Critique Notes 57
Published: 29 June 2011
The next special issue of Critique will be on Stalinism, both broadly, as a category of political economy, and on its specific effects. It follows the February conference on that subject and a number of the papers will be included.
The Current Situation
Robert Reich, former Secretary for Labour under President Clinton, has written a suitably gloomy account of the state of the US economy and hence of the prospects for the world economy. “The recovery has stalled. It is unlikely that America will find itself back in recession but the possibility of a double dip cannot be dismissed. The problem is not on the supply side of the ledger. Corporate profits are still healthy. Big companies continue to sit on a cash hoard. Large and middle-sized companies can easily borrow more, at low rates. The problem is on the demand side”. He points out that: “Average hourly earnings of production and non-supervisory employees – who make up 80 per cent of non-government workers – dropped to $8.76 in April. Adjusted for inflation, that’s lower than they were in the depths of the recession”. Unemployment remains persistently high but economists declare that there is no recession because there is a positive growth rate of 1.8 per cent in the first quarter of 2011. Robert Reich rightly calls this a ‘measly’ rate.
To talk today of double-dip recession or not is to revert to Orwellian language. When unofficial accounts of unemployment both in the US and the UK speak of figures around 20 per cent, roughly double the official figures, and wages are low and dropping, while profits are rising, and there are no real prospects of an upturn in the economy, then it is clear that capitalism is in a structural crisis, from which there appears to be no reasonable solution. The question is discussed in an article in this issue.
However, we may add a number of points. A month after the article mentioned was written, the newspapers were filled with gloomy reports on the world economy. Stagflation was now the order of the day. The one developed economy apparently flourishing, that of Germany, was dependent on Chinese demand. China in turn was stabilized by its statized economy and so it was able to pump money into the economy as required, as well as increase industrial investment in Keynesian fashion. However, the Chinese economy was being held back in order to reduce the induced inflation, so leading to a downturn.
The Anglo-American economies which are closely intertwined are both in trouble and there is no obvious solution. The British Conservative government deliberately used its election to implement its ideological imperative to cut the state down to size. For this purpose, it cut state expenditure and reduced the public sector and welfare benefits. In turn, this led to decreased economic activity and lowered demand. The private sector, so called, did not take up the slack. Its profits were high but it did not want to invest or expand production and services. The logic of this situation always meant that the government budget deficit would rise, in the absence of real growth, so preventing the government reaching its goal of rapidly balancing the budget. In turn, the original intention of assuaging the doubts of the markets would then have failed. Of course, the anxiety over the markets was overdone, but it was so well advertised that the danger had become real and could still be real a year later. The government has been in in trouble, as a result, and used various propaganda devices to save itself.
As the media are subservient to the government and the ruling class, it takes time for the truth to become clear to all. In this case, the rise in unemployment, decline in wages and salaries, and cuts in services are showing themselves and will become a cause for militancy if there is no ‘u-turn’ within some months. The US economy was forced into the same situation of needing to cut the budget after the Republican victory in the Congressional elections. Obama had failed to use the government to invest in the infrastructure in order to use a Keynesian stimulus for the economy. Parallel to the UK, the private sector had high profits and huge holdings of monetary reserves but they were not investing.
Why no Investment?
Why no investment of reserves? This has been partially analyzed in my article, but it is worth summarizing the issues. Since the seventies, the ruling class has turned to Finance Capital rather than industrial growth. If value only comes from labour time then there is effectively a relative shortage of opportunities to increase value and so obtain surplus value. In other words, there is an investment problem. This appeared to be solved in the nineties and after by exporting capital to the third world where labour is superexploited, by tightening up on controls over labour in the developed countries, by investing in monetary instruments, and through the appropriation of privatized industries. There was, however, a limit to the further extraction of value, which has left only increased speculation using monetary instruments of various kinds, which continues down to the present. The implosion of Finance Capital has left large firms with agglomerations of capital which cannot be invested even in arcane monetary instruments.
