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Peter Hadden

New recession will open up world revolution

(January 1988)

From Militant Irish Monthly, No. 158N, January 1988.
Transcribed and marked up by Ciaran Crossey.

The October 1987 stock market crash saw a sharper fall in share prices than occurred at the beginning of the 1929 Wall Street crash. Then it was, initially at least, a collapse in America. This latest financial meltdown simultaneously hit all the world’s major exchanges. Two million million dollars were wiped off share prices in three days.

This event represents a turning point in post-war history. It marks the beginning of the end of the upswing which has been in progress since 1982. That 1988 will see the beginning of a new recession there is little doubt. All that is in question is the severity of this new downturn.

Capitalism is a system in organic crisis. The means of production have outgrown the limitations imposed by production for profit and the organisation of production on national lines. The full effects of this crisis, now a world crisis, will become apparent in the coming period.

The simultaneous world recession of 1974–5 signalled the definite end of the post-war economic upswing. Militant explained at the time that an era of general expansion of production had given way to a period of contraction. While the cyclical rhythm of capitalism, of boom and slump, would remain, the overall tendency would be towards stagnation with ever weaker booms followed by deeper slumps.

The relatively protracted period of boom since 1982 might appear to contradict this analysis. In reality this has been a feeble boom. World trade has grown at a paltry 3% per year as compared to 12.5% during the 1945–75 upswing. Outside of America, and then only for the first years of the boom, growth rates have been sluggish, 1% – 3% in most cases.

This boom has been stamped with the economic characteristics of this new period – stagflation, mass unemployment, up to 20% excess capacity in most countries, (this despite the wholesale destruction of industry in the 1979·82 recession) and most importantly, extremely low levels of investment.

The high profits of the capitalists have not been ploughed back into production. Instead this excess capital has found its way into other fields, especially into speculation and mergers. In 1986 173 billion dollars were spent by the big corporations on mergers. For the first 9 months of 1987 the figure was $161 billion. This represents ravacious, parasitical capital, used not to create new, but to gobble up existing wealth.

What better indicator of the sickness of this system than the speculative bonanza which has been going on in every stock market since 1982? This casino economy is now more detached than ever before from the real economy. Witness the phenomenal rise in the share volume while the real capitalist economy has only limped forward. Between 1982 and August ’87 the Dow Jones index rose 250%. The Hong Kong exchange soared by 300% between 1982 and October ’87. In the same period Tokyo’s prices rose 287%, Sydney’s 400%. In London, when production has just regained 1979 levels, pre-crash share values in the city were 253% up on 1982 and 1,200% on 1975.

Real wealth can only be created by labour in production. These giddy price rises represent fictitious value; wealth which cannot be realised outside the paper transactions or the computer screens of the stock exchange.

Share dealings are now purely speculative. Shares are bought, not for the dividend they yield, but in anticipation that they can be resold at a profit. Take the case of the largest Irish company where shares are traded on the international markets – Smurfit’s. Its shares, pre-crash, were worth £7. Its annual dividend was 3.6p, a return on investment of 0.5%. Obviously the only point in buying shares in this company would be to sell them for substantially more than £7.

As the Financial Times put it, this is the economics of the “bigger fool”. It makes sense to buy only so long as there is a “bigger fool” who will pay more. In October those who had speculated their wealth in this way found that the bigger fool was none other than themselves.

The present upswing, although feeble, has nonetheless been relatively protracted. But the very factors which extended it now threaten to vastly deepen the corning recession.

In part the boom was lengthened by the fall in the prices of commodities (i.e. the raw materials which are mainly exported by the colonial countries). This has constituted a huge gift from these countries to the advanced capitalist countries, (in 1986 the figure is estimated at two billion dollars), and has shown up in the form of vastly increased profits. Meanwhile the colonial world has been weighted under by a staggering debt burden of over 1,000 billion dollars owed mainly to Western bankers, a debt which can never be repaid.

