the Voice of
The Communist League of Revolutionary Workers–Internationalist
“The emancipation of the working class will only be achieved by the working class itself.”
— Karl Marx
Dec 1, 2005
The text that follows is the translation of a document adopted by the 35th Congress of Lutte Ouvrière, the French Trotskyist organization in December 2005 and reprinted in their monthly journal, Lutte de Classe, Number 93. We reprint it because it deals with issues about which a lot of questions are raised today, such as the oil crisis, China and the ongoing international economic crisis.
The year 2004 is portrayed almost unanimously as a year of "exceptional economic performance," with a growth rate of over 5% worldwide, the highest since 1976. There is no shortage of statistics to back up this claim: 4.4% growth in the U.S. in 2004, compared to 3% in 2003; more than 5% growth in Latin America and Eastern Asia and even in Africa (although the starving children of Niger and Malawi don’t notice the growth). Only Western Europe is having some problems, mainly in comparison with the U.S. But it is still credited with 2% growth for 2004, although with a slow-down in 2005.
In fact, these figures show that the bourgeoisie and its spokespersons have adapted, including in their statistics and vocabulary, to a situation where real production progresses only weakly, if at all; where the trend of productive investment remains at a low level in spite of periodic fluctuations; where factories close down and unemployment remains dramatically high and where the very notion of growth concerns mainly the growth of corporate profits and the increase in income and consumption by the bourgeoisie.
The successive phases of expansion and slowdown, as well as the conjunctural cycles are taking place against the backdrop of an economy that has failed to come out of a long period of depression, starting from the late 1960s and early 1970s.
In last year’s conference documents, we outlined the features of the capitalist economy that had been sharpened over the past 30 years or so, and especially the primary role of finance in the world economy: "The increased role of finance was, at first, a result of the crisis. Capital which was not used in productive investment was channeled toward high-yield financial investments. These included, depending on the period, government bonds of imperialist countries, in particular those of the United States, loans to poor countries, company shares and bonds, monetary speculation, the financing of mergers and acquisitions of big companies, etc. But today, the function of finance favors short-term financial profit over long-term productive investment, and has now become one of the causes of the capitalist crisis.
"In other words, because the production crisis has been prevented from going to the end of its logic, it has not functioned as it usually does to regulate imbalances in the economy. Economic crises are not accidental byproducts of the capitalist economy. They constitute essential phases in capitalist reproduction. Through these crises, the market economy, driven by blind competition and anarchy, re-establishes the balance between production and realizable consumption, between the various sectors of the economy, in particular between the sector producing the means of production and the sector producing the means of consumption, as well as between the various economic functions. These crises, by destroying part of the productive capital and ruining a section of the capitalist class itself, create a clean slate, producing the conditions necessary for the restarting of productive investment....
"By contrast, the so-called "investment" achieved by financial companies such as pension funds, trust funds, insurance companies and other speculative funds are merely financial deals, i.e. the money is not invested in production, where it would be immobilized for a while. It is only put where it can turn financial profit in the short term....
"The growing share of this kind of financing in the capital of industrial companies has repercussions on their management. Seeking maximum short-term profits goes against the needs of long-term investments to build new factories, buy new machines, etc., which ties up capital. As a result, capital which is the most concentrated—that is, capital which controls the most powerful means of production of society—is less and less able to play its role, which is to organize production on a capitalist basis."
The so-called "growth year" of 2004 did not reverse the basic trends of the economy, any more than the previous periods of expansion did. Each one of these periods ended in a more or less serious crisis, whether it was a stock market crash, a monetary crash or a crisis in a sector of the economy. Many of the features which contribute to the present euphoria—whether it be real estate speculation or a new upward trend on the stock market or even the increase in company profits—results only in increasing the primary role of finance. The search for places to put money, resulting in erratic money flows, implies a new threat of a crash.
