Oil On Troubled Waters?

Thousands of British workers have taken spontaneous industrial action at refineries and other installations around the country in response to a dispute with Total at Immingham. After years, of passivity of the British Labour Movement the fact that workers have stood on their own feet to protest and strike is a good thing. Faced with increasing job losses that workers rather than being cowed, instead looking to their own strength for a solution to their problems is to be welcomed. For that reason, the workers taking this action have to be supported. But, socialists also have to tell those workers that the object of their strike is reactionary. Whatever, they say about the Italian and Portuguese workers employed at the site not being their enemy, the logic of this strike action is precisely that. It is a strike that places the blame for the problem of British workers on those foreign workers. The logic of the strike were it successful would be to throw those Italian and Portuguese workers on the dole, and for that simple reason the strike as it stands is reactionary. The maxim put forward by Karl Marx and the socialists of the 19th Century – “Workers of the World Unite” – is as valid today as it was then. Global Capitalism which is the real enemy here, cannot be defeated if workers are divided by race, gender or nationality, and fight against each other rather than uniting against the common Capitalist enemy.

Irony

The irony of this situation is apparent for anyone that looks at it logically. Total is a French Oil company. It has awarded a contract to an Italian company, which employs largely Italian workers. The objection of those taking action is that there are British workers unemployed who have the necessary skills to do the jobs required for this contract. They have taken the jingoistic comments of Gordon Brown about “British Jobs for British Workers” at his word. But, what would be the logical conclusion here? What if French refinery workers were to turn round and argue the same thing. After all why, they might ask, is a French Oil Company providing jobs for British refinery workers, should it not apply the maxim the strikers are demanding except as “French Jobs, for French Workers”. If the strikers demand were applied logically then the question of these jobs would not apply, and all those refinery workers would also find themselves out of a job as Total moved its operations back to France to provide those “French Jobs for French Workers”.

Down this road lies catastrophe for the working class, not just in the reduction in employment that would result from such protectionism, but in the greater power it would give to bosses resulting from such protection behind national boundaries, not to mention the huge increase in the cost of living as workers found themselves paying much higher prices for domestically produced goods. After all, I can remember not so long ago that if you wanted a suit made in Britain it would cost you a couple of hundred quid. I haven’t seen many people complaining about being able to buy suits made in China for a tenth of the price in the last ten years or so. And this dispute is really no different than that. If this firm had been an Italian firm based in Italy employing Italian workers making say shoes, would we have seen such action outside shoe shops selling those Italian shoes on the basis that those shoes could have been made by British shoe workers???

I was talking about this today with a worker from Bentley at Crewe. He too has just been laid off for a while. Apparently, the demand for Bentleys is still there but the buyers are afraid to turn up at their factories in a new £250,000 car when they’ve just laid workers off. His position sums up why the demand for British Jobs for British workers is not one that workers should adopt. He works for a German company (VW) producing cars the vast majority of which are sold outside Britain. As he said, what if VW decided to create “German Jobs for German Workers”, and shut up shop here and moved production to Germany. All the jobs at Crewe would be lost. Alternatively, what if foreigners decided that they should buy cars made in their own country rather than those made in Britain. Then not only all the jobs at Bentley, but probably many if not all the jobs at Toyota, Nissan and other car plants where a lot of production is exported would go too. The same thing was argued by a worker in the US last night on Newsnight. The US government has made it a condition of its stimulus package that steel and other products have to be bought from US companies. But, as this worker from Caterpillar said, 50% of their production is exported. If foreign countries adopted the same attitude then all their jobs would be lost the plant would have to close.


Marx

In the 19th century Karl Marx addressed this question.

In a speech on the issue of Free Trade he said,

“Do not imagine, gentlemen, that in criticizing freedom of trade we have the least intention of defending the system of protection.

One may declare oneself an enemy of the constitutional regime without declaring oneself a friend of the ancient regime.

Moreover, the protectionist system is nothing but a means of establishing large-scale industry in any given country, that is to say, of making it dependent upon the world market, and from the moment that dependence upon the world market is established, there is already more or less dependence upon free trade. Besides this, the protective system helps to develop free trade competition within a country. Hence we see that in countries where the bourgeoisie is beginning to make itself felt as a class, in Germany for example, it makes great efforts to obtain protective duties. They serve the bourgeoisie as weapons against feudalism and absolute government, as a means for the concentration of its own powers and for the realization of free trade within the same country.

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.”

See: Speech On The Question of Free Trade

Despite that, in the 1970’s those who claimed to be adherents of Marx in the British Stalinist Party, along with their fellow travellers in the Labour Left put forward a thoroughly reactionary document known as the Alternative Economic Strategy that really set out to advise the British Capitalists how best they should run their economy. One of its main planks was the call for the kind of protectionism through import controls that Marx rightly denigrates above. It was a thoroughly reactionary, nationalist programme. Unfortunately, the British labour Movement, partly because of Britain’s colonial past has been marked with such a Little Englander, and nationalist odour for over a century. The clear nature of the current strike is shown by the fact that already the Nazis of the British National Party have jumped on the bandwagon parading a truck with a large billboard past the refinery.

A Real Grounds For Struggle

Speaking of workers strikes for higher pay, Marx said that such struggles could never be a solution to workers problems because they left the means of production in the hands of the bosses. As long as that was the case workers would continually have to strike to get better pay. The real answer was for the workers to take over the means of production for themselves. But he recognised that you can’t just say that to workers, its necessary for them to live in the meantime, and its necessary to support workers struggles even on an inadequate basis, so that they can learn to struggle for the real solution to their problem. That is true here. No socialist should condemn these workers for this action even though it is reactionary. It is the result of workers not having a clear picture of what the real solution to their problems is. That is not the fault of workers it is the fault of Marxists in not having related to the working class correctly for the last 100 plus years. The task of Marxists here is to support the workers, but to do what Marx advised to show them why the solution they think they want is not in their interests, and instead to provide them with solutions which are.

Global Labour

About three years or so ago I wrote a piece about the booming world economy, and I posted it here in the middle of last year Workers and Inflation . At the end of that piece I wrote,

“As the economic expansion of the upswing begins this demoralised and weakened condition is not easily shaken off. Confidence has to be restored, organisation rebuilt, new leaders developed. It takes time, and with new more productive technology the demand for labour may not rise quickly, and may rise in new unorganised industries. Indeed each Kondratieff upswing has tended to see the emergence of a new economic powerhouse that challenges and replaces the former dominant economy – in the present case China appears to be fulfilling that role, and that may require the development of a whole new Labour Movement.

I think all of these elements can be identified in the present conjuncture, and that should give confidence to Marxists that once more the conditions are developing for militant working class struggles. How these struggles manifest themselves will differ. In China wages are rising by 10% plus per year, and there are clear signs that Chinese workers are beginning to become more organised. The same is true of workers in South Korea and other rapidly growing Asian economies. Under these conditions workers struggles are likely to take on increasingly an offensive nature. Yet in the US, the UK and Europe despite signs of economic growth it is anaemic compared to China and elsewhere. The reason is that these economies are hugely inefficient compared to China which combines the latest technology, with low wage labour. Consequently, we see Delphi declaring bankruptcy with GM looking to be not too far behind.

In Britain we see Peugeot closing Ryton etc. Britain and the US also have a problem with huge levels of public and private debt which has been run up as an alternative to their economies cratering during the downturn, but it now acts as a drag on recovery. As with the PCE in France, it is quite likely that workers struggles in these old economies are likely to have more of a defensive nature, but as the victory of the workers and students in France demonstrates, and following on from the victory against the neo-liberal EU Constitution, which no doubt also helped develop confidence for this current victory against neo-liberalism, there is an air of change beginning to sweep into the Labour Movement even in Europe. In the US too, the demonstrations against the regime’s attempts to bring in new Immigration Laws shows that within the lower depths things are beginning to stir.”

That I think is a pretty accurate description of what we have in fact seen over the last three years. The strikes this week in France are just another reflection of it. But, as stated above these strikes are still of a defensive rather than offensive nature. That in part is the explanation for the reactionary nature of the strikes in Britain at the present time. But, as I went on to say in that article,

“Soon the nature of the struggles will noticeably change from being defensive to offensive struggles, and Marxists and Trade Union militants must be prepared to reorient to that situation, or there is a danger of being left behind the class. It will begin to manifest itself in another aspect of the Kondratieff cycle. During the last 20 years western governments have pumped huge amounts of liquidity into the economic system to reduce the effects of recession. As Marx points out when economies are growing rapidly they require increased amounts of money to be put in circulation in order to enable goods to circulate. When real money – gold – was used there was a self-correcting mechanism which threw out excess currency from circulation. But since economies have used fiat currencies in place of gold this mechanism no longer exists. Consequently, any increase in the amount of money tokens (paper money and coins) or credit over and above what is required for circulation leads to a devaluation of these tokens, and thereby inflation.

