This document on World Perspectives, first drafted in November 2007, was discussed, amended and approved at the World Congress of the International Marxist Tendency at the beginning of August. 

World Economy

"It is economics that decide, but only in the last analysis. Of more direct significance are those political-psychological processes that are now taking place in the German proletariat and which likewise have a logic of their own." (Leon Trotsky, The First Five Years of the Communist International, Introduction to the 1924 edition.)

Economic perspectives are of great importance but must not be taken in isolation from the general situation of world capitalism. Marxists are not economic determinists but dialectical materialists. A scientific perspective always takes all sides of the equation into account. A dialectical analysis deals with action, reaction and interaction of all factors, both economic and superstructural (political, military, diplomatic, etc.).

Economic crises play an important role, as we saw in Asia, Russia and Argentina in the crises of 1997-2001, which had serious social and political repercussions. But in the present situation of world capitalism, where contradictions are piling up at every level, any external shock can have profound consequences, whether it originates in the world economy or from other factors.

The economic cycle is important, but it does not exhaust the question of class consciousness or revolutionary perspectives. It is also a political question. For example, the effects of the instability in the Middle East, the invasions of Afghanistan and Iraq, have had a big political impact in Italy and Spain. Also in the USA there is a serious political crisis over Iraq. At the other end of the world Pakistan has been totally destabilized by events in Afghanistan.

The fall of the Aznar government in Spain was a sudden and radical turn in the situation that was rooted in the world crisis of capitalism but not directly related to economics. In the period in which we live sudden shocks of this sort are rooted in the general situation. This is equally applicable to economics, which remains the ultimately determining factor of world history.

The most decisive factor in current history is the crushing domination of the world economy, which was predicted long ago by Marx and is now a reality. No nation, no matter how strong, can resist the powerful magnetic pull of the world economy. Neither the USSR nor China - both mighty sub-continental economies - could resist this force, much less the pygmy states of Europe.

The fall of the Soviet Union and the subsequent incorporation of almost two billion people from India, China, and the former USSR into the world economy has given a powerful stimulus to world trade and acted as an oxygen balloon for capitalism. The intensification of the international division of labour, and the opening up of new markets and fields of investment has provided the opportunity for super-profits and plunder.

However, none of this means that the fundamental contradictions of capitalism have been overcome. They have merely been reproduced on a far vaster scale than at any time in history. The bourgeois economists, proceeding in an empirical manner, once more fell into the delusion that the economic cycle had been vanquished and that crises were a thing of the past. They wrote about the so-called New Economic Paradigm.

Now nobody talks about this any more. The Internet crisis of 2000 burst the bubble and although they recovered for a few years they are now all talking nervously about the prospects for a slowdown of the world economy or even a recession in 2008. The old confidence and "irrational exuberance" has vanished and has been replaced by a deep sense of anxiety.

Economic turbulence

Every economic cycle begins with a boom and ends in a slump. It is impossible, however, to be precise about the timing of the cycle. All the ingredients are present for a downward slide, particularly in the all-important US economy. The bursting of the technology bubble in 2000 led to a recession, but it was a relatively mild affair. But there is no guarantee that the next one will be the same. In economics the past is no guide to the future. The present crisis in the money markets has raised the prospect of a recession in the wider economy. The dollar, despite everything, remains the world's "reserve currency". A further fall in its value could destabilize the global economy.

For the last five years the world economy grew at an average of almost 5% a year, close to its fastest pace ever. For the advanced capitalist countries that growth has been only moderate at 2.8% p.a. It is the "emerging" economies that ramp the figures up with growth figures of 7.8%. China has been growing at 11% and India at 9%. This is a new phenomenon, but the world economy's prospects are still dependent on the performance of the advanced capitalist countries, particularly the USA.

Though growth figures of 5% a year are like those of the post-War boom era of 1948-73, we remain in a new and less optimistic age for capitalism. Moreover, there are clear indications that these levels of growth will not be maintained. The crisis in the summer of 2007, which began in the US sub-prime market and rapidly spread to other countries, was a warning that the boom in the USA is moving to its end. The chaos on world stock markets in the summer of 2007 was a manifestation of the general turbulence that is the most prominent feature of the present epoch.

The reason the US Federal Reserve's board decided to cut interest rates after the crisis of the summer of 2007 was to prevent "contagion" - that is to say, to prevent the crisis in the sub-prime sector from spreading to the rest of the economy and tipping the USA into a full-blown recession. This showed that the bourgeois see the risk of a recession looming, and it is fear of a recession that lies behind the present nervousness in money markets.

Finance and the real economy

The boom in the USA has largely been a consumer boom, fed by credit. As Marx explains, credit is a way of expanding the market beyond its natural confines. But this has its limits and these have now been reached. If the capitalists cannot find markets for their commodities, no surplus value will be realized and a crisis of overproduction will ensue.

The financial crisis of the summer of 2007 was a turning point. It may or may not signify that the critical point has been reached when the world economy begins a slide into recession. That is a possibility. But the laws governing the conduct of the money markets are not the same as those that govern the capitalist cycle. A stock market crisis may be the spark that ignites a general crisis, as happened in 1929. But if the underlying process is still on an upwards curve such a crisis can serve to squeeze out fictitious capital from the system, preparing the way for a further period (longer or shorter) of economic growth, as in 1987.

A fall in house prices will depress Americans' spending by much more than the stock market crisis in 2001. The immediate effect of the sub-prime crisis has been a fall in house prices and credit conditions. As a result, households can no longer borrow against rising house prices to support their spending. One widely watched index of consumer confidence fell for the third month in a row in October, to its lowest level in two years.

One of the main motor forces of the boom in the USA was the boom in construction. This was related to rising house prices. But the housing market is now in decline. Experts said that house prices could never fall in the USA. But they have fallen by 5% in the past 12 months. Residential investment has collapsed. A glut of unsold homes means that prices will drop much further.

This will affect the US economy in a number of ways. The falling demand caused by overproduction in the housing sector is causing a slump in the construction industry. This will have a knock-on effect in industrial sectors (steel, cement, etc.). On the other hand it will have a negative effect on credit and consumption, reducing demand, which must also have an effect on production.

If Americans slow their spending sharply, as is certain to happen, it will drag the economy down. Consumption in the USA has been the locomotive of growth since the 2001-2 recession. This growth has not been based on rising incomes, since workers' incomes have been stagnant in the United States for decades. It is based on a ‘wealth effect' of consumers borrowing against the rising price of their homes. This house price increase was, of course, a bubble. The bubble has now burst.

The rising price of oil (notwithstanding episodic fluctuations in crude prices) will further reduce purchasing power. It is for these objective reasons that "consumer confidence" has fallen sharply. If people have less money, credit is tight, prices are rising and you fear losing your job, it is natural that you will not rush to the shops to buy things. It cannot be long before the consumer boom in the USA exhausts itself. And if there is no market in which to sell things, this will sooner or later affect companies' profits, leading to a fall in productive investment.

Fictitious capital

Financial crises and credit squeezes are not the cause of economic crisis but its effect. However, dialectically, cause becomes effect and effect becomes cause. The capitalist cycle of boom and slump has more profound causes. As long as the capitalists are making profits from the extraction of surplus value, there is "trust" and "confidence" and credit is lax and easy to get. But when the cycle is reaching its limits and there are indications that the good times will not continue, this "confidence" evaporates.

Marx mentions in Capital that there are two sorts of financial crisis in capitalism. There are financial panics that are a direct reflection of crisis in the real economy, and serve to make the crisis worse. Then there are financial crises sparked off by apparently accidental factors that go on to have a backwash effect on the economy. It is not yet clear what effect the present credit crunch will have on the ‘real economy'. It is clear that the American economy, and with it the world, is due to dip into recession.

Financial crises are not the cause of depressions, which are the consequence of the anarchy of capitalist production. But they can certainly exacerbate crises by injecting huge quantities of fictitious capital into the system during the upswing. This happened in the period before the Great Crash of 1929 and it is happening on an even bigger scale now.

The increase in the cost of credit does not only affect consumers and house-owners, it also eats into the rate of profit of the capitalists. This can affect investment at a certain stage, especially if it is combined with rising prices of raw materials like oil.

The Fed contributed mightily to America's bubbles and its debt addiction. By holding rates too low for too long, it encouraged the credit boom, preparing the way for the present crisis. For much of the period from 2002 to early 2006, "real" rates were actually negative. People were punished for not taking on debt. Greenspan now says: "The human race has never found a way to confront bubbles". He admits he was caught off guard by the sub-prime madness that ensued. That is true of most of the economists and the bourgeoisie in general.

The levels of speculation and fictitious capital injected into the economy in the last period are like a poison that must be squeezed out. But in attempting to do this, they can easily puncture the bubble and drive the whole thing down. At this point creditors begin to demand repayment of debt and are no longer so keen to lend money. They demand a higher rate of interest. This cuts into the rate of profit and reduces demand. What was effect now becomes cause, driving the whole cycle down in an uncontrollable spiral.

At the peak of the boom there can be a crisis of the stock markets that serves to squeeze out the large quantities of fictitious capital that have been injected into the system during the upswing. This is now referred to as a "correction" and is supposed to have the same beneficial effects that bleeding (removing excess blood from a patient) was thought to have in the Middle Ages. But as we know, the loss of too much blood all at once can have disastrous consequences.

This is what both the British and American bourgeois are afraid of. That is why both the Fed and now (reluctantly) the Bank of England are injecting more inflation into the economy. By so doing they may postpone the evil day a little longer, but only at the cost of causing an even sharper and deeper collapse later on.

The inflation in the stock market was already staggering before the sub-prime crisis. The market capitalization of all US stocks grew from $5.3 trillion at the end of 1994 to $17.7 trillion at the end of 1999 to $35 trillion at the end of 2006, generating a geometric increase in price earnings ratios. This was not the result of an expansion of productive activity but because of a massive increase in fictitious capital: more dollars chasing the same number of securities.

The result of repeated interest rate cuts is a country living far beyond its means (the bankers call this moral hazard). From the biggest world creditor America has been transformed into the world's biggest debtor, with net external liabilities of $3,000bn. The savings rate has fallen below zero for the first time since the Depression. The US has been running a current account deficit of 6.5% of GDP for year after year, and yet the Fed looked complacently on as on America's shoppers merrily went on spending and accumulating ever-greater debts. As a result Asia, and particularly China, have accumulated huge reserves of currency at America's expense.

The recent crisis has revealed to what extent big US banks are involved in speculation. Particularly distasteful was the practice of the buying and selling of debt. During the recent boom, banks and finance houses were willing to offer credit and mortgages to many people who could not afford it. As long as interest rates were low (for a time even negative) this seemed like a good deal. Many poor working class people were tempted to buy houses on this basis. Moreover, the banks actually sold packages of this debt to other banks, which were eager to buy.

"Structured finance" is the term they use for a system allegedly designed to distribute capital more efficiently by allowing other market participants to fulfil a role that used to be considered the exclusive preserve of the banks. In practice, it is a gigantic swindle. Insecure mortgage loans and other liabilities were magically transformed into assets (securities) by so-called securitization. It was the financial equivalent of the alchemists who claimed to transform lead into gold. This system relies on investors to provide the funding for mortgage loans that are pooled and sold as collateralized debt obligations or CDOs.

This means that the bourgeois were buying and selling debt. Huge fortunes have been made out of this vast swindle. It was all very nice while it lasted. But all good things must come to an end. The panic in US credit markets was sparked off in May 2007 when Bear Stearns revealed huge losses in two of its hedge funds. One of the two funds was allowed to collapse, while the bank bailed the other out. By August 2007 new CDO sales plunged by 73%.

The economists say the sub-prime lending crisis in the USA was the cause. But as Hegel explained long ago, necessity expresses itself through accident: if it wasn't the sub-prime, it would have been something else. The sub-prime in the US was the weak link in the chain. As Greenspan admits: "If we had gotten past that and we hadn't broken the overall fever it would have been something different, but it would have happened one way or the other".

Parasitism

In its youth the bourgeoisie, driven by greed for profit and insatiable thirst for surplus value (the unpaid labour of the working class), developed the productive forces. But in the period of its senile decay it plays no progressive role whatsoever. Marx explained that the real ideal of the bourgeois is to make money from money, without having any need to resort to the painful process of production. The bourgeoisie has now been infected with a disease that has no known cure.

In the past capitalism played a relatively progressive role in developing the productive forces and thus creating the material base for a new society - socialism. But today this is no longer the case. With the exception of China (and some other Asian economies) the bourgeoisie has not been developing the productive forces. Even here, the productive forces would have developed far more if they were under workers' control and aimed at satisfying the needs of the masses. This is a symptom of the terminal sickness of capitalism.

Now they are close to realizing the old dream of making money from money. In Britain, the US and many other countries there has been a steep decline of manufacturing and huge rise of the parasitic finance and services sector. The so-called private equity firms are involved in a speculative orgy of takeovers that do not entail any productive activity but rather, closures, sackings and the hollowing out of industry for the sake of profiteering.

The sums spent on so-called leveraged buy-outs are enormous. For $32.6 billion in cash and the transfer of $15.9 billion in debt, Bell Canada Enterprises (BCE), owner of the largest telephone company in Canada, has agreed to be taken over by an Ontario pension fund and two American private equity firms. If it is completed, the takeover would not only be the largest in Canada's history but the biggest leveraged buyout anywhere. It puts into the shade the news in Britain that a private-equity firm may buy Virgin Media, a pay-TV, internet and telephony group, for a mere $11 billion or so.

The entire banking system is now up to its neck in fraud and swindles of all sorts. This was always the case. In a boom, when production is in full swing and there is plenty of money to be made there is a frantic scramble for credit. An excess of money and credit at this stage in the economic cycle plays a positive role in oiling the system and providing much-needed liquidity.

There is always an element of speculation in this, as Marx explains. When everybody is making money, nobody is concerned about looking too closely at where the money is coming from - or even if it is real money at all. The English economist Gilbart, as early as 1834 wrote:

"Whatever gives facilities to trade gives facilities to speculation. Trade and speculation are in some cases so nearly allied, that it is impossible to say at what precise point trade ends and speculation begins."

In Marx's day it was estimated that possibly

"nine-tenths of all the deposits in the United Kingdom may have no existence beyond their record in the books of the bankers who are respectively accountable for them."(The Currency Theory Reviewed, etc., pp. 62-63)

In this merry carnival of moneymaking everybody is too intoxicated with the spectre of enrichment to worry about the fine print. "Eat, drink and be merry, for tomorrow we die!" That is the motto of the bourgeoisie in a period of boom. However, as the boom runs out of steam, these fraudulent schemes and swindles are being exposed. Bank failures are inevitable in the future.

The only difference between the present period and the past is the scale of the orgy of swindling and speculation. In the recent period vast quantities of fictitious capital have been injected into the system through the stock exchange boom, the housing bubble and the endless extension of credit and debt to unheard-of levels. This is merely one reflection of the senile decay of capitalism and the bourgeoisie's lack of optimism about the long-term prospects for its system.

Bankruptcy of bourgeois economics

Under capitalism crises are inevitable. If you accept capitalism then you must accept the laws of capitalism: that is to say, you must accept booms and slumps (now referred to in polite circles as "corrections"). The reformists and Keynesians who advocate tinkering with the system to "smooth out the cycle" by state intervention, deficit financing, pump-priming and the like, may succeed in postponing a slump for a time, but only at the cost of preparing an even more serious crisis in the future.

The bourgeois economists are incapable of understanding crises, which are an inescapable result of capitalism. They are perplexed and at a loss to explain what is happening. All their predictions have proved worthless. That is not new. In 1929, days after the stock market crash, the Harvard Economic Society reassured its subscribers: "A severe depression is outside the range of probability". In a survey in March 2001, 95% of American economists said there would not be a recession, even though a recession had already started.

The general opinion of the bourgeois economists is that central bankers and governments can manipulate the economy so that slumps can be avoided. Most of them agree that a repetition of the crash of 1929 and the Great Depression is impossible. They assume that because for the last twenty or so years there have only been two recessions and both of them were relatively mild, that they have finally managed to find a magic recipe for avoiding slumps as in the past. This is an entirely erroneous assumption. In fact every economic cycle has its own peculiarities. These have to be sought in the specific factors of capitalist development in time and place. The mildness of recent recessions is no indicator of a new era for capitalism.

