Critique Notes 70
There is no Middle Way
Commentators are now getting excited over the emergence of left parties taking the lead in opinion polls as in Greece and Spain, or threatening to play important political roles in their particular countries. Wolfgang Munchau,1the regular Eurozone columnist in the Financial Times, has argued unremittingly that the Eurozone is in trouble. He has pointed out that both Greece and Italy have no hope of repaying their bondholders or lenders and that the European bank does not have the wherewithal to do what is necessary. Now he has crossed the political-economic line and declared that, whatever else threatens, the chances of Greece and Spain having a left government that is against austerity are now quite high.2Either one or both those countries would threaten the continued existence of the Eurozone if there were a shift to the left.
While Munchau is easily one of the most perspicacious of the writers in the Financial Times, he is only stating the obvious. Right-wing journalists, or at least journalists who have to follow their owner’s preferences, in this crisis, have tended to make fun of social democratic parties and the far left. The demoralised population first voted right, and then for social democracy either in part or more solidly as in Italy, Greece, Holland and Germany. We noted this point in the last issue of Critique, but the question has become more pressing. The left cannot take power at this point. It is too weak, so that is not an issue. Nonetheless, it is beginning to play a real role in some areas of the world. Where there is a large shift to the left, without any real result in bourgeois institutions, as in Scotland, and elsewhere, bourgeois parties begin to make an accommodation. Parties descended from social democracy make concessions to the working class by opposing austerity to a limited extent, and take a firmer line on taxation of the top income earners. However, these parties are afraid to go too far, even though the population would applaud them if they did. As a result, workers turn to far-right parties which adopt left heroes of the past and which attack the establishment parties for failing to help the poor man or woman. Up to now, the far- right parties are not fascist, although there are clear comparisons.
The descendants of social democracy have no way out. There is no middle way. Either they move left or they will be and are identified with the failed present, and with all the grievances of the ordinary worker. The left was pilloried in earlier timesfor calling for a shift to the left, on the grounds that there was no constituency. That has never been proven. However, whatever the case in the past, there is now a large number of people who want a more far-reaching reconstitution of the order of things. The so-called centre-left parties have no solution other than a weaker form of austerity. Most people have not bothered to vote or if they have done so, they regard the process as deeply flawed and so next to worthless. The situation is changing. The far-left has disqualified itself until now but the situation has become more and more serious. People are looking for a real alternative. So-called social democratic parties are inoculated against going to the left and so search for the ‘middle way’, but it has disappeared over the horizon. A tax on this or that will change little. I argued in previous notes that the means of control, through the classic forms of the reserve army of labour and commodity fetishism, and through division, could not hold the capitalist fort. Today, the bourgeoisie itself is confused as to the way forward, and the population as a whole is searching. Hence in the disintegration of the capitalist system consequent on the crisis, is the demand for independence by this or that ‘province’ within a number of countries. Given the global nature of the capitalist system from its inception, this cannot be other than at most a temporary boost to morale. Critique will carry a discussion of the question in the next issue.
What is the Conservative Strategy Today?
