Critique
Journal of Socialist Theory

Critique Notes 51

Critique is celebrating the 50th issue of the journal. We held a party at Glasgow University on th 10th December and will be holding one in New York at the Left Forum on the 20th March, as well as one in London in early February`. If anyone wants to get the details, please contact us at the email address in this issue.

The Crisis Continues

We have been arguing that the crisis is a systemic crisis as well as a cyclical crisis. The cyclical crisis is working its way out, but the overall crisis continues. Perhaps the best indicator is that of one of Europe’s major industrial firms-Siemens, as reported by the Financial Times in early December 2009.

“Siemens' chief executive yesterday underscored the fragile nature of the European economic recovery when he warned of a "decoupling" of capital markets' expectations and industrial realities.
Peter Löscher said it would take "many years" for industrial output to return to levels seen in 2007 and 2008.
"We had a 2 per cent drop in global gross domestic product this year but a 9 per cent drop in industrial production. This will not come back to old levels as quickly as some expect," Mr Löscher said……
With its broad product portfolio ranging from hearing aids to large power plants and high-speed trains, Siemens is seen as a bellwether for Europe's industry.”[1]

It seems that Siemens expects a worse outlook in 2010 than in 2009.[2]

As for the US, we read, again in the Financial Times, that: “According to data from the Bureau of Labour Statistics, industries predicting tougher times ahead account for about 55 per cent of the workforce.”[3]

Governments have poured money into the system, through so-called quantitative easing, run substantial budget deficits, and directly propped up a series of firms, not least the US automobile firms, Chrysler and General Motors, beside the financial entities, of banks, insurance companies etc. and thereby stopped the system crashing. Although the potential systemic failure was greater than 1929, the massive intervention has meant that the effects are considerably less, at least for now. It is clear that governments have stopped short from reflating the economy. Smaller banks have gone to the wall in the US and a series of retail and other firms have gone into administration or bankruptcy. Unemployment has risen substantially, practically doubling on the official figures in the USA, but the true numbers are never produced by Government statisticians, who effectively exclude those who do not get unemployment benefits, which, thefore, leaves out undocumented immigrants, those who have left the labour market in despair, women who have become housewives, etc. Unemployment was high before the downturn and now it is very high. Although odd articles have tried to argue that salaries and wages have not gone down in absolute terms, and that the deflation has meant that real income has not necessarily declined, this is very dubious. It obviously depends on the country, region, class, occupation and age group. Those without morgages may have suffered a real inflation, with oil and energy prices rising together with most food items, not offset by a possible decline in cost of loans. People in countries which have devalued will be faced with increased costs all round. At the same time, governments are talking of cutting the public sector deficit. In the UK, this is a policy already being implemented, leading to difficulties for those working in the public sector. The counter measures implemented are important but very limited.

As in the Great Depression the newspapers trumpet news of a recovery every so often, usually after much worse news. By December 8th 2009, CNN was reporting:[4]

"The recession has hit blue-collar families the hardest," Holland said. "More than half of whites who never attended college say economic conditions are still in a downturn. Most whites who attended college say things have stabilized or are starting to get better."[5]

It is paradoxical that what appears as a banking catastrophe has to be paid for by the poorest in the society. In fact, it is a systemic crisis, not just an exploding banking bubble, and it has always been the case that the workers suffer during such times, but the form of the post-cyclical crisis economy looks particularly crass at this time.

It is not surprising that governments have adopted populist measures in order to avoid taking more radical steps to ameliorate the situation for the majority. In the UK and the USA governments have criticised and tried to control the pay of bankers, through reducing the highly politicized bonus payments. At the same time, they are cutting the numbers of workers in the public sector and reducing pay in the public sector. It is doubtful that people who lose their jobs will feel comforted when they discover that some bankers have had a percentage of their ludicrously high salaries confiscated, but the press, owned by wealthy tycoons, has played it up. Bankers have become the sacrificial lambs, if not in wealth, then in terms of status.

