State-monopoly capitalism is constructed and run to serve the interests of the ruling class. It is essential to understand the core composition and strategy of this class if its rule is to be challenged successfully.

In particular, the policies of recent governments in Britain demonstrate how ruling class interests are served and with what consequences for the economy, social justice, democracy, peace and the planet's ecosystem.

Whichever parties are in office, the ruling capitalist class is always in power. This is as true in the case of Labour governments as of any others. Over the course of the 20th century and into the 21st, the limits of social democracy have become evident, demonstrating again and again that socialism remains the only real, fundamental alternative to capitalism.

Over the past century, the capitalist state in Britain has increasingly been subordinated to the needs of finance capital rather than to those of the capitalist class as a whole. Indeed, the British state today creates a substantial proportion of the economic demand, bond-trading business and overseas investment opportunities on which finance capital depends for its profits.

Although Britain has tens of thousands of small firms, the dominant position in each sector of industry and services is usually held by no more than five or six big firms. They control the technology, monopolise access to export markets and use their market power to subordinate the smaller firms which act as suppliers, subcontractors and distributors.

These monopolies, whether public limited companies or private equity ventures, are invariably controlled by financial institutions. Banks and insurance companies own the dominant blocks of shares and use their power to buy and sell in order to extract maximum short-term profit.

Those who own and control the big financial companies, and through them control the major non-financial monopolies, thereby constitute the core of the Britain's ruling capitalist class. This relatively small group of finance capitalists organise the economy to maximise monopoly profits at home and imperialist 'super-profits' around the world. They largely dictate the key domestic and foreign policies adopted and implemented by the British state apparatus, whose structures and top personnel interlock with those of the capitalist monopolies.

Thus the Thatcher government’s de-control of capital movements and financial markets enabled the City of London to become the world centre for deregulated speculation in currencies, stocks, shares and financial derivatives.

After three decades of ‘neoliberal’ economic policies, the British economy is more dominated than ever by banking and financial services. Meanwhile, four million manufacturing jobs have been lost and many new jobs in the service sector are low-paid, temporary, part-time and insecure.

Increasingly, the City's power and influence is shared by United States (US) finance capital. Until the late 1980s, most of the dominant financial institutions in the City of London were British-owned. Now, the majority of the investment banks (including their private equity funds) are US-owned. A smaller number are German, French or Swiss, alongside the remaining British investment banks. National ownership became clear during the banking crisis, when each state saved its own country's banks. Middle East and Far East state-run sovereign wealth funds also own a growing proportion of stocks and shares in Britain, as they do in the US.

Large sections of British industry have also passed into the hands of overseas transnational corporations (TNCs), notably in energy, steel, cement, chemicals, ports, airports and the mass media. The private sector services undermining the National Health Service (NHS) and Royal Mail are mostly in foreign ownership. Most of Britain's high-technology production in computing, electronics, machine tools, cars and consumer durables is conducted by externally-owned TNCs.

British-owned monopolies are now restricted to a fairly narrow range of areas: finance, oil, gas, mining, retail, pharmaceuticals, telecommunications, food and tobacco and arms manufacture. These areas reflect the colonial and neocolonial orientation of Britain’s economy. In most cases, the bulk of their investment is outside Britain, earning super-profits on the back of cheap labour.

In fact, the British capitalist class owns more economic and financial assets outside its home territory than the capitalist class of any other country except the US. A large proportion of its new investment – in some years more than half – is carried out overseas, through TNCs and the City of London, rather than in Britain, .

A top priority of the British ruling class is to ensure that finance capital's profit-making capacity does not suffer as a consequence of the post-2007 economic and financial crisis.

This means that the burden of narrowing Britain's public budget deficit must be made to fall mainly on public services, public sector workers and the mass of working class taxpayers, not on the wealthy and big business.

New profit-making possibilities in the public sector mean that health, education, social housing and even the prison system are being thrown open to private capital through privatisation and similar policies. Slashing workers’ pension entitlements in these areas prior to privatisation is an essential part of this process. So, too, is a new round of attacks on trade union and employment rights.

Narrowing the public sector financial deficit through huge social spending cuts is important if British state-monopoly capitalism is to maintain the credibility of sterling and the position of the City of London as a leading financial centre.

