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“In order to understand the dynamics of the process it is necessary to determine in what direction and why the mood of the working class is changing. Combining subjective and objective data, it is possible to establish a tentative perspective of the movement that is a scientifically based prediction, without which a serious revolutionary struggle is in general inconceivable. But a prediction in politics does not have the character of a perfect blueprint; it is a working hypothesis. While leading the struggle in one direction or another, it is necessary to attentively follow the changes in the objective and subjective elements of the movement, in order to opportunely introduce corresponding corrections in tactics. Even though the actual development of the struggle never fully corresponds to the prognosis, that does not absolve us from making political predictions.  One must not, however, get intoxicated with the finished schemata, but continually refer to the course of the historic process and adjust to its indications.”

Leon Trotsky - The "Third Period" of the Comintern's Errors

Introduction

This year’s U.S. Perspectives will bring up to date key aspects of last year’s extensive World and U.S. Perspectives documents. Last year’s documents retain their validity on all fundamental points, and should be read in conjunction with this year’s perspectives. However, the overall process has accelerated.  In the past 12 months, the contradictions of the world capitalist system have continued to build up, resulting in violent explosions of the class struggle in one country after another, and preparing even more explosive developments for the coming period.

Above all, we must understand the profound effect these events are having on the consciousness of the U.S. working class.  Long gone are the days of relative stability and “class peace”.  Right here, in the heart of world imperialism, colossal explosions of the class struggle are being prepared.

The International Situation

The international situation remains one of extreme volatility and instability.  We are well into a period of wars, revolutions, and counter-revolutions. There is not a single stable capitalist regime in the entire world. At the root of this crisis is the crisis of the world capitalist economy, with the U.S. economy at its core. The entire system is unbalanced, and any effort to re-establish equilibrium in one country will simply mean exporting the crisis elsewhere in the global system. This can only delay the day of reckoning, not avoid it. In an epoch of “globalization” of the economy, we also see global economic crises – and global revolution.

Overall world economic growth is expected to continue in 2007, albeit at a slower pace than in 2006 (4.2 percent as compared to 4.8 percent).  But this modest rate of growth is not being powered by the traditional economic engines of the world: the U.S., Japan, Germany, the UK, and France.  While these economies are all experiencing limited growth, it is countries like China (9.8 percent) and India (8 percent), and the voracious appetite of debt-ridden U.S. consumers that are really keeping the economy afloat – for the time being.

The 13-country Euro zone, Japan, Britain and the four “BRIC” countries (Brazil, Russia, India and China) all reported stronger growth than the U.S in the fourth quarter of 2006. Some analysts even predict that the U.S. may soon cease to be the engine of world growth. This is part of a major restructuring of the global economic system, and the place of the U.S. working class within that structure.  This is the real meaning of the savaging of the manufacturing sector and the American labor movement, the lowering of wages, the elimination of pensions, the worsening of workplace conditions, etc. But with modern communications technology, not just manufacturing jobs but information technology, engineering, even radiology and legal services can be “off-shored”.  It is estimated that as many as 30 to 40 million U.S. jobs may be lost in the coming decade.  It is only the beginning of the globalization of the labor market. The capitalists are forcing U.S. workers to compete with workers worldwide for ever-more scarce, poorly paid jobs.

The world economy as a whole remains highly dependent on the U.S., whose trade deficit with the rest of the world stood at $765.3 billion in 2006. But this reliance on exports to the U.S. market hangs on a knife’s edge as Americans’ consumer spending and optimism dampen in the face of the housing market bust and the generally worsening economic picture. According to Stephen Roach, chief economist at Morgan Stanley in New York, Asia and Europe lack sufficient domestic demand to offset reduced U.S. spending on overseas goods. As a result, Asian stock markets and especially companies that rely on exports to the U.S. have been hammered in recent weeks.

Already, many countries are looking to shield themselves from the effects of an economic slowdown in the U.S., but their options are limited and can only further destabilize the world’s largest economy. No country can exist outside the global economy – the fates of the world’s economies are tied together more closely than ever. The world is forced to bolster a badly weakened U.S. dollar in an effort to avoid a  meltdown. China and Japan alone hold over $1.7 trillion in U.S. currency and U.S.-based assets which they can hardly afford to write off.

