Ted Grant

British capitalism faces catastrophe

Source: Militant International Review, No. 21 (Winter 1980-81)
Written: 20 July 1980
Transcription: Francesco 2010
Proofread: Fred 2010
Markup: Niklas 2010

British capitalism has been declining for more than a century now. Since the Second World War and loss of empire the decline of Britain’s power has continued at a headlong rate.

The sluggishness of the ruling class, due to centuries of superiority and domination over a great part of the world, has led to a situation where the British capitalists are incapable of stemming the tide of decay and disintegration which has overtaken them.

The contradictions within the framework of capitalism itself are of such a character as to increase the difficulties. The differing interests represented by rent, interest and profit (i.e. the bankers, the land owners, property owners, owners of factories etc. on the one hand, and the interests of the industrialists on the other hand) have to a great extent entered into conflict with one another. As a consequence of the policies of successive governments during the past decade or two, high interest rates and high rents have vitiated the development of industry.

People with surplus money have found it better to invest in property speculation and service trades such as tourism rather than investing in manufacturing industry. Manufacturing industry has become the Cinderella of the business world.

The bourgeoisie has forgotten completely that the production of real wealth is the production of manufacturing industry. They are more interested in the chase after nominal gains, rather than genuine gains for the economy itself.

As a consequence of the failure of the ruling class to invest in manufacturing industry, at a time when trade barriers have been reduced to a greater extent than at any other period in capitalist history, as exemplified by GATT and the Common Market and other impediments to trade which have been reduced, the opening of free trade has not given a boost to competition by the British capitalists as the strategists of capital confidently expected, but has accelerated the decay and disintegration of British industry.

From only 5 percent of the industrial production of the OECD powers in 1978, by the end of 1979 the share of British capitalism has been reduced to only 4 percent. From a medium range power, Britain has been rapidly reduced to the level of a small industrial power.

West Germany’s industrial production is now more than double that of Britain’s. France has outstripped her, and even Italy must be very close to the figures of output of British capitalism at the moment. In volume of output, China and India have outstripped Britain completely.

Steel production has always been taken as an index of industrial capacity and last year Britain produced 21 million tonnes against Italy’s 24 million, France’s 27 million and Japan’s more than 100 million. This year according to projected figures of output Britain’s steel production should only be round about a total of 17-18 million tonnes while the projected output of steel in China this year is now 33 million tonnes. That is to say that China’s production of steel will now be almost double that of the output of Britain. Yet production of steel in Britain in the inter-war period and the immediate post-war period was much higher than that of most of the industrial countries of the world.

Take world exports of manufactures. In 1963 the United States had 17.34 percent of world export markets. This had declined by 1973 to 12.58 percent and in 1976 this had increased slightly to 13.55 percent. West Germany increased from 15.53 percent in 1963 to 16.98 percent in 1973 and in 1976 the figure was 15.81 percent. France has outstripped Britain as far as exports in manufactures are concerned. From 6.99 percent in 1963 France increased her share to 7.26 percent in 1973 and 7.41 percent in 1976.


Even Italy increased her share from 4.73 percent in 1963 to 5.30 percent in 1973 and 5.49 percent [in] 1976, whereas the UK started in third place in 1963 with only West Germany and the United States with greater exports. Britain at that time had 11.14 percent of world exports of manufactures; by 1973 this had been reduced to 7 percent and 1976 6.59 percent and a further decline of the percentage of world exports would mean that even Italy must come close and threaten to replace Britain as an exporter of manufactured goods.

If we take the figures of employment in industry where there has been a massive de-industrialisation in Britain, we see that the figures of employment have been falling. 1.5 million jobs have been lost in manufacturing industry in the course of the last 15 years. That has now been reinforced by the measures of the Thatcher government preparing the way for an absolute catastrophe for British capitalism.

The relatively slow growth in productivity of British industry can be seen by comparing the increases in gross domestic product (GDP) per capita between 1950 and 1976 for selected countries. The figures for GDP per capita are compared to the USA in 1950 and 1976 both given as 100. The increases in nominal and real GDP (the latter taking inflation into account) are also compared.

Between 1950 and 1976 Germany increased from 37 percent of the USA figure to 76.4 percent in real terms and 94.4 percent nominally. Germany therefore practically doubled her GDP per capita in relation to the GDP of the USA taking the US figure as a yardstick.

France increased from 46 percent to 78.5 percent in real GDP and 83 percent in nominal terms. Japan increased (from 1970 in this case) from 57.7 percent to 64.3 percent, and nominally by 62.2 percent. Italy increased from 25 percent to 46.8 percent in real terms and 38.7 percent nominally. Italy has almost doubled her GDP per capita in relation to the USA. Spain increased (from 1970 again) from 39.7 percent to 43.8 percent in real terms and 37 percent nominally.

