Wednesday, 2 January 2013

Rail Subsidies

Today we have the annual hand wringing over above inflation rail fare rises, and calls for more subsidies for the privately owned rail companies to keep fares down. Its the same kind of Corporate Welfare that has been given to the banks when they went bust. Modern Capitalism relies on this kind of Welfarism to regulate its operation. There is no reason that Marxists should support it. Marx certainly didn't. That doesn't mean we have to specifically oppose it either.

Welfarism is a kind of Protectionism. Like other forms of Protectionism such as Import Controls or Immigration Controls, it is presented as being introduced to protect workers, preventing their wages falling, preventing their jobs being lost and so on. As Engels states,

The gentlemen of the bourgeoisie who advocate the protective system never fail to push the well-being of the working class into the foreground.”

But, of course, it is nothing of the sort. The function of Protectionism in all its forms is to protect weak sections of national (in this case British) capital.

All capitalist states have used Protectionism for that purpose. Britain used Protectionist tariffs such as the Corn Laws, in the 19th century, to protect British Landlords and farmers from foreign competition. They only scrapped those laws because they conflicted with the interests of the increasingly dominant industrial capital. Britain, introduced massive tariffs against Indian textiles, as part of its strategy to destroy the globally dominant Indian textile industry (in 1800 India accounted for 25% of global textile exports). Similarly, the US, as it industrialised in the middle of the 19th Century did so behind a high tariff wall.

Marx and Engels in discussing such Protectionism as against Free Trade came down on the side of Free Trade, but only in the context that whilst neither offered workers a solution to their problems, the latter at least offered them better conditions to pursue their interests. Marx wrote,

But, in general, the protective system of our day is conservative, while the free trade system is destructive. It breaks up old nationalities and pushes the antagonism of the proletariat and the bourgeoisie to the extreme point. In a word, the free trade system hastens the social revolution. It is in this revolutionary sense alone, gentlemen, that I vote in favour of free trade.”

That doesn't mean Protectionism cannot have some beneficial consequences for Capital, at least in the short term. Its undeniable that Protectionism played a significant role in the industrialisation of Britain, the US, Germany, France, Japan and other economies. But, that tends to be a short term benefit, that has to be paid for later. Engels details a discussion he had on a train from Scotland with a Glasgow industrialist on that. The latter has put forward the Free Trade argument in relation to America.

'"Well," I replied, "I think there is another side to the question. You know that in coal, waterpower, iron, and other ores, cheap food, homegrown cotton, and other raw materials, America has resources and advantages unequalled by any European country; and that these resources cannot be fully developed except by America becoming a manufacturing country. You will admit, too, that nowadays a, great nation like the Americans' cannot exist on agriculture alone; that would be tantamount to a condemnation to permanent barbarism and inferiority; no great nation can live, in our age, without manufactures of her own. Well, then, if America must become a manufacturing country, and if she has every chance of not only succeeding but even outstripping her rivals, there are two ways open to her: either to carry on for, let us say, 50 years under Free Trade an extremely expensive competitive war against English manufactures that have got nearly a hundred years start; or else to shut out, by protective duties, English manufactures for, say, 25 years, with the almost absolute certainty that at the end of the 25 years she will be able to hold her own in the open market of the world. Which of the two will be the cheapest and the shortest? That is the question. If you want to go from Glasgow to London, you take the parliamentary train at a penny a mile and travel at the rate of 12 miles an hour. But you do not; your time is too valuable, you take the express, pay twopence a mile and do 40 miles an hour. Very well, the Americans prefer to pay express fare and to go express speed."'

But, Engels continues that about 25 years after that discussion he also had a discussion with a US Protectionist,

'"I am convinced that if America goes in for Free Trade, she will in 10 years have beaten England in the market of the world."'

Engels points out in dialectical terms how one thing can turn into its opposite. Protectionism, which at one point was a means of stimulating industrialisation, becomes transformed into a fetter.

Protection is at best an endless screw, and you never know when you have done with it. By protecting one industry, you directly or indirectly hurt all others, and have therefore to protect them too. By so doing you again damage the industry that you first protected, and have to compensate it; but this compensation reacts, as before, on all other trades, and entitles them to redress, and so on ad infinitum. America, in this respect, offers us a striking example of the best way to kill an important industry by protectionism. In 1856, the total imports and exports by sea of the United State amounted to $641,604,850. Of this amount, 75.2 per cent were carried in American, and only 24.8 per cent in foreign vessels. British ocean steamers were already then encroaching upon American sailing vessels; yet, in 1860, of a total seagoing trade of $762,288,550, American vessels still carried 66.5 per cent.”

Protectionism, as Engels points out here becomes a disincentive for the protected capitals to invest, and modernise. A similar process was described by Marx in relation to earthenware manufacture, where employers objected to the limitation and pausing of the working day, on the grounds that it was not compatible with the production process.

In 1864, however, they were brought under the Act, and within sixteen months every “impossibility” had vanished.

'The improved method,” called forth by the Act, “of making slip by pressure instead of by evaporation, the newly-constructed stoves for drying the ware in its green state, &c., are each events of great importance in the pottery art, and mark an advance which the preceding century could not rival.... It has even considerably reduced the temperature of the stoves themselves with a considerable saving of fuel, and with a readier effect on the ware.'

