Just A Question Of Time

I was watching Marc Faber on CNBC this morning.





Marc Faber is Editor of the "Boom, Doom and Gloom Report". Faber correctly predicted the Dot Com Crash - not that he was alone. He basically takes an Austrian position, and his argument is that the methods being taken now to resolve the crisis will lead to more bubbles, which when they burst will mean that Capitalism collapses. He suggests a timescale of 5-10 years.

He gives a similar view here:



I think his argument is false for reason I'll come to later, but my disagreement is more about timing.

I beleive that we are in the boom period of a Long Wave, that began around 1999. I'd argue the low point then in Gold and raw material prices, the preceding debt blow off of the Asian currency and Rouble crises were symptomatic of what has been seen at the end of Long Wave downturns previously. I'd also argue that because we are still in the Spring Phase of the cycle, we have an explanation for the fact that wages have not begun rising rapidly yet - still large reserves of exploitable labour - whilst raw material prices have continued to rise - new supplies with lower marginal costs have not yet come sufficiently on stream to meet demand, which normally happens around 12 years into the cycle.

I thought that the recession would end in the second quarter of 2009, with growth resuming in the third. That was too pessimistic as figures show that growth resumed in the second quarter. I think the reason for that is that having massively destocked, as the world economy simply stopped in the Fourth Quarter of 2008, by the second quarter that destocking had ceased, orders resumed, and that had a dramatic effect in reversing the decline. However, it does not look to me as though restocking occurred in the second quarter. Firms seem to have simply re-ordered to cover current demand, fearful that it might be a false dawn. The same seems to apply to the take-on of labour. I expect that as actual re-stocking takes place, from the end of the second quarter and into the third quarter, we will see an accelerator effect, pushing growth rates up for the Third Quarter, which may also be subject to a multiplier effect, as the rest of fiscal stimulus feeds through.

But, I suspect that we might then see a plateauing effect for one or two quarters from the beginning of 2010 as that restocking is completed - a reverse accelerator. That is the importance of Governments NOT introducing cuts during that period. I think, however, that the growth in Asia and other developing areas will act as a locomotive dragging the world economy forward, with US and UK performance lagging in relative terms, but still growing absolutely.

However, what we also have to bear in mind as Marxists is not just the immediate future, but the longer term, which comes upon you quicker than you think even when dealing with a 50 year cycle.

I think Faber's basic argument is false, and his timescales are wrong. We had asset price bubbles in the preceding period because the huge monetary stimulus, pumped into the world economy, from the late 80's onwards, was intended to counteract the effects of the Long Wave downturn - i.e. restrained aggregate demand. It did so in a period where China, and other developing economies, were able to satisfy demand for consumer goods with increasingly lower priced goods. The excess liquidity then found its way into asset prices. But, in a period of boom, that money will increasingly find its way into end demand for consumer goods - in fact it already was doing so before this crisis, as witnessed by hugely rising food prices, and a concern in the US and UK and Europe with inflation that was prompting higher interest rates. The Velocity of circulation will rise as economic activity resumes, and prices will rise. Moreover, the capacity for China to continue to pump more and more, ever lower priced, consumer goods, into the world economy, is restricted. (That will only come about again when the next round of industrialisation in Africa develops new huge pools of exploitable cheap labour). Chinese wages are rising rapidly, production constraints are appearing, and it faces its own rising cost curve for raw materials etc. needed to manufacture those goods. That is one reason it will let the RMB rise to lower its costs of imports. It also needs to divert an increasing proportion of its output to domestic consumption. The consequence will be a rise in consumer goods prices on the world markets, choking off the availability of liquidity to fuel further asset price bubbles.