The Financial Times leader quoted above is historic in expressing the doubts that now pervades business and it may be used as a document to compare with similar editorials in the thirties and in the future. Orthodox economists are trained in producing articles demonstrating the efficiency of the market, not in theorizing the failures of the system. When turning their minds to empirical reality, they are unable to discover the forces at work and prefer to do a comparative survey of cycles over the last 300 years. That might sound useful until you realize that capitalism was not the same in earlier periods and attempts at generalizations can consequently lead to weird conclusions. It is as if a Martian were to arrive on Earth and produced generalizations’ on living creatures by comparing dinosaurs, bacteria, fish and man, rather than starting from the theory of evolution.
The original analysis in these pages appears to be validated in that bourgeois policy is increasingly polarized between adopting a concessionary Keynesian policy and returning to an antediluvian capitalism. The former is under increasing pressure and is more and more limited. It is doubtful if it could have succeeded but without its core elements of state and joint state-private enterprise investment it can only fail. The logical alternative, therefore, has been a turn to the implementation of an anti-welfare, extreme privatization agenda in order to reduce government deficits and the national debt. This cannot work either both because it must polarize the classes forcing mass white and blue collar working class militancy and because modern capitalism is not based on small and medium size business. The latter are dependent on the large firms for orders, investment and research and indeed are often little more than formally independent. In turn the major firms will not invest unless they are guaranteed returns. This is officially called a crisis of confidence. A guarantee of future profits on the scale requested cannot be provided unless there is a major and long term defeat of the working class. Even then large scale innovative investment requires long periods and huge sums to bear fruit, and private enterprise usually gets the public sector to play a crucial role in providing the research and development involved as well as in providing subsidies. Since the official political line of the right is for the defeat of the working class and against the public sector, there is an impasse.
In the meantime, the declining system has not been overthrown and alternative forms of reacting to the increased pressure are showing itself. If a society cannot be re-integrated through the overthrow of the old system and so renew itself, it begins to disintegrate. One form is geographical disintegration.
We have seen examples in the various national movements over the world. It is one thing to overthrow colonialism, and national oppression; it is another to use disintegration as an alternative to overthrowing capitalism, or as a means of defence against modern capitalist strategy. In Scotland, where this journal is published, we have seen the victory of Scottish nationalists as a means of protecting the population from the anti-welfare state policies of British Conservative Party. It is argued that in Scotland there are two social democratic parties, the Labour Party and the Scottish National Party, but that the latter is more consistently social democratic and more likely to fight for its cause. As social democracy has a long record of betrayal, it is no compliment to the SNP. However, the Labour Party has moved so far to the right, that the viewpoint appears to be correct, whatever the terminology. The disintegration of the United Kingdom is a logical result of the process of the end of empire, and the decline of British capitalism. However, in this context, it amounts to the population of Scotland deserting their fellow English and Welsh citizens in their struggle against capitalism, because they can see no other way out. Of course, there is nothing to stop the restoration of a common struggle in a later period.
Nonetheless, this tendency for parts of a whole to look to their own salvation is now universal. In the early period of the post-Soviet period in the former Soviet Union cities and provinces attempted to secede because they, or their elites, saw themselves as better able to survive as independent entities. A similar and horrific process took place in former Yugoslavia. It is interesting to note the different path now being taken in Quebec, where the social democratic party, the NDP won the majority of seats in the elections in Quebec to the Canadian Parliament. The Quebec nationalist party was effectively wiped out on the Canadian stage, though not in Quebec itself.
The point being made is not that disintegration is the way forward. It clearly is not, and in some cases it can be a complete disaster. It is simply that local elites, sometimes supported by the local populations, take the opportunity to separate where they see advantage in so doing. Obviously overthrow of a colonial or semi-colonial power is a step forward. However, the term national liberation has a lot to answer for. It was annexed by Stalinists and used to shift the struggle in the third world from a demand for socialism to one for a national capitalism. Imperial Capital effectively supported it, once they realized that they would have to grant at least a nominal independence. The effect was to cut off the working class of those countries from the universal demand for socialism.