British finance capital intends to maintain its freedom to operate through the City with minimum regulation and taxation, helping to ensure that the growing challenge from other financial centres in Europe, Asia and the Middle East is minimised. At the same time, US finance capital is using its position in the City as the springboard for deeper penetration across Europe.

Internationally, Britain's monopoly capitalists want to:

  • Compete more effectively against rivals within the European Union (EU), especially in eastern Europe and the former Soviet Union.

  • Continue expanding in US markets, strengthening British monopoly capital‘s stake in US foreign policy.

  • Protect their investments from the threat of regulation and nationalisation in Latin America.

  • Extend their interests in the 'Greater Middle East' region with its enormous energy reserves and vital trade routes.

  • Defend substantial economic and political positions in Africa, against rival imperialisms and the rising influence of socialist China.

The British ruling class therefore wish to see British influence maintained and extended both within the EU and as a junior partner with US imperialism, acting as far as possible to reduce the potential for conflict between the EU and the US.

They regard it a top priority in the 21st century to participate in the extension of US military power and the North Atlantic Treaty Organisation (NATO) across the 'Greater Middle East' with its vital oil and gas resources and transportation routes; and into the regions surrounding Russia, India and especially China, in order to contain and exert pressure on emerging economic, political and military powers. Maintaining Britain's nuclear weapons and a permanent seat on the United Nations (UN) Security Council are seen as essential to pursuing these strategic objectives.

In common with its counterparts in the US and other developed countries, British state-monopoly capitalism also seeks to place the main burden for combating global warming on the developing countries through unfairly distributed quotas which can then be undermined by carbon emission trading schemes.

In pursuing this ruling class strategy internationally and at home, it is clear that British state power remains integral to the interests of British monopoly capital.

This same strategy was reflected in the programme for coalition government drawn up by the Tories and Liberal Democrats in 2010. The coalition was the preferred option of Britain's financial oligarchy after the election, as Labour in government would have been more susceptible to popular and trade union pressure on some important economic and social questions, despite the pro-monopoly, pro-imperialist orientation of the Labour Party leadership.

Britain has become one of the most unequal societies in the developed world in terms of income and wealth, housing, diet, health, and employment and educational opportunities.

At the root of this social inequality is the system of capitalist exploitation itself. In return for providing society's goods and services, workers rely mostly on their wages to sustain themselves and their families (many of which are rearing the next generation of workers or caring for the previous one). Many parents and carers depend on state benefits or pensions – the ‘social wage’ – funded from taxes on the wages and profits generated by the working class.

All forms of working class income have come under increasing pressure in recent decades. Traditionally, capitalism has depended on large-scale unemployment to weaken trade union organisation and bargaining strength. Most significantly, therefore, the British ruling class opted in the late 1970s to ditch the 1944 White Paper commitment to full employment and begin dismantling the welfare state. A range of techniques and strategies was developed to maximise profit at the expense of working class income, including casualisation, flexible working, privatisation, deregulation, ‘pension holidays’ and debt bondage.

As exploitation intensified, so the gap between working people and the super-rich has widened enormously. In Britain today, the richest 10 per cent of the population own around half of all declared personal wealth, while the poorer 50 per cent of the population own less than one-tenth of it.

Moreover, capitalism has always utilised differences of gender, ethnicity, education, skill and mental and physical disability to divide the labour force and drive down the level of real wages.

In Britain, most women workers are still paid less than many men for doing work of equal value. Black and ethnic minority labour is used to fill many of the jobs with low pay and minimal training and promotion opportunities. In particular, TNCs seek to employ young and migrant workers as casual or short-term labour on inferior terms and conditions, often to undermine collective agreements reached with trade unions. This super-exploitation has been enshrined in law by EU legal judgements and directives.

It is also reinforced by sexist, racist and anti-foreigner attitudes. In an imperialist country with a history of empire, such as Britain, racist ideas are deeply rooted and can be manipulated by the ruling class as well as by right-wing nationalist or fascist movements. Social inequalities of class and race can be further exacerbated by capitalism’s uneven development and structural crises in the regions and nations of Britain.