That again is consistent with the move from the Spring to the Summer phase of the Long Wave. However, the Summer phase is still a period of strong economic growth. What, as Marxists we have to be concerned with is what happens when that Summer Phase transforms into the Autumn Phase. On my timescale that is in around 15-20 years from now. It is at this conjuncture that in the past has seen big upheavals of wars and revolutions - usually the latter provoked by the former. As I wrote in my blog, Third World War? , last year, there are more similarities, in the current Long Wave, with the position leading up to 1914 than there are with the position leading up to the end of the last Long Wave in the early 70's. At the time of the latter, the world economy was dominated by the US hegemon - as previous periods in the 19th century had been dominated by the British hegemon - and imperialist competition was constrained both by that, and by their common front against Stalinism. 1914 saw a world where British hegemony had broken down, and opened the door to economic competition giving way to military competition. The breaking down of US economic hegemony, and absence of a common enemy, for imperialism, to coalesce against, sees the world divided into three main economic blocs, which increasingly have different world views and global interests and ambitions, and which increasingly are developing their own independent military forces. Such a conflagration would likely spell the end of human civilisation given the nature of modern weapons. The current grabs for strategic global positions described in my blog, and which are there for all to see, are very reminiscent of the period at the end of the 1890's, and the current posturing over disarmament is also reminiscent of the many anti-war and disarmament conferences that took place in the run up to WWI, and which acted only to favour those powers that could quickly produce new more deadly weapons when the conflict began.

That is why it is vital that Marxists use the period of the current boom to recreate a Labour Movement armed with the means of creating a different world here and now. When you are young 15 years seems almost a lifetime, when you get to my age it seems like the blink of an eye.

Trotsky and the Epigones

Twelve months ago, I published an article by Llin Davies What If The AWL Quoted Trotsky Correctly . It was, in fact, made up of a series of comments she had made to an AWL discussion on the potential of Israel bombing Iran, and what attitude Marxists should adopt, if they did - What If israel Bombs Iran . As part of that discussion the AWL had referred to Trotsky and Trotskyists position in relation to WWII, trying to claim Trotsky for the argument that in such conflicts Marxists recognise the progressive nature of bourgeois democracy as against fascism.

In many articles, from the mid 1920’s on, Trotsky had meticulously documented the way in which Stalin, and his faction, had, systematically, distorted Lenin’s writings and positions. Trotsky labelled them “The Epigones”. The Epigones, distorted Lenin’s position in order to try to make it fit their own particular current positions. They did it by selectively quoting Lenin, by taking his statements out of their historical context, using statements made in one context as though they had actually been made in relation to another, by chopping off, or out, sections of quotes that changed the meaning of his statements, and, ultimately, by outright fabrication. Llin’s article shows how the AWL used similar methods to distort the position of Trotsky in relation to WWII, in order to fit the AWL’s current politics, in this case its disgraceful argument that if Israel bombed Iran, then there was no principled basis on which Marxists could condemn it!

A year later the AWL have come back to the argument, reprinting the article – Trotsky’s reply to Palestinian Trotskysists – which Llin used as the basis of her argument against the AWL. For the original see: Bulletin of the Russian Opposition

Interestingly, the AWL’s foreword to the article strikes a completely different note to the argument they were using a year ago. What that signifies in terms of the internal politics and developments inside the AWL is open to interpretation. The changed stance is to be welcomed, yet even now the AWL is unable to drag itself away from its fundamental distortion of Trotsky’s ideas, on which is based its adoption of petit-bourgeois, Third Campism.

In the original discussion, Mark Osborn wrote,

“Nevertheless, the Trotskyists who followed Trotsky’s lead on this clearly recognised that, while they could not support the Allies, there was a real difference between, for example, German Nazi imperialism and the imperialism of the US.”

As Llin demonstrated, this was a blatant distortion of Trotsky and the Trotskyists position. It may have been true, of course, of the anti-Trotsky Trotskyists of the Third Camp! In fact, the document that the AWL reprint again now shows that that statement was clearly false. And, in the foreword their position is now subtly different. They write now,

“Trotsky recognises the huge difference between bourgeois democracy and fascism but argues that there is no reason to be sure that the war line-up would be “democracies against fascism”; or that democracies would remain democracies in the war; or that fascism would better be overthrown by foreign conquest than by internal revolt.”