Japan, the world’s second largest economic powerhouse, has finally managed to pull out of nearly two decades of stagnation with GDP growth of 2.8 percent in 2006. However, its future does not depend only on its own fortunes – its fate is intimately tied to the U.S. and Chinese economies. The U.S. market alone accounts for 24 percent of Japan’s total exports. In January, industrial production in Japan suffered its greatest decline in nearly three years, and zero inflation for the same month is a signal that deflation is still a threat. Interest rates remain at just 0.5 percent, highlighting how fragile the situation is.

While still growing rapidly, there are indications that the Chinese economic “miracle” is on the edge of a crisis of overproduction, a clear sign that the market economy now predominates in the country. The effects of this process within China in particular have been tremendous, and was examined in detail in last year’s World Congress document “Where is China Going?” On February 27, 2007, fears of such a crisis led to a sharp drop in the Chinese stock markets which quickly spread to world markets, yet another graphic reflection of just how inter-connected the world economy has become.

In China, rising alongside the international investment is large-scale social unrest. A 2006 U.S. report entitled "Social Unrest in China" claims that 87,000 'public order disturbances' took place in 2005. China's director of the Office of Central Rural Work Leading Group admitted to 23,000 cases of rural unrest in 2006. To relieve some social tension, China has tried to implement some minor reforms - cracking down on sweatshop conditions in factories, giving more power to the state-controlled union, etc. International Investment, headed by the U.S. and European chambers of commerce, were outraged by the plans, and threatened to move their money elsewhere. The Chinese capitalists and the state are caught between a rock and a hard place, with ever-less room to maneuver between the pressures of investors and the working class.

In the last five years, the economic relationship between the U.S. and China has been one of the main factors keeping the world economy afloat. The U.S. accounts for about 40 percent of Chinese exports. According to Roach, from 2001 through 2006, the U.S. and China together contributed an average of 43 percent to global growth, measured on the basis of purchasing-power parity. A crisis in either country would rapidly spread to the other and to the rest of the world.

Despite the interlocking dependence between nations in maintaining a global division of labor for the capitalists, greater tensions are developing not only between the imperialist nations and the semi-colonies, but also between the imperialist nations themselves. While during trade talks their negotiators may shake hands in front of the cameras, behind the scenes it is a different story. The laws of capitalist competition compel them to eye each other's spheres of economic interests and internal markets in hopes of taking advantage of their competitors and getting the lion's share of the riches. When there is plenty of room for all the capitalists to expand their economies, it is possible for them to sign trade agreements without threatening each other's interests. However, the post WWII period of vigorous capitalist expansion is now a distant memory. Every WTO meeting since 1999 has gone from failure to failure. Inter-imperialist competition also played an important role in motivating the U.S. to invade Iraq in order to demonstrate to their competitors who was in charge of this region's oil business. In the coming year, especially if recession hits, we can expect to see an escalation of trade tensions that will most likely be focused on China. This will create an atmosphere in favor of protectionist policies that the labor bureaucracy is already promoting within the ranks of the working class. To combat this poison, we must counter pose a working class, internationalist perspective.

Just as China is dependent on the U.S., other countries rely on China. A U.S. slowdown would affect not only China but spread to Japan, Taiwan, South Korea and commodity producers such as Russia, Australia, New Zealand, and Brazil. Other countries, particularly in the Americas would be affected as well. The U.S. accounts for 84 percent of Canada’s total exports and 86 percent of Mexico’s.

On the Indian Subcontinent, the Indian economy continues to surge ahead - but with no real benefits for the impoverished masses. Beneath the surface of prosperity lies a boiling cauldron of discontent.  Tensions with Pakistan remain high, and within Pakistan itself, the tensions have reached the boiling point. The already festering wound of Kashmir has worsened still more in the aftermath of the October 2005 earthquake. Although Iraq gets the most attention in the media, the U.S. is fighting a losing and increasingly costly war in Afghanistan, where a resurgent Taliban has reasserted control over much of the country. The war in Afghanistan has spilled openly across the border into Pakistan, further exacerbating the economic and social crisis, and the already deep divisions within the Musharraf regime. The mass protest movement of the country’s lawyers in March is an indication of just how unstable the situation is, affecting all layers of society. Musharraf’s government could collapse at any time – either through a coup or a revolutionary upsurge.

