Critique Notes 52
Published: 21 April 2010
Critique held a seminar to mark its 50th issue at the London School of Economics on the 27th February 2010. Michael Cox and Hillel Ticktin discussed the latest phase of the crisis, as well as its origins and theoretical basis. The talks are to be incorporated into the next issue on the contemporary crisis. There will also have been two Critique panels at the annual Left Forum conference on 19th-21st March, on the same general topic though with a wider range of speakers.
The Crisis in its second phase
The crisis has now moved into its next phase. In order to understand it, there has been a fair amount of academic work done on comparing crises over hundreds of years, in order to predict the course of this crisis. One of the best known investors, Bill Gross, the so-called bond king, has now taken centre stage again in giving investment advice on the future of a series of countries and has relied, to an extent, on the recent academic work of Kenneth Rogoff. Bill Gross has been quoted in previous Critique notes, before the crisis broke out in all its intensity, pointing out that the increasing disparity of incomes would mean that the ‘centre could not hold’. (Interestingly his is now the title of the 2010 Left Forum conference) The burden of his latest remarks amounts to the fact that the aftermath of the crisis, like previous crises, is such that there is a considerable debt burden on the developed countries, with certain countries excepted, like Canada, Holland, Sweden,and Germany. Of the countries excluded from his warnings only Germany is a major capitalist country, and it has hobbled itself by turning balanced budgets into a constitutional issue. He is arguing that investment returns will be higher and less risky in underdeveloped countries like India and China. As the newspapers highlighted, he declared that British bonds were toxic.
Given that Greece, Portugal, Spain, and Italy were also in the firing line, and France not far behind, with the USA included also in his arc of fire, it is obvious that the crisis is only going into its next phase, if one is to use his empirical material, rather than his underlying assumptions. The only exception was Germany, but that is only because its bonds look safe, not because its economy is in good shape. On the contrary, we read that in December 2009 that growth was unexpectedly low for the last quarter of 2009. The outlook for the future did not look bright either.
The cyclical aspect of the crisis was intimately connected with the banking crisis. While finance capital remains in trouble, the banks themselves have been shored up and, with the backing of the relevant governments, are in the process of returning to solvency.. The McKinsey report notes that: "We find that in most countries, by the second quarter of 2009, the banking system had deleveraged to the point at which capital levels were at or above the average levels of the 15 years preceding the crisis." Obviously, banks have a long way to go to deal with outstanding derivatives, but it looks as if they are no longer in imminent or even a short to medium term threat.
Rather, interestingly, smaller East European countries appear to have been saved from the extreme measures that appeared necessary in order to deal with debt held by foreign banks. “As one emerging markets strategist told the FT: “Hungary and Latvia have impressed investors with their reforms, but they have a long way to go to get their books in order”. This is amplified in the article by pointing out that the population of the same countries continue to borrow from foreign country banks in foreign currency. The contrast of the Baltic countries, particularly Latvia, with Greece is striking in that the IMF bailed out the East European countries, with the assistance of the relevant European banks even though the markets were demanding a devaluation of the Baltic currencies, especially the Latvian. Some 78 billion dollars were used for this purpose. Apparently, a special meeting of the banks with the IMF was called in Vienna on March 26 2009 and they decided that they had no choice but to bail out the East Europeans because the alternative could have meant another ‘Lehman brothers’ type crash.
As the same scenario presents itself before the Eurozone countries of Greece, Portugal, Spain and Italy, let alone the UK, one would have thought that there would be a move towards a global solution. Instead, the markets had a minor crash on the 4-5th February 2010. Furthermore, as the above quote makes clear, there is no change in the overall practices of the relevant countries in Eastern Europe, whereas Greece has been pressurized to introduce historically draconian measures to cut the incomes of the population.
The difference is obviously in the different political complexions of the countries. The Eastern European countries are still in a so-called transition to capitalism and have no strong genuinely left wing movements, whereas Greece has a militant political tradition embracing the whole population, whatever their political viewpoint. There are also strong left wing movements. In the other countries of Western Europe, socialist tradition remains alive and with it powerful populist and left wing currents. The result is that the ruling class has had to make welfare and economic concessions, which governments have found it hard to deny or rescind. The result is that Eastern European governments, as opposed to those who were part of the USSR such as the Ukraine, found it easier to follow IMF policy and lower the standard of living of their populations.