And this is, of course, correct, as Llin had argued. As against the Stalinists, who, in the Third Period, had argued that anyone who was not a Stalinist was some variety of fascist, Trotsky had argued that there was within any political regime a significant difference between Fascism and Bourgeois Democracy. But, the recognition of that WITHIN a particular regime could not dictate Marxists attitude to conflicts BETWEEN states! In fact, as Llin cites in her article, Trotsky even argued that in a conflict between Brazil with its fascist regime, and Britain with its democratic regime, he would support Brazil! Why, because the nature of the political regime is secondary to the question of the nature of the State itself, and what flows from that. As an imperialist state, Britain in a war with Brazil, would have as its aim the domination of a weak non-imperialist state. Were it victorious it would probably only replace one fascist dictator with another. Under those conditions Marxists had to side with Brazil.

Today, a similar situation can be seen in relation to Iraq. It was an open secret that, faced with an ungovernable situation, the US and UK, were, and possibly still are, looking to the installation of some new Saddam like strongman to take control of the situation. Of course, given the AWL’s posiiton on Iraq, of acting as cheerleaders for imperialism, in hoping that it would deal with the fascists and introduce democracy, it is not surprising that they would want to distort Trotsky’s position so as to make it fit their current politics.

That approach was not confined to Iraq. Although the AWL proclaim, as central to their Third Camp politics, their commitment to fighting for an independent working-class solution to political problems, nothing could be further from the truth. Consistent with the tradiiton of the Third Camp, which saw one of their mentors, Max Shachtman, steadily descend, until he ended up supporting the US, in Vietnam, the AWL have logically been driven by a view, that bourgeois demcoracy is historically progressive, versus various kinds of Bonapartism or dictatorship not to advance the cause of a working-class “Third Camp”, but the cause of the first camp of “democratic imperialism”, just as Trotsky had forecast would happen. As Trotsky pointed out, this is the method not of the Marxist, but of the bourgeois subjectivist. It is to base your politics not on the material fundamentals, but on the superficial form and superstructure. As that form can change rapidly and unpredictably, whilst the material fundamentals remain constant, the result is that any organisation basing itself on such an approach loses all grounding, and is tossed about from position to position like flotsam on the tide.

Instead of an independent working class position, and solution what such organisations are left with is the role of cheerleader for other more powerful forces. In the case of the AWL, it is a supposedly progressive, democratic imperialism. So, it supported Yeltsin and his imperialist backed counter-revolution in Russia, they supported NATO’s attacks on Serbia, and its carving out of Kosovo – though they adopted a completely opposite position in the identical case of Russia’s response to the genocidal attacks of Georgia on South Ossetia, one of their leading members even acting as an apologist for the odious Saakashvili, who even the West has lost faith in – although they opposed the invasion of Iraq, they refused to call for the removal of its forces once the invasion had happened, they ran stories effectively backing Britain when its troops were found to have been entering Iranian waters, and they argued that Israel would have good reason to attack Iran, and that Marxists could have no principled reason to oppose such an attack!!!

Nowhere, in any of this, is there any suggestion of an independent working class position. All we have is the working-class being asked to sit back and allow a supposedly progressive democratic imperialism to deal with the workers other enemies, its only role being to critiise this or that action by imperialism. In reality this kind of politics has nothing in common with the politics of Lenin or Trotsky. It is the politics of Stalinism, and Reformism pure and simple. It is so for two reasons. The first reason is that such an approach amounts to what Trotsky called “stageism”. It means a view that workers facing such a Bonapartist or dictatorial regime have to struggle not for a socialist revolution, but merely for a democratic revolution. That is what all of the above instances were about. It was most stark in the AWL’s arguments in relation to its position on Iraq, where we were told that imperialism was creating a breathing space for the Labour Movement, and was introducing democracy, and so could not be opposed other than on purely Economistic grounds of Trade Union issues!