The Northern Rock crisis in Britain showed precisely that all the instruments for solving a crisis and avoiding panic are useless. In the moment of truth people were gripped by a herd instinct. They moved en masse like a herd of wildebeest frightened into a stampede by the mere scent of a lion. Many commentators have spoken scornfully about this "irrational" conduct. If it was irrational, then it is the same irrationality that is the heart and soul of the capitalist market economy.

The government and the Bank of England were powerless either to prevent a major banking crisis or to calm the nerves of depositors and investors. In the end they only succeeded in preventing a total collapse by giving a promise of unlimited funds to the bankers, paid for out of the taxpayers' pockets. This has temporarily halted the downward slide, but only at the cost of preparing the way for even steeper falls in the future.

For the bourgeois, crises (and economics in general) are always explained in subjective terms. In the same way as all consumers are assumed to possess a universal knowledge of commodities, so all crises are caused either by the mistaken decisions of governments or central banks, or, as in the latest version of former chairman of the US Federal Reserve, Alan Greenspan, human nature:

"Human nature moves from euphoria to fear," he informs us. "It is this sense of fear that modern economists are failing to take account of when they make forecasts, he adds. "The old habit of boom-and-bust cycles has not died in recent years - it has merely been dormant."

Today, the bourgeois are trying to console themselves with optimistic predictions. These remind one of the incantations of a primitive shaman who tries to make it rain by constant chanting (the governor of Arizona recently did just that). They operate on the supposition that booms and slumps are caused by subjective psychological factors ("confidence") on the part of consumers or investors. In reality the capitalist boom-slump cycle is determined by objective factors that are outside the control of governments and central bankers.

The "confidence" of investors is based on very real material considerations. As long as the US economy was going forward, even though the fundamentals were unsound, the bourgeois of other countries were prepared to invest in it. They paid no attention to the colossal levels of debt and the huge deficits, including a current account deficit of around $800 billion a year. The US needs to raise at least $70 billion every month just to cover this shortfall.

Most economists do not forecast a recession in America, but the facts suggest that the United States is probably heading for one. US GDP grew by 3.9%, at an annual rate, in the third quarter of 2007. But there are signs that the economy could stall in 2008, with output and jobs shrinking. Most commentators agree that the US economy will grow at less than 2% next year. This takes no account of the effects of the sub-prime mortgage panic. Greenspan, the Organisation for Economic Co-operation and Development (OECD) and others have suggested that it is fifty-fifty whether the American economy goes into recession in 2008.

Instead of raising interest rates to combat inflation, the Federal Reserve gave financial markets what they wanted: it cut the federal funds rate. This action, irresponsible from a capitalist point of view, was dictated by fear of the social and political effects of a recession. They clearly judged that there was such a risk of recession that it warranted cheaper money.

To please Wall Street, the central bankers are underestimating the dangers from inflation, although there are plenty of warning signals. Inflation is increasing, a fact not adequately reflected in government statistics. In 2000, when Bush took office, gold was $273 per ounce, oil was $22 per barrel and the euro was worth $0.87 per dollar. Currently, gold is over $700 per ounce, oil is over $80 per barrel, and the euro is nearly $1.50 per dollar.^[*] Some economists are talking about oil at $125 per barrel by next spring. The recent cut in interest rates will pour fuel on the flames.

The benign core inflation figures may be understating price pressures, particularly given the falling dollar and record oil prices. By its actions, The Fed has confirmed the belief of the financial markets that investors' expectations determine the central bankers' decisions: if Wall Street demands a rate cut, the Fed will deliver.

There has been relative stability of inflation over the past 15 years. This is due to a combination of globalization and the entry into the labour force of millions of low-paid workers that exercises a downward pressure on wages and prices. The capitalists and economists have become blasé about this. As a result the central banks have allowed monetary policy to become extremely lax, building up problems for the future in the form of an even bigger credit bubble.

In the future all the chickens will come home to roost. We will see a global crisis of overproduction aggravated by a sharp contraction of credit and a collapse of house and stock market prices. All the factors that drove the market up will combine to drive it down.

Consequences for the world economy

David Walker, comptroller general of the USA has been drawing parallels between the crisis facing the USA and the end of the Roman Empire. He has warned there are "striking similarities" between America's current situation and the factors that brought down Rome, including "declining moral values and political civility at home, an over-confident and over-extended military in foreign lands and fiscal irresponsibility by the central government". This tells us a lot about the current psychology of the strategists of Capital.

An American recession must have serious consequences for the rest of the world.

The bourgeois economists try to argue that the economies of Europe and Japan, which grew strongly in the third quarter of 2007, will pull the world out of recession. But many economists predict that this growth will not be maintained. Even if they maintain some degree of growth, it will not be sufficient to compensate for a recession in the American market. The falling dollar will hurt exporters in both Europe and Japan, pushing up their currencies and making their goods less competitive. Moreover, in Europe the crisis in the housing sector mirrors that of the USA, with similar results. Some European banks have been damaged by America's sub-prime crisis.

This is the other face of globalization. The argument that the rest of the world could remain aloof from a US recession is childish in the extreme and contradicts everything the economists said in the past about globalization. A crisis in any major sector of the world economy must affect every other sector. That was clearly shown by the crisis of 1997, which began in Asia and rapidly spread to Turkey, Poland, Hungary, Russia, Brazil and Argentina. The same thing can happen again at any time.

Faced with the clear evidence of an impending recession in the USA, the economists are placing all their hopes on emerging economies. This is ironical in the extreme. A decade ago, the thought that the entire world economy much depended on these crisis-prone places would have terrified the Americans and Europeans. Yet now they look to China and the rest of Asia for salvation. This fact is a graphic expression of the impasse of capitalism and the growing desperation of the bourgeoisie on a world scale.

Prospects for Asia

Prospects for the world economy are dependent on continuing strong growth in Asia. Commentators hope for a de-coupling of economic growth from the demand of American consumers that they know will fade away next year.

On the surface there might appear to be grounds for this optimism. The Asian economies recovered from the crisis of 1997-2000 and now their annual growth rate has surged to around 7%. In 2007 they contributed no less than half of the globe's GDP growth, measured at market exchange rates, over three times as much as America. However, depending on "emerging markets" the capitalists are leaning on a broken reed. These economies are heavily dependent on exports and the growth of world trade. Most are dependent on the US market, which has been sucking in their exports at a dizzying rate. That was because the USA was living beyond its means. But that phase is already past.

The relative growth of the importance of these countries in the world market is not so much an expression of their strength (except China) but of America's weakness. America's importance as an engine of global growth has declined. Since 2000 its share of world imports has dropped from 19% to 14%. Emerging economies will not grow fast enough to make up for the whole of a fall in America's output. Most of them will slow in the next period. A recession in America would reduce emerging economies' exports.

It is true that domestic demand in emerging economies has grown. In the first half of 2007 the increase in consumer spending (in actual dollar terms) in China and India added more to global GDP growth than that in America.

It is also true that the Japanese economy is reviving. Big Japanese manufacturers now report insufficient production capacity for the first time since 1991 and plan to increase capital spending by 17% in the year to March.

Although America takes only 23% of Japan's exports, down from almost 40% in the late 1980s, this understates Japan's total exposure. Japanese firms (like those in South Korea and Taiwan) send a lot of components to China for assembly into goods, which are then exported to America as finished products. On top of this, if a sinking American economy pulled the dollar even further down with it, this would further squeeze Asian exporters. Moreover, Japan has a massive public debt and therefore is not in a position to "spend its way out of a crisis" by deficit financing. Taiwan, where domestic demand is weak, is also constrained by a large budget deficit.

There are therefore no serious grounds for believing that Asian economies can "decouple" from an American downturn. Although China's exports to America have fallen from 34% of its total exports in 1999 to 25% now (adjusting for the re-exports which are made through Hong Kong), a sharp fall in demand in the USA would still have serious consequences for China.

Slower American growth will hurt China, India and Japan and it will hit the smaller Asian economies, such as Singapore, Taiwan and Hong Kong, that are more dependent on foreign demand, still harder. But all Asia is interconnected and the crash of 1997 showed how once a crisis starts it will leapfrog from one country to another.

Ten years ago, on July 2nd 1997, Thailand's central bank floated the baht after failing to protect the currency from speculative attack. The move triggered a financial and economic collapse that quickly spread to other economies in the region, causing GDP growth rates to contract precipitously, bankrupting companies that had overexposed themselves to foreign-currency risk, and ultimately necessitating costly and politically humiliating IMF-led bailouts in the worst-affected countries. That precipitated the Asian financial crisis of 1997-98. They are now congratulating themselves on coming out of that crisis but it can easily be repeated on an even bigger scale.

China

The Chinese economy has been roaring ahead at eleven percent per annum, although it has recently slowed to "only" ten percent. Unlike the USA, which has experienced a consumer boom based on debt, China has seen a colossal development of the productive forces. As Marxists, we welcome this because it serves to develop and strengthen the mighty Chinese proletariat.

China overtook the USA in 2004 as an exporter of hi-tech goods. It is estimated that by 2015 China will have more scientists and engineers than the rest of the world put together. By 2020, if present trends are maintained, it will be spending more on research and development than the EU. It is already the biggest market for integrated circuits in the world. These enter into the production of laptops, telephones, refrigerators, air conditioners, computers, etc.

The world bourgeoisie has derived considerable benefits from its involvement in China, which occupied the position that Russia was intended to have played after the collapse of Stalinism. They invested massively in new plant and machinery and thus created a powerful modern industry in China, where the advantages of cheap and plentiful labour combined with the latest technology imported from the USA, Europe and Japan to produce a formidable productive capacity. This has big implications for the world economy as does the launching of Chinese satellites, which has both an economic and a military significance.

The problem is that all these modern factories in Guandong and Shanghai would inevitably produce a mass of commodities - televisions, computers, DVDs, mobile phones, microchips and now cars - that have to find a market. It is true that the extraction of surplus value takes place in the workplace, but whether the capitalists can realize the surplus value extracted from the labour of the workers depends on their ability to sell the commodities produced.

It is true that the Chinese domestic market has expanded considerably in recent years. Yet China remains heavily dependent on world markets, and above all the US market. A sharp contraction of demand in the USA would hit the Chinese economy hard. This would have a severe knock-on effect in places like Taiwan, Korea and the rest of Asia, which exports goods to China where they can be cheaply assembled and then re-exported to the USA and Europe.

In participating in world markets China has benefited enormously, but it is also creating new contradictions, importing problems like inflation that did not previously exist. Inflation is now around 6.5%, a very high figure for China. There have been strikes protesting low wages. Recently an increase in oil prices sparked off rioting. The government, alarmed, instructed the state owned oil companies to bring more oil to market but, in the words of The Economist, the companies are "slaves to the market".

In the long run China will be an economic power to match the USA, but predictions that this is imminent are mistaken. The bourgeois economists made the same mistake in relation to Japan in the 1980s on the basis of the same false method of extrapolating the future on past trends. The Japanese economy collapsed and was in a state of recession for over ten years from which it is only now painfully extracting itself. The same can happen to China.

The strength of China is uneven. It has many weaknesses. Chinese iron and steel foundries can only satisfy a small percentage of demand. The majority of the population still lives in conditions of extreme poverty in the rural areas and have a very small purchasing power. There are at least 150 million unemployed in the cities. The Economist recently remarked: "China is where electronic goods are made, not where much of the value is added."

Let us take one example. The Apple iPod 30-gigabyte video version is made in China by a Taiwanese company. It has no fewer than 424 parts and costs $224 (in 2005). Out of these 424 parts, 300 cost one cent or less. But the display module that costs $30 was made in Japan. Chinese labour that assembled this product added only $3.70 to its value. As for the internal market, this is restricted by the low living standards of the great majority. Only about 15% of the electronic and information goods produced in China are sold on the home market.

Chinese industry is producing vast quantities of goods every year. But in the end the contradiction remains: the goods have to be sold. A recession in the all-important US market will hit China's exports hard - not only the direct exports to the USA, but the exports and imports to and from the rest of Asia.

Stephen Roach has estimated that since 1980 the export share of growth has gone from 20% to 45%. Over the same period the share of domestic consumption in growth has fallen from 67% to less than 50% today. The Chinese economy might maintain a rate of growth of 8% without the stimulus of exports to the USA. But it could not take over as the engine of world economic growth. The United States remains decisive in that respect.

The decline of the dollar

At the peak of a boom one expects to see rising production and employment, rising profits and wages and also rising prices. The present boom has been characterized by stagnant wages, record profits and relatively low inflation. This is mainly due to the effects of globalization, with huge numbers of low paid workers entering the world labour markets and also producing goods at very low prices that enter world markets, either directly as commodities, or indirectly as component parts (of cars, televisions, computers, etc.).

This intensified participation in world trade has boosted production, opened new markets and provided new and profitable fields of investment. It has also exercised a downwards pressure on wages and prices, keeping inflation lower than could be expected at this stage of the cycle. This, in turn, has permitted the bankers to keep a low level of interest rates, thus fuelling a credit boom. It has also produced the biggest speculative bubble in history: the housing boom in the USA and Europe, which has spread to every other continent. This is an element of colossal instability.

This has now reached its limits. Prices are starting to rise, particularly oil prices, which have risen mainly because of strong demand in China and other emerging economies. They have accounted for as much as four-fifths of the total increase in oil consumption in the past five years. In past American recessions the oil price usually fell. This time it may hold up, which will further reduce demand in the USA and Europe. The world economy will be faced with a combination of inflation and economic slowdown, or stagflation, as it used to be called.

The US bourgeois tried to get out of a crisis by allowing the dollar to fall. In theory a weak dollar will boost exports, and lift the US economy at the expense of its rivals. But exports now only account for 12% of US GDP. This is too small to make up for a weakening of consumer spending, which accounts for 70% of GDP. Interest rate cuts will be at best a temporary palliative. They will not revive the housing market. That carnival is over. The banks, having burnt their fingers, are tightening lending standards and the housing inventory is larger than any time since records began. The resulting fall in house prices will affect consumer spending, bringing about a contraction of demand. The real effect of the interest cut will be an increase in inflation.

The dollar has continued to fall to the level of $1.50 to the euro. Without enormous purchases by central banks in Asia it would fall still further. This support cannot be maintained indefinitely. The US economy is sick and completely unsound. If any other country were to show the same level of private, public and corporate debt, or have a similar current account deficit, the World Bank and IMF would be knocking at the door demanding cuts and austerity. Since these organisms of international capitalism are controlled by Washington, this will not happen. But sooner or later the "invisible hand of the market" will extract its revenge on profligate US capitalism.

In reality the falling dollar amounts to the biggest default in history. It is a gigantic fraud, which has already wiped far more off the value of foreigners' assets than any emerging market has ever done. As the reality of the weakening of America's economic power gradually dawns on international investors, they will ask why they are holding the lion's share of their wealth in dollars.

China and others are already moving out of the American currency. Asian and Middle Eastern countries with currencies linked to the dollar are facing rising inflation, but falling American interest rates make it harder to tighten their own monetary policy. They will eventually be forced to let their currencies rise against the enfeebled dollar. That means they will buy fewer dollars.

The US economy is defying the laws of gravity. It is so unsound that it is unthinkable that the present situation should last for long. Eventually foreigners will worry that the dollars and bonds they are holding will not be worth the paper they are written on. And why should they want to lend money at low rates in a currency that is declining in value when they can take these same funds and lend them at high rates in a currency that is gaining in value?

Slowdown or slump?

Even in the most optimistic scenario for capitalism, the growth of the world economy will slow. In the worst case scenario we will be facing a global slump. Emerging economies, especially in Asia, have large foreign-exchange reserves-no less than three-quarters of the global total. This is mainly because of the huge US deficit. At present China and other Asian countries hold huge stocks of dollars and US bonds. It is not in their interest to provoke an economic collapse in the USA, and the Americans are banking on this. But there are limits to all things. Sooner or later the unsound nature of the US economy will provoke an international run on the dollar. Lower interest rates will not bring money back into the markets, but they will further undermine the dollar.

By lowering interest rates the Federal Reserve is entering onto very dangerous ground. The rest of the world will not be willing forever to finance the United States' tendency to consume far more than it produces. There are already signs of this. Paradoxically, it seems that the first ones to panic are the Saudis, the main allies of Washington in the Arab World, who have huge investments in the USA. Saudi Arabia has refused to cut interest rates in step with the US Federal Reserve for the first time, signalling that the oil-rich Gulf kingdom is preparing to break the dollar currency peg. This move risks setting off a stampede out of the dollar across the Middle East.

