasonic cut over 2,000 jobs; and of course Corus, the new company formed by British Steel and a Dutch steelmaker, announced 6,000 job cuts on top of 4,500 already announced the previous year.

In banking, the merger between NatWest and Royal Bank of Scotland resulted in 18,000 job cuts and Lloyds TSB cut 3,000. In the insurance industry, 15,000 jobs were earmarked to disappear as a result of various mergers or takeovers.

Then came the inevitable come-uppance of the so-called "New Economy". New job cuts and closures of factories and businesses were announced almost daily during the Summer of 2000, at companies like Marconi, Nortel, IBM, Motorola, Compaq, BT, BAe, etc., as well as their subsidiaries and contractors.

By November 2001, the director of the CBI, Digby Jones, predicted that company profits would fall by 20% the following year. But of course if the truth be known, manufacturing output had already fallen by 3.5% in the six months to August 2001. And between June and August, the number of redundancies had increased by 14% and the number looking for work by 53,000 Overall employment fell officially for the first time since the early 1990s.

Economic experts are now predicting a 200,000 drop in employment by the end of 2002. The last six months have brought new announcements of job cuts - some on the basis of compulsory redundancies - as at Manchester Airport where 1,800 workers are meant to be given the sack. 30,000 postal jobs are to be cut; and of course in the airline industry, by December 2001, a total of 20,400 jobs had gone.

It must be noted as well that the bosses did not just cut jobs during this period, they also enforced pay cuts, both in large companies like BA or Vauxhall, and in small ones, like for instance Friction Dynamics in Wales - where 87 workers facing a 15% wage cut were sacked after being out on strike for more than eight weeks and therefore no longer protected by the law - or William Cook Foundry in Sheffield where the workforce was locked out for eight months after going on strike against a wage cut.

A regulated capitalism?

From what has been said so far, it is clear that the period since the early 1970s has been one long crisis. It was interrupted by relatively short intervals of apparently smooth operation of the capitalist economy. But these intervals only concealed the storm which was already gathering. Over this period a considerable transfer of income to the capitalists at the expense of the working class has taken place - a transfer which has been carried out almost simultaneously in all industrialised countries, even though the form it took may have been different. So that for the working class, there has been little difference between the periods of so-called prosperity and the periods of open crisis during these three decades. All along, the situation faced by workers was marked by the determination of the bosses to maintain profits at their expense, with the help of the state and, to a large extent, the acquiescence of the trade union leadership.

The question is whether the damage caused by this unending capitalist crisis to the working class here and to the population of the poor countries across the world can be contained. Decades ago this question used to be part of a debate that split the working class right down the middle - whether the capitalist system can be "reformed" or whether it has to be overthrown. Today the same debate is still going on. But as the idea of "reforming" capitalism has long been proved a non-starter, it has been replaced with the idea of "regulating" the system - to smooth its rough edges, so to speak.

Yet, it is not as if the capitalist system suffers from a shortage of alleged "regulatory" mechanisms and bodies. The International Monetary Fund (IMF), for instance, was set up just after WWII precisely for the purpose of "regulating" the worldwide flows of currencies. Its official aim was to prevent a recurrence of the currency chaos of the pre-war period by providing short-term help to central banks experiencing temporary difficulties, so that exchange rates could remain relatively stable or, at least, predictable. When it came to the crunch in the early 1970s, however, the IMF was unable to stop the collapse of the postwar currency system. And ever since, chaos has been the rule on the world's currency markets.

This is just one example among many others of failed "regulation". They all show one thing - that such alleged attempts at smoothing the rough edges of capitalism have not worked. The reason for their failure, however, is not because of mistaken method, but once again because of the built-in characteristics of capitalism.

Behind the idea of "regulating" the capitalist system, there is indeed another implicit idea - that there can be such a thing as a "neutral" regulatory mechanism, that is one which stands above the rival interests of the capitalist classes represented by the various governments. As if the capitalists had ever been prepared to put the interests of the system as a whole - even though it is their system - before their own private interests! In reality, the capitalists only tolerate "regulation" when it is in their own immediate interests. If it involves a constraint on their profiteering, they only tolerate it when they have no other choice - that is when it is imposed on them by a relationship of forces.