This inflation has not been manifest because of two things. Firstly, the prices of consumer goods have been kept down because of imports from China, and other low cost producers which have sucked up a large amount of this excess liquidity, and is then recycled into Chinese Foreign reserves and loans back particularly to the US, hence the huge trade deficit of the US and UK. Secondly, the liquidity has gone into financial and other assets – in particular creating a house price bubble in the US and UK. However, there will come a point where the current economic expansion, having used up the readily available labour and other resources, and faced with demands from labour for wage increases, as the demand supply balance for labour tips more in favour of labour, will lead to pressure for higher prices. The Chinese Stalinists are already fearful of the imbalance between the cities and countryside, and are trying in the latest 5 year plan to direct resources to the country. One project is to drive a huge motorway through to Western China, both as a means of facilitating the transport of raw materials from Kazakhstan and other Central Asian countries, but also to stimulate economic development along its route into Central China. The rapidly rising living standards of Chinese workers are already fuelling a consumer boom, and increasingly the Stalinists will be forced to divert an increasing proportion of output to meet domestic consumer needs rather than the needs of western consumers. Combined with the likelihood in the next year or so of a revaluation of the Yuan the consequence is going to be a significant rise in consumer goods prices.”

With the current downturn this forecast might seem unlikely. I disagree. The longest boom in living memory is what came to be known as the Post War Boom of 1949-74. But, in fact that was just one of several such booms since the beginning of industrial capitalism around 1800. The post war boom was marked by rapidly rising standards of living in the West, a large expansion in consumerism, of home ownership and so on. Yet, during that boom there were many recessions. If we take the period roughly equal to that since the beginning of the current boom in 1998, we find that there were recessions in 1948-9, 1953-4, 1957-8, and 1960-1. Since the current boom began there have been recessions in 2001-3, and 2005-6. The current recession is special because of the huge financial crisis that began in the Autumn of 2007, and was itself produced by the massive amounts of liquidity pumped into the economies particularly of the US and UK, and the explosion of debt that followed it, as referred to in the article above. But, on the basis of past experience we would expect the financial crisis to be ending within the next few months, and indeed as I wrote recently, Green Shoots? , there are indeed signs that the credit crunch is thawing – today British Mortgage lending expanded three times faster in December than had been forecast – and given the normal duration of recessions we would expect the current recession to be coming to an end by the second half of this year. In fact, given the huge global stimulus that has been made, the likely next problem when that recovery recommences, will be inflation.

What Now?

That doesn’t solve the issue for workers now facing job losses, and does not provide an adequate basis of struggle in place of those currently being fought for. The reality is that the solution isn’t simple or easy, and Marxists shouldn’t pretend to workers that it is. There will be those such as the Nazis who provide easy solutions like blame the foreigners, there will be those on the left who will propose “more militancy” or “blame the government”, but none of these easy solutions provide a real solution for workers. Those that put them forward are not really interested in doing so they are only interested in recruiting a few more people to their respective organisations.

The answer lies in a number of things none of which are immediate, and some that are. Firstly, rather than workers dividing and blaming each other for their situation, they need to come together even more closely than they are at present. The answer to low wage workers coming into Britain is not to impose immigration controls on those workers, but for workers throughout Europe to come together as a single powerful force to demand parity of wages, pensions and benefits in all EU countries. To do that we need to establish European wide Trade Unions, and European Workers Parties. Workers in the better off countries need to actively support through action, financially and politically the struggles of our Brothers and Sisters in the less developed economies for higher wages. The Trade Union tops won’t do that. WE need to build European wide organisations of workers at a rank and file level whose focus is on building a confidence at the shop floor level to take action themselves. The Internet gives the ability for such groups within a single multinational business to down tools simultaneously in support of each other.

The objection of most of the workers at Immingham was that they could do the jobs required. Fair enough, but what that really comes down to was not that they needed THESE jobs, but that they needed A job. The short term solution to that is that where over the last twenty years or so workers have been all too prepared to sell their jobs in return for a big redundancy payout – that soon is found to be not as big as you thought it was – that workers have to fight against job losses, have to demand that the work be shared out without loss of pay. But bosses will not only resist that, there is a point beyond which they simply can’t do it, because it would mean the firm goes bust. IN those cases we need to do what Marx and Engels advised we need to have a strategy whereby these companies can be taken over and run as a Co-operative by their workers. We know from the example of Tower Colliery that workers can run their businesses more efficiently than can the bosses. For one thing in a Co-operative there is no need to pay out high salaries for the top bosses, or for supervision, and more importantly there is no need to pay out dividends to shareholders who contribute nothing to the business whatsoever. For workers like those at Immingham, craftsmen such as joiners, electricians, plumbers etc., we know that there is in fact plenty of work that the community needs doing that would keep such workers fully employed. They don’t have to work at a refinery they could be building much needed houses, schools and other facilities, and if we used the finances available through the Co-op Bank, through Unity Trust, and especially through workers pension funds we could establish Co-operative Housing schemes that would employ such workers. And in building these Co-operatives that gave workers decent jobs, under their own control they could join together not just on a local or national basis, but could join with workers in other such Co-operatives across Europe, not only providing jobs for workers here and now, but strengthening the position of workers against the bosses, joining up with the Trade Unions to support workers on strike, and with the Workers Parties to prevent the bosses using the law against us as they would do.

The bosses seek to divide us. Don't let them

The BBC, Workers and Gaza

Why are the BBC, and Sky refusing to screen the Appeal by the Disasters Emergency Committee for Gaza’s benighted people suffering under the weight of the huge and terrible onslaught of the Israeli war machine? For some, such as “BrianClough” whose simplistic notions, and reactionary nationalist politics were spewed forth over recent days in our debate over Gaza and Israel See: Here the answer is simple; “The bourgeois media is a tool of imperialism”. But, clearly not that simple, because other parts of that bourgeois media ARE putting out the Appeal. Worse still for Cluffy’s argument, Britain’s Imperialist Government, has called on the BBC to show the Appeal!!!

So why is the BBC not doing so, in particular? Good question. The answer the BBC gives is that it wants to defend its “impartiality”. Well, possibly. But then, one would have to agree with Cluffy to this extent, the bourgeois media, including the BBC IS NOT impartial. The BBC was not impartial over its coverage of the Miners Strike, or pretty much any other strike. There is plenty of evidence that the BBC select journalists on the basis of them having generally some conformity with bourgeois norms. But, the mechanisms by which the bourgeois state, and its ideological arms work – including the media, but this applies to Education and other parts of the ideological state apparatus – is far more complex, far more subtle than Cluffy’s vulgar presentation would suggest.

The strength of bourgeois ideology does rest on the idea not just of pluralism, but of impartiality and fairness. Pluralism in that it gives the superficial impression that a range of alternative views struggle for acceptance – without of course, making clear that these plurality of views are a plurality of BOURGEOIS views representing different interests of different sections of the ruling class, and of its executive within the bourgeois state – whose supreme representation is the electoral competition between ideologically, Bourgeois Parties, including those that claim to represent workers interests, and, for whose success, on which, the votes and support of workers they rely. Impartial, in the way it is implied these contending views are presented equally, and, therefore, the success of any of which is based on its merits, just as workers treat equally with employers in the determination of wages.

In order for this façade to be maintained the dissemination of bourgeois ideas cannot be undertaken crudely in the way that Cluffy supposes. It does require a DEGREE of impartiality, it does require dissenting voices, especially when those dissenting voices represent interests within the ruling class itself. Given the experience of the BBC over the Iraq War, and the hammering it took for not being impartial, its understandable that sections of the BBC bureaucracy should fight shy. Of course, sections of the international capitalist class do not share the approach of the British Government over the recent slaughter of Palestinians by Israel. In the US, the State has not condemned Israel for its actions, reserving the bulk of its criticism for Hamas. It is, perhaps then no coincidence that Sky, part of the Murdoch Newscorp Empire, derives a considerable amount of revenue from its US operations in all forms of media, and indeed, the BBC in its growing commercial operations also derives a considerable amount of revenue from such US activities. That cannot be said of most of the other TV channels in Britain, or of the newspapers that have carried the Appeal.

But, even that may be too deterministic and vulgar an understanding of the motives. The BBC, which has carried similar appeals in the past in conflict situations, last year commissioned a report, which concluded that it did risk undermining its impartiality, and let’s remember that in its daily operations it is BBC reporters that have to live with the consequence of being seen to be taking one side or another. No one, would, of course, want to besmirch the humanitarian intentions of aid workers, or the work that they do. But, the very nature of such aid work means that in order for it to be distributed, it is those in authority who have to be dealt with, and often there is little way of controlling what these authorities do with it. There have been many instances of such aid being used by ruthless governments – Zimbabwe was a high profile recent case, though Cluffy no doubt thinks that Mugabe is a valiant anti-colonial freedom fighter – to blackmail their populations into conformity, and many more of such regimes, or organisations using aid to feed their troops and supporters rather than those for whom the aid was directed.

