In only a few months, the financial crisis which began with the collapse of the real estate boom and the U.S. credit crunch has become one of the worst crises of the capitalist economy since the 1929 Wall Street crash and the subsequent Great Depression of the 1930s.

The measures taken by the capitalist states attempting to contain the crisis speak to its magnitude. It is not everyday that the American congress decides to pay out $700 billion to avoid the collapse of the banking system or that the major European states set aside 1.9 trillion Euros to the same end. But despite the scale of funds involved, nothing indicates that it will be sufficient to contain the debacle–demonstrated by the U-turn of the Bush administration on the proposal to buy up the so-called “toxic assets” (bad debt) of the banks.

The political consequences of the crisis have already been seen in the landslide victory of Barack Obama, who became the first African-American president of the world’s strongest imperialist power. For broad sectors of the U.S. imperialist bourgeoisie, Obama is the preferred option to re-legitimize the U.S. internationally and uphold the role of containment that the Democratic Party has traditionally played when faced with the prospect of a heightening of the class struggle. Among the factors that brought young people, workers, African-Americans and other oppressed minorities to vote for the Democratic candidate are, without a doubt, the economic recession, and the quagmires faced by the US in Iraq and Afghanistan.

A crisis of historical proportions

However, after the elections, the economic situation has continued to deteriorate, with the advance of the recession in the U.S. and the Eurozone nations and the deceleration of the Chinese economy which brought about new drops in the stock markets.

The rapid plummet of stock markets around the world and the subsequent devaluation of the shares of major corporations already implied a large destruction of capital. According to data in the middle of October, around $27 trillion dollars in value had evaporated from markets. While the crisis began in July/August of 2007 with the sub-prime mortgage debacle in the U.S., the collapse of Lehman Brothers followed by the major insurance corporation, AIG in mid-September of 2008, (ending in the nationalization of the latter) sparked a downward spiral in markets, monetary crises and the drying up of inter-bank credit. This lack of credit threatened to paralyze the operation of the capitalist system and forced the governments of the major powers to intervene decisively in order to attempt to restore, at least, credit amongst the banks.

Throughout the neo-liberal period, capitalism had various crises; the Wall Street crash of 1987, the end of the real estate boom in Japan in 1990, the crisis of the European monetary system in 1992, Mexico in 1994, Indonesia and southeast Asia in 1997, Russia in 1998, the rapid devaluation in Brazil in 1999, the “Dot Com” crisis and the recession of 2001 in the U.S. and the economic crash in Argentina at the end of the same year–but none had the scale nor the reach of the current crisis. The crisis we are witnessing today originates in the heart of the world capitalist system, the United States, and from there extends like a cancer to rest of the world, dealing heavy blows to the European Union, Japan, Russia and the countries of the capitalist periphery.

The impact has been particularly serious in the Eurozone and reveals that behind the European Union project and the common currency, there continue to act the interests of each individual nation. This explains the tortuous process–due in particular to the reservations of Germany–of arriving at the agreement finally signed in mid-October by the major nations of the EU. Under this agreement, each of the EU Member States are committed to undertaking coordinated action to ensure that no bank fails. The agreement however does not imply a common preventative fund, as the French President Sarkozy claimed but rather is limited to a guarantee by each country to ensure inter-bank loans within its own borders, but with no government assuring that the money be loaned to banks of neighboring nations.

This crisis may even call into question the European Union project itself and it has already been a major setback for those who maintained it was possible to move forward harmoniously towards a greater integration of the “old continent”. This, for Marxists, is no surprise. Capitalism is a system based on competition. At the international level, the imperialist powers compete and defend the interests of their own corporations, a phenomenon which intensifies in moments of crisis. If on one side, there are pressures on the EU to take common defensive measures against other major powers, on the other, each state faces particular problems whose intent at resolution clashes with the needs of its neighbors. Furthermore, the most powerful European capitals do not look unfavorably on the collapse of their weaker competitors.

The real estate market crisis in various countries and the collapse of the big investment banks was followed by a series of monetary crises which are primarily affecting the so-called emerging nations, (a vague category referring to the backwards and semi-colonial nations) expressed by the depreciation of local currency against the Dollar and a strong revaluation of the Yen, which forced the Japanese government to intervene in an attempt to slow the ascendant tendency of its currency.

Added to these are the Eastern European countries that had been presented as successful models of capitalist restoration, such as Hungary, which recently demonstrated the weakness of its economy when exposed to the international crisis. The Ukraine also requested relief from the IMF, which set aside a special aid fund for nations in crisis in exchange for the implementation of economic adjustment programs. However, the IMF does not have enough money to intervene as it did in the ’90s, now that the United States has cut funding and the announcements of several countries to place new funds at its disposal (Japan, for example, promised $10 billion) are completely insufficient given the size of the debacle. The meeting of the G-20, called as a result of the crisis, which took place in Washington in mid-November, argued for the necessity of reforming the IMF and World Bank and establishing new controls over banks and the international financial system, but until now, the announced changes have not materialized to anything more than a list of intentions reluctantly accepted by the United States.

With the development of the crisis, the myth that the Chinese economy and other important economies of the capitalist periphery could separate from the crisis has also been debunked.
The growth achieved by the Chinese economy for the last 20 years brought many analysts, bourgeois as well as on the left, to consider that this country could act as a motor of the international economy in place of the United States. But the numbers reveal that China continues to be an economically dependent nation and does not possess the capacity to act as a great power. It occupies the 100th position in terms of per capita income and represents only 6% of the global economy. Adjusting its production to purchasing power parity, its economy is only 10% of the world. With 1.3 billion inhabitants, its consumption in 2007 was around 1.3 trillion dollars, whereas, the U.S., with a population of 300 million consumed $9.7 billion in the same period. And the labor productivity of the Chinese economy is greatly inferior to that of the U.S., Japanese and principle European economies. China has been hit hard by the crisis, as has the entire world, its economy is decelerating and the Shanghai markets lost some 60% of their value.