Once again, this point can be illustrated by the currency system enforced by the IMF after WWII. This system was based on the universal acceptance of the dollar, as the only worldwide currency on which all others were dependant. This system came at a price for European and Japanese capitalists. In particular, all industrialised countries had to bear some of the cost of the US government's inflationary policies. But the Western capitalist classes, which were all heavily indebted to the US, had no choice but to go along with it. In that sense the postwar currency system was the expression of the relationship of forces between the US economy and its lesser industrialised rivals.

However, as soon as competition began to increase in the international consumer goods market, in the late 1960s, European companies became increasingly restless because of their inability to use currency exchange rates as a weapon in their trade war. The weakening of the dollar due to the US government's huge expenditure in the Vietnam war did the rest. With a relationship of forces which was no longer as favourable to the US economy, the lesser industrialised powers broke ranks with the US one after the other, allowing their currencies to float downward in order to help out their respective exporting companies.

For three decades, therefore, the IMF embodied the dominant position of US imperialism over the planet under the respectable pretext of "regulating" currency exchanges. Subsequently its role changed considerably and became much less respectable. From being the guarantor of worldwide currency stability it became the guarantor of steady profit flows for Western lenders to the Third World. Such a change may seem surprising. But is it? The IMF began to take on its new role in the early 1980s, when Mexico defaulted on its debt. At the time, in the rich countries, there were serious fears that the financial and banking system might collapse. So the IMF was given a dual role - on the one hand that of bailing out Western lenders if it was needed, and on the other, that of coordinating the West's financial pressure on the poor countries to protect these banks' profits. The IMF's new role was, therefore, a "regulatory" role of sorts - to shield the world financial system. But in doing so, it embodied the relationship of forces between the rich and poor countries.

However, it should be pointed out that the IMF is by no means the only vehicle, not even the main one, through which the imperialist countries impose their rule on the Third World. The direct plundering of Third World resources by Western multinationals, the West's control of local puppet regimes and dictatorships, not to mention direct or indirect military means, are just as important weapons to enforce this rule.

"Regulation" under capitalism is, therefore, just one more or less respectable-looking, but no less brutal, mechanism, among many others, used by the imperialist capitalist classes to enforce their exploitation of the world.

What is true of the IMF as a worldwide "regulator", is equally true of the "regulating" bodies which are dotted around by governments in all rich countries. Britain is probably one of the most, if not the most, regulated country in Europe. And yet it is also the European country in which capitalist competition and profiteering face the smallest limitations. But there is no contradiction in this.

Indeed, what is the real role of the endless list of "regulators" set up by the Tory and Labour governments? We are told, for instance, that the rail regulator (ORR) is meant to "regulate" in favour of passengers. But does it? No, of course not. The gist of its brief was to use the state's rail subsidy to guarantee a minimum profit margin to rail companies, thereby encouraging profiteering. Hence the Hatfield crash and other railway disasters. By now, of course, ORR is back in business. And this time its brief is to use billions of pounds of new public money to pump up the rail companies' profits, under the pretext of bailing out Railtrack.

Whether it be the ORR, OFWAT (water), OFSTED(education), OFTEL (telecoms), Postcomm (postal services), etc.., all of Blair's "regulating" bodies are merely conveyor belts from the Treasury to the capitalists' coffers. Their role is not to ensure decent utilities or public services, or better stability in the economy, but to use public funds to create opportunities for profits for the capitalists, at our expense. As to older "regulating" bodies such as the Health and Safety Executive, they have long been reduced at best, to shadows of themselves, if not rubber-stamping agencies for the bosses.

In fact, these bodies reflect the balance of class forces in society in two ways. On the one hand, like all other state or quasi-state bodies, their primary brief is to take care of the interests of the ruling class. On the other hand, in addition, they reflect the circumstantial shifts in the social balance of forces. So, while in the 1970s "regulation" in health meant subsidising the pharmaceutical industries and rationing patients, today, when the capitalists feel more confident, it means, in addition, handing over chunks of public health services to the private sector.

The union leaders' reliance on the capitalists' state!

Despite all this, many political currents, including some claiming to represent working class interests, are still calling for more "regulation", i.e. more state intervention, as a means to counterbalance the worst excesses of the capitalist system.

So, for instance, how many times have we heard the leaders of various unions demanding import controls and state subsidies or calling for "Buy British" campaigns, as a means to stop redundancies in manufacturing and heavy industries? However there is a dangerous logic built into such policies. Ultimately, they amount to going along with the capitalists' own blackmail - that is, with the claim that workers' jobs are dependent on the profits of British companies and that, therefore, the working class has no choice but to abide by the rules of profit laid down by the bosses.