As we move into the root form of the crisis, the political response has been varied over the globe. In the USA, there has been a marked revival of the right, who appeal to the rural poor and to the semi-skilled workers, who ought to be the natural constituency of the left. This has to be explained in large part by the subjective failure of the left. The fact that the right has used immigrant labour as a scapegoat, and continued to employ their age old racism, has not been strongly fought by such left as exists. Social democrats temporize and compromise, rather than demanding open borders and heavy penalties for racism, including the closing down of media outlets which use covert racist messages.

Control: Authoritarianism or Fascism?

There has been much discussion around the question of Fascism given the rise of parties of the far right in Europe, and the growth of populism in the United States. However, Fascism itself arose out of a particular set of circumstances which cannot be repeated. Stalinism was crucial in this respect. The behaviour of the German Communist Party in uniting with the Fascists in a number of provincial governments, its refusal to form a united front to fight Hitler, the visible form of the Vozhd –Leader- in Russia gave a degree of legitimacy to the Fuhrer, together with its crazy third period rhetoric (“after them –us”) smoothed Hitler’s path to power. In addition there is no threat to the system from the left at this point for the conservatives to form a bloc with the far right.

The causative process remains the crucial issue from a Marxist standpoint. There are two aspects to this. The first is the historical-sequential basis and the second the political economic contradictions involved. Both are required to provide some understanding and so a theory of the present crisis.

If we are in a systemic crisis, as argued, whatever the initial reactions, the right provide no way out of the quagmire. In the period, 2001-8, a series of authoritarian laws have been passed under the the pretext of combating terrorism. It is likely these will be extended as relatively atomised even if mass forms of protest show themselves in various parts of the world. As we discuss below, Greece and Iran have been in the eye of the storm.

Although governments have been repressive, particularly so in Iran, they have limits. In Iran, the government has already committed mass murder –of the left-and cannot repeat the exercise on the opposition, without risking an even more determined and effective uprising. For the Anglo-American countries, part of the method of rule has been the paradoxical one of a depoliticisation of all political issues. Authoritarian rule will politicise the population and the more brutal is such rule, the more discontent will rise and the more politicised the opposition. In any case, the political parties are hollowed out, making the rise of a genuine left party inevitable, even if long delayed.

The ruling class is aware of the problem and will not want to hasten the onset of open class conflict by taking action before it is vitally necessary, particularly when the left appears either pusillanimous or hopeless. The problem is that the system really is in crisis and the ruling class will want to abort any move to the left. For that reason, they are more likely to take harsher systemic measures of control, as are now being discussed. This involves permanently higher levels of unemployment, a reduced public sector and increased costs for education and other public services. In other words, at least one section of the ruling class wants to go for economic repression as a mode of control. In this sense, the demands for an anti-inflation strategy by the Republican party in the USA and the Conservative party in the UK can be interpreted either as defensive or offensive measures. Everything depends on the timing and the understanding of the present situation. The ruling class, however, does not have a clear sense of the future. This is discussed below.

Europe and Eastern Europe

East European countries in particular trouble at this time, in IMF or EU terms, are the Ukraine, Rumania, Latvia and Hungary each of which is expected to slash government expenditure even more and so social benefits, health, education and support for the economy more generally. As they cannot do so without massive social unrest, they have had held back and the IMF has tended to follow suit by not releasing tranches of the loans. Elections in these countries are bound to topple incumbents, as has happened in Greece, and by the time this issue comes out the Ukraine also. There is, however, no left wing alternative except in Greece, where unrest has continued for more than a year now. Greece is different and usually not included in Eastern Europe largely because it is not in transition from Stalinism to capitalism, a transition which can only freeze under present circumstances.

Greece, however, is a focal point in the present crisis. Although small and peripheral in Europe, it has a highly politicized population, which has not been subject to the politically destructive effects of Stalinisation. Part of the EU from the seventies, it has enjoyed a considerably subsidy from the EU itself which has allowed the standard of living to rise considerably over the last 30 years. However, in the last period, before the recent downturn, growth has declined and governments have attempted to cut the public sector, after a process of privatisation.