Since 2003, the profits of big business have resumed a rapid rate of growth, reaching record levels in the first half of 2005. These profits allow, first of all, the distribution of fat dividends to shareholders, which is the basis of the capitalist class’s increase in wealth. A small part of these high profits is used to build new factories or new assembly lines, but mainly with the aim of being closer to the new consumer markets that have opened in Eastern Europe or in China. In the industrialized countries, most productive investment is aimed at replacing obsolete equipment or at modifying assembly lines in order to bring out a new model, etc. Most of what statistical figures describe as "productive investment" is actually only the acquisition of rival companies, with their existing factories, their patents, their labs and above all, their share of the market. The wave of mergers and acquisitions, which had been slowed down by the stock market crisis of 2001-2002, has resumed with new vigor, giving in turn a boost to the stock market. Stock prices on the Paris stock market, for example, have increased 20% since the beginning of the year 2005. These high profits have also been used to buy back stock, with a company buying at a high price its own shares on the market, in order to boost the price of the remaining shares of its shareholders. The so-called "growth" remains the growth of finance, rather than the growth of productive investment.
We are told that the current expansion of the world economy has been pulled forward by the expansion of the U.S. and Chinese economies, which supposedly complement each other.
So-called growth in the U.S. is based on an explosion in real estate prices and in consumption; the two are actually closely linked. The largely speculative real estate explosion increased paper values of property, which in turn were used to refinance mortgages or to extend consumer credit. U.S. consumption statistics conceal the fact that consumption by people with high incomes has increased, especially as they benefitted from tax cuts, while at the same time the purchasing power of a large part of the working class has declined, aggravated by sharp cuts in public and private health and pension benefits. Social inequalities have reached an unprecedented level.
Significantly, while domestic consumption in the U.S. increased by 35% since 2000, with a sharp acceleration in 2004, the actual increase in the physical amount of industrial production was only 5% since 1997 and not at all since 2000. (These figures come from the Bureau of Economic Analysis, the statistical section of the U.S. Department of Commerce.)
The U.S. capitalist class itself is not fooled by the present consumption euphoria, which is based on credit and therefore on the indebtedness of individuals. The capitalists do not increase real investment in production because they understand the market is not promising enough.
This year, U.S. multinationals benefitted from an amendment hidden deep in the budget voted on in 2004. This amendment allows them to pay only 5.25% in tax, instead of a theoretical 35%, on the profits they make abroad and repatriate to the United States. In just one year, the big U.S. companies repatriated the colossal amount of 350 billion dollars. This amendment was allegedly passed in order to facilitate domestic investment in the U.S. and create jobs. But as the French daily Le Monde noted, this money was used mostly to feed the wave of mergers and acquisitions on Wall Street.
The only investments that increased were in the so-called new technology sector, which as a result has managed to recover from its collapse following the 2001 stock market crash. Statistics on investment may have increased in 2005, after a sharp decrease in previous years, but only because of investments in computers, IT technology or telecommunications.
According to the Center for International Studies in France (CEPII), the whole increase in U.S. domestic demand was met by imports. In other words, increased demand in the huge U.S. market pulled the world’s economy forward.
But dependence on imports to fill growing private U.S. consumption results in a massively growing trade deficit for the U.S., going from 150 billion dollars in 1997 to 700 billion in 2004. This deficit has been covered by money coming from countries such as China, Taiwan and South Korea, which return their trade surplus back to the U.S., placing it in government bonds, real estate, etc. Despite the present weakness of the dollar, the U.S. economy remains the most powerful in the world and the only one trusted by the bourgeoisies in the rest of the world. In other words, the poor and semi-developed countries are using the forced savings of their poor population to finance the consumption of the well-off classes of the richest country in the world. This reflects the evolution of the world’s economy toward a parasitic economy, in which the beneficiaries are the bourgeoisie, large and small, of the world’s imperialist countries, especially the most powerful among them, the U.S.
Thanks to the role of the dollar as the main international exchange and reserve currency, the U.S. is able to get the rest of the world to share the burden of its declining currency; thus, the U.S. becomes even more indebted. The U.S. economy operates on a mountain of debt: the debt of the state itself, that of the big companies and that of individuals. The continuous increase in this debt plays a major role in the explosive growth of money on a world scale. Because this debt-created money is not invested in production, it increases the weight of finance on the economy and thus increases the threat of recurring crashes.
China is today described as the second focus of development of the world economy, and even as the future rival of the United States. For the past 25 years, China’s foreign trade has increased by 15% a year, after a long period when the country was almost totally isolated from the world economy. In 1980, China counted for only 1% of the world’s trade. Today, it counts for 5%. Foreign trade is said to be twice as important today for China’s economy as for Brazil’s or India’s and is comparable to that of Mexico.
