Over the last week or so I have been having a discussion with comrades at the Socialist Project in Canada, who very kindly have been sending me a copy of their e-bulletin. You can get it free by subscribing via the above link.
I wrote to them concerning an article they had about the auto industry in Canada. The correspondence is below. I agreed with them to reproduce it here as part of my further comments, in order to open up wider discussion.
The main points I would want to raise initially relate to the questions of the international division of labour – for which see some of my recent blogs – and the question of Workers Plans for Production, which ties into what I have been writing about Co-ops.
Firstly, Herman in his response states,
“Auto companies do not exactly compete on "world markets" in the sense that they are not competing in a North American market with Chinese-made and priced vehicles that are imported en mass into this continent. Actually, competition tends to operate on the basis of regional markets, such as Europe, Asia and North America. In this way it is wrong to argue that GM must lower its costs to match those of Chinese or Indian workers - who produce mainly for Chinese and Indian markets. When it comes to mass producing passenger and commercial finished vehicles there is no global labour market, although those who firmly support full capital mobility and trade liberalization see this as an ideal to work towards.”
I don’t think this view is correct. The following gives some general background BERA On The Auto Industry .
As an indication This Link points out that South Korea alone exported 700,000 cars to the US last year compared to just 5,000 US imports to Korea!!!
Moreover, for some time the scale of Auto production has been such that in order to obtain the necessary economies of scale it is necessary to produce to meet the needs of a global market. Whilst, the US and North American market remains the biggest single market, North American producers are dependent upon sales into the world market in order to produce on that kind of efficient scale. Yet, North American producers seem unable to compete against European producers such as VW, who have been able to locate substantial amounts of production in Eastern Europe, let alone with the increasing production of autos and auto parts by a number of Asian economies, including now a growing industry in India.
Indeed, that failure of the North American producers to respond to changing market requirements by producing smaller, more fuel-efficient cars, whilst Asian and European producers have been increasingly supplying that demand in the North American Market, appears to be one of the reasons why North American producers such as GM have done particularly badly in the last couple of years, as fuel prices rose sharply.
No doubt, North American producers COULD respond to those changes in consumer needs, but they would still be at a competitive disadvantage compared to Asian producers of similar range cars. In part, that disadvantage resides in the wage differential, in part it resides, in comparison with European producers in the legacy costs of large pension and health costs for retired employees – at least in the US – due to the absence of a socialised healthcare system.
In the short-term workers in North America can respond to the crisis in the auto industry, by refusing to accept responsibility for it, but as Marx spelled out, short of socialism, Capital will always win out in such bouts of strength in the end. If the Capitalists simply shut up shop, workers can – and should – occupy the plants, but they still need wages, and ultimately that means they have to produce something. A Workers Co-operative can produce goods in a more competitive way than a private Capitalist enterprise, but as I’ve set out in recent blogs on the Economics of Co-operation, there are limits! Its no good investing workers time, effort and Capital producing goods that those workers have previously produced, if the conditions of the Capitalist market mean that they cannot do so profitably. It is necessary in developed economies for workers to establish Co-operatives in those areas of production where they do not face international Capitalist competition from low-wage economies.
That is why I raised the question of the Lucas Plan, because it did demonstrate how workers can come up with those kinds of ideas of alternative production. The problem with the Lucas Plan was that it could not have been implemented within the context of “Workers Control” within a private Capitalist enterprise, for the reasons I have set out elsewhere i.e. outside a situation of dual power, Capitalists are not going to allow workers to “Control” production, and their Capital! Such plans only make sense in the context of Workers Ownership and, thereby, control of the means of production.
But, in the US and North America in particular at the moment, I see vast potential for such new industries to develop, because Capital needs desperately to come up with solutions to some of the problems it faces, such as new forms of energy, and means by which of dealing with environmental problems such as Global Warming. It will probably, also have to deal with questions of resource shortages as production around the globe is ramped up, and both natural raw materials get used up, and traditional synthetics, which have relied heavily on oil by-products, become too expensive. Base technologies for many of these solutions already exist in the form of bio-technology, and nano-technology, and once Capital feels the risk-reward is right to develop them, these new industries will probably form a dynamic cutting edge over the next 50 years. If workers could get involved in developing them through their own Co-ops, they could make a significant advance.
I have to say that I am not at all convinced that attempts to restrict the free movement of Capital and goods is not Protectionism. It seems to me that that is precisely what it is. Workers should by all means refuse to pay for the crisis that arises from the consequences of such “Free Trade” – consequences which as Marx pointed out are destructive and thereby lay bare the real class struggle. Workers should combine internationally to support workers in Asia and elsewhere to unionise, and to raise wage rates etc. But, the argument “We shouldn’t allow imports from Country A, because wages are low,” is not an argument a Marxist should advance, because without the increase in production, and consequent demand for labour in Country A, that arises from its being able to trade and sell its goods on the world market, workers in Country A, NEVER WILL be in a position to unionise, to organise adequately, and push up their wages. That has been the lesson of developing economies over the last 100 years or so.
And, in the meantime, who would police such arrangements? As Herman says, thre are no “democratic” institutions, certainly no workers institutions that could police such arrangements, so the only people who COULD police them is the individual Capitalist States!!! Similarly, Herman although, recognising the role of that State as an enemy of the working class, still ends up looking to it as the saviour of the working class!
“That's why I would argue for a nationalized sector to replace the auto companies, that would include the energy sector, and work along side a publicly owned financial sector, to produce the kinds of goods that you argue for: mass transit, ecologically responsible manufacturing goods and services, etc. This can't be done privately, and could only be made to work publicly, if it were part of a larger political movement to run enterprises differently and create a different kind of economy.”
There is no reason why this State capitalist enterprise would be any more efficient, let alone any more “socialist”, just because it incorporated a larger area of economic activity. The means of production would still be in the hands of the Capitalist class, and of that class’s state! As Herman says, if a political movement existed that could bring these means of production under Workers Control, then maybe something progressive could arise out of that. But, what this really amounts to is the idea that this could happen during a period of dual power, because outside such a situation there is no way that Capitalists let alone their state are going to give workers such control. The experiments with “Municipal Socialism” were necessarily a failure, precisely because there is no more chance of socialists having real “power” or “control”, simply by forming a Majority in the Council Chamber, than there is of them forming a majority in Parliament, so long as the machinery of the permanent state remains in the hands of the Capitalist class!
That is the question, which has to be addressed. How do Marxists enable workers to deal with the intervening period, during which time State power resides with the bourgeoisie. Simply wishing that away and raising false hopes in “The State” whether national or local will not do, for the reasons Marx set out in the Critique of the Gotha Programme. And a failure to explain to workers that although they can make temporary victories through their own militant action will not do either, for the reasons Marx set out in his letter to Rouge. We have to point out to workers that by its nature Capitalism will constantly suffer crises, which the Capitalists will attempt to resolve at the workers expense – through job cuts, wage cuts or both. Workers can resist, and may for a time succeed in their resistance, but without taking over the means of production the workers will ultimately be thrown back. They need to own the means of production. The bosses will resist that too, which is why ultimately they will need to take state power. But, workers will not come to that realisation, or accept that conclusion automatically or simply because Marxists say that. They need proof, they need to know, understand and believe in an alternative, a replacement. That is why the only solution during that intervening period is the development of Co-operatives as part of an overall strategy of class struggle.
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Comrades,
Thank you for sending me your e-bulletin. Its always good to get information from around the globe. There were two things I wasn't sure about in your piece here though. First, I agree with you that its crap to blame UAW members for GM's problems. However, I do think we have to face a bit of reality. Productivity has clearly risen as the figures you give show, but my understanding is that GM's productivity was previously low compared to other auto firms in the US such as Honda. If we compare US auto-workers wages with those of auto-workers in China - who work with the latest kit, and also have high productivity - then we can see the problems GM must have competing in the world market, and consequently that GM's workers have competing in what is now a global labour market. Finally, on this point. My understanding is that the biggest labour costs that GM face is not those of current workers, but the huge costs it faces for that much bigger number of former worekrs in the form of their healthcare and pension benefits.
Now, none of that should be taken as in any way excusing GM, apologising for them or any other such crap. But, if we are going to deal with the situation - and I'm sure you'll tell me if any of the above is wrong - we have to deal with the facts to know what is possible. I'm sure you would not for example, support Nationalist policies such as Protectionism as a solution. WE should of course, give whatever support we can to Chinese workers to get higher wages and better conditions, but that is not going to be a short run soluiton. Besides the fact that I don't support statist solutoins or calls to the bouregois state to act in workes interests, nationalisation is no solution, because all experiecne is that if the State took over GM, the first thing it would do would be to initiate huge job losses, and would probably run it even more bureaucratically than the present lot.
I don't know if you are familiar with the Lucas Plan. It was developed by workers in Britain during the 1970's at the Lucas Plant which amde car electrical component and aerospace equipment. The workers looked at ways of producing socially useful commodities at a profit, and with workers control. I think that GM workers rather than trying to compete against low wage auto production from the rest of the world should look at the possibility of producing high value added products - that could sustain high wages and high skills - via a Workers Co-operative using much of the existing GM equipment, and workres skills. Obama says he favours all htis high tec alternative energy stuff, so what about a plan to do just that electric vehicles, solar panels, and so on and demand funding from Obama for a Workers Co-op with a Workers Plan for production of such stuff.
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Arthur,
Thanks for your thoughtful comments.
Here in Canada autoworkers belong to the Canadian Auto Workers (CAW), which split from the UAW in 1984, over the issue of concessions. The Canadian region of the UAW rejected the idea of concessions and so was forced to start a new union.
Auto companies do not exactly compete on "world markets" in the sense that they are not competing in a North American market with Chinese-made and priced vehicles that are imported en mass into this continent. Actually, competition tends to operate on the basis of regional markets, such as Europe, Asia and North America. In this way it is wrong to argue that GM must lower its costs to match those of Chinese or Indian workers - who produce mainly for Chinese and Indian markets. When it comes to mass producing passenger and commercial finished vehicles there is no global labour market, although those who firmly support full capital mobility and trade liberalization see this as an ideal to work towards.
On the other hand, I - and many other socialists - would argue that auto production and wage rates need to be highly regulated, the former, by democratically/politically-constituted institutions (that don't currently exist), and the latter, by unionization. Limiting the free movement of capital of the ability of capitalists to ship products wherever and however they wish is not the same thing as "protectionism", but needs to become part of democratic planning, working towards the production of needed goods and services as much as possible, locally, serving the needs of national and regional communities and trading for mutually beneficial needs.
Arguing that Chinese or Indian capitalists or US-based capitalists in these markets should be able to sell massively into North American or European markets is really not a form of international solidarity, but an acceptance of principles of neoliberal globalization and would only result on massive job loss. Opposing it is hardly what one would denounce as "nationalist" or "protectionist". The real questions have to do with regulating overall vehicle production, access to markets and, even more importantly, reducing our reliance on private cars and moving towards environmentally sustainable options, such as mass transit, non-fossil fuelled vehicles, and the production of other goods that would help the transformation to environmental sustainability.
I would have to agree with you, though, that what are called "legacy costs" - the private provision of services to worker such as pensions and other benefits that should be socially provided - (and, in the US, that includes basic medical care) - places a terrible burden on companies that compete with those who have a very small number of retirees (such as the so-called "transplants" in North Amerca, such as Honda and Toyota). This can only be relieved by socializing those costs, which requires a political movement to demand it.
As for your reference to the Lucas Aerospace example, I would heartily agree that the model has always been an inspiration to many of us on this side of the pond. I would, however, analyze this experience a little different than you. While the collective ability of workers to develop socially responsible products is key, the idea of developing it in the form of a private capitalist profit-making enterprise, would not work. There are hardly any real networks of worker co-operatives in Canada and the US, and developing this kind of enterprise in the context of capitalist Canada or the US would only recreate the current problem that exists in all privately owned auto companies. Financing, sourcing of parts and materials and competing in all of the market segments would force the company to act just like other capitalist enterprises. That's why they call capitalism a system, because of the systemic patterns that force all market entrants to act similarly.
Which brings us to public ownership. Like you, we here know that the capitalist state runs enterprises in ways that recreate the traditional forms of exploitation and market operation, as well as with a kind of bureaucratic hierarchy which also does not provide positive models for the kind of enterprises we would like to see. As well, if state-owned enterprises accept the logic of the capitalist marketplace, the enterprises they run will end up looking like the private companies they are supposed to replace (see the experience of British Leyland).
That's why I would argue for a nationalized sector to replace the auto companies, that would include the energy sector, and work along side a publicly owned financial sector, to produce the kinds of goods that you argue for: mass transit, ecologically responsible manufacturing goods and services, etc. This can't be done privately, and could only be made to work publicly, if it were part of a larger political movement to run enterprises differently and create a different kind of economy. If my memory doesn't fail me, that entire project of the socialists who worked through the Greater London Council and Lucas, was to do this in a way that helped to build a diffferent kind of public sector model.
Our task is to contribute to the building of that kind of a movement,
Herman Rosenfeld, Socialist Project (These are my personal opinions).
Thursday, 30 April 2009
Wednesday, 29 April 2009
The Recession Is Over!!!
The second quarter that we are now in will be the last quarter of the recession of 2008-9. Day after day now for the last few weeks isolated pieces of data from Purchasing Managers Indices, to House Prices, to Retail Prices have indicated that the rate of decline in the economies of Europe and the US has been decreasing. That has been in addiiton to a steady improvment in credit condiitons as all of the various measures taken by Capitalist States to pump liquidity into the world Capitalist system have begun to have an effect.
This morning, European Consumer sentiment data came in way ahead of expectations. IN the US the Company reporting season has seen companies in the large majority reporting profits considerably ahead of expectations. Although, Banks retain a large amount of "toxic" assets on their books, its clear as I said a while ago that in terms of current operations Banks' business has never been more profitable as they get their money almost for nothing. This morning Deutsche Bank in Germany reported profits for the first quarter of more than 1.2 billion Euros.
Having run up, in March, the biggest increase since 1933, the S&P 500 in the US, along with all the other indices is set to run up around another 7% for April, again the first time there has been such a two motnh back to back increase in some time. This evening the Fed has come out with its statement on interest rates and Monetary Easing, and the DOW 30 is up more than 230 points or around 3% on the day alone! That despite, the Swine Flu coming on top of the world's worst financial crisis in living memory! ON the back of the Fed announcmeent the Yield on the 30 Year T-Bill rose to over 4% for the first time since November.
If ever evidence was needed that the fundamentals of the world economy are extremely solid, based on the continuing Long Wave upswing the last few months should have provided it. This will be the last quarter of the current recession making it one of the steepest on record, but one of the shortest lasting just 4 quarters sicne its beginning in the Third Quarter of last year. The clear-out and restructuring of Capital that has and is taking place as a consequecne of that crisis will provide ab even better basis for the resumption of strong growth into next year and beyond.
Workers will once again be able to advance their cause free of the worry of unemployment, and be able to begin to rebuild their organisations to take the battle to Capital. One of the first tasks will be to prepare for the inevitable inflation that will result from all of the deluge of liquidity pumped into the world economy, and the start of the coming up against constraints in China, and the other economies which for the last 20 years have been the source of vast amounts of cheap commodities. But, workers are always stronger fighting on those grounds than when they are simply fighting to save their jobs.
This morning, European Consumer sentiment data came in way ahead of expectations. IN the US the Company reporting season has seen companies in the large majority reporting profits considerably ahead of expectations. Although, Banks retain a large amount of "toxic" assets on their books, its clear as I said a while ago that in terms of current operations Banks' business has never been more profitable as they get their money almost for nothing. This morning Deutsche Bank in Germany reported profits for the first quarter of more than 1.2 billion Euros.
Having run up, in March, the biggest increase since 1933, the S&P 500 in the US, along with all the other indices is set to run up around another 7% for April, again the first time there has been such a two motnh back to back increase in some time. This evening the Fed has come out with its statement on interest rates and Monetary Easing, and the DOW 30 is up more than 230 points or around 3% on the day alone! That despite, the Swine Flu coming on top of the world's worst financial crisis in living memory! ON the back of the Fed announcmeent the Yield on the 30 Year T-Bill rose to over 4% for the first time since November.
If ever evidence was needed that the fundamentals of the world economy are extremely solid, based on the continuing Long Wave upswing the last few months should have provided it. This will be the last quarter of the current recession making it one of the steepest on record, but one of the shortest lasting just 4 quarters sicne its beginning in the Third Quarter of last year. The clear-out and restructuring of Capital that has and is taking place as a consequecne of that crisis will provide ab even better basis for the resumption of strong growth into next year and beyond.