It is so for the second reason too. Such an approach amounts to nothing more than the Stalinist policy of the Popular Front, whereby the working class is asked to align its interests with those of the bourgeoisie in order to fight fascism. The consequences of that were most visible in the Spanish Civil War. It amounts to basically leaving things up to the bourgeoisie, and its greater muscle to fight these battles, with the workers role being merely to act as a pressure group, trying to influence or control various aspects of that activity. Trotsky summed up the approach in his criticism of the Stalinists during the 1930’s when he wrote,

“When a working class party proclaims that in the event of war it is prepared to “control” (i.e., to support) its national militarism and not to overthrow it, it transforms itself by this very thing into the domestic beast of capital. There is not the slightest ground for fearing such a party: it is not a revolutionary tiger but a trained donkey. It may be kept in starvation, flogged, spat upon it – it will nevertheless carry the cargo of patriotism. Perhaps only from time to time it will piteously bray: “For God’s sake, disarm the Fascist leagues.” In reply to its braying it will receive an additional blow of the whip. And deservingly so!"

An Open letter To French Workers .

In fact, the lie to the AWL’s original argument is given in another post they have produced alongside the one above. They reprint Trotsky’s interview with the Daily Herald setting out his position on the war - Only Revolution Can End war - in which Trotsky states openly and clearly,

“The attempt to represent this brawl of interests and appetites as a struggle between “democracy” and “fascism” can only dupe the working class. Chamberlain will give all the democracies in the world (there are not many left) for a tenth part of India….

“I can give counsel only to the workers. My counsel to them is not to believe for a single instant that the war of the two imperialist camps can bring anything else but oppression and reaction in both camps. It will be the war of the slave-owners who cover themselves with various masks: “democracy,” “civilization,” on the one hand, “race,” “honour,” on the other. Only the overthrow of all slave-owners can once for all end the war and open an epoch of true civilization.”

In the original discussion as Llin demonstrated, Sean Matgamna had completely distorted Trotsky’s position by deliberately chopping out part of what Trotsky said. He quoted only Trotsky’s statement,

“If there were any grounds for believing that a new victory of the familiar and slightly senile Entente (minus Italy) can work miraculous results, i.e. those counter to social-historical laws, then it is necessary not only to ‘desire’ this victory but to do everything in our power to bring it about. Then the Anglo-French social patriots would be correct.”,

and went on to say, Imperialism DID bring about democracy in Germany and Italy, and Japan after WWII!

But, first of all, he chops off from this quote, the next sentence where Trotsky says,

“As a matter of fact they are far less correct today than they were 25 years ago, or to put it more correctly, they are playing today an infinitely more reactionary and infamous role.”

Which, of course completely changes the meaning of Trotsky’s words by 180 degrees!

In the current version, the AWL foreword actually adopts the correct stance in this regard. It says,

“On the face of it, history gave Trotsky the lie.

The victory of the “democracies”, Britain and the US, did in western Europe lead to the restoration or installation of bourgeois democratic systems. But democracy was not restored without mass working-class struggles in Italy, Belgium and France. And the western democracies were allied with Stalinist Russia which, ruling through puppet states, was to crush the working class in Eastern Europe, as thoroughly as fascism did, for another half century.

Above all: could the Trotskyists possibly have been right to bank on that outcome in advance? Democratic France would vote full powers to the fascistic regime of Philippe Pétain in June 1940: were the Trotskyists wrong to warn against the danger of similar moves in Britain?”

And, as Llin Davies correctly stated in her article this “democracy” had to be taken with a large pinch of salt. In Germany, imperialism not only recruited many ex-Nazis into its service in the West, but completely turned a blind eye to the Nazi industrialists, as well as many Nazis taking up prominent positions in the judiciary and state apparatus, whilst the activity of the Left was heavily circumscribed by the berufsverbot etc. In Italy, the occupying armies acted against the Left, and the “democracy” in Japan was a strange kind of democracy installed under the influence of a huge occupying force, and which led to the one party rule of the Right-wing LDP for more than 60 years!