For its part, the Chinese government has begun a concerted campaign of economic threats against the United States, hinting that it may liquidate its vast holding of US treasuries if Washington imposes trade sanctions to force a yuan revaluation. Henry Paulson, the US Treasury Secretary, said any such sanctions would undermine American authority and "could trigger a global cycle of protectionist legislation". This indicates the real dangers that now face the USA and the whole world economy. What really turned the slump of 1929 into the Great Depression that lasted ten years till the outbreak of the Second World War was the protectionism, trade wars and competitive devaluations that undermined world trade.

The falling dollar puts pressure on the EU, which has seen its competitive position worsen, not only against the USA but also against China and other Asian countries whose currencies are linked to the dollar and are therefore also falling. This has led to howls of protest from the European capitalists, who are threatening retaliation against China unless it takes action to revalue the yuan. All this is an anticipation of more serious protectionist tendencies that will inevitably gather force with the onset of recession.

Future shocks inevitable

The economists like to present the weakening of the dollar as a necessary "correction". They say the same thing about the falling house prices, the collapse of the US sub-prime market, the crisis of Northern Rock in Britain and so on. All are presented as "corrections", which will sooner or later sort themselves out. In fact, these are symptoms, like the symptoms of an underlying disease or the tremors that precede an earthquake.

An earthquake can also be presented as a necessary "correction", which merely re-adjusts the earth's crust. Eventually, it all settles down and life goes on as before. But this comforting analysis leaves out of account the terrible trail of damage caused by the earthquake: the villages wiped off the face of the earth, the trees uprooted, the crops destroyed, the thousands killed and injured. Moreover, normal life is not so easily restored after every earthquake. Some can be so devastating and leave such a trail of destruction that the effects can be felt for many years.

The crisis has not been avoided. It is only just beginning. From now on, after years of low inflation and low interest rates and easy credit, we will see a tightening of credit and rising interest rates. This will have a number of effects. On the one hand, dearer and scarcer credit will reduce demand by cutting into the purchasing power of consumers, both in Europe and the USA. On the other hand, together with the inevitable rise in inflation (oil prices recently hit a new high), it will negatively affect the profits of the capitalists, which will lead to a slowing of production, and eventually a recession.

To begin with, a fall in the profits of the banks must lead to job cuts in the financial sector, which must affect property prices. This will lead to a further contraction of demand, unemployment and bankruptcies in the construction industry. This in turn will affect demand for steel, cement, bricks and other commodities, leading to a further downturn in industry. The dizzying rise of share prices and house prices is preparing the way for an equally steep fall in the future. There will be repossessions, losses, bankruptcies and defaults, despite the actions of the Fed.

The investment banks are hoping that cuts in interest rates will send the stock market soaring again. But a cut in the interest rate does not solve the fundamental problems. It does not eliminate insolvency among homeowners, mortgage lenders, hedge funds and banks. Far from solving the problem, it will ultimately make it worse.

The US market is already awash with liquidity as the result of the antics of Alan Greenspan, which produced the present housing bubble - the biggest speculative boom in history. By reducing the cost of borrowing, the Fed is only creating a further extension of credit and indebtedness at all levels. It will prolong and exacerbate the housing and the credit bubbles.

Already in the USA over a million homes are in danger of or have already been repossessed. So millions of poor Americans find themselves homeless, while millions of others are struggling to pay the mortgages on homes that are no longer worth as much as they paid for them. One writer recently predicted the emergence of a sub-class of mortgage slaves in the USA.

The American worker is now producing on average thirty percent more now than ten years ago, yet wages have stagnated for the last six years. Rising prices signify a cut in real wages. The same is true for pensioners and others on a fixed income. Even without a recession the American people will see an erosion of their standard of living. Many poor Americans are already struggling just to make ends meet. Now millions will be threatened with the loss of their jobs and homes. This is creating an explosive social situation that cannot indefinitely be contained. While there is no exact way of knowing how long it will take workers to react en masse, eventually this intolerable state of affairs will be answered by an upsurge in strikes and class conflict such as the USA has not seen since the 1930s.

The international crisis that began with the crisis in Asian money markets in 1997 caused a wave of turbulence that spread across the entire world. It was not confined to economics but had profound political consequences in places like Russia and particularly Latin America. The after-shocks of this crisis caused the collapse of the Argentine economy in 2001, which had revolutionary consequences. The same thing can happen again.

Even without a slump, the best that the capitalists can hope for is a period of slower growth, which will create new social and political tensions. The present boom has nothing in common with the economic upswing of 1948-73. That was characterized (at least in the developed capitalist countries of Western Europe, the USA and Japan) by full employment, rising living standards, reforms and an amelioration of the class struggle. That is not the case now.

Pressure on workers

This is a boom at the expense of the working class. Companies have benefited from an expansion in the global labour supply, prompted by the integration of India and China into the global economy, and that this has kept the lid on wage claims. Everywhere wages have been kept down and profits have risen at the expense of wages.

Eventually, however, demand must suffer from such a scenario. So far, consumers have managed to keep financing their lifestyles by borrowing. But this is bread today and hunger tomorrow. Eventually, it must lead to a global crisis of over-production. The relative weakness of consumer stocks is making investors move into commodities like metals and foodstuffs that used to be considered "old fashioned". The UN believes that there is a real danger of food being priced out of the reach of two billion people.

The boom was based on an intensification of exploitation, cuts and attacks on workers' rights. Everywhere we see the same phenomena. High rates of growth and rising profits are not expressed in rising living standards and reforms, but constant and remorseless pressure on the workers and systematic plunder of the underdeveloped world. Inequality has reached levels unprecedented in recent times. The richest 2% of adults in the world own more than half of all household wealth, according to a new study by a United Nations research institute.

The report, from the World Institute for Development Economics Research at the UN University, points out that the poorer half of the world's population own barely 1% of global wealth. This is a striking confirmation of what Marx wrote in Capital: "Accumulation of wealth at one pole is, therefore, at the same time accumulation of misery, agony of toil, slavery, ignorance, brutality, moral degradation, at the opposite pole."

The rich get ever richer and the poorer, poorer. The grandiose promises to make poverty history stand exposed as an empty slogan. According to the figures of the UN, 1.8 billion people are living in poverty. Of these, eight million die every year because they do not have enough money to stay alive. Nearly ten million children under five-years-old die each year from preventable diseases like diarrhoea caused by the lack of clean drinking water - i.e. 19 deaths a minute!

The price speculation on and huge price increases of oil, wheat and rice is leading to massive unrest as the poor can barely afford to eat. This underlines the rottenness of the capitalist system and its inability to meet the needs of the working class and peasants around the world and can feed into further revolutionary developments.

In Latin America there have been high rates of growth in the last period. This has led to a huge rise in profits and obscene wealth at one end of society and rising poverty, exploitation and despair at the other extreme - just as Marx predicted. The richest man in the world is not the American Bill Gates but the Mexican Carlos Slim. Everywhere in the world we see the same extreme inequality and polarization between the classes. In Latin America this is producing revolutionary explosions. But Latin America only shows the future of the rest of the world as in a mirror. This is the main thing to be kept in mind.

In the next period a deep slump is not ruled out. All the conditions for this are maturing on a world scale. Such a development might have the immediate effect of paralyzing the class. Under conditions of mass unemployment economic strikes make little sense. The bosses would just close the factories. However, this can lead to a wave of factory occupations. This has already occurred not only in Latin America but in Canada, even before a recession.

Above all, a slump will have the effect of transforming the psychology of the masses. Workers will begin to draw revolutionary conclusions and this will find an expression on the political plane and within the mass organizations of the class.

Economics is not a precise science and it is not possible to be precise about timing. All we can do is to explain the fundamental tendencies and arm and prepare the cadres of Marxism. The main thing to bear in mind is that sudden shocks and crises are implicit in the whole situation. A crisis can erupt at any time in any part of the globe without warning, like a thunderbolt from a clear blue sky. The important thing is that we are prepared, that we are able to explain these events to the advanced workers and youth and that we take advantage of every opportunity that presents itself to build the Marxist tendency.

Our purpose is to analyze the general crisis of capitalism in order to intervene. And in order to intervene we require the forces. We must build those forces. In the past we were often mostly spectators. For example during the Allende period in Chile we had an absolutely correct analysis but we were only onlookers, not active participants in events. Today in Pakistan we are a force. In Venezuela we have a growing force that has built important points of support. In Mexico we have an outstanding group that is intervening very effectively in the mass movement. This affects the whole nature of our discussions.

Europe

The process of European Union towards integration has now been halted. This was shown at the 2007 EU summit, which was supposed to agree on a new European Constitution but only served to expose deep divisions between the different European bourgeoisies. Two years after French and Dutch voters rejected it, the continent's assorted prime ministers and presidents have salvaged large parts of the old text and stitched them together into a new "reform treaty".

An expanded union of 27 countries could not hope to function on rules designed for a 15-nation block. The proposal for a rejigged voting system immediately ran into resistance from the Poles. This forced the others to agree to keep the current system of voting in force until 2014, with a further three year transition period after that. And at the end of that period the EU may, if it chooses, revert back to the old system. In other words, the whole thing is off for a decade or so.

The tendency towards greater integration, which appeared unstoppable, was predicated on economic growth. But this has now stalled. The European Central Bank raised interest rates to 4% in June 2007, its eighth quarter-point increase since December 2005. The European bourgeois is worried about inflation and the latest rate rise is unlikely to be the last. Growth is expected to be around two percent in 2008.

Under these conditions the tendency towards integration has been halted and may go into reverse in the next period, when the contradictions between nation states reappear. It is unlikely that the EU will disintegrate. The European capitalists must somehow keep together in the face of growing competition from the USA and China. But all the dreams of creating a European super-state capable of challenging the USA are in ruins.

Growth has been feeble in most of the euro zone's economies. A GDP growth of 0.6% in the first quarter of 2007 was greeted as a tremendous achievement. Now even this result is beyond their capabilities. The falling dollar is pushing up the euro to record levels and hurting European exports.

The Chinese currency, linked to the dollar, is also falling against the euro. This is provoking howls of pain from Brussels and threats of retaliation against both China and the USA. This is an early warning of the protectionist tendencies that will inevitably gather momentum in the next period either with a slowdown or a recession.

In any case, the economic growth of the last period solved nothing and merely incited the indignation of the workers who increasingly understand that they are not being rewarded commensurately to the efforts demanded from them by the rapacious bosses. The stage is set for an increase of the class struggle in one country after another. In some ways a continuation of the present feeble boom would be the best scenario. A slump is not necessarily a recipe for class struggle and economic growth in modern conditions is certainly not a recipe for class peace, as we see in the mass strikes in France.

In France the victory of Sarkozy was immediately followed by an explosion of strikes by one section of the workers after another. Unemployment has been oscillating around ten percent, but the level for young people under 25 is about 20 percent and for young people of North African origin the figure is 40-50 percent. This was the main reason for the uprising in the banlieus two years ago. Recently there have been further indications of unrest among the unemployed youth, mainly of North African extraction.

There have been big movements of the students against Sarkozy's counter-reforms in education. This shows the accumulation of discontent that has accumulated beneath the surface for decades. This is what led to May 1968 and the same thing can happen again.

In Germany, the biggest country in Europe, that previously was its economic locomotive, real unemployment is still very high and in hardly any other western industrial country so many people are directly threatened by poverty as in Germany. Especially in the East, the unemployment rate is 30 percent and above. There are whole areas that were in fact depopulated by migration to the west over the last 15 years, as the industry of Eastern Germany was systematically destroyed after the unification of the former GDR with Western Germany. In the last period there has been an upswing in the class struggle in Germany. There was a turnaround from pure defensive struggles, to offensive demands on wages, demonstrations, some spontaneous strikes and some factory occupations. This trend will continue in the coming period, because although the main idea propagated by the Merkel government is that "The boom is getting to the people!" the exact opposite is true in the day-to-day experience of the masses. The establishment and growth of the "Die Linke" party (the Left) is merely the political reflection of this ferment within the ranks of the working class with Die Linke rising to 20% in the opinion polls.

In Italy there was the demonstration of half a million in Rome against changes in the pensions law and in little Denmark the even bigger (proportionately) demonstration of 100,000 against cuts. These are proof that the workers will not easily accept the destruction of their past conquests. Italy is now the sick man of Europe. In the past the Italian bourgeoisie would get out of a crisis by devaluing the Lira and increasing the budget deficit. Now both these safety valves are closed. Italy's entry into the euro forbids large budget deficits and excludes devaluations. The Italian capitalists therefore have no other alternative than a direct confrontation with the working class. They must take back all the concessions of the last 50 years. This is a finished recipe for a period of stormy class struggle.

In Greece only three months after the re-election of the right wing New Democracy government the great majority of the Greek people participated in a big movement against the bosses' attacks on the social security system. The 24-hour general strike on December 12, 2007 was called by GSEE (blue and white collar workers) and ADEDY (public sector office workers) the two largest unions, which represent about 2.5 million Greek workers. The mobilization also involved the lawyers, the journalists, the shopkeepers, the owners of small companies and the engineers. All the main means of transport (metro, buses, ships, airports) were completely paralyzed for the whole day, except for the metro which was allowed to operate for a few hours to transport the demonstrators to the strike rallies.

In all the major industries of the country, in the big state-owned companies, in all the main workplaces, participation in the general strike was from 80-100%. In many workplaces (such as shops, service enterprises, offices) where the number of workers is small and where there is no active union, the official participation, as could be expected, was not so big. However, many of the workers in these small workplaces refused to go to the work using the excuse that there were no means of transport or they had "health problems". In reality all of them took part in the strike.

There were 64 demonstrations in different parts of the country. Of course, the biggest rallies took place in Athens. The biggest was that organized by the GSEE and ADEDY with the participation of 50-60,000 workers. The other rally, called by PAME, the KKE (Greek Communist Party) trade union front, saw the participation of 20-25,000 people. In all these demonstrations there was a very militant mood.

So, just months after its re-election, the Karamanlis government is in a very difficult position. Already before the general strike, opinion polls revealed that 70% of the Greek population disagrees with the government's policy on social security, while 58% also disagrees with the economic policy of both the PASOK leadership and the ND government and even 25% of the ND voters (who voted for the ND only three months ago) disagree totally with the economic policy of the ND government.

The original plan of the government, just after it was re-elected, was to attack the working class immediately. But the government has a very slim majority in parliament of only two MPS and may not manage to stay in power. Here again we see the weakness of the bourgeoisie and the difficulties they have in carrying out a policy of cuts.

In Spain there is an increasingly sharp polarization to the right and left, despite a period of fast economic growth. The right wing (PP) and the Church is using language not heard since the 1930s, on the eve of the civil war. Of course, that is not the immediate perspective for Spain or any other European country. But in the next period that will change. In the end the bourgeoisie will come to the conclusion that there are too many strikes, too many demonstrations, too much "anarchy" and that Order must be restored.

Reformist governments always prepare the way for even more right wing governments. At a certain point there can be a movement in the direction of Bonapartism in Europe that in turn will lead to a further polarization and intensification of the class struggle. Bourgeois democracy is not something fixed for all time. What we have seen in Latin America can be replicated in Europe, not only in the rise of revolutionary but also of counterrevolutionary tendencies.

However, that is the music of the future. Unlike the 1930s, the contradictions in society cannot be resolved quickly by a movement towards revolution or counterrevolution. The class balance of forces is enormously favourable to the working class and the mass basis of reaction that existed in the 1930s in the peasantry and petty bourgeoisie has been whittled away. The fascist groups in most countries are small and, although increasingly vocal and violent, cannot play the role they did then. This is shown by the students, who are overwhelmingly left wing in outlook, whereas before 1945 they were inclined towards fascism.

The ruling class therefore cannot move towards reaction in the immediate future. But the working class cannot move to the taking of power because its traditional mass organizations have become transformed into powerful obstacles in the path of socialist revolution. The present uneasy equilibrium between the classes can continue for a period of years with ups and downs. But the crisis of capitalism will make itself felt and is already making itself felt. The masses will learn from experience and at a certain stage will move to take power as they did in the 1970s.

Eastern Europe

The capitalist restoration of Eastern Europe has had and is having in different ways a big impact on the European economy and politics. The asset stripping of the industrial capacity of Eastern Europe in the first half of the 1990s had two effects. First of all it weakened the working class and its organizations and this brought them under enormous pressure to accept cuts in social spending (estimates are that the collapse in living standards in relation to GDP per capita ranged from 30-70%). Secondly it gave western European capital (especially German and Austrian) new fields of investment in Eastern Europe. This took place on a massive scale and without any resistance from the bureaucracy and the nascent local bourgeoisie. The big banks, insurance companies, telecom monopolies and key industries are today nearly all in the hands of German or Austrian companies. (The US could secure only a relatively small part of the cake).

