1997-2001
The world capitalist economy sets the scene for our perspectives, our programme and, ultimately, how we intervene in the labour movement. We fully recognise, as we have explained throughout this book, that economic prospects are decisive in shaping events – although not necessarily directly or immediately. As we have explained previously, the formulation of our programme and analysis was the product of a collective discussion and debate throughout our organisation. We are proud of the fact that our economic analysis made at each stage stood the test of time and events. The leading bodies of our organisation, the Executive and National Committees, as well as the International Secretariat and International Executive Committee were closely involved in this task. But of course, individuals made significant contributions to this analysis: Lynn Walsh, myself and others, including individual comrades like Robin Clapp, the long-time Regional Secretary in the South-West. Accordingly, on the basis of the political victory for capitalism as a consequence of the collapse of Stalinism and the planned economy, we envisaged that the 1990s would be difficult for us and the labour movement. We expected that a certain economic growth, though it would be uneven, was likely to take place in the foreseeable future.
However, this did not prevent us from assiduously analysing at each stage the peculiar one-sided character of this boom: the piling up of debt, the underlying ‘depressionary’ features inherited from the 1980s: low growth, rising inequality, low and stagnant wages, the disappearance of high-paid full-time jobs and their replacement with part-time, precarious employment. In short, this saw the emergence of the ‘precariat’ in low paid and insecure jobs, which is now almost a fixed feature of neo-liberal capitalism. It was also necessary to combat the propaganda of the capitalists, summed up in the phrase of Francis Fukuyama, that “history had ended”. From this flowed the political capitulation of the summits of the labour movement, the Blairites and their right-wing counterparts in the trade unions. There were also some ‘Marxists’ who were in danger of succumbing to the colossal pressure which bore down on those who still adhered to a socialist perspective.
Not for the first time, Marxism had been thrown back. In the 19th century, the boom that followed the revolutions of 1848-51 led to the complete collapse of Chartism and the political isolation of Karl Marx and Friedrich Engels. The workers’ movement revived somewhat in the 1860s, which led to the creation of the First International, through the efforts of Marx and Engels. Then the defeat of the Paris Commune of 1871 set back the workers’ movement once again. The boom of 1896-1914 saw the building of the workers’ movement but led to a reformist softening of the leadership of the mass social democratic parties, culminating in their siding with their own national bourgeoisie – social patriotism – in the First World War. Equally, Lenin and Trotsky were isolated following the defeat of the first Russian revolution of 1905-07. They nevertheless patiently prepared for the future by soberly analysing all the factors which led to the consolidation and strengthening of capitalism, but also those processes which would inevitably undermine it – and would lead to a revival of the workers’ movement.
In the pages of the Socialist and Socialism Today, together with all the journals of the Committee for a Workers’ International, a very rich analysis of economic processes had helped to sustain and breed confidence in the ranks of our party and International. We had been reduced in numbers it is true, but we were still capable of making a significant contribution to the theoretical arsenal of Marxism and the labour movement. In article after article we countered with facts, figures and arguments the myth sedulously fostered by the capitalists and their echoes within the labour movement like Brown, that a new economic paradigm had been created, that ‘modern’ capitalism had overcome its contradictions and that the boom-bust cycle had been abolished.
Confirmation was not long in coming as the first eruptions developed in the 1997 economic crisis – beginning in Southeast Asia but reflected throughout the world. Then in the 1998 economic meltdown in Russia, followed by the bursting of the dot.com bubble at the turn of the 21st century. These were the precursors for the devastating slump of 2007-08. Even before this, the signs of an impending crisis were clear. A massive speculative bubble had fuelled the growth of the world economy with share prices reaching dizzying heights as the stock exchange sharks sought to cash in on growing company profits, which had risen to peak levels. George Soros symbolised the world of the spivs and speculators who Marx had described as “the pleasant company of swindlers”. Soros had accumulated a fortune through currency manipulation.
This reflected the domination of finance capital in the modern era, sometimes described as financialisation. Speculation is a parasitic tendency of capitalism on the back of the banking system but it had reached epidemic proportions. Moreover, the banks and major industrial companies like carmakers were (and are) also involved in speculation. Then there were junk bonds, which developed in the 1980s and enhanced the power of the speculators. James Carville, one of Bill Clinton’s aides, stated that if there was reincarnation, he would come back as the bond market because you could intimidate everybody! In effect, the financial markets have more power than governments. This was highlighted in this crisis.