And, if the reality was that “democratic-imperialism” was progressive vis a vis fascism, if it DID hold out the potential for installing bourgeois democracy, then surely as Trotsky says, Sean should have been arguing that, “it is necessary not only to ‘desire’ this victory but to do everything in our power to bring it about. Then the Anglo-French social patriots would be correct.”, just as given their arguments in relation to Iraq, they should have been arguing in favour of an invasion, and the victory of imperialism!

The new poistion of the AWL on this is to be welcomed. It does, of course, undermine the arguments they have raised in relation to Iraq, and other issues such as the potential Israeli attack on Iran – perhaps again something that has been influenced by the current rise of opposition within Iran, again an instance of a supposedly Marxist organisation being tossed about on the sea of history by changes in events. It perhaps is also tied to Martin Thomas’ recent article arguing for Troops Out of Afghanistan, which performs logical acrobatics in order to justify this position in contradiction to their position of opposing that slogan in Iraq. Of course, perhaps the difficulty of arguing for not calling for imperialist troops to leave Afghanistan, when the AWL’s predecessors had called so vociferously for the USSR to leave, might have been a bit too difficult a circle to square too. But, the AWL’s new foreword cannot get away from the ties that bind it. They say,

“The Palestinian socialists also assumed that the USSR would oppose Germany in the war (as it did from June 1941). For them, the Soviet Union, having been the historical product of the Bolshevik-led workers’ revolution, and retaining the nationalised property, was still a “workers’ state”, albeit one which had largely “degenerated”.

Trotsky himself still adhered to that formula, though he was reshaping his views.”

But, that is a complete fabrication, and one around which the AWL have even produced a whole book trying to claim Trotsky for the position of the anti-Trotsky Trotskyists of the Third Camp, a ridiculous venture given Trotsky’s many writings setting out his total opposition to the Third Campists, not just in relation to the class nature of the USSR, but on the basic philosophical and methodological premises of Third Campism, as a petit-bourgeois, anti-Marxist trend, on which it arrived at its incorrect conclusions on the USSR and other issues!!!

The argument that Trotsky was “reshaping his views” on the class nature of the USSR is based on an argument that rests on one very unsteady leg. It rests on a quote by Trotsky that the AWL ocne agin take out of context and misrepresent. In the process of arguing AGAINST the AWL’s predecessors – Burnham and Shachtman – Trotsky wrote,

“Some comrades evidently were surprised that I spoke in my article (The USSR in the War) of the system of “bureaucratic collectivism” as a theoretical possibility. They discovered in this even a complete revision of Marxism. This is an apparent misunderstanding. The Marxist comprehension of historical necessity has nothing in common with fatalism. Socialism is not realizable “by itself,” but as a result of the struggle of living forces, classes and their parties. The proletariat’s decisive advantage in this struggle resides in the fact that it represents historical progress, while the bourgeoisie incarnates reaction and decline. Precisely in this is the source of our conviction in victory. But we have full right to ask ourselves: What character will society take if the forces of reaction conquer?”

See: Again And Once More Again On The Nature of The USSR .

Taken on its own, this statement might, indeed, be taken as Trotsky saying that he was reconsidering, in the light of events, what the class nature of the USSR was. But, it can be so if, and only if, you do precisely that – take it entirely on its own! The very fact that this statement is a small part of an article, arguing the exact opposite, arguing vehemently that the USSR was not “Bureaucratic Collectivist”, and that such a “theoretical possibility”, for it to become such, depended upon the following years creating the thorough crushing of the working class, throughout the world, the victory of fascism and reaction, should give the lie to any intelligent and honest person that this is the least likely interpretation of what Trotsky was saying here!!!!