Chinese leaders succeeded in re-integrating the country in the international circuits of the capitalist economy. While the regime retained the communist label, unlike the former Soviet Union, the Chinese state has succeeded when the Russian state partly failed: it ruthlessly led an economic transition, resulting today in the fact that more than half of China’s GDP is said to be produced by private companies.
Mao’s seizure of power in 1949 broke, at least partly, China’s subordinate relationship to the imperialist powers and it allowed the Chinese state to preserve for almost 30 years the perspective of bourgeois development. The protectionist barriers that the regime set up, the blockade imposed by U.S. imperialism, the predominant role of state industry, the state monopoly over its foreign trade—all of these combined to cut the Chinese economy from the world economy and from the advantages of the international division of labor which exists world-wide. At the same time, they also protected China from an invasion by imperialist industrial trusts and from their direct looting. This allowed China to centralize, through the state, the means necessary to develop its infrastructure and to extend its heavy industries. Thanks to state ownership and centralization, overall, China enjoyed one of the highest investments in fixed capital in the world. But investment was made to the detriment of consumption by the laboring classes from the towns and the countryside.
While a privileged layer continued to exist in China, economic development took place on the basis of a certain equality for the popular classes. Although their standard of living was very low, they could rely nevertheless on the state for some protection in the fields of health, pensions, and so on. Today, this equality of protection is being completely dismantled.
China’s past accumulation allowed it to embark on its present evolution, resulting in a remarkably fast enrichment of the Chinese bourgeoisie. This enrichment is spectacular: some billionaires appeared overnight with fortunes comparable to those of their peers in many other semi-developed countries in the world, like Brazil and Mexico; and a much larger layer of the middle bourgeoisie emerged, creating or appropriating a large web of small enterprises scattered in China’s huge countryside. Judging by the little information available, this middle bourgeoisie, helped by the state apparatus, has waged a ferocious class war against the population of the countryside. Compared to China’s population of 1.3 billion people, this privileged Chinese class is relatively small; but its 30 to 50 million numbers represents in absolute terms a significant market—above all, given its Westernized consumption habits. The enrichment of this privileged minority has been based on the exploitation of the working class and on the huge poverty of the countryside. And the two are linked, as always in the capitalist economy: the enormous numbers flocking into towns because they can’t survive in the countryside provide the Chinese bourgeoisie and the imperialist trusts with some of the cheapest manpower in the world.
The bourgeoisie’s international institutions, including the World Bank, today advise the Chinese state to remedy, at least to some extent, the catastrophic social situation, which carries the threat of a social explosion. Ironically this threat, produced by the dismantling of the previous welfare system which assured almost the whole of the urban population health coverage and a pension, is blamed on the "communist" nature of the regime.
It’s nonsense to pretend there is a partnership between China and the U.S. and that this is the engine pushing forward the world economy—just as it’s nonsense to pretend that the growth of the Chinese economy represents a threat to the developed imperialist countries, and in particular to the United States. The economic ties between the U.S. and China are the unequal ties between an imperialist country and an underdeveloped country. Three quarters of the famous Chinese exports, which are supposed to threaten the industries of the rich countries, are actually produced by foreign companies implanted in China or by Chinese companies directly associated with foreign trusts. In 2004, China was the second largest recipient of capital flows from other countries; and it had the fifth largest total stock of foreign capital, coming mainly from Japan, Taiwan and the Chinese diaspora in Southeast Asia. That part of foreign capital which is invested to actually create new production facilities dominates the most modern sectors of Chinese industry (electronics, IT assembly, etc.) and benefits from their exports.
Most of China’s foreign trade, both in imports and exports, is carried out with the more industrialized countries of East Asia. A large part of this trade is carried out within industrial companies that use China as merely an assembly plant, a stage in the production process. China does not control this production process and the profits derived from it; nor are the products produced in China aimed at the Chinese market.