For comparison: in 1970 India’s GDP per capita was 6.1 percent of that of the USA, by 1976 it was still only 5.6 percent in real terms and 1.9 percent nominally. Britain’s GDP per capita increased from 55 percent of the US level in 1950 to 60.1 percent of the US level in 1976 in real terms, nominally declining to 51 percent.

Despite the complete parasitism of monopoly capitalism in Britain at the present time, and the lavish subsidies and inducements by the state, a recovery of investment has still not taken place. For instance since 1972 all investment in plant and machinery has been 100 percent deductible from tax. Despite enormous subsidies and other concessions which would mean that more than 60 percent probably of investment in manufacturing industry would be paid for by the state, nevertheless the investment has not been forthcoming.

The British economy has been practically at a standstill for ten years, thus making Britain fall further and further behind in the last decade. In 1970 total investment of manufacturing industry in plant and machinery at 1975 prices was £4,177 million. By 1973 this had fallen to £3,439.8 million and in 1974 £3,781.8 million. By 1979 this had only risen by an infinitesimal amount to £3,840.8 million, a figure that was lower than the figure of investment of 1978 which reached £3,852.6 million (all figures in 1975 prices).

Steel production in 1970 was the highest that has been achieved by British capitalism, 27,792,000 tonnes in 53 weeks. In 1974 in the year of the three-day week it still reached 22,323, 000 tonnes but in 1979 the figure was less than 21 million tonnes and in 1980 it is expected that steel production will fall by a further 2 or 3 million tonnes.

Despite the fact that Britain has been in almost permanent recession because of the policies of the governments that have been dictated by the crisis and, on the other hand, because of the failure of British capitalism to adapt to the difficult conditions posed by fierce international competition, the economy and industrial production have not increased at a rate comparable to that of her rivals. However, in spite of the antiquated machinery that is used in Britain at the present time the productivity of those employed in manufacturing industry has nevertheless increased.

If we take 1975 as 100 it had increased by 1979 to 109.6, which is quite a high rate of increase. Even from 1974, the year of the three-day week, to 1979 there was an 11 percent increase in output per person in manufacturing industry.

Capital expenditure in manufacturing industry in 1970 was £4,177 million, but the estimated figure for 1980 in 1975 prices would be £3,450 million—quite a steep fall. On the other hand, investment in distribution and services has leapt ahead. £3,610 million was invested in 1970, and an estimated £5,400 million in 1980.

If we were to take current (i.e. 1980) prices, the expenditure on manufacturing industries, in capital expenditure, is expected to be £6,500 million and £10,000 million in the distribution and service industries, which means an even wider gap. Not only has there been massive investment in services and distribution in the UK, but also in overseas investment, £2,400 million in 1978 which was £600 million higher than in 1977, and in 1979 the figure must have been higher still with perspectives of even greater sums flowing abroad in 1980.

After the Second World War the capitalist class, faced with the possibility of socialist revolution in Europe and the rise of a mighty Stalinist power in Russia, with Russia as the second world power, had to alter their methods. This led to a situation where the ruling class tried to find a way out of the impasse of capitalism.

Marxism has always taken the position that there is no final crisis of capitalism as such. The myth evolved in the bourgeois press that Marxism put forward the idea of capitalism collapsing of itself is of course completely false. The failure of the working class to take advantage of the crisis of capitalism following the Second World War and overthrow capitalism as a result of the policy of the Labour and Stalinist leaders in Western Europe gave to the ruling class, in particular of Europe and the United States, the possibility of attempting to find some way out of the impasse of capitalism at that time.

Before the war the crisis of capitalism had been expressed in the attempt of each national capitalism to try and solve the problems at each other’s expense. In an atmosphere of exacerbated nationalism, each capitalist class piled up tariff barriers and other means of keeping out their competitors, while accumulating arms for the purpose of settling once and for all the issue of who was to dominate the world.

The crisis of capitalism was expressed in the inability of the capitalists to eliminate the contradiction between the development of productive forces beyond the limits imposed by the nation state and the private ownership of the means of production. The capitalists proved incapable of developing the productive forces which stagnated. The ruling class tried to solve this problem by taking to the road of world war.

Now following the Second World War, with the world domination of American imperialism and with the mighty productive power of American capitalism in comparison to the enfeebled capitalism of Western Europe and Japan, the Americans were able to impose the dollar exchange standard rather than the system that had been in existence in the past of linking world trade to gold.