As always the capitalists did not think too far ahead and in their greed for profits produced a speculative bubble comparable to the developments on an international scale. The property market is now on the brink of overheating and will be like a boomerang for those banks which up to now have been spared by the sub-prime crisis.

In the meantime the labour movement - after an initial period of political disorientation - has made some important steps forward. For the first time since the fall of the Berlin Wall we are seeing bigger struggles of the workers in Eastern Europe: the mass demonstrations and strikes in Slovenia and Hungary or the significant strike action at Ford or Dacia in Romania. After the fall of Stalinism, and with the intrusion of western European capital, the working class suffered a serious blow to living standards, with cuts in welfare and so on, but now it is entering once again the arena of struggle.

The Middle East and Asia

Iraq

In Iraq, despite the presence of a large number of troops armed with the most modern weapons of destruction, the Americans have lost the war. This has produced a crisis of the regime. The ruling class has lost confidence in Bush. As with Nixon, it was easy to put him in office, but it is much harder to get him out. The Iraq Study Group headed by James Baker, a trusted representative of ruling class, gave quite sound advice from the perspective of the US bourgeoisie. They said: "We've lost - let's get out as quickly as possible; do a deal with Syria and Iran, let them sort out the mess."

Instead George Bush sent in more troops and threatened Iran. His slogan is: "One last push and we will win". This is like the generals in World War I, who were always ordering their soldiers over the top for one last time. Now the "surge" is in place and an extra 21,000 soldiers are now there, bringing their tally in Baghdad up to 31,000-plus and nationwide to 160,000, the highest troop level since late 2005.

Having secured Baghdad, the Americans hoped to tackle the so-called Sunni Belt just outside Baghdad, in particular the nearby mainly Sunni towns to the south - Mahmudiya, Latifiya and Yusufiya. But this has resolved nothing. Pushed out of Baghdad, the guerillas just moved to other areas. Some 2.2m Iraqis out of a population of 27m are now reckoned to have fled Iraq, while the UN estimates that another 2m have been internally displaced.

Sooner or later the Americans will have to leave Iraq. They are attempting to put together a state that can hold the line when they leave. But the state in the last analysis is armed bodies of men. The Iraqi police consists of around 188,000 men trained by the Americans, but by the middle of 2007 no less than 32,000 had been lost - through death (8,000-10,000), injury (similar numbers), desertion (5,000-plus) and other reasons. The 137,000-strong army is said to be better and less obviously sectarian but it useless against the insurgents.

Things are no better on the political front. The Americans demand that the Iraqis build a broad based national government, state, police, etc. But the government of national unity is no such thing. It is a group of factions, each grabbing a share of the spoils. There is a bloody sectarian civil war in Iraq. The government and the Americans can't solve the problem. US imperialism is responsible for this nightmare. They stoked the flames of sectarian conflict when they based themselves on the Kurds and Shias against Saddam Hussein, who had based himself on the Sunnis. Now the situation is out of control.

General Petraeus candidly admitted that the surge would be in vain unless the breathing space his troops are trying to create is used by the Shia-led government to embrace a wider range of Sunnis. General Petraeus's masters in Washington know that if the puppet Maliki cannot do any better, America's surge - and the increased loss of American life that it is already entailing - is doomed to fail.

They tried to derive some comfort from the fact that until recently Kurdistan was relatively quiet. "The North is OK," they used to say. But the worst bloodshed and violence will take place in the North. Kurdistan is ethnically mixed. The National Question cannot be resolved under capitalism, either in Iraq or anywhere else. Now there is conflict between Sunnis, Shias, Kurds, Turkmens and other groups.

Turkey is looking threateningly at Iraq. Ankara will never accept an independent Kurdistan on its borders. The Kurdish Workers Party (PKK) has recommenced its guerrilla war inside Turkey and has bases inside Kurdish Iraq. The parliament in Ankara has passed a resolution that would allow them to intervene militarily in Iraq. The Turkish army will move to crush them. It is already massing its forces on the border, just looking for an excuse to invade. They have already staged incursions. If Iraq begins to break up on national-sectarian lines, the Turks will move to occupy the area around Mosul and Kirkuk, which they have always coveted for its oil wealth. In May 2008 the Iranian regime also began bombing PKK positions in Iraqi Kurdistan. This will bring new conflicts and instability.

Crisis in the USA

Imperialists do not wage war for amusement, but for plunder, markets and spheres of influence. But they are not getting money out of Iraq - it is costing them a colossal amount - at least two billion dollars a week and thousands of dead and wounded. Iraq has the world's third-largest reserves but they are of little use as long as the crude remains mostly beneath the ground. The oil infrastructure is in a critical condition after 17 years of war and sanctions. Output remains well below the (depressed) pre-war peak of 2.5m barrels a day.

The military are pessimistic about the prospects and increasingly open about it. General Petraeus has warned that "counter-insurgency operations can last nine to ten years." But they do not have nine to ten years. Public opinion in the USA is now overwhelmingly against the war. Even many Republicans have had enough.

Whatever the Americans do now will be wrong. If they remain it will mean more casualties and solve nothing. Largely as a result of Iraq, Bush's popularity has collapsed. The list of American dead and wounded continues to grow and the vast majority are from poor and working class backgrounds.

This is at bottom a class question. If the occupation continues it could provoke movements in the USA similar to the mass movement against the war in Vietnam 40 years ago. It can even provoke a crisis of the regime with revolutionary implications. The combination of economic recession, with the resulting fall in living standards, unemployment and the repossessions of people's homes with war is an explosive cocktail.

But if they leave it will be even worse. They will leave behind a chaotic situation that could even lead to the break up of Iraq into its constituent parts. This will lay the basis for further instability, regional wars and terrorism - that is, precisely the opposite of what was intended.

In the autumn of 2007, while Bush was still beating the drum for war against Iran, startling revelations appeared in the press relating to Iran, the President's favourite "rogue state". Unknown sources revealed that US Intelligence had established some time ago that Iran had no immediate possibility of acquiring a nuclear military potential. This was the exact opposite of what Bush has been saying in recent months. He has, in fact, been saying that it was necessary to take immediate action against Iran because at any moment it would have had acquired nuclear weapons.

How did Bush react to this? Did he correct the misleading propaganda about Teheran's imaginary nuclear arsenal? Did he immediately announce the abandonment of any plans for a military strike against Iran? No, he did not. He repeated all the same old nonsense and redoubled his threats against Iran. And the Israeli government joined in, asserting that its own Intelligence contradicted the reports from Washington. Evidently, the hawks in Israel are enthusiastic about the prospect of giving Iran a bloody nose and do not want their fun to be spoilt by anybody.

Who was behind these revelations? Whoever it was, it was somebody in a high position with privileged access to highly sensitive intelligence information. It seems very probable that a section of the establishment has decided to prevent a new military adventure in the Middle East by releasing information that exposes all the Administration's propaganda on this issue to be as accurate as the old lies about Iraq's "weapons of mass destruction."

This incident exposes the existence of a growing split inside the US ruling class. There is a growing realization that the foreign policy of the Bush administration is having negative consequences for US imperialism and one section of the ruling class would like to put the brakes on or even remove him. Implicit in all this is a crisis of the regime itself.

It seems most probable that the next elections will be won by the Democrats. But what can they do? They will be left with an inheritance of war, terrorism and economic crisis. It will not take long to discredit them, preparing the ground for a serious radicalization of politics in the USA.

Regional instability

The Iraq war has already had consequences that were unforeseen by the ruling clique in Washington when they launched their Iraq adventure. George W. Bush and Condoleezza Rice sincerely desire peace in the Middle East - peace under American control. The problem is that the two goals are mutually exclusively: you can have peace or you can have US domination, but you cannot have both.

US imperialism seeks to strengthen its stranglehold on the region as a key part of its general policy for world domination. The criminal invasion of Iraq was intended, among other things, to establish a firm and reliable American beachhead in the Middle East. It has not achieved this goal but has only succeeded in provoking a wave of instability throughout the region.

By removing the Iraqi army - the only force that could act as a counterweight to Iran, Washington altered the strategic balance of forces in the whole region. This has benefited Iran, which has extended its influence in the Shia population of Iraq and throughout the region. This directly threatens the interests of Saudi Arabia and the Gulf States, where reactionary pro-US monarchies are sitting on huge reserves of oil.

Like an elephant in a china shop, US imperialism has rampaged through the region, utterly destroying what elements of stability that existed there before. Surrounded by bits of broken crockery and fearing that other valuable plates may be broken, President George Bush called the Annapolis conference in a desperate attempt to stick the broken pieces back together again.

The Saudi monarchy, one of the main allies of US imperialism in the area, is hanging by a thread. It could be overthrown at any time and whatever regime replaces it would not be a friend of Washington. Therefore the House of Saud has been pleading with Washington to help it on two fronts: by stepping up diplomatic, economic and military pressure on Teheran and by brokering some kind of peace agreement that would, they hope, solve the Palestinian question and relieve some of the pressure on Saudi Arabia.

Washington would be only too pleased to oblige but there are a number of problems of a most intractable nature. The main problem is Israel, which is now the only reliable ally that Washington has in the whole region. US imperialism does not have much leverage with the Israeli ruling class in the present situation. The USA proposes, but Israel disposes.

Syria and Lebanon

The Americans thought they were clever when they engineered the overthrow of the pro-Syrian regime in Lebanon. But all they succeeded in doing was to plunge the country into chaos and war, and creating conditions for a revival of civil conflict. Now Lebanon is deadlocked over the election of its president. Belatedly, some people in Washington have realized that Syria's role is crucial. It is possible that the decision to invite Damascus to send a representative to the peace talks at Annapolis was recognition of this fact.

Syria's decision to send its deputy foreign minister - less than a full negotiator, but more than just a token presence - in return for a merely token discussion at Annapolis about Syrian-Israeli peace may indicate that Syria wishes to reach a compromise with Washington. Whether this is possible is a debatable question.

The Americans need Syria to prevent Lebanon from exploding into open civil war. But George Bush is too stupid and narrow minded to comprehend the realities of world diplomacy. He offered Syria no concessions to secure its support, but instead gave Damascus a rap on the knuckles in his speech. He made a pointed and unnecessary reference to Lebanon's need for an election "free from outside interference and intimidation". That is a joke considering the blatant interference of the USA in the whole region. But the Syrians did not see the funny side of it.

The Palestinian question

The Palestinian question lies at the heart of the turbulent situation in the Middle East: a key area for US foreign policy both for economic and strategic reasons. For decades this has been like a festering sore that is poisoning relations between states and creating the risk of new conflicts, terrorism, instability and wars.

After the collapse of the Soviet Union, the US imperialists wished to increase their influence with the Arab countries and were prepared, to some extent, to put pressure on Israel. They therefore put pressure on Israel to make concessions. This led to the Camp David talks and the Madrid and Oslo agreements that established a truncated Palestinian territory. This was a pathetic caricature that in no way satisfied the national aspirations of the Palestinians. It satisfied nobody.

The result was further violence, terrorism, conflict and bitterness, with an open split in the ranks of the Palestinians, with Hamas seizing control in Gaza, growing chaos and instability and the elements of civil war. The crisis in Gaza is a civil war between Hamas and the PLO under Abbas.

Israel's withdrawal from Gaza was a tactical move intended to strengthen its stranglehold on the West Bank. We see the cynicism of the imperialists (not only the Americans but also the EU) when they immediately suspended funds for the Hamas government, which, say what you will, was democratically elected. As soon as the clash between Mahmoud Abbas and Hamas occurred, the imperialists restored funds to the West Bank and the stooge Abbas. They want to use one side to split the Palestinians and thus ensure that the Palestinian struggle for a genuine homeland is aborted.

The Israeli ruling class looks on with quiet satisfaction as Palestinians fight each other, and occasionally sends in the tanks or tightens the economic screws just to show who is boss. The situation is a nightmare for the Palestinian masses, who see no way out. The tactics of Hamas solve nothing but only reinforce the position of the Israeli imperialists, providing them with the excuse for further acts of aggression and repression without even causing a dent in their armour.

The slogan of the Israeli ruling class is: what we have we hold. The Zionists have no intention of giving any important concessions. Hamas boasted that they had expelled the Israeli army from Gaza. That is a joke. The Israelis withdrew from Gaza as a tactical move to silence international criticism and create the impression that they were giving up something important, when in reality they have no interest in Gaza. This was intended to strengthen their stranglehold on the West Bank, which is the decisive question.

The Israelis have relentlessly continued building the monstrous wall that slices through Palestinian territory on the West Bank, robbing large chunks of land under the pretext of "defence". The settlers have become increasingly bold and insolent. After the incidents in Gaza no Israeli government will want to confront the settlers in the West Bank.

Then there is the little matter of Jerusalem, which both Jews and Arabs claim as their natural God-given capital. As for the right of return of Palestinians expelled from their homes since 1948, there is no question of Israel accepting them back, since that would completely upset the demographic balance of the "Jewish state".

Both Israel and the USA have an interest in arriving at some kind of a deal over the Palestinian question. To that extent they can talk and talk again. But whatever deal they arrive at will be against the interests of the Palestinians.

They have been cultivating the Palestinian "leader" Mahmoud Abbas as a compliant stooge to put his stamp on whatever they agree among themselves. But this is not so easy! Abbas, like most people, would like to live to a ripe old age, and is also fearful of losing even more support among the Palestinian masses than he has already lost. He cannot afford to be seen to openly capitulate to the demands of Washington and the Israelis. But in the end he will have no choice in the matter.

The peace summit in Annapolis has solved nothing. After four months of endless talks about talks, Condoleezza Rice, the American secretary of state, failed to obtain what Abbas needed: some kind of a deal on the setting up of a Palestinian state.

Insoluble problem

The United States is supposed to monitor both sides' compliance with the "road map" peace plan of 2003, under which Israel is meant to freeze settlement-building in the West Bank while the Palestinian Authority (PA) takes action against militants who attack Israel.

This means that the USA has been given the role of arbiter in the conflict by mutual consent of both the contending parties. The United States has agreed to supervise both sides' compliance with the road map; this has been presented as a win for the Palestinians since in the past Israel has been the de facto arbiter of performance. But what this can achieve in the given situation is strictly limited. The referee in a football match is supposed to be neutral and therein lays his authority to decide the issue. But since this referee is clearly inclined to one side, this "arbitration" cannot be worth much.

The first test is clear: what will Olmert do about the 100-plus "unauthorized" outposts established by hard-line settlers? The road map requires him to dismantle around 60. But previous attempts to take even one down have led to violent clashes between the police and settlers, who are regrouping for a showdown after losing their fight to stay in the Gaza Strip in 2005.

It is possible that he might put some pressure on the settlers (these are only pawns in the game of chess and pawns can always be sacrificed in order to win more important objectives). But a wholesale liquidation of Jewish settlements on the West Bank is unthinkable. The settlers are fanatics who are quite capable of provoking serious disturbances both on the West Bank and in Israel proper and no Israeli government would want to risk such destabilization. The problem of the settlers will therefore remain, acting as a permanent provocation to the Palestinians. It is hard to see what role the "arbiter" has to play on this issue.

America has appointed a general, James Jones, as a security envoy to the PA. This does not mean much. And it is clear that Israel will not make his job easy. An Israeli official says that any impression that Mr. Olmert plans a total construction freeze, as the road map stipulates, is a "convenient misperception". This little detail is highly significant. It exposes the hollowness of US diplomacy. In fact, the whole thing is just that: a convenient misperception.

Where the "arbiter" will be implacable is on the point of cracking down on the militants. The large amounts of money the Americans are sending to the Palestinian Authority are not free of charge. They expect something in return. They expect Abbas to crush the Palestinian militants in order to prepare the way for a deal that will fall far short of Palestinian aspirations. That is why for many months Washington has been arming the Palestinian Authority and training its security forces. This is a preparation for the civil war they know will come.

The Israeli reading of the road map is that the PA must entirely dismantle terrorist groups before any final-status deal that the two sides reach can go into effect and they will demand complete compliance before any further steps are considered. But this is beyond the real possibilities of Abbas, who fears that a serious conflict with Hamas could lead to the complete collapse of his armed forces. Therefore the Palestinians are insisting that they need only begin the task of "restoring order".