Any real growth in the economy had been achieved mainly through the intensified exploitation of the working class. The underlying growth had been feeble, as had productivity. Ironically, it was the Asian ‘tigers’, formerly growing at a faster rate than the developed economies, that were now plunged into crisis. In early 1997 Blair had pointed towards the Asian economies as examples for British workers to emulate. But this ‘model’ of flexibility and deregulation meant cheap sweated labour – more perspiration than inspiration as far as workers were concerned. At the first signs of crisis we pointed out: “It will be the working class and the poor peasants of Southeast Asia who will pay the terrible price… Economic crises are inevitable [on the basis of capitalism] and will have a greater effect on the lives of working people than the worst volcanoes, earthquakes or hurricanes.”1
A financial meltdown loomed in Asia. Speculative funds, so-called hot money, that had previously poured into the region now sought to flee to the ‘safe haven’ of the dollar. Some of the local capitalists like Prime Minister Mahathir Mohamad of Malaysia sought to prevent this outflow with capital controls. He had spooked the world financial markets by declaring: “The free-market system has failed.” The crisis produced convulsions in Malaysia, a country that would become the third largest economy in Southeast Asia, reflecting the gains spilling over from China’s growth. Now it had been thrown into reverse, generating more and more discontent. It was suffering from over-borrowing and overcapacity. The next day, Mahathir removed Anwar Ibrahim, identified as an apostle of ‘free market’ economics, as Finance and Deputy Prime Minister.
Anwar condemned this political conspiracy which included obviously trumped-up sexual charges. He launched the Reformasi campaign which chimed with the growing opposition of the masses as the crisis deepened. Mass rallies of upwards of 100,000 took place. In his youth, Anwar had been associated with campaigns to protect the people. He now invoked his past and sought alliances with opposition parties, such as the Islamic PAS and the socialist PSM, who later had connections with the CWI and had discussions with myself when I visited Malaysia a few years later.
Mahathir’s stand on capital controls provoked opposition from Lee Kuan Yew, Prime Minister of Singapore, who feared that this could herald a backing away from globalised finance. Soros and the supporters of globalisation were also opposed because of the threat this represented to world trade which had expanded massively in the previous period. This had been helped by the dismantling of national economic controls – the imposition of the ‘free trade’ loved by neo-liberals. The financial crash meant that the global flow of credit was sharply reduced to the area. This resulted in a vicious downward spiral of closures of businesses and rising unemployment. The International Monetary Fund (IMF), which was originally designed as a post-1945 Keynesian instrument to boost spending and help governments facing economic distress, now intervened to impose ruthless austerity. We predicted the inevitability of mass revolts. Workers carried banners in mass demonstrations which read: ‘IMF – I aM Fired.’
The biggest capitalist powers, the US, Japan and Germany, were terrified at the prospect of South Korea’s collapse and piled in help through an IMF bailout, but with ‘bone carving’ conditions. The intention of the dominant imperialist powers was to open up the Korean market to foreign competition. This neo-colonial stance outraged the national sensitivities of the Korean people given the occupation of the country and the national humiliations inflicted on them in the past. This in turn had compelled the Korean Confederation of Trade Unions (KCTU) to organise general strike action.
The newly elected Kim-Dae-Jung administration inevitably came into collision with the workers’ organisations. The militant KCTU federation was accused of frightening investors off with its threat of renewed strike action because of the violent clashes that took place at the May Day demonstration in 1998, when 120,000 of its members protested in the first round of a campaign over job security and the right to life. The union was demanding the renegotiation of the IMF deal and an end to what it called ‘illegal’ redundancies that the giant conglomerates (chaebols) had imposed with the backing of the IMF. Thousands of Korean workers were thrown out of work, with no prospect of an income to maintain them and their families.
The 1997 crisis came ten years after the 1987 economic crisis. These economic eruptions were never explained by the soothsayers of capitalism. No analysis was made as to why their system was periodically convulsed in this fashion. It was as if economic crises were an act, if not of god, then of nature’s headwinds but all of them left in their wake massive economic damage and the wrecking of the lives and hopes of millions of workers. They produced revolutions of the downtrodden, exploited masses. Huge sections of the Indonesian population rose against Suharto and forced him from office. He was in Egypt when the major cities of Indonesia were engulfed by angry crowds who took vengeance for the new round of price rises.
The end of his regime, however, would not by itself guarantee a lifeline for the masses. A period of instability developed with the Indonesian people trying out one party after another only to find them wanting. Banned organisations like the People’s Democratic Party held out the possibility of change. However, this organisation and its leaders such as Megawati, who came to power, were not prepared to go outside the framework of capitalism and carry through a socialist revolution in this nation of 17,000 islands. This would have sent shockwaves not just throughout the region but the world. Even the Financial Times characterised the post-Suharto regime as “an unfinished revolution”.