Because of the enormous and overwhelming military and economic power of American imperialism they were able to impose their policies on the entire capitalist world. These policies demanded a lowering of tariff and other barriers to American goods. Therefore, through GATT and other means, the capitalists were able to extend the world market. The expansion of the world division of labour meant an enormous development of production to an unparalleled extent.

Linked to this was the policy of the British, American and other capitalists of using Keynesian methods of deficit financing in order to expand the markets of the different capitalist classes. Keynesian methods, coupled with the expansion of the world market, had as its consequence an enormous development of production on a scale that has been unexampled in the whole history of capitalism. In a distorted way this is an indication of what will be achieved under a democratically planned socialist society in the future.

By these means the capitalists partially overcame the limits imposed on capitalism by the national state and the private ownership of the means of production. The attempts to overcome the limits of capitalism by these means, in this sense transcending these limits for a whole historical period, had as a consequence an explosion of inflation internationally and especially in Britain. This was because British capitalism was the progenitor of these problems through its acceptance of the theories of John Maynard Keynes.

All the countries of capitalism are faced with an explosion of prices such as has seldom been seen in the history of capitalism, at least on a world scale.

When these policies were beginning to flag, without having had very favourable results in Britain, the ruling class tried the method of devaluation. Their intention was to increase their share of the world market. But they signally failed to achieve these results, among other reasons because of the highly monopolised character of the economy in Britain. Incidentally, the monopolisation of production and distribution is one of the causes of inflation. The monopolies are taking a greater share of the market than they are strictly entitled to by their share of production.

But devaluation is necessarily inflationary. It results in the rise of the prices of imported raw materials and food and imported manufactured goods. This fuelled the inflation in Britain and in return provoked new devaluations. Devaluation is like a drug which has to be taken in constantly increasing doses to have any effect. Allowing the pound to fall on the exchange markets was intended to give a lift to exports.

This did not succeed even temporarily because in reality the 50 firms which dominate 80 percent of exports merely raised the prices of their goods making thousands of millions of pounds, in Heath’s word “at a stroke”, by raising prices to the level of the devaluation, as well as completely scotching any question of increasing Britain’s share of the world market. In addition, budget deficits by their very nature, led inevitably to the explosion of inflation in Britain and world-wide.

Keynesianism explained the difficulties that the capitalist system experienced by the lack of “demand”. And it showed the contradiction between unemployed workers on the one hand and unemployed resources of factories and machinery on the other. State spending was intended to give a boost to production, creating a demand by employing workers to create a demand and by providing a market for goods. But this, as the Marxists had explained, inevitably led to a rise in prices.

It is the essence of capitalist crisis that there is an overproduction simultaneously of capital and consumer goods for the purpose of capitalist production i.e. for the purpose of producing profit.

The use of budget deficits results in the expansion of paper money in the form of currency and treasury notes. The consequence of putting two pieces of paper where only one was necessary results, in that particular instance, in doubling inflation.

The strategists of capital in industry, in the media, and in the state machine itself wishing to avoid the social impasse of pre-war society, swallowed the illusions of the economist witch doctors. That did not solve the problem. They had forgotten that Roosevelt in “pump-priming” the economy failed completely, and did not prevent the slump of 1937-38 following that of 1929-33.

Finance versus industrial capital

In addition to all the difficulties of British capitalism there is a contradiction which is much sharper in Britain than in other countries between finance capital on the one side and industrial capital on the other.

These contradictions have aggravated the problems of capitalism and assisted in the decay and decline of Britain. In addition, in the early fifties and sixties the policies of the right-wing trade union leaders of trying to restrict increases in the wages of the workers meant that there was no incentive on the part of the capitalist class to invest even when interest rates were only 2.5 percent and British capitalism was riding high on world markets.

In 1950, for example, they had 25 percent of world markets at that period and 80 percent of new investment in industry was financed by profits and not by borrowing from the banks.

Had the trade union and Labour leaders adopted a policy of exerting pressure on the capitalist class to gain higher wages and better conditions, this would have compelled the capitalists to overcome higher wages by investing in new machinery to increase the productivity of labour with a view to eliminating workers in proportion.

Instead of this, they had the policy of nationalising ruined industries which merely acted as the milch-cows of the private sector, providing the monopolies with cheap coal, steel, electricity, gas and transport. This, in turn, was a further disincentive for the capitalists to invest in re-tooling and re-equipping industry in order to offset the effects of high-priced raw materials.

At that time, when interest rates in Britain were 2.5 percent and the property boom and property speculation in factories and building had not reached the heights of the seventies, such a development would have been possible if the British capitalists had not been featherbedded by the policy of the trade union and Labour leaders. It would have been possible for British investment to be increased at the same rate as their rivals abroad.