Thus, the present talks have solved nothing, nor could they solve anything. This conflict is too deep and bitter to be solved by talks. And even when the talks resume in December, how can they solve the important questions: the borders of the Palestinian state, the division of Jerusalem, the fate of 4.5m Palestinian refugees abroad, the sharing of water resources, and other burning issues.

Olmert will concede just enough to keep the peace process going, so as not to annoy the Americans. But he will not concede so much that it provokes the right-wing parties to leave his coalition. The latter have made it plain that they are not prepared to make concessions on the key questions. For instance, they have moved a parliamentary bill that would make it much harder for Israel to give up any of Jerusalem to the PA.

For his part, Abbas, who got much less out of Annapolis than he hoped, runs the risk of being accused of capitulation by his opponents. The Palestinian Authority's security forces have been cracking down viciously on anti-Annapolis demonstrations in the West Bank. This is a warning of things to come. Far from bringing a genuine peace agreement for the creation of a Palestinian state, Annapolis will bring only more conflict, bloodshed and civil war between Palestinians, leaving a legacy of bitterness that will last a long time.

The only way out

In many countries the working class, after years of despondency and exhaustion, is taking the road of struggle. We see this in the impressive strike wave in Egypt, but also in Morocco, Jordan, Lebanon and in Israel itself. It is necessary to place on the agenda the fight for working class policies, for proletarian international solidarity and the struggle for socialism as the only lasting solution for the problems of the masses.

It is essential that the revolutionary youth in Palestine understand this. If we accept the argument that Israeli society is just one reactionary mass, then the cause of the Palestinian people would be lost forever. But it is not true! Although Israel is the embodiment of the reactionary vision of building a "Jewish homeland" where all Jews are supposed to be equal, in reality in Israel there are rich and poor, exploiters and exploited, just as in any other country. It is necessary to work to forge links between the revolutionaries in Palestine and the masses in Israel - Jews as well as Arabs. That is the only way to drive a wedge between the reactionary Zionist ruling class and the masses.

We are told that this is impossible. That is not true! On more than one occasion in the past, there have been clear indications that the message from the occupied territories was getting through to the masses in Israel. At the time of the massacre of Palestinians in Lebanon there was a huge demonstration of protest in Israel and in the first Intifada there were clear indications of discontent in Israel, including in the armed forces.

Tactics like suicide bombings and rocket attacks on civilian targets are wrong because they are counterproductive. For every Israeli citizen that is killed they will kill many more Palestinians. This does not do any damage to the Israeli military machine but it is of extraordinary help to the Israeli ruling class and state. By pushing the masses towards the Zionist state, these tactics strengthen the very thing they intended to destroy.

We fight for socialist revolution throughout the Middle East and in Iran, the Gulf and North Africa. We fight against imperialism - the main enemy of all the peoples. But we also fight against landlordism and capitalism - the main agents of imperialism. We are opposed to religious fundamentalism, which attempts to divert the healthy anti-imperialist instincts of the masses into the blind alley of religious fanaticism and reactionary obscurantism. We stand for workers' power and socialism and a new social order that expresses the interests of the masses. We are for the creation of a Socialist Federation of the Middle East, where Jews and Arabs can be guaranteed a homeland in Autonomous Socialist Republics. That is the only real way forward!

No solution to the Palestinian question is possible on the basis of wheeling and dealing with imperialism. The only possible solution is to divide Israel along class lines: to break the stranglehold of reactionary Zionism. But this demands a class position. It is difficult to put forward this position in the given circumstances, but events will provide the Marxists with openings as the masses come to realize the futility of the old methods. In the meanwhile it is necessary to patiently explain our ideas to the most advanced elements. In future our ideas will find a mass echo.

The Iranian revolution

There is a growing revolutionary potential in Iran. Ahmedinejad is playing at anti-Americanism as means of diverting the attention of the masses. However, after the recent revelations about Iran's nuclear programme, it would appear that the prospects of an air strike against Iran have receded - at least for the present.

This does not suit Ahmadinejad at all. His support is rapidly eroding inside Iran, and his only hope was to keep beating the drum about the danger of US aggression in order to divert the masses' attention away from their most pressing problems and thus save his regime. He has made a public statement to the effect that the new revelations expose Bush as a liar (which they do) and completely justify the policies of his regime (which they do not).

Of course, Ahmadinejad is not capable of waging a serious fight against imperialism but he had an interest in maintaining the tension in order to deflect the attention of the masses from their real problems. Now it is unlikely that Bush will be able to act. This will make it easier for the development of a widespread movement of opposition by the Iranian workers and students, which has already begun and is destined to transform the whole political life of the region in the coming period.

The mullahs are clinging to power but their support is collapsing. The regime is experiencing a slow process of internal decomposition. On the political front we have witnessed the biggest public differences and clashes among the ruling elite for two decades. At the first sitting of the new (eighth) Parliament the credentials of 19 MPs, 18 of them "principleists" (i. e., fundamentalists) were disputed by other fundamentalists. There was a lot of shouting and two MPs came close to exchanging blows. The new Speaker, Ali Larijani, a fundamentalist who was forced to resign as the nuclear negotiator by Ahmadinejad, is bound to use his new position to curtail the government's plans. The previous Speaker, the former Treasury Minister and many other fundamentalists have openly criticised the money printing and other practices of Ahmadinejad's clique that totally disregard the most basic rules of running a modern capitalist economy. In the words of one of their own economists the government is "fighting fire with petrol"!

It is important to underline that these criticisms come from fundamentalists who were deeply engaged in the ruling clique that is split right at the top and finds it increasingly difficult to agree on anything.

The regime has followed economic policies that have made the situation even worse, with an official inflation rate of 21 percent. The living costs of rural families have tripled during 2000-06, with food now taking up 37.9% of their income. On top of that, from September 2008, a five-year VAT trial scheme will come into effect! As an indirect tax it will obviously hit the workers and the poor in society the hardest.

Unemployment is between 20 and 30 percent and set to rise with the current wave of layoffs, planned privatisations and other measures. Graduate unemployment shot up by 250 percent during 1996-2006 and now stands at 15.6 percent! With 400,000 university graduates joining the labour market every year the crisis is going to affect larger layers than just the industrial workers.

Many workers have to find a second or third job to make ends meet. Unpaid wages are one of the most widespread problems that workers face and have consistently protested against. (E.g., Tabas Shimi, a chemical plant in Tabas, closed down owing workers two years wages.) It is important to note that in many cases where workers have not been paid for months, as in Haft Tapeh, it is the state that owns the factory!

But this is not a penniless state: it has been earning billions of dollars because of the high oil price. The record oil price meant that the oil revenue in one month early this year was more than a whole year a decade ago! Foreign reserves have grown to over $81 billion in the first half of 2008. Why aren't workers being paid then?

When running for President Ahmadinejad promised to bring the proceeds of the oil bonanza to "people's dining table". Yet what people have seen is that the price of many staple foods like bread, rice, milk, eggs, meat, chicken, and other items has soared. There are shortages in the supply of petrol (hence riots), gas, washing powder and so on. Crucially for industry, steel and cement are in short supply and many projects, including the extension of the Tehran metro, are being held back because of this.

Things are set to become worse with the government's reckless policies. The "solutions" to this mess that the government has in mind are privatisation, cutting subsidies, cutting workers' pay and conditions by "reforming" the Labour Code and cut subsidies "because they are holding the economy back". With 70 percent of industries, including the vital oil and gas sector, in state hands, the extensive privatisation plan under way is bound to worsen the working and living conditions of millions.

The National Iranian Oil Company estimates that around $70 billion is needed to modernise the dilapidated infrastructure over ten years. About three-quarters of this is to be raised through foreign oil companies and the international capital markets. This is one of the main reasons why a section of the ruling class needs to normalise relations with the US. They need the imperialists to rescue Iran's collapsing oil industry.

Symptoms of acute social crisis are all growing. Prostitution, drug addiction, street children and a whole range of other social ills have broken all previous records and are growing steadily. Prostitution had already reached 300,000, i.e., around 0.5% of the population, five years ago. The average age of prostitutes is now below 20!

According to the UN's World Drug Report for 2007, Iran has the highest proportion of opiate addicts in the world: "in the Islamic Republic of Iran... the number of drug abusers is said to exceed 1.2 million (2.8 percent of the general population aged 15-64)"! All these problems point to the basic failures of the capitalist system in Iran. The statistics that could clearly expose this failure are either not available or are hugely underestimated in the official figures.

After decades in power, the ruling elite is seen as corrupt and repressive. The youth is in open revolt. Despite the powerful apparatus of state repression, Ahmadinejad has been booed and heckled by the students. This is a very important symptom. It is normal for the revolution to begin with a movement of the students. That was the case in Russia in the period 1900-03. The student protests prepared the way for the mass movement of the workers in the 1905 Revolution. It was also the case in Spain in 1930-31. In May 1930, Trotsky wrote:

"When the bourgeoisie consciously and stubbornly refuses to take upon itself the solution of the tasks flowing from the crisis in bourgeois society; when the proletariat appears to be still unprepared to undertake the solution of these tasks itself, then the proscenium is often occupied by the students ... The revolutionary or semi-revolutionary activities of the students mean that bourgeois society is passing through a deep crisis ...

"The Spanish workers displayed an entirely correct revolutionary instinct when they lent their support to the manifestations of the students. It is understood that they must do it under their own banner and under the leadership of their own proletarian organization. This must be guaranteed by Spanish Communism, and for that it needs a correct policy." (Leon Trotsky, Problems of the Spanish Revolution)

These words are fully applicable to Iran today. The students are protesting and demonstrating despite the heavy presence of the Iranian regime's security forces. On Students' Day (Dec. 4^th) around 500 students and left-wing activists took part in an illegal gathering at Tehran University. The crowd chanted slogans denouncing the recent arrests and the climate of intimidation and the meeting ended with the singing of the Internationale. This shows that the radical and revolutionary traditions of the Iranian students' movement going back to December 1953 are alive and in good health. But from a symptomatic point of view it is still more important.

Lenin explained that there were four conditions for revolution. The first is that the regime should be split and in crisis. The Iranian regime is deeply split and in a complete impasse. It has reached that point which, as de Tocqueville pointed out, was the most dangerous moment for an autocracy is when it begins to reform. At this point a split opens up between conservatives and reformers. The latter say: "we must reform or there will be a revolution." The former say: "If we reform there will be a revolution." And both are correct. Iran reached that point some time ago.

The second condition is that the middle layers of society should be in a state of ferment and vacillating between revolution and the status quo. That ferment is reflected in the movement in the universities but it is not restricted to that. Sections of the middle class such as the small traders (bazaris) who in the past supported the mullahs are now also disaffected. The mass base of reaction is being whittled away, while the social reserves of revolution are growing all the time.

The next and most important element in the equation is the working class. Despite independent trade unions and labour organisations being illegal for almost three decades, with no right to strike or elect genuine representatives, Iranian workers have consistently fought back against the capitalists and their regime. They have managed to change the balance of forces in their favour. For example, on 15 July 2001, when workers from the Jamco clothing and Shadanpoor shoe factories organised a joint demonstration outside Parliament to demand their unpaid wages, a number of them were shot dead by the security forces. This was during Khatami's Presidency and with a majority of 'reformists' in Parliament! Yet now, even with a big majority of fundamentalists, and Ahmadinejad's Pasdaran-Hezbollahi clique in the cabinet, the regime cannot smash any protests in this way.

The mighty Iranian proletariat is the most decisive force in the revolution. The Iranian workers are now on the move. There has been a major strike wave, involving many sections of the working class: bus workers, shipyards, textiles railways, the Haft-Tapeh sugar works, oil and other sections. These strikes may begin with economic demands, but given the nature of the regime they will inevitably take on an increasingly political and revolutionary character.

In other words, all the conditions mentioned by Lenin are either present or are maturing. The last condition alone is missing: the revolutionary party and leadership. Our Iranian comrades have done excellent work, which is as yet in its early stages, but which can take off rapidly as the revolution develops. Iran is at a stage comparable to the situation on the eve of January 1905. Let us remember that the Russian Marxists were also extremely weak at that time, but grew with tremendous speed once the working class began to move.

Ours is the only tendency that detected a revolutionary potential in Iran. The Iranian working class has been inoculated against Islamic fundamentalism. It is young and fresh and free from the prejudices and distortions of reformism and Stalinism. It can move very quickly in the direction of the most advanced revolutionary ideas. The Iranian Revolution will cut across the stagnant and unbreathable atmosphere of reaction that hangs over the region. It will cast off the yoke of religious fundamentalism and resolutely take the road of socialism and workers' power.

At this moment in time, the Iranian revolution is the key to the Middle East. It will cut through the fog of religious fundamentalism and reaction. It will give hope and a new perspective to the workers and youth of the Arab world who are beginning to reawake to the class struggle. It will cause shock waves that will spread to Afghanistan, Pakistan and the whole of Central Asia and its repercussions will be felt far afield.

Afghanistan

As in Iraq so in Afghanistan the imperialists have failed in their fundamental objectives. The country is in a complete mess and the shockwaves emanating from this have destabilized Pakistan. The war drags on and western casualties are mounting. The US plan to rely on air power in Afghanistan in order to avoid American casualties has failed. Instead the bombing has caused heavy civilian casualties. This is the Pentagon's version of the gentle art of winning friends and influencing people.

British-led troops are fighting on the ground in Helmand province. But they taking a lot of casualties in a war they cannot win. The Taliban avoid head-on battles, are now resorting to more suicide attacks and roadside blasts. These "asymmetrical" (i.e. guerrilla) tactics are very effective and are used even in Kabul. A suicide-bombing attack that almost killed the US vice president Dick Cheney.

British general, David Richards, is said to have warned colleagues in London that NATO was making "the best of a bad job" because it was short of troops. But it is far easier to state the problem than solve it. Where will NATO get more soldiers? Instead, more of America's allies will start to drop out. The will to continue fighting will evaporate as increasing casualties affect domestic politics. This has already caused a political crisis in Italy. It will not be the last.

Some countries, such as Britain, Denmark and Poland are increasing their forces. But others are not keen to lose more lives. The Germans are present but their troops are confined to the north (where there is little or no fighting) and are forbidden to leave barracks at night!). The Afghan mission is unpopular in Germany, and almost brought down the Italian government in February 2007. The Dutch are shaky and Sarkozy has said he would also like to leave ISAF though officials say no such move is imminent.

The acute shortage of troops on the ground means that the imperialists will have to compensate with heavy firepower. This means even more civilian casualties, which will further alienate the Afghan population. The Taliban, by contrast, have plenty of money, men and arms, financed by the Afghan poppy crop.

The opium economy and the insurgency are mutually reinforcing; drugs finance the Taliban, while the fighting encourages poppy cultivation, especially in Helmand, which is set to harvest another record crop this year, producing more opium (and from it heroin and other illegal drugs) than the rest of Afghanistan put together.

The drugs business is highly profitable, worth some $320 billion annually. The opium trade is the equivalent about a third of Afghanistan's total economy. The Afghan opium trade is worth around $60 billion at street prices in consuming countries - and is out of control. Afghanistan last year produced the equivalent of 6,100 tonnes of opium, about 92% of the world total. At least the Taliban exercised some control, now there is none. These days Taliban commanders and drug smugglers are one and the same.

Some of the biggest drug barons are reputedly members of the national and provincial governments, even figures close to Hamid Karzai. The Economist (28/6/07): "The whole chain of government that is supposed to impose the rule of law, from the ministry of interior to ordinary policemen, has been subverted. Poorly paid policemen are bribed to facilitate the trade. Some pay their superiors to get particularly ‘lucrative' jobs like border control."

Pakistan - the key

Pakistan is a key element in US foreign policy in Central Asia. But it is in deep trouble, beset by a fatal combination of economic collapse, Islamist insurgency, terrorism, splits in the state and political chaos. The exact outcome is impossible to predict. But one thing is clear: instability will grow, and together with it a growing social and political polarization that will give a powerful impulse to both revolutionary and counter-revolutionary tendencies.

Events in Pakistan are moving fast. General Musharraf was compelled to quit as army chief and call an election. This sets the stage for a big shift in Pakistan. The splits and conflicts at the top are providing a breach through which the accumulated discontent of the masses is thrusting itself forward. Events will then take on a logic of their own.

The dictatorship was brought to its knees by mass demonstrations and protests and by the intolerable contradictions that afflict Pakistan at all levels. As we predicted, the return of Benazir Bhutto brought millions of workers and peasants onto the streets. This is not thanks to, but in spite of, the policies and conduct of Benazir, who is an ally of US imperialism and until recently was attempting to reach a compromise with Musharraf.

