The combined betrayals of Stalinism, social democracy and Pabloite opportunism created the conditions for the international bourgeoisie to survive the most intense period of the crisis provoked by the collapse of Bretton Woods and work out those political and economic policies needed for the establishment of a new world capitalist equilibrium. The recycling of petrodollars was one of the crucial mechanisms through which the threatened liquidity crisis was overcome. A massive increase in bank lending was authorized to end the recession and expand world trade. However, despite the temporary recovery from the 1973-75 recession, the most vital indices of world capitalism showed that there was no return to the boom conditions of the Bretton Woods era. The term “stagflation” came into use during the late 1970s, referring to high rates of inflation and low rates of growth.

The most significant statistic is that relating to the rate of profit, which declined steadily throughout the 1970s. Both in Europe and the United States, the rate of profit fell sharply after 1974. By 1976, the average rate of return on invested capital was 9.2%, compared with 13.4% in 1966. The profit rate for nonfinancial companies in the United States fell from 15.5% in 1963-66 to 12.7% in 1967-70, 10.1% in 1971-74, and 9.7% in 1978. In 1965, profits amounted to 14% of the national income. By 1970, they had fallen to 8.8%. In 1980, the figure was 8.2%, and it fell to a low of 6.7% in 1982.

Confronted with declining profit rates, spiraling inflation and a collapse of international confidence in the dollar, the American bourgeoisie concluded by the late 1970s that there was no alternative to a direct assault on the living standards of the working class. The Carter administration appointed Paul Volcker to the chairmanship of the Federal Reserve in 1979, and he immediately moved to institute draconian austerity policies. Interest rates were raised to historic levels for the purpose of inducing a recession that was utilized by the bourgeoisie to mount the most sustained offensive against the working class since the end of World War II. The recession spread to Europe within a matter of months. By 1982, the number of unemployed was double what it had been in 1975.

The election of Reagan in November 1980 signaled an intensification of the assault on the labor movement in the United States. Having received assurances from the AFL-CIO that it would offer no resistance, the Reagan administration, basing itself on an emergency blueprint prepared by the Carter administration, carried out the summary firing of 13,000 air traffic controllers in August 1981. What followed was a wholesale rout of the trade union movement, as the bureaucracy abandoned any pretense of defending the past gains of the working class.

Systematically sabotaging every form of working class resistance, the AFL-CIO has presided over the decimation of the trade union movement. It has welcomed the destruction of industrywide contracts, accepted the abrogation of existing agreements, consented to wage cuts and a myriad of “give-back” demands, and collaborated enthusiastically in the shutdown of scores of factories. In practice, the union leadership has accepted its integration into the structure of corporate management. The bureaucracy has performed its work so thoroughly that it has been possible for the major corporations to fire thousands of middle-level management personnel and entrust their previous supervisory functions to union officials. The record profits reported in recent years by the major American corporations reflect the vastly increased levels of exploitation made possible by the labor bureaucracy. Cost-cutting, not increased sales, is a major factor in the shift from losses to profits in many industries. The auto companies are now able to profit on 24% less sales than before 1980. In 1970, wages and salaries comprised 75.4% of national income. By 1986, that figure had fallen to 61%.

The policies embarked upon by the American bourgeoisie in 1979-80 signaled a shift in the methods of class rule on an international scale. Simultaneously, the election of Thatcher in May 1979 marked the beginning of a sustained offensive aimed at disciplining the working class and destroying the social welfare system created in the aftermath of World War II. In France, the “socialist” Mitterrand government with its four Stalinist ministers, after a sham display of radicalism, soon reverted to economic policies barely distinguishable from those of Reagan. A similar development occurred in Germany, following the election of Helmut Kohl. The European corollary of Reaganite “deregulation” has been the frenzied “privatization” campaigns aimed at dismantling the nationalized industries. Between 1979 and 1988, every European government, from Portugal to Greece, repudiated the policies of social reformism and class compromise. Nor was this process confined to the United States and Europe. Under Hawke in Australia and Lange in New Zealand, social democratic governments are tearing down even the limited barriers erected by the working class against untrammeled capitalist exploitation. Under the whip of the IMF and the World Bank, even economically backward countries—from the Ecuador of Febres Cordero and the Jamaica of Seaga to the Sri Lanka of Jayewardene and the India of Gandhi—are striving to emulate the policies of the Reagan administration.