Workers will once again be able to advance their cause free of the worry of unemployment, and be able to begin to rebuild their organisations to take the battle to Capital. One of the first tasks will be to prepare for the inevitable inflation that will result from all of the deluge of liquidity pumped into the world economy, and the start of the coming up against constraints in China, and the other economies which for the last 20 years have been the source of vast amounts of cheap commodities. But, workers are always stronger fighting on those grounds than when they are simply fighting to save their jobs.
Tuesday, 28 April 2009
Solving the MP's Housing Expenses Problem
Later this week Parliament will be trying to stitch up seom deal to avert the current furore over Ministers and other MP's expenses claims that have in recent weeks been reduced to farce. Here is a simple solution.
For all those MP's who live outside London, and who need accommodation near to Parliament, why not simply provided them all with a house on some run-down Council estate? Now, I realise that the press would undoubtedly use this to run stories about well-paid MP's doing homeless people out of Council Houses, but the answer to that is simple. Currently, those same MP's get oodles of dosh to cover their expenses for hotal accommodation, or to cover the mortgage payments on their various other homes, or ven homes of their relations who they claim to be living with. That amount comes to way more than the rent on such Council houses, so simply Capitalising that Rent would mean that the Government could hand that over to the relevant Council so that it could build replacment accommodation, which would have the added benefit of providing some building workers with jobs!
Ministers and MP's are always telling us how much they want to "listen" to ordinary people, having them living on such a Council Estate would be an ideal opportunity for them to put that into practice!
For all those MP's who live outside London, and who need accommodation near to Parliament, why not simply provided them all with a house on some run-down Council estate? Now, I realise that the press would undoubtedly use this to run stories about well-paid MP's doing homeless people out of Council Houses, but the answer to that is simple. Currently, those same MP's get oodles of dosh to cover their expenses for hotal accommodation, or to cover the mortgage payments on their various other homes, or ven homes of their relations who they claim to be living with. That amount comes to way more than the rent on such Council houses, so simply Capitalising that Rent would mean that the Government could hand that over to the relevant Council so that it could build replacment accommodation, which would have the added benefit of providing some building workers with jobs!
Ministers and MP's are always telling us how much they want to "listen" to ordinary people, having them living on such a Council Estate would be an ideal opportunity for them to put that into practice!
Saturday, 25 April 2009
Paying For The Crisis
Ever since the Budget the media have been talking about how the huge amounts of borrowing are going to be paid for. The borrowing is certainly big and total debt even according to the Government is set to rise to around 80% of GDP by 2013. See: Budget . As I wrote last year, borrowing is not an alternative to taxation; it just means deferring the taxation to some point in the future when Governments think the economy can better pay for it.
In my blog, 1929 And All That I wrote,
“Compare that (the fact that European Governments tried to balance the budget during the long Depression that ran from the 1920’s until WWII) with the post-war period. As Mandel recounts in “The Second Slump”, there were a number of recessions during the post-war boom of 1949 – 74. Each was cut short compared to previous periods as a result of Keynesian intervention. How explain this? Keynesian intervention requires state spending. The state can only spend if it taxes. Borrowing does not change this, it merely defers that taxation to some future date when the borrowing has to be repaid. But, Marx tells us that taxes are a deduction from Surplus Value. If the state intervenes by spending it does so by – at least in the short term – making the bosses pay to resolve their crisis. It may do so for a number of reasons. Firstly, it may feel that it has to do so to buy off a revolutionary upsurge. A left Social democratic regime can be its best option before having to resort to fascism. Secondly, as with the US in the New Deal, or as in the post-war boom period – and now – such intervention can be a lesser evil than risking undermining faith in the bourgeois regime and bourgeois ideology through a prolonged or severe crisis. If it is a matter of a recession within the context of a period of prolonged growth then once the crisis is over reforms can be clawed back, profits restored, state intervention rolled back. This after all is the basis of Keynesianism. It assumes that over the longer term the intervention is cost free because the increased economic activity utilising unused resources provides the basis of the higher tax revenues that pay back the previous deductions from surplus value.
That was not the case for most of Europe in the 1930’s. It was not true in the 1970’s – 90’s.”
This, essentially is the argument Alistair Darling has set out. He says, we have to intervene now, but in a couple of years time, when the economy has recovered to, he suggests 3.5% growth, then we will be able to claw back what has been spent. But, its being suggested that this clawing back will have to be of a significant scale amounting to real cuts in Public Spending. Darling, has not said so himself. Whether it does or not depends upon how you view the prospects of economic growth in the years ahead.
My own view is that it may not. I think Darling is playing politics. The way he has structured the Budget puts the Tories in a difficult position. I think the path from here is fairly clear, and it is a path trodden many times before in history under similar conditions. Governments have frequently built up huge amounts of debt as a result of borrowing for various reasons – usually to fight some war or other, and they have usually ended up screwing the people from whom they borrowed the money. That is one reason that there is some unease in the Bond Markets. Yet that unease is not yet that marked, and I think for good reason.
In previous centuries, when money came in the form of Gold or Silver coinage, Government’s used to get around the problem by debasing the currency. Indeed, others used to engage in the same tactic by “clipping”, the coins – nibbling small amounts from the edge of the coins, which they could then accumulate as hoards of gold or silver. Government’s used to simply not so much precious metal into the coins. Those who received the coins took time to realise that they were being shortchanged, and so prices only adjusted after a bit of a time-lag. But, eventually they did adjust, and the economy suffered an inflation. But, the nominal amount of the Government’s debt remained the same, so its real value dropped as a result of that inflation, prices rose, so did its taxes!
The US has used a similar method ever since the dollar has performed the role of reserve world currency, printing dollars with which to pay its foreign creditors. It was the fact that “clipped” or debased coins continued to circulate for a while at their full value that eventually led to the realisation that currency did not need to be made up of these precious metals in order to function, because this currency only acted as a token for money, PROVIDED THAT, the amount of these tokens was restricted to the amount equivalent to the money on whose behalf they acted as representative.
Marx explains the process in his “Contribution to a Critique of Political Economy”
He writes,
“But the gold coin gave rise first to metallic and then to paper substitutes only because it continued to function as a coin despite the loss of metal it incurred. It circulated not because it was worn, but it was worn to a symbol because it continued to circulate. Only in so far as in the process of circulation gold currency becomes a mere token of its own value can mere tokens of value be substituted for it…
“The number of pieces of paper is thus determined by the quantity of gold currency which they represent in circulation, and as they are tokens of value only in so far as they take the place of gold currency, their value is simply determined by their quantity. Whereas, therefore, the quantity of gold in circulation depends on the prices of commodities, the value of the paper in circulation, on the other hand, depends solely on its own quantity.
The intervention of the State which issues paper money with a legal rate of exchange -- and we speak only of this type of paper money -- seems to invalidate the economic law. The State, whose mint price merely provided a definite weight of gold with a name and whose mint merely imprinted its stamp on gold, seems now to transform paper into gold by the magic of its imprint. Because the pieces of paper have a legal rate of exchange, it is impossible to prevent the State from thrusting any arbitrarily chosen number of them into circulation and to imprint them at will with any monetary denomination such as £1, £5, or £20. Once the notes are in circulation it is impossible to drive them out, for the frontiers of the country limit their movement, on the one hand, and on the other hand they lose all value, both use-value and exchange-value, outside the sphere of circulation. Apart from their function they are useless scraps of paper. But this power of the State is mere illusion. It may throw any number of paper notes of any denomination into circulation but its control ceases with this mechanical act. As soon as the token of value or paper money enters the sphere of circulation it is subject to the inherent laws of this sphere.
Let us assume that £14 million is the amount of gold required for the circulation of commodities and that the State throws 210 million notes each called £1 into circulation: these 210 million would then stand for a total of gold worth £14 million. The effect would be the same as if the notes issued by the State were to represent a metal whose value was one-fifteenth that of gold or that each note was intended to represent one-fifteenth of the previous weight of gold. This would have changed nothing but the nomenclature of the standard of prices, which is of course purely conventional, quite irrespective of whether it was brought about directly by a change in the monetary standard or indirectly by an increase in the number of paper notes issued in accordance with a new lower standard. As the name pound sterling would now indicate one-fifteenth of the previous quantity of gold, all commodity-prices would be fifteen times higher and 210 million pound notes would now be indeed just as necessary as 14 million had previously been. The decrease in the quantity of gold which each individual token of value represented would be proportional to the increased aggregate value of these tokens. The rise of prices would be merely a reaction of the process of circulation, which forcibly placed the tokens of value on a par with the quantity of gold which they are supposed to replace in the sphere of circulation.
“The rise or fall of commodity-prices corresponding to an increase or decrease in the volume of paper notes -- the latter where paper notes are the sole medium of circulation -- is accordingly merely a forcible assertion by the process of circulation of a law which was mechanically infringed by extraneous action; i.e., the law that the quantity of gold in circulation is determined by the prices of commodities and the volume of tokens of value in circulation is determined by the amount of gold currency which they replace in circulation. The circulation process will, on the other hand, absorb or as it were digest any number of paper notes, since, irrespective of the gold title borne by the token of value when entering circulation, it is compressed to a token of the quantity of gold which could circulate instead.
In the circulation of tokens of value all the laws governing the circulation of real money seem to be reversed and turned upside down. Gold circulates because it has value, whereas paper has value because it circulates. If the exchange-value of commodities is given, the quantity of gold in circulation depends on its value, whereas the value of paper tokens depends on the number of tokens in circulation. The amount of gold in circulation increases or decreases with the rise or fall of commodity-prices, whereas commodity-prices seem to rise or fall with the changing amount of paper in circulation. The circulation of commodities can absorb only a certain quantity of gold currency, the alternating contraction and expansion of the volume of money in circulation manifesting itself accordingly as an inevitable law, whereas any amount of paper money seems to be absorbed by circulation.”
In fact, the Government is already in the process of this. Its called Quantitative Easing, which really just means the Government, through the Bank of England, prints money, and then uses this money to buy back Government Bonds from banks, or to buy Commercial Bonds from Companies, thereby putting more of these money tokens into the economy, in the way Marx describes above. This also explains why although the Bond Markets are uneasy, they are not THAT uneasy.
A few weeks ago, the head of the world’s largest Bond Fund, Bill Gross of PIMCO, said that his tactic was simple – “Buy what the Government is buying, but buy it first!” The logic is straightforward. The Government is going to buy back a load of Government Bonds. The extra demand will then necessarily push up the price of those Bonds. Gross, by buying those Bonds first, makes a large profit when the price then rises! Both the US and UK Governments have another reason for buying back these Bonds, as well as pushing money into the economy. The Bonds they will buy back will be those at the Long End of the Curve – that is they will by back those due to mature in say 30 years time. Because, the interest rate or yield on a Bond is inversely related to the price of the Bond, by buying these Long Bonds, and pushing up the price, the result is to lower long term interest rates. And it is on these Long Term Interest Rates that Mortgage Rates are based!
By pushing them down, they also help to create the increase in demand for housing that both Government’s see as a fundamental aspect of bringing about a recovery in Consumer spending. This explains why the Bond market is not THAT uneasy at the moment. Bond Markets only get really worried if they think that the people to whom they have lent money are going to default. But, a country like Britain that controls its own money supply has no need to default, because it can always print more of its own money! That is not true of countries like Ireland or Spain, because they do not control the printing of Euros. But, its unlikely that the EU would let any of these countries default either.
So, we have Government demand pushing up the price of existing Long Bonds, and thereby reducing Long term interest rates that reduces mortgage rates, that encourages more house-buying, that stabilises house prices, that stimulates consumer confidence and consumer spending. The extra money put into circulation as a result of the Government printing money, monetises this extra demand, leading to higher prices. Higher prices, along with the corresponding higher profits and wages, means also higher tax revenues, which means that what appeared originally as a huge Budget Deficit, becomes after 3 or 4 years of 20% inflation, not so huge after all.
A similar thing happened in the 1960’s, which is why so many people who bought new houses in 1960, did extremely well, because the £2,000 mortgage they had on their new detached house within a matter of a few years was, in real terms, only a fraction of that, as wages rose rapidly. The people who lose out are always the people who lent the money, because they get paid back in worthless paper. But, that is also where the current buy-backs of Bonds come in, because they also enable the main holders of those Bonds, to sell them now at high prices, making substantial Capital Gains. When in 2 or 3 years time the resultant inflation from the printing of money materialises, interest rates will rise. In order for Governments to persuade anyone to buy their Bonds at that point they will have to offer high rates of interest to compensate for the losses due to inflation! So, all of those big players will be able to come back in and buy Bonds to replace the ones they are currently selling back to the Government, but will do so at a fraction of their current prices!
So, it may not be that the government introduces swingeing cuts in Public Expenditure. More likely, it will make nominal increases that amount to cuts in real terms as inflation rises rapidly. Its huge debt could be halved within a matter of only 3 years if inflation ran at 20% during that time! And, if the economy did resume real growth, and not just growth in nominal terms due to inflation, then that Keynesian trick of paying back debt, by higher tax revenues from the increased economic activity would have worked. The cost then would be much higher interest rates in 3,4, or 5 years time.
But, that is where Darling is able to play politics. By pursuing the current course he is able to attempt to spend the way out of the current recession without the need for tax rises or spending cuts. He can do that for the next two years. But next year, the Tories might win the election. So, he will not say now, “We intend to bury the deficit through high inflation”, because that would be unpopular, and would mean all those people currently being encouraged to save at 1% interest rates into ISA’s would say, “No, thanks.” But, it will leave that problem either for him to address should Labour win the next election, or for the Tories to come in and cut spending as their preferred option.
If, you believe that the current recession actually spells the end of the long period of expansion of the economy over the last ten years, then that latter option is the only one you can choose for the reasons I set out in my blog “1929 And All That”. But, as I have set out previously, I believe that the current recession is merely a blip in a 20-30 year Long Wave upturn that began in 1999. ON that basis, I think that, the likely path will be that of inflation, and what Schumpeter and Mises called “forced saving”, that is the inflation causes prices to rise faster than wages, so profits rise, and that will provide a fund from which the taxes needed to pay back the rest of the borrowing will come. The reason for that is also that if this period IS a period of continued Long Wave expansion, then the kind of increases in workers confidence and militancy that began to be demonstrated last year, and which always accompany this phase of the Long Wave expansion would mean that Government’s would want as much as possible to avoid conflicts with workers moving on to the offensive. They do so, because the evidence from similar periods in the past, for example in the period up to the end of the Long Wave boom that ended between 1914-20, and that which ended in 1974, is that not only do workers more frequently win during such struggles, but they are also during them far more quickly radicalised.
As I said, last year, the strategy for Capital will still remain to try to save the system without provoking such social conflict.
In my blog, 1929 And All That I wrote,
“Compare that (the fact that European Governments tried to balance the budget during the long Depression that ran from the 1920’s until WWII) with the post-war period. As Mandel recounts in “The Second Slump”, there were a number of recessions during the post-war boom of 1949 – 74. Each was cut short compared to previous periods as a result of Keynesian intervention. How explain this? Keynesian intervention requires state spending. The state can only spend if it taxes. Borrowing does not change this, it merely defers that taxation to some future date when the borrowing has to be repaid. But, Marx tells us that taxes are a deduction from Surplus Value. If the state intervenes by spending it does so by – at least in the short term – making the bosses pay to resolve their crisis. It may do so for a number of reasons. Firstly, it may feel that it has to do so to buy off a revolutionary upsurge. A left Social democratic regime can be its best option before having to resort to fascism. Secondly, as with the US in the New Deal, or as in the post-war boom period – and now – such intervention can be a lesser evil than risking undermining faith in the bourgeois regime and bourgeois ideology through a prolonged or severe crisis. If it is a matter of a recession within the context of a period of prolonged growth then once the crisis is over reforms can be clawed back, profits restored, state intervention rolled back. This after all is the basis of Keynesianism. It assumes that over the longer term the intervention is cost free because the increased economic activity utilising unused resources provides the basis of the higher tax revenues that pay back the previous deductions from surplus value.
That was not the case for most of Europe in the 1930’s. It was not true in the 1970’s – 90’s.”
This, essentially is the argument Alistair Darling has set out. He says, we have to intervene now, but in a couple of years time, when the economy has recovered to, he suggests 3.5% growth, then we will be able to claw back what has been spent. But, its being suggested that this clawing back will have to be of a significant scale amounting to real cuts in Public Spending. Darling, has not said so himself. Whether it does or not depends upon how you view the prospects of economic growth in the years ahead.