In spite of every prophecy, the cost-price of earthenware did not rise, but the quantity produced did, and to such an extent that the export for the twelve months, ending December, 1865, exceeded in value by £138,628 the average of the preceding three years.” (Capital I, Chapter 15 p 447)

Marx makes the same point in relation to other forms of Protectionism and Welfarism. For example, he describes the misery caused to the hand loom workers who eked out an existence for years in a doomed attempt to compete with power looms on the basis of being provided with a supplement to their meagre earnings out of Parish Relief.

The competition between hand-weaving and power-weaving in England, before the passing of the Poor Law of 1833, was prolonged by supplementing the wages, which had fallen considerably below the minimum, with parish relief. “The Rev. Mr. Turner was, in 1827, rector of Wilmslow in Cheshire, a manufacturing district. The questions of the Committee of Emigration, and Mr. Turner’s answers, show how the competition of human labour is maintained against machinery. ‘Question: Has not the use of the power-loom superseded the use of the hand-loom? Answer: Undoubtedly; it would have superseded them much more than it has done, if the hand-loom weavers were not enabled to submit to a reduction of wages.’ ‘Question: But in submitting he has accepted wages which are insufficient to support him, and looks to parochial contribution as the remainder of his support? Answer: Yes, and in fact the competition between the hand-loom and the power-loom is maintained out of the poor-rates.’ Thus degrading pauperism or expatriation, is the benefit which the industrious receive from the introduction of machinery, to be reduced from the respectable and in some degree independent mechanic, to the cringing wretch who lives on the debasing bread of charity. This they call a temporary inconvenience.” (“A Prize Essay on the Comparative Merits of Competition and Co-operation.” Lond., 1834, p. 29.) (Note 1, p 406)

Of course, as Engels pointed out, Protectionism could be important for assisting in development at certain stages, as he said about the US. The same might be true of certain industries. For example, it might make sense for capital to provide subsidies to green industries, which might have the potential of becoming important high value producers, once they reach a certain scale, but who need support to achieve that scale. But, that certainly cannot be said about the Rail Companies. Railways have existed from Marx's time, they are not a new industry. After WWII, they were provided with protection, and with massive amounts of State Capital to modernise them. But, in Britain, in particular, the continuation of that protectionism and welfarism by the State resulted, as Engels describes, only in the encouragement of inefficiency, and poor quality.

The situation with rail subsidies is truly absurd. Many of the people who are most affected by rising rail fares are people with highly paid, sometimes very highly paid jobs in London. It is, in fact, their high pay that makes it worthwhile commuting to London from many miles away, where they are able to live in much pleasanter surroundings, and away from the exorbitant house prices in the capital. But, who pays the subsidies for their rail fares? Ordinary workers in their taxes. Often ordinary workers in ordinary jobs, paying only a fraction of the salaries of those whose fares are being subsidised! But, worse than that, what is really being subsidised here is the profits of the banks and financial institutions who employ these high paid workers. Without that subsidy, those banks and other financial institutions would have to pay their commuting workers even higher salaries to cover their costs of getting to work.

Of course, not all the people benefiting from rail subsidies are highly paid stockbrokers and the like. Some are low paid workers, who cannot afford to live in Inner London, but have to come into the City to do their jobs as cleaners etc. Yet, the same principle applies. What is being subsidised is not the wages of these low paid workers, but the profits of the big companies that employ them. What is being subsidised out of the wages of ordinary workers up and down the country, is a continuation of the absurd situation in which London sucks in resources from elsewhere with extremely negative effects. Without these subsidies to capital, the companies would have to pay higher wages, the costs involved in operating in London would rise, and that would provide an incentive for businesses to relocate to other parts of the country.

If anyone were to view this situation from a society that was organised on a rational basis they would see it as barmy. The rail subsidies to highly paid commuters that comes out of the taxes paid by often much lower paid workers, is rather like same transfer that occurs by those workers to more highly paid workers and the middle class to subsidise the University Education of their kids. Ultimately, again this is a subsidy to the sections of Capital that then employ these more valuable workers. In turn, these more highly paid workers and the middle class hand over tax from their wages, which is transferred to lower paid workers in the form of Tax Credits, Housing Benefit and so on, because their wages are too low to cover these basic elements of living. That again, is actually a subsidy not to those workers, but to their employers, who thereby get away with continuing to pay these low wages, rather like the hand loom workers, or like the earthenware manufacturers described by Marx, who are thereby able to avoid modernising, becoming more efficient, and thereby capable of both making higher profits, and paying higher wages.

Worse still, in order to perpetuate this madness, whose result is the gradual lowering of levels of efficiency and of living standards, an entire army is required by a bloated capitalist state bureaucracy to administer it all! Thousands of unproductive workers are required to oversee the removal of taxes from one group of workers in order to transfer it to some other group of workers! A rational co-operative society could abolish this madness and waste and inefficiency almost over night, and free up resources to raise living standards, and reduce the amount of work people had to do, by sharing out the productive work. But, capitalism cannot abolish all of this madness, no matter how much the small state libertarians would want to. It cannot because all of this barminess is needed by modern capitalism as a means of regulating itself. Our job, however, is not to make it less barmy by defending this or that element of protectionism and welfarism, but to advocate a more rational system altogether.

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