We have already seen over the past few years how the TUC's "new partnership" policy led union leaders to underwrite again and again massive job cuts in car manufacturing, the steel industry, transport, etc.., always under the pretext that savings were "necessary" to make up for the "high pound" or intense competition in the world market - in other words to increase the competitiveness of British companies. In fact union leaders did not only negotiate job cuts under such pretexts, they even went as far as to bargain wages downward!

It is not hard to imagine what would happen if the state did raise import controls and offer massive subsidies to British companies, to bail them out of the capitalist crisis, as demanded by trade union leaders. Such things always come at a cost. Someone would have to foot the bill and the bosses and their state would ensure that it was the working class.

First, of course, rival capitalists would get their own states to retaliate in kind. Import controls would be increased in other rich countries, thereby reducing export markets worldwide. This would result in increased competition for these markets and guess what? The bosses and union leaders would then turn to workers saying something like: "we have kept you your jobs, now is the time for you to show how grateful you are by helping Britain to be more competitive." The bosses would demand cuts in wages and conditions. In the end the working class would be made to pay the cost of the crisis just the same, only in a different way - and possibly in a much more drastic way, because whenever there is a brutal increase in exploitation repression follows as well. History is full of such examples.

Even before getting to such an extreme situation, the union leaders' recriminations against relocations and the cheapness of labour in the Third World are part of the same logic and present the same dangers.

In reality, the threat of relocation to the Third World is a bit of a red-herring. The biggest single cause of large- scale redundancies over the past few years was not relocation to the poor countries but mergers between large companies, aimed at increasing already considerable profits. The second biggest cause of redundancies was contracting out. But in many cases the contractors were located in the same region, sometimes even in the same premises. As to the real cases of relocation, many of them have been within Britain itself, in order to take opportunity of regional grants by regrouping production in one spot, or else in other rich countries chosen according to similar criteria.

Despite this, some union leaders have been demanding that international sanctions should be imposed on companies employing cheap labour in the Third World or even on poor countries where wages are below a certain level. There is a certain amount of hypocrisy in these demands. It is easy to present them as aiming to improve workers' conditions in the Third World. But in reality, their primary aim is to ensure that the cost of labour in Britain remains low enough in relative terms for British companies to be willing to stay here. Likewise for the unions' involvement in campaigning against child labour in the Third World, which is hard to distinguish from their demand for Britain's textile industry to be protected from foreign competition, for instance.

But why would Blair or any British prime minister agree to international sanctions which would increase the labour costs incurred by their capitalist masters? They would only do this if there was some other way for British companies to maintain their profits despite these sanctions - that is, if labour costs became as low in Britain as they are in China, Vietnam or Bosnia. Would union leaders be prepared to take their campaign against cheap labour in the Third World to its logical conclusion by underwriting Third World wages in Britain? In any case this would definitely go against the interests of British workers.

If the logic of the policies put forward by the union machineries can only lead the working class to foot the bill for the capitalists, it is primarily because they seek the benevolent help of the capitalists' state rather than aiming to shift the balance of class forces in favour of the working class. Blaming redundancies in manufacturing on foreign imports or cheap labour in the poor countries, is taking as "given" the fact that the profits made over the years by companies and shareholders are legitimate and should remain in their hands for all time, while workers may be forced by "economic necessity" to give up their jobs or part of their wages. It is agreeing in advance that workers will have to make sacrifices in order for profits to remain unharmed. Imagine a boxing match in which one player agrees to fight without any protection whatsoever against a challenger in full riot gear. It would be suicide. And suicide is exactly what the union leaders' policy amounts to as far as workers are concerned - due to their refusal to start from the obvious - that in a situation of crisis, the working class can only defend its conditions by taking what it needs out of the profits, past and present, of the capitalist class.

The "anti-globalisation" dead end

The "anti-globalisation" currents, which have developed over the past few years to paper over the bankruptcy of the old reformist parties (i.e. social democratic in the rich countries and nationalist in the Third World) are leading to a similar kind of dead end.

Not that there is anything wrong, of course, in their exposure of the worst aspects of today's society. They highlight factors which have all played a role in the degradation of conditions for the majority of the populations both in the poor and in the rich countries: whether it be the burden of the poor countries' debt and their exploitation by Western companies through the mechanisms of international trade, or the role of speculative capital which can cause a regional financial crisis, as happened in South East Asia in 1997, or even the collapse of whole industries, such as the high-tech industry over the past two years, resulting in hundreds of thousands of redundancies. And, last but not least, the damage caused by "faceless and stateless" multinationals, whose financial power exceeds that of most countries, allowing them to do what they like, where they choose, regardless of the consequences for the populations.