My own view is that it may not. I think Darling is playing politics. The way he has structured the Budget puts the Tories in a difficult position. I think the path from here is fairly clear, and it is a path trodden many times before in history under similar conditions. Governments have frequently built up huge amounts of debt as a result of borrowing for various reasons – usually to fight some war or other, and they have usually ended up screwing the people from whom they borrowed the money. That is one reason that there is some unease in the Bond Markets. Yet that unease is not yet that marked, and I think for good reason.
In previous centuries, when money came in the form of Gold or Silver coinage, Government’s used to get around the problem by debasing the currency. Indeed, others used to engage in the same tactic by “clipping”, the coins – nibbling small amounts from the edge of the coins, which they could then accumulate as hoards of gold or silver. Government’s used to simply not so much precious metal into the coins. Those who received the coins took time to realise that they were being shortchanged, and so prices only adjusted after a bit of a time-lag. But, eventually they did adjust, and the economy suffered an inflation. But, the nominal amount of the Government’s debt remained the same, so its real value dropped as a result of that inflation, prices rose, so did its taxes!
The US has used a similar method ever since the dollar has performed the role of reserve world currency, printing dollars with which to pay its foreign creditors. It was the fact that “clipped” or debased coins continued to circulate for a while at their full value that eventually led to the realisation that currency did not need to be made up of these precious metals in order to function, because this currency only acted as a token for money, PROVIDED THAT, the amount of these tokens was restricted to the amount equivalent to the money on whose behalf they acted as representative.
Marx explains the process in his “Contribution to a Critique of Political Economy”
He writes,
“But the gold coin gave rise first to metallic and then to paper substitutes only because it continued to function as a coin despite the loss of metal it incurred. It circulated not because it was worn, but it was worn to a symbol because it continued to circulate. Only in so far as in the process of circulation gold currency becomes a mere token of its own value can mere tokens of value be substituted for it…
“The number of pieces of paper is thus determined by the quantity of gold currency which they represent in circulation, and as they are tokens of value only in so far as they take the place of gold currency, their value is simply determined by their quantity. Whereas, therefore, the quantity of gold in circulation depends on the prices of commodities, the value of the paper in circulation, on the other hand, depends solely on its own quantity.
The intervention of the State which issues paper money with a legal rate of exchange -- and we speak only of this type of paper money -- seems to invalidate the economic law. The State, whose mint price merely provided a definite weight of gold with a name and whose mint merely imprinted its stamp on gold, seems now to transform paper into gold by the magic of its imprint. Because the pieces of paper have a legal rate of exchange, it is impossible to prevent the State from thrusting any arbitrarily chosen number of them into circulation and to imprint them at will with any monetary denomination such as £1, £5, or £20. Once the notes are in circulation it is impossible to drive them out, for the frontiers of the country limit their movement, on the one hand, and on the other hand they lose all value, both use-value and exchange-value, outside the sphere of circulation. Apart from their function they are useless scraps of paper. But this power of the State is mere illusion. It may throw any number of paper notes of any denomination into circulation but its control ceases with this mechanical act. As soon as the token of value or paper money enters the sphere of circulation it is subject to the inherent laws of this sphere.
Let us assume that £14 million is the amount of gold required for the circulation of commodities and that the State throws 210 million notes each called £1 into circulation: these 210 million would then stand for a total of gold worth £14 million. The effect would be the same as if the notes issued by the State were to represent a metal whose value was one-fifteenth that of gold or that each note was intended to represent one-fifteenth of the previous weight of gold. This would have changed nothing but the nomenclature of the standard of prices, which is of course purely conventional, quite irrespective of whether it was brought about directly by a change in the monetary standard or indirectly by an increase in the number of paper notes issued in accordance with a new lower standard. As the name pound sterling would now indicate one-fifteenth of the previous quantity of gold, all commodity-prices would be fifteen times higher and 210 million pound notes would now be indeed just as necessary as 14 million had previously been. The decrease in the quantity of gold which each individual token of value represented would be proportional to the increased aggregate value of these tokens. The rise of prices would be merely a reaction of the process of circulation, which forcibly placed the tokens of value on a par with the quantity of gold which they are supposed to replace in the sphere of circulation.
“The rise or fall of commodity-prices corresponding to an increase or decrease in the volume of paper notes -- the latter where paper notes are the sole medium of circulation -- is accordingly merely a forcible assertion by the process of circulation of a law which was mechanically infringed by extraneous action; i.e., the law that the quantity of gold in circulation is determined by the prices of commodities and the volume of tokens of value in circulation is determined by the amount of gold currency which they replace in circulation. The circulation process will, on the other hand, absorb or as it were digest any number of paper notes, since, irrespective of the gold title borne by the token of value when entering circulation, it is compressed to a token of the quantity of gold which could circulate instead.
In the circulation of tokens of value all the laws governing the circulation of real money seem to be reversed and turned upside down. Gold circulates because it has value, whereas paper has value because it circulates. If the exchange-value of commodities is given, the quantity of gold in circulation depends on its value, whereas the value of paper tokens depends on the number of tokens in circulation. The amount of gold in circulation increases or decreases with the rise or fall of commodity-prices, whereas commodity-prices seem to rise or fall with the changing amount of paper in circulation. The circulation of commodities can absorb only a certain quantity of gold currency, the alternating contraction and expansion of the volume of money in circulation manifesting itself accordingly as an inevitable law, whereas any amount of paper money seems to be absorbed by circulation.”
In fact, the Government is already in the process of this. Its called Quantitative Easing, which really just means the Government, through the Bank of England, prints money, and then uses this money to buy back Government Bonds from banks, or to buy Commercial Bonds from Companies, thereby putting more of these money tokens into the economy, in the way Marx describes above. This also explains why although the Bond Markets are uneasy, they are not THAT uneasy.
A few weeks ago, the head of the world’s largest Bond Fund, Bill Gross of PIMCO, said that his tactic was simple – “Buy what the Government is buying, but buy it first!” The logic is straightforward. The Government is going to buy back a load of Government Bonds. The extra demand will then necessarily push up the price of those Bonds. Gross, by buying those Bonds first, makes a large profit when the price then rises! Both the US and UK Governments have another reason for buying back these Bonds, as well as pushing money into the economy. The Bonds they will buy back will be those at the Long End of the Curve – that is they will by back those due to mature in say 30 years time. Because, the interest rate or yield on a Bond is inversely related to the price of the Bond, by buying these Long Bonds, and pushing up the price, the result is to lower long term interest rates. And it is on these Long Term Interest Rates that Mortgage Rates are based!
By pushing them down, they also help to create the increase in demand for housing that both Government’s see as a fundamental aspect of bringing about a recovery in Consumer spending. This explains why the Bond market is not THAT uneasy at the moment. Bond Markets only get really worried if they think that the people to whom they have lent money are going to default. But, a country like Britain that controls its own money supply has no need to default, because it can always print more of its own money! That is not true of countries like Ireland or Spain, because they do not control the printing of Euros. But, its unlikely that the EU would let any of these countries default either.
So, we have Government demand pushing up the price of existing Long Bonds, and thereby reducing Long term interest rates that reduces mortgage rates, that encourages more house-buying, that stabilises house prices, that stimulates consumer confidence and consumer spending. The extra money put into circulation as a result of the Government printing money, monetises this extra demand, leading to higher prices. Higher prices, along with the corresponding higher profits and wages, means also higher tax revenues, which means that what appeared originally as a huge Budget Deficit, becomes after 3 or 4 years of 20% inflation, not so huge after all.
A similar thing happened in the 1960’s, which is why so many people who bought new houses in 1960, did extremely well, because the £2,000 mortgage they had on their new detached house within a matter of a few years was, in real terms, only a fraction of that, as wages rose rapidly. The people who lose out are always the people who lent the money, because they get paid back in worthless paper. But, that is also where the current buy-backs of Bonds come in, because they also enable the main holders of those Bonds, to sell them now at high prices, making substantial Capital Gains. When in 2 or 3 years time the resultant inflation from the printing of money materialises, interest rates will rise. In order for Governments to persuade anyone to buy their Bonds at that point they will have to offer high rates of interest to compensate for the losses due to inflation! So, all of those big players will be able to come back in and buy Bonds to replace the ones they are currently selling back to the Government, but will do so at a fraction of their current prices!
So, it may not be that the government introduces swingeing cuts in Public Expenditure. More likely, it will make nominal increases that amount to cuts in real terms as inflation rises rapidly. Its huge debt could be halved within a matter of only 3 years if inflation ran at 20% during that time! And, if the economy did resume real growth, and not just growth in nominal terms due to inflation, then that Keynesian trick of paying back debt, by higher tax revenues from the increased economic activity would have worked. The cost then would be much higher interest rates in 3,4, or 5 years time.
But, that is where Darling is able to play politics. By pursuing the current course he is able to attempt to spend the way out of the current recession without the need for tax rises or spending cuts. He can do that for the next two years. But next year, the Tories might win the election. So, he will not say now, “We intend to bury the deficit through high inflation”, because that would be unpopular, and would mean all those people currently being encouraged to save at 1% interest rates into ISA’s would say, “No, thanks.” But, it will leave that problem either for him to address should Labour win the next election, or for the Tories to come in and cut spending as their preferred option.
If, you believe that the current recession actually spells the end of the long period of expansion of the economy over the last ten years, then that latter option is the only one you can choose for the reasons I set out in my blog “1929 And All That”. But, as I have set out previously, I believe that the current recession is merely a blip in a 20-30 year Long Wave upturn that began in 1999. ON that basis, I think that, the likely path will be that of inflation, and what Schumpeter and Mises called “forced saving”, that is the inflation causes prices to rise faster than wages, so profits rise, and that will provide a fund from which the taxes needed to pay back the rest of the borrowing will come. The reason for that is also that if this period IS a period of continued Long Wave expansion, then the kind of increases in workers confidence and militancy that began to be demonstrated last year, and which always accompany this phase of the Long Wave expansion would mean that Government’s would want as much as possible to avoid conflicts with workers moving on to the offensive. They do so, because the evidence from similar periods in the past, for example in the period up to the end of the Long Wave boom that ended between 1914-20, and that which ended in 1974, is that not only do workers more frequently win during such struggles, but they are also during them far more quickly radicalised.
As I said, last year, the strategy for Capital will still remain to try to save the system without provoking such social conflict.
Friday, 24 April 2009
Apple Pie in the Sky
The BBC on the news today has been carrying a story about the decline in Orchards in Britain, and encouraging people to reverse the decline by planting their own orchards.
A great idea. I have two apple trees and a Cherry tree in my own back garden, though that doesn't qualify as an orchard, for which apparently you need 5 fruit trees. But, hold on a minute. For the last few years, we've been told by the environmentalist lobby, keen to ensure that the old landed aristocracy continue to enjoy the 90% of Britain's land area, that is still rural, free from encroachment by townies, that we all have to be prepared to live in even more cramped conditions in blocks of flats and apartments in already overcrowded cities rather than infringe on the Green Belt.
Now, I know that Del Boy and Rodney managed to site a nuclear bunker on the roof of Mandela House in Peckham, but how the hell are you supposed to establish an orchard on the balcony of some apartment!!!! In fact, even houses built with gardens would be struggling on the postage stamps of land normally allotted to them.
I think having your own orchard is agreat idea. So is having enough size of garden that you can grow your own vegetables, and have enough land for you and your kids to chill out - especially on a day such as today when we are all supposed to be making an effort to slllooowwwww down. But, that would mean going back to the ideas that motivated the idea of "homes fit for heroes", and the Parker Morris standard of decent sized accommodation, as opposed to the ideas of the last few years, motivated by the desire of builders to make as much profit as possible by squeezing as many houses or flats on to as small an area as possible, the desire of the rural middle class to hang on to their privileged position, and of the misguided middle class environmentalists who have given spurious arguments to back them up.
We should get back to the idea of Marx about abolishing the distinction between town and country, not by turning the country into the same mess as the cities, but by allowing people to escape that mess into a better environment.
A great idea. I have two apple trees and a Cherry tree in my own back garden, though that doesn't qualify as an orchard, for which apparently you need 5 fruit trees. But, hold on a minute. For the last few years, we've been told by the environmentalist lobby, keen to ensure that the old landed aristocracy continue to enjoy the 90% of Britain's land area, that is still rural, free from encroachment by townies, that we all have to be prepared to live in even more cramped conditions in blocks of flats and apartments in already overcrowded cities rather than infringe on the Green Belt.
Now, I know that Del Boy and Rodney managed to site a nuclear bunker on the roof of Mandela House in Peckham, but how the hell are you supposed to establish an orchard on the balcony of some apartment!!!! In fact, even houses built with gardens would be struggling on the postage stamps of land normally allotted to them.
I think having your own orchard is agreat idea. So is having enough size of garden that you can grow your own vegetables, and have enough land for you and your kids to chill out - especially on a day such as today when we are all supposed to be making an effort to slllooowwwww down. But, that would mean going back to the ideas that motivated the idea of "homes fit for heroes", and the Parker Morris standard of decent sized accommodation, as opposed to the ideas of the last few years, motivated by the desire of builders to make as much profit as possible by squeezing as many houses or flats on to as small an area as possible, the desire of the rural middle class to hang on to their privileged position, and of the misguided middle class environmentalists who have given spurious arguments to back them up.
We should get back to the idea of Marx about abolishing the distinction between town and country, not by turning the country into the same mess as the cities, but by allowing people to escape that mess into a better environment.
Bad looking Back, Better Looking Forward
This morning UK, First Quarter GDP figure was pretty awful, showing that GDP contracted by 1.9%. That compared with 1.6% in 2008 Q4, and a forecast of a fall of 1.5%. Even so the markets didn't bat an eyelid, suggesting that such bad news is already baked into market prices. Moreover, GDP figures are like looking in the rearview mirror they tell you what's happened not what is ahead. On that basis the view out of the windscreen has been somewhat better. Recent UK PMI (purchasing Manager's Index) figures have been better than expected, and there has been some improvement in sentiment in manufacturing etc, including in this week's survey from the CBI. Also more forward looking, the March Retail Sales figures showed a continued rise.
In contrast, markets did rise this morning after the German IFO data was released, which showed a strong rise in business sentiments, and the strongest figures for five months. Korea also had figures out showing it had avoided going into recession. Latest, figures show China continuing to grow strongly, with a number of banks and financial institutions increasing their optimistic view for its economy. Latest estimates suggest that China will blow past Japan in the next two years to become the world's second biggest economy, and forecasts suggest that it will overtake the US within the next 20 years.
Already China is buying more cars than the US, and in preparation for a reduced role for the dollar it has been announced that China has doubled its reserves of Gold since 2003, and is about to engage on a further round of purchases.
In contrast, markets did rise this morning after the German IFO data was released, which showed a strong rise in business sentiments, and the strongest figures for five months. Korea also had figures out showing it had avoided going into recession. Latest, figures show China continuing to grow strongly, with a number of banks and financial institutions increasing their optimistic view for its economy. Latest estimates suggest that China will blow past Japan in the next two years to become the world's second biggest economy, and forecasts suggest that it will overtake the US within the next 20 years.
Already China is buying more cars than the US, and in preparation for a reduced role for the dollar it has been announced that China has doubled its reserves of Gold since 2003, and is about to engage on a further round of purchases.
Thursday, 23 April 2009
Sufferin' City
I had the misfortune of having to go to the City Centre today. Fortunately, its a very infrequent occurrence. One of the first things that struck me was the fact that every few yards the pavement seemed to be decorated by the dried remains of the contents of people's stomachs. The next thing that struck me was that this wasn't surprising, because although this was still fairly early in the morning everywhere seemed to be choked with an awful, unhealthy, greasy smell that seemed to be emanating from a multitude of fast food 'restaurants', and similar establishments that already began to make my own stomach begin to turn queasy without even consuming any of their products. What made the queasiness worse was that the other thing that I became aware of was the fact of seeming to be enveloped in a constant background din.
It certainly didn't seem to measure up to the picture of culture and sophistication that various adverstisements present as being the attraction of City living. Even inside the Co-op Bank, there was playing some mind-numbing music that seemed as though it would have been more appropriate as an accompinent to a ride on the waltzers! No wonder so many people nowadays suffer from stress and other such disorders if this is the environment they have to contend with.
But, the other thing that struck me, considering all the stories in the press about stores closing etc., was the number of shops, for which my main question, in which my wife concurred was - "How did the shops ever get started, or make a profit in the first place!" How many fast food shops do you actually need in such a small area? Then interspersed with the fast food shops, were what appeared to be an ever greater number of bars, or nightclubs. It seemed like definite overkill.
In fact, the main shops that seemed to have a workable business plan were the Charity Shops. Inside they seemed to be selling all the same crap - minus the fast food and booze - as all the other shops, but with the difference that they'd had it given to them, and probably got a rebate on the Rent, and Rates for the shop.
