People's Democracy

(Weekly Organ of the Communist Party of India (Marxist)


No. 44

November 09, 2008


Global Financial Crisis Underlines Relevance Of October Revolution

Sukomal Sen

THIS is the 90th year of the Great October Revolution which ushered in socialism and a workers’ State in Russia in November 1917.

Analysing the short-lived Paris Commune of 1871 despite its very short tenure and many mistakes and signs of immaturity but with wonderful heroic acts of the Paris workers who laid down their lives in thousands, Marx hailed the great event of the Paris workers as ‘storming of heavens.

Subsequent to the most unfortunate collapse of Soviet Union and the tragic set-back to socialism, the world bourgeoisie gleefully started a campaign that ‘Socialism is dead, Marx is obsolete’! Many in the communist and Left movement also suffered a mortal ideological shock and turned away from Marxism. But not everyone did so. There were many more in the world who held high the banner of socialism and Marxist revolutionary principles. But even among these a section of them could not escape a certain bit of degeneration, particularly when capitalism rapidly and with a vengeance grew into imperialist globalisation – the fiercest form of world capitalism.

However, the world has been witnessing raging debates on globalisation, particularly since the collapse of Soviet Union. With the recent Wall Street crash setting in motion a stormy convulsion of world capitalism, Marx’s teachings and the significance of October revolution have became much more relevant.

Marx and Engels were among the first to recognise the real nature of global capitalism, and to write about in a systematic way. They were the first to understand that the then existing modes of production would expand, and that the capitalist society would spread across the world, although in their day it only existed in parts of England and Northern Europe. Given the rural monarchical societies which they knew, whose population lived on the land in conditions still shaped by feudalism, it was an extraordinary achievement to map out the contours of the capitalist world in which we have since come to live. As Eric Hobsbawn writes, Marx and Engels did not describe the world as it had already been transformed by capitalism in 1848; they predicted how it was logically destined to be transformed by it.’ [Eric Hobsbawm, Introduction to Communist Manifesto, Verso, New York and London, 1998 edition]

One of the themes of globalisation is that scientific development would necessarily introduce social change. Thus the introduction of new technology, including new media, computers and the Internet etc must inevitably change the way in which people live and work.

Another notion associated with globalisation is that production is most effective where it is most flexible. A range of goods can be produced through flexible production, while the way to achieve flexible production is by dispersal of production processes.

Another of the claims associated with globalisation is the suggestion that industrial capital is becoming less important, while financial capital is dominant. As finance has become more globalised, and it is possible to buy stocks and shares all round the world. Marx argued that capitalism had a tendency to age, and would go into crisis, which is a long way from the optimistic visions of the enthusiastic globalisers. In the final analysis Karl Marx and Friedrich Engels hoped that international capitalist production would meet its nemesis in an international revolt of labour. October Revolution was a revolt against this crisis ridden and exploitative capitalism in a much earlier stage.


The impact of the ongoing financial crisis is not just limited to Wall Street and its fat cat bosses. Common people on every street are hit hard by this crisis. The extent of the impact on the working class and poor of the world can be gauged by the remarks made by the director general of International Labour Organisation (ILO), a specialised agency of the United Nations. According to its recent estimate based on the IMF projections for the world economy, the crisis will also hit hard the construction, real estate, financial services, and auto sectors The toll on jobs could be even higher felt the ILO director-general Juan Somavia. He said the ILO, which brings together governments, employers and workers, wanted to steer discussions about resolving the crisis towards job creation and other steps to promote the 'real economy'. "It would be tragic to respond to a sub-prime crisis with sub-prime policies," he said.

Somavia further said the financial sector's share in the profits of US companies had risen to 41 per cent last year from 5 per cent in 1980. As a result, banks preferred to invest in financial instruments rather than lending to other productive sectors. So this system began to siphon off resources from the real economy process, he said.

This created a situation where the listed non-financial companies came under pressure to match the returns of the financial sector companies. And to do this they “cut costs” -- often by freezing salaries or laying off staff -- rather than making long-term investments.

The global financial crisis will add at least 20 million extra people to the world's unemployed, a study by a United Nations agency has predicted. This will bring the total number of people without work to 210 million by the end of next year, stated the International Labor Organisation (ILO).

ILO director-general stressed that these figures showed how important it was for governments to focus on individuals and not just banks. He called for more efforts to help those affected cope with unemployment.

US bends ITS OWN rules

At a time when the much touted edifice of free-market capitalism is crumbling down, the US government – the notorious creator of this free-market model – did a prompt volte-face and resorted to largescale State intervention to prevent the edifice from crumbling. Despite this the myth of so-called virtues of free-market model that has been so meticulously built up by successive US administrations is all set to be blown away.

A critical analysis of this deeply engulfing financial crisis has been made by the columnists of USA Today on September 19, within four days of the Wall Street crash and the US government’s hurriedly proposed rescue plan.