Faced with this situation, the Chinese government announced a public investment plan of $58 billion over the next few years, marked for infrastructure projects, reducing taxes, relaxing requirements for bank loans and freeing up funds for aid to the unemployed.

China, which sends a high percentage of its production to the American market, faces the possibility of a crisis of overproduction. According to some reports, thousands of factories are closing with the owners fleeing, leaving salaries and debts unpaid. This situation is beginning to open up space for a growing number of workers’ protests which peasants and other social sectors could join. This means that the economic crisis could transform into a political crisis for the regime and lead to the resurgence of the class struggle in the nation with the highest proletarian concentration in the world.

In the case of Latin America, its governments argued initially that they would be safe from the crisis due to the apparent solidity of reserves in the Central Banks. But the plummet of regional stock markets, capital flights, and the devaluation of local currencies, quickly put an end to these arguments.

Brazil, which had been the economic star of the region and held a high credit rating among imperialist agencies, was one of the hardest hit, leaving bare its dependence on international finance capital. Because of its influence in the regional economy and within Mercosur, the devaluation and eventual reduction of domestic consumption will have enormous repercussions for the economies for the rest of the region’s nations and is causing a certain division between these governments on how to respond to the crisis.

The end of the growth cycle in Latin America in the last five years is already a fact, as demonstrated by the continual drop in the price of raw materials–most notably, oil and soy, the drying-up of credit, the withdrawal of capital, and the plans to cut production amongst other factors, although we still cannot say with precision which will be the concrete consequences of the international crisis in the region. However it is now clear that no country will be able to avoid the effects of a crisis that has become truly global.

In this scenario, proposals such as that of the intellectuals behind the “Declaration of Caracas” who argue for the strengthening of the ALBA and Banco del Sur, and the creation of new regulated economic institutions and a Latin American monetary agreement to resolve the crisis are completely utopian. These projects could not even seriously be carried out during the previous period of economic growth and with the first symptoms of crisis in the region, they are completely baseless. Rather than moving towards a coordinated project, nations are already showing signs of defending the businesses of their own bourgeoisies, the most obvious examples being Brazil’s defense of the interests of Oderbrect and Petrobras during the negotiations with Ecuador, the open defense of the Brazilian soy companies (the largest landowners in Paraguay) and the military exercises carried out by the Brazilian army along the border with Paraguay and the Itaipú dam to make clear to the newly elected Lugo that it will not allow Paraguay to interfere with its interests.

The limits of state intervention

With the possibility of a general collapse of the whole financial system, which came dangerously close to fruition at the end of September and the failure of traditional policies of the U.S. Federal Reserve, the governments of the advanced capitalist nations voted to use millions in public money to avoid the breakdown of the entire banking and financial system.

In the U.S., after the first “no” vote (due to the rejection by the majority of the Republican Party to the plan of its own government and designed by the Secretary of the Treasury, Henry Paulson), Congress approved a rescue package of $700 billion. Paulson’s original plan, a document of barely two pages, was limited to erasing bad debt or “toxic assets”, contaminated with uncollectable mortgage credit from the balance sheets of the major investment banks. This project underwent serious modifications and the text approved in Congress was expanded to more than 450 pages. As part of this plan, Paulson presented to the boards of the nine principal banks of the country a plan based on the state acquisition of the preferential assets of the banks in exchange for an initial injection of $250 billion in public funds. On November 12, the plan went a step further, with Paulson’s announcement to annul the proposal for the state acquisition of the of the banks uncollectable assets.

The Bush government initially launched its plan after the European powers, following the British example, decided on a broad plan of aid to their at-risk banks–Germany, 460 billion Euros, France, 360 billion Euros, the Netherlands, 200 billion, Spain and Austria 100 billion, which added to the sum announced by Britain, adds up to $1.9 trillion.

The use of state funds to save capitalism in moments of crisis in no way suggests a “socialist measure” as some staunch supporters of the free market cynically argued, but rather simply confirms that capitalist governments defend the interests of the class in whose name they govern. The Paulson plan and those of his European colleagues does not even constitute a nationalization of the banks in the style of the bourgeois governments after the Second World War. The Bush administration made clear that it will remain a “passive investor”, that is to say, it will not occupy any board seat of the banks, nor will it receive any dividends in the case of a recovery by the banks. In the same token, the banks are not obligated to use the money they receive to create new credit or renegotiate the mortgages of debtors who are in danger of losing their homes.
Executives who have made millions in the past few years will remain in their positions and shareholders will continue to be paid dividends.

This massive injection of capital has become the largest state intervention in the economy since the crisis of the ’30s. The logical consequence will be the increase in state deficits, a confiscation of public income and a billion-Dollar debt on future generations.

In the case of the United States, the rescue package will exponentially increase the national debt. Some say that its deficit could reach 10% of its GDP, which would leave the U.S. at the brink of default.

However, those hundreds of billions of dollars, although momentarily holding off the collapse of the international financial system, have not been sufficient to reverse the tendency of stock market plummets and much less avoid a generalized recession, which lies behind the panic of the markets and the volatility of stocks.

The financial crisis has begun to affect what has vulgarly been called the “real economy”, which is to say, the sphere of production and the non-financial firms, demonstrating the foolishness of pretending that these two aspects of one capitalist reality could act independently. Almost without exception, the major capitalist corporations, from Sony and Samsung to Microsoft, have announced drops in sales and profits. The big three automobile manufacturers, General Motors, Chrysler, and Ford, all emblems of American capitalism, are in a profound crisis and await a state aid package to keep them afloat.

According to data from the month of October, the Chinese economy is beginning to decelerate and indicators point to the lowest growth since 2003.