The Musharraf dictatorship was undermined as a result of its own contradictions and inner rottenness. This internal decay was shown by the lawyers' crisis. Then there was the Red Mosque crisis, etc. As a result the imperialists decided to ditch Musharraf and prepare for Bhutto's return to Pakistan. The return of Benazir Bhutto and Nawaz Sharif, and the formal exit from the army of General Pervez Musharraf spelled the beginning of the end for the dictatorship. It has simply ran out of steam and is collapsing under its own weight.

Pakistan has had a stormy history since it attained formal independence, together with India, in 1947. Since then the weak Pakistan bourgeoisie has shown itself completely unable to take this huge country forward. It remains plunged in dire poverty and feudal backwardness. The economy is in a mess and the country is going backwards not forwards.

The weakness of Pakistan capitalism has been manifested in extreme political instability. Weak "democratic" regimes have been succeeded at regular intervals by military dictatorships of one kind or another. The last dictator, Zia al Huq was murdered (probably by the CIA). Musharraf fears the same fate, and is desperately clinging to power. But power is already slipping through his fingers.

The proclamation of emergency was a desperate gambler's throw that plunged the country into political chaos, as we predicted. It did not suit the interests of US imperialism, for which Pakistan now has a key strategic importance because of the war in neighbouring Afghanistan. Washington exerted pressure on Musharraf to crack down on the pro-Taliban forces that have been crossing the frontier to fight the coalition forces in southern Afghanistan.

This pressure from all sides undermined Musharraf. His army has suffered severe losses in the Tribal Areas where they have tried unsuccessfully to uproot the militants. There is still a powerful wing of the army and above all the Intelligence Services (ISI) that supports the Taliban and al Qaeda and is protecting them.

Musharraf is powerless to do anything about this. The army was his only basis of support, and that proved to be very shaky. Therefore, the strategists of US imperialism came to the conclusion that Musharraf was no longer any use to them and was disposable. They were looking to Benazir Bhutto to take over instead.

Perspectives for the Pakistan People's Party

For the lawyers and professional politicians "democracy" is a matter of getting into lucrative parliamentary and ministerial positions. Their main objection to Musharraf is not one of principle but merely that the army was getting too big a share of the state pie and not leaving enough for them. For the "political class" the whole question boils down to a struggle to see who gets their snout into the pig's trough.

The American bourgeois have other interests. They have their own (much bigger) pig's trough at home. The defence of what they call "American interests" is ultimately connected with this. But in order to protect "American interests" (that is, the interests of the big US banks and multinationals) they must attend to foreign policy.

US foreign policy has two departments: the first is the US Army, Navy and Air Force, the second is diplomacy. The first uses naked force to crush enemies, the second uses a combination of threats, bribery and corruption to obtain the support of "friendly governments", since friendship is also a commodity and can be purchased like any other commodity.

Unfortunately, also like any other commodity, friends can cease to be useful and their market value declines accordingly. The market value of General Musharraf's friendship has been very low for quite some time now. Therefore Washington is looking for new friends in Islamabad.

Benazir lost no opportunity to pose as a pro-western "moderate". But behind Benazir and the PPP stand the masses who yearn for a change. They are loyal to the original socialist aspirations of the PPP and are demanding roti, kapra aur makan (bread, clothing and shelter), which Pakistan capitalism is not able to give them. The attitude of the masses was shown when Benazir returned to Pakistan: at least two million people came onto the streets: the overwhelming majority were workers, peasants and poor people.

Washington was at first relieved when Nawaz Sharif was deported back to Saudi Arabia in September 2007, but, having witnessed the mass mobilizations that were provoked by Benazir's return, is now pleased to see him back. The Saudi royal family demanded that the leader of the Moslem League be allowed back. The Saudis want to prevent a PPP victory at all costs, and wanted Musharraf to lean on the Muslim League to keep Benazir out of office. The imperialists wanted to balance between Sharif and Bhutto. They wanted to push them into a coalition as a safeguard against the masses.

The assassination of Benazir Bhutto has transformed the entire situation. The masses have been stirred into action. If the elections are held, they will vote massively for the PPP. In the short term, the "centre" will gain in the form of a PPP government, possibly in coalition with the Muslim League. But this will be shown to be impotent and unable to solve the fundamental problems of society. The "centre" will be exposed as a gigantic zero.

Crisis of the regime

The imperialists and the Pakistan ruling class were not afraid of Benazir Bhutto but they are terrified of the masses that stand behind the PPP. They want a fundamental change in society and will not be satisfied with empty speeches and promises.

Benazir wanted to form a coalition with Sharif because she needed an excuse for not carrying out policies in the interests of the workers and peasants. But the workers and poor peasants will not accept any excuses. They will press forward with their most urgent demands. This will open up a whole new situation for the class struggle in Pakistan.

All the petty intrigues and manoeuvres are taking place at the top. The journalists and commentators are fascinated by this "political drama", which resembles the noisy squabbling among the midgets at a circus. All these endless combinations and deals are only the froth on the waves of the ocean that are the visible expression of the powerful currents underneath. What is decisive, however, is not the former but the latter.

The crisis in Pakistan is not a superficial political crisis but a crisis of the regime itself. Weak Pakistan capitalism, rotten and corrupt to the marrow, has led a vast country of 160 million people into a horrific impasse. For more than half a century the degenerate Pakistan bourgeoisie has shown itself incapable of carrying the Nation forward. It now finds itself in a complete impasse, which threatens to drag it down into a horrific abyss.

Only the masses, led by the working class, can show a way out of this nightmare. The real constituency of the PPP is the masses: the millions of workers and peasants, of revolutionary youth and unemployed who came onto the streets, after the assassination of the PPP leader. They were not cheering an individual but an ideal: the ideal of a genuinely democratic and just Pakistan: a Pakistan without rich and poor, without oppressors and oppressed: a socialist Pakistan.

In the next period the masses will have to back to the school of the PPP where they will learn some harsh lessons. But the masses in general always learn from experience. How else are they to learn? The next period will be a period of storm and stress. A PPP government will be immediately subject to enormous pressures from all sides: the masses will demand measures in their interests, and the imperialists, landlords and capitalists will demand measures in the interests of the rich and powerful. It will be ground between two millstones.

Only our tendency understood and predicted this development. As usual, the ultra left sects were utterly incapable of understanding the way the masses think and move. As always the Marxists participate in the real, living movement of the masses, fighting for the same concrete goals against the same class enemies. We do not lecture the workers and peasants from the sidelines like a school teacher lecturing little children. We explain patiently, stage by stage and help the workers to draw their own conclusions.

In the end, the workers and peasants will learn how to distinguish between those leaders who stand for the interests of the working people and those who do not. The Marxists in the PPP will oppose all attempts to form coalitions or deals with the Moslem league. We demand the implementation of the original programme of the PPP, a socialist programme based on the expropriation of the landlords and capitalists. We will develop the necessary transitional demands to relate every concrete struggle for advance to the goal of the socialist transformation of society.

As in Iran, the classical conditions for revolution are developing in Pakistan. Every revolution begins at the top, with splits in the old regime. That first condition already exists in Pakistan. The middle class is completely alienated from the ruling clique. This is partly reflected in the protests of the lawyers, although the movement contains contradictory elements. In recent years there has been an upsurge of the class struggle in Pakistan, with major strikes like that of the telecommunications workers and Pakistan Steel. In the last few days there was a national strike of PIA (Pakistan Airways). These strikes have hardly been mentioned by the media outside Pakistan but they are of great symptomatic importance. They show the reawakening of the Pakistan proletariat.

The final and most important condition is the existence of a revolutionary organization and leadership. Does this exist in Pakistan? Yes, it does! The Pakistan Marxists represented by The Struggle have grown in strength and influence in recent years. They have conquered one position after another and have succeeded in uniting the overwhelming majority of the militant youth and working class activists around them. They have a strong and growing presence in every region, every nationality and every important city.

In the struggles of the workers, they have played an outstanding role. Together with the PTUDC (Pakistan Trade Union Defence Campaign) - the most important militant trade union organization in Pakistan, they have scored significant victories like the defeat of the attempt to privatize Pakistan Steel. In Kashmir they have won over the majority of the students to Marxism and in Karachi and Pakhtunkhua (the North West Frontier) they have won many adherents from the former Communist Party.

We were the only ones on the Left to understand the role of the PPP and the only ones to predict how the masses would respond. The Pakistan comrades intervened on these demonstrations, distributing revolutionary literature and chanting revolutionary slogans. They were enthusiastically received by the workers and peasants who want the same things that we want.

Important developments are on the order of the day and our comrades are in a good position to take advantage of them. The battle lines are being drawn ever more clearly: either black reaction or the triumph of the socialist revolution in Pakistan, in India and in the whole subcontinent. Pakistan may well have the honour of being the first country to strike a blow for socialism and light the flame of revolution that will set both Central Asia and the Subcontinent ablaze.

Latin America

In world revolution as a whole, Latin America remains at the front line. This is the final answer to all the reformists, cowards and apostates who accepted the arguments of the bourgeoisie that revolution and socialism were off the agenda. US imperialism is increasingly worried about what is happening south of the Rio Grande. The reason for this growing alarm is that the revolutionary ferment is spreading from one country to another.

Revolutions do not respect frontiers and the revolutionary ferment is spreading to countries like Ecuador, Bolivia, etc. That is why they are trying to isolate Venezuela. US imperialism cannot tolerate the Venezuelan Revolution. But as happened in Cuba, US imperialism could push Chavez beyond the limits of capitalism. If this occurs, its effects will be felt throughout the continent and beyond.

In the 1980s, civil wars in Guatemala, El Salvador and Nicaragua propelled the region to the forefront of the cold war. But lately the Middle East has pushed Latin America aside in Washington's foreign-policy priorities. Now that is changed. The concern in Washington was reflected in the visit of George Bush to a region he has neglected throughout much of his presidency. Although his route was chosen with great care and confined to "friendly" countries, the US president was met with protest demonstrations.

Everywhere Washington sees the hand of Chavez and the Bolivarian Revolution. This is typical of the police mentality, which sees revolutions (and even strikes) as the result of malign conspirators and not objective processes. It is true that Chavez and the Venezuelan revolution are acting as a catalyst of revolution throughout the continent. But even the most powerful catalyst can only work if the conditions are given. The objective conditions for socialist revolution are given in practically every country in Latin America.

What is required to guarantee success in the shortest time and with the minimum of sacrifice is a revolutionary Marxist Party and leadership. That is perfectly true. But nature abhors a vacuum. The masses cannot wait until we have built the revolutionary party! In the absence of such a party, Chavez serves as a catalyst. He is giving a voice to the aspirations of the masses to change society. That explains the violent hostility he faces from US imperialism, which is determined to get rid of him one way or another.

But US influence in Latin America is at a low ebb. They could not even get the OAS to intervene against Venezuela. Latin American attitudes to their powerful neighbour to the North have been hardening. In a recent poll for the BBC World Service, 64% of Argentines, 57% of Brazilians, 53% of Mexicans and 51% of Chileans said they had a "mainly negative" view of American influence.

In the past, the Marines would have landed long ago. Today this is impossible, politically and even physically. The US army is tied down in Iraq and Afghanistan. It is unthinkable that it could be involved in another military adventure at this time. So they are obliged to use other methods: diplomacy and intrigue. But even in this terrain Bush is limited by falling popularity.

America backed military dictatorships in the 1970s and 1980s but has changed its tactics after burning its fingers with the likes of Noriega. It now generally prefers weak democratic regimes, although that did not stop it from organizing the 2002 coup in Venezuela. Bush's commitment to democracy is relative and dictated purely by tactical considerations. This is not to say they won't attack. They are already attacking. But they cannot invade openly - they must resort to indirect methods, diplomatic pressure, economic pressure and political intrigues.

In Nicaragua Daniel Ortega won the presidential elections, despite American officials openly campaigning for right-wing candidates. Washington was clearly involved in the massive electoral fraud in Mexico designed to prevent the election of the PRD candidate Lopez Obrador. It tried but failed to prevent the election of Rafael Correa in Ecuador. However, it succeeded in installing its stooge Alan Garcia in Peru and now wants to reward him at the same time as it intrigues against Venezuela, Bolivia and Ecuador.

US imperialism is trying to place a cordon sanitaire around Venezuela, (and also Bolivia and Ecuador). That was the meaning of Bush's tour of Latin America and the attempt to sign bilateral trade agreements with certain Latin American countries (Colombia, Brazil, Panama, Peru). Washington is hostile to the governments of Evo Morales (Bolivia) and Rafael Correa (Ecuador) and it is applying pressure. The US is working together with the oligarchies to bring down these governments.

In the old days, all socialists were "communists" as far as Washington was concerned, but now US imperialism needs to deal with "good" socialists like Lula in Brazil, Bachelet in Chile and Kirchner in Argentina to isolate Chavez. They even tried to draw in Morales.

The reason for Bush's trip was spelled out by The Economist (1/5/07): "The United States is locked in a regional battle for influence with Venezuela's oil-intoxicated autocrat, Hugo Chávez." The real aim was to isolate Venezuela, using countries like Brazil, where Lula is regarded as a safe "moderate". There is a double tactic: Uribe denounces and threatens, while Lula cajoles and intrigues behind the scenes to persuade Chavez to abandon the idea of socialism, as Lula did long ago:

"Brazil's Lula says that he quietly urges moderation on his Venezuelan counterpart, but there is no evidence that this is changing Mr. Chávez's direction of travel. If he continues on the same path, Latin America's democrats will soon have to consider whether he belongs in their clubs." (The Economist, 1/5/07)

Colombia's Álvaro Uribe is America's staunchest ally in the region. But even in Colombia - by far the biggest recipient of American aid in the region, thanks to "Plan Colombia" - only 39% of those polled by LatinoBarómetro in December 2006 had a positive image of the American president. Álvaro Uribe's government is known to be linked to right-wing paramilitary groups. The US Congress has even tabled proposals to cut off aid to Colombia. But that is of no concern to Bush and the CIA, despite all the talk about democracy and the tender concern for human rights - in Venezuela.

US military aid has turned Colombia into an armed camp and completely distorted the military balance of power in the region. The so-called war against drugs serves as a fig leaf to conceal Washington's real intentions, which are partly to crush the guerrillas and to build up the Colombian army to prepare for a possible military intervention against Venezuela in the future.

Chavez attempted to reduce the threat from Colombia, partly by trying to build a rapprochement or understanding with Uribe. But this policy is now in ruins. Uribe, clearly prodded by Washington, brutally broke off connections with Chavez allegedly over his contacts with the FARC guerrillas and Colombian army officers during his attempt to mediate over hostages. This shows the limitation of bourgeois diplomacy in defending the Venezuelan Revolution. Diplomatic manoeuvres are necessary but can play only a subordinate role. In the last analysis the only real friends of the Venezuelan Revolution are the workers and peasants of Latin America and the rest of the world.

Mexico - the revolution has begun!

What happened in Mexico brilliantly confirms what we have said many times: that there is not a single stable country in Latin America from Tierra del Fuego to the Rio Grande. Not long ago Mexico seemed stable. But our perspectives were fully confirmed by the events of last two years.

In this short period Mexico has entered the revolutionary road with millions on the streets, an insurrection in Oaxaca, elements of dual power and even embryonic soviets. This completely confirms our perspectives. The sects were left with their mouths open. This is what Trotsky called the superiority of foresight over astonishment.

Mexico is a good example of the way in which the masses move. Millions came onto the streets to protest against electoral fraud and support Lopez Obrador. These were overwhelmingly workers and peasants. Our comrades fought side by side with the masses, while simultaneously explaining our programme and policies and trying to take the movement forward. That was the only correct thing to do!

As everywhere else the central problem is a problem of leadership. We must understand how the working class moves - through its traditional mass organizations - not through tiny sects. This marvellous, spontaneous revolutionary movement of the masses gave rise to a crisis of leadership. Like the sorcerer's apprentice, Lopez Obrador called forth forces he could not control, and he did not know what to do with them. But it is impossible to keep millions of people in a state of effervescence indefinitely without showing a way out.

After a long period of strenuous exertions, there is clearly an element of tiredness in the masses. The masses cannot always be on the streets putting up barricades, as the ultra lefts imagine. If they see no change, the movement dies down for a time. This is normal. This was inevitable after almost two years of constant struggles and upheavals. The first upsurge of the masses will tend to die down for a period. Some sections will retire from the struggle to take stock of the situation although even now fresh layers of the class from traditionally backward areas can still move into action. There can be lulls and temporary setbacks but no lasting stability is possible.