In fact, Trotsky makes clear even in the next few lines after this statement just how pessimistic you have to be to arrive at the potential for this “theoretical possibility” coming to reality. He says,

“The march of events has succeeded in demonstrating that the delay of the socialist revolution engenders the indubitable phenomena of barbarism-chronic unemployment, pauperization of the petty bourgeoisie, fascism, finally wars of extermination which do not open up any new road. What social and political forms can the new “barbarism” take, if we admit theoretically that mankind should not be able to elevate itself to socialism? We have the possibility of expressing ourselves on this subject more concretely than Marx. Fascism on one hand, degeneration of the Soviet state on the other outline the social and political forms of a neo-barbarism. An alternative of this kind – socialism or totalitarian servitude – has not only theoretical interest, but also enormous importance in agitation, because in its light the necessity for socialist revolution appears most graphically.

If we are to speak of a revision of Marx, it is in reality the revision of those comrades who project a new type of state, “nonbourgeois” and “non-worker.” Because the alternative developed by me leads them to draw their own thoughts up to their logical conclusion, some of these critics, frightened by the conclusions of their own theory, accuse me ... of revising Marxism. I prefer to think that it is simply a friendly jest.”

In other words, the condition for the establishment of some new type of class state is the inability of the working class to fulfil its historic mission!

“I endeavored to demonstrate in my article The USSR in the War that the perspective of a non-worker and non-bourgeois society of exploitation, or “bureaucratic collectivism,” is the perspective of complete defeat and the decline of the international proletariat, the perspective of the most profound historical pessimism.”

And, of course, this defeatist attitude is precisely what characterises the petit-bourgeois Third Camp. Having lost faith in the ability of the working class to carry thorugh its historic mission, other than in continuing to proclaim that role in its mantras kept for Sunday Best in its “What We Stand For” columns, it is led to pin its hopes on other forces – petit-bourgeois studentism, environmentalism and so on in which petit-bourgeois radicals might be encouraged to join its organisations fleetingly before carving out a lucrative career for themselves, or else acting as cheer leaders for other more powerful forces – “democratic-imperialism” for some, “anti-imperialist” forces for others. Its what leads the AWL to argue not for a working-class solution in the USSR, but to back Yeltsin and the imperialists, and in Yugoslavia, and in Iraq, and Israel against Iran and so on.

Trotsky continues,

“Are there any genuine reasons for such a perspective? It is not superfluous to inquire about this among our class enemies.

In the weekly of the well-known newspaper Paris-Soir of August 31, 1939, an extremely instructive conversation is reported between the French ambassador Coulondre and Hitler on August 25, at the time of their last interview. (The source of the information is undoubtedly Coulondre himself.) Hitler sputters, boasts of the pact, which he concluded with Stalin (“a realistic pact”) and “regrets” that German and French blood will be spilled.

“But,” Coulondre objects, “Stalin displayed great double-dealing. The real victor (in case of war) will be Trotsky. Have you thought this over?”

“I know,” – der Fuehrer responds, “but why did France and Britain give Poland complete freedom of action ?” etc.

These gentlemen like to give a personal name to the spectre of revolution. But this of course is not the essence of this dramatic conversation at the very moment when diplomatic relations were ruptured. “War will inevitably provoke revolution,” the representative of imperialist democracy, himself chilled to the marrow, frightens his adversary.

“I know,” Hitler responds, as if it were a question decided long ago. “I know.” Astonishing dialogue.

Both of them, Coulondre and Hitler, represent the barbarism, which advances over Europe. At the same time neither of them doubts that their barbarism will be conquered by socialist revolution. Such is now the awareness of the ruling classes of all the capitalist countries of the world. Their complete demoralization is one of the most important elements in the relation of class forces. The proletariat has a young and still weak revolutionary leadership. But the leadership of the bourgeoisie rots on its feet. At the very outset of the war which they could not avert, these gentlemen are convinced in advance of the collapse of their regime. This fact alone must be for us the source of invincible revolutionary optimism!”