The recent Autumn Budget presented to the British Parliament by the Chancellor of the Exchequer is a clear statement of the views of one section of the bourgeoisie. The present government set out plans in 2010 to cut the fiscal deficit by 2015, which involved massive cuts in the public sector and to welfare in particular, as well as a de facto cut in salaries. It was immediately obvious that the plans were bound to fail, which they have now done. The cut in growth involved reduced government income, so reducing the net gain from the measures. The Labour Party made this point, but very weakly and, with time, dumped the argument in favour of appearing to be as economically stringent as the government. A similar process, with particular differences, has happened in most countries. In France the right, under Sarkozy, accepted stringency, whilst the socialists rejected austerity only to do a U-turn under the influence of the Eurozone hierarchy and the German bourgeoisie. The newly elected government in Italy under a new leader, Renzi, nominally rejected austerity and went for an attack on the power of the unions in order to weaken labour. In Germany, in spite of its clear economic problems, austerity holds power. It is clear that the formal policy of austerity in order to have a balanced budget, now enshrined in German law, is the worldwide policy of a section of the bourgeoisie itself, as well as the programme of all Conservative parties. Rarely has there been such unanimity among Conservative-type parties. Even though Keynesian strategies have been used to contain the crisis, Keynes remains in the doghouse for right-wing economists and indeed for most economists. We have already argued that this policy necessarily leads to 19th-century forms of control over labour and so the population as a whole, with a reserve army of labour and commodity fetishism. In turn, this entails mass unemployment, disguised through the growth of part-time employment of different kinds, and rebranding of unemployment, or partial employment, under other headings. To restore commodity fetishism we are seeing the privatisation of everything and its dog, whether sensible or not. The most extreme example of the latter is privatisation of aspects of the military, which has led to the present debacle in Iraq.3
It is apparent that the UK Conservative budget policy cannot really be an abstract fetish about the need to balance the budget once and for all, but rather part of an ideology of which that is a useful tool. The policy itself as described above is utopian, made clear by Conservative Party failure in the UK. Both its ostensible aim to reduce the deficit and its underlying strategy of control have come unstuck. In the case of the latter, it has led to disintegration, which has had to be conceded to and may lead to further unravelling. The same is true, mutatis mutandis, everywhere. The former social democratic parties are tied to the same policy, in their attempts to be legitimate and appear legitimate to the ruling class.
Unfortunately, even if left parties succeed in forming governments in Greece or Spain or some other country, they are unlikely to do more than increase the feeling of disillusionment. That is because socialism is one country is impossible and indeed in today’s internationally integrated world, even a welfare state with central planning, the one-time goal of social democracy, is impossible. The evidence of the failure of a Stalinist Cuba and a leftist Venezuela is clear. They are now part of the history of the demoralisation of left-wing forces. Unfortunately, that lesson has not yet fully penetrated everyone who would like to be on the left.
A glance at the statements of Syriza and Podemos, the two left forces, shows that they have adapted and are in process of adapting to the potential vicissitudes of governments of a capitalist society. That seems to imply that the position is hopeless. Revolutionaries, uncompromising socialists, clear Marxists are either going to adapt to capitalism, and so betray the socialist cause yet again, or founder under the illusion that socialism in one country is possible.
In this context, it is worth trying to understand what forces are at play, in order to grasp the possibilities. The first is the nature of the present downturn, more properly termed a depression, and the second is the changing nature of the capitalist form itself. I will start with this last question, on which I have written under the heading of capitalist decline.
Marxists do not argue that the move to socialism is a voluntarist act, simply made by the decision of the population as expressed through elections or revolutions. The fundamental basis of Marxism rests on its political economic analysis of the necessary changes occurring within capitalism that compel capital itself to change its form in its decline. This leads to an increasing gap in productivity between what exists and what could come into existence. It makes for increasing difficulty in resolving crises.
Finally, and most obviously, the actual form of capitalism has changed. While the Stalinist formula of state monopoly capitalism is nonsense, it is true that competition does not play the role it did in the time of Marx. While war has always been important to capitalism, in the last 100 years it has become critical. One aspect of its role is providing the basis for the state to play an ever more important role in the economy. The present tendency to privatisation is itself an ideological manoeuvre to try to hold back the overwhelming forces demanding ‘planning’ of the economy and society. Indeed non-Marxists can note that privatisation is not what it seems.4Controls remain and in some cases may even be stronger than under nationalisation. Nor has the privatisation been the success expected, except in propaganda.
The form of the capitalist class itself has changed with an increasing emphasis on finance capital, as instanced in the rise and rise of private equity, and the enfranchisement of the top managerial layer to positions of real power and wealth. The large corporations providing either services or goods have inexorably become bureaucratic entities with their own ‘planned’ means of ensuring capital accumulation. Bourgeois governments emphasise the importance of the SMEs—small and medium-size enterprises—but most of these entities do not last long and those that do are dependent on the large corporations. Innovation is heavily dependent on universities and research institutions, largely funded by the state rather than the small firms, as governments pretend.