The state of the American economy is alarming. Data from the U.S. Commerce Department made available in late October indicate that economic growth sunk to an annual rate of 0.3% in the third quarter. According to interpretation of these figures, if the contraction was not more severe, it was only because of two momentary factors: a significant rise in exports, favored during the last quarter by the depreciation of the Dollar, which has already subsided, and an increase in government spending, especially in the sphere of defense.

The tendency towards recession is shown too in the drop in consumption, which fell some 3.2%, the first contraction since 1991 and the most significant since 1980.

Deflation has continued in the price of homes, resulting in the increasing difference in value between mortgages and homes. This is making repayment even more difficult and it is believed that, to date some four million homes have been foreclosed, added to the enormous quantity of already unsellable homes.

Another indicator is the loss of two million jobs in the past year, half of which were lost in September, October and November. The unemployment rate climbed to 6.7% but even the U.S. Department of Labor recognizes that it is already at a real rate of 11% if the 5 million workers who have stopped looking for employment are counted.

Along with the contraction of the American economy, the phenomenon of recession is also affecting the Japanese economy and that of the Eurozone, which announced in mid-November that it is recession for the first time since its founding. Individually, Germany, France, Spain and Italy are already in recession, as is Great Britain. We must add to this the medium-sized European countries such as Ireland, the crisis in Greece and the default of the banking system in Iceland.

Given that, for the first time since 1973, the major capitalist economies will together enter into recession, analysts agree that at the very least, the fall will be deep and could last many years. The prospects are bleak and range from the possibility of a deep and difficult recession followed by a weak recovery to a Japanese-style stagnation, which would mean a slowed economy for more than a decade. The real possibility even exists of a global economic depression with significant contractions in gross product of the major nations and the break down of world trade, similar to the decade of the Great Depression. This situation is already causing serious crises and we are beginning to see the social effects, with lay-offs, salary cuts, the loss of homes and poverty.

Without a doubt, it is a situation which will, once again give rise to the class struggle and new political phenomena.

The “new Keynesians” to the rescue of capitalism

The current economic crisis is exposing the myths of the inherent good of the “free market” which served as the fundamental ideology for the neo-liberal offensive. Those that had yesterday announced the “end of history” and the definitive triumph of the capitalist system, today try to scare anyone who opposes the bailout of the Wall Street multi-millionaires by announcing that if they are not rescued, we will all suffer the consequences.

As with previous crises, such as the savings and loan crisis in the U.S. at the end of the 1980s, the financial elite and the American capitalist state (as with its counterparts in the European Union or Japan) are trying to push forward a program which would result in a phenomenal transfer of society’s resources, a product of the labor of millions of people, towards the richest sectors, which have increase their wealth immeasurably since the beginning of neo-liberalism. In the last 30 years, the wealthiest 1% doubled their share of total income, from some 8% at the end of the 1970s to approximately 17% at present.

Given the evident demise of the neo-liberal paradigm, some liberal bourgeois and new Keynesian economists like Paul Krugman, the latest Nobel prize winner in Economics, have maintained that the current crisis is due to the lack of state regulation over the American and global financial systems. They base this explanation on the indisputable fact that in the last 30 years, the transformation towards a finance economy reached an unprecedented level and with it the proliferation of sophisticated speculatory instruments which were used in the complex engineering of the boom based on sub-prime mortgages. For today’s new Keynesians, the solution to the crisis requires the state rescue of the system, that is to say, the injection of billions of dollars in public funds but complimented by measures which put certain limits on financial speculation. Some argue that it is necessary to save debtors as well. A minority propose a return to a sort of “welfare state” and the necessity of a program similar to that of the New Deal put into place by President Roosevelt in 1933, (although they forget to mention that this plan had limited effects and that the real recovery of the American economy was caused by its preparations to enter the Second World War).

Many of them, revered in “progressive” American circles, hold on to hope that the Barack Obama administration will be more responsive to pressure from the left, even though his electoral program was far from including measures which even resembled the New Deal and that he has been one of the biggest defenders of the bank rescue program finally approved by Congress. His economic advisors for the transition are former members of the Clinton administration, under which the economy continued in the parameters imposed by the conservative restoration of Reagan and Bush I, or multi-millionaires like Warren Buffet.

Keynesianism, with or without the welfare state, is one of the great illusions which fed capitalism in the second post-war period, arguing that it is possible to maintain harmonic growth, regulated by state intervention, which would neutralize the structural tendencies of capitalism that in the final analysis, bring about its crisis. But the crisis of 1973-75 proved that it is not possible to stop the dynamic of capitalism, and that behind the so-called “glorious thirties” , a tendency towards decline in the rate of profit set in, which later ended in crisis and subsequently the neo-liberal shift in capitalist policy in an attempt to offset this tendency. We have the example of Japan as well, where state intervention on a massive scale has not lifted its economy out of stagnation, which it entered into the early ’90s.

Nothing could be further from the truth than the claim by partisans of state interventionism that the state could act as a neutral arbitrator. Take for example, Henry Paulson, the secretary of the Treasury under Bush, who was the president of Goldman Sachs, as was Robert Rubin, which held the same position under Clinton. The Democratic Party responds to the interests of the financial oligarchy just as the Republican Party does, demonstrated by Wall Street’s contributions to the Obama Campaign and the decisive support of the Democrats for the rescue plan proposed by Paulson. More generally, the bank bailout shows with clarity that the state acts as a “committee for managing the common affairs of the whole bourgeoisie”. In times of capitalist boom, it guarantees their profitability, in times of crisis, it attempts to save them from bankruptcy. This is nothing new. As Marx said 150 years ago, this is the essence of the capitalist system–guaranteeing the privatization of profits and socialization of the losses. In this respect, there are no differences between the neo-liberals and the new Keynesians.

Why is the crisis so profound?

The crisis of the sub-prime mortgages was the first product of the internal and external imbalances in the American economy which maintained the latest growth cycle in the world economy. More generally, the onset of the crises is calling into question the basis on which capitalism has maintained itself over the past 30 years.