The newspaper caustically laments under a headline ‘US bends the rules of free-markets' that the nation is not practicing what it preached to other countries’ and elaborates the rescue plan of the US government by injecting huge amount of money from the public exchequers with biggest ever State intervention. It states, “Throughout more than a decade of recurrent crises in nations such as Mexico, Russia and Thailand, the United States offered the same advice: Let the market solve the problem and get the government out of the way. Even when the consequences of such economic 'tough love' included widespread joblessness, soaring poverty and domestic turmoil, Washington insisted on the rule that the market knew best.”

Collapse Of Free Market

As the US confronts its day of reckoning, there is a glaring gap between the economic remedies it has been preaching to others and its own practice. In the 1990s, officials of the US treasury and the IMF urged the leaders of crisis-hit countries to embrace market-oriented policies “in order to put their economies on a sounder, long-term footing”. But the recommendations -- to slash government spending and privatise bloated State companies – resulted in great pain for millions of people in those countries and cost the political leaders dear.

In 2001, in Argentina, millions of members of a thriving middle class were driven into poverty due to financial crisis. In Indonesia, in 1998, rioters burned shopping malls and storefronts in the capital city before driving longtime dictator Suharto into retirement. And in Russia that same year, the stock market lost three-quarters of its value and annual inflation topped 80 per cent.

In demanding such painful changes, IMF and US Treasury policymakers were guided by an economic philosophy known as the 'Washington Consensus'. Emerging from the euphoria of the Berlin Wall's collapse and the embrace of the market by former socialist countries, the formula promulgated deregulation, privatisation and open trade as the only path for countries seeking long-term prosperity.

Now, faced with a choice between widespread domestic pain due to financial crisis if there is no State intervention and postponing the impact of the crisis by compromising long-cherished principles, the current administration has opted for the latter. Federal power has been stretched so much that the near unthinkable occurred within two months of the crash: The Federal Reserve ran low on money, forcing the treasury to stage a special $40 billion auction of government securities to replenish its coffers.

Even at this moment, some of the US intellectuals feel jittery about the future of the nation's economy. However there are others who still believe that if important financial institutions failed, market participants and lawmakers could restore order on their own, with only minimal government aid. There is no doubt they are wrong.

Some Lessons

The ongoing global financial crisis has thrown up few important outcomes. Firstly, the unsustainable character of the free market economy of capitalism with the dominance of finance capital, especially the neo-liberal economic agenda of World Bank-IMF vigorously pushed through by the US administration has been starkly exposed.

Secondly, this has set off worldwide recession, which is being acknowledged publicly by US economic experts. Many are comparing it to the most fatal and largest economic depression that began in 1929 when stock market and banking sector crashed resulting in huge unemployment and enormous economic difficulties for the common people world over.

Thirdly, the total falsity and stupidity of worshipping the sock market as the biggest god of the capitalist system has been thoroughly exposed.

Lastly, and most importantly, Marx’s theory of capitalist crisis and later which type of crisis can take place in the era of imperialism and finance capital has been proved correct.

John Maynard Keynes, the noted bourgeois economist on whose prescriptions the capitalist economy again revived in the aftermath of Great Depression, dwelt upon the subject in his own fashion in his volume The General Theory of Employment Interest and Money. In chapter 12 of this book, explaining the state of confidence he writes ‘Speculators may do no harm as bubbles during a steady stream of enterprise. But the position is serious when enterprise becomes the bubble on a whirlpool of speculation.” This noted bourgeois economist hinted about what ‘the bubble in whirlpool of speculation’ can do. The latest Wall Street crash is a unique example of what can happen when the bubble bursts.

Even Paul Krugman, the latest Nobel Laureate in Economics had forecast in 2001 itself about the impending crisis in US economy.

MARX'S Theory of Capitalist Crisis

Marx’s theory of the necessity as opposed to the possibility of regular crises in capitalist economies draws upon the interaction between competition, class conflicts and the law of the tendency of the rate of profit to fall.

Marx argues that crises can always arise because of the contradiction between the production of use values for profit and their individual or, more exactly, private consumption.

Marx explained in his Capital Volume-III that in capitalism there is an inherent barrier to capitalist’s expression. Capitalist production seeks continuously to overcome these inherent barriers but overcomes them only by means which again place these barriers in its way and on a much more formidable scale. The real barrier to capitalist production is capital itself.

The present case of global economic crisis set off by Wall Street crash exactly corresponds to this analysis of Marx of capitalist crisis.

In sum, crises of capitalism are unavoidable. The present crisis is no ordinary crisis. It hits the underbelly of global capitalism. So the subject needs a deeper probe.

The continued relevance of October Revolution and Marx’s theory on capitalist crisis and the need for revolt of the international labour assume significance in the context of today’s economic crisis.