No wonder so many people are switching to shopping online.
It certainly didn't seem to measure up to the picture of culture and sophistication that various adverstisements present as being the attraction of City living. Even inside the Co-op Bank, there was playing some mind-numbing music that seemed as though it would have been more appropriate as an accompinent to a ride on the waltzers! No wonder so many people nowadays suffer from stress and other such disorders if this is the environment they have to contend with.
But, the other thing that struck me, considering all the stories in the press about stores closing etc., was the number of shops, for which my main question, in which my wife concurred was - "How did the shops ever get started, or make a profit in the first place!" How many fast food shops do you actually need in such a small area? Then interspersed with the fast food shops, were what appeared to be an ever greater number of bars, or nightclubs. It seemed like definite overkill.
In fact, the main shops that seemed to have a workable business plan were the Charity Shops. Inside they seemed to be selling all the same crap - minus the fast food and booze - as all the other shops, but with the difference that they'd had it given to them, and probably got a rebate on the Rent, and Rates for the shop.
No wonder so many people are switching to shopping online.
Wednesday, 22 April 2009
The Truth About The Economy and Economy About The Truth
Today, we should find out the truth about the state of the British economy. However, as we have learned before both Government and State officials can be economical with the truth itself. Indeed, some of that was witnessed yesterday. Earlier in the day, the IMF came out with a statement that the cost for the British Bank Bail-outs would total some £200 billion or around 13% of GDP. But, on Newsnight, Paul Mason ‘exclusively’ revealed that the IMF had, in fact, retracted the statement along with the corresponding graphs on its website. See: Newsnight . During the day, the British Treasury had said that the IMF’s figures were wrong. Of course, in the words of Mandy Rice-Davies, “they would say that wouldn’t they?” Given the Budget today, they especially would say that, because it would be a very big stick with which the Tories could beat the Government over the head, on a day when its expected that the Government will both announce around £1 billion in stimulus for the housing market, and is also expected to engage in a bit of good old Labour, Fabian-style income re-distribution by increasing taxes on those earning over £100,000 a year, and giving a boost to benefits, and people on low incomes! According to Paul Mason, the IMF admitted they had made a mistake, and that what they should have said was that the figure would be in the range of 6 to 13% of GDP, which on the basis of the lower figure would give a total closer to the Government estimate of £100 billion.
In his presentation, Paul also dealt with the figures out, yesterday, on inflation, which showed that on the RPI index prices had actually fallen by 0.4%, whilst on the CPI index prices remained above the inflation target at 2.9%. See: Inflation . Much as I appreciate Paul’s insight into the economy, I have to disagree with his comments, though, in relation to the drop in the RPI number, which he described as deflation. I think that this is wrong, and a look at the graph at the above link shows why its wrong. The graph shows the RPI literally dropping off a cliff, from the end of 2008. The reason is almost entirely due to a statistical fluke, it is down to the fact that the RPI includes the costs of buying houses including mortgage repayments. As interest rates were slashed towards the end of last year to deal with the credit crunch, mortgage interest payments were slashed along with it, massively reducing that component of the index. However, a look at the CPI index, which gives an indication to what is happening to the underlying prices and costs of actually produced goods and services shows a different picture. On the one hand 2008 saw an above trend growth in the index, as the liquidity already pumped into the system went to monetise increasing costs resulting from the rapid rise in the oil price when it rose to $147 a barrel, and began to feed through into wages and other costs. It also reflects the increasing costs due to a falling pound raising import costs. However, although, the CPI index has also fallen sharply at the end of last year as the credit crunch struck, it appears to have then bottomed out in the early part of this year, with that sharp decline being arrested. If you draw an imaginary trend line on the graph, you will, in fact, see that even at its current level it remains on a slightly rising upward trajectory. Of course, future months may see it drop below that trend line, but we will have to see. Even so many economists remain confused that it has remained so high. I don’t think its really so unusual.
In Vol III of Capital, Marx gives a good account of a crisis caused by a deflation. His account could be a good description of what has happened with the Credit Crunch, other than, I think for one thing. Marx says,
“The Bank Act of 1844 divides the Bank of England into an issue department and a banking department. The former receives securities — principally government obligations — amounting to 14 million, and the entire metal hoard, of which not more than one-quarter is to consist of silver, and issues notes to the full amount of the total. In so far as these notes are not in the hands of the public, they are held in the banking department and, together with the small amount of coin required for daily use (about one million), constitute its ever ready reserve. The issue department gives the public gold for notes and notes for gold; the remaining transactions with the public are carried on by the banking department. Private banks in England and Wales authorised in 1844 to issue their own notes retained this privilege, but their note issue was fixed; if one of these banks ceases to issue its own notes, the Bank of England can increase its unbacked notes by two-thirds of the quota thus made available; in this way its issue was increased by 1892 from £14 to £16½ million (to be exact, £16,450,000).
Thus, for every five pounds in gold which leave the bank treasury, a five-pound note returns to the issue department and is destroyed; for every five sovereigns going into the treasury a new five-pound note comes into circulation. In this manner, Overstone's ideal paper circulation, which strictly follows the laws of metallic circulation, is carried out in practice, and by this means, according to the advocates of the Currency Theory, crises are made impossible for all time.
But in reality the separation of the Bank into two independent departments deprived its management of the possibility of freely utilising its entire available means at critical times, so that situations could arise in which the banking department might be on the verge of bankruptcy while the issue department still had intact several millions in gold and, in addition, its entire 14 million in securities. And this could take place so much more easily since there is a period in almost every crisis when heavy exports of gold take place, which must be covered in the main by the metal reserve of the bank. But for every five pounds in gold, which then go abroad, the domestic circulation is deprived of a five-pound note, so that the quantity of circulating medium is reduced precisely at a time when the largest quantity is most needed. The Bank Act of 1844 thus directly induces the entire commercial world forthwith to hoard a reserve fund of bank-notes at the outbreak of a crisis; in other words, to accelerate and intensify the crisis. By such artificial intensification of demand for money accommodation, that is, for means of payment at the decisive moment, and the simultaneous restriction of the supply the Bank Act drives the rate of interest to a hitherto unknown height during a crisis. Hence, instead of eliminating crises, the Act, on the contrary, intensifies them to a point where either the entire industrial world must go to pieces, or else the Bank Act. Both on October 25, 1847, and on November 12, 1857, the crisis reached such a point; the government then lifted the restriction for the Bank in issuing notes by suspending the Act of 1844, and this sufficed in both cases to overcome the crisis. In 1847, the assurance that bank-notes would again be issued for first-class securities sufficed to bring to light the £4 to £5 million of hoarded notes and put them back into circulation; in 1857, the issue of notes exceeding the legal amount reached almost one million, but this lasted only for a very short time.”
Marx – Capital Vol 3 Chapter 34 .
Its useful to read the whole of Marx’s description of these crises here to understand what is going on today. What Marx describes here, is essentially what happened with the Credit Crunch with the exception that nowadays it is private banks who, through the Credit Multiplier, are the main creators of currency and credit in the economy, and not the Bank of England. There is a difference between an inflation and a deflation. An inflation arising from an increase in the supply of money and credit takes around two years to materialise. The reason for that is that it takes time for that increase to feed its way into the system, and into the psyche and behaviour of people. But, a deflation such as that described by Marx can be fairly instantaneous, and the reason is that the sudden cessation of credit availability, the sudden hoarding of cash is more immediate, more apparent, and thereby not only simply cuts off sharp the availability of the medium of exchange bringing exchange itself to a halt, but also has a more immediate effect on people’s psyche, as businesses find that suddenly their cash flow is hit and so on.
Yet, as the CPI figures show, despite, the severity of the Credit Crunch, despite the worst financial crisis in history that has not really happened on the scale you would expect. Economic activity has certainly been severely hit, output HAS contracted sharply on a quarterly basis in the last two quarters, but the Economy has NOT gone into the kind of crisis Marx describes above, despite the severity and global nature of the financial crisis. In fact, economists have consistently been surprised by the fact that Retail Sales figures in the last few months have been remarkably resilient. Why? What is the truth about the economy?
Part of the truth is, of course, that unlike the situation Marx describes above where it took time for the Bank to scrap the 1844 Bank Act and issue currency, Central Banks this time, have from the beginning, been issuing lots of new money in one way or another. The problem, however, has been until recently that the Banks and other financial institutions that act as the transmission belt of that money into the economy, simply haven’t been lending at a sufficient rate. Governments, have also been engaging in some pretty spectacular traditional Keynesian demand management though huge fiscal stimulus packages. However, although Governments can have a pretty immediate effect in that regard as they are in every Capitalist economy the biggest single employer, and account for nearly 50% of all economic activity, its unlikely that much of that fiscal stimulus has yet found its way into economies, because it takes at least several months to draw up programmes and begin to spend money, only tax reductions are likely to have had any noticeable effects in the last few months.
So, how come that spending has not completely collapsed, and how come, therefore, there has been no real deflation, or huge economic meltdown – UK unemployment figures out this morning, for instance showed that the claimant count had risen by only 75,000 compared to predictions of around 100,000, and the rate has still only risen to the highest level since 1997, which hardly sticks in the memory as a year of economic crisis and mass unemployment!
The real reason I think is down to the nature of the modern working class, and the misunderstanding of it, by the many economists as well as by the Left.
I have argued in the past that there is a failure to recognise that there is a wide disparity within the working class – and, therefore, of the majority of consumers – based both on age, and geography. Given that most of the Left and most economists, in Britain, but this is probably true of most economies, tend to be concentrated in London, a distorted view arises of real conditions. The left, is particularly prone to this, because there has always been a tendency to focus on the worst possible view, and on the most disadvantaged in society, because of understandably wanting to paint to the various vicissitudes of Capitalism. But, even in Marx’s day that permanent reserve army of labour that constituted the really deprived section of society only constituted a small minority of the population. Its absolute numbers today, as Marx predicted, is undoubtedly larger, but it its proportion of the total population is likely to be no greater, and its proportion of the working class actually smaller than it was in Marx’s day, due to the absolute increase in the size of the working class itself. This permanent reserve, or what modern sociologists have termed an underclass is likely to constitute no more than around 6% of the population.
The other division is the geographical division. I have said before that the fact that house prices, and, therefore, housing costs in and around London are about four times what they are in most other parts of the country is a hugely distorting effect. It is no wonder that even people in relatively well-paid jobs in those areas find it difficult to find a sufficient deposit for a house, and that when they do, a large portion of their income is then taken up in mortgage repayments. The consequence then for the ability to save, or the propensity to run up further debt in the form of credit card or loan debt, at high interest rates is obvious. But, although a large number of people DO live in London, and its environs, that should NOT be taken as giving anything like an accurate picture of the rest of Britain and its economy in general. Those costs, and the effect on the aforementioned underclass are likely to be more noticeable in London than elsewhere, but it should also be taken into account that although this section of the population is likely to be most affected in absolute terms by any economic crisis – a recent report showed for instance that the main rise in joblessness has been for young people from relatively deprived backgrounds or areas – in relative terms the effect may not be so great, precisely because if you begin with no job, you can’t lose it, and to a certain degree increases in costs are covered by increases in benefits.
In the rest of the country, again, the effects of the crisis depend upon location. In areas like my own in North Staffordshire, where, although two of the main industries coal and steel, were destroyed by the Tories in the 1980’s, a large proportion of the people continued to rely on the third – Ceramics – the effect has been more marked, because the large job losses in that industry have had a similarly marked knock-on effect to all the industries that rely on it, and those that rely on the spending of its workers, in other parts of the country where industry and the local economy has been more diversified over the last 20-30 years the effects have not been so great, because that accelerator and multiplier effect into the local economy has not been so pronounced. Even, in this area, the changes over the last ten to twenty years have had an effect, because the single largest employer now is I think the NHS, with Local Government coming close behind, both employing tens of thousands of people, and neither of those have been shedding huge numbers of jobs or cutting wages. Indeed, given the Government’s anti-cyclical policies they have probably been increasing.
But, there is another division I have referred to previously and that is the division based on age. A report I saw a year or so ago, stated that in Britain by 2012, a third of the population would be dollar millionaires, or in other words would have had at the exchange rate then, a net worth of half a million pounds. To be clear what that means its not somebody who has a half million pounds house, but a mortgage for £390,000, its they actually own outright the half million pound house, or else own a £250,000 house with another £250,000 of savings etc. Now, a third of the population means we are not talking just about Capitalists here! In fact, as I’ve written elsewhere, given the concentration of wealth that has taken place in developed economies the real Capitalists, the people who own and control the majority of productive assets, probably only constitute one tenth of one percent of the population. A full one per cent of the population may own a significant proportion of the total productive wealth, but outside that you are really talking about middle class people with a reasonable amount of savings and investments, and to get to that figure of a third, you are including quite a number of working-class people too, who have managed to save, own their house etc.
Another report that came out last week showed that only 13% of people in Britain had NO savings at all, and that the average amount of savings for the rest was around £20,000. Obviously, averages can hide wide variations as I am suggesting here, but given the existence of various Tax free savings schemes over the last 20 years, its not stretching the imagination to see that older workers during that period could easily have put away their yearly allowance, and over that period accumulated around £60,000. Indeed, I know that most of the ordinary working people I worked with over that period were doing precisely that. And, as I’ve said before, people who bought houses in the 1960’s or 70’s, and then saw the Capital cost of those houses inflated away are now sitting on houses worth between 30 and 50 times what they paid, whilst most COULD, and many DID, simply paid off their mortgages as wages rose way above what they were when they first took it out, or else saw their mortgage payments fall to an insignificant proportion of their income, and either way the consequence was to enable the kind of saving set out above.
Finally, because a large number of people are and have been employed by the Government, there are a large number of older people who are drawing pension incomes of a not inconsiderable amount. In the 14 years I worked at my local Council I saw many people, especially during the 90’s when staffing levels were being reduced, encouraged to take early retirement on a voluntary redundancy basis, and who not only picked up around £20,000 redundancy pay, but if they’d got their full service in (or 33 years plus the added years) also walked away with an average pension of probably around £10,000 a year, and a lump sum of £30,000. Many then got a job working part-time at B&Q, or other such places. Lots of the people I meet down at the local Sports Centre are like that, or else people who retired at 65 with a works pension, people ranging from Miners, to postmen, to pottery workers to production workers at the local armaments factory. There are undoubtedly many, many pensioners who live in quite poverty stricken conditions, where they have not had permanent employment for most of their life, where they have had very poorly paid employment and no works pension, but there are many who are not.
Given that the people in this older age bracket now form a much larger proportion of the population now than in previous decades – and this is true in the US and other developed economies – this is not an inconsiderable factor. In fact, in the last year I’ve been buying things rather than cutting back, because, of the ability to pick things up cheaper. If it wasn’t for the fact that I had to change my car in 2007, I’d probably be taking advantage of current conditions to buy a new car now.
To put it bluntly, if you live in London, and are facing the huge costs of housing etc. then even a good wage probably isn’t enough to live on, facing losing employment must be a nightmare. But, if you already own your house, which many older people in other parts of the country do, and have been able to save money over the last few decades, and especially if you have a reasonable pension income the current crisis isn’t going to affect you too much, in fact, falling prices could benefit you. As a comparison I feel I have a fairly comfortable lifestyle, but I never spend more than around £12,000 a year, so anything above that means I can still save money.
This I think is the main exception to the crisis described by Marx, and explains why retail sales have not completely collapsed. Although, we have this picture of everyone in the country being massively in debt, and so on that is not an accurate picture, as the fact about only 13% of people having no savings indicates. What we have is undoubtedly a significant proportion of people probably in younger age groups who have significant amounts of debt. We also have what appears to be a large amount of credit card debt at any one time, because people pay for everything by card, but many people also at the end of that month pay off the total balance to avoid any charges. In fact, as I suggested a while ago another reason retail sales COULD have been resilient is that if people use any increased income – from tax reductions, reductions in monthly mortgage repayments etc – to clear any credit card or other loan debt they have, then the high debt charges – typically between 20-30% p.a. – on that debt disappears, so that the large amounts that currently went not to finance actual purchase of goods and services, but simply went to bolster bank profits, now becomes available for actual spending!
That is the final component in relation to the consumer. The huge mortgage commitments that people took on during the early part of this decade were a massive drain on potential spending power. The cuts in those mortgage payments have been an immediate and far greater stimulus than anything the Government has done so far. One bloke interviewed a couple of weeks ago, spoke of his monthly mortgage bill going down from over £900 a month to just £300 a month, giving him another £7.500 a year to spend. The average saving seems probably to have been around £200-£300 a month, which provided you remain in work – and the vast majority of people have and will – means a considerable boost to people’s spending power.
