Second, neo-liberal (or monetarist) phase of depression, 1979-89: This took the form of an extended expansion, in which US capitalism appeared to defy the economic laws of gravity. This was possible only because of the uneven development of the crisis between the different advanced capitalist countries. US capitalism was able to engineer a boom and postpone its historical crisis at the expense of its capitalist rivals, and especially at the expense of the toiling masses of the under-developed countries. The US boom was based on an unprecedented deficit/credit-driven expansion of the US economy, mainly financed and supplied by the surplus economies, Germany and Japan, which for their part followed cautious monetary and fiscal policies. There was a partial recovery of profitability, but capital accumulation remained between a third and a half lower than during the 1950-73 upswing. Mass unemployment continued, especially in the EC countries, while workers' living standards generally declined, especially in the US. The fiscal crisis of the state remained unresolved, and dramatically deteriorated in the US. Once again, the method used to escape from crisis prepared the way for a new crisis: the expansionary growth of credit became a mountain of debt, a key factor in the current protracted slowdown; while the cuts in workers' living standards used to restore profitability undermined demand and accentuated the slowdown.

Third phase of depression, opening in 1989: Recession in the US and a slump in Britain, followed in mid-1991 by recessions in Germany and Japan. While the recessions in the US, Germany and Japan have not (at least, so far) reached the depth of the 1974-75 and 1980-82 slumps, the prolonged slowdown has undoubtedly resulted in a greater loss of production (compared with long-term growth trends) than the short, sharp slumps 1974-75 and 1980-82. Moreover, the slowdown has starkly revealed the underlying conditions of crisis which were partially concealed during the 1980s. It has become clear, even to the serious capitalist commentators, that the 1980s expansion, once hailed as the mother of all recoveries, did nothing to solve the fundamental problems of capital accumulation and profitability facing the capitalist class internationally.

Internationally, the postwar framework of political, strategic and economic relations has also been severely undermined. The advanced capitalist countries now face inter-related problems of instability of the world financial system and the enormous burden of debt, the growth of protectionism and the formation of regional trading blocs, and the growing conflict between the different national economies.

The key features of the crisis of accumulation and profitability affecting all the advanced capitalist countries may be summarized as follows (before returning to the international factors):

The bourgeoisie therefore turned in the late 1970s to the destruction and devaluation of capital, with the closure of large sections of older heavy industry and rationalization and retrenchment even in the more modern sectors. The destruction and devaluation of capital was inevitably accompanied by the destruction and devaluation of labor, with a massive rise in unemployment. This was partly achieved through the 1980-82 slump, but also through rationalization and retrenchment policies implemented during the 1980s.

However, the destruction of capital during the 1980s has not yet gone far enough to overcome over-accumulation and restore profitability. Profits rose in the 1980s, especially in Europe, but mainly through the reduction of the workforce, squeezing of real wages, and the intensification of the exploitation of the remaining workers. This contrasts with the sustained profitability of the upswing period which was based on high levels of capacity utilization, and rapid productivity growth, high levels of capacity utilization, and rapid growth in output - together with employment growth and high levels of real wages (which sustained demand). In the 1980s higher profits did not bring a return to high levels of investment, which remained a third to a half lower than the upswing period. Moreover, the very measures taken to boost short-term profitability have undermined the conditions for sustained growth, particularly in relation to the market.

In the 1950-73 upswing period, new technology raised productivity (thus reducing capital and production costs) but was combined with the growth of new industries. The growth of output, with demand for new construction, infrastructure, services, etc., produced a growth of employment. In other words, while the introduction of high technology industries led to a capital deepening, it was nevertheless an extensive development, with the massive growth of the new sectors and the diffusion of the latest technology across the broad range of the economy.