In recent years, American capitalism has seen an enormous rise in personal, corporate and state debt with millions of Americans in mired in debt they cannot pay off. During these years, the United States acted, ultimately, as a consumer of commodities produced around the world, principally of Chinese exports, which led to an increase in its commercial deficit.

The boom in consumption was made possible by an extension of credit and fictitious capital via a fantastical development of the markets dealing in shares, bonds etc., which produced an “illusion of wealth”, thereby having a double effect: first, this favoured the banks, who went on to appropriate a fraction of surplus value through the charging of interest, and at the same time reduced to negative the rate of household saving.

El pimiento del consumo fue posible sobre la base de la extensión del crédito y del capital ficticio por la vía del fabuloso desarrollo del mercado de acciones, derivados, etc., que produjo el “efecto riqueza”, que tuvo un doble efecto: favoreció el negocio de los bancos, que pasaron a apropiarse de una cuota de plusvalía por medio del cobro de intereses, y a la vez redujo a valores negativos la tasa de ahorro de los hogares.

The American deficit could be maintained thanks to the financing of other states, principally China, Japan and the oil-exporting nations, which invested in U.S. Treasury bonds and kept a large part of their reserves in Dollars. This sort of financing was possible as long as the U.S. remained the only hegemonic imperialist power, albeit in decline, and the Dollar continued to be the currency of the world’s reserves. But at the same time, it meant that the U.S. was exposed to decisions taken by foreign governments over their reserves, which is in itself an expression that its hegemony is in crisis.

This spiraling of debt and credit, which created this “illusion of wealth” in the short-term and energized the world market, became unsustainable. In only a few months, it went from a real estate market and mortgage crisis to affecting the biggest New York investment banks and extending to the world financial system, and finally becoming a crisis of the capitalist economy as a whole.

This is not, as some claim, just a cyclical crisis, which after a brief moment of anxiety, will bring about a new equilibrium, but rather it is the logical conclusion of the mechanisms by which capitalism broke out of the crisis of over-accumulation in the mid-1970s, marking the end of the post-war boom.

Amongst bourgeois economists, there are those who believe that although the crisis is serious, the relative strength of the American economy, which even in decline represents 25% of the world market, the increase in labor productivity over the last decades, technological innovations and the fact that no world power is in a position to dispute the U.S. for domination of the world will allow it to recover and even benefit from the current situation. Others consider that the U.S. will lose its world preeminence but that capitalism will be rescued by China and the dynamics of its economy.

On the left, some speculate that in the neo-liberal period, and more precisely the decade of the ’90s, a giant wave of capitalist growth had begun, that is to say for a prolonged historical period, the contradictions that led to previous crises had been overcome. Among factors considered to give rise to this situation, they generally mention the growing economic and financial “globalization” and the existence of new “revolutionary technology” but above all, the restoration of capitalism in the bureaucratized ex-workers’ states, especially China, which now plays a key role in world capitalism as a provider of cheap labor. According to this interpretation, the processes of restoration had the ability to renew the prospects of the capitalist system as a whole for a historical period, and not recognizing this fact would imply a “stagnationist” view of capitalism and “catastrophist” political perspective. The current crisis would be no more than a momentary slowdown which would not stop a more generalized ascendant dynamic.

But in contrast with the growth of the “glorious thirty years” which was made possible by the massive destruction of the productive forces in the ’30s and the world war itself, the conclusion to the crisis of the ’70s meant only a partial renewal of capital. The neo-liberal offensive initially launched by Reagan and Thatcher, implied a brutal rise in the exploitation of the workers, in both the central and semi-colonial countries, with massive privatizations and the opening of national economies to imperialist capital. The favorable conditions for capital after the defeat of the revolutionary struggles of 1968-81 deepened with the fall of the Berlin Wall and the capitalist restoration in the ex-workers’ states, particularly Russia and China and the return of the latter to the sphere of world capitalism as a provider of cheap labor and favoring the depreciation in the price of labor power worldwide. These factors, together with other indirect mechanisms such as the drop in the price of raw materials, the deregulation of markets and a new international division of labor due to the further internationalization and financial transformation of economy, allowed for a recovery in the profit margin although at levels below those reached in the post-war boom years.

However, these profitable conditions were not accompanied by a significant sustained and durable increase in the accumulation of capital - with the exception of China - rather they gave rise to a tendency to invest in a combination of highly profitable niches in the productive economy on the one hand, and to increasingly pour masses of capital speculative transactions on the other, provoking in the latter case an unprecedented hypertrophy in the financial sector and, in the former, the creation of successive bubbles which, for short periods, allowed capital to obtain important benefits. Sin embargo, estas condiciones de rentabilidad no fueron acompañadas por un aumento en la acumulación durable y sostenida del capital -con excepción de China-, sino que dio lugar a la combinación entre una sucesión de nichos de valorización productiva y el vuelco de masas crecientes de capital a los negocios especulativos, provocando una hipertrofia sin precedentes de la esfera financiera y la creación de sucesivas burbujas que, por cortos períodos, permitían obtener importantes beneficios. After the Asian crisis, the policy of the U.S. Federal Reserve was to lower interest rates and inject massive liquidity into the banking system. This led to the creation of the Dot Com boom and in the words of then-President of the Fed, Alan Greenspan to the “irrational exuberance of the markets”.

After the collapse of the “new economy” boom in 2000 and the terrorist attacks of 9/11, the American economy entered into recession. The resolution of this crisis led to a new period of prosperity with the real estate boom and an even greater relaxation of consumer credit accompanied by a sophistication and diversification of financial instruments, such as the leveraging and package sale of debts, which led to big business for the banks and investment funds.

The depth of the current crisis, which merits comparison to the crash of 1929 and the Great Depression, exists because the two counter-tendencies on which neo-liberalism is based–the rise in relative and absolute surplus value and the incorporation of new territories for capitalist exploitation–in addition to the rise of finance capital, which operated for at least a quarter of a century, have failed as a formula to achieve a new prolonged period of capitalist growth.