All these disparities of income and well-being among working people are, therefore, the direct result of the way capital extracts surplus value by fragmenting and segregating labour and exploiting existing oppressions. This process ensures that in every generation many more people will face homelessness, insecurity and poverty.

All such inequalities can be utilised to divide people. The erosion of the welfare state has meant that all these divisions have become more entrenched over the past 30 years. At the same time, the struggle to reduce, if not eliminate, inequality has the potential not only for promoting unity within the working class, but also for drawing in those people from the intermediate strata (many self-employed, small traders and farmers, senior managers, etc.) who also experience or oppose inequality, prejudice, discrimination and oppression.

Communists have long understood that the state is an apparatus for the rule of one class over the others in society. This remains the case even though it may mediate between competing sections of the ruling class, or organise concessions to the subordinate classes. It is not, therefore, 'neutral' or above the class struggle. Where the ruling class cannot achieve consent for its system or policies, it will use the coercive power of the state to enforce its interests.

But the struggle to win economic and social reforms under capitalism not only improves conditions for the working class, for as long as the reforms can be maintained. It also raises confidence, expectations and demands. Thus political understanding can grow about the class nature of society, class rule and the need to fight to change it.

Achieving democratic rights of assembly, combination, publication and election for workers, trade unions, political parties and other campaigning organisations creates the most favourable conditions for winning reforms and raising political consciousness.

Through the long campaigns for the People's Charter in the 19th century and for votes for women into the 20th century, the British ruling class opposed electoral democracy. It feared that if the majority who possessed no capital secured the vote, they would use it collectively in their class interest. The working class movement fought with the understanding that the vote would enable the organised majority to counteract the massive economic power concentrated in the hands of the monopoly capitalists. The aim would be to establish a real 'social democracy' that went beyond political democracy, to achieve social ownership of the means of production. This understanding was originally expressed in the choice of name for the Labour Party.

Conversely, ever since the 1920s, when it was forced to concede full formal democracy, the British ruling class has sought to make it ‘unconstitutional’ for organised labour to use its own collective strength politically. Ceaselessly, this ruling class has sought to redefine democracy in individual terms that leave all those without capital at the mercy of the concentrated economic power of those who have it.

In recent decades, the ruling class has made deep inroads into the democratic rights and liberties previously won by the working class and peoples of Britain.

The Tory governments of the 1980s and 1990s enacted a barrage of anti-trade union laws and abolished the layer of metropolitan local government where the Conservatives received little electoral support. The police, security services and the courts were used ruthlessly to limit rights of protest.

The 1997-2010 New Labour governments failed to repeal most of these measures. But they did fulfil manifesto commitments to establish a Scottish Parliament and a Welsh Assembly and to re-establish an elected authority for Greater London. Without charting a clear course to the reunification of Ireland, the Good Friday Agreement helped bring peace and a power-sharing assembly to the north.

But the powers and resources granted to the new devolved bodies in Northern Ireland, Scotland, Wales and London were kept to a minimum, in order to limit their potential to enact policies that could challenge the interests of monopoly capital. Similarly, proposals for regional government in England were drained of any real democratic content. They turned into measures for bureaucratic reorganisation, threatening the already meagre powers of local councils.

New Labour introduced limited reforms to expand trade union rights, but refused to repeal the vicious anti-union laws of the Thatcher period. As a result, trade union rights have since been blocked and undermined by employers' use of the courts and judges by employers to overturn democratic ballots for industrial action. A series of judgements at the European (EU) Court of Justice threaten negotiated agreements and national legislation that protect workers' terms and conditions.

The New Labour governments introduced repressive new laws to target scapegoats held responsible for social problems and to suppress the growing opposition to government policies. Huge holes were punched in long-standing civil liberties including rights to peaceful protest and freedom from detention without charge or trial. The powers of the police, security and immigration services were increased to unprecedented levels. Asylum seekers and refugees were blamed unfairly for government failures to invest fully in health, education and housing, while Muslims were demonised as part of the bogus 'war on terror'.