But what are the objectives offered by these "anti-globalisation" currents to those who are genuinely shocked, and rightly so, by the level of exploitation and poverty in Third World countries and the social degradation experienced by the rich countries? Some currents campaign for the cancellation of the Third World debt while others argue for boycotting companies like Nike which are using child labour. There are groups which argue for some sort of international control over financial flows, such as a Tobin tax, or for some form of restriction on international trade to protect the weakest economies. And most of these currents argue either for the disbanding of international institutions like the IMF and the World Trade Organisation, or for these institutions to be made more "democratic" through the inclusion of representatives from trade-union bodies, Third World organisations and NGOs.

Beyond the variety of these objectives and groups, they all have two things in common: they see their role as getting state governments to intervene more decisively in order to bring about change and they hope that the occasional show of force in the streets, combined with a much larger number of conferences and seminars, will achieve this. But, despite their sharp criticisms of many aspects of the system, none of them actually comes to the point of putting the system itself into question. They want it to be tamed and improved, not to be overthrown.

Of course, governments can sometimes appear to be taking measures to contain the capitalists' greed. For instance, in most countries, there is some form of legislation against monopolies, which is allegedly designed to prevent big companies from becoming too powerful. But has it anywhere prevented the development of more or less overt, but definitely huge monopolies? Of course not, and this is hardly surprising given, for instance, the number of American congressmen who, after Enron's collapse, turned out to have been funded by the failed company in some way or another. The story of Enron also showed the limits of existing US "regulations" which were meant to ensure that companies were not cooking their books beyond "reasonable" limits. But how many times had we heard Blair and his cronies praise the US system for its "transparency", prior to this debacle?

The "anti-globalisation" currents which argue that the cancellation of the Third World's debt could provide a future for the poor majority of the planet forget the real nature of the imperialist exploitation of the poor countries. Last year, when Brown hailed his own "generosity" by claiming that Britain was taking the lead in cancelling the poor countries' debt, it was, of course, a cynical lie. But even assuming this was true and the entire debt of the poor countries was cancelled, it would not bring to an end the unequal relationship between the rich and the poor parts of the world, which allows the big multinationals to buy the poor countries' material and human resources on the cheap, while selling them finished products and services at extortionate prices which they can only afford by borrowing. This vicious circle not only perpetuates the gap between rich and poor countries but actually enlarges it. Not to mention the fact that again and again, the states of the rich countries on whom the anti-IMF and anti-WTO demonstrators rely upon to bring about change, use their military might as a means to reassert or increase the looting of the world by their own capitalists - the "war against terrorism" being the latest example of this.

Those who are demonstrating outside the IMF summits to demand that the governments should clamp down on financial speculation forget to whom they are talking - the trustees of the speculators. Indeed the idea that speculators are "bad guys" as opposed to "decent", investing, capitalists is nonsense. Just as stock markets are one of the main channels through which companies find the funds they need when and where required, speculation, that is the possibility of making profits out of financial fluctuations, is what attracts unused funds towards stock markets. Financial speculation and material production are two sides of the same coin under capitalism. Restricting speculation can only result in less capital being available to the productive sphere, less investment, fewer jobs, etc.. - unless the capitalists manage to find other sources of capital, like public funds in particular, in which case the working class still pays the bill, but in a different way, through increased taxes and reduced services.

Whatever the "anti-globalisation" currents may claim, any attempt to tame the capitalist beast without attacking capitalist profit itself is doomed to failure.

Today, both for the working population of the rich countries and the poor masses of the Third World, the crucial issue is: who will bear the burden of the capitalist crisis? And for the working class here, the question is how this burden can be shifted onto the capitalist class. Seeking state intervention on the basis of the present balance of social forces is a dead end, because it is putting the cart before the horse. The state is, after all, merely the instrument of the capitalist class. It does what the capitalists tell it to do. And when the capitalist class fears for its profits due to a challenge by the working class, which tips the balance of forces in its own favour, the capitalists will have no choice but to concede ground. In other words, the point for the working class is to prepare itself to change the balance of forces by making this challenge.

Returning to the 1930s

Economic commentators have frequently referred to the Great Depression of the 1930s either in an attempt to prove that today's "fundamentals" are "healthy" or to warn against too much complacency. But they rightly point to many similar economic features.