Now the opportunity is gone, and capitalism is faced with a crisis which is caused by its policies and the contradictions especially of British capitalism between rent, interest and industrial profit. These contradictions can only be solved at the expense of the working class.

As Keith Joseph pointed out in Washington, the working class in Britain now has the lowest wages of any industrial country in the world. In fact they have become the cheap labour of Western Europe. Even these low wages are, however, not sufficiently low for the capitalists. The crisis with which they are faced means that they will try to drive real wages down to even lower levels.

The policies of Keynesianism had its disastrous effect throughout the world and provoked an absolute catastrophe for British capitalism. Apart from Italy, inflation in Britain in the last period has been at a higher rate than any of the main industrial countries (although now America, too, has reached a very high level of inflation). The policies of Keynesianism resulted in an explosion of inflation internationally and especially in Britain.

All the measures taken by the ruling class to ensure an economic upswing as a precondition for the continued growth of the economy has resulted in the opposite of what was desired: insecurity, uncertainty, enfeeblement, and in the capitalists’ own terminology, “lack of confidence”.

It is true that capitalism on an international scale faces the same problems. But that is no consolation to the ruling class of Britain, but merely aggravates the problems of British capitalism and of British inflation.

Keynesianism is bankrupt. Callaghan explained this in a brutally crude fashion at the Labour Party conference in 1976 when he declared to the conference in answer to arguments of the left, “Keynesianism is dead.” The bankruptcy of Keynesianism is best expressed in the fact that, for the first time in history, a new economic phenomenon has been observed, that of stagflation, that is to say, simultaneously, recession or small slump on the one hand, and the continuation of inflation at a slower or sometimes even higher pace on the other.

This nightmare has induced the major capitalist powers, meeting at Venice recently in July to decide against any measures of reflation on their part. On the contrary, they opted in favour of the continuation of the methods of deflation—cuts in public expenditure, cuts in social services, cuts in the expenditure of the state.

There has been a precipitate abandonment of the method of budget deficits as a solution of the problems facing capitalism. It is clear to everybody that, far from being a solution, this method of creating “demand” is an absolute disaster, an absolute catastrophe.

The Marxists had already pointed this out in the early years of the economic upswing at the end of the fifties and in the sixties. Despite the worst post-war economic recession that is developing at the present time the major capitalist powers are not prepared to take up the new-fangled methods of Keynesianism but are falling back on the old “tried and trusted” methods of deflation.

This method is now in modern terms called monetarism, but in actual fact the method was used in the 19th century and early 20th century and the period between the wars. The most crude and hard-line advocates of monetarist policies have been the Thatcher-Howe-Joseph clique of the Tory government.

In a recent speech, Thatcher made a correct analysis (for once) when she said, “We [i.e. the strategists of capital—EG] have tried everything and have failed, therefore we must turn to old tested and tried remedies.” In other words, turning to classical policies of deflation, or putting the burden on the masses by slashing state expenditure, by slashing real wages, by slashing the social wage, the social services and so on, putting the burdens on the old, the sick, the children and the working class.

It is true that the method of Keynesianism has been an absolute catastrophe for British capitalism. It has aggravated the problems of capitalism and assisted in the decay and decline of industry. There have been slashing cuts in the social services, health, transport, and all the other things that make for a civilised existence for the working class and the masses of the population. Not satisfied with this situation, and the fact that the working class have now become the lowest paid of Western Europe, the capitalists have launched a savage attempt to cut down the real wages of the working class, holding down wage increases far below the official rate of inflation. And that is without taking into account the taxes which have also to be added to gauge the extent of the cut in real wages.

The Thatcher government’s measures have resulted in an increase of interest rates to record levels. This, in turn, with oil revenue from the North Sea beginning to flow into the economy, has resulted in an artificially strong pound.

Despite the bonanza that they have reaped from this, there are grave misgivings in the City of London. As the representatives of finance capital, they traditionally have supported a “strong pound”. But now the strong pound has resulted in a 40 percent disadvantage for exports and a comparable advantage for foreign imports.

This has been an absolute disaster for British industry. In the last analysis, the City of London realised that this causes serious problems and ultimately undermines their position also. Thus, neither a strong pound nor a weak pound have solved the problems of British capitalism.

Thatcher’s turn to the “old, tried and tested remedies” of capitalism has piled disaster upon disaster. These reckless measures, taken at a time of economic slump serve to deepen and intensify the effects of the world recession in Britain. Moreover, Britain has, in reality, had a period of recession which has lasted ten years. The boom which followed the slump of 1975 was very weak, almost non-existent, as a result of the measures of both Labour and Conservative governments.