In other words, the next phase of the crises is one of fetishized class warfare, in which countries cut their budgets resulting in reduced welfare benefits, lower levels of employment, and declining salaries. These policies are sold as necessary measures to put the governments budgets in order. They are necessary, it is said, because the governments have acted injudiciously or corruptly. Thereby the blame, which rests with the ruling class, is passed on to governments, bureaucrats and politicians. In turn, the politicians have taken populist measures against bankers by, inter alia, attempting to control their bonuses. The press gives the impression that the system is sound but was let down by the greed of a series of big bankers.
As we have pointed out many times in Critique Notes, the cause of the crisis lies with a system which has turned capital into its monetised form, finance capital, in such large quantities that banks and other financial entities were doing their best to compete, in order to provide the best possible returns in as short a time as possible, for those who had put their money in those banks. The switch to finance capital, in the seventies, was itself a mode of insulating the capitalist class from the class struggle and it is the lack of investment outlets, for whatever reason, that lies behind the change in strategy.
The protracted manoeuvres over the Greek crisis, with the German Government playing hardball, the French sympathetic and the markets raising the price of Greek debt, but nonetheless funding new Greek bond issues, are well described by Sam Brittan as a game of bluff and counter-bluff. As German banks, along with British banks, have substantial holdings in Greek bonds, they cannot be keen on a Greek default, let alone a possible domino effect. At the same time, the Greek government knows that it has limited scope for cutting the Greek standard of living before discontent turns into militancy and ultimately revolutionary militancy. We should rather regard the process of interaction between the Greek population, Greek government, the German government and German ruling class as an interesting illustration of the nature of international relations and class struggle. The Greek government has said it will turn to the IMF for assistance in spite of the fact that the Eurozone members prefer to settle problems among themselves, thereby threatening the Eurozone itself. This play on Euro independence from the USA is itself a bluff in that the Eurozone members themselves were asking for the IMF to be involved because it is tougher than the Euro administration. However, there is a difference between involvement and taking over.
The sovereign default issue has merged with the more general demand for the cutting of budget deficits and at its heart, it is the same thing. The second coming of the crisis or the so-called double dip recession is now widely canvassed.
Are they committing suicide? The Question of Consciousness- Theirs and Ours.
At first sight, it appears odd that the ruling class appears to be throwing down the gauntlet by demanding mass unemployment, lower wages and a diminished welfare state, in the name of cutting the budget deficit. The Republican party in the USA, the British Conservative party and the German liberal-conservative coalition are all calling for massive reductions in the budget deficits as soon as possible. One might conclude that the ruling class is taking advantage of the absence of a substantial left in order to shift the class balance of power in their favour.
First impressions may be correct in this instance. However, one wonders whether they realise what they are doing. The end of the Soviet Union and the death throes of social democracy may have convinced them that there is no alternative but capitalism and they may be indoctrinated by their own ideology. If so, they are due a period of re-education. However backward the consciousness of the population, few will be prepared to accept a declining standard of living ostensibly because the bankers were greedy.
The no vote in Iceland and the long drawn out resistance in Greece have given the IMF and the governments of the Eurozone a sight of what is to come. There is no obvious reason why the population of Iceland should pay for the adventurism of those who controlled their banks. Looking at the issue more generally, although the banking system had to be saved to avoid total economic disintegration, there is no reason why the money could not have gone to those holding mortgages, who would not then have defaulted. Given the downturn in consumption, it would have made more sense to have substantially increased wages and salaries in the public sector for the ordinary workers: nurses, teachers, firemen, policemen, clerical workers etc, given their low pay. It is easy to find ways in which the workers and the ordinary poor person could have benefited, but it is quite obvious that the system would never do any such thing either for the many or for a substantial time. This point is not intended to show the obvious fact that the capitalist class has helped its own people. Instead the aim is to bring out that today most of the world’s population are very much aware of how the crisis is part of the system, whatever that may be, and that a few people are benefiting from it, while they themselves have to pay.
In short the ideology of the last 30 years has collapsed, without a replacement, and people are moving to right and left. We may expect the resistance to be non-political at first. Confusion reigns because there is no substantial and credible left and there has not been one for over 80 years. It is not therefore surprising that some proportion of the population will move to the right, adopting a libertarian attitude, opposing big business, and bankers in favour of small business and the lone individual fighting the authoritarianism of the state and the large corporation.
The justification for the cuts in each country is slightly different, with particular emphasis on local scapegoats, but the overall ideology is the same: It is necessary to cut wages and become more efficient to compete with every other nation, particularly the Chinese. Since this is obviously self-defeating, leading to a race to the bottom as it were, the argument is seldom spelled out in detail.