On the surface, it seems Calderon has won, but the war is not finished yet. As in a heavyweight boxing match, what is decisive is not who wins the first round but who has the stamina to continue fighting till the end. The Calderon government is weak and split. It is a government of crisis. The problem is that the ruling class is too weak to crush the workers at this stage, and the latter are not in a position to take power because of the lack of leadership. The result is an unstable equilibrium that can last for some years before a final denouement is posed.

The class struggle is continuing. The pension reform legislation is an attempt to change the social-security system for workers employed in the public sector, known as the Instituto de Seguridad y Servicios Sociales de los Trabajadores del Estado (ISSSTE, Institute for Social Security and Social Services of State Workers). It means cuts in living standards, which is what the Mexican bourgeoisie is demanding. But it has provoked widespread union and political protests. These are set to continue.

It is not clear how long the present government can last. This depends above all on perspectives for the world economy and for the USA, to which Mexico is indissolubly linked. An economic downturn in the USA will have the most serious effects south of the Rio Grande. The money sent home by the millions of Mexican immigrants from the USA plays a very important role, even maintaining the economy of whole areas of the country.

A slump in the USA would lead to a steep rise in unemployment among the Latino workforce, leading to a sharp fall in the level of remittances. It will lead to a rapid increase in poverty in already poor regions of Mexico with a corresponding increase in social tensions. Even without a slump, the falling dollar (and also the corresponding fall in the value of the Chinese yuan) will ever more severely affect Mexican industry and agriculture.

All these factors will serve to undermine the Calderón government even among the middle class, who will soon be disillusioned. Under these circumstances the PRD will begin to revive. It will attract the support of millions of workers and peasants for one reason: there is no alternative. At a certain stage the bourgeoisie will have no alternative but to send the masses to the school of reformism, where they will learn some very hard lessons. The policies of Lopéz Obrador do not include a break with capitalism. But feeble Mexican capitalism cannot show a way forward or give the people what they need. A Lopéz Obrador government would also be a government of crisis.

The workers and peasants will put pressure on a PRD government to carry out a programme in their interests. On the other hand, the attitude of the ruling class towards a PRD government will be "use and discredit". They will put pressure on the government to continue the policy of cuts and counter reforms that are needed by Mexican capitalism, and after that they will throw it out of office and prepare for an even more vicious government of the right. The reformists will be ground between two millstones.

Mexico's so-called drug war, itself a graphic illustration of the weakness of the bourgeoisie and its state, is being used as an excuse for repression of the revolutionary movement and the working class. Violence and murders and other horrors have become the norm. In this country of just over 100m inhabitants, there were 1,600 murders in 2005 linked to organized crime, 2,200 in 2006 and this number is increasing. The elements of social disintegration and barbarism are present and can engulf society if the proletariat does not take power.

Sooner or later there must be an outright confrontation between the classes. Calderón is trying to strengthen the state in preparation for future struggles. In the recent period thirty thousand troops were deployed around the country. Amnesty International has referred to the systemic "arbitrary detention, torture, unfair trials and impunity" in the country. Yet Lopéz Obrador, instead of fighting against this, has proposed the increased use of the army.

The Mexican ruling class understands from its class point of view what we understand from our class point of view. But the reformist leaders of the PRD understand nothing and prepare for nothing. The situation in Mexico is very explosive, although it will have ebbs and flows. We have a strong organization and a leadership that is being forged in the heat of events. In the next period they can achieve similar results to those of the Pakistan comrades. From now on we must pay even more careful attention to Mexico and the work of the Mexican comrades.

Bolivia

Evo Morales has been in office for two years. He was elected after the marvelous Bolivian proletariat had fought for at least 18 months to change society by revolutionary means. The workers staged two general strikes and two insurrections, overthrowing two Presidents. What more could we ask of the working class?

The bourgeoisie and imperialists feared that he would lead Bolivia down the same path as Hugo Chávez in Venezuela. But Morales' policy of only partial "nationalization" of oil and gas has irritated foreign governments and investors without solving the fundamental problems of society. The "democratic revolution" he promises has alarmed the bourgeoisie of the prosperous eastern provinces without satisfying the workers and peasants.

As a result the situation in Bolivia inclines more to the counterrevolution by the day. Because of the inaction and indecisiveness of Morales there has been a counteroffensive of reaction. The judiciary staged a one-day strike against the government's attempt to "throw out the Bolivian judicial system and implant a totalitarian regime." The Supreme Court is a nest of reaction, yet no serious action has been taken against it.

The "gilded youth" - the counterrevolutionary students and pampered sons of the bourgeois - have assumed the role of the shock troops of reaction, organizing violent street demonstrations. They have clashed with demonstrations of revolutionary workers and peasants with people killed and wounded. One year ago supporters of the government tried to unseat the governor of Cochabamba, for proposing a referendum on autonomy. Three people died in violent clashes. Now the forces of reaction are in the saddle in Cochabamba - something that would have been unthinkable only a year ago.

These skirmishes are a warning of impending civil war. They are, in the words of The Economist, "part of an improvised revolution with uncertain aims." This is not a bad description of the position. But in a revolution what is needed are clear objectives and the determination to carry them out regardless of all obstacles and opposition. That is just what is lacking in Bolivia.

The calling of a constituent assembly is, as we predicted, a means of diverting the revolutionary movement onto parliamentary ground. Morales dropped a campaign for the assembly to approve constitutional articles by simple majority after street protests in the eastern regions. The MAS has a majority in the assembly but not the two-thirds required to approve a new constitutional text.

Morales's Movement to Socialism (MAS) proposes to redefine Bolivia as a "unitary, pluri-national, communitarian" state that gives pride of place to three dozen indigenous "nations". These groups would control territory and natural resources and would be represented as communities in a single-chamber legislature alongside individual citizens. Private enterprise would be protected when it "contributes to economic and socio-cultural development". A fourth "social power" would oversee the traditional three.

The vice-president, Álvaro García Linera, has called for a "broadening of elites" and "room for both capitalist and post-capitalist development". This is straight out of Heinz Dieterich's reformist recipe book. There is no perspective of socialism, no proposal to expropriate the oligarchy. And the leaders will compromise even on this.

The government wants to compromise with reaction. "We don't want a constitution approved by 60 or 70% of the country but rejected by the rest," says García Linera. The final text of the constitution will be subject to a referendum and then to interpretation by the courts, which Morales does not control. This will provide the reactionaries with ample opportunity to continue with their tactics of obstruction, sabotage and destabilization.

Ultimately the economy is decisive, and the Bolivian economy is not in a good state, growing less than the Latin American average. More than half the population is poor, four-fifths of workers are in the informal economy and emigration continues. Mining and gas apart, private investment is a negligible 2-3% of GDP. If he does not create good jobs and improve the conditions of the masses, no amount of constitutional manoeuvres will save Morales.

The workers and peasants will soon get tired of a situation that offers no fundamental improvement of their living conditions. In the end, if nothing fundamental changes, they will fall into a state of passivity that will allow the counterrevolutionary bourgeoisie to push forward and regain all its lost positions. The reactionaries are gaining in confidence and becoming more insolent and aggressive to the degree that they see the workers lose confidence in the future of the revolution.

They will prepare the way for the ejection of Evo Morales from power. They may use the army, but may even do this by "constitutional" means, since they control significant parts of the state and judiciary. This is the end result of the policies of reformism and compromise. On the other hand, if the reactionaries act in a precipitate way, they can provoke an explosion on the part of the masses, which would throw everything back into the melting pot.

Venezuela

Unlike the ignorant sects, the imperialists understand what we understand: there is a revolution taking place in Venezuela and that the masses are moving to change society. That explains the campaign of hysteria around issues like RCTV and the constitutional referendum. The imperialists are maintaining the pressure on Chavez in order to halt the revolution. They are basing themselves on the right wing of the Bolivarian leadership and the counterrevolutionary bureaucracy. But the workers and peasants are pressing from below. The result of this struggle will determine the fate of the revolution - one way or another.

The rapid and apparently irresistible rise of Chavez cannot be explained solely by the personal powers and ability of the individual. A ferment of discontent was already present among masses, but had no vehicle through which to express itself. Once they found a means of expression, the masses poured onto streets in an unstoppable movement that has lasted for almost 10 years.

There is a dialectical relation between Chavez and the masses - a powerful chemistry in which, giving a voice to the deeply felt aspirations of the masses, the Bolivarian leader intensifies these revolutionary aspirations. The masses press forward, demanding change. This in turn reacts upon Chavez, propelling him further to the left. This peculiar chemistry has been observed by the strategists of Capital and imperialism, who have drawn the conclusion that it is necessary to eliminate Chavez one way or another. That is why they put so much effort into the campaign for a "no" vote in the constitutional referendum.

This was the first real defeat of Chavez. For the first time in almost a decade the opposition secured a victory. There were scenes of jubilation in the well-off middle class areas of Caracas. But the joy of the reactionaries is both premature and exaggerated. Comparing the results with the 2006 presidential elections, the opposition only increased its vote by about 200,000, but Chávez lost 2.9 million. These votes did not go to the opposition but rather to abstention.

The results of the referendum on constitutional reform show this. The proposals for constitutional change were defeated by the narrowest of margins, with 4,521,494 votes against, (50.65%) and 4,404,626, (49.34%) for the Yes. The question that must be asked is not why the "no" vote won but why such large numbers of chavistas did not vote? The overwhelming majority of the masses still support Chavez and the Revolution, but there are clear symptoms of tiredness.

After nine years of upheaval the masses are tired of words and speeches, parades and demonstrations, also of endless elections and referendums. What is really astonishing is that the movement has lasted so long and that these symptoms of tiredness did not appear earlier. The December 2006 elections showed that 63% supported Chavez after nine years of the process. This shows a very high level of revolutionary consciousness. However, one cannot assume that this situation can last indefinitely.

The masses want less words and more decisive action: action against the landlords and capitalists, action against the corrupt governors and officials. Above all, they want action against the Fifth Column of right wing chavistas who wear red shirts and talk of socialism of the XXI century but are opposed to real socialism and are sabotaging the revolution from within.

The greatest exertions of the opposition only succeeded in mobilizing about 200,000 more votes. That is a fact. Moreover, this struggle cannot be won with votes alone. The pot-bellied bourgeois and his wife and children, the small shopkeeper, the student "spoilt brats of the rich", the government clerks, resentful of the advances of the "rabble", the pensioners nostalgic of the "good old days" of the Fourth Republic, the speculators, thieves and swindlers, the devout old ladies of both sexes manipulated by the reactionary hierarchy of the Church, the solid middle class citizens tired of "anarchy": all these elements appear as a formidable force in electoral terms, but in the class struggle their weight is practically zero.

The class balance of forces

The real balance of class forces was shown by the rallies at the end of the referendum campaign. As in December 2006, the opposition moved heaven and earth to mobilize its mass base and succeeded in assembling a large crowd. However, the next day the streets of central Caracas were flooded by a sea of red shirts and banners. The two rallies revealed that the active base of the chavistas is five or eight times bigger than that of the opposition.

The picture is even clearer when it comes to the youth. The right wing students are the storm troops of the opposition. They have been the main force organizing violent provocations against the chavistas. They got 50,000 at their biggest rally, on the most optimistic estimate. But the chavista students had 200,000 or 300,000 on their rally. In this decisive area of struggle - the youth - the active forces of the Revolution greatly outnumber those of the Counter-revolution.

On the side of the Revolution stand the overwhelming majority of the workers and peasants. This is the decisive question! Not a light bulb shines, not a wheel turns, not a telephone rings without the permission of the working class. This is a colossal force once it is organized and mobilized for the socialist transformation of society.

The opposition has decided to adopt a cautious and conciliatory tone because the time is not yet ripe for an operation like that of April 2002. Any attempt to launch a coup at this stage would bring the masses onto the streets ready to fight and die if necessary to defend the Revolution.

Under such circumstances the Venezuelan army as it is at present would be a most unreliable instrument for a coup. It would lead to a civil war which the counter-revolutionaries would not be confident of winning. And who can doubt that this time a defeat of the counterrevolution in open struggle would mean the immediate liquidation of capitalism in Venezuela.

The Venezuelan army and the state

The army always reflects the tendencies within society. The Venezuelan army has lived through almost a decade of revolutionary storm and stress. This has left its mark. There can be no doubt that the overwhelming majority of the ordinary soldiers, sons of workers and peasants, are loyal to Chavez and the Revolution. The same will be true of most of the sergeants and other non-commissioned officers and the junior officers. But the higher we go in the upper echelons the more unclear the situation becomes. In the run up to the Constitutional referendum, there were rumours of conspiracies and some officers were arrested. This is a serious warning!

The only way to ensure that all the reactionary officers like Manuel Baduel are removed from the army is by introducing democracy into the army, allowing the soldiers full freedom to join political parties and trade unions. Officers should be subject to election at regular intervals, as should every public official. Those who are loyal to the Revolution would have nothing to fear.

Among the officers, many will be loyal to Chavez; others will be sympathetic to the opposition or secret counter-revolutionaries. Most will probably be apolitical career soldiers, whose sympathies can incline one way or another depending on the general climate in society.

The question of the state and the armed forces now occupies a key position in the revolutionary equation. The bourgeois state has been disintegrating for some time. But no new state power has been created to take its place. This is a dangerous situation. The formation of a new state power necessarily entails a new kind of army - an army of the people, a workers' and peasants' militia.

The revised version of the Constitution included provisions for the setting up of a Bolivarian Popular Militia (Art. 329) "as an integral part of the Bolivarian Armed Forces" and states that they shall be made up of "units of the military reserve ". That is more than one and a half million Venezuelans. Such a force would be a powerful revolutionary instrument for fighting the enemies of the Revolution both inside and outside the national frontiers.

If the trade unions had a leadership worthy of the class they would immediately take up this proposal and set up workers' militias in every factory and workplace. The workers must learn the use of arms in order to defend their conquests, to defend the Revolution against its enemies and to proceed to new conquests. But the National Union of Workers (UNT) has been split and severely weakened by the factional struggles in the leadership, who are more interested in fighting for positions than defending the interests of the working class. That is the real problem!

Bankruptcy of the sects

It is fortunate that the ultra left sects (who frequently turn out to be ultra-opportunists on all key questions) are very weak in Venezuela. Their habitual impatience, abstract thinking and organic formalism render them incapable of understanding the psychology of the masses. Unfortunately, by an accident of history, some of them have inherited leading positions in some unions, which they have used to mislead and disorient those worker activists around them.

Having effectively wrecked the UNT as a revolutionary force, they have split on the question of the Unified Socialist Party of Venezuela (PSUV). The wing of the UNT led by Orlando Chirinos not only refused to join the mass party of the working class in Venezuela but joined forces with the counterrevolutionaries in their campaign against the constitutional reform. This was a criminal policy. These self-styled "Marxists" are so blinded by their hatred of Chavez that they are incapable of distinguishing between revolution and counterrevolution. They have cut themselves off from the living movement of the masses and are doomed to impotence.

The role of the so-called Trotskyists who called on people to vote no or spoil the ballot papers was absolutely pernicious. This writes them off entirely as a progressive force, let alone a revolutionary one.

The counter-revolutionaries and imperialists understand the situation far more clearly than the sectarians. The masses have been aroused to political life by Chavez and are fiercely loyal to him. The bourgeoisie have tried everything to remove Chavez but have failed. Each counter-revolutionary attempt has been shattered on the rock of the mass movement.

They have therefore decided to arm themselves with patience and play a waiting game. Chavez was elected for six years and therefore has nearly five more years till the end of his term of office. The first step of the bourgeoisie was to ensure that he could not stand for election after that. That was the importance of the Constitutional referendum from their point of view. They calculate that if they can get rid of Chavez one way or the other the Movement will split in pieces and disintegrate, allowing them to take power back into their hands.

The opposition is cautious because it is aware of its weakness. It knows it is not strong enough to go on the offensive. But on the basis of "national accord", it is trying to get Chavez to water down his programme. If they succeed in this it will demoralize the chavista rank and file, while the reformists and bureaucrats will feel strengthened.

Economic sabotage

How is it possible that the opposition could recover, when they had been so soundly defeated? Because the Revolution has not been carried out to the end, because important economic levers have been left in the hands of the bitterest enemies of the Revolution, and also because there is a limit to how much the masses can tolerate without falling into moods of apathy and despair.