In addition, we have the experience of the “Stockholm Syndrome”, of the way that captives can come through their situation to form a bond with their captors. There is nothing more understandable in the world than that aid workers in the field, often suffering alongside the civilian population in which they are embedded, come to share the anguish of those with whom they are personally tied, and to eschew the same resentment of those seen as immediately the cause of that situation. It is inevitable that the two things become mixed up, and in a situation like Gaza it would be all too easy for Hamas to take credit for the relief brought to it, and to use such relief in the ways other unscrupulous organisations and governments have done in the past.

In fact, this highlights both the problem, and the solution. The fact is that aid, has always been a powerful ideological and political tool. It was used on a grand scale during the Cold War by both sides to win friends and influence people. So long as the provision of aid is left in the hands of the bourgeoisie, of its state institutions, or of private bourgeois organisations – some of which as we have seen recently have their own religious agendas too – then such situations will arise, and aid will be utilised to promote the interests of one or other section of the bourgeoisie. As with so many other areas of life discussed here recently, for example, over the question of nationalisation by the bourgeois state, Marxists cannot call on that State to act impartially. That would be like asking the lion to lie down with the lamb. Workers have to rely on their own self-activity and their own organisation to resolve these problems, and we should not be afraid to do so as impartially as do the bosses.

We need to develop workers aid organisations for the many instances where such aid is required around the world. After all, in the same way that millions of workers hand over their savings and pension funds to the bouregoisie to use on its own behalf and aginst workers interests, it is often millions of workers who hand over their hard earned savings to the bourgeoisie to distribute, much of which goes to finance well paid jobs for bourgeois bureaucrats in this multiplicity of charitable organisations. Workers would need just one such Charity, one set of bureaucrats paid the average workers wage, and under the constant democratic control of the labour movement, through its established channels. Such aid could be directed to where it is needed, to the poorest in these societies, to the workers and peasants, and unemployed, and more importantly could be directed to those in these societies who are working to provide the real solutions to the problems, to those that are building Trade Unions, Workers Parties and Co-operatives, and other forms of workers and peasants organisation. The most common saying within these charitable circles is “Give a man a fish and he will eat today. Teach a man to fish and he will eat everyday.” It is, of course, a thoroughly bourgeois notion. You can teach a man to fish, but without the means of production, the fishing rod or nets, without access to the sea or river, that skill is useless. And in modern society, indeed in the society that has existed for the last 200 years, production is not about individual effort such as that, but about co-operative effort by many workers to produce the basics let alone the comforts of life. Teach a man to fish, and he may end up fishing for some Capitalist who does own the nets or the river, and might eat only to the extent that he can win a decent wage from that employer.

The solution is not in that direction – indeed its often patronising to suggest that people who have lived by rivers, or lived off the land for centuries and even thousands of years don’t know how to farm or fish – but, in the assistance for such workers and peasants to develop solidaristic and co-operative organisations to further their collective needs, and collective interests. In the main bourgeois organisations will not do that, precisely because it will be argued that to do so would be “partial”, would be “political”. But, it is precisely, partial and political solutions that workers and peasants in such situations require. It is effective Trade Unions to at least defend wages at the subsistence level as the precondition for them being raised higher, it is Workers Parties that can fight on the political plane for workers interests, it is Co-operatives that can take out of the hands of Capital immediately important aspects of the basic necessities of life of ordinary workers and peasants. At best, these bourgeois organisations might promote the idea of producers co-operatives similar to those of small farmers in Europe, but such Co-operatives are – whilst in some ways progressive – a far cry from what Marxists see as the type of Co-operative that needs to be built, a co-operative that is not just a business enterprise, but is an integral part of the class struggle, a vehicle that supports workers in struggle, that sets out to change the balance of forces and which exists not just as some isolated bastion of the workers, but which forges ever closer ties with other co-operatives not just on a national, but on an international scale.

As Karl Marx put it more than 150 years ago the workers problems cannot be resolved by appeals by or to the bourgeoisie, but by the workers themselves. In an age of globalisation the simple solution he put forward then resounds now.

“Workers of the World Unite.”

Green Shoots?

Last week one of the Governments Ministers and economic advisors was chastised for speaking of seeing "Green Shoots". In fact, its an indication of how the media, which once supported New Labour has turned sharply against it, sensing a Tory win in sight. The Minister had, in fact, been speaking in a restricted sense in reply to a specific question about credit conditions, and not about the state of the economy at large. The Tories understandably took the opportunity to misrepresent what had been said, and the media simply jumped on the Tory bandwagon.

The reality, is that in that restricted sense of credit conditions there are signs of "green shoots" in the form of a lowering of interbank rates, a sign that all the liquidity pumped into the markets, and all the other panoply of measures being taken by Capitalist states around the globe to remove as much risk from the activities of the Banks and financial institutions is beginning to have some effect. That is far from declaring the Credit Crunch over. As I wrote a while ago it normally takes two years for such a crunch to unwind. Not only are we perhaps 5 or 6 months away from that, but this has been probably the worst such crunch on record. And it is not just a normal Credit Crunch. As I wrote last year, predicting the outbreak of this crisis - See: Severe Financial Warning - this Crunch has been caused by, and is accompanied by huge losses by the banks and financial institutions that have decimated their Balance Sheets. That is not always the case in a Credit Crunch, which can simply arise out of a fear by banks to lend, even though they have huge sums sitting in their vaults. The further massive falls in Bank Shares this last week following the announcements of astronomical losses - £28 billion by RBS for instance - is an indication of that - though partly its the result of the reintroduction of short selling at a time when rumours abound of pending nationalisation, encouraging shareholders to rush for the doors before their shares become worthless.

The TV continues to run stories about how bad things are on the basis of reports that mortgage lending has fallen by 30% as against last year. They seem unaware of the irony in describing this as bad news when in fact it was the previous ridiculously high levels of lending, at very low interest rates, which were the root cause of the current crisis!!!

Yet, the reality is that there are signs that the Credit Crunch is easing. Despite the huge losses, and decimation of Bank Balance Sheets, banks remain probably the most cash generative businesses on the planet. Even allowing for bad debts on loans and mortgages that should never have been made - bad debts which are bound to rise as the recession reduces the ability of some individuals and companies to pay back those loans - the vast majority of people with mortgages, along with the vast majority of companies WILL pay back both the interest and the Capital sum they have borrowed. Day in day out those huge sums will continue to flow into the Banks coffers, and with the cost of borrowing for the banks reduced almost to zero, whilst the interest payments on loans remains at 5, 6 or more per cent - considerably more for all those people who have outstanding amounts on Credit Cards - those repayments will become increasingly profitable for the Banks. The basis is being laid for an end to the crunch, and Bank shares will soar when it does. Its no wonder that some of the sharp players in the market want to short the stocks now to get out the small investors. That way they will make a killing by buying at the current ridiculously low, prices and selling when they have made a killing. They will not be looking at the kind of return that a small saver makes on their meagre savings. If RBS, which only a few weeks ago was trading at 65p, rises from its current 10p to £1 - which would still be only a sixth of its level a year ago - they will make 1,000%. And because of the interlinking nature of the financial system this increase in the price of Bank Shares will strengthen their own Balance Sheets, further loosening the crunch, and once again facilitating an icnrease in their lending activities.

But, the Capitalist economy does not move in a synchronous manner. That is one reason that crises arise due to disproportionality. Even as the financial crisis begins to come to an end the crisis in the real economy that that financial crisis has caused could be deepening. The global nature of the Capitalist economy has ensured that the downturn in the west has spread to even the dynamic parts of the world economy in China and Asia - though they continue to grow at rates that the West could only ever dream about. But, at this phase of the Long Wave upturn even such global dowturns tend to be shortlived, even if they are severe. They produce a V shaped recession, very severe reductions in growth and rises in unemployment, but short lived, and with a rapid recovery that sends growth rates soaring even to higher levels than before the crisis, as the dead wood is cut out of the system, the rate of profit is incrased asa result of the less profitable units being removed etc. That was the pattern of such recessions in past phases of the Long Wave expansion after WWII, at the end of the 19th Century, and earlier in that century. It contrasts to the kind of L shaped recessions of the Long Wave downturn, where having declined sharply economic activity continues at that low level with very little recover for years. That was the pattern after 1974, throughout the 1980's and into the early 90's, despite the initial Keynesian stimulus of the 1970's, and the Monetarist stimulus of the late 80's, and early 90's. It was the pattern in Europe during the 1920's and 30's.

This view of the way economic recovery could be sharp and to some extent unexpected was also echoed in an interview on CNBC this morning Brian Shactman Interviews Bill Spiropoulos from CoreStates Capital Advisors.