What is true in economic terms is also true in social terms. The circumstances faced by the working class during the Great Depression are in many respects comparable to those they have experienced during the last two decades. Consequently, there are a number of things which can be learnt from that period.

It should be recalled that the 1929 Wall Street Crash, which heralded the Depression was preceded by a period of massive increase in US industrial productivity - largely due to new technology and automation. This period produced a huge speculative bubble, fed by the "new technological revolution" which like that of the present period was led by developments in telecommunications, particularly the mass production of the radio. Between 1922 and 1927 productivity increased by 53% while average working hours remained unchanged. One result was that 9% of the workforce was already unemployed by 1929, before the crash - a fourfold increase on the 1914 level. Another was the increase in the number of workers suffering industrial injuries to 10% per year.

This did not prevent John Moody, who was the founder of the Credit Rating Agency in the US, from making a prediction which sounds very like the crazy hype which accompanied the recent Internet and "Dotcom" "revolution" as everyone called it. "In fact", said Moody, in 1928, "a new age is taking form throughout the whole civilised world; ... We are only now starting to realise, perhaps, that this modern, mechanistic civilisation in which we live is now in the process of perfecting itself". Then came the crash.

After the collapse in the stock market on 24 October 1929, share values fell by 30% in 10 days and then went into a prolonged downward curve. By 1932, stock markets had lost 75% of their value. That same year a series of spectacular bankruptcies in Austria and Germany resulted in a worldwide banking crisis. As a knock-on effect, world trade declined by 65% and world production fell by 41%.

The US working class was of course the first to be hit. Unemployment shot up from 4.5m in 1929 to 19m by 1933. Henry Ford closed down all his plants in 1931, within weeks of claiming that the only reason people were out of work was because they were lazy and refused the jobs available! During the first five years of crisis, US wages were cut by 45% on average.

All over the world workers were thrown out of their jobs, forced to tramp the streets and millions in the rich countries sunk into penury and near-starvation for the first time since the 19th century - while the luckier ones were left with paltry state handouts to live on. Having smashed workers' conditions, the capitalist class was able to get back on its feet on the basis of a hugely increased rate of exploitation of labour.

Even after the relative upturn, which began in 1934 in the US and somewhat later in Western Europe, the standard of living of the working class did not return to its pre-1929 level. Writing at the end of the 1930s, Trotsky pointed out that the development of chronic unemployment illustrated capitalism's aggravated degeneration: "The present army of unemployed can no longer be regarded as a reserve army', because its basic mass can no longer have any hope of returning to employment; on the contrary, it is bound to be swelled by a constant flow of additional unemployed. Disintegrating capitalism has brought up a whole generation of young people who have never had a job and have no hope of getting one." These lines could have been written just as accurately in 2002!

At the time the states of the rich countries did intervene to contain the crisis. But because their intervention took place against the backdrop of a balance of forces which was tilted against the working population, it was entirely devoted to bailing out their respective capitalists at the expense of working people and the jobless. In fact their intervention was the starting point of a lethal spiral. Protectionist barriers went up, thereby cutting the populations' standard of living while exacerbating the worldwide struggle for markets. Meanwhile, the states propped up private profits with a huge increase in military programmes.

Eventually the chickens came home to roost: the trade war turned into an all-out war. Under the cynical lie of a "war between democracy and fascism", the populations of the rich countries became the cannon fodder of the bloodiest war in history. Then and only then did the capitalists manage to overcome the consequences of the Depression - by destroying the productive forces of their competitors on an unprecedented scale, together with tens of millions of lives.

Those who are calling on governments to contain the excesses of today's capitalist system should indeed remember the 1930s - and the catastrophic consequences of governments being allowed to deal with the crisis as a function of the interests of their capitalist masters.

For a counter-offensive of the working class

he communist activists of this period had no illusions in this respect. Right from 1919, they had warned that the Versailles treaty, which concluded World War I, had already set the stage for another world war, by imposing unbearable conditions on the defeated capitalist classes, without resolving the rivalries between the victorious ones. Once the capitalist crisis began, in 1929, Trotsky argued endlessly that unless the working class intervened to take matters into its own hands, the capitalist system was on course to a new world war.

