Rarely have perspectives for Britain been more affected, even determined, by the march of events internationally. This current phase of capitalist globalisation has some similarities, but at the same time is different, to the ‘globalisation’ – although not known by this term at that stage – of the late nineteenth and early twentieth centuries, which crashed in the catastrophe of the First World War. That period was marked by the export of capital to ‘colonies’, which became protected markets, as well as sources of cheap raw materials. This resulted in a constant jockeying and conflicts between the different imperialist powers, with the emergence of the USA and Germany as rivals to the ‘older’ imperialist powers. The inter-imperialist rivalry today is similar. The pre-first world war struggle could ultimately only be settled by war.
Today, however, a new world war is not possible but a ferocious trade war is. There are, of course, many features of that period in the present situation: a ferocious struggle between the imperialist powers for resources, particularly oil, an economic competition for advantage and superiority, accompanied by military conflicts and interventions, such as the Iraq War. This is manifested above all in the developing conflict between the US and China, which is likely to dominate world developments in the next period.
This stage of capitalist globalisation differs, however, in one major respect from the pre-First World War period. Then, capitalism primarily exported capital to its colonial possessions as a means of extracting cheap raw materials and selling back dearer manufactured goods, consequently receiving, as Marx put it, "more labour for less labour". This unequal ‘terms of trade’ still exists and, in fact, has got worse for the neo-colonial world. In the last few decades, however, foreign direct investment (FDI) has been primarily concentrated in the ‘triad’ of Europe, the US and Japan. This has now been somewhat modified by the colossal export of capital to China – which is now almost on a par with the US as a recipient of FDI – and, to some extent, Eastern Europe and the former USSR, as capitalism seeks to relocate its productive potential in order to exploit the pool of cheap but educated labour provided by the collapse of Stalinism.
Between 1990 and 2003, FDI soared and the ratio of the stock of FDI to global product grew from 9% to 23%. This, together with other factors, such as the so-called information and communications revolution, has meant a colossal integration of the world economy, which in turn means, as Marx predicted, that events in the national arena will be increasingly shaped by processes on a world scale. The neo-colonial world is integrated into this system but is still mainly a source of cheap primary products. The rise of China, however, threatens in the long term the hegemony of the triad and particularly the US, economically as well as militarily. The US and thereby the world economy currently hinges on China and to some extent Asian capitalism as a whole.
This presupposes that China can continue an uninterrupted growth path which is not at all certain. There is a threat of a world recession or even a slump which would severely impact on China. There is also the inevitable resistance of the working class to capitalism and a rise in wages through mass struggle, which in turn could lead to foreign capital relocating to more favourable, lower wage regions and countries.
Currently, an astonishing unwritten Faustian pact exists between the US and China. The US has the largest current account deficit ever which, the International Monetary Fund estimates, will reach $760 billion or 6.1% of US gross domestic product (GDP) in 2005, although recent forecasts suggest a slightly lower figure of $706 billion. Global growth is concentrated primarily in China and the US while Asia, Germany and oil exporting countries have record trade surpluses. As the Financial Times comments: "It is a bizarre world in which relatively poor countries of the world lend huge amounts of money to rich US consumers at extremely low rates." Peter Dixon, of Commerzbank, was quoted in The Observer: "‘The US has huge imbalances, both external, in terms of the current account deficit, and internal – high debt levels and low savings. You can only pull these imbalances for so long,’ says Dixon. Foreign investors own $12 trillion-worth of US Treasury bills – effectively, IOUs from the taxpayer." (30 October 2005)
The result of all this is what the capitalist economists call unsustainable ‘imbalances’. This means the Asian economies, led by China, have seen their foreign exchange reserves grow from 36% of the global total, excluding the US, to 60% today. China’s reserves have exploded, accounting for two thirds of the reserves of Asia as a whole. These reserves are overwhelmingly US dollar assets accumulated by most Asian central banks at the expense of investment in domestic industries. Asia, led by China, underwrites the US economy and plugs the gaping holes in the US deficits. At the same time, the market for government debt, involving the buying of US Treasury bonds, is still buoyant because the capitalists, flush with record profits, are pouring in their cash into these rather than into productive investment.
All of this has helped to fuel a rise in consumer spending and a decline in savings leading to "their increasingly unsustainable US housing boom" [Financial Times]. As we and the more serious capitalist commentators have pointed out, this financial house of cards could collapse at any moment: "Imbalances [are] near the tipping point." (Ibid) "The whole economy is running on capital gains", warns Charles Dumas of Lombard Street Research. "[If] house prices stop rising, the US economy’s going to have problems." (The Observer, 30 October) The exchange rate of the dollar could collapse at any time, leaving Asian central banks facing huge capital losses on their dollar holdings. For this reason, they could be tempted to ‘disinvest’ themselves of dollars for other currencies which, in turn, could be the trigger for the collapse in the dollar.