There is one final component in relation to the economy as a whole. Although the credit crunch and restriction on lending to businesses has undoubtedly badly affected some businesses, there are also other businesses who have lots of cash. I wasn’t at all surprised to see that TESCO’s profits went to over £1 billion a month in the last year. No matter what time of day, or day of the week I go to my local TESCO there is always about 100 cars on the car park at least. Some businesses over the last decade, like some consumers have built up large cash balances. Last weekend Oracle in the US bought up Sun Microsystems from under the nose of IBM, paying over $7 billion. In fact, many such deals are forecast as cash rich businesses pick up others going cheap. To the extent that they use cash for the purchase rather than the issue of shares such deals themselves act to put cash and spending power into the economy.
For all these reasons, the economy although it has taken an understandably large hit from the worst financial crisis in history has not collapsed. Provided no further financial calamity comes out of the cupboard, the signs that the credit crunch is easing and that credit is flowing again will act to ensure that the economic effects are short lived if severe during that period. The governor of the Bank of China has today said that he is optimistic that China will beat the 8% growth target for this year, and for the world’s third largest economy 8% growth will have a considerable knock-on effect for China’s major trading partners in Asia, which will itself have a knock-on effect for the rest of the global economy.
That underlying trend rate of growth in the CPI, is, I think, telling us something significant. It is saying the underlying factors remain in place to prevent this crisis from extending for too long. It is also saying that for those reasons, the huge increase in liquidity pumped into the global economy will have the other effect described by Marx in that Chapter above, it will mean in perhaps 18 months time a huge rise in inflation.
In his presentation, Paul also dealt with the figures out, yesterday, on inflation, which showed that on the RPI index prices had actually fallen by 0.4%, whilst on the CPI index prices remained above the inflation target at 2.9%. See: Inflation . Much as I appreciate Paul’s insight into the economy, I have to disagree with his comments, though, in relation to the drop in the RPI number, which he described as deflation. I think that this is wrong, and a look at the graph at the above link shows why its wrong. The graph shows the RPI literally dropping off a cliff, from the end of 2008. The reason is almost entirely due to a statistical fluke, it is down to the fact that the RPI includes the costs of buying houses including mortgage repayments. As interest rates were slashed towards the end of last year to deal with the credit crunch, mortgage interest payments were slashed along with it, massively reducing that component of the index. However, a look at the CPI index, which gives an indication to what is happening to the underlying prices and costs of actually produced goods and services shows a different picture. On the one hand 2008 saw an above trend growth in the index, as the liquidity already pumped into the system went to monetise increasing costs resulting from the rapid rise in the oil price when it rose to $147 a barrel, and began to feed through into wages and other costs. It also reflects the increasing costs due to a falling pound raising import costs. However, although, the CPI index has also fallen sharply at the end of last year as the credit crunch struck, it appears to have then bottomed out in the early part of this year, with that sharp decline being arrested. If you draw an imaginary trend line on the graph, you will, in fact, see that even at its current level it remains on a slightly rising upward trajectory. Of course, future months may see it drop below that trend line, but we will have to see. Even so many economists remain confused that it has remained so high. I don’t think its really so unusual.
In Vol III of Capital, Marx gives a good account of a crisis caused by a deflation. His account could be a good description of what has happened with the Credit Crunch, other than, I think for one thing. Marx says,
“The Bank Act of 1844 divides the Bank of England into an issue department and a banking department. The former receives securities — principally government obligations — amounting to 14 million, and the entire metal hoard, of which not more than one-quarter is to consist of silver, and issues notes to the full amount of the total. In so far as these notes are not in the hands of the public, they are held in the banking department and, together with the small amount of coin required for daily use (about one million), constitute its ever ready reserve. The issue department gives the public gold for notes and notes for gold; the remaining transactions with the public are carried on by the banking department. Private banks in England and Wales authorised in 1844 to issue their own notes retained this privilege, but their note issue was fixed; if one of these banks ceases to issue its own notes, the Bank of England can increase its unbacked notes by two-thirds of the quota thus made available; in this way its issue was increased by 1892 from £14 to £16½ million (to be exact, £16,450,000).
Thus, for every five pounds in gold which leave the bank treasury, a five-pound note returns to the issue department and is destroyed; for every five sovereigns going into the treasury a new five-pound note comes into circulation. In this manner, Overstone's ideal paper circulation, which strictly follows the laws of metallic circulation, is carried out in practice, and by this means, according to the advocates of the Currency Theory, crises are made impossible for all time.
But in reality the separation of the Bank into two independent departments deprived its management of the possibility of freely utilising its entire available means at critical times, so that situations could arise in which the banking department might be on the verge of bankruptcy while the issue department still had intact several millions in gold and, in addition, its entire 14 million in securities. And this could take place so much more easily since there is a period in almost every crisis when heavy exports of gold take place, which must be covered in the main by the metal reserve of the bank. But for every five pounds in gold, which then go abroad, the domestic circulation is deprived of a five-pound note, so that the quantity of circulating medium is reduced precisely at a time when the largest quantity is most needed. The Bank Act of 1844 thus directly induces the entire commercial world forthwith to hoard a reserve fund of bank-notes at the outbreak of a crisis; in other words, to accelerate and intensify the crisis. By such artificial intensification of demand for money accommodation, that is, for means of payment at the decisive moment, and the simultaneous restriction of the supply the Bank Act drives the rate of interest to a hitherto unknown height during a crisis. Hence, instead of eliminating crises, the Act, on the contrary, intensifies them to a point where either the entire industrial world must go to pieces, or else the Bank Act. Both on October 25, 1847, and on November 12, 1857, the crisis reached such a point; the government then lifted the restriction for the Bank in issuing notes by suspending the Act of 1844, and this sufficed in both cases to overcome the crisis. In 1847, the assurance that bank-notes would again be issued for first-class securities sufficed to bring to light the £4 to £5 million of hoarded notes and put them back into circulation; in 1857, the issue of notes exceeding the legal amount reached almost one million, but this lasted only for a very short time.”
Marx – Capital Vol 3 Chapter 34 .
Its useful to read the whole of Marx’s description of these crises here to understand what is going on today. What Marx describes here, is essentially what happened with the Credit Crunch with the exception that nowadays it is private banks who, through the Credit Multiplier, are the main creators of currency and credit in the economy, and not the Bank of England. There is a difference between an inflation and a deflation. An inflation arising from an increase in the supply of money and credit takes around two years to materialise. The reason for that is that it takes time for that increase to feed its way into the system, and into the psyche and behaviour of people. But, a deflation such as that described by Marx can be fairly instantaneous, and the reason is that the sudden cessation of credit availability, the sudden hoarding of cash is more immediate, more apparent, and thereby not only simply cuts off sharp the availability of the medium of exchange bringing exchange itself to a halt, but also has a more immediate effect on people’s psyche, as businesses find that suddenly their cash flow is hit and so on.
Yet, as the CPI figures show, despite, the severity of the Credit Crunch, despite the worst financial crisis in history that has not really happened on the scale you would expect. Economic activity has certainly been severely hit, output HAS contracted sharply on a quarterly basis in the last two quarters, but the Economy has NOT gone into the kind of crisis Marx describes above, despite the severity and global nature of the financial crisis. In fact, economists have consistently been surprised by the fact that Retail Sales figures in the last few months have been remarkably resilient. Why? What is the truth about the economy?
Part of the truth is, of course, that unlike the situation Marx describes above where it took time for the Bank to scrap the 1844 Bank Act and issue currency, Central Banks this time, have from the beginning, been issuing lots of new money in one way or another. The problem, however, has been until recently that the Banks and other financial institutions that act as the transmission belt of that money into the economy, simply haven’t been lending at a sufficient rate. Governments, have also been engaging in some pretty spectacular traditional Keynesian demand management though huge fiscal stimulus packages. However, although Governments can have a pretty immediate effect in that regard as they are in every Capitalist economy the biggest single employer, and account for nearly 50% of all economic activity, its unlikely that much of that fiscal stimulus has yet found its way into economies, because it takes at least several months to draw up programmes and begin to spend money, only tax reductions are likely to have had any noticeable effects in the last few months.
So, how come that spending has not completely collapsed, and how come, therefore, there has been no real deflation, or huge economic meltdown – UK unemployment figures out this morning, for instance showed that the claimant count had risen by only 75,000 compared to predictions of around 100,000, and the rate has still only risen to the highest level since 1997, which hardly sticks in the memory as a year of economic crisis and mass unemployment!
The real reason I think is down to the nature of the modern working class, and the misunderstanding of it, by the many economists as well as by the Left.
I have argued in the past that there is a failure to recognise that there is a wide disparity within the working class – and, therefore, of the majority of consumers – based both on age, and geography. Given that most of the Left and most economists, in Britain, but this is probably true of most economies, tend to be concentrated in London, a distorted view arises of real conditions. The left, is particularly prone to this, because there has always been a tendency to focus on the worst possible view, and on the most disadvantaged in society, because of understandably wanting to paint to the various vicissitudes of Capitalism. But, even in Marx’s day that permanent reserve army of labour that constituted the really deprived section of society only constituted a small minority of the population. Its absolute numbers today, as Marx predicted, is undoubtedly larger, but it its proportion of the total population is likely to be no greater, and its proportion of the working class actually smaller than it was in Marx’s day, due to the absolute increase in the size of the working class itself. This permanent reserve, or what modern sociologists have termed an underclass is likely to constitute no more than around 6% of the population.
The other division is the geographical division. I have said before that the fact that house prices, and, therefore, housing costs in and around London are about four times what they are in most other parts of the country is a hugely distorting effect. It is no wonder that even people in relatively well-paid jobs in those areas find it difficult to find a sufficient deposit for a house, and that when they do, a large portion of their income is then taken up in mortgage repayments. The consequence then for the ability to save, or the propensity to run up further debt in the form of credit card or loan debt, at high interest rates is obvious. But, although a large number of people DO live in London, and its environs, that should NOT be taken as giving anything like an accurate picture of the rest of Britain and its economy in general. Those costs, and the effect on the aforementioned underclass are likely to be more noticeable in London than elsewhere, but it should also be taken into account that although this section of the population is likely to be most affected in absolute terms by any economic crisis – a recent report showed for instance that the main rise in joblessness has been for young people from relatively deprived backgrounds or areas – in relative terms the effect may not be so great, precisely because if you begin with no job, you can’t lose it, and to a certain degree increases in costs are covered by increases in benefits.
In the rest of the country, again, the effects of the crisis depend upon location. In areas like my own in North Staffordshire, where, although two of the main industries coal and steel, were destroyed by the Tories in the 1980’s, a large proportion of the people continued to rely on the third – Ceramics – the effect has been more marked, because the large job losses in that industry have had a similarly marked knock-on effect to all the industries that rely on it, and those that rely on the spending of its workers, in other parts of the country where industry and the local economy has been more diversified over the last 20-30 years the effects have not been so great, because that accelerator and multiplier effect into the local economy has not been so pronounced. Even, in this area, the changes over the last ten to twenty years have had an effect, because the single largest employer now is I think the NHS, with Local Government coming close behind, both employing tens of thousands of people, and neither of those have been shedding huge numbers of jobs or cutting wages. Indeed, given the Government’s anti-cyclical policies they have probably been increasing.
But, there is another division I have referred to previously and that is the division based on age. A report I saw a year or so ago, stated that in Britain by 2012, a third of the population would be dollar millionaires, or in other words would have had at the exchange rate then, a net worth of half a million pounds. To be clear what that means its not somebody who has a half million pounds house, but a mortgage for £390,000, its they actually own outright the half million pound house, or else own a £250,000 house with another £250,000 of savings etc. Now, a third of the population means we are not talking just about Capitalists here! In fact, as I’ve written elsewhere, given the concentration of wealth that has taken place in developed economies the real Capitalists, the people who own and control the majority of productive assets, probably only constitute one tenth of one percent of the population. A full one per cent of the population may own a significant proportion of the total productive wealth, but outside that you are really talking about middle class people with a reasonable amount of savings and investments, and to get to that figure of a third, you are including quite a number of working-class people too, who have managed to save, own their house etc.
Another report that came out last week showed that only 13% of people in Britain had NO savings at all, and that the average amount of savings for the rest was around £20,000. Obviously, averages can hide wide variations as I am suggesting here, but given the existence of various Tax free savings schemes over the last 20 years, its not stretching the imagination to see that older workers during that period could easily have put away their yearly allowance, and over that period accumulated around £60,000. Indeed, I know that most of the ordinary working people I worked with over that period were doing precisely that. And, as I’ve said before, people who bought houses in the 1960’s or 70’s, and then saw the Capital cost of those houses inflated away are now sitting on houses worth between 30 and 50 times what they paid, whilst most COULD, and many DID, simply paid off their mortgages as wages rose way above what they were when they first took it out, or else saw their mortgage payments fall to an insignificant proportion of their income, and either way the consequence was to enable the kind of saving set out above.
Finally, because a large number of people are and have been employed by the Government, there are a large number of older people who are drawing pension incomes of a not inconsiderable amount. In the 14 years I worked at my local Council I saw many people, especially during the 90’s when staffing levels were being reduced, encouraged to take early retirement on a voluntary redundancy basis, and who not only picked up around £20,000 redundancy pay, but if they’d got their full service in (or 33 years plus the added years) also walked away with an average pension of probably around £10,000 a year, and a lump sum of £30,000. Many then got a job working part-time at B&Q, or other such places. Lots of the people I meet down at the local Sports Centre are like that, or else people who retired at 65 with a works pension, people ranging from Miners, to postmen, to pottery workers to production workers at the local armaments factory. There are undoubtedly many, many pensioners who live in quite poverty stricken conditions, where they have not had permanent employment for most of their life, where they have had very poorly paid employment and no works pension, but there are many who are not.
Given that the people in this older age bracket now form a much larger proportion of the population now than in previous decades – and this is true in the US and other developed economies – this is not an inconsiderable factor. In fact, in the last year I’ve been buying things rather than cutting back, because, of the ability to pick things up cheaper. If it wasn’t for the fact that I had to change my car in 2007, I’d probably be taking advantage of current conditions to buy a new car now.
To put it bluntly, if you live in London, and are facing the huge costs of housing etc. then even a good wage probably isn’t enough to live on, facing losing employment must be a nightmare. But, if you already own your house, which many older people in other parts of the country do, and have been able to save money over the last few decades, and especially if you have a reasonable pension income the current crisis isn’t going to affect you too much, in fact, falling prices could benefit you. As a comparison I feel I have a fairly comfortable lifestyle, but I never spend more than around £12,000 a year, so anything above that means I can still save money.
This I think is the main exception to the crisis described by Marx, and explains why retail sales have not completely collapsed. Although, we have this picture of everyone in the country being massively in debt, and so on that is not an accurate picture, as the fact about only 13% of people having no savings indicates. What we have is undoubtedly a significant proportion of people probably in younger age groups who have significant amounts of debt. We also have what appears to be a large amount of credit card debt at any one time, because people pay for everything by card, but many people also at the end of that month pay off the total balance to avoid any charges. In fact, as I suggested a while ago another reason retail sales COULD have been resilient is that if people use any increased income – from tax reductions, reductions in monthly mortgage repayments etc – to clear any credit card or other loan debt they have, then the high debt charges – typically between 20-30% p.a. – on that debt disappears, so that the large amounts that currently went not to finance actual purchase of goods and services, but simply went to bolster bank profits, now becomes available for actual spending!
That is the final component in relation to the consumer. The huge mortgage commitments that people took on during the early part of this decade were a massive drain on potential spending power. The cuts in those mortgage payments have been an immediate and far greater stimulus than anything the Government has done so far. One bloke interviewed a couple of weeks ago, spoke of his monthly mortgage bill going down from over £900 a month to just £300 a month, giving him another £7.500 a year to spend. The average saving seems probably to have been around £200-£300 a month, which provided you remain in work – and the vast majority of people have and will – means a considerable boost to people’s spending power.
There is one final component in relation to the economy as a whole. Although the credit crunch and restriction on lending to businesses has undoubtedly badly affected some businesses, there are also other businesses who have lots of cash. I wasn’t at all surprised to see that TESCO’s profits went to over £1 billion a month in the last year. No matter what time of day, or day of the week I go to my local TESCO there is always about 100 cars on the car park at least. Some businesses over the last decade, like some consumers have built up large cash balances. Last weekend Oracle in the US bought up Sun Microsystems from under the nose of IBM, paying over $7 billion. In fact, many such deals are forecast as cash rich businesses pick up others going cheap. To the extent that they use cash for the purchase rather than the issue of shares such deals themselves act to put cash and spending power into the economy.