In another segment on CNBC today Jean Claude Trichet of the ECB was giving testimony, and speaking about inflation, disinflation and deflation. Trichet correctly pointed out that having seen the prospects of rising inflation only months ago, we now see disinflation - that is rising prices, but rising less slowly. This disinflation is the consequence of falling prices for oil, food, and raw materials some of the commoditis which were rising most quickly last year. There is a good reason for this. Unlike, consumer goods these "commodities" as traders refer to them are traded on large liquid Futures Markets, by professional traders. Although, the Futures Market provides a degree of stability for producers and consumers of these commodities - because both can in advance fix a price that they will buy and sell them at some point in the future - the Futures price itself can be highly volatile, precisely because it is an object of speculation by traders. And because of the nature of production of these types of commodity, involving hige amounts of Capital investment, which must be fully utilised in order that the Capital invested is not standing idle making no profit, these prices are highly susceptible to reductions in demand. As the world worries about recession, and the potential reduction in demand for these commodities the price can drop significantly as suppliers seek to reduce existing stockpiles. Already, though OPEC has cut back oil production, and the big Mining Companies have cut back some potential new investments. As Spriropolous says this is likely to cause new bottlenecks and big price icnreases as existing stockpiles are used up, and supply again fails to meet rising demand.

In fact, Marx theorised this in Capital in his Theory of Rent. He argued that because at that time food production never fully met demand, it was demand that determined the price of that foodstuff, and so the price was set by the most marginal land in production, on which the capitalist farmers made average profit, whilst farmers on better land made above average profit, at least some of which was siphoned off as Differential rent, by the Landlords. In similar fashion with the supply of these raw materials failing to meet demand it will be the prices dictated by the most marginal production which will determine prices, even though a considerable amount of production will be lower cost than that. The marginal cost of a barrel of oil is around $85. That is the cost of producing one extra barrel of oil from the least profitable fields. Although, orthodox economic theory says that the free market price should be set equal to marginal cost, it never is. In fact, in some statistics I saw many years ago prices were generally 10% higher than this marginal cost for goods produced in Britain - it was one way that nationalised industries were ripped off by the private sector, because nationalised industries were required to set their prices equal to marginal cost. It is likely then that once existing stockpiles are used up that demand and supply for oil will achieve some kind of equilibrium at a price around $100 a barrel, or more than twice the current level, though significantly lower than the $147 dollars it was sent up to last year. As, rapidly increasing demand for oil in China and the rest of Asia begins to rapidly outstrip productive potential due to the world having reached Peak Oil i.e. the world cannot increase its oil output effectively beyond current leels, and will indeed in the not too distant future begin to be able to produce less oil than currently - that marginal cost per barrel will rise rapidly.

Already, we can see in the US a determination to find alternatives. This is under cover of energy and national security, and green objectives, but it is really about profits. The world's best known oilman after J.R. Ewing, T. Boone Pickens, has developed a strategy for reducing US oil dependence by incrasing the use of natural gas for motor vehicles, and he now advising Obama. Billions of dollars are likely to be pumped into the new technologies of energy production, and area where the US can still have an advantage over China and other low cost production countries. We can see the way in which the base technologies in IT, and Biotechnology, as well as nanotechnology will begin to be taken up in this phase of the Long Term up wave to create the new industries, and production that will lead to a massive development of productive capacity and wealth. The Labour movement needs to have strategies to deal with that, and to take advantage of the opportunities such a development will present for workers.

Wal Mart, Capitalism and Child Labour in India

Just over a year ago, the US retail monopolist Wal-Mart, that also owns ASDA in the UK, did a deal with India's leading telecoms company, Bharti Enterprises Ltd.,to open hundreds of stores in India over the next several years. According to Investor.com,

"Under the deal, Wal-Mart and Bharti Enterprises will set up a joint venture to manage procurement, inventories and logistics, while stores will be set up under a franchise agreement, said Sunil Bharti Mittal, the chief executive of the Indian company."

India's retail market is worth about $200 billion and growing about 30% a year. Until recently major retailers like Wal-Mart have not been allowed to exploit this huge potential for profits. India's government has tried to protect the small domestic retail owners that make up nearly all of India's entire retail sector.

This development reflects the growing domestic market in India following on from the huge economic development in production of the last few years. In many ways it is reminiscent of the process described by Lenin in his "The Development of Capitalism in Russia", and goes alongside the same kind of differentiation of India's huge peasant population. A similar process has been taking place in China. As Lenin pointed out in relation to Russia, at the end of the 19th century, the country suffered not from capitalism, but from not enough capitalism, from the restrictions that Tsarism placed upon its rapid development. The removal of restrictions in India, to open up the retail sector, should be welcomed in the same terms that Lenin supported the moves to speed up the process of capitalist development in Russia.

That is to say, as socialists, we have no truck with policies designed to slow down such development, however, we do within that process argue at all times for the interests of the working class. A rapid development of capitalism means a more rapid development of the working class, a higher demand for labour and better conditions in which labour can fight for its interests. In the case of Wal-Mart, that is particularly significant. In the US, it is well known as an anti-union employer. The GMB had to take it on in Britain, and had some success, so it can be beaten. In India Wal-Mart will no doubt try to strong arm the workforce. Socialists here should offer what support they can to Indian workers, and, in particular, the GMB should make contact with Indian workers and their unions to plan a campaign to ensure that the Indian workforce is unionised from the beginning.

But, more than that. This development by Wal-Mart is no doubt just the beginning of similar developments, reflecting the growth of the Indian domestic market, as more and more of the population become wage workers rather than peasants. It will involve some huge economic developments. Stores will have to be built, and, for each, roads will need often to be built as stores spring up on greenfield sites as they have done in the UK, and elsewhere. Huge amounts of infrastructure will go along with this process. The laying of water, gas and electricity supplies, drainage etc. In short, in addition to these retail developments and jobs for retail workers will go further jobs in construction, engineering jobs at utility companies etc., and the same kinds of problems and opportunities will open up. The international trade union movement has a duty and responsibility to give whatever assistance it can in this process to Indian workers and their trade unions.

India, China and other parts of Asia are undergoing the same kind of process that occurred in Western Europe towards the end of the 19th century. It comes similarly at a time when the world has entered a conjunctural long wave upturn. That presents huge opportunities for Marxists to educate and develop a brand new working class, and workers movement. As I have written elsewhere, it is the nature of that upturn, which manifests itself always in the particular development of previously less developed economies, as the process of combined and uneven development plays out, that will lead to the major new developments in the class struggle arising in such countries, whereas, particularly during the current recession, workers in the developed economies will more frequently have to fight defensive struggles as the value of labour power is increasingly determined on a global market, and to the detriment of relatively highly paid workers in the West.

The world’s eyes are mostly focussed on China. But India will shortly have a larger population than China. It has the advantage of an established bourgeois democracy, which gives workers some advantages over their Chinese comrades in respect of political organisation, democratic rights, the diffusion of ideas and so on. Having said that reports from China also show increasing self-assertiveness from Chinese workers, the development of illegal workers organisations, unofficial strikes, demonstrations, and as new technology makes censorship more difficult the spread of alternative ideas to those of the Stalinist State. In addition, where China has focussed largely on developing itself as the world’s workshop, India’s development has been more focussed towards the high-end, towards intellectual labour most noticeable in the number of IT related companies based in India, and even to some extent the number of call-centres based there. Where most people are pressed to name any globally recognised Chinese companies – though there are a number such as Lenovo – India has several well-known companies such as Mittal, Tata, Infosys and so on.

The nature of this development also has advantages for socialists in India. As I have written elsewhere, See: Thinking Outside he Box and Porn Free many new types of modern production such as IT, the Media – and of course India has a huge media industry not only in Bollywood – do not conform to the old industrial forms which had a high organic composition of capital i.e. lots of fixed capital and materials required to the amount of labour used. On the contrary, they tend to require relatively small amounts of constant capital, and be reliant on skilled, often intellectual labour. You can, as some activists in China have shown, run an alternative TV service over the Internet from your bedroom. Especially given the tradition of the Indian village prior to British and French colonisation, India has great opportunities for workers to establish their own co-operative industries in the highest value, cutting edge, and most profitable areas of economic development, in one of the fastest growing economies in the world. India has another advantage over China; its links back to Britain. Not only should such links be used to forge strong ties between the British and Indian labour movements as suggested above in relation to Wal-Mart, but quite a significant number of Indians are returning to India from Britain as the British economy sags, and India roars ahead. Those traditions of the British labour movement, the lessons learned by British workers in 200 years of class struggle can be more easily physically transported back to India.

But, we should not forget that process of combined and uneven development. Alongside rapid economic growth, alongside world beating industries, and high-tech development, India still possesses vast reservoirs of poverty and deprivation and squalor. As Lenin said, it is suffering not from capitalism, but a lack of capitalism. That is demonstrated by the number of sweatshops that exist side by side with the most developed industries, and by the large number of children employed in those sweatshops. But, it is important for socialists, particularly western socialists, not to react to that as petit-bourgeois moralists, as many do, demanding an end to child-labour and so on that can be a cover for a form of protectionism, and cultural imperialism.