Thus, the measures of deflation taken at the same time as the exchange level of the pound was raised through the increase in interest rates, and the attempt to cut the deficit in public spending has further affected the competitiveness of an already enfeebled industry in a context of a general fall in industrial production. Even the big 50 companies which control 80 percent of exports have been affected.

British competitiveness on the world market had already been affected by the world slump. The loss of competitiveness over the 18 months to two years has been about 40 percent, and possibly even 50 percent. This is due to the rising value of the pound plus the squeeze on borrowing by companies on interest rates of 20-22 percent and more. British industry, which based itself on cheap wages as the only way to maintain its positions on world markets and failed to invest in new machinery for the purpose of competing with its rivals, is further enfeebled by these measures of the Thatcher government.

With a squeeze on profits, due again to a new property boom, and a rise in interest rates, there has been an enormous reduction of the capacity of even the monopolies which compete in foreign markets. The only way British capitalism can hope to compete would have been by investing in new machinery for the purposes of increasing productivity and shedding labour by that means.

But the funds to carry this out are so enormous, particularly on a falling market, that only a small section of the capitalists have been prepared to take this road, and therefore the measures of this Thatcher government, far from restoring health to British capitalism, will have even more disastrous consequences than the profligacy of Keynesianism in the past.

The grain of truth in monetarist theories which are mainly a repetition of vulgar classical capitalist economics and the “orthodox” theories of the vulgar economic witch-doctors of the 19th century and the inter-war years is the idea that the printing of extra paper money in the form of currency and Treasury notes causes inflation, and that the root of the problem is the money supply.

But having tried everything, a return to these methods and their results have shown that the “cure” is even worse than the disease. In the inter-war years one of the main reasons for the slumps was the attempt to impose “sound finance” in Germany, in Britain, in France, in the United States and in the other main capitalist countries.

In the 19th century, too, the result of orthodox economic measures were not that dazzling as they resulted in periodic slumps and periodic crises. Thus weakened capitalism in Britain is faced with high interest rates and lack of markets through the cutting of demand by the “consumers” and the state, for capital and consumer goods, [and] a lack of competitivity abroad.

Further falls in the rates of investment (which have been explained in the previous section) in their turn increased the crisis by creating millions of unemployed and cutting the market even further. Bankruptcies of small, medium-sized and even large concerns will not result in a new blossoming of capitalism but only increase its crisis.

The irony is that the millions of unemployed and the large number of bankruptcies which have been caused by the policy of the Thatcher government means a fall in taxes collected and an increase in the amount spent on dole and supplementary assistance. Inevitably as the crisis deepens and demands for subsidies by industry will increase, it means that the attempt to cut the budget deficit will not succeed and that their policies will reduce the economy to a worse state than it was in before, with the additional problem of inflation.

It is true that the cutting of the market on the one hand, and the lack of competitiveness on foreign markets on the other hand will exert their pressure on prices and therefore, in a situation in which international markets are more open to competition than in the period before the war or in the 19th century as a consequence of the cuts in tariff and other barriers, there will be some reduction in inflation.

Neither monetarism nor Keynesianism

More accurately, not a fall in inflation but a fall in the rate of increase of prices, which is a different thing entirely. The horrifying figure of 20 percent and more inflation can drop in the next period to perhaps 15-16 percent and then hover a little above or below 10 percent before threatening to take off as it has in the past.

Capitalism is in a vicious circle. If they carry through these measures they can only attenuate inflation to a limited extent. For instance, the strategists of American capital, the US economists—witch-doctor economists—themselves recognise that for the rest of this decade, inflation in America will hover around the figure of 10 percent. In addition, the capitalist governments in Britain and in other countries will zigzag, and Thatcher will undoubtedly be compelled to reverse her policy, under the pressure of the CBI and even the finance capitalists of the City of London.

Moving in a zigzag fashion, alternating between measures of reflation and deflation, and trying to combine the two, as with the policies of Denis Healey and the Labour government of 1974-79 they will only exacerbate the crisis.

What the strategists of capital and the capitalist politicians of all countries have all been compelled to accept is that they are now in a crisis of the system very similar to the crisis in the thirties. Marxism in the past rejected the arguments of the Keynesians, predicting the consequences that this policy would have.

In the same way Marxism rejects the arguments of the monetarists which can only prepare even greater disasters. The capitalists are torn between the horns of a dilemma. Keynesianism will result in inflation, and monetarism will result in exacerbating the slump. Even when, as is inevitable, the capitalists climb out of the present world recession during the course of or at the end of 1981, this will not solve the problems. The economic boom which will follow the present slump will not solve the problems. The economic boom which will follow the present slump will be of a very short duration preparing in turn a new collapse of the productive forces.