The East Europeans have the bitter legacy of Stalinism to contend with. Nonetheless, the failure of global capitalism follows the failure of the market in the so-called transition from Stalinism. In effect, the population was thrown a few bones to assuage their discontent. This was obviously true of the way in which people in countries like Hungary and the Baltic Republics were able to mortgage their houses with Swedish, Austrian and Italian banks, which have had to be bailed out. The stubborn refusal of Latvia to devalue its currency in order to avoid reducing its citizens to dire financial straits is generally held to be a vain effort.

The 20th anniversary of the end of Stalinism in Eastern Europe has been projected as an historic triumph of the popular will, as demonstrated by the fall of the Berlin Wall. In reality, it was entirely predictable given that Gorbachev had already indicated that the USSR did not need Eastern Europe, or more accurately did not want to continue propping it up. Although some Eastern European politicians and economists tried to argue that they were financing the USSR, the contrary was true. The USSR was exporting wheat, oil, metals and minerals in exchange for poor quality Eastern European goods. Moreover the exchange rate tended to favour the East Europeans, since the world market price had risen substantially in the post 1973 period, but was not fully incorporated into the prices involved. The problem has been clearly illustrated in the export of gas from Russia to the Ukraine, where the latter has tremendous difficulty in paying world market prices. The Stalinist USSR wanted Eastern Europe as a buffer zone, but the imposition of the Stalinist economy meant that its products were of lower quality than those of the West, and a marketised USSR did not need to pay that penalty if it no longer feared that its population preferred the market in the West. Hence there was no popular triumph, only a deliberate decision by the elite to switch to capitalism.

In Eastern Germany, behind the Wall, there was no question but that the population was atomised, the role of the Stasi was crucial in maintaining stability, and that the GDR elite extracted a surplus product in a form particularly suited to such a police state. However, it is not at all clear what the working class would have wanted, given a real choice. The West German State rushed in to ensure that it was incorporated into the German state and did so by effectively bribing the East German population, providing an exchange rate at parity for the two currencies and a vast subsidy provided by taxation of the West German population.[6] The only alternative on the horizon would have been a democratized East Germany, retaining the nationalised economy, but incorporated as an autonomous state of Germany, but it would have left the population with a lower standard of living than they obtained. It was only an option if there had been a left wing party standing for socialism, with support in both Germanies. There were left-wing GDR oppositionists who wanted something like the above but they had no hope against the might of German capitalism. East Germany remains a drain on the German economy to this day.

This is pertinent to the crisis itself because the economic failure of East Germany, even given the enormous subsidies involved, indicates the difficulty for the rest of ex-Stalinist Eastern Europe to switch to a full market economy. Under crisis conditions, the situation is bound to deteriorate, as can be most obviously seen in the case of the Ukraine. Hungary used to be a trundled out as a showcase example of a successful transition, but its economic and political future is now in doubt. Although Russia has survived the downturn in one piece, its economy remains in trouble, given its dependence on oil, gas and other raw materials, whose prices have declined. Although Russia has a surplus of a few hundred billion US dollars, held by the state, its firms have taken out large loans from the West, which they cannot always repay, and the total outstanding exceeds the surplus held by the Government.

For the time being, the crucial countries are the Ukraine and Greece. The Ukraine has received a large loan from the IMF, the last instalment of which has been held back as a result of non-fulfilment of the IMF conditions. In reality, de facto nationalised Ukrainian firms have defaulted on their international obligations7, which counts as somewhat less than a sovereign default but is not different in essence. Greece has had the rating of its debt downgraded by the international rating agencies. As is well known, the ruling class or ruling elite in these two countries cannot enforce austerity without political repercussions which might threaten the system itself. In this respect, these two countries provide a critical indicator of future developments.

For reasons discussed above, the ruling class seems bent on enforcing fiscal rectitude. Governments are reducing the real level of pensions and social welfare, cutting the numbers employed in the public sector, cutting expenditure on education and health, while claiming to do otherwise. The differences between the parties rest on questions of timing and extent, not on the necessity of such action. Clearly, as they phase in the reductions in government expenditure, unemployment will rise and demand for goods and service will fall..