Every major capitalist economy went through such a process of terrible working conditions, and of the use of child-labour on a large scale. They could not have developed, or at least not so rapidly, if they had not. To demand that economies that already face many obstacles on their path to development in a world economy dominated by the existing imperialist powers, also do so by rejecting the very means by which those imperialist powers developed, demanding that they offer up the same wages and conditions as those already developed economies, has little to do with Marxism.

When I was about 12, like many other kids of my age, I worked delivering papers and as a butcher’s boy. The few shillings a week that I earned allowed me to buy the things my parents couldn’t afford to buy me, to go to the pictures and so on. That was in the 1960’s in one of the richest countries on the planet. Had I been a 12 year old in the back-streets of Mumbai it would rather have been the difference between eating or not eating. It would be the difference between having a job from which some tiny speck of self-respect could be derived, or else of having to fall into beggary, thievery or prostitution. Western socialists in their relatively comfortable surroundings should remember that when they oppose child labour in places like India, and other less developed economies. The alternative is not child labour or some decent home and schooling for these kids, but work or destitution and depravity. The idea that the state in these economies will pick up the tab for these kids is pie in the sky, and given current conditions neither western labour movements nor the labour movements in these economies can force these states to do so. Only an overthrow of those states would enable that to happen, and even then, in many of them, even a workers state would be hard pressed to find the necessary resources to lift everyone immediately out of poverty.

Marx spelled out, what the Marxist response to this was in opposition to petit-bourgeois moralising. He said in the Critique of the Gotha Programme.

"Prohibition of child labour." Here it was absolutely essential to state the age limit. 

A general prohibition of child labour is incompatible with the existence of large-scale industry and hence an empty, pious wish. Its realization -- if it were possible -- would be reactionary, since, with a strict regulation of the working time according to the different age groups and other safety measures for the protection of children, an early combination of productive labour with education is one of the most potent means for the transformation of present-day society.”

Marx is effectively repeating in part here his comment that “Right can never be higher than the economic structure of society and its cultural development conditioned thereby”. He would have had nothing in common with those petit-bourgeois moralists of today who seek to further pauperise the workers and their children of developing economies through a ban on the employment of child labour. Rather, Marx seeks to organise a working class struggle to put such employment in appropriate conditions, to locate it as an essential aspect of class struggle. Moreover, if workers develop co-operative industry, then as Marx argues, what better way to incorporate the class lessons learned there with the general education of the child other than through a combination of education and work. Even where children are employed in private industry what better way of developing class-consciousness can there be than that the experiences gained in the workplace of the private capitalist as they are discussed and analysed within the school in a structured manner. How better could Marx’s argument in his letter to Ruge be accomplished, “We merely show the world what it is really fighting for, and consciousness is something that it has to acquire, even if it does not want to.”

The War in Gaza and Two States

As I wrote in my blog a few days ago the current invasion of Gaza by Israel shows why the demand for Two States is not only dead, but why it is a dangerous illusion. See: Lessons of Gaza . The Left is all over the place on this issue. The SWP continues to tail the reactionaries of Hamas, making itself indistinguishable from them just as it previously proclaimed its synonymity with the clerical-fascists of Hezbollah. The Socialist Party, which advocates Two States has effectively dropped that demand for the duration in the face of the overwhelming tide of hostility towards Israel’s attacks. The AWL, to its credit, but given its position in relation to Zionism not too unsurprisingly, has resisted the temptation to give uncritical support to Hamas, but righteously condemns Israel for its “obscene” actions. At least Sean Matgamna has, perhaps, answered the question he posed several months ago when he asked “If Israel attacked Iran, on what basis would we condemn it?” Most Marxists knew the answer to that question at the time. Its good to see that Sean is catching up. The problem is that the AWL’s politics, like most of the left, remains at the level not of proletarian internationalism, but of moral indignation.

Yes, Israel’s actions are obscene. The fact that Israel has been using white phosphorous gives the lie to one apologist for Israel who posted to the AWL website that Israel was trying to minimise civilian casualties!!! But, war is obscene, and brutalised individuals sent to war by their state do commit obscene acts. So long as Capitalism exists there will be war, and there will be such obscenity. As Sean himself states this action has a logic for the Israeli State, just as all wars have logic for the ruling classes that launch them, even if it is an obscene logic. Moral outrage at such obscenity is understandable and necessary on one level, but for a Marxist it is far from being enough. We are not pacifists. We do not object to war on moral grounds, but on class grounds, we try to show to workers why it is inevitable so long as class society continues. As Trotsky put it,

“Our agitation in connection with the war and all our politics connected with the war must be as uncompromising in relation to the pacifists as to the imperialists.
“This war is not our war. The responsibility for it lies squarely on the capitalists. But so long as we are still not strong enough to overthrow them, and must fight in the ranks of their army, we are obliged to learn to use arms as well as possible!

“Just as every worker, exploited by the capitalists seeks to learn as well as possible the production techniques, so every soldier in the imperialist army must learn as well as possible the art of war so as to be able, when the conditions change, to apply it in the interests of the working class.

“We are not pacifists. No. We are revolutionaries. And we know what lies ahead for us.”

“On The Question of Workers Self-Defence”, p105 Writings 1939-40

Our task is not to mirror the pacifists and simply condemn war for its obscenity, but to explain its causes within class society, and thereby to offer a programme that can lead workers to a solution. That solution cannot rest with simply telling workers to throw in their lot with the clerical-fascists, it certainly cannot come through an expectation that imperialism will provide a solution via the UN or other agency, and nor can it come through advocating a Two State solution that is further away than it has ever been, and which could only be imposed from above by imperialism in conjunction with Israel, and the Arab bourgeoisie.

The events in Gaza, and the responses to it show what is wrong with the politics of the left. It is superficial and therefore subjective and moralistic. It is not grounded in the objectivity of Marxism. The AWL’s politics typify it. Like the SWP the AWL’s current politics finds it heritage in the subjectivist politics of the “Third Camp”. The political “method” of that school was summed up by its creators James Burnham and Max Shachtman as “practical politics”. By that they meant a rejection of Marxist principle based upon the theory of historical materialism, and its philosophical presentation via Dialectics. Instead they argued that every event should be dealt with as an event in its own right, which should be dealt with on the basis of “common sense”. In short it is a philosophical justification of opportunism. Its advocates went the way of all Opportunists into the Camp of the bourgeoisie, of imperialism or, as in the case of the SWP, even worse into the arms of the worst kinds of reactionaries.

So, the AWL can give a pre-emptive defence of an Israeli attack on Iran, arguing that Israel has a right to defend itself against a non-existent attack from Iran, even if such an attack by Israel used massive force – which it would have to do to destroy Iranian nuclear installations – and wreaked carnage amongst the Iranian population, but when a real attack comes from Iran’s proxies in Hamas, the AWL is forced to condemn it! Such zig zags are typical of opportunist and centrist organisations. It is reminiscent of the bureaucratic centrist politics of Stalinism in the 1920’s and early 30’s.

Sean provides a checklist at the end of his article.

“Israel will not have peace until the Palestinians have peace, with justice — until they have a state of their own alongside Israel.”

Elsewhere in his piece Sean says that Israel is currently out to destroy Hamas. That is unlikely, the Israeli State needs Hamas. So long as Hamas exists it enables Israel to keep the Palestinians divided between Hamas and Fatah. It will want to significantly weaken Hamas in Gaza to strengthen Fatah and so facilitate further division. Its rather like the US coming in on the side of Britain and France in WWI, when Germany was winning. By so doing it prolonged the War and thereby weakened its main European rivals. The question is does the Israeli State actually want peace? The people who devised the neo-con revolution in the US, for example, advocated the creation of a feeling of external threat in order to justify a strong state. Not only does the current situation in the Middle East of perpetual conflict strengthen the position of the US, but it justifies its relationship with Israel as a strong client in the region acting as a conduit for US interests. It also means that “normal” politics in Israel and most of the region are suspended swamped by a concern over security.

Moreover, given Sean’s willingness to justify an Israeli strike against Iran as a state which MIGHT attack Israel, how can he argue that the creation of yet another hostile, class state, right on Israel’s border, holding a knife to its throat, possibly increases Israel’s security or chances of peace??? Come on even the politics of “common sense” must have problems with that logic!

“Israel should stop its onslaught on the Palestinians in Gaza. It should withdraw immediately from Gaza and the West Bank.”

What does “should” mean here. In determining that Israel would have “good reason” to attack Iran, Sean based that statement on how things look from the perspective of the Israeli state. If he were to use the same method then on what basis “should” it do what he says. It clearly thinks it “should” do what it is doing. We might think it “should” stop, but such thoughts are impotent unless we have some means by which of forcing Israel to do what we want it to do. For now we don’t.

“It should urgently seek agreement with those in the Arab world prepared to trade recognition of Israel and normalisation of relations between Israel and the Arab states for Israeli agreement to withdraw to the 1967 borders.”