In the 1980s, however, the introduction of new technology has been overwhelmingly intensive. New processes and products based on new technology (microelectronics, biotechnology, advanced materials, etc.) led in the 1980s to rapid growth in a few industrial sectors, as for instance in computers, telecommunication equipment, and the electronic consumer goods industries (the branches in which Japanese capitalism concentrated its export drive). This accounts for only four or five of the main branches of manufacturing. Apart from those sectors, microelectronics and other technology has been mainly used to reduce costs within existing structures of production and demand, through the application of microelectronics to machine tools, robots and whole design and production systems ("mechatronics", Flexible Manufacturing Systems, Computer-Aided Design, etc.). New plants and production units based on the latest technology require enormous increments of new investment. However, as the new plant is much more efficient, the total capital requirement (and therefore demand for machinery, new factories, services, etc.) in that branch of manufacturing may be sharply reduced. The information-intensity of microelectronics, by its very nature, leads to economies in the use of energy, materials and labor.

New technology, however, will far from solve the profits crisis of capitalism. On the contrary, it will aggravate the problem of profitability.

Even investment in new and more productive technology is not without its contradictions. Excess capacity, even in the advanced industries - such as chemicals, vehicles, electrical machinery and computers - acts as a barrier to massive new investment. The premature writing off of existing capital before it has earned an adequate return in profits, even if a new generation of capital equipment would be far more productive, inevitably depresses the rate of profit. This contradiction is reflected in the current crisis facing big multinational corporations like IBM and ICI, whose bosses are well aware of technical-economic problems facing them, but who cannot easily escape from the organizational-financial structure on which their success was based in the previous period. This is likely to lead to the breaking up of big corporations (a new variant of mergers and acquisitions) in an effort to devalue existing capital and bring the capital of the new corporations into line with their actual market and profit potentialities.

At the same time, the market for high-technology consumer goods is showing signs of saturation. For instance, one of the main consumers of computers and telecommunications equipment in the 1980s was the banking, finance and property sector (which, however, in many cases absorbed computer technology without significant productivity gains). The bursting of the "bubble economy" after 1989 has led to a sharp fall in demand. Moreover, demand for consumer goods (vehicles, TV and audio equipment, cameras, household gadgets, etc.) was also stimulated by the bubble economy, which massively increased the incomes of the capitalists and favored sections of salary-earners. The bursting of the bubble has severely hit this market.

It was precisely mass unemployment and low wages which in the 1920s restricted the market and acted as a barrier against the growth of manufacturing, despite the existence of new technology and mass production methods. In contrast, hish and sustained levels of demand in the US after 1940 and throughout the ACCs after 1950 stimulated high levels of capital investment. However, in response to the over-accumulation of capital that developed towards the end of the upswing period, the capitalists subsequently cancelled the "social contract" based on full employment and high real wages combined with state welfare provision. The crisis emerged, it should be noted, first as a crisis of over-accumulation and profitability, not a deficiency of demand. The response of the capitalists was to increase their profit share by cutting the share taken by wages, which in the short run boosted their profits. However, lower levels of real wages and mass unemployment, together with cuts in welfare spending, inevitably undermined the market for capitalist commodities, through which the capitalist profits are ultimately realized. Under conditions of intense international competition, moreover, it is more difficult than in the past for the capitalists to increase their profits through the exploitation of cheap labor - which is why some sections of manufacturing capitalists are calling for protection. Thus the response of the capitalists to the profit crisis, cutting the share of the surplus going to the working class, has brought to the fore the problem of under-consumption, which is not a cause but a symptom of the organic crisis of the system.

From the mid-19th century, it was realized by the strategists of the capitalist class that the pursuit of profit by individual businesses through the market would not automatically assure adequate provision of utilities (water, gas, electricity, railways, etc.), or services (e.g., post), or regulation (e.g., employment conditions, health and safety, environmental protection) required in the general interests of the capitalist class to ensure an adequate infrastructure and fair conditions of competition. During the postwar upswing there was a massive extension of state infrastructure spending, with a growing role for the state in taking over sectors of transport, coal, iron and steel, shipbuilding, aircraft, etc., either through outright nationalization or long-term subsidies.

The privatization policies implemented in the 1980s have led to a massive transfer of state assets to big business (at low prices) and the opening up of these areas to competitive profit-making. This has undoubtedly been a source of extra profit to the capitalists, in the short term. However, the pursuit of profit through the market will inevitably give rise to growing deficiencies and imbalances in basic industries and infrastructure, which will add to the difficulties faced by big business.