The Euro area and disintegration
Another aspect of the dialectic of integration/disintegration is showing itself in the Eurozone, and European Union. As it stands today, the EU is going through a phase of integration of the former parts of the Soviet bloc at the same time as the crisis in the EU and the Eurozone. . Although the economic crisis in the Baltic republics almost appeared to be terminal, the IMF and Eurozone authorities were able to force the relevant institutions to provide the necessary money and compel the governments to enforce a substantial decline in the standard of living. The latter was possible because the population saw itself as politically threatened, while the small size of the countries involved made the loans manageable. There was obviously a political imperative to support the area in its post-Soviet period. If it had been allowed to go into bankruptcy, it would have been a poor advertisement for capitalism and would have added to the overall failure of the market in the region. The threat of disintegration was contained in this instance.
Interestingly, the most important relationship helping to contain the centrifugal tendencies in the Euro area has been that of Germany and China. As implied above, it is the sale of German industrial goods, particularly, producer goods, which has provided the basis of the contemporary German upturn. That in turn has allowed Germany to underwrite the Eurozone. It can do so with comparative ease given its enormous balance of trade surplus, which surpasses that of China, at the moment.
The crucial role of Germany is not an accident of history. At the time of the First World War, it had been rapidly gaining on the United Kingdom as the major European industrial power. The UK and France had been occupied to a greater degree in shifting to finance capital and exporting that capital. The effect of the Russian Revolution was to reduce the importance of France in terms of finance capital, given the expropriation of its assets in the former Russian Empire, effectively knocking France out of imperial contention. Germany, of course, was restricted industrially by the peace settlement, but then developed industry substantially for military industrial purposes under Nazism. The United States overtook the UK and Germany as the major industrial power before the Second World War. However the UK continued to maintain its imperial role for a time after the war, and reverted to a position as the junior finance capital power after the late seventies, while the USA dominated financially. The effect of the peace settlement after the war was that Germany, was subordinated financially but encouraged to develop industrially as part of Western Europe, with the twin advantages of demilitarization and a considerable immigrant labour force first of Germans expelled from Eastern Europe and then of Turks and Yugoslavs. In the post-Soviet era, the absorption of Eastern Germany has continued that trend. In addition, the early acceptance of Social Democracy with so-called mitbestimmung has added to the conditions permitting a higher level of productivity, with fewer strikes than elsewhere. The effect has been to reinforce Germany’s role as the major European industrial power.
Until the recent downturn Germany remained subordinate to finance capital, which was in the first instance US capital, with American troops on its soil, as a token of the US imperial role. However, the implosion of finance capital and the military and diplomatic setbacks suffered by Anglo-American capital have pushed the German bourgeoisie to the fore. Today the comparative quality of German engineering products, particularly automobiles, has meant that German industry has an important key role in the global division of labour. The reason has more to do with the subordination of the role of profit and particularly that of profit based on finance capital, rejecting the Anglo-American emphasis on short term returns.
The Eurozone countries had necessarily to become a market for German goods, and a source of labour for German firms, whether operating in countries other than Germany or in Germany itself. The French bourgeoisie could only co-operate or at most slow down the process. Germany has consistently subsidized the EU and in particular the Common Agricultural Policy, from which France derived considerable benefit. It is clear that the German bourgeoisie has continued to pay highly for its role in the last war, but it is hard to see how it could have acted otherwise. While there is a popular media conception that the Eurozone and the EU are political entities first and foremost, it is not correct. Germany could not survive in its present form without its markets and its ability to use cheap labour outside its boundaries. It is true that China and the United States are crucial markets but they are not likely to remain as favourable as today, whereas the Eurozone is permanent and continues to provide relatively cheap labour. If it were to break up and, let us say, Greece, Portugal, Ireland, Italy and Spain return to controlling their own currencies, with their own money supply and interest rates, they would devalue against the Euro and sooner or later raise interest rates. The effect would be to reduce the import of German goods, and provide a basis for an industry protected against Germany. The European Union itself might break up or more likely change into a limited free trade area, as a section of the ruling class in the United Kingdom would prefer. It is, therefore, in the interests of the German ruling class and its allies to hold the Eurozone and the European Union together and gradually move it into a closer economic union, which would necessarily become a political union.