Boom – how long?
How long can the boom last? This is a question not just preoccupying us or the working class movement but the soothsayers of capitalism themselves. It has lasted this long only because world capitalism, led by the US, has been on a spending binge, fuelled by the quasi-Keynesian measures – for the rich in the main – at historically low interest rates, derisively called ‘free money’ by some bourgeois economists, and massive unsustainable deficits. A crash is certain, although the ‘how’ and the ‘when’ remain uncertain. However, such is the underlying fragility of the world economy the skids could be under it very quickly. On the other hand, the elastic could be stretched a bit more to a breaking point which could sustain the present economic cycle for a number of years. But, as the Washington-based Institute for International Economics has forecast, the balances are going to widen until markets get nervous about them, bond yields start to rise, and at that point governments start to get nervous. "Bigger adjustments are more painful. People want to ignore that and operate on the economics of wishful thinking." (Financial Times) Therefore, this present phase could come to a shuddering halt, plunging stagnant Europe into an even greater economic and political whirlpool, aggravating an already serious crisis for the Bush regime, and even pushing China’s seemingly unstoppable turbocharged growth into reverse.
In the medium and long terms the economic prospects for China and its effect on world capitalism are central. It has already had a decisive effect in sustaining the present ‘boom’ beyond its limits. Can it provide a more stable platform for a further, longer growth phase for world capitalism? The bourgeois economists fervently hope so. They claim that the collapse of the ‘planned economies’, Stalinism, in Eastern Europe and the former Soviet Union and the move towards capitalism in China has doubled the world labour force but the same capital stock remains. The seemingly endless supply of cheap labour, they hope, can fuel a ‘rebirth’ of their system. Such a hope is problematical to say the least. While investment in China or Eastern Europe has given and will give a certain boost to capitalism, it has mainly increased the ‘supply side’, the productive forces. Yet this is against the background of a growing overcapacity, particularly in manufacturing industry, autos, etc. Moreover, the market demand, particularly in China and in Eastern Europe and Russia, outside of a few urban centres is limited due to the low living standards and impoverishment of the masses.
But, if against the odds capitalism is able to so economically exploit China and Eastern Europe, thereby extending its life cycle, this would not be the end of the matter. First, there are the environmental costs in this era of global warming; the melting of the ice caps, etc, sustainable growth. The world cannot absorb the growth at present rates if one takes China and India alone. China might be the scene of spectacular economic fireworks but it is also, with the US, one of the greatest polluters on the planet. The world, never mind China, cannot sustain a resurgent capitalism which would drag the planet further into the abyss of irreversible environmental degradation. Moreover, neoliberalism, without which there would be no capitalist globalisation (deregulation, open borders for capital) as such, is a policy that world capitalism has no choice, at this stage, but to seek to implement throughout the globe.
This inevitably has and will, in the future, provoke a ferocious resistance, including revolutionary outbursts, from the working class and the poor masses. Even during the period when capitalism was ‘relatively progressive’ in the nineteenth and early twentieth centuries, the tendency, as Marx always pointed out, was to lower the share of the working class in order to boost the profitability of big business. This provoked the uprisings of the low-paid unskilled in Britain in the latter part of the nineteenth century, contributed to the 1905 Russian Revolution and the rise of the labour movement in the US, France, Germany and elsewhere. However, unlike the pre-1914 phase of capitalism, this resistance today has often been muted or weakened by the absence of the subjective factor, a mass party of the working class able to act as a pole of attraction, together with the ideological offensive of the 1990s and the first part of this century. Nevertheless, mass opposition has stayed the hand, albeit temporarily, of the European bourgeois.
The German elections, with the defeat of Schröder –if not yet his whole neo-liberal programme –underline this. The emergence of the WASG and its electoral link with the Left Party (the renamed PDS –the ex-Stalinist party with most of its support in East Germany) was a crucial factor in this process. The coalition government of the CDU and SPD coming out of the election is a weak one that will be paralysed by splits and indecision. Moreover, it will give the opportunity – assuming the party holds together – for the Left Party to emerge as a more potent force. This could be accompanied by industrial action in opposition to further attempts to implement Schröder’s anti-working class ‘Agenda 2010’ and go further. There is even a dim recognition by some bourgeois commentators that the neoliberal offensive in Germany cannot be carried through, at this stage, in the way that they hoped and intended. Before the election, the bourgeoisie looked towards a CDU-led coalition to go further than Schröder, who was meeting with internal opposition to his neo-liberal measures from within his own party and the unions. They expected a clear victory for a CDU-led government which would confront the German working class. The election outcome signified a defeat for this perspective.