On the lines of Keynesianism there is no solution. On the lines of monetarism there is an even more disastrous outcome for capitalism. Marxism has to explain to the advanced layers of the working class and to the mass of the working class as a whole, as events themselves will be demonstrating, that on the road of capitalism there is no way out.

Marxism must retort to the Thatcherites and to the monetarism of Denis Healey and the right wing of the Labour Party: the crisis is the crisis of your system, the crisis of the capitalist system.

For example, the Tories argue that the £11,000 million deficit in public expenditure (which the Thatcherites have claimed) is the cause of inflation. This could easily be plugged by a cancellation of the national debt which amounts to £11,000 million a year in interest, as a result of the increase in the interest rates which were the consequence of the policies of the monetarists. The national debt is the payment for the blood and suffering of the masses in the last four major wars fought by British capitalism including the Boer War and the Crimean War.

At the same time, we must explain that if there would be an increase of two or three percent in production—which is a very modest figure—the £11,000 million budgetary deficit would vanish because of the increased revenue of the government which they would gain through the taxes that they impose.

They abandoned the policy of trying to get high growth at the expense of inflation because of the contradictions which this would entail. The policies of deflation, the policies of the squeeze, have cut production. And that is the madness of the capitalist system.

Even in the boom, only 80 percent of output capacity was used. Another 20 percent production of wealth would easily have solved the problem of inflation, if it was not for the contradictions of capitalism which we have explained—the major contradiction being that the capitalist system is not one for the production of goods that are needed by the population, but a system of production for profit for the monopolies, for big business and for the banking interests.

With the measures taken by the Tory government a further decline of British capitalism is inevitable. The dream of restoring the health of British capitalism by returning to the policies of the 19th century is a reflection of the insanity of the strategists of capital caused by the blind alley in which capitalism finds itself at the present time.

The glories of British capitalism of the 19th century and of the early 20th century are now a thing of the past. That slow and inglorious decline of which Trotsky spoke in his material on Britain in the twenties and thirties has now turned into a headlong decline in the power, influence and capacity of British capitalism and of British industry.

On this road there is no way out. What the monetarists are doing is like a quack surgeon who believes that he can ensure the health of his patient who is suffering from an ailing heart by cutting off an arm and a leg in order to “cure” the illnesses of the patient.

Inflation will drop somewhat because of the fall in the price of raw materials and food stocks on world markets as the recession deepens and the almost doubling of VAT is absorbed into the index figures but in the long term inflation will fluctuate, even in the best of cases, around 10 percent. This year will probably end with inflation at least 16 percent or even possibly higher.

Due to international competition it will not be possible for the big monopolies to raise their prices at the same pace as they have done in the past. The fall in the purchasing power of the masses is also a factor which will depress prices to some extent. But the consequence will be 2 to 3 million unemployed with inflation still hovering around 10 percent or more, with the possibility at the moment that when the crisis, recession or small slump ends, there will be a further increase in inflation.

The increased expenditure on arms has been one of the major factors in the last two or three decades in increasing inflation. The production of arms means the production of fictitious capital instead of real goods in the form of capital goods or consumer goods, and as a consequence is a major factor in the development of world inflation.

Depressing the real wages of the working class will also have the effect of depressing the market. This is shown by the measures of the Callaghan-Healey government between 1974 and 1979. One of the reasons why investment did not pick up to a great extent was the slashing of state expenditure by £8,000 million in 1976-1977 and the cutting of the real wages of the working class through incomes policies.

Therefore the capitalists were caught up in the further contradictions of their social system. Thatcherism is raw, unadulterated monetarism—savage cuts in state expenditure and attempts to depress the real wages of the working class which, in its turn, will succeed in exacerbating the class struggle and produce explosions.

With the sickness of British capitalism measures of massive deflation can only have disastrous consequences. Neither inflation nor deflation can solve the problems of the working class, but on the contrary exacerbate the decline of living standards and of the social wage.

The policy of Marxism has to be: neither inflation nor deflation, but socialist policies. The collapse of part of British industry will make Britain even more dependent on imports from abroad. The crazy desire to cut down the industrial capacity of the steel, shipbuilding and other industries means that when the market swings forward, as it inevitably will, then, as has happened on a number of occasions during the course of the last decade, British capitalism will not have the capacity to fill these markets and therefore the gaps will be filled by further imports of steel and of other goods.