In the colonial world, with only a few exceptions, there has been no boom. For the masses there has been austerity, falling living standards with a prospect of only more austerity to come. But the colonial world is also an important market for the advanced capitalist countries, a market which is now depressed and will remain so, thus tightening the grip of a new recession worldwide.

A second factor in sustaining the boom has been the huge expansion of credit. This in turn will become a limiting factor on future growth. There are limits on how much any individual can borrow. When these are reached the credit expansion becomes its opposite, a restriction on future demand, since people have already spent their future earnings.

However it is a third factor which has, undoubtedly been the main locomotive of the boom. This, in one word is, Reaganomics – or more accurately the complete failure of Reaganomics as it was originally promoted. Reagan came to office advocating “supply side” economics. That is, instead of boosting demand by increasing expenditure he proposed tax cuts for the rich to promote investments and growth. Lost revenue from tax would be recouped by economic growth, more people in work etc. Sadly he implemented the tax cuts as the economy slid into recession, lost income all round, and ended up with a spiralling budget deficit.

Reagan, the monetarist, became a Keynesian without knowing it. The huge US budget deficit, now 150 billion dollars per year, has been the engine of growth for the world economy. But this is Keynesian with a difference, negative Keynesianism with spending not on the social and economic infrastructure, but on armaments. Reagan’s arms spending, some 375 billion dollars per year, represents what must be termed fictitious capital, capital, in this case, wasted on producing scrap metal.

To finance the deficit the US had to attract foreign capital. This has necessitated high interest rates and led to a strengthening of the dollar. US goods have as a result become uncompetitive both at home and abroad. A huge trade deficit (170 billion dollars in 1986) has opened up.

Only the strength of the US economy, still 40% of the world capitalist economy, plus the fear of the bourgeois of the effects on the working class of recession in America, have allowed this situation to go on for so long.

The stock market collapse is an expression of the loss or confidence of the bourgeois in the continuation of the boom. By reducing the spending of the rich (Porsche have already announced a cut in production) the fan in share values has a certain direct deflationary impact on the economy. More importantly it is the problems of the real economy which have had their impact on share prices. The announcement of adverse August trade figures for the US was the straw which broke the camel’s back and sent the stock exchanges into panic. The subsequent price collapse was the stock market’s recognition that, unless America’s twin deficits are tackled, the US and then the world economy could plummet into recession.

The problem facing the strategists of capital is that they cannot find a solution which will not alone lead to recession. The antidotes threaten to be more lethal than the original poison.

For the US to seek to improve its trade position by protectionism, or further dollar devaluation which amounts to the same thing, would provide retaliation from Europe and Japan. A trade war today would be just as disastrous as that begun by protectionist measures in the US in the 1930s.

So, the only road open to the US bourgeois is to implement spending cuts and tax increases, i.e. to make the working class pay. The budget cuts which have been proposed will in no way solve the problem of the deficit or calm the fears of the capitalists internationally.

The difficulty with this course is that these measures will depress the American market and will deepen the recession. It is ironic that because Reaganomics became deficit financing or Keynesianism, the American bourgeois cannot now use Keynesian methods to try to avert or soften the slump. Instead they are forced into policies which will make things worse. In addition a deep recession may present a new problem, mass unemployment, leading to increased social welfare spending, lower state revenue (just as happened under Thatcher) and therefore a tendency for the deficit to grow despite all the corrective measures. If this should revoke, in turn, further and deeper cuts the prospect of a slump becoming a 1929–33 depression will increase.

These are the costs of the extended boom – greatly sharpened contradictions in the world economy. To avoid catastrophe the US capitalists are demanding that their Japanese and West German counterparts reflate their economies to compensate for any decline in the American market.