In this sense, it is correct to state that neo-liberalism is at its end. But it is not only this. It is also proof that the forces which balance out the drop in the rate of profit which occurred these years turned out to be insufficient for a period of sustained capitalist growth. What we are facing is not just another one of the crises which took place during the era of “neoliberalism”, but one which will demonstrate the historical crisis of an entire social order, a crisis which expresses in exacerbated form the contradiction between the increasing socialization of production and private appropriation of social wealth. No estamos ante una más de las crisis recurrentes que tuvieron lugar durante el “neoliberalismo” sino ante una que pone de manifiesto la crisis históricas de todo un régimen social, donde se expresa en forma exacerbada la crisis entre la creciente socialización de la producción y la apropiación privada de la riqueza social. We are face to face with one of those events, which as Alan Greenspan himself said happens “only once a century”.

Capitalism will attempt to overcome the crisis using the mechanisms which have allowed it to restore its levels of profitability–the devaluation of capital and the increase of surplus value.

The crisis also unleashes a frantic competition between capitalists for the spoils of failed banks and corporations at fire sale prices, leading to a new concentration of capital. In the United States, for example, the crisis has already led to a restructuring of the banking system. Four major corporations: JPMorgan, Citigroup, Bank of America and Wells Fargo now concentrate 50% of the nation’s savings, thanks to the collapse of their competitors and even this did not save the shares of Citigroup which plunged in mid-November or the announced lay-offs of at least 50,000 of its workers.

This competition between capitalists will be expressed sooner or later in competition and sharpened conflicts between capitalist states. We are not yet in a situation of serious clashes between the world’s major powers. However, if in 2002-2003 during the preparations for the second Gulf war, in a moment not nearly as serious with respect to the international economy, we witnessed the U.S. face off against Chirac in France and Schröder in Germany in a major diplomatic and geopolitical confrontation, we can bet that with the deepening of the crisis and the foreign and domestic offensive which the imperialist bourgeoisie will unleash in an attempt to emerge from this predicament, the situation will continue to generate tensions between the major powers. We can already note the form in which, through their multinationals and their locally inserted factions, the imperialist powers are confronting each other in several peripheral areas of the semi-colonial world, beginning in the Great Lakes region (eastern Democratic Republic of Congo in particular) and the Horn of Africa (Somalia). These scenarios mean that we could potentially witness rashness by the imperialists much more quickly than we saw in past instances of inter-imperialist contradiction. Undoubtedly, a new historical period has opened, the dynamic of which suggests sharpened inter-state tensions and confrontations between the principal classes.

The crisis of American hegemony

The economic crisis coincides with a significant weakening of the position of the U.S. as the world’s only superpower, accelerating the decline of its hegemony. After the 9/11 attacks, the government of George Bush and the neo-conservative establishment centered around the “Project for the New American Century” and launched an aggressive foreign policy, based primarily on military superiority in order to reinforce the dominance of the U.S. around the world, starting with the “redesign” of the Middle East. According to the hawks of imperialism, despite enjoying a decade of undisputed dominance in the ’90s, the U.S. had failed to take advantage of its triumph in the Cold War with the Soviet Union to reaffirm its role as the world’s only power which implied not only imposing its interests on the semi-colonial and dependent nations but also on competing imperialist powers. The implementation of the doctrine of “preventive war” served these objectives, opening the way for an aggressive imperialist policy based on unilateralism and the comparative military advantage of the United States.

However, the so-called “war on terror” proved to be a strategic disaster and its result was to accelerate the decline of American hegemony. The war against and occupation of Iraq which had as its aim to reconfigure the Middle East, installing pro-American and pro-Israeli governments in a region of great geopolitical and economic interest to the United States was a catastrophe for imperialist troops.

The unintended consequence of the war in Iraq was the strengthening of Iran, the Americans’ principal enemy in the area, which transformed into a regional power and which, due to its influence over the Shiite factions which govern Iraq, is now indispensable to Washington’s plans to maintain relative stability in the country and avoid scenarios such as an uncontrollable civil war and attacks against imperialist troops. Another key aspect of Bush’s plan to mitigate the situation in Iraq was to secure the collaboration of Sunni groups that had previously resisted the occupation in exchange for pay-offs and promise their integration into the security apparatus of the state. This dual pact is the source of recurring tensions.

In Afghanistan, NATO troops have lost control of the country. The client regime led by President Karzai is widely unpopular and is only propped-up by American and European military protection. The Taliban and other warlords have recovered their social base and territory in the country. The battleground has extended into Pakistan, which after allying with the U.S. in the “war on terror”, saw a significant resurgence of Islamicist opposition organizations with significant popular support. After the fall of Washington’s friendly dictator, Pervez Musharraf, armed actions by Taliban militants and imperialist bombings along border zones have intensified, creating a highly unstable situation.

Both Pakistan and Indian possess a nuclear arsenals. Over the past years, the United States has been able to ease the historic tensions between the two countries, but the conflict has now resumed, expressed most clearly by the situation in Kashmir. The Bush administration seemed inclined to reaffirm its alliance with India by signing a nuclear agreement, to which Pakistan responded by strengthening military relations with China.

The crisis in the Caucasus in turn, sparked by the conflict between Russia and Georgia, whose government is a product of the so-called “colour revolutions” sponsored by the U.S., made apparent the American’s weakness and the emergence of regional powers, such as the revitalized Russian state, which while not disputing world hegemony, are defending what they consider to be their “sphere of influence”. This brief conflict will almost certainly prove to be a precursor to the intensifying geopolitical tensions resulting from the economic crisis.

For now, expectations are placed on the change in government in the U.S. after eight years of Republican administration and on the hope that the figure of Obama will bring the country a new legitimacy. But it is clear that the magnitude of the crisis will determine the possibilities for the new president to dress up the American imperialist regime, domestically or abroad, after the tremendous discredit brought about by the Bush presidency.