The Left and its Confusions
This helps to make some left wing alternatives just as confused. Some Greens, left-nationalists and left-social democrats have supported protection in various forms, as a way of maintaining levels of employment. Since protectionism itself has a bad name, other words are used to explain these policies. Devaluation of the currency is a highly effective form of protectionism, but it is often regarded as acceptable. This is because the devaluation is enacted by the ‘markets’ and hence regarded as part of the invisible hand which rules the market economy. However, it is evident that economic nationalism is gaining ground with governments trying to build up their economies and populations being urged to buy goods made in their own countries. Devaluation of the dollar and pound against the Euro have helped the US and the UK to ring-fence their own economies against those of the Eurozone, for instance. As some Greens advocate the superiority of local production and social democrats support trade unions who urge the retention or building up of local industry, as opposed to the industry of the second or third world, the fundamental causes of the crisis are ignored.
The sections of the left which adopt protectionism can easily find common ground. However, these are not political positions which will produce any medium or long term results for the individuals or groups holding them. We should, therefore, look to the situation in a few years time, when the systemic crisis of capitalism continues to force these individuals to the ground. A systemic alternative will then seem attractive to increasing numbers, particularly as a reviving left will begin to clean up its act. The latter is crucial.
Pessimism seems to rule the day. The failure of Obama has not helped, even though it was predictable and was predicted. Social democracy has betrayed its supporters time and again, without fail, and the pale versions of one-time social democracy seem to promise little and deliver even less. In the United States, where no formally social democratic party has formed a government, similar policies have been implemented, even if in a weaker form. European leftists are often surprised by the support for social democracy among the left in the United States, when it has so patently failed and metamorphosed in Europe. The amazing dominance of Stalinist organisations, (the Communist Party, Maoist organisations etc) among those calling themselves left-wing does not help either.
In Europe, Stalinism and Social Democracy are played out. Instead, former supporters of those views and others soft on the Stalinism prefer to argue that there has been a massive defeat of the left and hence we are in a period of retreat. For those who rejected Stalinism and social democracy the reverse is true. The question is only how long it will take for the pejorative term –far left- to drop the ‘far’. When there is a political shift to the left, it will necessarily, therefore, happen in Europe.
As long as capitalism appears to deliver the goods, even if in a skewed and distorted form, its future is safe. It is only when it becomes clear that it cannot do so that the whole political edifice begins to crack. Although the post-war period was lived under the shadow of Cold War and possible annihilation, the standard of living of most people in the developed countries rose until the seventies, and the end of colonialism in the third world seemed to promise a better future. The last 30 years have seen a series of minor crises, with a static or declining standard of living for many, particularly in the third world, outside China. The class structure has been increasingly polarised with the so-called middle class increasingly proletarianised. Nonetheless, there have been enough good years, which combined with increasing productivity and rising education opportunity to permit some acceptance of the system. Higher education has become more expensive, social mobility is declining and the projected cuts in the public sector promise lower salaries, reduced pensions and low growth. The system is no longer delivering. In the end it is objective reality that will find a way of showing how to act. In spite of all the confusion, muddle and obfuscation, reality must force its way through ideology. No system can indoctrinate its population for very long. In the Soviet Union, the real world was so far from the official line produced in the media, and educational institutions that people could not believe it. As the capitalist system fails to deliver the apparent goal of full or near full employment and rising wages, the official ideology and political system cracks.
Part 2: Trotsky
Trotsky in exile became the untarnished embodiment of the Russian Revolution, for most anti-Stalinist Marxists, but he was extensively reviled by the Stalinist organisations and press. They declared that he played no role in the Civil War even though he was the Commissar for War and built up the Red Army, and played a crucial role both in the October Revolution and in overall policy until 1923. There have been numerous articles and books written about Trotsky from the left over the years but they have not generated much publicity. Michael Cox and myself edited and wrote a book on Trotsky’s ideas, before the turn of the century.
There has been a great deal more written about Trotsky in the last few years than might have been expected.. Now there is the work of Robert Service, on Trotsky, some 600 pages, which has received numerous accolades, including the Duff-Cooper prize of £5,000 presented by the French ambassador to the UK. Interestingly one of the runnersup was Tristram Hunt for his biography of Frederick Engels.