But again, what does “should” mean. In both of these “shoulds” Sean is not providing a programme of working class action that could counter the Israeli state, what he is doing is giving advice to the Israeli state on how to act! Unfortunately for Sean, the Israeli State, like other bourgeois states he and the AWL seek to advise, have plenty of their own experts to give such advice.

“The working class and the internationalist socialists in Israel and in the Arab countries, should advocate peace and working class unity across all the divides, on the basis of a two state settlement: the setting up of a Palestinian state alongside Israel and recognition of Israel by the Arab states and peoples.”

Yes, of course they should advocate peace and working class unity across borders – and apple pie and motherhood too if they wish – but the question is on what basis, and how to achieve it. It is clear that no such advocacy can be on the basis of a Two State solution. There has been as Sean accepts a sort of Two State solution already. It has led to the kind of consequences I predicted 20 years ago. On the one hand Israel will not allow any such State to be a real state. It will react to any attacks against it in the way it has just done in Gaza. Those on the Palestinian side who continue to believe that they should have a state stretching from the river to the sea will continue such attacks, and if as in Gaza over the last two years, they gain control of the state apparatus, they will use it to strengthen their economic, social and military position to better conduct such attacks. The only alternative to Israeli action against such a scenario is the establishment of an authoritarian, strong state under Fatah or some other bourgeois faction that removed civil liberties and the possibility for such organisations to act i.e. that they acted as a sort of comprador regime on behalf of Israel. It would undoubtedly be used against the Palestinian workers even more than against Hamas and other such groups.

Not even the democratic elections that resulted in a Hamas government were accepted by Israel or its imperialist backers. So long as Israel continued to act in the way it has, by incursions, blockades, and so on the position of organisations such as Hamas would be strengthened. They would argue, not unreasonably, that the state they had was not a real state, that they did not have real independence and so on. That only a single state in the whole of Palestine could ensure that. The difference would be that now they would have the benefits of a state apparatus to pursue that aim. Such a situation would likely have implications for that large number of Palestinians living in Israel itself. Similarly, increased tension would be likely with Israeli settlers in the West Bank, and anyone who thinks that Israel is going to force those settlers to leave is living in cloud cuckoo land.

“Working class socialists in Israel and in the Arab countries should oppose and fight the chauvinists on one side, and the Islamic clerical fascists and the Arab and Islamic chauvinists, on the other.”

Yes they should, but on the basis of what programme, what set of demands?

“Socialists in Britain must demand that Israel withdraw to the 1967 borders and for the immediate setting up of a sovereign, independent Palestinian state in contiguous territory.”

What is the point of raising such a demand when we have absolutely no means of bringing it about??? Its like Trotsky said about the second world war above,

“Our agitation in connection with the war and all our politics connected with the war must be as uncompromising in relation to the pacifists as to the imperialists.

“This war is not our war. The responsibility for it lies squarely on the capitalists. But so long as we are still not strong enough to overthrow them, and must fight in the ranks of their army, we are obliged to learn to use arms as well as possible!”

We should only raise demands around which workers can mobilise with some prospect of success.

“Socialists must oppose the vicarious Arab and Islamic chauvinism of the kitsch left, who combine with Islamic clerical fascists and others to turn the demonstrations against the war in Gaza into festivals of Arab and Islamic reactionary hostility to Israel's continued existence.”

Again yes, but on the basis of what programme? All the AWL can offer as an alternative is the demand for “Two States”, a demand which Israel and the US has no real intention of bringing about, a demand which workers themselves under current conditions cannot bring about, and which would were it to be achieved under current conditions would inevitably strengthen the reactionaries on both sides.
What is needed is a programme for Jewish and Arab workers to unite around. A Communist International organisation if it existed would today have as one of its main tasks the building of common Jewish/Arab workers organisations in Israel/Palestine. Those organisations would need to begin to develop a programme of democratic demands around which to mobilise Jewish and Arab workers. It would include the setting up of autonomous regional structures, full and equal democratic rights for everyone living in the territory over which the Israeli state currently exercises effective control including Gaza and the West Bank, including the right to elect representatives to the Knesset. Those organisations would need to counterpose workers democratic organisations such as Factory Committees, and Neighbourhood Committees to the sectarian organisations which provide the basis of support for the clerical-fascists, and which would also act to further workers class interests as well as their basic democratic rights. It would mean workers developing their own workers defence squads to provide protection against the attacks by the clerical-fascists. In short it means developing a programme around which both Jewish and Arab workers can mobilise here and now for achievable demands rather than some pie in he sky solution for some time in the unforeseeable future.

How The Local State Deals with Workers Housing Needs

This story from the BBC to day Norwich Housing shows how the local capitalist state bureaucracy deals with workers housing needs. Pensioners were told they had to leave their bungalows, by local state bureaucrats, because they were going to be demolished. Then the Head bureaucrat, who, according to the BBC, is paid over £50,000 a year, along with other bureaucrats from the Housing Department, moved into the same housing, and paid even lower rents than the pensioners that had previously been housed there!!!!

The housing is apparently conveniently close to the centre of Norwich. Local Councillors have sacked the Housing Manager, but the question is why they were not aware of this in the first place. The answer is that the local state, like the central state, is not under the control of elected politicians, but of a permanent, capitalist, state bureaucracy. The elected politicians simply give this Dictatorship of the Bourgeoisie a democratic veneer. It also shows why workers cannot rely on even the best elected politicians to keep this capitalist state bureaucracy in check, but must rely on their own vigilance and organisation.

It also shows the idiocy of those on the left who want to offer, as solutions to workers problems, appeals to this capitalist state bureaucracy to act in workers' interests. Workers need to develop their own Co-operative housing so that it is under their ownership, and control. Co-operative housing is the most efficient form of housing in Britain as has been shown.

"Ownership co-ops are traditionally quite small, but they give the greatest amount of control of any of the housing co-op models, and research carried out in 1996 found that they were the most successful housing providers in the country."

See here: Owner Housing Co-ops

Prices, Profits and Capital

Over the last couple of years I have been considering two main questions of Economics - Theories of Value, and what is known as the Transformation Problem, the means by which Exchange Values are transformed into market prices. I'm not ready to write anything definitive about either yet, but continuing my reading of Mandel's, "Marxist Economic Theory", See: Mandel's Mistakes in Marxist Economic Theory , I find myself needing to again correct what I consider to be another error in this respect on Mandel's part.

The Transformation Problem

Exchange Value

Its first necessary to explain what the Transformation Problem is. Marx like the other Classical Economists set out how Exchange Value is determined by the amount of abstract, average, simple labour-time that is socially necessary to produce a commodity. This Labour-time can be divided up as follows. First of all a certain amount of past labour-time has gone into the production of the materials used in producing the commodity. In addition, the machinery used for producing the commodity gives up some of its value - what modern Accountancy calls depreciation - because the act of production also causes it to wear out. The cost of its replacement has to be recovered. But, these expenditures of Labour-time have occurred, they have established the Exchange Value of this material, and of the machines used. It cannot produce any new Exchange Value, only pass on the value it possesses into the new commodity. For this reason Marx calls it Constant Capital (C). It would also include things such as factory buildings as well as ancillary materials such as oil to lubricate machines etc.

The other thing that goes into the production of a new commodity is the labour-power that works up this material using the machines etc. This Labour Power like any other commodity has its Exchange Value determined by the labour-time required for its production. In other words how much time is taken to produce the workers needs for food, clothing and shelter and all of those other cultural and physical needs taken as standard for the particular country and time. However, just as was the case for say a slave in the past or a medieval peasant the worker can work for longer than is required to produce this necessary amount. They can produce a surplus. If a worker produces Exchange Value equivalent to this necessary amount in say 4 hours, and receives that value back in the form of wages, but works for 8 hours, they have produced a surplus Exchange Value equivalent to 4 hours. The new Value they have created is equivalent to 8 hours. Four hours of this is merely transferring the value of their own Labour Power into the commodity in the same manner as the Constant Capital, but the 4 hours of Surplus Value they produce is new value, additional value, Exchange Value that previously did not exist. This quality of labour power to create new Value rather than simply transfer existing value into the commodity is what leads Marx to describe it as Variable Capital (V). Technically, this is incorrect. The worker produces a new USE-Value, but as stated above the Exchange Value of this new Use Value that is required to cover the workers reproduction - called necessary labour-time - is not new Exchange Value. It already exists in the form of the workers Labour-power. The new product produced during this time simply reproduces it. It is technically speaking the new value over and above this, the Surplus Value which can properly be described as Variable. But, Marx wants to show that it is the Labour-power which is the genesis of this new value so his use of the term is understandable. The Surplus Value created by this Labour-power is labelled as (S).