Some of the strategists of the ruling class are now calling for a turn back to increased state expenditure, on infrastructure projects rather than welfare. Some governments have begun to move in this direction. However, the biggest increase so far has been in Japan, where the real increase in infrastructure spending has actually amounted to less than one percent of GNP. Faced with a political crisis, and the threat of big movements by the working class, capitalist governments may well be forced to increase state expenditure, at least temporarily. However, they cannot escape from the underlying contradiction: any increase in state expenditure will inevitably but into capitalist profits, wither directly through increased taxation or indirectly through state borrowing requirements pushing up interest rates. Currently, cuts in welfare spending, which have been extremely severe in countries like Britain, have not prevented the state deficits from rising, as a result of increased payments to the unemployed (even at reduced real levels) and the decline in tax revenues.

With the exhaustions of the upswing and the appearance of stagflation in the late 1970s, the bourgeoisie abandoned Keynesianism, the theoretical and policy orthodoxy of the upswing period, which had prevailed throughout the advanced capitalist countries, including the US.

After 1978-79, neo-liberalism became the new orthodoxy. The revival of neo-classical theories (monetarism, supply side economics, rational expectations, etc.) gave expression to the overriding priority of the capitalist class: to restore profitability through cuts in working class living standards. Neo-liberal theory undoubtedly provided an ideological cover for brutal class aims, but on the basis of the expansion and financial boom, also generated illusions in the vitality of unfettered market forces.

However, the contradictions of the 1980s expansion and the reappearance of crisis after 1989 has increasingly discredited the ideas and policies of neo-liberalism, and monetarism in particular. Keynesian policies were, with justification, associated with the accelerated inflation of the 1970s which was the key factor in their abandonment. Control of the money supply after 1979 had no more than a limited, temporary effect in controlling inflation (and rigid money targets were quickly abandoned). High interest rates (in which the US Federal government's demand for credit was a key factor) and old-fashioned deflation (cuts in public spending, reduced real wages, and mass unemployment) had far more effect.

However, from a policy point of view, governments generally seriously underestimated the reflationary effect of asset inflation, which was the basis of the massive growth of credit, particularly in 1987-88 following the financial crash. "Over-heating" in the US, with a high level of demand for labor and material inputs, began to push up price inflation once again - and forced the Bush administration and the Federal Reserve to put the breaks on, pushing the US into the recession.

With the onset of a slowdown after 1989, however, the governments of the advanced capitalist countries equally underestimated the general deflationary effects of asset price deflation (the drastic decline in land, property and share prices). The general burden of debt repayment of businesses and households became extremely heavy, while there was a drastic contraction of credit.

The massive debt burden, composed of both government deficits and corporate and private debts, has enormously prolonged the recession in the US and Britain, and will have a similar effect in Japan and the North European countries. The effects of the debt burden will continue for the foreseeable future, with outstanding debt making huge claims on the future income of both capitalists and workers. The instability of world interest and exchange rates, which is the product of the uneven and antagonistic development of the different national economies, makes it extremely difficult for the ACC (advanced capitalist countries) governments to pursue consistent economic policies. This is in sharp contrast to the relative stability of the postwar period, under the semi-fixed exchange rates of the Bretton Woods system, which allowed the ACC governments, within limits, to conduct policies of national demand management to soften the effects of the trade cycle. Moreover, empirical, short-term policy responses to economic development, together with the volatile international environment, make it extremely difficult for big business to take long-term decisions about investment.

This is not to say, however, that the capitalist class will not, when faced with an acute social crisis, temporarily increase state expenditure (even beyond what the capitalists can strictly afford) in order to postpone a head-on confrontation with the working class. Moreover, the capitalists may also move towards relieving the pressures within their national economies through steps towards a "siege economy" with the re-imposition of capital controls and import tariffs. The first hints of this have appeared in some of the statements of Clinton's economic advisers. While temporarily mitigating some of the symptoms of the crisis, such measures would exacerbate the fundamental crisis of the system.

Growth during the upswing period rested on a social compromise between the capitalist class and the proletariat (full employment, high real wages, income distribution and welfare provision), which provided the material basis for bourgeois-democratic regimes (trade union rights, parliamentary institutions, etc.) and general stability, which was a key condition for long-term capitalist growth.