For all these reasons, the economy although it has taken an understandably large hit from the worst financial crisis in history has not collapsed. Provided no further financial calamity comes out of the cupboard, the signs that the credit crunch is easing and that credit is flowing again will act to ensure that the economic effects are short lived if severe during that period. The governor of the Bank of China has today said that he is optimistic that China will beat the 8% growth target for this year, and for the world’s third largest economy 8% growth will have a considerable knock-on effect for China’s major trading partners in Asia, which will itself have a knock-on effect for the rest of the global economy.
That underlying trend rate of growth in the CPI, is, I think, telling us something significant. It is saying the underlying factors remain in place to prevent this crisis from extending for too long. It is also saying that for those reasons, the huge increase in liquidity pumped into the global economy will have the other effect described by Marx in that Chapter above, it will mean in perhaps 18 months time a huge rise in inflation.
Tuesday, 21 April 2009
Palestine – Nationalism v Socialist Internationalism
The following document was written in July 1985 as part of a discussion in the Workers Socialist League on the question of Israel-Palestine. It opposed what was to become the position of the WSL, of supporting a Two State solution, as well as opposing the position of the democratic secular state. Both positions, the document argues, are founded on Nationalism rather than Proletarian Internationalism, and are, therefore, two sides of that same Nationalist coin. As such, both positions are a far cry from the positions developed by Lenin, the Bolsheviks and the early Comintern, even though many on the Left, argue for the Democratic Secular State position, as though what they were arguing was a continuation of those policies. In fact, as I have argued previously, in the documents on Imperilaism, those nationalist ideas are, in fact, just a sign of the degree to which socialist politics has been corrupted by the influence both of Stalinist National Socialism, and Third Worldist petit-bourgeois nationalism.
As it becomes clear that neither of those solutions, today 25 years on, offer any solution to either Palestinian or Israeli workers, others on the Left have begun to argue for the kind of wider socialist solution to the problem argued for in this document. The CPGB, for instance in its recent discussions frames things in a far more socialist and internationalist way than do many on the Left. Moreover, as the document demonstrates, by numerous quotes, such an approach is founded firmly on the ground of Marxism, and of Lenin’s application of it, to the National Question. It is an antidote to that cancer of Nationalism that has been gnawing away at the soul of the Marxist Left for the last 80 years. Where possible links to Lenin's writings have been given. With the widespread misrepresentation of these views that 80 years of Stalinist and nationalist influene have had on the marxist movement, I would highly recommend comrades read these documents of Lenin in full.
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Lenin on Separation and Amalgamation
“One such idea is refined nationalism, which advocates the division and splitting up of the proletariat on the most plausible and specious pretexts, as for example, that of protecting the interests of ‘national culture’, national autonomy or independence’, and so on and so forth.
The class conscious workers fight hard against every kind of nationalism, both the crude, violent Black Hundred nationalism, and that most refined nationalism, which preaches the equality of nations together with… the splitting up of the workers’ cause, the workers’ organisations, and the working class movement according to nationality. Unlike all the varieties of the nationalist bourgeoisie, the class conscious workers, carrying out the decisions of the recent (Summer 1913) conference of the Marxists, stand not only for the most complete, consistent and fully applied equality of nations and languages, but also for the amalgamation of the workers of the different nationalities in united proletarian organisations of every kind”
( Lenin – “Corrupting the Workers With Refined Nationalism” emphasis as in original)
Lenin continues,
“To the bourgeoisie, however, the demand for national equality very often amounts in practice to advocating national exclusiveness and chauvinism; they very often couple it with advocacy of the division and estrangement of nations. This is absolutely incompatible with proletarian internationalism, which advocates, not only closer relations between nations, but the amalgamation of the workers of all nationalities in a given state in united proletarian organisations.”
Lenin was writing about the national problem as it specifically affected Tsarist Russia. Tsarist Russia was the greatest prison house of oppressed nations of all time. Not only did it contain within it a vast range of oppressed nationalities, but the pogroms that these nations faced at the hands of the Black Hundred gangs were far more severe than any oppressed nationality faces today. Yet, despite this oppression, despite these nations, by and large, living in defined geographical areas, we see Lenin advocating not separation, not the setting up of separate states, but advocating “amalgamation of the workers of all nationalities”. This is in stark contrast to those who advocate the setting up of a separate Palestinian state as a solution to the national question in Palestine/Israel. Lenin describes this “advocacy of the division and estrangement of nations” as “absolutely incompatible with proletarian internationalism.”
Lenin on Self-Determination and the Right of Secession
The advocates of a two-state solution, however, base their argument on another facet of Lenin’s writings on the national question i.e. the right of nations to self-determination. So, let us see what Lenin actually had to say on this score.
“We must always and unreservedly work for the very closest unity of the proletariat of all nationalities, and it is only in isolated and exceptional cases that we can advance and actively support demands conducive to the establishment of a new class state or to the substitution of a lesser federal unity etc. for the complete political unity of a state.”
Lenin – “The National Question in Our Programme
“Does recognition of the right of nations to self-determination really imply support of any demand of every nation for self-determination? After all, the fact that we recognise the right of all citizens to form free associations does not at all commit us, Social Democrats, to supporting the formation of any new association; nor does it prevent us from opposing and campaigning against the formation of a given association as an inexpedient and unwise step.”
(ibid)
“… is Social Democracy in duty bound to demand national independence always and unreservedly, or only under certain circumstances;”
“The bourgeois democrat (and the present day socialist opportunist who follows in his footsteps) imagines that democracy eliminates the class struggle, and that is why he presents all his political demands in an abstract way, lumped together, ‘without reservations’, from the standpoint of the ‘whole people’, or even that of an eternal and absolute moral principle. Always and everywhere the Social Democrat ruthlessly exposes this bourgeois illusion, whether it finds expression in an abstract idealist philosophy or in an absolute demand for national independence.”
(ibid)
Much of what Lenin says here is relevant to those who argue for the Two States solution. In their documents they talk about “whole people” i.e. the Palestinian nation or the Jewish nation without making any distinctions in respect of the different interests and motivations of the contending classes within these nations. At the same time the right to self-determination is turned into a kind of absolute moral principle, driving them on to the conclusion that in order to exercise this self-determination each nation must have its own territory, and its own state.
In fact, there is a confusion on their part stemming from a failure to understand the difference between “recognising the right of nations to self-determination” and supporting demands for self-determination. Socialist internationalism requires us to recognise the right of nations to self-determination, and to oppose any attempts by an oppressor state to deny that right to the oppressed nation. But, it does not require us to support the call for self-determination. On the contrary, it requires us to oppose separation except in “isolated and exceptional cases.”
“… a Social Democrat from a small nation must emphasise in his agitation the second word of our general formula: “voluntary integration of nations”.
( Lenin – The Discussion on Self Determination Summed Up )
“People who have not gone into the question thoroughly think that this is ‘contradictory’ for the Social Democrats of oppressor nations to insist on the ‘freedom to secede’, while the Social Democrats of oppressed nations insist on the ‘freedom to integrate.’ However, a little reflection will show that there is not, and cannot be any other road to internationalism and the amalgamation of nations, any other road from the given situation to this goal.”
(ibid)
In other words Marxists in “small nations” have a duty, “except in isolated and exceptional cases” to oppose calls for secession. On the contrary, they should argue for voluntary integration. On the other hand Marxists in the oppressor nation have a duty to stress the right to secede of the oppressed nation. But, even then stressing the right to secede is not the same as advocating or supporting the call for separation. On the contrary, the Marxists in the oppressor nation at the same time as stressing the right to secession would still be bound to oppose such a call, to counterpose working class unity and a fight for the equality of nations within the given state. For example, when devolution was an issue we argued that if Scotland or Wales voted to secede they had a right to do so, but at the same time we argued strongly against secession.
The next question that has to be asked, therefore, is does Israel/Palestine fall into the category of an “isolated and exceptional case”? The feature of Israel/Palestine that makes the problem difficult is that two nations lay claim not to two separate pieces of land, but to the same piece of land. Whilst there are concentrations of each nationality in different areas there is an intermingling of populations throughout the State, and no identifiable or suitable frontiers for a new state. Certainly, a new state on the West Bank and Gaza would leave national minorities trapped in both states. From this standpoint alone, Israel/Palestine does not suggest itself as a suitable candidate.
Lenin was clear on his attitude where there was an intermingling of nations.
“We Latvian Social Democrats, living in an area with a population that is very mixed nationally, we, who are in an environment consisting of representatives of the bourgeois nationalism of the Letts, Russians, Estonians, Germans etc. see with particular clarity the bourgeois falsity of the slogan ‘cultural – national autonomy’. The slogan of the unity of all and every organisation of workers of all nationalities, tested in practice in our own Social Democratic organisation, is particularly dear to us.”
Draft Platform for the Fourth Congress of Social-Democrats of the Latvian Area
So, for Lenin the intermingling of nationalities within one state, far from being one of the ‘isolated and exceptional cases’, in which to advocate the establishment of a new class state, was, in fact, the best condition for illustrating “the bourgeois falsity of the slogan of cultural national autonomy.”
An idea of what kind of “isolated and exceptional cases” Lenin had in mind is given in the following.
“There are two nations in Russia that are more civilised and more isolated by virtue of a number of historical and social conditions and that could most easily, and most ‘naturally’ put into effect their right to secession. They are the peoples of Finland and Poland.”
However,
"The experience of the Revolution of 1905 has shown that even in these two nations, the ruling classes, the landowners and the bourgeoisie, reject the revolutionary struggle for liberty and seek a rapprochement with the ruling classes of Russia and with the Tsarist Monarchy, because of their fear of the revolutionary proletariat of Finland and Poland.
Social Democracy, therefore, must give most emphatic warning to the proletariat and other working people of all nationalities against direct deception by the nationalistic slogans of ‘their own’ bourgeoisie, who with their saccharine or fiery speeches about ‘our native land’ try to divide the proletariat and divert its attention from their bourgeois intrigues while they enter into an economic and political alliance with the bourgeoisie of other nations and with the Tsarist monarchy.”
Lenin – Theses on the National Question
Lenin on “National Culture”
Martin in IB 135, places a lot of emphasis on non-economic oppression of the Palestinians.
“Rosa Luxemburg once commented that no material oppression has ever provoked such tenacious resistance as intellectual, cultural and national oppression.”
Lenin polemicised with the Polish Socialist Party over this issue, and is scathing in his attitude to those who talk of “national culture”.
“Reference is frequently made to Austria in justification of the slogan of ‘national-cultural autonomy’. As far as this reference is concerned it must be remembered that: first, the point of view of the chief Austrian theoretician on the national question, Otto Bauer, (in his book ‘The National Question and Social Democracy), has been recognised as an exaggeration of the national factor and a terrible underestimation of the international factor even by such a cautious writer as Karl Kautsky.”
Draft Platform for the Fourth Congress of Social-Democrats of the Latvian Area
Under the heading “National Culture” in Critical Remarks on the National Question , Lenin comments,
“The slogan of national culture is a bourgeois (and often also a Black Hundred and clerical) fraud. Our slogan is: the international culture of democracy and of the world working class movement.”
And,
“The elements of democratic and socialist culture are present, if only in rudimentary form, in every national culture, since in every nation there are toiling and exploited masses whose conditions of life inevitably give rise to the ideology of democracy and socialism. But, every nation also possesses a bourgeois culture (and most nations a reactionary and clerical culture as well) in the form not merely of ‘elements’ but of the dominant culture. Therefore, the general ‘national culture’ is the culture of the landlords, the clergy and the bourgeoisie. This fundamental and, for a Marxist, elementary truth was kept in the background by the Bundist, who drowned it in his jumble of words, i.e. instead of revealing and clarifying the class gulf to the reader, he in fact obscured it. In fact, the Bundist acted like a bourgeois, whose every interest requires the spreading of a belief in a non-class national culture.”
Further on, Lenin spells things out even more starkly.
“Those who seek to serve the proletariat must unite the workers of all nations, and unswervingly fight bourgeois nationalism, domestic and foreign. The place of those who advocate the slogan of national culture is among the nationalist petty bourgeois, not among the Marxists.”
And,
“Whoever, directly or indirectly, puts forward the slogan of Jewish ‘national culture’ is (whatever his good intentions may be) an enemy of the proletariat, a supporter of all that is outmoded and connected with caste among the Jewish people; he is an accomplice of the rabbis and the bourgeoisie. On the other hand those Jewish Marxists who mingle with the Russian, Lithuanian, Ukrainian and other workers in international Marxist organisations, and make their contribution (both in Russian and in Yiddish) towards creating the international culture of the working class movement – those Jews, despite the separatism of the Bund, uphold the best traditions of Jewry by fighting the slogan of ‘national culture’.
Lenin and Equal Rights for Nations Within One State
In IB135, Martin states,
“Generally, no situation of serious national oppression can be resolved by proposing to amalgamate oppressor and oppressed nations on the basis of individual equal rights.”
But again, Lenin argues the opposite. Already, many quotes have been given where Lenin argues for amalgamation rather than separatism as an answer to the national question for the terribly oppressed nations of Tsarist Russia. But, Lenin also had something to say on the question of equal rights too.
In 1914, the RSDLP group in the Duma introduced a “Bill for the Abolition of all Disabilities of the Jews and of all Restrictions on the grounds of Origin or Nationality.” The text of the Bill was printed in Pravda along with a statement. Part of the statement reads,
“It goes without saying that the jewish question can effectively be solved only together with the fundamental issues confronting Russia today. Obviously, we do not look to the nationalist – Purishkevich Fourth Duma to abolish the restrictions against the Jews and other non-Russians. But, it is the duty of the working class to make its voice heard. And the voice of the Russian workers must be particularly loud in protest against national oppression.”
Lenin, in an article in Pravda shortly after wrote,
“It is a point of honour for the Russian workers to have this Bill against national oppression backed by tens of thousands of proletarian signatures and declarations…. This will be the best means of consolidating complete unity, amalgamating all the workers of Russia, irrespective of nationality.”
Where for Martin the idea of equality for separate nations is utopian, for Lenin it was a basic demand around which to mobilise the working class, especially of the oppressing nation, and “the best means of consolidating complete unity, amalgamating all the workers… irrespective of nationality.” Where, for those who support the Two State solution, anti-Jewish sentiment amongst Palestinians on the one hand, and anti-Palestinian sentiment amongst Jews on the other, (i.e. nationalism) is something to be accommodated to by advocating separation, for Lenin it was something to be resolutely, and at all times combated. Where for the Two Statists “national culture” is something important and to be protected, for Lenin it was insignificant compared to international working class culture, and was a “bourgeois (and often Black Hundred and clerical fraud)”. For Lenin, “national culture” was to be opposed by the international working class culture of democracy and socialism.
The United States of Israel and Palestine
I have argued in favour of a United States of Israel and Palestine as a solution to the national question in Israel/Palestine. In my opinion this formula is in accordance with the positions of Lenin on the national question outlined above, and with the method of Trotsky’s Permanent Revolution.
I would outline my basic argument as follows. The Palestinians are an oppressed nation. We support their struggle against oppression. Whist we recognise the right of the Palestinians, in those areas where they are a majority, to secede from Israel, and whilst we oppose any attempts by the Israeli State to deny them that right, we do not advocate or support calls for secession, or for the establishment of a separate state. Instead we call for the greatest possible unity of the Palestinian and Jewish workers in common working class organisations to work towards a working class solution to the national problem, and to the socialist transformation of the existing state.
We oppose the “outmoded”, “bourgeois” concept of “national culture” with the international culture of the working class – democracy and socialism. To the Jewish workers we give the advice of Marx, ”No nation can be free if it oppresses other nations.” The Jewish working class should call for the withdrawal of troops from the occupied territories, and campaign for equality for the Palestinians as “the best means of consolidating complete unity, amalgamating all the workers…irrespective of nationality.”
Opposition to national culture, as Lenin points out, does not mean, for example, that teaching in schools in mainly Palestinian areas should be conducted in Yiddish, or vice versa. It means that there should be no one official language.
“Tiny Switzerland has not lost anything, but has gained having not one single official language, but three – German, French and Italian… If Italians in Switzerland often speak French in their common Parliament they do not do so because they are menaced by some savage police law (there are none such in Switzerland), but because the civilised citizens of a democratic state themselves prefer a language that is understood by a majority”.
Critical Remarks On The National Question
In point 5 of the RSDLP Theses on the National Question (Lenin Collected Works Vol 19) or RSDLP Theses on the National Question the basis for a settlement to the question of national rights is provided.