As we wrote in Theses on Revolution and counter-revolution in Venezuela:

"To rely exclusively on the willingness of the masses to make sacrifices is a mistake. The masses can sacrifice their today for the tomorrow only up to a certain point. This must always be kept in mind. Ultimately, the economic question is decisive."

These observations today retain their full force. The scarcity of basic foodstuffs like milk, beef and sugar has become intolerable in recent months. This is reminiscent of the situation in Chile when wholesale economic sabotage was used against the left-wing Popular Unity government of the 1970s.

The counterrevolutionary Venezuelan bourgeoisie is carrying out a systematic campaign of sabotage of the Venezuelan economy. There are serious shortages and inflation of 19%. The masses are loyal to the Revolution but they will not permanently accept this situation. Sooner or later it must be settled. Chavez has taken important steps forward but he is still hesitating on fundamental questions like the army. The outcome is still not clear.

For the masses the question of socialism and revolution is not an abstract question but is very concrete indeed. The workers and peasants of Venezuela have been extraordinarily loyal to the Revolution. They have shown a high degree of revolutionary maturity and willingness to fight and make sacrifices. But if the situation drags on for too long without a decisive break, the masses will start to tire. Beginning with the most backward and most inert layers, a mood of apathy and skepticism will set in.

If there is no clear end in sight, they will begin to say: we have heard all these speeches before, but nothing fundamental has changed. What is the point in demonstrating? What is the point in voting, if we live much the same as before? This is the biggest danger for the Revolution. When the reactionaries see that the revolutionary tide is ebbing they will pass over to the counteroffensive. The advanced elements of the workers will find themselves isolated. The masses will no longer respond to their appeals. When that moment arrives the counter-revolution will strike.

Those who argue that the Revolution has gone too far too fast, that it is necessary to call a halt to the expropriations and reach a compromise with Baduel to save the Revolution, are completely mistaken. The reason why a section of the masses are becoming disillusioned is not because the Revolution has gone too far too fast, but because it is too slow and has not gone far enough.

Elections and the class struggle

Marxists do not refuse to participate in elections. That is the position of anarchism, not Marxism. In general, the working class must utilize every democratic opening that is available to assemble its forces, to conquer one position after another from the class enemy and to prepare for the conquest of power.

The electoral struggle has played an important role in Venezuela in uniting, organizing and mobilizing the masses. But it has its limits. The class struggle cannot be reduced to abstract statistics or electoral arithmetic. Nor is the fate of a revolution determined by laws or constitutions. Revolutions are won or lost not in lawyers' chambers or in parliamentary debates but on the streets, in the factories, in the villages and poor districts, in the schools and army barracks.

Even after the defeat in the referendum, Chavez has enough powers to carry out the expropriation of the landlords, bankers and capitalists. He has control of the National Assembly and the support of the decisive sections of Venezuelan society. An enabling act to expropriate the land, banks and big private enterprises would provoke enthusiastic support among the masses.

The level of abstention that handed this narrow victory to the opposition is a warning. The masses are demanding decisive action not words! Therefore, this defeat will have the opposite effect. It can rouse the masses to new levels of revolutionary struggle. Marx said the revolution needs the whip of counter-revolution. We have seen this more than once in the last nine years in Venezuela.

The victory of the "no" in the Constitutional referendum is acting as a salutary shock. The Chavista rank and file are furious and point the finger at the bureaucracy, which they rightly blame for the setback. They are demanding action to purge the right wing from the Movement.

We must follow the revolution concretely through all its stages, we must have all the facts and figures, we must participate actively in all the debates, and play a leading role in the establishment of the new socialist party - the PSUV. But we must do so as the Marxist wing, we must organize our intervention as a clearly delineated tendency.

We have some time, but not indefinite time. We must build our own forces. We have already achieved a lot, but there is much, much more to be done. The key to the Revolution is the building of a powerful revolutionary cadre organization in the shortest possible time.

The subjective factor

The main problem is the weakness of the subjective factor. The last two or three decades have set the seal on the reformist degeneration of the leaders of the working class, both in the political parties and the unions. We see the results of the horrible degeneration of the Social Democrats in Blairism in Britain. Even worse is the conduct of the Stalinists in Italy who have succeeded in changing what was left of the old Italian Communist Party (PCI) into a bourgeois party, the Democratic Party.

It is an irony of history that the Italian Stalinists have succeeded in doing what Tony Blair failed to achieve in Britain. But as Lenin said, history knows all sorts of peculiar transformations! And Lenin said that at a time when a faction of the Russian bourgeois led by Ustryalov was predicting that the Bolshevik Party could itself become the instrument of the capitalist counterrevolution in Russia. Lenin said that what Ustryalov predicted was possible, that is, that even the Bolshevik Party under certain conditions could be transformed into a bourgeois party and carry out the capitalist restoration in Russia. In fact, if Bukharin's faction had succeeded, that would have happened as early as 1928-29.

The Italian ex-Communist Party (DS) was not Lenin's Bolshevik Party! It was not even a communist party at all, not even in the caricature sense of the old Stalinist PCI of the 1940s. It was a caricature of a Social Democratic Party carrying out class collaborationist policies. The fact that it called itself the "Communist Party" had nothing to do with its real content. The present development should surprise nobody. It did not drop from a clear blue sky. It is only a logical conclusion of many decades of reformist degeneration, which began with Togliatti, continued with Berlinguer ("the historic compromise") and has now finally been consummated by Veltroni. Thus, history has taken its revenge on the Italian Stalinists.

Despite the appalling degeneration of the mass organizations, they still exercise an irresistible pull over the workers. All the efforts of the ultra-left sects to create new "mass parties" in opposition to the traditional organizations have failed miserably. In Britain, despite the crimes of Blair and New Labour, the sects have not gained any ground but have lost heavily and are now splitting and in crisis. In France, where there are three big pseudo-Trotskyist sects, they have also lost ground. In Belgium the attempt of the sects to establish a "new workers' party" has flopped. In Australia, the sects have been left high and dry by the overwhelming victory of the Labour Party.

The case of Venezuela is even clearer. There is no need to repeat the general analysis we have made of the Venezuelan Revolution. But the formation of the PSUV with a total membership of over five million people is an indication of the attitude of the masses to the Revolution and Chavez. We alone were able to understand the real movement of the masses in Venezuela and intervene in it. The movement is not finished and has entered a critical stage. But the masses have shown that they want what we want. They are drawing conclusions from their experience and the conclusions are correct. That is why, immediately after the defeat of the December Constitutional Referendum, the slogan advanced by the masses was for an immediate purge of the bureaucrats. This shows that the Venezuelan Marxists of the CMR have correctly anticipated the psychology of the masses, advancing relevant and timely slogans.

Build the revolutionary tendency!

Build the Marxist International!

"[...] that tendency which is growing up together with the revolution, which is able to foresee its own tomorrow and the day after tomorrow, which is setting itself clear goals and knows how to achieve them." (Trotsky, The First Five Years of the Communist International, Volume 1, On the Policy of the KAPD.)

Ted Grant always explained that Marxists must base themselves on the fundamentals, not this or that accidental feature. There are no schemas that explain everything. We must set out from the world as it is, and the class struggle and workers' movement as it is. Everywhere the process has a prolonged and protracted character. This fact can disorient comrades who are not thoroughly steeped in the theories and method of Marxism.

This was not the case in the past, when a pre-revolutionary situation would very quickly move either to revolution or counterrevolution. Now we have a kind of slow motion revolution in Venezuela. It has lasted nearly 10 years now. Why? There is a very favourable class balance of forces. The workers could relatively easily take power but they lack leadership. Chavez is honest and courageous but he is not a Marxist and therefore has not done what should have been done. It is a problem of leadership.

If in Venezuela a strong Marxist current had existed before the Revolution started, it would have been able to play an important role in patiently explaining what was necessary. This would have helped the vanguard (and Chavez himself) to come to the correct conclusions at each stage of the movement. In the absence of a trained Marxist leadership the revolutionary vanguard has to learn painfully slowly through a process of successive approximations. The problem is that in a revolution there is no time to learn by trial and error, and mistakes are paid for with a very high price.

In Mexico, as in Venezuela, the bourgeoisie is not yet strong enough to crush the revolutionary movement, but the workers are being prevented from taking power by the leadership. This explains the prolonged nature of the process. But sooner or later this must be settled one way or another. The imperialists understand what we understand. They know that the present unstable correlation of forces cannot be maintained. And they are preparing.

We have pointed out that one cannot base a perspective for the world economy on the evolution of the world economy during the last twenty years. In the same way one cannot assume that bourgeois democracy will forever continue to be the norm in Europe, the USA, Japan and the other developed capitalist countries.

The masses can only learn through experience. The workers of the advanced capitalist countries of Europe, Japan and the USA have become accustomed to reasonable living standards, reforms and democracy. Their psychology is shaped by the past more than the present or the future. Powerful illusions have been built up over decades. These will have to be burned out of the consciousness of the masses with a hot iron.

In the turbulent period that has opened up we will see big shocks and crises that will shake society in one country after another. Class consciousness is not only measured through strikes. We must follow the workers' movement attentively through all its stages. If the workers are checked on the industrial front, they will look for an outlet on the political front, and vice versa, etc. But they will only do this through their traditional mass organizations, because the masses do not understand small groups, even if they have correct ideas.

At a certain stage this process must find an expression in the traditional mass organizations of the working class. It is difficult to imagine a more rotten leadership than that of the British Labour Party. Over last ten years, all the sects have been busy setting up all kinds of electoral blocs and alliances to stand against the Labour Party. According to their logic, they should be replacing the "bourgeois" Labour Party. But they have gone nowhere. When the workers move they do so through the traditional mass organizations.

This was again confirmed by the result of the election in Australia, and even more strikingly in Belgium, where the candidate of the Left, the Marxist Erik de Bruyn, got one third of the votes in the recent leadership election. This result shocked the right and was widely commented on in the media. The point is that the Belgian Labour Party seemed to be dead. There was no internal life. The Antwerp branch met only once a year. Yet once the workers saw that there was a fight against the right wing, they turned up to participate and vote. The same process will be repeated in one country after another in the future.

Unlike the ultra lefts who have a lifeless and schematic method, we always approach the workers' movement dialectically. We see things as they are, as they were, and do best to see how they will necessarily develop. When the masses fall into inactivity, the pressure of the bourgeoisie on the mass organizations is redoubled. But when the workers move into action they will always turn to the mass organizations, for the simple reason that there is no alternative.

There are many analogies between class struggle and war. Wars do not consist of constant battles. Any soldier who has seen action will tell you that battles are the exception and between battles there are long periods of inactivity. Such periods must be used to clean weapons, dig trenches, drill and make new recruits: in short to prepare for the next battle, which will come sooner than we expect. We must think like good soldiers. We must use the pauses in the class struggle to build our forces and strengthen our organization.

The workers not always ready for struggle, it is true. The class struggle has a certain rhythm. Lulls in the class struggle are inevitable. We cannot be empiricists. Moreover, it is not always to our advantage that masses are in constant action. Take the example of Bolivia, where the working class staged two general strikes and two uprisings, and overthrew two governments in the space of 18 months. What more can one ask of the working class? If the Bolivian workers failed to take power it was not due to low consciousness of masses, as reformists like Heinz Dietrich allege, but to the absence of leadership

For historical reasons the genuine tendency of revolutionary Marxism has been thrown back on a world scale. To a large extent this reflects objective conditions. For a whole historical period (1945-74) capitalism, at least in the industrialized countries, experienced a big economic upswing, a long period of full employment, rising living standards and reforms, in which the class struggle was blunted. Even with correct leadership the forces of the Fourth International would have faced difficulties. But under the leadership of the epigones of Trotsky the movement was completely destroyed.

In war, it is sometimes necessary to retreat. The importance of good generals in a retreat is even more important than in an advance. With good generals it is possible to retreat in good order, keeping one's forces together and minimizing the losses. But bad generals will turn a retreat into a rout. That is what happened to the Fourth International after the death of Trotsky. Pablo, Mandel, Healy, Lambert, Cannon and Hanson all contributed to this debacle. The sects have suffered split after split and are now in a process of advanced and irreversible decomposition.

Thanks to the untiring theoretical work of comrade Ted Grant our tendency has been able to reorient in the new conditions and preserve the cadres, programme, policies, methods and traditions of Trotskyism. Today the IMT is the only inheritor of these traditions. On this basis, despite all difficulties and setbacks we have succeeded in rebuilding the forces of genuine Marxism-Leninism (Trotskyism), attracting to our side the best elements of the advanced workers and youth from other tendencies. The case of Brazil is only the latest and most striking example of this.

We have entered into a fruitful dialogue with Venezuelan Bolivarians, Cuban revolutionaries, Irish socialist republicans and Communists and class fighters from many other countries. In Pakistan, Spain, Italy, and Mexico we already have the basis for the building of mass tendencies. In Venezuela we are participating actively in the revolution and attracting the best fighters through our work in the occupied factories, the PSUV and the youth. In Brazil there is an enormous potential for the Marxist tendency of the PT.

It is true that we are a minority even in the left wing. Old Engels said: "Marx and I were in a minority all our lives and we were proud to be in a minority." But we are living in a period in history where great transformations are on the order of the day and minorities can become majorities very quickly. This is not a long period of organic growth of capitalism but on the contrary a period of convulsions and turbulence on a world scale. This is accepted even by Alan Greenspan! Even in a boom the conditions of the masses have deteriorated everywhere. What will happen in a slump?

In all countries the situation can change very rapidly. We must be prepared so as not to be taken by surprise. Something seemingly trivial can provoke a movement that can take us by surprise. Under certain conditions formerly backward elements can become the most militant, as we know from dialectics and from history. In Russia in 1905, the workers staged a peaceful march to the tsar to petition for reforms. At the head of this peaceful demonstration was a priest - Father Gapon. The Marxists were in a tiny minority and completely isolated from the working class. Then there was the massacre of 9 January and the consciousness of the masses was transformed in the space of 24 hours.

We already see significant changes in the psychology of the masses. When Bush was elected for the second time, many drew pessimistic conclusions. We predicted that he would end up as the most unpopular president in the history of the USA. Now his popularity has collapsed. Significantly he has lost a lot of ground among the 42 million-strong Latino community in the United States. This is now the largest ethnic minority in the USA and Latin America's fourth-biggest "nation". A poll in January 2007 by the Pew Hispanic Center, a Washington-based group, found that 66% of American Latinos favour bringing American troops home "as soon as possible", up from 51% two years earlier.

Revolutionary developments in Latin America will quickly spread to the USA through the immigrant community and especially the immigrant Latino youth. The mass protests of Latino immigrants in the USA indicate that there is the beginning of a ferment in that very important layer of society. Poverty, low wages, racial discrimination, police violence, unjust laws, the Iraq conflict, where a disproportionate number of victims are poor young blacks and Latinos - all these factors will combine to produce very fertile ground for the spread of revolutionary ideas.

In Britain in the past our tendency (Militant) achieved important results from years of patient work in the trade unions and the Labour Party. This was a real model of how revolutionary work should be conducted. Under the leadership of Ted Grant we combined a scrupulous attitude to Marxist theory with systematic work in the mass organizations of the working class. This enabled us to create the biggest and most successful Trotskyist organization since the Russian Left Opposition. Unfortunately, this great success was thrown away in a criminal adventure. But what we achieved in the past we can and will achieve in the future in Britain and internationally.

We are building on sound foundations, with ideas and methods that have time and again proved their superiority. But correct ideas are not enough to build a mass tendency with roots in the working class. Events are necessary. Events, events, events will shake society and the mass organizations to the core. The old conservative psychology will be shaken up and the working class will once again begin to draw revolutionary conclusions.

Everywhere there is what Trotsky called the molecular process of socialist revolution, which is a subterranean ferment of discontent in the masses. Sooner or later this will erupt to the surface. We must be prepared and not allow ourselves to be diverted by the inevitable lulls and episodic developments.

The conclusion of this is clear: we do not change course. We must stick to our principles, programme, methods and perspectives, while always maintaining the necessary tactical flexibility to be able to reach the masses. That alone will guarantee our ultimate success! If we stick firmly to our course and do not make too many mistakes, the success of our tendency is assured: a tendency which is growing up together with the revolution, which is able to foresee its own tomorrow and the day after tomorrow, which is setting itself clear goals and knows how to achieve them.

Approved by the World congress of the IMT - August 3, 2008

^[*] These figures are from when the document was first drafted (November 2007). Since then, oil has reached $100 and gold $900. We can expect them to rise further in the next few months.