In several countries the working class did intervene. From 1934 onwards, a huge wave of militancy swept across the USA. But it had no political backbone and was impregnated with illusions in the willingness of Roosevelt's New Deal administration to stand by the interests of the working man. In France, on the contrary, the working class had a long tradition of independent political organisation. When militancy re-emerged, in 1934, to culminate in a general strike, in June 1936, Trotsky and his French followers sought to build on this tradition. Far from encouraging any illusions in the willingness of French politicians to help out the working population, Trotsky argued relentlessly for a general mobilisation of the working class aimed at taking control of its own future without relying in any way on the "democratic" institutions of the capitalists' states.

The "programme of action", written by Trotsky for the paper of the French Communist League, in June 1934, illustrates his approach. In this programme Trotsky argued that the working class needed to mobilise its ranks in order to impose its control on every aspect of the economy:

"Business secrets are but a device for controlling the life of the poor, disguising all the banking, industrial and commercial affairs of the rich (..) who hide under the cloak of "general welfare" and "national economy." (..) Those who demand sacrifices must start by presenting their account books. Thus will their crookedness be unveiled. (..)
"Bourgeois democracy accorded the labouring masses a semblance of political control over their leaders by the ballot box. As long as this did it no harm, the bourgeoisie permitted such democracy. But it never permitted even a shadow of control over its economic administration, over the basis of its exploitation, which ends in anarchy, bankruptcy and destitution of the masses. (..)
"But the workers want to know all parts of the machine. They alone can judge its functioning. In place of the capitalist rule of management let us set up the implacable control of the labouring people.
"Factory committees, peasant committees, committees of small functionaries, of employees could very easily, with the help of honest technicians, engineers, accountants loyal to the working people, do away with the "business secrets" of the exploiters. It is by this method that we must establish public control over banks, industry and commerce. (..)

Likewise, added Trotsky, the working class could stop the crippling of public services by on-going cuts, by imposing its control on their operation:

"The great institutions of the state ( post office, customs, education, etc. ), which exploit several million toilers, function for the benefit of capitalism.(..) We must make a clean sweep. With the collaboration of all the exploited, committees and unions of small government employees will make the necessary changes to establish real social services that function by and for the labouring masses."

Mass mobilisation and workers' control over the economy and, in fact, all aspects of social life, were, therefore, the two vital elements advocated by Trotsky to allow the working class to shift the balance of forces in its favour and stop the bosses and their politicians from squandering the wealth created by their labour.

Today's crisis may be different in certain respects from that of the 1930s. The threat of a third world war is not on the agenda, at least not yet, although the on-going military intervention of the imperialist powers against the poor countries imply a constant threat of large-scale political destabilisation, whose consequences could be just as catastrophic. Nor has today's crisis been as spectacular and devastating as in the 1930s, so far in any case. But the present crisis has been going on for over two decades now, far longer than the crisis of the 1930s and the scars it has left are probably just as deep. And above all, as we saw earlier, behind today's crisis are the same mechanisms, built into the capitalist system, as in the 1930s.

This is why Trotsky's approach remains just as valid today as it was at the time. For the working class to rely on the governments and the so-called "democratic institutions" of the capitalists' state to protect their interests against the same capitalists is a dead end. Just as it is a dead end to count on the sectional fight backs advocated by the trade-union machineries - that is when they do not urge workers to keep their heads down! On the contrary, the working class needs to mobilise all its forces in order to prepare a counter-offensive against the offensive of the capitalists and their politicians. And it needs to galvanise its forces by forging a fighting programme which can provide credible and effective answers to the most urgent problems of the day.

When hundreds of jobs are being cut week after week, under the pretext of "falling profits", while directors award themselves massive bonuses and distribute more profits to shareholders than they actually earn (which is the case today in the USA), it is time for the working class to bring directors and shareholders to account, scrutinise what has happened to their present, and also past profits, and ensure that they are used to maintain jobs, production and investment. When hugely profitable companies close down factories in order to maximise profits, thereby destroying production capacity and throwing thousands of workers on the scrap heap, it is time for the working class to impose on governments that they should ban job cuts under threat of requisition without compensation. It is time, in other words, for the working class to mobilise its ranks in order to impose its control over the economy on the bosses and governments, by the sheer strength of its numbers and determination.

Once again, we do not know how much worse the present slump will get. But what we do know is that the present economic crisis will go on, come what may, and that at some point the working population and the jobless will feel the need and the confidence to respond in kind to decades of attacks against their condition. That day, we have to make sure that it is equipped with such a programme - a vital instrument which will ensure that its fighting energy is used to the best of its potential.

9/02/2002