This plea for international co-operation will fall on deaf ears. The German and Japanese capitalist will not be prepared to go beyond a certain point. They will not sacrifice their competitive edge or risk inflation in their own economies. Real international co-operation is impossible under capitalism. Rather, and more so in a period of contracting markets, each rival capitalist class will pursue its own interests. In recession, the tendency will not be towards co-operation, but to more cut-throat competition, with, lurking in the background, the shadow of open protectionism.

For all these reasons the next recession will probably be the deepest since the Second World War. It is even possible, particularly in the event of a trade war, that it could be a repeat of the 1929–33 depression, or worse. At that time industrial production in the US fell by over 40%. A new depression would be a world phenomena with such results in all the major economies.

Just as the economy is about to enter a new phase so too will movements of the working class. And just as there is a world crisis of production, of capitalism and of Stalinism, so there will be movements of the working class in all sections of the globe.

There is no automatic correlation between recession and the development of the c1ass struggle. What the effects of recession on the working class will be is something which must be judged concretely, particularly taking into account preceding events. What marks out the revolutionary character of this period is not a single recession but, rather the dramatic lurches from recession to boom and back again, all against a background of a general economic contraction. It is the movements from slump to boom and vice versa which jolt the consciousness of the working class and prepare for revolution.


Recession in 1974–75 came after a prolonged period of relative quiesance in the class struggle in the advanced countries and with the workers organisations stronger than ever before. It precipitated revolution in Portugal, Spain, Greece and Argentina. The Portuguese revolution spread to Africa in the form of the guerrilla victories in Angola and Mozambique.

Elsewhere it led to radicalisation and an upturn in the tempo of the class struggle. Following this wave of revolution the bourgeois moved onto the offensive. By the end of the decade, Monetarism and Thatcherite and Reaganite policies had become the order of the day. From a situation where it had been forced to recoil following its defeat in Vietnam, US Imperialism swung to a policy of global interventionism in the Middle East, Nicaragua, Grenada and the Gulf, a policy it continues to this day. The recession of 1979–82 came in the context of this offensive by the capitalists.

Mass unemployment

The return of mass unemployment, wage cutting policies (“give-backs” in the US) and cuts in the social wage, had a certain stunning effect. There was radicalisation and a sharpening of the class struggle, but the workers, with an old reformist leadership at their head, suffered partial defeats. A feature of the period was a turn to the political front bringing, for the first time ever, an outright majority for the workers parties in elections in France, Greece and Spain.

The subsequent years of boom have seen a partial recovery in the confidence of the working class. Despite the continued programme of cuts and austerity, the European working class have mounted enormous struggles, primarily of a defensive character. In Spain, France, Greece and now Italy there have been strikes and general strikes.

This southern European “sickness” has spread northwards, even to Scandinavia. Belgium has been convulsed by strikes. The British miners’ strike stands out for Europe as a whole as the hallmark of the period.

That these movements have not gone further has been due to the rottenness of the leadership. Not only the old right reformists, but also the left reformists, have been tested and found wanting. In general, the “soft left” of the 1970s have become the “new right” of the 1980s. Where a Marxist leadership has existed, as in Liverpool, and in the explosive school students strikes in Spain at the beginning of 1987, the struggles have gone further and, in the case of the Spanish events, have led to victory.

In the colonial world there had been revolutions in the Philippines and Haiti. The South African revolution has entered a new phase with the growth of black trade unions. In South Korea the revolution has entered its first phase.

What will be the consequences of a new recession? Across the globe it will have profound repercussions. In the advanced capitalist countries it may be that a new round of redundancies and closures will have an initial stunning effect on the class struggle, weakening bargaining power and sapping morale. But major struggles, strikes and general strikes, probably starting out as defensive struggles, will take place during this recession. Only in the event of a 1929 style depression would it be more likely that a new industrial offensive would be postponed until economic recovery began.

This recession will have major political repercussions. Already the fall in share prices has had the effect of tearing at the illusions in capitalism so carefully fostered by the media and nurtured by the right wing-leaders of the labour movement. Reaganite and Thatcherite policies are discredited. The myth of “popular capitalism” in Britain (never more than a myth since, despite privatisation, smaller percentage of shares are held by individuals than ever before: 20% in 1981 compared to 59% in 1963) is now exposed for the sham it is.