I have reviewed it in the pages of the Weekly Worker and will not repeat what is said there, apart from pointing out that it is both spiteful and absurd. It is absurd in claiming that Trotsky had no original ideas and spiteful in making a snide remark in almost every paragraph. The basic thesis of the book is that Trotsky was level with Stalin and Hitler in brutality and mass killing, but he presents absolutely no evidence for this argument.
It is not difficult to see why there should be a series of books about Trotsky after Stalinism has largely disappeared and Lenin’s formal appearance debunked. Service makes it clear that Trotsky was courageous, highly intelligent, an outstanding orator and a superb organiser. He had no equal, other than Lenin, among the Russian revolutionaries. The October Revolution remains a pole of attraction for all those looking for a way out of oppression and exploitation. Until very recently Stalinists and their front organisations had done an excellent job in burying Trotsky’s reputation. So much was this the case that the question of Trotsky became a highly charged emotional issue for many. Having formerly been accused of nonsensical crimes, amounting to the betrayal of the revolution, he was then associated with the building of the Stalinist apparatus of the USSR, even though he was one of its first victims, and one of its first revolutionary opponents. The old emotions have been transferred for no good reason, and it is often hard to talk rationally to people who have been so thoroughly indoctrinated.
In an historical perspective, it very much looks like a deliberate attempt to rewrite history in order to avoid the widespread re-appearance of a revolutionary hero and of the socialist goals he espoused. The academic and political climate is conducive to this mood among historians, and one does not necessarily have to impute any particular motive to the individual historian.
The medium to long term result is almost certainly the reverse of what may have been sought, particularly in a period when the capitalist system is undergoing a genuine crisis.
- William H. Gross: Investment Outlook, ‘The Ring of Fire’, Pimco Europe Ltd, http://media.pimco-global.com/pdfs/pdf_uk/IO%20Feb%202010%20A4%20UK.pdf?WT.cg_n=PIMCO-EUROPE&WT.ti=IO%20Feb%202010%20A4%20UK.pdf
- Carmen Reinhart and Kenneth Rogoff: This Time is Different, and McKinsey Global Institute “Debt and deleveraging: The global credit bubble and its economic consequences.” http://www.mckinsey.com/mgi/reports/pdfs/debt_and_deleveraging/debt_and_deleveraging_exec_summary.pdf, accessed 6th February 2010.
- Growth in Germany Neared Zero at End of ’09, Jack Ewing , New York Times, 13th January 2010, , accessed 6th February 2010.
- Ibid p. 5.
- What a difference six months makes, in the CEE
- Posted by Gwen Robinson on Feb 01 08:32., accessed 6th February 2010. Ibid –“In a December post to the CEE rebound, FT Alphaville warned of the region’s growing addiction to borrowing in foreign currency for everything from second homes to TV sets. Highlighting the downside So much, that the European Bank for Reconstruction and Development expressed concern that, even though FX loans nearly blew out the region earlier in the year, most countries and institutions had failed to learn anything from the episode.”
- By the end of the day, participants had launched a rescue effort known as the Vienna Initiative that continues to underpin Eastern Europe's banking system. In subsequent months the IMF, with financial backing from the European Union, pumped $78 billion into Eastern Europe to stabilize national economies. In return, Western European banks operating in the region, such as Italy's UniCredit (CRDI.MI) and Vienna-based Raiffeisen International (RIBH.F) agreed to continue supporting their Eastern European subsidiaries. The actions averted widespread bank failure that could have fed a disaster as big as the Asian financial crisis in the late 1990s. "It was a very real risk," says Erik Berglof, chief economist for the European Bank for Reconstruction & Development (EBRD). If one bank had panicked and withdrawn support for its subsidiaries, "that would be a trigger for a complete run for the exits."
- Sam Brittan ‘Greek light on an over-hasty project’ February 18th 2010, Financial Times, London, http://www.ft.com/cms/s/0/f11a4dda-1cc9-11df-8d8e-00144feab49a.html, accessed 8th March 2010.
- Hillel Ticktin and Michael Cox The Ideas of Leon Trotsky, Porcupine Press, London, 1995.
- Robert Service:Trotsky: a biography (Harvard University Press, Cambridge, Mass. 2009, pp600, £25)
- http://www.thefreelibrary.com/Duff+Cooper+Prize+won+by+Robert+Service+for+biography+of+Trotsky.-a0219684744, accessed 8th March 2010
- Hillel Ticktin: In defence of Trotsky, Weekly Worker, 25th Februrary 2010, CPGB, London http://www.cpgb.org.uk/worker2/index.php?action=viewarticle&article_id=1003818, accessed 8th March 2010.