The neo-liberal attacks on the working class have also provoked a period of upheaval in France, Spain, Germany, Belgium and Portugal; in fact, a continental revolt is brewing. The first instinct of the bourgeoisie when faced with social upheaval is to bend to the wind. Some of their strategists have argued that in Germany the kind of frontal attack launched by Schröder and promised by Merkel could ignite an explosion and therefore they urge caution. Better to attack from ‘below’ industry by industry, or even factory by factory, rather than through an overall national offensive at this stage. There is a concerted attempt to break the system of national negotiations between the employers and the unions. In France, de Villepin reacted to the successful general strike in October with the declaration that he was "listening".
None of this means that the bourgeois will easily abandon their neo-liberal policies but mass resistance can compel a temporary retreat, as was partially the case in the pensions struggle in Britain, and elsewhere. Moreover, if the world economy implodes the economic consequences could be so grave that the bourgeois could ‘park’, at least temporarily, these policies in favour of greater state intervention and further ‘priming the pump’ of increased state spending even at the cost of a growth of inflation. In fact, a phase where this becomes the dominant trend amongst the ruling classes is inevitable at some certain future stage. A form of Keynesianism has already been employed by the capitalists through increased state expenditure and ballooning deficits, which have already used up a lot of the reserves of capitalism. Therefore, future Keynesian policies will mean resorting to the ‘printing press’ for increased resources and, with it, increased inflation.
The problems confronting world capitalism are presently monumental, are accumulating and in the long term are intractable. The implications of the rise of China and the effects of this on world capitalism are major issues for Britain as much as for the rest of the world. The full implications of this have not yet fully worked themselves out. But China is now the manufacturing hub of the world; each week we hear the ‘sucking sound’ of jobs disappearing from the advanced industrial countries to China and Eastern Europe. The process appears to be relentless and unstoppable. China, and to a lesser extent India (mainly the expansion of information technology in the case of India), have developed as regions of low-skilled, low-wage manufacturing. China assembles imports from Asia and then re-exports them.
Now, however, a domestic concentration on innovative, hi-tech production is under way. While a high proportion of FDI in China comes from the US, Asian capitalism has also relocated a major part of its industries to China. Taiwan, for instance, has transferred practically its whole manufacturing base to the mainland. Japan has acted likewise. This has led to the situation highlighted in a recent EU report, which warned: "China is emerging as the most competitive manufacturing platform ever." Almost 20% of China’s exports are already classified as hi-tech and, as this report points out, "with two million graduates each year there is every reason to believe this percentage will grow". The share of Chinese GDP devoted to research and development is growing by 10% annually, while in the EU it is rising by only 0.02%!
Up to recently, bourgeois economists could comfort themselves with the notion that while manufacturing production could be relocated to China and elsewhere, research and development facilities, and thereby a monopoly over technique and technology, would still be concentrated in the ‘home’ country. For instance Dyson, the British vacuum cleaner manufacturer, relocated its production facilities to Asia while maintaining research and development in England. But the rise of China’s hi-tech base, partly facilitated by borrowing and outright ‘stealing’ from the advanced countries, will no longer necessarily allow this comfort zone to be maintained.
The implications of this massive relocation of industry and jobs to China and elsewhere raise some important issues with regards to Marxist theory. Marx, and before him Adam Smith, differentiated between ‘productive’ and ‘non-productive’ labour. The former created new value, in modern parlance ‘added value’. Non-productive labour, although often vital to the workings of capitalism, does not create new value but shares in the profits, wages, income, etc, which ultimately come out of the value created by productive labour. Marx pointed out that the surplus value created by the labour of the working class is divided into rent, interest and profit. It is not just in manufacturing that new value is created in the production process. But productive industry, manufacturing and its spin-offs, are the main source of value. Therefore, to lose a manufacturing base and all the attendant spin-offs and industries connected with this means, at best, becoming dependent on more powerful industrial countries.
Some can carve out a position for themselves as a ‘rentier’ capitalist country, specialising in ‘services’ such as banking, tourism, etc. This can be bolstered, as is the case in Britain for instance, by an income arising from big foreign investment, including the super-exploitation of the masses in the neo-colonial world. At the same time it can be a recipient of sizeable FDI, as has also been the case in Britain up to now. This is in the short term and will not necessarily be so in the future. However, for an economy, even continents, this situation poses the danger of a shrinking industrial base and a reliance on ‘services’. This, in the words of former British Prime Minister Harold Macmillan, is like "taking in other people’s washing". In the long run, the loss of real economic strength will be revealed in other fields.