Labour right wing have no answers

Under the present conditions it will therefore be very difficult for British capitalism to recover lost ground. The policies of Thatcherite monetarism are a policy of open class war, putting the burdens of the crisis of capitalism on the shoulders of the working class, which will inevitably provoke resistance by the working class over the next period.

On the other hand the policies of the right-wing leaders of the Labour Party and of the trade union movement are merely a diluted version of the policies of Thatcherism—policies of mixed monetarism and Keynesianism. They would have even worse consequences as far as the economy is concerned. As against the open attempt of Thatcher to hold down the wages of the working class, their policy of prices and incomes policy—in reality a policy of holding down wages below the level of inflation through incomes policy as was evidenced in 1974-79—will not satisfy the workers when they see the disastrous consequences which it will have on their standards of living.

The right-wing reformists have abandoned the programme of reforms precisely because they wish to preserve the present status quo industrially and socially. Consequently, they do not favour further large scale nationalisation.

They began the savage cuts in state expenditure in 1976-79. The real standard of living was reduced as a result of incomes policies by over 9 percent in 1974-1979, the period of the right wing Labour government.

Consequently, under conditions of capitalist crisis the policy of Healey-Rodgers-Williams and of Callaghan would develop on the same lines as that of 1974-79.

The solution to the crisis put forward by the capitalists and thus also by the reformists is to forego even the promise of reforms. From reformism of the past to the policy of counter-reformism. On the other hand the so-called alternative policy of the NEC and the Labour and trade union left is that of using the discredited methods of Keynesianism.

This would result in an explosion of inflation. This would particularly be the case taking into consideration the high rate of inflation that already exists. Clearly this policy would be untenable. The pressure of big business, the pressure of the City of London, would force a U-turn on the Labour government in the same way as it is going to force a U-turn on the Tory government.

Even a left Labour government would not be able to carry out the programme which they put forward of piecemeal reform of capitalism. A policy of “little-by-little” changes means having to live with the consequences of trying to work within the framework of capitalism. It means that they too will be forced to embark on a policy of abandoning their promised reforms and carrying out a programme of counter-reforms.

At best, if they attempt to carry out their programme it would result in an explosion of inflation of Latin American levels, as occurred with the Allende government in Chile in the three years in which the coalition government held power.

The history of the post-war decades has been living proof of the correctness of the ideas of Marx, Lenin and Trotsky. On the road of reform of capitalism there can only be disaster. Moving on the basis of the gradual or slow reform of the economy can only prepare the way after a period of small recessions and booms for a collapse on the lines of that of 1929-33.

With this policy of gradual and slow change of the economy the German social-democrats prepared the way for Hitler in 1933. While there is no question of fascism in the period that lies ahead, the crisis of capitalism will assume such proportions as the ruling class in a desperate endeavour to save themselves, will have recourse to military coups and even to the road of civil war against the working class even in countries such as Britain.

The fact that the Tories have been compelled, despite the experience of 1970 to 1974, once again to limit the rights of the trade unions—and to limit the rights of organised workers to conduct a peaceful struggle to defend their interests, to defend themselves against victimisation, to defend their organisations, to defend their living standards, limiting the right to picket and the closed shop—shows the crisis of the society—and these are merely the first efforts on the part of the Tories.

If they should succeed in getting away with these measures, new measures would undoubtedly be introduced as Prior has explained. Prior, Gilmour and the other so-called “wets” represent the “liberal” wing of the Tories. In reality their policy is fundamentally no different from that of Thatcher. It is a question merely of not crudely trying to pile on all the measures at once, but to attack the workers piecemeal. If they succeed in imposing one section of their programme then the others would follow rapidly.

There is no way out for the working class or the labour movement on this basis. Even if the left reformists came to power and tried to carry out sections of the programme piecemeal, a little at a time, it would cause an explosion of inflation as in Chile under Allende. The ruling class would try to provoke panic and attempt to swing the middle class, small shop keepers, professional people, small businessmen and even politically backward sections of the working class against such a government.

The Marxists will continue to put forward demands for massive increases in public works, useful state expenditure, housing, transport, health, education and other social services. We must demand work for full wages (work or full maintenance) for the unemployed. We must fight against the attempt to turn the clock back to the workhouse methods of the Josephs, Thatchers and liberal Tories like Prior. The suggestion of “voluntary” unpaid work for the unemployed, put forward by Prior, was a trial balloon for such methods.

A socialist plan of production

Already in Guernsey this “voluntary” work of the unemployed, at rates £2 or £3 higher than what the unemployed get but far below the trade union rates for similar types of work on the mainland, is an example which is enthusiastically quoted by the yellow press for Britain to follow. The fact that they go back to methods of this sort in conditions of crisis is an extreme expression of the complete bankruptcy of capitalism.