By selling its goods at a very low price, thanks to the very low wages of its workers, China exchanges a lot of local human labor for a lot less foreign human labor, to the great benefit of foreign capital. This is the very mechanism that produces under-development. The main beneficiaries of the exploitation of Chinese workers are, on the one hand, the big foreign companies on which the Chinese assembly industry depends and, on the other hand, U.S. and European retail giants. Chinese exports—mostly from traditional sectors of the Chinese economy, like textiles, clothing, shoes, etc.—benefit Wal-Mart, one of the largest U.S. companies, with sales larger than the GDP of Greece or Finland, and the French company Carrefour, the largest retail company in Europe. These huge companies benefit from low Chinese wages—not in order to reduce prices for consumers in the rich countries, but to increase their own profit margins.
Moreover, trade between the so-called partners, China and the U.S., is only a partial exchange. The U.S. pays for its imports from China with dollars, which China then deposits back in the United States. This exchange is nothing but a transfer of value from a large underdeveloped country to the main imperialist country. There may have been no future for China based on its past total economic isolation from the rest of the world—contrary to claims made at the time by its Maoist leaders. But the policy of completely opening China’s economy to the capitalist world market, which has been carried out over the past 20 years, is creating a noose around the necks of the Chinese working class. That does not prevent "our" capitalists from using the so-called threat of Chinese goods in order to reduce wages and lay off workers here.
In addition to foreign-owned Chinese companies, a few that are Chinese-owned may be able to compete with Western goods on the world market. The move to re-establish quotas, which has now been more or less implemented by the U.S. and the European Union, shows that the main imperialist countries may well back-pedal to prevent China from competing with them, at least in their own markets. However, there is an obstacle to protectionist measures by the imperialist countries: the fact that China itself represents a market and, moreover, a growing market. The Western European and U.S. trusts may well accept Chinese competition on tee shirts, textiles, shoes, etc., because they want to be able to export aircraft, high speed trains and so on, to China.
The two main factors currently driving so-called world economic growth are consumption on credit by the big and small bourgeoisie and the merry-go-round of financial deals, which have replaced productive investment. However, the constant reduction in the working class’s share of the national income reduces what workers consume. By reducing the capacity of the exploited classes to consume, the capitalist class itself makes it impossible to bring the crisis to an end. In order to make up for under-consumption by the working masses, the capitalists artificially increase consumption of the well-off classes, through tax cuts and extension of credit. But this only contributes to a still greater dominance by finance over the economy.
The explosion of oil prices over the past year is a manifestation of the current phase of the capitalist economic crisis. Contrary to the lying propaganda heard everywhere this crisis is not a natural phenomenon, expressing real limits in petroleum reserves, any more than were the two previous oil crises. Fundamentally, the crisis is a result of the failure of the oil trusts to invest adequately in exploration for and exploitation of new oil fields. (Total, which registered the largest profit of all French companies this year, invested half of what specialists estimate it should have. The U.S. oil giants haven’t built a new refinery in the U.S. for 29 years because new refineries aren’t profitable enough for them.)
The oil giants prefer to make profits on the basis of stagnant or even declining production, using their monopoly position to limit distribution of oil to the world.
In contrast to the first oil shock of 1973, today’s oil crisis is marked by and aggravated by the increasing domination of finance over the world economy during the past 30 years and the much larger masses of money constantly searching for places to turn a profit. By setting off the present oil price increase, the oil trusts attracted this floating money, thereby causing oil prices to go up even more. Oil is the subject of speculation, just as the stock market is, or real estate, or any other raw material.
The first oil shock, by recycling the so-called "petro-dollars’ gained by high prices, aggravated the monetary crisis of the 1970s, leading to a greatly increased role of finance in the world economy. The current colossal profits made by the oil majors may have similar consequences. Some of these profits may be invested in new sources of energy or in oil reserves that are harder to exploit or even thought to be unprofitable. But there is no guarantee, even with the oil trusts holding such enormous amounts of cash, that they will use their money to expand production instead of throwing it into financial circuits, inflating these circuits once again.
The current wave of mergers and acquisitions are being carried out mainly by the big trusts of U.S. and the European imperialisms; and most of the entities acquired in this way are based within the U.S. or Europe. The share of foreign shareholders in the CAC 40 companies—the 40 largest French companies in terms of stock market capitalization—has increased from 10% in 1985 to 44% in 2003 (U.S. and British pension funds alone account for 25%). Conversely, almost three-quarters of foreign investment in the U.S. is European. The result is an increased inter-penetration of cross-Atlantic capital in the big industrial and financial groups.