Social problems which accumulated during the upswing (e.g. urban crowding and decay, impoverishment of particularly exploited strata, like immigrant workers, single mothers, etc.) together with crisis measures adopted since 1974-75 have led to a sharp polarization of wealth within society generally, and to a differentiation of income levels and conditions between different sections of the working class. The growth of mass unemployment and poverty have inevitably led to a rise in crime, urban riots, the growth of racist and fascist groups and chauvinist and nationalist tendencies.

Despite the crusade of the pro-free market New Right and the triumphalism of the 1980s, the ruling class faces a crisis of authority and ideological disarray, which is reflected in the cracks within established institutions such as the traditional political parties, the professions, the church, etc.

Nevertheless, it was the economic expansion of the 1980s which enabled the capitalists to make economic concessions to significant layers of the working class while pushing other sections into low-wage, casual employment, unemployment and poverty, which allowed the capitalists to rude out mass struggles (for instance, the British miners' strike in 1984-85) and to preempt other struggles through imposing legal restrictions on the trade unions and exploiting divisions between employed and unemployed workers.

In the next period, however, the chronic stagnation of the ACCs will make it increasingly difficult for the capitalists to buy off sections of the working class. Economic crisis and social explosions will push the working class into action. Moreover, there will be an ideological renewal among the advanced layers of the proletariat, with workers moving into struggle to rejuvenate or reorganize the traditional organizations.

Crises in the political and economic superstructure will increasingly deliver destabilizing "shocks" to the capitalist economy.

"The decennial [ten-year] cycle of stagnation, prosperity, overproduction and crisis ... seems indeed to have run its course; but only to land us in the slough of despond of a permanent and chronic depression. The sighed-for period of prosperity will not come; as often as we seem to perceive its heralding symptoms, so often do they vanish into air. Meanwhile, each succeeding winter brings up a great question: 'What to do with the unemployed?' But while the number of unemployed keeps swelling from year to year, there is nobody to answer that question; and we can almost calculate the moment when the unemployed, losing patience, will take their own fate into their own hands." (Preface to Capital, Volume 1)

Engels' remarks of 1886 have a very topical ring in 1993. However, the long-term outlook for capitalism today, from an economic point of view, is far worse than when Engels was writing, which was midway through the "Great Depression" of 1873-96. That was a period of stagnant production and profits (though workers' real wages improved because of falling prices), especially for British capitalism, which had until that stage dominated world manufacturing production and trade. German capitalism, with more modern steel, chemical and engineering industries, had caught up with British capitalism. US capitalism, on the other hand, with massive advantages of cheap land and raw materials, and through importing the latest technology and skilled labor, was on the verge of a phenomenal period of expansion which was to establish the world supremacy of US capitalism. The growth of US and German capitalism provided the impulse for a sustained upswing between 1896 and 1913. However, intensified competition between the main capitalist powers led to a competitive scramble for markets and colonies, which culminated in the First World War of 1914-18.

The boom of 1896-1913 established the dominant position of US capitalism in the world economy. Historically high levels of capital investment per worker established the technological and productivity superiority of the US, which continued until the post-Second World War boom, and is now being challenged, in some key sectors, by Japan and Germany. Although the US emerged from the First World War as the world's greatest strategic power, US capitalism was not prepared, at that stage, to replace Britain as the banker of last resort and underwrite world trade and finance transactions. This had to await the aftermath of the Second World War, when the dominant US sponsored a new international economic framework and began to play an active role as capitalism's predominant strategic power.

As the world economic framework rested on US capitalism, the decline of the US has inevitably been a source of instability and tension in world economic relations. Germany has caught up with the US as an exporter of manufactured goods, while Japan has overtaken the US in a number of high-technology, fast-growing manufacturing sectors, taking a substantial share of US capitalism's home market. Neither Germany nor Japan, at this stage, however has the economic resources or the strategic power to replace the US as world banker and substitute the mark or the yen for the dollar. The greatly reduced growth rate of world production and trade, with increasing interpretation of capital investment and trade, has inevitably sharpened the antagonisms between the national economies on which capitalism is still fundamentally based.

Stagnation within the national economies of the ACCs, therefore, has been accompanied by growing contradictions and instability in world economic relations.