In Latin America, the revolutionary wave that has convulsed the region for the past few years continues to gather strength. Despite the many contradictions, recent elections in Brazil, Ecuador and Nicaragua are further confirmation that the Latin American masses are looking toward a revolutionary solution to their problems.  In Bolivia the class war has erupted into virtual civil war in recent months, with the masses coming out into open confrontation with the oligarchy, in the face of vacillation by the Morales government. In Cuba, Fidel Castro’s illness has led to an even greater ferment of debate and discussion on the island as to which is the way forward for the revolution, which despite its ties with Venezuela and Bolivia, cannot survive in isolation indefinitely.

In Venezuela, the December 3, 2006 elections marked a decisive turning point in the revolutionary process.  Chavez’ overwhelming victory was a clear vote in favor of socialist policies, and the pace of what many had called a “revolution in slow motion” has accelerated since the beginning of the year. The fundamental problems facing the revolution: the question of the state, of the economy, and of the revolutionary party still remain to be resolved. But the formation of the PSUV, the communal and factory councils, and several important nationalizations are all steps in the right direction. Above all, the direct participation of the working class and poor masses in the socialist transformation of society is the key to its success. Either the revolution will result in the abolition of capitalism in the country or it will fail - you cannot make half a revolution. A defeat would be a tremendous setback for the world revolution, but even then, it would not be the end of the revolutionary wave sweeping Latin America.  On the other hand, the victory of the revolution would serve as an inspiring model and beacon of hope for the workers and oppressed of the entire planet.

All the contradictions and pressures of the continent-wide Latin American economic and social crisis crash into the world’s most powerful imperialist nation at the U.S.-Mexican border – and they do not stop there. The colossal struggles in Mexico last year: bitter trade union struggles, the massive mobilizations against the electoral fraud, the militant student movement, and the Oaxaca Commune were just an indication of what is still to come.  The “victory” of Calderon has resolved nothing.  His government is seen by millions as illegitimate, and can rule only by force, just at a time when the Mexican masses have had enough.  He is compelled to carry out the wishes of imperialism and the oligarchy, to carry out the privatizations, cuts, and price increases that Vicente Fox could not achieve, and this is a finished recipe for mobilizations and even uprisings at an even higher level. The massive immigrant workers’ movement that exploded last year is a graphic example of how the Latin American revolution is having and will continue to have a profound effect here in the U.S.

In the Middle East, U.S. policy has succeeded only in further destabilizing an already unbalanced region.  There is not a single stable country anywhere in the region. Israel continues to grind down the Palestinian people, who live in gulag-like conditions, with no political or economic solution possible within the limits of capitalism. The aftermath of Israel’s imperialist war on Lebanon has intensified the profound contradictions in Israeli society.  March’s one-day general strike of the Israeli public sector workers is a reminder that classes do indeed exist in Israel, and that the interests of Israeli workers are in direct opposition to the interests of the Zionist ruling class. In Lebanon, the governmental crisis is an indication of just how unstable the situation remains in the aftermath of last summer’s war.

U.S. tensions with Iran have intensified around the question of uranium enrichment as Bush and co. seem intent on extending the Iraq debacle in the face of all logic.  For their part, the mullahs are moving might and main to stave off the revolutionary ferment of the Iranian working class and youth, and are demagogically turning public attention against the threat of U.S. imperialism. But the U.S. has few military options available except for air strikes, with the Israel’s failed effort to bomb the Lebanese into submission calling into question the effectiveness of air campaigns alone. Due to the military overstretch in the Iraqi quagmire, there is no real possibility of a ground invasion of Iran by U.S. forces, let alone an occupation.  Nonetheless, given the disconnect from reality that reigns at the White House, an attack of some sort on Iran cannot be entirely ruled out.

It is impossible to say with any precision just when the world economy will enter a recession, but we know that as long as capitalism remains, so too will the boom-slump cycle. What is certain is that the world is in a period of profound economic, political, military, and social crisis. The economic expansion is entirely at the expense of the world’s working and impoverished masses, preparing the ground for revolutionary movements in one country after another in the coming period. Latin America is currently on the front lines of this process, with Venezuela at the forefront. But what we are really discussing and preparing for is not only the Latin American Revolution, but the World Socialist Revolution.