Paradoxically, government action only proves these points, even if their action is deeply reactionary, for to take their measures they have to plan the economy and plan the future. The word ‘planning’, deliberately avoided for some time, is now back in vogue. Indeed, it is being used to explain how governments are planning to avoid deflation and get back to growth. In general populations have not found privatisations either successful or in their interests. It is no accident that the Scottish government, which is not left wing, has had to take measures that place it to the left of the other major parties.
The Meaning of ‘Secular Stagnation’ or a Depression
We are in a depression, to use the term applied to the 1929-1940 period, when the global growth rate was relatively low and when unemployment was high. The situation then and now was different in different countries but the crucial growth rate was, and is, determined by the hegemonic imperial power. In the 1930s, the UK was in process of handing over to the USA, whereas today the USA is the undisputed imperial power. As argued in previous Critique Notes, the present downturn was not caused by the banks but by a process started in the 1970s in which substantial parts of industry were essentially moved to less developed countries, particularly China, while Britain and the USA concentrated on shifting control to finance capital. This re-inforced the limited aspect of competition within the economy and decreased the opportunities for investment in industry. Overall, the short-termist nature of finance capital subjected the rest of the economy to a series of demands usually called ‘neoliberal’. Profits were transferred to those companies holding the capital of the productive sector, and finance capital was keen to obtain high profits in as short a time as possible. Unemployment rose, and opportunities for profitable investment declined.
To make matters worse, the Cold War was wound up in the late 1980s, and the USA went in for a period of declining expenditure in the military sector. The effect was to create an investment problem and with it a series of so-called bubbles, which burst. Investment in East Asia, the Long-term Capital-Management Fund and the dot.com bubble led in each case to their denouement. The downturn of March 2000 was allayed in part by the measures taken to deal with 9/11 and then the Iraq War of 2003. However, the massive expansion of derivatives, recently reaching over 691 trillion dollars,was no more than a cannibalistic attempt to deal with the absence of outlets for investment. It necessarily involved direct and indirect deception and with it the seeds of its own destruction. Effectively, it was a huge bubble that magnified a real contradiction in the economy to the point where it produced a huge implosion. Money has piled up in the banks,6while derivatives like credit default swaps have declined,7in enormous sums.
The secular stagnation of the present time has to be understood in this context. Corporations, whether industrial or not, are saving their profits rather than expanding their investment in their own or other firms. We should rather put it in a dynamic context where they are investing substantially below their potential, and where they take fewer risks, and prefer to look at investments with short-term returns rather than invest for the long term.
The other aspect, which is critical, is that government policy is one of austerity, so reducing the public sector. Hence expenditure on the infrastructure, and the various parts of the economy under state control has been reduced as the government cuts subsidies or long-term investment or because it has sold the enterprises off and ended its liabilities to those firms, and the new owners take their time to decide whether to invest or not.
Above, it was pointed out that government investment/subsidies are essential today to innovation and so the rate of growth. Given the blind belief in private enterprise, and the reduction in support for public enterprise, and education, it is inevitable that the development of major new technologies will be limited.
In a recent article, Martin Wolf,8the major economics writer of the Financial Times, raised the question of why we have so-called secular stagnation. He puts it in the context of low levels of demand. I will use his outline by arguing that it is partly correct. Wolf argues that there are a number of causes given for current low levels of demand. It is asserted, for instance, that the problem is caused by a high level of indebtedness and lack of confidence, whether before the crisis or during it or a combination of the two. The latter amounts to the real difficulties of banks and their further caution.
The high level of indebtedness among the population was a particular feature of the USA and UK plus Spain. In the case of the first two, that was a consequence of the housing bubble plus a deliberate opening up of lending in the post-1979 period. The post-crisis period re-balanced the US banks and individuals either lost out or gradually made their way through the system. Something similar happened elsewhere, however cruel. The argument that government intervention with the supply of money and assistance to individuals helped is clear.