The main features of the crisis in economic relations internationally may be summarized under the following headings:

The floating exchange rate regime which has existed since 1971-73 has not has not provided a stable framework for trade and finance. The pendulum swings of "over-corrections", with exchange rates going much higher or lower than strictly required to correct current account deficits/surpluses, has amplified the problems in the national economies. The ERM, which was set up by German and French capitalism to provide stability, first imposed slow growth on the EC countries, and now, through overvaluation of the mark and the franc, has accentuated the downturn in Germany and will accentuate the coming downturn in France.

The major international banks managed to ride out the Third World debt crisis and survive their heavy exposure to bad debt within the ACCs, but only with massive assistance from international financial institutions and national governments. Moreover, the reining in of credit by the big banks has severely accentuated and prolonged the downturn since 1989. Furthermore, some big banks, especially in Japan, are still on the verge of insolvency, and the collapse of one or more major banks cannot be ruled out in the next period.

Moreover, the collapse of Stalinism has removed the external pressure which kept the "Western" capitalist states together and has led to more open rivalry between the major ACCs. Both German and Japanese capitalism, which were locked into a subordinate strategic role as a result of their defeat in World War Two, are now pushing for more independent, diplomatic, strategic and (tentatively) military roles. As in past periods, the major capitalist states will undoubtedly seek, under pressure of internal economic and social crisis, to find a way out through international maneuvers and adventures - which, in turn, will inevitably create more turmoil and conflict which will rebound on the world capitalist economy.

Within the national economies, moreover, the onset of economic crisis and uneven social development has led to a resurgence of nationalism, chauvinism and racism in many of the ACCs. This is a symptom of economic and social crisis, but can enormously complicate the situation for the bourgeoisie, as shown in relation to the European capitalist plans for extending the EC.

Some growth will undoubtedly take place in the former Soviet Union and Eastern Europe, but it will be the most primitive kind of capitalist development, with extreme social polarization between a small wealthy strata and an impoverished majority, with mass unemployment and poverty, and widespread corruption and gangsterism. Moreover, given the depth of the crisis, a turn to Bonapartist methods by the pro-capitalist leaders is inherent in the situation.

Conflict between the newly-emerged and heavily-armed national states, like Russia and Ukraine, Hungary and Slovakia, will create an extremely unstable and unpredictable strategic situation for capitalism. Moreover, the tendency towards disintegration of national and ethnic lines, following the horrendous example of former Yugoslavia, will have other implications for Western European capitalist states, e.g., pressure to accept a further wave of refugees.

In the next period, the barbarous character of capitalism in the East, together with the deepening crisis in the West, will completely shatter triumphalist illusions in the superiority of the market.

The perspectives for the next period, therefore, is one of chronic stagnation of capitalism internationally. This does not rule out a short-term cycle of recession and recovery. Currently, the US is experiencing a weak recovery, although this may be cut across by recessions in Germany and Japan, which will restrict the growth of world trade. It is possible, however, that one or more of the ACCs may, in the short term, experience somewhat stronger recoveries. Short-term, local recoveries are quite possible even while the world depression is getting deeper. In the short-term cycle, the process of recession and recovery will no longer automatically restore the position (let alone improve the position) which existed before the recession, as was the case during the long upswing of 1950-73. On the contrary, short-term recovery will not be incompatible with the steady growth of long-term, structural unemployment and further erosions of the national and international foundations of production, accumulation and profitability. Moreover, crisis in relations between the main capitalist powers and even between secondary capitalist states, giving rise to armed conflicts, economic sanctions, etc., will disrupt economic relations and inflict devastating shocks to the system.

It is most likely, but not absolutely certain, that the weak recovery of the US will continue for some time, followed by weak recoveries in Germany and Japan. However, the sharpening of the fundamental contradictions within capitalism internationally are preparing the way for a profound crisis, a new version of "1929-33", with its own features determined by the current situation, but with the same barbarous consequences for the working class and other working people throughout the world Capitalism is faced with a historic crisis, and the working class faces the historic challenge of transforming the world economy on socialist lines.

Resolution from the IEC
Adopted By the Congress

First Draft February 1993