The Asian crisis deepened in the following year and reverberated worldwide with gyrations on the world’s stock exchanges starkly reflected in the plunge in share values in Russia. Capitalist commentators endlessly repeated that the ‘fundamentals’ of the system were sound and yet we witnessed the meltdown in Russia, another link in the chain of crises that was developing. Russia had been reduced to a smaller economy due to the restoration of capitalism which resulted in a world record drop in production of about 50%. Japan, which had bad debts of at least $1 trillion, was locked into what would become ‘two lost decades’. This was an anticipation of what would happen to the whole global economy later.
The Asian crisis had triggered a sharp drop in world prices of oil, gas and metals, all vital Russian exports. This meant a dramatic drop in its national income. Some economists dismissed Russia’s economy as being “too small” to exercise a big effect on the world economy but it had borrowed colossal sums in the world markets and faced a huge increase in the cost of imported goods. Moreover, Russia was the world’s largest gas producer and supplied a large proportion of the world’s oil, metals, gold and diamonds.
However, the 1998 economic collapse in Russia marked a new turn. It shattered the perspective, peddled by the oligarchic Russian capitalists, that Russia was on the road to rising living standards, if not of America then at least of West Germany. Our Russian comrades posed the question: “Who lost Russia?” Rob Jones wrote: “The new capitalist Russia has achieved in just eight years what the Soviet Union failed to do in 70 – threaten to bring down the whole capitalist system.”2
The consequences of the jump in prices and falling production were felt in a dramatic increase in the non-payment of wages and actual layoffs. Western companies were withdrawing investment. Any company that relied on imported materials faced dramatically increased costs. At the same time the economy was being criminalised, a direct consequence of the restoration of capitalism, including the privatisation of state assets with huge industrial complexes transferred into private hands. Industrial production fell as a consequence from a 67% share of the economy in 1991 to 43% in 1998. So bad was the situation that the state was forced to step in and renationalise some sections of industry. In reality, the clock could not be turned back completely. The result was the existence of a form of state capitalism, a comfort blanket for the oligarchs and the gangster capitalists to plunder the assets of the peoples of Russia.
Despite the foregoing analysis, the picture presented by capitalist commentators of the period from 1998 onwards is one of steady recovery of the system. In reality, the world capitalist economy remained blighted. None of the problems had been solved. This was indicated by the insolvency and near collapse of Long-Term Capital Management (LTCM), a premier hedge fund. This brought the world financial system to the edge of meltdown. Only a rapid
$3.6 billion rescue organised by the US Federal Reserve averted catastrophe. For the big financiers, LTCM was ‘too big to fail’, the very same reason used almost nine years later for bailing out the big banks. If LTCM had been allowed to collapse, then arguably the whole unstable financial house of cards would have gone down with it. Yet the financial ‘authorities’ were incapable of learning or doing anything to avert such potential catastrophes. Like the Bourbons, the capitalists and their representatives learned nothing and forgot nothing. By January 2001, Time magazine was once more warning: “Here comes the slump.”
Some alleged Marxists have accused the Socialist Party of exaggeration, forecasting the dangers of ‘imminent economic collapse’. Some even accused us of being ‘primitive slumpists’. Our ‘mistake’ has been to warn the working class that the underlying trends in the economy result in a collapse and only the timing is unforeseeable. Yet we see that the more farsighted capitalist economists then and now seem to fall into the same ‘trap’ as the Socialist Party in issuing such warnings.
Time magazine went on to agree with much of the analysis of Marx: “Karl Marx theorised that capitalism was condemned to repeat depressions because of ‘cycles of overproduction’.” It said that he got some details wrong but that, had he seen the US economy in the first week of January 2001, “he would no doubt have felt vindicated”.3 Similarly the Economist, in a special report on the world economy, stated: “One by one, economies around the world are stumbling. By cutting interest rates… the Federal Reserve hopes it can keep America out of recession. But in an increasing number of economies… GDP is already shrinking. Global industrial production fell at an annual rate of 6% in the first half of 2001.”4
The dot.com ‘revolution’ had been hailed as a new saviour, a new field of investment and production, which would banish the prospects of a recession or slump. We showed earlier in our answer to the arguments of some of our former comrades in South Africa and Liverpool that we rejected this perspective. Microprocessors, even if applied on a wide scale, could not avert economic collapse. They were mostly used to improve accountancy in the retail sector, but new technology did not represent a massive new field of investment which would lead to growth in the productive forces and a new boom. This was confirmed in the collapse of the dot.com bubble, which looked as though it was going to initiate a widespread economic crisis and collapse. Indeed, this was only cut across by a huge injection of liquidity by the central banks which act as a backstop for the world economy, but only for a time. Ultimately, capitalism ran out of palliative measures. Throughout the globe, working class anger was growing. Even fervent advocates of capitalism like Bill Gates of Microsoft and investment guru George Soros realised that global capitalism was increasingly being questioned. Then in 200708 the scenario which we had sketched out and which was an integral part of our analysis came to pass.