Since the Second World War, the two pillars of American hegemony have been the Pentagon and the Dollar as the world’s currency of reference. The Dollar and U.S. Treasury bonds continue to be the surest options in the months that followed the international financial crisis, which led to its revaluation. This phenomenon is explained in part because the Euro is not able to act as a replacement currency and because the legacy of America economic, political and military strength as a superpower prevails. Nevertheless, the depth of the American economic crisis is calling into question, for the first time since the Bretton Woods accords, the role of the Dollar as the currency of international reserves. The hegemony of the Dollar which replaced the Pound, was established as part of an economic, political and military balance which governed the capitalist order in the post-WW2 period. The conversion between gold and the Dollar established in the Bretton Woods accords in 1944 collapsed and was replaced in 1973 by a system of free floating of currency which allowed the U.S. economy to recover competitiveness with Germany and Japan.

Freed from gold, the value of the Dollar was only supported by the economic and political strength of the United States. For those years, in which the foremost imperialist power acted as a consumer in the final analysis, millions of dollars flowed from every part of the globe to finance the American deficit, in this way maintaining the value of the Dollar. Now this situation is beginning to change. But in contrast to the resolution of the crisis of British hegemony which after two world wars, ended in the rise of the United State as the hegemonic power, today there is no nation or imperialist bloc which is in conditions to fight for world hegemony.

Beyond occasional deviations, it is probable that the world is moving towards a fragmentation in areas where several currencies hold hegemony and a reorganization of alliances and blocs. This crisis in imperialist leadership will enable the development of regional conflicts and will open a period of great instability and inter-state tensions at the world level. This situation of political and social crisis will lead to a sharpening of the class struggle and a deepened polarization, as we are beginning to see. In short, the conditions which are beginning to take shape with the onset of this crisis affirm the definition that Marxists made at the start of the Twentieth Century of the imperialist epoch as an era of crisis, war and revolution.

The crisis opens new opportunities for revolutionaries

The three decades of neo-liberalism and the retreat of the workers movement led many to believe that capitalism had become indestructible and to desert from the ranks of Marxism and the revolutionary left.

The collapse of the Stalinist regimes, the disappearance of the Soviet Union and the capitalist restoration caused a strong decline in the influence of Marxism, as an ideology and as a political tendency. Not only the social-democrats but also the union bureaucracies and political parties of Stalinist origin have abandoned all reference to Marxism and socialism while implementing neo-liberal policies just like the parties of the traditional right. Even a large part of the intelligentsia which held on to Marxism began to give an ahistorical and unlimited value to the efficacy of capitalism’s counter-tendencies for avoiding crisis, echoing the sentiment that capitalism had once and for all reached a level of development (whether through globalization, the relaxation of labor power, technological innovation, etc.) such that crisis was a thing of the past. The British Marxist historian Perry Anderson, for example, argued at the beginning of the century that the triumph and expansion of neo-liberalism had established a relationship of forces such that only a profound economic crisis in the West could change. In his words “Only a depression of proportions similar to the inter-war period would be able to shake the parameters of the current consensus.” By saying this he meant to signal, skeptically, that only an event of unimaginable proportions (at least in the short-term) could disrupt the capitalist order. Yet such an event is nearly around the corner. The crisis of bourgeois consensus which reigned over the past years has opened up new prospects for the reconstruction of the international workers’ movement and the development of revolutionary parties. It has been demonstrated once again that capitalism is incapable of overcoming its contradictions. Or, more precisely, that the solutions which capital has found to the crises it has been through in these past years, have been achieved without changing direction, and have prepared the ground for the current explosion. O, más precisamente, que las salidas que el capital encontró para una de las crisis vividas en estos años han sido “fugas hacia delante” que preparaban el actual estallido. Paraphrasing Trotsky we can say that “the ’theory of collapse’ has triumphed over the theory of peaceful development”. It is evident that we are beginning to witness events of historical significance, whose consequences we can only predict in general terms.

The crash of 1929 gave way to a decade of catastrophe, instability, the crisis of international trade and revolutionary and counter-revolutionary processes, a situation which prepared the groundwork for the breakout of World War II.
Faced with the economic disaster, the capitalist states began preparations for war. In Germany, the defeat of the working class, which was betrayed by the Social Democrats and the Stalinists, allowed for the rise of Hitler to power in 1933. In the United States, the result was the New Deal, implemented by President Roosevelt with a dual objective – revitalize American capitalism and avoid the radicalization of the workers and poor masses, amidst unemployment that had reached 25%. But the New Deal proved to be insufficient to boost the economy and when a new crisis appeared in 1937, Roosevelt did not hesitate to shift the economy towards the war preparations, which led to an economic recovery.

The proletarian revolution was another decisive factor in the tumultuous years of the ’30s, with the Spanish Civil War and the wave of strikes and factory occupations in France which ended with the Popular Front government. Even in the United States, where the working class was politically the most backward, a powerful movement of the unemployed developed, a militant union struggle centered around the CIO arose, and the working class led historic strikes like that of the Teamsters in Minneapolis in 1934, in which the Trotskyists played a leading role.
It is true that history does not repeat itself. But it is also true that in a crisis of this magnitude the system’s safety valves explode and when this happens, scenarios of class struggle and intense battles between states open, including of course, war and revolution.

We revolutionaries must prepare to act in a new historical period–whose contours will be defined by how the ruling classes attempt to overcome the crisis and the response of the masses–a period which demonstrates plainly to millions around the world the irrationality of this social system.

The crisis of various neo-liberal governments in Latin America, which anticipated what is today occurring globally, carried with them since the start of the decade, a persistent tendency towards direct action, which in some countries, resulted in the toppling of governments, as we saw in the revolutionary uprisings in Bolivia or the December days of 2001 in Argentina which put an end to the De La Rúa government.