The complaints of German tabloids that the ‘Germans are once again the suckers of Europe’ so raising German nationalism are counterproductive. However, if Germany does move in a nationalist direction, and the disintegrative tendencies, arising from the crisis, are strong, the overall economic and political effect would be the creation of a separate German dominated Northern European block. It would then create a separate crisis for the French bourgeoisie, which has been trying to establish its own block of Mediterranean countries. While such a nationalist denouement is possible, it is unlikely as the overall pressure of US and global capital is in favour of larger groupings and freer trade, and the crisis has not yet deepened to the point where this pressure can be discarded. In any case, as indicated above the costs to Germany of such a break are such that the ruling class would only move in that direction if it was necessary to use nationalism to contain the left.
The Left and the Need for a Party
It is never the case that “the worse it is, the better it becomes politically” as some anarchists have argued in the past. On the other hand, it is also obvious that workers will not turn to the left, if their conditions continually improve under capitalism. Today, capitalism is in trouble but the issue for most people is perceived at a personal or particular level not at the level of the social system itself. Why this is the case remains the crucial question for the left. The reasons advanced are largely correct but they do not solve the problem of when the working class will conclude that it is the class destined to take power and change the world –in capitalism but not of capitalism.
There are a number of aspects to the question. The fundamental reason given for ideological confusion lies in commodity fetishism or the apparent eternal and impersonal nature of a seemingly natural entity- the market. By itself, 150 years of opposition to and education and propaganda against this conception has made its mark. With mass unemployment, declining wages, asset and cost inflation and few prospects for young people, it is the first time since the war that the market is in the process of losing credibility in the ‘West’. However, the two currents which arose out of socialism, even if they are not in reality socialist, social democracy and Stalinism, continue to play an influential and negative role. Nominally social democratic parties whose programmes have little to do with socialism continue to play important political roles. The effect is to discredit the left and help to prevent the emergence of a socialist party. The historical role of Stalinism has played the crucial part in convincing people that Marxism and socialism are utopian and inevitably evil. It is taking a long time to convince people otherwise and render a genuine Marxist party credible.
The media exult over the absence of left parties in government and the failure of such parties at elections. However, things are not as bad as they seem to such commentators. In the first place, there are countries where the far left has been elected to legislatures, as in the case of Ireland. In the second place, there does seem to be a gradual movement to the left. In Italy the recent local elections showed that the trend towards right wing social democracy has been reversed. In the second place, there are mass demonstrations which are changing the overall mood. In the UK, the mass student protests and the March trade union demonstration showed the beginning of mass action. In the USA, the Wisconsin protests marked a break with the past. In the third world, protests are endemic.
Without left wing political movements and parties there can be no progress for the left. The spontaneous emergence of occupations of public squares in a number of Middle Eastern countries and in Spain, with lesser forms of the same thing in other countries, has given some hope of a new form of political struggle. While one has to salute those who are engaged in these occupations, it is clear that they do not engage with the system so much as with the absence of free speech, and the absence of opportunities to voice an effective political critique of what exists. The youth, students and others who are so occupied are allowed to perform this role precisely because the ruling class is not threatened. Where part of the ruling elite is threatened, then the army represses the people involved, as we have seen in Syria, Yemen and Libya. Since there are sections of the ruling class or elite who are discontented in those 3 regimes, they have been able to take up arms, with the assistance of Western capital.
We should rather regard the uprisings in these countries as an expression of the despair of the masses the world over. For the past 200 or so years, it has fallen to the youth and to students to enunciate the demands of the population of a whole before the working class is capable of action. The anger and bitterness of the working class at its intensified exploitation and oppression is taking time to expresses itself directly, in militant form, and its youth picks up the common mood and runs with it. They are able to do it because they are less concerned over children or their own future, and the lack of jobs may have propelled them to action.
These initial probings of the working class must be regarded as limited forays which warn the ruling class to concede before it is too late. They are helping to prepare for genuine action, when there are organizations which are capable of it.
- Robert Reich: Back Towards a Double Dip, Financial Times, London, 1/06/2011, accessed 1st June 2011.
- ‘Although the recovery had been much shallower than in previous financial recessions, it is tailing off.’ “Dealing with the evils of stagnation, The rich world faces a long and uncertain recovery”, Financial Times, London, Saturday, June 4th 2011, p.10.
- “Without the benefit of strong Chinese growth, Germany would look more like its less-favoured western peers”, ibid.
- Editorial, Financial Times, Saturday 4th June 2011.
- The Economist, London, June 4th 2011, p114.