“All areas of the state that are distinguished by social peculiarities or by the national composition of the population, must enjoy wide self-government and autonomy, with institutions organised on the basis of universal, equal and secret voting.”
Point 6 continues,
“Social-Democrats demand the promulgation of a law, operative throughout the state, protecting the rights of every national minority in no matter what part of the state. This law should declare inoperative any measure by means of which the national majority might attempt to establish privileges for itself or restrict the rights of a national minority (in the sphere of education, in the use of any specific language, in budget affairs, etc.), and forbid the implementation of any such measure by making it a punishable offence.”
I have argued for such an approach in Palestine/Israel so that whilst national majorities could exercise “wide self-government and autonomy it would at the same time “protect the rights of (either) national minority (where they were a minority) in no matter what part of the State.”
“The proletariat cannot achieve freedom other than by revolutionary struggle for the overthrow of the tsarist monarchy and its replacement by a democratic republic. The tsarist monarchy precludes liberty and equal rights for nationalities, and is, furthermore, the bulwark of barbarity, brutality and reaction in both Europe and Asia. This monarchy can be overthrown only by the united proletariat of all the nations of Russia, which is giving the lead to consistently democratic elements capable of revolutionary struggle from among the working masses of all nations.”
(ibid)
Similarly, we say to Jewish and Palestinian workers – you cannot achieve freedom other than by revolutionary struggle for the overthrow of the Zionist State. The Zionist state precludes liberty both for Jewish and Palestinian workers, and is, furthermore, the bulwark of US imperialism in the Middle East. This state can be overthrown only by the United struggle of Jewish and Palestinian workers.
“In civilised countries we observe a fairly full (relatively) approximation to national peace under capitalism only in conditions of the maximum implementation of democracy throughout the state system and administration (Switzerland). The slogans of consistent democracy (the re public, a militia, civil servants elected by the people, etc.) unite the proletariat and the working people, and, in general, all progressive elements in each nation in the name of the struggle for conditions that preclude even the slightest national privilege—while the slogan of “cultural-national autonomy” preaches the isolation of nations in educational affairs (or “cultural” affairs, in general), an isolation that is quite compatible with the retention of the grounds for all (including national) privileges.
The slogans of consistent democracy unite in a single whole the proletariat and the advanced democrats of all nations (elements that demand not isolation but the uniting of democratic elements of the nations in all matters, including educational affairs), while the slogan of cultural-national autonomy divides the proletariat of the different nations and links it up with the reactionary and bourgeois elements of the separate nations.
The slogans of consistent democracy are implacably hostile to the reactionaries and to the counter-revolutionary bourgeoisie of all nations, while the slogan of cultural-national autonomy is quite acceptable to the reactionaries and counter-revolutionary bourgeoisie of some nations.”
(ibid)
Similarly, in Palestine/Israel. Alongside the demands for national equality, we should advocate a struggle for general democratic demands (scrap the standing army, establish a militia, election of all officials etc) “as a means to unite the proletariat unite the proletariat and the working people, and, in general, all progressive elements in each nation in the name of the struggle for conditions that preclude even the slightest national privilege”
But, more is necessary. As Trotsky argues in Permanent Revolution, the only force capable of consistently carrying out the above programme to its conclusion is the working class. Once the Jewish and Palestinian workers have been mobilised around the demands of consistent democracy, Marxists have to deepen the struggle into one for a socialist transformation. We have to link our socialist programme into the Democratic Programme. As Lenin put it,
“… when economic and political issues, and socialist and democratic activities are united into one whole, into the class struggle of the proletariat, this does not weaken but strengthens the democratic movement and the political struggle, by bringing it closer to the real interests of the mass of the people, dragging political issues out of the ‘stuffy studies of the intelligentsia’ into the street, into the midst of the workers and labouring classes, and replacing abstract ideas by real manifestations of political oppression from which the greatest sufferers are the proletariat, and on the basis of which the Social Democrats conduct their agitation.”
(Lenin – “Tasks of the Russian Social Democrats”)
The United Socialist States of the Middle East
Given the sub-imperialist nature of the Israeli State and its role as agent of US imperialism in the region, any Marxist programme must aim to break the link with the US, and unite not only Jewish and Palestinian workers, but the working class of the Middle East in a struggle for a United Socialist States of the Middle East.
At the present time because Jewish workers feel threatened by the surrounding Arab states, there is an understandable (if misguided) feeling of security from having the US as a military shield. (Just as the Falkland islanders looking to the British State for protection against Argentina was understandable if misguided.) Only by uniting the Jewish and Arab working class of the Middle East can that feeling of the need for the support of the US be undermined.
Given the size of the military budget in Israel, Transitional demands calling for a freeze on military spending and a diversion of resources to useful production would find a powerful resonance amongst the Jewish workers once they could be convinced that “their main enemy was at home”. At the same time workers in the Arab states would be strengthened in similar calls for freezing military budgets in their own states, which are themselves motivated on the basis of the threat from Zionist expansion.
The present nation state structures in the Middle East are a barrier to progress. The Palestinians have suffered not only at the hands of the Israeli State, but at the hands of the bourgeois Arab States too. Communalism is rampant in Lebanon, whilst the workers of Iran and Iraq continue to be slaughtered in a war that appears to have no foreseeable end.
Israel is wracked by economic crisis and its economy would sink were it not for the US. Even the oil producing states, despite the investment that has been undertaken, remain rent based economies whose fortunes go up and down with the price of oil. For the workers of the Middle east only a socialist transformation of society, and a socialist federation of the Middle East, offers any prospect of ending communalism and national antagonisms, and of lifting them from grinding poverty in which most of them live.
Algebraic
The slogan of the United States of Israel and Palestine is an algebraic formula. It is not an ultimatistic demand for socialist revolution. On the contrary, it is a demand aimed at the Jewish and Palestinian workers, mobilising them to fight for a consistently democratic solution to the national problem. We seek to deepen that struggle by linking to it Transitional Demands. We say to the workers, “We believe that only a socialist transformation is capable of completely resolving your problems. At present you may not agree with us, and may believe these demands can be met without the need for socialist revolution. We will fight alongside you for those demands and we believe that in the process of the struggle we will convince you that we are right.”
The formulae is algebraic, therefore, in that it mobilises the workers, but does not limit, in advance, the scope of that mobilisation simply to a democratic solution.
The formula is algebraic in another sense too. By focussing on uniting Jewish and Palestinian workers it creates the best conditions for the Palestinians in those areas where they form a majority to secede, if they so choose, and for Jewish Marxists to defend that right against attempts by the Israeli State to prevent it.
Imagine the following scenario. The Jewish and Palestinian workers (or at least a significant section) unite to fight for a United States of Israel and Palestine. However, after a serious struggle they find themselves defeated by the Israeli State. At which point the Palestinian workers say – “o.k. comrades we tried and failed. We want to exercise our democratic right to secede. You have witnessed in struggle that we have no desire to drive you into the sea, and we guarantee that our state will not be used against you. We call on you to defend our right of secession.”
It ought to be clear to anyone that under such conditions of having worked together in joint working class organisations, and taken part in a common struggle, a much better basis is laid for removing the fears of the Jewish workers, and of winning their solidarity than currently exists. Lenin outlines a similar situation vis a vis Norway and Sweden.
“Incidentally, autonomy, as a reform, differs in principle from freedom to secede, as a revolutionary measure. This is unquestionable. But, as everyone knows, in practice, a reform is often merely a step towards revolution. It is autonomy that enables a nation forcibly retained within the boundaries of a given state to crystallise into a nation, to gather, assess and organise its forces, and to select the most opportune moment for a declaration….in the ‘Norwegian’ spirit. We the autonomous diet of such and such a nation, or of such and such a territory, declare that the Emperor of all the Russias has ceased to be King of Poland etc.”
This is still not to say that under such conditions we should advocate secession, but that if such a demand was raised the best conditions would have been created for defending it as a right against the attempts of the Israeli state to prevent it.
Conclusion
I believe that the United States of Israel and Palestine, and the programme outlined above is better than the Democratic Secular State and two States solutions. In my opinion both of the other two solutions are stagist. They put forward the perspective merely of finding a bourgeois democratic solution to the national problem in Palestine/Israel, and leave the question of the struggle for socialism as something to be considered only after the national problem has been resolved.
Both the democratic Secular State and the Two States solutions also accommodate to bourgeois nationalism and fail to locate the working class as the only agent capable of carrying out a consistently democratic solution. Both fail to distinguish between the interests and motivations of the contending classes within the two nations, and so doing sink into accepting the idea that there is some non-class national culture.
Because they are both bourgeois solutions neither of the two alternatives in fact offer a consistently democratic solution. The democratic Secular State would effectively just run the film of the history of Palestine in reverse, whilst the Two State solution would leave large national minorities trapped in each state, and would create the worst possible conditions for guaranteeing the rights of those that were trapped.
I believe, therefore, that we should adopt the slogan of the United States of Israel and Palestine, and the programme that I have outlined as the only solution which is consistently democratic, which counterposes internationalism to nationalism, which “reveals and clarifies the class gulf” rather than “obscuring” it in the concept of "national culture" and talk of “whole people”. It is also the only demand which, by focussing on uniting the working class, as the only force capable of solving the problem, has an inherent class struggle logic into which Marxists can key with appropriate Transitional demands. As such, it is the only solution which puts socialism on the agenda.
As it becomes clear that neither of those solutions, today 25 years on, offer any solution to either Palestinian or Israeli workers, others on the Left have begun to argue for the kind of wider socialist solution to the problem argued for in this document. The CPGB, for instance in its recent discussions frames things in a far more socialist and internationalist way than do many on the Left. Moreover, as the document demonstrates, by numerous quotes, such an approach is founded firmly on the ground of Marxism, and of Lenin’s application of it, to the National Question. It is an antidote to that cancer of Nationalism that has been gnawing away at the soul of the Marxist Left for the last 80 years. Where possible links to Lenin's writings have been given. With the widespread misrepresentation of these views that 80 years of Stalinist and nationalist influene have had on the marxist movement, I would highly recommend comrades read these documents of Lenin in full.
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Lenin on Separation and Amalgamation
“One such idea is refined nationalism, which advocates the division and splitting up of the proletariat on the most plausible and specious pretexts, as for example, that of protecting the interests of ‘national culture’, national autonomy or independence’, and so on and so forth.
The class conscious workers fight hard against every kind of nationalism, both the crude, violent Black Hundred nationalism, and that most refined nationalism, which preaches the equality of nations together with… the splitting up of the workers’ cause, the workers’ organisations, and the working class movement according to nationality. Unlike all the varieties of the nationalist bourgeoisie, the class conscious workers, carrying out the decisions of the recent (Summer 1913) conference of the Marxists, stand not only for the most complete, consistent and fully applied equality of nations and languages, but also for the amalgamation of the workers of the different nationalities in united proletarian organisations of every kind”
( Lenin – “Corrupting the Workers With Refined Nationalism” emphasis as in original)
Lenin continues,
“To the bourgeoisie, however, the demand for national equality very often amounts in practice to advocating national exclusiveness and chauvinism; they very often couple it with advocacy of the division and estrangement of nations. This is absolutely incompatible with proletarian internationalism, which advocates, not only closer relations between nations, but the amalgamation of the workers of all nationalities in a given state in united proletarian organisations.”
Lenin was writing about the national problem as it specifically affected Tsarist Russia. Tsarist Russia was the greatest prison house of oppressed nations of all time. Not only did it contain within it a vast range of oppressed nationalities, but the pogroms that these nations faced at the hands of the Black Hundred gangs were far more severe than any oppressed nationality faces today. Yet, despite this oppression, despite these nations, by and large, living in defined geographical areas, we see Lenin advocating not separation, not the setting up of separate states, but advocating “amalgamation of the workers of all nationalities”. This is in stark contrast to those who advocate the setting up of a separate Palestinian state as a solution to the national question in Palestine/Israel. Lenin describes this “advocacy of the division and estrangement of nations” as “absolutely incompatible with proletarian internationalism.”
Lenin on Self-Determination and the Right of Secession
The advocates of a two-state solution, however, base their argument on another facet of Lenin’s writings on the national question i.e. the right of nations to self-determination. So, let us see what Lenin actually had to say on this score.
“We must always and unreservedly work for the very closest unity of the proletariat of all nationalities, and it is only in isolated and exceptional cases that we can advance and actively support demands conducive to the establishment of a new class state or to the substitution of a lesser federal unity etc. for the complete political unity of a state.”
Lenin – “The National Question in Our Programme
“Does recognition of the right of nations to self-determination really imply support of any demand of every nation for self-determination? After all, the fact that we recognise the right of all citizens to form free associations does not at all commit us, Social Democrats, to supporting the formation of any new association; nor does it prevent us from opposing and campaigning against the formation of a given association as an inexpedient and unwise step.”
(ibid)
“… is Social Democracy in duty bound to demand national independence always and unreservedly, or only under certain circumstances;”
“The bourgeois democrat (and the present day socialist opportunist who follows in his footsteps) imagines that democracy eliminates the class struggle, and that is why he presents all his political demands in an abstract way, lumped together, ‘without reservations’, from the standpoint of the ‘whole people’, or even that of an eternal and absolute moral principle. Always and everywhere the Social Democrat ruthlessly exposes this bourgeois illusion, whether it finds expression in an abstract idealist philosophy or in an absolute demand for national independence.”
(ibid)
Much of what Lenin says here is relevant to those who argue for the Two States solution. In their documents they talk about “whole people” i.e. the Palestinian nation or the Jewish nation without making any distinctions in respect of the different interests and motivations of the contending classes within these nations. At the same time the right to self-determination is turned into a kind of absolute moral principle, driving them on to the conclusion that in order to exercise this self-determination each nation must have its own territory, and its own state.
In fact, there is a confusion on their part stemming from a failure to understand the difference between “recognising the right of nations to self-determination” and supporting demands for self-determination. Socialist internationalism requires us to recognise the right of nations to self-determination, and to oppose any attempts by an oppressor state to deny that right to the oppressed nation. But, it does not require us to support the call for self-determination. On the contrary, it requires us to oppose separation except in “isolated and exceptional cases.”
“… a Social Democrat from a small nation must emphasise in his agitation the second word of our general formula: “voluntary integration of nations”.
( Lenin – The Discussion on Self Determination Summed Up )
“People who have not gone into the question thoroughly think that this is ‘contradictory’ for the Social Democrats of oppressor nations to insist on the ‘freedom to secede’, while the Social Democrats of oppressed nations insist on the ‘freedom to integrate.’ However, a little reflection will show that there is not, and cannot be any other road to internationalism and the amalgamation of nations, any other road from the given situation to this goal.”
(ibid)
In other words Marxists in “small nations” have a duty, “except in isolated and exceptional cases” to oppose calls for secession. On the contrary, they should argue for voluntary integration. On the other hand Marxists in the oppressor nation have a duty to stress the right to secede of the oppressed nation. But, even then stressing the right to secede is not the same as advocating or supporting the call for separation. On the contrary, the Marxists in the oppressor nation at the same time as stressing the right to secession would still be bound to oppose such a call, to counterpose working class unity and a fight for the equality of nations within the given state. For example, when devolution was an issue we argued that if Scotland or Wales voted to secede they had a right to do so, but at the same time we argued strongly against secession.
The next question that has to be asked, therefore, is does Israel/Palestine fall into the category of an “isolated and exceptional case”? The feature of Israel/Palestine that makes the problem difficult is that two nations lay claim not to two separate pieces of land, but to the same piece of land. Whilst there are concentrations of each nationality in different areas there is an intermingling of populations throughout the State, and no identifiable or suitable frontiers for a new state. Certainly, a new state on the West Bank and Gaza would leave national minorities trapped in both states. From this standpoint alone, Israel/Palestine does not suggest itself as a suitable candidate.
Lenin was clear on his attitude where there was an intermingling of nations.
“We Latvian Social Democrats, living in an area with a population that is very mixed nationally, we, who are in an environment consisting of representatives of the bourgeois nationalism of the Letts, Russians, Estonians, Germans etc. see with particular clarity the bourgeois falsity of the slogan ‘cultural – national autonomy’. The slogan of the unity of all and every organisation of workers of all nationalities, tested in practice in our own Social Democratic organisation, is particularly dear to us.”
Draft Platform for the Fourth Congress of Social-Democrats of the Latvian Area
So, for Lenin the intermingling of nationalities within one state, far from being one of the ‘isolated and exceptional cases’, in which to advocate the establishment of a new class state, was, in fact, the best condition for illustrating “the bourgeois falsity of the slogan of cultural national autonomy.”
An idea of what kind of “isolated and exceptional cases” Lenin had in mind is given in the following.