One way of putting the issue to date was that of the US left Democrat Congressman, Kucinich: "The class warfare is over -- we lost," Kucinich said "I want to make that announcement today. Working people lost. The middle class lost."[7] Nothing else could have happened given the absence of working class action and any socialist party to represent them in the USA.

However, the issue is more profound in that it looks as if governments and the ruling class have decided to take advantage of the relative lack of protest, under the existing circumstances, to press forward. For the same reason as they lost ‘confidence’ in the system in September, their lack of understanding of the system itself, they have become overconfident and it looks as if they intend to try to inflict an historic defeat on the working class, before it is necessary to do so.

The triumphalism of the nineties has passed but the ruling class has not yet woken up to reality. The finance capital strategy which they have pursued, with the attendant political-economic corollaries, so called neo-liberalism, is in trouble. They have to find a new overarching strategy with which to contain the class struggle and the overall contradictions of capitalism. At the moment, finance capital is still fighting rearguard skirmishes to maintain itself as an entity, the dominant form of capital. However the risk to capital as a whole is too great for them to win. Anglo-American capital, while still dominant, has to make concessions to European and third world capital, in order to hold the system together. In this respect, there are two aspects involved.

Stability in a declining capitalism

In the Eurozone, the situation of Portugal, Italy, Spain and Greece rests, in the end, on the extent to which the ruling class in those countries can squeeze the population in order to establish their sovereign credit worthiness. The reason why they are in trouble in the first place lies in the fact that their governments, and their ruling class, have been too weak to cut government expenditure and raise taxes. In turn, the necessity of such measures is a reflection of their lower productivity as well as the overall overcapacity of the world economy under capitalism, making it difficult for those countries to export. As China demonstrates, where the ruling class or elite is sufficiently strong to enforce a high rate of exploitation, its commodities can outsell those of its competitors. Low wages do not necessarily lead to high profits unless productivity, technology and quality are of a globally competitive standard. This, in turn, raises the question of what is meant by ruling class strength. In other words, the determinants of systemic stability establish the ability of the ruling class to raise the rate of profit, under conditions of a declining capitalism.

In other words, as some business men and right wing economists argue, the downturn weeds out the inefficient and incompetent in the economy, and in this context, it means that capital is compelling its weaker brethren to enforce lower wages and worse living conditions in order to restore the national rate of profit.

The Class Struggle Heats Up

The question, therefore, returns to the class struggle. It is no accident that right or ‘left’ populists have been elected to government in a number of these countries. No party can be elected on a programme of unmitigated cuts to the living standards of the majority under conditions where a tiny minority control the wealth of the country, which they have no compunction in flaunting on occasion. In this respect, Greece has already shown a high level of militancy, but a large and authentic socialist party is yet to emerge. In its absence, anarchists, populists, and Stalinists continue to play a role. The violence directed against the left, including the throwing of a bomb into the house of a leading member of the Greek Workers’ Revolutionary Party, cannot be regarded as an accident. Under these conditions, history may speed up, eliminating the already discredited but important Communist Party, sweep up individualist militants and reformists into a bigger wave of genuine socialist militancy. The Greek Government is clearly frightened of such a possibility if it implements the reforms proposed by the EU economic bodies. As a result, it is treading too carefully for the rating agencies, the watchdogs of international capital, and their debt has been downgraded. Given the high level of international debt held by the Greek government, it raises the interest rate to be paid for borrowing putting yet more pressure on the government. If, however, Greece defaults on its debt, the Eurozone itself is called into question, under conditions where the Euro is only a decade old.