However, the present low level of demand is a consequence of low wages and high levels of unemployment plus the refusal to invest by the capitalist class, rather than just debt. This is where inequality in incomes becomes important. Decline in demand is also partially a result of governments dismissing government employees and reducing the salaries of those who remain. The lack of investment means that demand for workers and overtime is kept low and of course the demand for investment goods and services is kept down. Productivity is reduced below what it would have been otherwise, partly because of the lack of incentive under conditions of low wages with high inequality and partly because of lack of investment. It is doubtful if the debt before the crisis and during the crisis itself was the actual cause of the crisis or the continuing low levels of growth.
There is also the view that there is low growth in general, and the cause is partly a function of demography and partly productivity plus investment. However, investment and productivity are closely connected and the demography argument is dubious. Its complexity does not permit of an easy conclusion.
The Marxist argument remains intact in that there was an imbalance between departments one and two or between the supply and demand for investment goods. Investment is key. This then links up with unemployment in general and low wages, leading to a low demand for consumer goods. The rate of profit may have played a part but it is difficult to prove, particularly when the capitalist class does not think that the rate of profit is low.
To sum up: the cause of the lack of demand lies in the following. Firstly, there was the deliberate shift out of industry into finance, with the consequent loss of jobs. Secondly, there was the vast expansion of credit before the depression as part of the expansion of finance capital. Thirdly, there was the rise in unemployment and growing inequality before the depression following on from the dominance of finance capital. Fourthly, bubbles arose out of the same problem—the lack of opportunity to invest led to a desperate search for outlets like the long-term capital management fund and the dot.com bubble. Finally, after the crisis, this situation continues, aggravated by pricking of the bubbles, by the further rise in unemployment and inequality, by the universal governmental policy of austerity with loss of jobs and declining wages in the public sector and by the refusal of the private sector to invest.
However, the lack of consumer demand is a consequence not a fundamental cause. Ultimately, we are talking of an excess of capital both as finance capital and as industrial capital. The latter is most clearly shown in the huge potential overhang in the production of vehicles. Under conditions of limited competition, automobile firms can limit production, as they have done whether they are in the USA or China. In addition, this control over production extends to the overall economic machine. Capital or governments have ensured that the crisis did not wreak the havoc that would have been its 19th-century fate. Then the crisis would have pursued its own course towards the destruction of goods and enterprises that could not be sold at a profit, and the ruination of the capitals that were no longer profitable. In the present crisis, banks were either bailed out or merged with banks that could sustain them. Firms like General Motors went into administration and were helped by the government to re-establish themselves. The effect is to maintain the surplus of capital, money and potential investment funds as well as the oversupply of some goods and services. It is unlikely that this overhang can be dealt with without one extreme form or another, such as a major inflation that could wipe out the large-scale holdings of money or a deflation that ruins many businesses.
It was, of course, the view of the right that the crisis should run its course and the banks go bankrupt. It is unlikely that they would have held to their resolution if they had actually held office for a sufficient period of time. Even under Bush, they bailed out the banks, but his more right-wing colleagues did not want it to be done.
The destruction associated with crises did in fact assure the viability of the system, since it allowed it to recover. The problem today is both the importance of the major corporations for the system as a whole as well as the fact that they can limit their output while remaining profitable, so restricting their losses. It is also true that the public sector does not work on the basis of profit and hence can limit its activities or alternatively extend its activities under subsidy. The result is that the system effectively seizes up unless the surplus is destroyed by one means or another. That is true today.