“There are two nations in Russia that are more civilised and more isolated by virtue of a number of historical and social conditions and that could most easily, and most ‘naturally’ put into effect their right to secession. They are the peoples of Finland and Poland.”
However,
"The experience of the Revolution of 1905 has shown that even in these two nations, the ruling classes, the landowners and the bourgeoisie, reject the revolutionary struggle for liberty and seek a rapprochement with the ruling classes of Russia and with the Tsarist Monarchy, because of their fear of the revolutionary proletariat of Finland and Poland.
Social Democracy, therefore, must give most emphatic warning to the proletariat and other working people of all nationalities against direct deception by the nationalistic slogans of ‘their own’ bourgeoisie, who with their saccharine or fiery speeches about ‘our native land’ try to divide the proletariat and divert its attention from their bourgeois intrigues while they enter into an economic and political alliance with the bourgeoisie of other nations and with the Tsarist monarchy.”
Lenin – Theses on the National Question
Lenin on “National Culture”
Martin in IB 135, places a lot of emphasis on non-economic oppression of the Palestinians.
“Rosa Luxemburg once commented that no material oppression has ever provoked such tenacious resistance as intellectual, cultural and national oppression.”
Lenin polemicised with the Polish Socialist Party over this issue, and is scathing in his attitude to those who talk of “national culture”.
“Reference is frequently made to Austria in justification of the slogan of ‘national-cultural autonomy’. As far as this reference is concerned it must be remembered that: first, the point of view of the chief Austrian theoretician on the national question, Otto Bauer, (in his book ‘The National Question and Social Democracy), has been recognised as an exaggeration of the national factor and a terrible underestimation of the international factor even by such a cautious writer as Karl Kautsky.”
Draft Platform for the Fourth Congress of Social-Democrats of the Latvian Area
Under the heading “National Culture” in Critical Remarks on the National Question , Lenin comments,
“The slogan of national culture is a bourgeois (and often also a Black Hundred and clerical) fraud. Our slogan is: the international culture of democracy and of the world working class movement.”
And,
“The elements of democratic and socialist culture are present, if only in rudimentary form, in every national culture, since in every nation there are toiling and exploited masses whose conditions of life inevitably give rise to the ideology of democracy and socialism. But, every nation also possesses a bourgeois culture (and most nations a reactionary and clerical culture as well) in the form not merely of ‘elements’ but of the dominant culture. Therefore, the general ‘national culture’ is the culture of the landlords, the clergy and the bourgeoisie. This fundamental and, for a Marxist, elementary truth was kept in the background by the Bundist, who drowned it in his jumble of words, i.e. instead of revealing and clarifying the class gulf to the reader, he in fact obscured it. In fact, the Bundist acted like a bourgeois, whose every interest requires the spreading of a belief in a non-class national culture.”
Further on, Lenin spells things out even more starkly.
“Those who seek to serve the proletariat must unite the workers of all nations, and unswervingly fight bourgeois nationalism, domestic and foreign. The place of those who advocate the slogan of national culture is among the nationalist petty bourgeois, not among the Marxists.”
And,
“Whoever, directly or indirectly, puts forward the slogan of Jewish ‘national culture’ is (whatever his good intentions may be) an enemy of the proletariat, a supporter of all that is outmoded and connected with caste among the Jewish people; he is an accomplice of the rabbis and the bourgeoisie. On the other hand those Jewish Marxists who mingle with the Russian, Lithuanian, Ukrainian and other workers in international Marxist organisations, and make their contribution (both in Russian and in Yiddish) towards creating the international culture of the working class movement – those Jews, despite the separatism of the Bund, uphold the best traditions of Jewry by fighting the slogan of ‘national culture’.
Lenin and Equal Rights for Nations Within One State
In IB135, Martin states,
“Generally, no situation of serious national oppression can be resolved by proposing to amalgamate oppressor and oppressed nations on the basis of individual equal rights.”
But again, Lenin argues the opposite. Already, many quotes have been given where Lenin argues for amalgamation rather than separatism as an answer to the national question for the terribly oppressed nations of Tsarist Russia. But, Lenin also had something to say on the question of equal rights too.
In 1914, the RSDLP group in the Duma introduced a “Bill for the Abolition of all Disabilities of the Jews and of all Restrictions on the grounds of Origin or Nationality.” The text of the Bill was printed in Pravda along with a statement. Part of the statement reads,
“It goes without saying that the jewish question can effectively be solved only together with the fundamental issues confronting Russia today. Obviously, we do not look to the nationalist – Purishkevich Fourth Duma to abolish the restrictions against the Jews and other non-Russians. But, it is the duty of the working class to make its voice heard. And the voice of the Russian workers must be particularly loud in protest against national oppression.”
Lenin, in an article in Pravda shortly after wrote,
“It is a point of honour for the Russian workers to have this Bill against national oppression backed by tens of thousands of proletarian signatures and declarations…. This will be the best means of consolidating complete unity, amalgamating all the workers of Russia, irrespective of nationality.”
Where for Martin the idea of equality for separate nations is utopian, for Lenin it was a basic demand around which to mobilise the working class, especially of the oppressing nation, and “the best means of consolidating complete unity, amalgamating all the workers… irrespective of nationality.” Where, for those who support the Two State solution, anti-Jewish sentiment amongst Palestinians on the one hand, and anti-Palestinian sentiment amongst Jews on the other, (i.e. nationalism) is something to be accommodated to by advocating separation, for Lenin it was something to be resolutely, and at all times combated. Where for the Two Statists “national culture” is something important and to be protected, for Lenin it was insignificant compared to international working class culture, and was a “bourgeois (and often Black Hundred and clerical fraud)”. For Lenin, “national culture” was to be opposed by the international working class culture of democracy and socialism.
The United States of Israel and Palestine
I have argued in favour of a United States of Israel and Palestine as a solution to the national question in Israel/Palestine. In my opinion this formula is in accordance with the positions of Lenin on the national question outlined above, and with the method of Trotsky’s Permanent Revolution.
I would outline my basic argument as follows. The Palestinians are an oppressed nation. We support their struggle against oppression. Whist we recognise the right of the Palestinians, in those areas where they are a majority, to secede from Israel, and whilst we oppose any attempts by the Israeli State to deny them that right, we do not advocate or support calls for secession, or for the establishment of a separate state. Instead we call for the greatest possible unity of the Palestinian and Jewish workers in common working class organisations to work towards a working class solution to the national problem, and to the socialist transformation of the existing state.
We oppose the “outmoded”, “bourgeois” concept of “national culture” with the international culture of the working class – democracy and socialism. To the Jewish workers we give the advice of Marx, ”No nation can be free if it oppresses other nations.” The Jewish working class should call for the withdrawal of troops from the occupied territories, and campaign for equality for the Palestinians as “the best means of consolidating complete unity, amalgamating all the workers…irrespective of nationality.”
Opposition to national culture, as Lenin points out, does not mean, for example, that teaching in schools in mainly Palestinian areas should be conducted in Yiddish, or vice versa. It means that there should be no one official language.
“Tiny Switzerland has not lost anything, but has gained having not one single official language, but three – German, French and Italian… If Italians in Switzerland often speak French in their common Parliament they do not do so because they are menaced by some savage police law (there are none such in Switzerland), but because the civilised citizens of a democratic state themselves prefer a language that is understood by a majority”.
Critical Remarks On The National Question
In point 5 of the RSDLP Theses on the National Question (Lenin Collected Works Vol 19) or RSDLP Theses on the National Question the basis for a settlement to the question of national rights is provided.
“All areas of the state that are distinguished by social peculiarities or by the national composition of the population, must enjoy wide self-government and autonomy, with institutions organised on the basis of universal, equal and secret voting.”
Point 6 continues,
“Social-Democrats demand the promulgation of a law, operative throughout the state, protecting the rights of every national minority in no matter what part of the state. This law should declare inoperative any measure by means of which the national majority might attempt to establish privileges for itself or restrict the rights of a national minority (in the sphere of education, in the use of any specific language, in budget affairs, etc.), and forbid the implementation of any such measure by making it a punishable offence.”
I have argued for such an approach in Palestine/Israel so that whilst national majorities could exercise “wide self-government and autonomy it would at the same time “protect the rights of (either) national minority (where they were a minority) in no matter what part of the State.”
“The proletariat cannot achieve freedom other than by revolutionary struggle for the overthrow of the tsarist monarchy and its replacement by a democratic republic. The tsarist monarchy precludes liberty and equal rights for nationalities, and is, furthermore, the bulwark of barbarity, brutality and reaction in both Europe and Asia. This monarchy can be overthrown only by the united proletariat of all the nations of Russia, which is giving the lead to consistently democratic elements capable of revolutionary struggle from among the working masses of all nations.”
(ibid)
Similarly, we say to Jewish and Palestinian workers – you cannot achieve freedom other than by revolutionary struggle for the overthrow of the Zionist State. The Zionist state precludes liberty both for Jewish and Palestinian workers, and is, furthermore, the bulwark of US imperialism in the Middle East. This state can be overthrown only by the United struggle of Jewish and Palestinian workers.
“In civilised countries we observe a fairly full (relatively) approximation to national peace under capitalism only in conditions of the maximum implementation of democracy throughout the state system and administration (Switzerland). The slogans of consistent democracy (the re public, a militia, civil servants elected by the people, etc.) unite the proletariat and the working people, and, in general, all progressive elements in each nation in the name of the struggle for conditions that preclude even the slightest national privilege—while the slogan of “cultural-national autonomy” preaches the isolation of nations in educational affairs (or “cultural” affairs, in general), an isolation that is quite compatible with the retention of the grounds for all (including national) privileges.
The slogans of consistent democracy unite in a single whole the proletariat and the advanced democrats of all nations (elements that demand not isolation but the uniting of democratic elements of the nations in all matters, including educational affairs), while the slogan of cultural-national autonomy divides the proletariat of the different nations and links it up with the reactionary and bourgeois elements of the separate nations.
The slogans of consistent democracy are implacably hostile to the reactionaries and to the counter-revolutionary bourgeoisie of all nations, while the slogan of cultural-national autonomy is quite acceptable to the reactionaries and counter-revolutionary bourgeoisie of some nations.”
(ibid)
Similarly, in Palestine/Israel. Alongside the demands for national equality, we should advocate a struggle for general democratic demands (scrap the standing army, establish a militia, election of all officials etc) “as a means to unite the proletariat unite the proletariat and the working people, and, in general, all progressive elements in each nation in the name of the struggle for conditions that preclude even the slightest national privilege”
But, more is necessary. As Trotsky argues in Permanent Revolution, the only force capable of consistently carrying out the above programme to its conclusion is the working class. Once the Jewish and Palestinian workers have been mobilised around the demands of consistent democracy, Marxists have to deepen the struggle into one for a socialist transformation. We have to link our socialist programme into the Democratic Programme. As Lenin put it,
“… when economic and political issues, and socialist and democratic activities are united into one whole, into the class struggle of the proletariat, this does not weaken but strengthens the democratic movement and the political struggle, by bringing it closer to the real interests of the mass of the people, dragging political issues out of the ‘stuffy studies of the intelligentsia’ into the street, into the midst of the workers and labouring classes, and replacing abstract ideas by real manifestations of political oppression from which the greatest sufferers are the proletariat, and on the basis of which the Social Democrats conduct their agitation.”
(Lenin – “Tasks of the Russian Social Democrats”)
The United Socialist States of the Middle East
Given the sub-imperialist nature of the Israeli State and its role as agent of US imperialism in the region, any Marxist programme must aim to break the link with the US, and unite not only Jewish and Palestinian workers, but the working class of the Middle East in a struggle for a United Socialist States of the Middle East.
At the present time because Jewish workers feel threatened by the surrounding Arab states, there is an understandable (if misguided) feeling of security from having the US as a military shield. (Just as the Falkland islanders looking to the British State for protection against Argentina was understandable if misguided.) Only by uniting the Jewish and Arab working class of the Middle East can that feeling of the need for the support of the US be undermined.
Given the size of the military budget in Israel, Transitional demands calling for a freeze on military spending and a diversion of resources to useful production would find a powerful resonance amongst the Jewish workers once they could be convinced that “their main enemy was at home”. At the same time workers in the Arab states would be strengthened in similar calls for freezing military budgets in their own states, which are themselves motivated on the basis of the threat from Zionist expansion.
The present nation state structures in the Middle East are a barrier to progress. The Palestinians have suffered not only at the hands of the Israeli State, but at the hands of the bourgeois Arab States too. Communalism is rampant in Lebanon, whilst the workers of Iran and Iraq continue to be slaughtered in a war that appears to have no foreseeable end.
Israel is wracked by economic crisis and its economy would sink were it not for the US. Even the oil producing states, despite the investment that has been undertaken, remain rent based economies whose fortunes go up and down with the price of oil. For the workers of the Middle east only a socialist transformation of society, and a socialist federation of the Middle East, offers any prospect of ending communalism and national antagonisms, and of lifting them from grinding poverty in which most of them live.
Algebraic
The slogan of the United States of Israel and Palestine is an algebraic formula. It is not an ultimatistic demand for socialist revolution. On the contrary, it is a demand aimed at the Jewish and Palestinian workers, mobilising them to fight for a consistently democratic solution to the national problem. We seek to deepen that struggle by linking to it Transitional Demands. We say to the workers, “We believe that only a socialist transformation is capable of completely resolving your problems. At present you may not agree with us, and may believe these demands can be met without the need for socialist revolution. We will fight alongside you for those demands and we believe that in the process of the struggle we will convince you that we are right.”
The formulae is algebraic, therefore, in that it mobilises the workers, but does not limit, in advance, the scope of that mobilisation simply to a democratic solution.
The formula is algebraic in another sense too. By focussing on uniting Jewish and Palestinian workers it creates the best conditions for the Palestinians in those areas where they form a majority to secede, if they so choose, and for Jewish Marxists to defend that right against attempts by the Israeli State to prevent it.
Imagine the following scenario. The Jewish and Palestinian workers (or at least a significant section) unite to fight for a United States of Israel and Palestine. However, after a serious struggle they find themselves defeated by the Israeli State. At which point the Palestinian workers say – “o.k. comrades we tried and failed. We want to exercise our democratic right to secede. You have witnessed in struggle that we have no desire to drive you into the sea, and we guarantee that our state will not be used against you. We call on you to defend our right of secession.”
It ought to be clear to anyone that under such conditions of having worked together in joint working class organisations, and taken part in a common struggle, a much better basis is laid for removing the fears of the Jewish workers, and of winning their solidarity than currently exists. Lenin outlines a similar situation vis a vis Norway and Sweden.
“Incidentally, autonomy, as a reform, differs in principle from freedom to secede, as a revolutionary measure. This is unquestionable. But, as everyone knows, in practice, a reform is often merely a step towards revolution. It is autonomy that enables a nation forcibly retained within the boundaries of a given state to crystallise into a nation, to gather, assess and organise its forces, and to select the most opportune moment for a declaration….in the ‘Norwegian’ spirit. We the autonomous diet of such and such a nation, or of such and such a territory, declare that the Emperor of all the Russias has ceased to be King of Poland etc.”
This is still not to say that under such conditions we should advocate secession, but that if such a demand was raised the best conditions would have been created for defending it as a right against the attempts of the Israeli state to prevent it.
Conclusion
I believe that the United States of Israel and Palestine, and the programme outlined above is better than the Democratic Secular State and two States solutions. In my opinion both of the other two solutions are stagist. They put forward the perspective merely of finding a bourgeois democratic solution to the national problem in Palestine/Israel, and leave the question of the struggle for socialism as something to be considered only after the national problem has been resolved.
Both the democratic Secular State and the Two States solutions also accommodate to bourgeois nationalism and fail to locate the working class as the only agent capable of carrying out a consistently democratic solution. Both fail to distinguish between the interests and motivations of the contending classes within the two nations, and so doing sink into accepting the idea that there is some non-class national culture.
Because they are both bourgeois solutions neither of the two alternatives in fact offer a consistently democratic solution. The democratic Secular State would effectively just run the film of the history of Palestine in reverse, whilst the Two State solution would leave large national minorities trapped in each state, and would create the worst possible conditions for guaranteeing the rights of those that were trapped.
I believe, therefore, that we should adopt the slogan of the United States of Israel and Palestine, and the programme that I have outlined as the only solution which is consistently democratic, which counterposes internationalism to nationalism, which “reveals and clarifies the class gulf” rather than “obscuring” it in the concept of "national culture" and talk of “whole people”. It is also the only demand which, by focussing on uniting the working class, as the only force capable of solving the problem, has an inherent class struggle logic into which Marxists can key with appropriate Transitional demands. As such, it is the only solution which puts socialism on the agenda.
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