The response to the economic crisis left valuable experiences for the international working class. For example, in Argentina, there emerged as a result, a movement of organized unemployed workers which resorted to radical methods such as road blockades and the phenomenon of occupied factories reopened for production by the workers themselves, of which Zanon, under worker control and management, was and continues to be the most advanced example.

This situation was, in part, channeled by the emergence of “progressive” governments that found a base among the popular masses after the economic recovery driven by the rise in the prices of raw materials internationally. Economic growth thus softened tensions between classes. But these conditions no longer exist.

Globally, the crisis will surely multiply the responses of workers and the masses while also hardening state repression and the bourgeois sectors who press for the increased disciplining of the oppressed. Some of the first expressions of resistance were the general strike in Belgium in the midst of the stock market plummets, which demanded the adjustment of salaries for inflation, the general strike in Greece and the massive struggle of students and workers in Italy against cutbacks by the Berlusconi administration. Spain too is witnessing an enormous response as exampled by the actions of Nissan workers resisting lay-offs and student demonstrations with the demand “Let the capitalists pay for the crisis”. In Greece, the death of a student at the hands of the police unleashed a true national rebellion in early December of 2008, led by workers, students and youth, which for days clashed with the police and took to the streets of the major cities, with a general strike on December 10, occupations of schools and daily demonstrations calling for the fall of the conservative Karamanlis government. The events in Greece, Italy and Spain, where students occupied the universities, demonstrates that students and young workers who suffer labor relaxation, unemployment, marginality and the lack of career prospects could be a tremendous engine for the struggle of the exploited in Europe. The student movement is playing an important role in the first actions of resistance, opening the possibility of the development of radicalized sectors of youth, which retake and even go beyond the best of the “anti-globalization” experience and the anti-war actions which followed, when it was the youth–albeit with all sorts of expectations placed in reformist and autonomist groups–who won the streets of the capitals in the imperialist countries to denounce the misery of modern capitalism.

We must be prepared for more acute class conflicts and growing social and political polarization as governments and the bosses unload the crisis on the backs of the masses. In the some imperialist nations, groups of the extreme right that appeal to racism and direct their hatred towards immigrants are already gaining strength as the bourgeoisie lays the groundwork for a polarized atmosphere and future confrontations.

The capitalist crisis and the revolutionary program

With the development of the capitalist crisis and the recession, a new catastrophe looms which puts at risk the survival of millions of workers, poor peasants and oppressed peoples of the world.

At the same time, the crisis reveals the true nature of capitalism, exposing it openly as a system in profound decline in which a tiny minority of the population made up of business owners, bankers and financiers concentrate the principle means of production and exchange and have in their service the bourgeois state, while amassing unimaginable fortunes from the brutal exploitation of billions of human beings who only posses their labor power. In times of capitalist prosperity, they increase the rate of exploitation of their wage-slaves to boost their earnings and in times of crisis, force the workers into unemployment, desperation and hunger to preserve profitability.

In this historical period, the transitional program will increasingly be the order of the day, not only as an instrument of propaganda, but also as a plan of action, while taking into account the particularities which the class struggle assumes in different countries, the degree of political maturity of the proletariat and the development of revolutionary organs of the workers. These are moments where the contradiction sharpens between objective conditions for a revolutionary solution and the backwardness in the political consciousness of the masses. The transitional program is a bridge for the exploited to reach the conclusion that it is necessary to fight, not for reforms in the capitalist system but for the workers to take power.

Of course, we do not pretend that their exists a single formula for the various situations faced by the working class in all countries or regions. But there are certain more or less generalized demands which take a central role in the crisis.

As happens each time their profits fall, the capitalists resort to closures or massive lay-offs and salary cuts, while they plead for assistance from the state to save their companies from bankruptcy.

Workers must not allow once again for the employers to condemn millions of workers into chronic unemployment and misery, while using the specter of unemployment to terrorize employed workers and cut salaries.

In view of this, we call for a sliding scale of wages, that is to say, their adjustment according to inflation, dividing up of work hours among all willing workers, and the reduction of the work day without affecting salaries.

Toward the threat of closures of companies, we demand the opening of the books and the expropriation without pay of every company which closes or lays-off workers and its placement under worker control and management of production.

The major capitalist states are placing billions of Dollars and Euros towards the rescue of the big banks and the financial elite and this they call nationalization. Against this fraud, based on the massive transfer of resources to the capitalists, a true nationalization without payment to the private banks is needed with the establishment of one state bank under worker administration, which would oversee the credit and investment system and place it in the service of the workers and the people. This would at the same time, stop the flight of capital (above all in the semi-colonial countries) and the expropriation of small savings by bankers.

This measure must be accompanied by the nationalization of foreign trade to avoid the flight of capital, which frequently occurs in the semi-colonial and dependent nations in the form of remittances from the local subsidiaries of the industrial and banking corporations to their foreign parent companies.

It is imperative that unions break their subordination to capitalist policies and raise an independent workers’ program, based on the unity of the ranks of workers to bring together the employed and unemployed, permanent workers and contract workers. In the imperialist countries in particular, we must take up the defense of immigrants, who are the first to pay for this crisis and demand their regularization without conditions and the end of all anti-immigrant laws. As they say in Spain: “Native, or foreign-born, we are the same working class!”

Revolutionaries participate in the unions and we fight for a class-conscious and militant leadership, but the unions, led by pro-management bureaucrats and co-opted by the state, organize only a sector of the working class–generally its highest layers, while the great majority has no type of organization, leading to deepened divisions among the ranks of the workers. Thus the activity of revolutionaries in the factories and companies, is likewise dedicated to forging organizations such as strike committees in moments of struggle or factory committees, which group together all sectors of workers. The factory committees, elected by all the workers are organizations which are infinitely more democratic and represent the workers as a whole within a factory or establishment and constitute a counterweight or a sort of dual power in the factory against the power of the bosses.