New Labour also embraced the use of military state power to promote monopoly capitalism abroad. It strengthened British imperialism's subservient alliance with US imperialism, participated in wars of aggression, supported repressive regimes in Colombia, Israel and the Middle East, offered facilities to the US Star Wars programme and colluded in the illegal kidnapping, transportation and torture of detainees from around the world, including from Britain itself

In 2010, the incoming Tory-Liberal Democrat government scrapped plans to introduce a universal identity card system, which would have given the police and other state authorities enormous potential to limit the individual civil liberties of every member of the population. This was in order to focus its anti-democratic drive on collective rights, notably those to demonstrate, to influence and enact policies through elected local government and to defend workers' interests through trade union representation and industrial action.

Such developments can best be understood against the background of ruling class strategy with its offensive against people's living standards, public services and the welfare state. This offensive has been greatly intensified in the wake of the post-2007 capitalist crisis.

It is a strategy that illustrates the division of interests between British state-monopoly capitalism and those of working people – from managers and research scientists to shop-floor workers – and all who depend upon economic growth within Britain.

In Britain, Germany, France, Sweden, Australia and other developed countries, Labour and 'socialist' parties and governments have attempted to reform capitalism in the interests of the working class rather than take the road to socialism. Instead, they have revised 'social democracy' to mean social progress for all within the confines of the capitalist system.

In Britain, the post-1945 welfare state helped masses of people to escape destitution and avoidable ill health. But it has proved vulnerable to frequent cuts and privatisation. Progressive taxation – based on people's ability to pay – has provided extra funds for public services and achieved some redistribution of wealth, although the latter has since been reversed as the result of policies demanded by powerful vested interests.

Public ownership of coal, steel, the railways, electricity, gas, water, public transport, the ports, telecommunications and aerospace ensured enormous investment in basic industries, resources and services in the second half of the 20th century. But these have been programmes of capitalist nationalisation, usually carried out in order to rescue or develop vital industries that the capitalists cannot run at sufficient profit. Such state ownership on behalf of the capitalist class has invariably involved high levels of ‘compensation’ for previous private owners, subsidised prices and lucrative contracts for the private sector, little or no parliamentary accountability and no power for workers in economic decision-making.

Whether separately or together, the welfare state, progressive taxation, public ownership and economic planning do not amount to socialism. They have brought real benefits to the working class as well to the capitalists, the intermediate strata and society as a whole. They even provide a glimpse of socialism's potential. But they have not put an end to capitalist exploitation and the vast inequalities it creates. Only socialism will do that. They also indicate the limits to collectivism and planning in what remains a capitalist economy and system of society.

In the main imperialist countries, the failure of social-democratic governments to challenge monopoly capital at home has also been reflected in their foreign and military policies, where they have continued to promote the interests of their own country's monopoly capitalists, even to the point of military intervention.

Invariably, social democracy has ended up capitulating to monopoly capital, abandoning its most radical policies and turning on sections of its own supporters in an effort to stabilise, manage or modernise the capitalist economy.

In every case, labour and socialist parties and governments in capitalist countries have had no effective theory and programme to guide them. Their outlook is not based on a Marxist, class-based understanding of how capitalism works and where and when it is most vulnerable. Consequently, social democracy has had no strategy for progressive advance and socialist revolution. Conference policies and election manifestos have been confused with the development of a programme for far-reaching change. Government office has been mistaken for state power. Moreover, once in office, social democracy has never had any notion of involving and mobilising the working class and its allies beyond elections, of drawing them into extra-parliamentary action to defend the government and help implement progressive, anti-monopoly policies.

Overall, capitalism has had a more profound impact on social democracy than vice-versa. In the first imperialist phase of rising monopoly, imperialist war and revolution, many mass workers’ parties achieved office, but on terms set by the ruling class. Out of splits and divisions came the communist parties. In the second phase, after 1945, social-democratic governments administered, reformed and strengthened state-monopoly capitalism in return for abandoning the aim of socialism. Now, in the new third phase, some parties or leaderships have embraced ’neoliberal’ economic and social policies, although the battle of ideas within them continues, between the neoliberal, social democratic and socialist trends.

This degeneration of social democracy, alongside ruling class propaganda to identify its failures with socialism, makes it more necessary than ever to restate the case for socialism, as it applies to modern society.