These demands for a massive increase in expenditure on public works, with wages at full trade union rates and a minimum wage, sliding scale of hours and wages to absorb the unemployed and keep up with the cost of living automatically, similar to the Scala Mobile in Italy but with the trade unions determining the index, must be linked, clearly and indisputably, with the need to transform society and introduce a genuine plan of production.

Without a plan of production, undoubtedly, all these measures would fuel inflation. It would take all the resources of society, manpower, science, technique and production to produce goods to the maximum capacity of the economy.

A monopoly of foreign trade coupled with the nationalisation of the monopolies, banks, insurance companies (50 of whom control 80 percent of exports) with compensation on the basis of need only, and workers’ control and management of industry, and of the state is the only means of supplying the economic basis for using output to the maximum of its capacity, utilising science, industry and all the other capacities for production to the maximum extent.

This programme is the only means of taking over society in the interests of the masses. It would include the abolition of the House of Lords and the Monarchy as an indispensable measure to prevent the ruling class from resisting these demands.

At the same time we demand the nationalisation of the press under the control of the trade unions and the workers’ cultural organisations. Every tendency in society, according to the vote that they get, will have access to the press, to the radio and the TV. This will be a far more democratic system than we have got at the present time.

These transitional demands must be put in the context of struggle. Without the transformation of society it is not possible to carry through the “alternative” programme put forward by the Tribunites. This programme would make completely unnecessary the question of “selective import controls”.

On a capitalist basis selective import controls could only result in retaliation and trade wars with other capitalist powers which would further exacerbate the crisis of capitalism that already exists as similar measures exacerbated the crisis in the twenties and thirties.

The road of capitalism offers no way out but a long death agony. British capitalism in particular is the sick man of Western Europe. There is no cure for capitalism. The convulsions of deflation and inflation mark the sickness of the capitalist society. Outside of the drastic surgery of the socialist revolution there is no solution.

No future under capitalism

The economic witch-doctors of capitalism can argue for their quack potions of Keynesianism or Friedmanism. We must convince the labour and trade union movement that we must break with all capitalist policies of this sort. On this road there is no answer. The only “democratic socialist” solution to the economic impasse of capitalism lies in its overthrow.

The period of economic upswing of world capitalism for the quarter of a century from 1950 to 1975 is definitively at an end. The decade of the eighties will be similar to the decade of the thirties. The latter began with a world economic depression with convulsive ups and downs and ended in a new tendency to deep slump which was only overcome by the catastrophe of the Second World War.

The decade of the 1980s begins with the deepest post-World War Two slump. It marks a new period, characterised by a rapidly alternating cycle of decline and recovery of the economy, with two to six years in each cycle. Thus the decade of the eighties could even possibly end with a new economic depression to rival that of the thirties.

What is certain is that slump and recession, each time deeper or at the same level, as shown by recent slumps, will alternate in rapid succession. Capitalism cannot develop the productive forces created by the labour of the working class.

Periods of this type mark the change from one social system to another, within the cage of capitalism the workers’ organisations will lay out the map for the new social system.

Capitalism, even in its period of decay and rot, will not collapse of itself. It falls to the lot of the living forces of the new social order, i.e. the workers through their own organisations, to overthrow it.

The task of illuminating and leading the struggle stands on the shoulders of the Marxists. Only they can explain to the working class through its organisations the impasse of the social system and the need to take control into their hands.

The socialist transformation of society is the only means to guarantee a civilised existence and carry society forward on the basis of the maximum use of the resources created by the labour of the working class.

By utilising the full economic, scientific and technical potential of the economy, with the enthusiastic creative efforts of the working class, in a society where unemployment, want and hunger are abolished and access to all necessities are guaranteed, the free democratic control of industry and of the state by the working class will ensure a higher development of society on a more civilised and enlightened basis.

A free democratic society under the control and management of the working class could carry through the new microchip transformation of industry, which would clear the way for the complete transition to socialism.

The microchip and the capitalist system are in complete contradiction. This can never be solved by the capitalists and their obedient servants in the field of science, but only by the organised and politically conscious working class.

A substantial minimum wage for a thirty-five hour week will very rapidly be followed by bringing the working class to a six-hour, four-day week on the basis of micro-technology and science, using these techniques to re-equip industry, using the skill of the technique, very rapidly we can pass from a six-hour day, four-day week to a two-hour day, two-day week, and even a one-day week in the future, as mankind, beginning with a socialist Britain and Europe, moves in the direction of socialism.