There will be a tendency to turn to their traditional mass organisations. As in 1979–82, new reformist governments will be elected, this time with greater participation and pressure by the workers. New left-reformist and centrist tendencies will emerge in the Social Democratic and in, one or two cases, the Communist parties. The process of the rightward swing in the British Labour Party will ultimately be reversed.

A new recession will have devastating effects on the colonial world, not only in those countries dependent on the export of raw materials, but also on the so called “miracle” economies like Taiwan, and South Korea, whose “miracle” has the soft underbelly of being dependent on industrial exports and therefore on the growth of world trade for its continuation.

Colonial World

Throughout the colonial world it will mean a period of revolution and counter-revolution. The already existing tendencies there towards mass revolutionary upheaval, towards guerrillaism and opposite tendencies towards ethnic conflict and disintegration, will be reinforced. Whether the outcome will be new Cubas or new Lebanon’s, new Chiles or new Russia’s (as in 1917), depends primarily on whether mass revolutionary parties can be built to take the revolution forward in these areas.

The last recession, coinciding with the advent of Thatcherism, produced a wave of class struggle in the North. This culminated in the 1982 Health Strike. In this period the issue of Labour representation began to be taken up by the trade union activists. In the coming recession, despite the continuation of sectarianism, a new politicisation of the movement is likely. Alongside industrial struggle the demand for the creation of a Labour Party is likely to take on flesh.

In the South, extra parliamentary struggles will most likely be combined with dramatic growth in support for Labour. As the safety valve of emigration further closes there will be a new radicalisation and politicisation. Depending upon events this recession can prepare the ground for the coming to power of majority Labour Government.

The coming recession or even, at its worst, a depression, will not in itself mean the end of capitalism. There is no final crisis of capitalism. As in the 1930s it would be possible for the bourgeoisie to use their reserves by way of Keynesianism methods to stimulate a recovery once the recession has run its course. New Deal policies in the USA aided growth until 1938 when a new recession began. At that time the capitalists found a way out through war.

Trade unions

We are now entering similar period of crisis an upheaval – but with crucial differences. Once again the capitalists will have no option but to confront the organised power of the working class so that living standards can be driven down. But the working class are now immeasurably stronger than in the 20s and 30s. In all the major capitalist states, and throughout much of the colonial world, the working class make up the decisive section of the population. They have suffered setbacks and partial defeats but not the crushing blows inflicted in the 20s and 30s. Trade union membership remains high. There are 18 million trade unionists in America. In Germany and Britain around 40% of the workforce is organised. In Norway, 65% and in Sweden a phenomenal 82%.

No base for fascism

The middle layers of society have been ground to virtual oblivion. No base for fascism exists and there is no prospect of a Hitler or Mussolini coming to power. For these reasons the events will necessarily be protracted in character. It would take not just defeats, but a period of major defeats inflicted on the workers before the ruling class of any advanced capitalist power would be able to face down the road of military dictatorship and civil war and even then they would take this course with trepidation and unsure of the outcome.

In one vital respect, however, nothing has changed since the 1930s. Reformist ideas and methods still predominate at the top of the trade unions and workers’ parties. These ideas are capable of preparing only the same disasters as in the past. But, in the course of events the workers will seek out new and better ideas and methods – firstly amongst the advanced workers and then broader layers of the class, Marxism can become a mass force within the workers organisations and among the class as a whole.


Ultimately the fate of the revolution, both the social revolution to end capitalism and the political revolution to overthrow Stalinism, depends on the ability of the majority to seize the opportunities which will be presented and win the leadership of the working class. As when Trotsky was preparing and organising his small forces in the late 1930s, the crisis today has resolved itself into a crisis of leadership.

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