We now have the formulae for the Exchange Value of the product. C + V + S. It is important to understand that this breakdown of that value is not like the way in which orthodox economics determines value from the costs of the factor inputs. The Value of the Commodity is not simply a summation of costs, so much for Constant Capital, so much for wages, so much for profits. These are objective quantities of expenditure of Labour-time. The exchange Value of the Constant Capital IS the amount of labour-time required for the production of the various components. Added to this is the average, socially necessary labour-time required for producing the new product - let us say 8 hours. That gives us the total value of the product. But, that sets the limit within which the distribution of that 8 hours is divided between the Capitalist and the worker. S is not an amount of profit simply added on to the costs of production.

Generalised Exchange

Now, when commodities first began to be produced and generalised exchange begins to take place things are not the same as they are under Capitalism proper. As I have shown in my previous blog in relation to the mistakes of Mandel under peasant or artisanal production, in fact, what we have is not the production of surplus value, but the production of surplus use values, that as a consequence of generalised exchange take on the form of commodities that have Exchange Value. The peasant or artisan is not seeking to maximise profit, because they have no compulsion to accumulate Capital. They merely seek in the case of the peasant to sell those goods excess of their own needs in order to buy those things they cannot produce or themselves, and to pay their taxes etc. The artisan does the same except the whole of their production is to be sold to achieve that result, because they are specialists. This is important.

Capitalism Proper

Under Capitalism proper the Capitalist is forced to maximise profit, because that is the way to accumulate Capital, and the Capitalist has to accumulate Capital, because that is the only way to stay ahead of your competitors. If you fail to do that ultimately you go out of business, and become a worker.

So, some important relationships arise under Capitalism, between C,V, and S. The Capitalist wants to maximise S, but because C is fixed, can only do so, by squeezing V i.e. the worker. This can be done by increasing the length of the working time of the worker. In the 19th century workers hours were more than doubled compared to the time the average peasant or even day labourer worked in previous centuries. Today, the retirement age is raised to have the same effect over a worker's lifetime. This means of raising S is called ABSOLUTE Surplus Value. The same effect can be obtained by squeezing more out of workers during the same given period. Achieved by speeding up production lines, telling postmen they have to walk faster etc. The other means of raising V is by cutting V. That can be done by reducing the cost of all those things that the worker has to buy. that was why the capitalists wanted to abolish the Corn Laws against the resistance of the Landlords. By cheapening the price of bread the Capitalists could justify cutting wages. This is called RELATIVE Surplus Value. Capitalism's continual improvements in technology and technique, bring about this cheapening of the worker's requirements. In fact, by this means they can not only reduce V in real terms, but it can be accompanied by actual improvements in workers living standards, as cheaper prices for certain goods mean that workers have money left over to buy a wider range of goods. All that is required is that this cheapening is greater than the actual reduction in workers wages. This is what Marx called the "Civilising Mission" of Capitalism, and stands in complete contrast to the Staliinist and Lassallean notion of "absolute immiseration", replicated by others on the Left like the AWL, who proclaim that "Capitalism creates poverty", in complete contradiction to the observable reality.

So, Capitalism is concerned with the ratio of S/V or the rate of exploitation. But, increasingly, because of technological development, and because Capital seeks to increase Relative Surplus Value, C increases at a faster rate than S. For the Capitalist, increasingly he is concerned with the not only how much he can screw his workers, but with how much profit he makes in proportion to the total amount of Capital he has to lay out to achieve it i.e. with S/C+V, the Rate of Profit. This is important, not because like with say a saver who wants to earn the highest rate of interest on their savings they want to increase their spending power, but because it is the index of how much they can increase their business, and thereby out compete their rivals.

But, this is where a difference with those pre-capitalist forms comes about. Not only does the peasant or artisan not produce Surplus Value per se, but even were we to designate the Exchange Value of their Surplus Product as Surplus Value, they would not be concerned with maximising it, because they were not in competition with other peasants or artisans to the extent of needing to expand their operations or die. Moreover, the amount of C used by such producers was quite small. There could be little variation of S/C+V, even could we correctly apply those terms. That is not the case with Capitalism. Capitalists move their Capital to where they can maximise not just the amount of profit, but also the Rate of Profit.

But, when C begins to expand significantly this has consequences. If we take two firms with the same amount of Capital employed, and assuming that the workers in each are exploited to the same degree we will find that the Rate of profit varies depending upon the ratio of C to V - called the Organic Composition of Capital.

C100 V 400 S 400 Rate of profit 400/500 = 80%

C400 V 100 S 100 Rate of profit 100/500 = 20%.

So it can be seen that firms that are more developed and have more C to V, a higher organic composition of Capital, would on the basis of Exchange Values make less Surplus Value, and a lower rate of profit. Now where this happens in a given line of production what happens is that Exchange Values are determined as the average across all firms in that line of production. So, the firm with the higher organic composition of Capital would not sell its commodities at Exchange Values determined by its own costs, but those of the average. It would have a competitive advantage, and would in fact make a higher profit, and rate of profit than the average firms. The firms with a lower organic composition of capital, who would be less competitive would make less profit, and a lower rate of profit. Over time the less efficient firms go out of business, and so more or less the same organic composition of Capital will apply across an industry.

Values Become Prices

But, that is not the case between industries. The degree to which such an equalisation can occur will depend upon the nature of the industry, the degree to which technological developments can be introduced etc. For example, agriculture for a long time remained very poorly capitalised compared to industry. But, if these variations across industries cause differences in the Rate of profit, and if Capitalists will always seek to move their Capital to where it brings the best return, causing profit rates to be averaged over time, how is this average profit to be brought about. Marx resolved this problem, by showing that in establishing an average rate of profit Capital creates market prices that differ from exchange values, such that these prices cause this average rate of profit to be achieved across the whole of Capital. This is the transformation of Values into prices.

If we take the example above:

C100 V 400 S 400

C400 V 100 S 100

Then the total C is 500, V 500, and S 500. The average rate of profit is 500/1000 = 50%. In order to achieve this average the prices received for its products for the first firm have to be reduced, and those of the second increased.

Previously, total Exchange Value of firm 1 was 900, and this has to fall to 750, a reduction of 150, to bring about a rate of profit of 50%.

This surplus value is now transferred to firm 2. The Value of its product was previously 600, and becomes 750 also producing a rate of profit of 50%.

Mandel's Account

All, of the above more or less mirrors Mandel's explanation of this process other than the fact that I do not accept that Surplus Value is produced other than by wage labour, or at least absent wage labour forming a major part of both production and consumption. I also broadly agree with the first part of how Mandel explains the way in which this averaging of the rate of profit arises.

On page 158, he relates how when after the end of the Napoleonic wars the price of coffee in Europe rose steeply, whilst whereas the price of sugar fell as a result of the introduction of beet sugar, sugar producers in Java, Cuba, Haiti, and San Domingo switched over their plantations to coffee. The fall in the supply of sugar caused its price to rise, whilst the increase in the supply of coffee caused its price to fall, and profit rates were once more equalised. This to me is the correct interpretation as to the way in which Capital is allocated to bring about an average rate of profit, and also the way in which Exchange Values give way under pressure of shifts in demand and supply to market prices.

But, Mandel goes on to give a further explanation, which to me is wholly incorrect. First of all he introduces a concept which I think is unnecessary not to say contrived. He argues that because Capital moves to those areas where the Organic Composition of Capital is low it will bring about an increase in that composition, because the increased competition will encourage a greater use of machinery, and more efficient methods. So it will tend to equalise the organic composition of Capital. I think this is largely nonsense. The example he gives of coffee and sugar shows why. Its unlikely that there was any increase in the organic composition of Capital in Coffee production as a result of more Capital being employed there. The fall in price has nothing to do with any such increase in the organic composition of Capital, but is purely and simply a consequence of changes in demand and supply. In reality what we have here is the following. If we begin from a situation where prices are the same as exchange values, and demand and supply are in dynamic equilibrium then supply will respond both to changes in demand, and changes in profitability. If, there arises a change in the organic composition of Capital in one branch of industry this will cause a divergence in rates of profit. Capital will move from where the rate is lowest, and towards where it is highest. But, this means that Supply falls in one and rises in the other. If Supply and demand were previously in balance then this must mean that it is thrown out of equilibrium. There will be an oversupply in one and an undersupply in another. But, oversupply and undersupply are relative terms. Equilibrium means only that the amount suppliers are prepared to supply at a given market price is equal to the amount consumers will demand at that price. Crucial here is supply. The amount producers are prepared to supply is a function of the profit that can be made at the given market price. As at the original Exchange Values profits either above or below average profits were made this meant in effect that at market prices rather than Exchange Values some commodities were being over supplied and others under supplied. Capitalists are not interested in Exchange Values, but market prices, because it is market prices that they are paid. It is these market prices and the resultant money profits they produce which determine how much they are prepared to supply. It is not under Exchange Values that market equilibrium is attained, but under market prices.