Industrial strength reflects diplomatic ‘soft power’, and also military prowess, the potential for ‘hard power’. The prospect of China accumulating this economic and military power presently excites the opposition of the US ruling class. The ballooning bilateral trade surplus of China in its trade with the US has provoked clashes on textiles, etc. This is likely, at a certain stage, to generate an uncontrollable protectionist backlash as well. This is also linked to the growling of the US at China’s continued building up of military power, which in turn is linked to the rapacious search for more and more resources to fuel its economic growth. This in turn brings it slap up against the US ruling class, which is also involved in this ‘Great Game’, particularly for oil. Add to this the stalling of the Doha round of world trade talks – including a clash within the European bloc over agriculture – and it does not take much to imagine a future of increased rivalry and clashes which can be enormously aggravated by a world economic recession or even a stalling of growth.
In fact, the world economy within its recovery phase from 2001 has been experiencing a ‘growth recession’, a small development of the productive forces while failing to solve endemic unemployment, particularly in Europe where the official jobless figure stands at over 20 million. While this remains the case, the capitalists can hang together, occasionally striking blows at each other but without a complete fragmentation into a serious trade war. But a recession and even a period of slower growth will result in clashes which in turn can enormously aggravate the problems of the world economy. The fundamental factor – not immediately and not directly of course, but ultimately – is the development of the productive forces as the main motive force in shaping consciousness, particularly of the working class, and the reflection of this on political events.
Bourgeois crisis of confidence
What is striking about the present world situation is that the bourgeoisie is confronted by an unprecedented crisis of confidence worldwide. This is before the serious onset of economic problems for them in the form of a recession or slump. It is sharply manifested within the major capitalist imperialist power, the US itself. The neo-conservative cabal which rules through George Bush’s presidency has been an unmitigated disaster for US capitalism. Their rule has some parallels, only on a much larger canvas, as that of Thatcher in Britain, 20 years ago. Her ‘legacy’ is one of a fractured and increasingly impoverished society hidden by the glitz of economic ‘progress’. This has condemned her Tory successors to ignominy and defeat in one election after another. The Bush presidency threatens to do the same for the Republican Party, because of the disastrous, unwinnable war in Iraq but also in its economic stewardship of the US.
Francis Fukuyama was the prophet of the ‘End of History’ after the collapse of the Berlin Wall, by which he meant liberal bourgeois democracy was the ultimate stage in humankind’s historical progress. There is nothing new in this. The basic error of classical economists – Adam Smith and David Ricardo – was to view capitalism as humanity’s normal existence. There could be some excuse for these great classical economists. They lived before capitalism "had reached its full bloom, before capitalism had become old". (Trotsky) Fukuyama now advances similar arguments in a period of crisis and decline of this system. The US itself was to be the brightest star in his firmament. However, he now says, "At an elite level, leaders may seek to restore good relations with Washington out of self-interest but, at a mass, level, there has been a seismic shift in the way much of the world perceives the US, whose image is no longer the Statue of Liberty but the hooded prisoner at Abu Ghraib."
The Iraq war, like Vietnam, has convulsed US society even though the scale of American dead in Iraq is as yet merely one thirtieth of that in Vietnam. However Iraq intersects, also like Vietnam, with a serious economic situation. This has bourgeois commentators bemoaning the fact that ‘nobody has the will or the notion’ of how to avoid economic meltdown. The lame duck and politically battered George Bush cannot avert the looming catastrophe. Even worse, some argue, is the fact that the US is so bereft of bourgeois strategists that in the event of a serious economic crisis, they have no-one of the ‘stature of Franklin D Roosevelt’ who could step forward and ‘steer the US in a different direction’.
Roosevelt, it is argued, through his New Deal ‘saved’ US capitalism at that time. But his programme was largely, as Trotsky pointed out, advertised but limited ‘social reforms’ which did not solve the underlying economic crisis which lasted in the US throughout the 1930s. Only the looming Second World War and the development of war production began to drag the US out of the most serious economic crisis in its history. That route is not open to world capitalism today. Nevertheless, Roosevelt did play a crucial role through quasi-Keynesian methods in appearing to move the US in a different direction and politically his minimal job creation measures did pacify a section of the US working class, encouraging a belief in a ‘brighter future’.
Today, however, comments a US writer in the Financial Times, "If a crisis of the scale of 1929-32 strikes the US now [it is interesting that this can be put forward as a prospect – PT], the country would not find an FDR with a new deal programme to run against Republicans’ Herbert Hoover. They would have a timid, ineffective Hoover for the Democrats running against a Republican Calvin Coolidge, a hidebound defender of the worst aspects of the existing system. If that had been the choice in 1932, the very foundations of the American state would have been in peril." [5 October 2005] The US is beset by a huge crisis of leadership, a serious economic crisis, as well as an emergence of class feelings, which adds up to a future of political convulsions for the US and, thereby, of the world. The two bourgeois parties, Democrats and Republicans, will be increasingly redundant as the basis for a new mass party in the US is created.