In this respect, the issue, therefore, becomes one for international capital. It cannot allow the Euro to fall, and so permit the re-introduction of competitive devaluations. The flow of finance capital will be disrupted, or at least require to use more intermediaries at a higher cost, and French and German capital will suffer. The economic integration of continental Europe enhances its subjection to German industrial capital. The attempt by Deutsche Bank to integrate itself into brotherhood of international finane capital has only partially succeeded. Industrial capital remains dominant in Germany and given the importance of exports to its profitability, it need free trade, which it has in the Eurozone, up to a point. It is, therefore, highly unlikely that Greece or any other country will be expelled from the Eurozone, however inept the German ruling class considers the Greek government. Since that is not unknown to the Greek government, it can play for time and further subsidies from the EU, most particularly Germany, rather than go for an all out confrontation. The EU officials, the German Government and the Greek government are involded in a highly complicated series of manoeuvres to try to bamboozle and if possible face down the Greek population. The other alternative, of compelling the Greek government to directly confront the population could lead to the defeat of the ruling class, as a class, and the evolution of a revolutionary class. As that is also a real possibility, which might play itself out over a number of years, one would expect the EU to capitulate quite quickly. That, however, is unlikely because it might encourage the working class in other countries. It is entirely possible that the EU officials and the German government will misjudge the situation, at some point, and put the Greek government in a situation where it has no alternative but confrontation.

In fact, Greece might be alone in having a highly politicised population but the other countries mentioned above have parallel economic difficulties. While small countries are of lesser importance apart from the possible domino effect of class struggle or devaluations, Spain and Italy are in a different category. The Eurozone has limited resources and Germany cannot provide the necessary subsidies without an effect on its own economy. The ruling class has adopted a strategy of muddling through and to the extent that there has been no particular disaster, it has been successful. However, this is not a replacement for finance capital itself, nor has it prevented the differences over forms of action spilling over. Given the absence of any perspective, it is possible, in extremis, that the Eurozone will buckle under the strains, in an unplanned and unintended way. In that case, if the difficulties are sufficiently extended, it could be reduced to its core nations of Benelux plus France and Germany, at least for some time. As this possibility is foreseeable, the core Eurozone countries are doing what they can to prevent it, on the understanding that the world economy will pick up and make the difficulties less intractable. Substantial growth of the world economy will smooth out some of the problems, but as indicated above, this is unlikely even if there is a technical rise in world industrial production. In that case, muddling through will reach its limits.

From what has been written above, it follows that the solution to capital’s problems lies in global reflation. However, as we have consistently argued, this will not happen because it has been ruled out by the ruling class since the experience of the sixties and seventies. The restoration of full employment, following on a period of global unrest, would threaten the stability of capitalism. Given the choice between sporadic confrontations and a direct threat of overthrow, the ruling class will choose the former, however uncomfortable it will be politically.

Misprint

Please note that there is a misprint in the last Critique Notes. On page 504 second paragraph 1967 should read 2007.

Notes

  1. Recovery will take years, says Siemens. By Daniel Schäfer in Munich Financial Times, London, December 4 2009 02:00, p.27.
  2. Ibid.
  3. US service sector, Financial Times, Published: December 8 2009 09:44, Last updated: December 8 2009 13:05, accessed 8/12/2009
  4. Optimism on economy fading, poll shows, December 8, 2009 9:16 a.m. EST, accessed December 8th, 2009:
    “Washington (CNN) -- Two years into the recession, Americans don't see economic conditions getting better any time soon, and the steady growth in optimism that previous surveys measured throughout the year appears to have stalled, according to a new national poll.
    A CNN/Opinion Research Corp. survey released Tuesday indicates that 34 percent of those questioned say that things are going well in the country today. That finding is 14 percentage points higher than a year ago but a dip of 3 points since November.
    "This the first time in Barack Obama's presidency that this number has gone down," said Keating Holland, CNN's polling director. According to the survey, 39 percent of the respondents said the country is still in a downturn, up 6 percentage points from last month. Nearly half of those questioned said the economy has stabilized and a small minority, 15 percent, think the country is starting to recover.”
  5. Ibid
  6. Timothy Gartan Nash captured something of the mood: “There were certainly aspects of West German life and attitudes about which they had reservations. But so far as the economic, political, and legal system was concerned, West Germany’s was the best one going.” Timothy Garton-Nash: History of the Present: Essays, Sketches, and Dispatches from Europe in the 1990s, Vintage, 1999, p. 16:
  7. Before the Committee on Oversight and Government Reform. Accessed 21st December 2009.