Elasticity of Demand

The amount of Capital that has to exit one sphere and enter another is dependent upon another factor known to Marx, what today Economists call the Price Elasticity of Demand, or in other words the extent to which demand changes in response to changes in prices. Speaking in this regaard Marx talks about the steel industry in Sheffield, and the production of cutlery. He remarks that a cut in prices will result in more knives and forks being demanded, but he continues there are only so many knives and forks people need, however cheap they become. If we take an industry where the Organic Composition is high, and where Exchanges Values lead to below average profits then the degree to which prices and profits rise will depend upon this elasticity of demand. Where demand is inelastic this means that demand does not change much as a result of changes in price. So if prices rise by 10%, firms revenues will rise by 10% if demand is perectly inelastic. In contrast where demand is elastic a rise in price will cause demand to fall a lot, so that the revenues firms take in will not increase much, and might even fall, so profits will not rise much. Consequently, where demand is inelastic less Capital will need to leave that sphere than where demand is elastic.



The above diagrams illustrate this. In Fig 1 to the left we see that from an original position of equilibrium represented by the intersection of SS and DD the price is P, and the quantity demanded and supplied is Q. If we assume that the price has to rise to P1 in order that average profits are achieved then this results in a new equilibrium point at S1S1 DD. At this equilibrium level Supply has to shrink all the way back to Q1. This is because demand is elastic, and as price rises demand falls back sharply as shown by the shallowness of the demand curve DD. By comparison if we draw in a demand curve showing relatively inelastic demand the difference is marked. Fig. 2 to the right shows that now a price rise from P to P1 results in a new equilibrium level at the intersection of S2S2 and D1D1. But now the equilibrium level is achieved with demand and supply only falling back to Q2.

It is apparent then that in industries or for products where price elasticity of demand is higher more Capital will have to be withdrawn (because the level of Supply is a direct function of the Capital employed) in order for an equilibrium level to be achieved that produces average profit.

Socially Necessary?

Keen to show that an average rate of profit exists across the whole of Capital short of the need for this equalisation of the organic composition of Capital, Mandel comes up with what I think is a thoroughly contorted argument. He says that because Exchange Value is based upon socially necessary labour any industry where the Organic composition of Capital is lower than the average is in effect wasting labour-power. Whilst, this argument holds WITHIN a given industry, it is ludicrous to apply it across industries. In what way is it sensible to say, for example, that agriculture is wasting labour, because it has a lower organic composition of Capital than Steel-making? It isn't. Socially necessary means socially necessary given the available techniques, and technology at that particular time. It makes no sense to say that labour is being wasted in agriculture or some other industry because it is not using machinery that does not exist!!!

Its undoubtedly the case that over time increases in demand leading to high prices that attract new Capital will encourage new ways of producing more efficiently. This has nothing directly to do with the fact that there are variations in the organic composition of Capital, and the lower prices are caused by the increased supply not some kind of punishing by consumers of suppliers that don't use enough Constant Capital!! Generally, this works backwards from the consumer to the producers of Constant Capital. But, it is not necessary to argue that the movement in prices is a result of producing below some imaginary socially necessary labour-time that would be the case if non-existent machines did already exist.

There are a number of examples which demonstrate the point. When the price of wool rose, largely due to increased trade bringing about an increased demand for woollen garments, Capital moved into the farming of sheep. This didn't to any significant degree entail an increase nin the organic composition of Capital in sheep farming. It did involve a greater volume of Capital leading to an increased supply of sheep, and consequently lower prices. As the price of wool fell as more wool became available, and as weaving became more profitable Capital moved into weaving, new machines were developed, but now not enough wool could be spun. Prices for woollen thread rose causing Capital to move into spinning. New spinning machines were developed.

The Average Rate of Profit and Mysticism

Mandel is led to these arguments because he sees an average rate of profit as being a feature of Capitalism. It is the average rate of profit itself that MUST be applied to all Capital that then determines prices. This is clearly not true WITHIN industries. Some firms that are more efficient earn higher rates of profit, others lower rates of profit than the average. But, it is not true ACROSS industries either. At any one time some industries will have higher rates of profit than others. It is possible as with almost anything else to take the total profits, and divide them by the total Capital to arrive at an Average Rate of Profit, but in and of itself that is meaningless. To argue as Mandel does that this average can be applied to determine prices is bordering on the mystical. Moreover, the argument Mandel uses here contradicts the correct argument he commenced his exposition with. Indeed to a certain degree it removes the transformation problem altogether. If prices are magically formed in the way that Mandel suggests by the application of the average rate of profit, so that in some way unexplained consumers reduce teh prices they are prepared to pay for goods produed by industries with a low organic composition of capital, and vice versa then the resultant average raate of profit resulting from these prices will give no reason for Capital to move frm one sphere to another! He removes the very mechanism by which the average rate of profit is formed. The real average that Marx is concerned with is the average that arises via competition, and the movement of Capital from those areas where the Rate is low to those where it is high, which of itself through the working of supply and demand brings about changes in market prices, and averages out the rate of profit. But, Capital does not flow easily from one area to another, there are necessary frictions, and so the averaging of the rate of profit can never in reality be achieved. Even besides the continual changes in technology, of the composition of Capital and so on, the average rate of profit is always a moving target which can never be reached. Modern Capitalism achieves it as best it can not in he sphere of production, but in the sphere of fictional Capital, through the instantaneous revaluation of Capital values on the world's Stock Exchanges.

The Concentration and Centralisation of Capital

One final point. Mandel links this argumeent with the concentration and centralisation of Capital, which is an undeniable feature of Capitalism. But, Mandel has in my mind too mechanical a view of this. Its true that Marx talked about this centralisation and concentration of Capital, and the necessary drive towards Monopoly. But Marx not only said that Competition breeds Monopoly, he also said that Monopoly breeds competition. I think that Marx's centralisation and concentration of Capital really refers to that centralisation and concentration in the hands of a few Capitalists.

For example, the Dow Jones Index is an index of the US's 30 biggest companies. Not one single company that was in that index at the beginning of the twentieth century is in it today. Meanwhile companies that did not even exist 10, 20 or 30 years ago today make up some of the biggest companies. So it is clear that the argument about the centralisation and concentration of Capital caannot be used mechanically to argue that some given set of very large companies must dominate the economy. In any one industry it is inevitably true that the largest companies tend to dominate - though again not absolutely as the demise of GM and Ford proves (not though to be replaed by new small companies but by other very large companies like Toyota, VW etc.) - but over time, new industries develop that repalce the old. These new industries are almost inevitably dominated by small not large companies, but these small companies grow rapidly to become large companies. Contrary, to Mandel's assertion, it is usually these new, small dynamic companies that have the highest rates of profit, not the old large companies. It is precisely, this higher rate of profit of these small companies that enables them to grow rapidly.

And again contrary, to Mandel's argument in relation to the organic composition of capital these companies usually have a very low organic composition of Capital. When Bill Gates, Steve Ballmer, and Paul allen started Microsoft they did so with a very small amount of Constant Capital. It amounted to little more than use of Bill Gates parents garage. They did have a large amount of Variable Capitalin the form of their respective skills - even if initially those skills were not remunerated in high salaries. But, it was not the existing giant of he Computer industry - IBM - that was to be the dominant player in the following years, but this tiny start up, which made huge profits, and a very high rate of profit. Nor is that experience untypical. It can be applied to almost any new industry you care to mention.

It is the basic idea behind the Harvard Business School Model of the product Life Cycle. New products are generally developed in developed economies where consumers are more likely to be early uptakers. But, also new products rely on innovation and development. They tend to have a high level of skilled labour in their research and development. Small production runs mean that this labour component tends to be a high proportion compared to any capital used in production. It is only as the product becomes established and demand rises that larger production runs enable a profitable implementation of new production techniques, and eventually as the product becomes mature to the introduction of new machinery, mass production etc. and unskilled labour. As the model shows this is a large part of the explanation of the way multintionals are able to utilise cheap labour economies for the production of commodities in that phase of the product cycle.

What is clear is that although large companies come and go as new industries develop and old ones decline, the ownership of Capital itself becomes more centralised and concentrated in the hands of fewer and fewer people. To get into the wealthiest 1% in he US you need a Net Worth of just $3 million. Most of the peeople in this top 1% are not really Capitalists. The large majority are people who are over 50 years old, nearly all of their wealth is in the form of their home, and their pension fund. In short it is not in the form of productive wealth over which they have direct control. They are basically middle class people, who have had a decent income and been able to buy a nice house, and save for their retirement. By contrast, Bill Gates has a personal net worth of around $40 billion, or more than 10,000 times that of most of these people. The real ownership of productive wealth in the US is probably concentrated in the hands of not the top 1%, but the top tenth of 1%, or even less than that. In other words in the hands of around 250,000 people. Very few of these people with that extent of wealth will find themselves being cast down into teh ranks of the middle class let alone the proletariat. 1% interest a year on $40 billion would give you an annual income of $400 million!!! But, the entrance every so often of the odd Bill Gates into this exclusive club can hardly change its nature as a stable ruling class. Even 10 Bill Gates every decade hardly changes the nature of a group of 250,000.