With the exception of a dozen poor countries which attract investment in production—like China, South Korea, Malaysia, Mexico and Brazil—the vast majority of poor countries enter the capital circuits only through their indebtedness. And the poorest among them, the so-called "least developed countries," are completely marginalized; their share of world trade is insignificant. The capitalist economy is condemning a growing fraction of humanity to a slow death.
Vast sums of money coming from China, Brazil, India, Mexico, South Korea or Taiwan are directed toward the U.S., allowing it to maintain its current accounts balance in equilibrium, despite its enormous trade deficit. But the movement of capital going from the U.S. to these countries does not have the same nature nor the same significance. And this is characteristic of the relationship between the imperialist countries and the non-imperialist countries.
Money from the poor countries is put into U.S. treasury bonds, company bonds or simply bank deposits, but U.S. capital placed in the poor countries is put into stock shares. In other words, the capital deposited by the poor countries in the U.S. gives them no control over the U.S. economy, but the capital placed by the U.S. in the poor countries allows it to control their companies and even to ruin them.
No matter how simple or complicated the way in which any part of the capitalist class benefits from the "fruits of growth," it always feeds, in the last resort, on the surplus value extracted from the working class. The integration of new contingents of proletarians from China and other poor so-called "emerging countries’ into the world’s economic circuits is only a means to increase the overall surplus value available to the world bourgeoisie. The big bourgeoisie and the capitalist trusts have no confidence in a recovery nor in the possibility that international markets would enlarge continuously—but without such an enlargement of markets, increased production does not produce increased profits. In this context, the only way for the capitalists to increase the total surplus value available to them is to increase the absolute and relative surplus value they appropriate; in other words, to reduce the cost of labor, increase working hours and increase the intensity of work. The bosses are cutting wages everywhere, replacing secure employment with casual employment, increasing working hours. Meanwhile, governments attempt to reduce indirect wages, attacking pensions and health insurance, etc. The fact that the class war waged by the bourgeoisie and its states is worsening in every country in the world, the fact that all governments are acting in the same way—this only reflects the profound requirements of the capitalist economy.
For almost twenty years, barriers that had once put some limits on the free circulation of capital throughout the whole world have been progressively dismantled. The collapse of the Soviet Union opened the door to foreign capital in the states that came into being. The former People’s Democracies completely reintegrated into the world capitalist market, while China is in the process of doing so. Those poor countries that had tried in the past to use state control over their economies in order to limit the stranglehold by imperialist trusts have one after the other lifted these restrictions.
But most important, the weakening of the working class movement has given free rein to large capital everywhere, including in the industrialized countries.
But the new fields of activity that opened to the big industrial and financial groups did not result in a new period of expansion for capitalism. The increased domination of finance capital over the world economy only aggravated the parasitic and usurious nature of capital. Inequality keeps increasing—between the capitalist class and the working masses, between a few big fortunes and the majority of the planet’s population, between the rich countries and the poor countries.
Because it is a by-product of capitalist development itself and acts within the existing social order, the working class movement has never avoided pressures coming from the society within which it exists. The development of imperialism at the end of the 19th century resulted in the reformist degeneration of the working class movement. The defeats of the first large wave of working class revolutions in 1917-1919, which left the Soviet Union isolated, followed 10 years later by the Great Depression, with the rise of reactionary regimes and of fascism, resulted in the Stalinist degeneration. Today, the rotting of imperialism is reflected in the rise of a galaxy of reactionary ideas, from the various religious fundamentalisms to ethnicism, not to mention the glorification of capitalism, portrayed as the only possible form of social organization.
As a result, Marxism, even in its form distorted and corrupted by Stalinism, has receded.
It is precisely this rise of reactionary ideas that makes it vital to preserve and defend Marxist ideas and the Marxist program. Only the communist program, revolutionary Marxism, which, to paraphrase Marx, seeks to understand society in order to transform it, can give a political perspective to the future struggles of the working class. And the evolution of capitalism itself, its incapacity to resolve the problems of society, will end up, sooner or later, in bringing about a rebirth of a revolutionary working class movement ready to take on its historical role. Produced by the internal evolution of the capitalist economy, the international working class remains the only force capable of transforming society.