It is clear that Japan, the Eurozone and much of the Third World is in trouble. The rate of growth in the USA and the UK is feeble when one considers the ground that they have had to make up since the downturn of 2006 onwards. The ruling class, however, has decided to maintain the austerity policy. Logically, one might expect them to not just continue the cruel policy of cutting welfare but go further to the point of mass ejection of debtors from their homes and the crushing of all firms that
are not profitable. As long as there is universal suffrage, they are limited in their actions. Parties have to win elections and even the editors of newspapers owned by the wealthy have to try to woo their readers if only in the interest of those parties supported by their employers.
So Where are we Going?
I have argued above that capitalism is changing as the increasing development and complexity of firms demands a less individualistic form. What comes into being is something that is not socialist but less functional for the capitalist integument, and the crisis has no long-term solution. Can, therefore, a left social-democratic government succeed? This is not the same thing as asking whether a Keynesian solution is possible because the latter amounts to asking if we can return to the economy that existed under the military Keynesianism of the post-war period down to the mid-1970s. Capitalism remained and the USA remained the global capitalist hegemon. I do think that this too is unlikely because they are afraid that it will only be the first step to the working class taking power. Indeed, if we ask what underlies the crisis in its full social form, then the answer is that the system is under threat and the capitalist class perceives it in that light. The unrest and strikes of the 1960s and 1970s taught them that full employment, powerful trade unions, a large public sector and a reduction in commodity fetishism was far too dangerous to maintain. They turned to finance capital and the rest is history.
The solution of the left social-democrats will have to go further than the Keynesian solution, because they will have to pass some limited power to the working class, unless they intended to capitulate immediately. They will have to repudiate the cuts in welfare and the public sector as a whole. This will also mean that they will have to raise taxes on the wealthy and sections of the upper middle class perhaps until they squeal. They will have to use the power of the working class in order to force the acquiescence of the ruling class. The latter will try to overthrow the government, and if they cannot do so, they will themselves leave the country with as much of their wealth as possible. They have already begun to do so in various countries. That will mean that the left party in power will have to ask its brothers in other countries for help in dealing with those who have decamped. Socialism in one country is impossible but social democracy in one country is also impossible today. Each situation is different and it may be that such parties concede immediately, given the difficulties, but it is also possible that, given the all-or-nothing scenario, they are forced to go for all, by their constituents, the working class. If they do so, they will not be alone in Europe.
- 1.Wolfgang Munchau, ‘Eurozone Stagnation is a Greater Threat than Debt’, Financial Times, 19 October 2014, 2.33 p.m.
- 2.Wolfgang Munchau, ‘The Radical Left is Right about Europe’s Debt’, Financial Times, 23 November 2014, 2.53 p.m.
- 3.Patrick Cockburn, ‘Whose Side is Turkey on?’, London Review of Books, 36:21 (6 November 2014).
- 4.Mark Mazower, ‘After the Crisis, the Nation-state Strikes Back’, Financial Times, 26 November 2014, 5:19 p.m.
‘Positions in over-the-counter (OTC) derivatives retreated slightly in the first half of 2014. The notional amount of outstanding contracts fell to $691 trillion at end-June 2014, from $711 trillion at end-2013.’ ‘Highlights of the BIS International Financial Statistics’, BIS Quarterly Review (December 2014), Bank for International Settlements, Basel, p. 13.
- 6.As of the third quarter of 2014, BNY Mellon had US$28.3 trillion in assets under custody and/or administration and US$1.6 trillion in assets under management, https://www.bnymellon.com/us/en/_locale- assets/pdf/news/at-a-glance-corporate-fact-sheet-3q-2014.pdf (accessed 7 December 2014).
- 7.‘Outstanding volumes of CDS contracts continued to decline, dropping to $19 trillion at end-June 2014, mostly due to a fall in inter-dealer positions and the continued elimination of redundant contracts. This means that aggregate positions in credit derivatives are now much smaller than before the crisis, when volumes peaked at $58 trillion at end-2007’. BIS Quarterly Review (December 2014), Bank for International Settlements, Basel, p. 22.
- 8.Martin Wolf: ‘The Curse of Weak Global Demand’, Financial Times, 18 November 2014, 5.43 p.m.