The coming struggles will also present the need to develop unified front organizations, which would bring together the exploited, independent of their profession, in coordinating committees or councils, which with their development will become seeds of true workers’ power.

The imperialist powers will try to unload their crisis on the backs of the oppressed and subjugate even further the semi-colonial nations in order to defend the interests of their big national corporations. The U.S. under President Obama will attempt to achieve the victory of its NATO allies in Afghanistan while withdrawing from Iraq, leaving a government compatible with American interests. Against this prospect, we advance the struggle for the expulsion of imperialist troops from Iraq, Afghanistan and all of the Middle East. In Latin America, we must fight to put an end to the occupation of Haiti by MINUSTAH troops sent by the governments of Lula, Kirchner, Bachelet, and Tabaré Vazquez.

We revolutionaries have confidence that in the course of the class struggle, our program will take hold once again amongst the vanguard of the workers and the people and will demonstrate an alternative to the exploited; that through the social revolution, we can make the “expropriation of the expropriators” reality–the only path to end capitalist barbarism.

It is a lie that the options in front of us are either liberal democracy or bureaucratic totalitarianism. In the Twentieth Century, the working class carried forward the work begun by the Paris Commune and established the basis for the transition to socialism–a new state with greater democracy for the exploited and despotism only over a small minority of the exploiting classes and imperialist reaction. Upon the liquidation of bourgeois order, we fought to establish a workers’ state based on the rule of workers’ councils, which would guarantee the political pluralism of workers’ organizations and permit them to overcome the “anarchy of social production” inherent to capitalism through the democratic planning of the economy and the introduction of reason into the sphere of economic relations.

We face a moment in which capitalism is quickly losing its legitimacy and Marxist ideas and the prospect of socialism could transform into a point of reference for millions, reversing the reactionary ideological climate which rose after the fall of the Soviet Union and the advance of capitalist restoration.

Trotskyism was the only tendency to systematically combat Stalinism, which had expropriated the October Revolution of 1917, liquidating the rule of the soviets and replacing it with a totalitarian and bureaucratic regime. Against socialism in one country, the degeneration of the Soviet workers’ state and a one-party regime which served to maintain the privileges of the governing caste, Trotsky argued for the necessity of a political revolution in the Soviet Union which would overthrow the bureaucracy, regenerate the revolutionary base of the workers’ state–the soviets–and reintroduce the democratic planning of the economy, soviet multi-party rule and resume the struggle for international revolution. That is why we maintain that Trotskyism is the only revolutionary Marxism of our time.

For the forging of revolutionary parties of the working class and the reconstruction of the Fourth International

In recent years, we have heard exhortations from the left around the world to adapt to the logic of the “lesser evil.” But this policy lead to the adaptation to “social-liberal” governments, as witnessed by the participation of the Rifondazione Comunista in the Prodi government in Italy and in Brazil with Miguel Rosetto (a member of the Socialist Democracy tendency of the PT, which considers itself part of the United Secretariat) as minister in the Lula government that has continued with the neo-liberal policies of Cardoso before him. We are told that it was the moment to build “broad parties” without a delineation between reformists and revolutionaries or any class basis. In Latin America, we have the experience of the Partido Socialismo e Liberdade (P-SOL), founded by sectors which broke with the PT, but with an orientation towards conciliation with the demands of the “internal market” and employers linked to it, and which even went so far as to vote in favor of labor relaxation for small and medium enterprises. Generally in the region, we have seen a strong adaptation by the left not only to “populist” phenomena, such as Chavismo in Venezuela or with the MAS of Evo Morales, but also in the case of Argentina, an inscrutable aligning with the worst of the reactionary employer class as occurred with the MST and other smaller groups and their support for the landowners in the conflict over sliding-scale taxes on soy exports between March and June of 2008.

In Great Britain, the Socialist Workers Party formed the Respect coalition together with the former Labor MP, George Galloway and sectors of the Muslim bourgeoisie, in a program of class collaboration, a project which finally ended in collapse.

In France, the Ligue Communiste Révolutionnaire is in the process of self-dissolution into a New Anti-capitalist Party which purposefully puts forward an ambiguous program between reform and revolution.

We as revolutionaries of the FT-CI, prepare to take part in an epoch of new political processes and in the heat of the class struggle’s intensification, the reorganization of the working class. We have signaled that in order that the crisis not be unloaded on the backs of the workers, they must build their own political tools. To this end, we encourage the construction and development of not only our own organizations but also without sectarianism, to fight for the development of revolutionary wings of every group which considers itself independent of the bourgeoisie and can attract the forces of the most militant sectors of the workers and youth. We are willing to debate with any tendencies of the Trotskyist movement committed to the strategy of proletarian revolution and a transitional program.

We have called upon our comrades of the CRCI, a tendency led by the Partido Obrero in Argentina, without ignoring the differences between us, to take practical steps to coordinate a unified campaign towards the crisis on a national and international scale. The crisis at hand requires that revolutionaries redouble our efforts to unite our forces and explore the possibility of building unified revolutionary parties, a proposal we have directed for months to the Partido Obrero. We expand this call to the LIT-CI. Although this organization declares the need to reconstruct the Fourth International in its program, unfortunately it has focused exclusively on unifying groups which come from the Morenoist tendency (such as the CITO) and classifying its own tendency as if it was The International and in sectarian fashion, refusing to open a serious and fraternal debate.

We know that capitalism will not fall on its own–it must be overthrown. To this end, we must build revolutionary parties. The present crisis helps to clear up many debates which have occurred over the past years. It has become difficult to argue nowadays that national states are of no importance or that its not necessary to struggle for power to truly “change the world”. We are absolutely convinced that international socialist revolution is the only solution capable of avoiding the barbarism towards which the continuance of capitalism will lead us.

Trotskyist Faction – Fourth International (FT-CI), December 2008