This does not sound to me like a Trotsky who has appraised events in such a way as to have concluded that all is hopeless for the working class, the condition he set out as the fundamental requirement for the establishment of some new Bureaucratic Collectivist state in the USSR! And, of course, in a sense his revolutionary optimism was justified, though, perhaps in ways, he would not have desired.
The Workers’ State in the USSR, even in its deformed condition, even despite the criminal activities of Stalin in decapitating the Red Army and so on, proved to be such a powerful historical force, that, despite the initial massive disadvantage it stood at, despite the terrible and avoidable damage it suffered in the initial months of Operation Barbarossa, it was able within months to reorganise production, and to massively outproduce Nazi Germany both in materials, and in soldiers! At a time when Nazi Germany had within months overrun one of the leading imperialist powers – France – and had effectively defeated the other – Britain – which was holed up in its island retreat, only able to try to hold on to its colonies in India and Africa – and almost wholly reliant on supplies from the US for its very existence, the USSR not only stood alone in the fight against the Nazis, but effectively created on December 1941, the conditions for their defeat by turning them back from the gates of Moscow, and then continually driving them back, until they were able to overrun them, and most of Eastern Europe. And, from being a medieval society in 1917, in danger of being carved up by imperialism like China, the USSR, despite its massive losses during the following period – the USSR lost 30 million people in WWII, whereas the US lost just 300,000, the USSR lost 25% of its production and agriculture in the early part of the War, whereas the US was able to build up its production untouched throughout – in the space of just 30 years the USSR became the second super power on the planet!! If anything could justify Trotsky’s revolutionary optimism that was it.

But, it was justified in other ways too. Far from reaction setting in, workers and peasants undertook a revolution in China, in Yugoslavia, in Greece and elsewhere. Of course, given the lack of a real revolutionary party, and the treachery of Stalinism some of these revolutions were simply defeated, whilst others were born deformed, but that cannot take away from the fact of their existence, and what it meant in confirming Trotsky’s analysis. Even in Britain, it led to a massive change in workers class consciousness that led to the Labour landslide of 1945.
No, the AWL once again lie when they claim that Trotsky was moving in the direction of their anti-Marxist theories of new class societies. He was doing the exact opposite in opposing to the death those that proposed them, and whose defeatism was poison to the workers movement. And in that other document Trotsky refers to here he makes the position even clearer, he writes,

“If this war provokes, as we firmly believe, a proletarian revolution, it must inevitably lead to the overthrow of the bureaucracy in the USSR and regeneration of Soviet democracy on a far higher economic and cultural basis than in 1918. In that case the question as to whether the Stalinist bureaucracy was a “class” or a growth on the workers’ state will be automatically solved. To every single person it will become clear that in the process of the development of the world revolution the Soviet bureaucracy was only an episodic relapse.

If, however, it is conceded that the present war will provoke not revolution but a decline of the proletariat, then there remains another alternative: the further decay of monopoly capitalism, its further fusion with the state and the replacement of democracy wherever it still remained by a totalitarian regime. The inability of the proletariat to take into its hands the leadership of society could actually lead under these conditions to the growth of a new exploiting class from the Bonapartist fascist bureaucracy. This would be, according to all indications, a regime of decline, signalizing the eclipse of civilization.

An analogous result might occur in the event that the proletariat of advanced capitalist countries, having conquered power, should prove incapable of holding it and surrender it, as in the USSR, to a privileged bureaucracy. Then we would be compelled to acknowledge that the reason for the bureaucratic relapse is rooted not in the backwardness of the country and not in the imperialist environment but in the congenital incapacity of the proletariat to become a ruling class. Then it would be necessary in retrospect to establish that in its fundamental traits the present USSR was the precursor of a new exploiting régime on an international scale.

We have diverged very far from the terminological controversy over the nomenclature of the Soviet state. But let our critics not protest: only by taking the necessary historical perspective can one provide himself with a correct judgment upon such a question as the replacement of one social régime by another. The historic alternative, carried to the end, is as follows: either the Stalin régime is an abhorrent relapse in the process of transforming bourgeois society into a socialist society, or the Stalin régime is the first stage of a new exploiting society. If the second prognosis proves to be correct, then, of course, the bureaucracy will become a new exploiting class. However onerous the second perspective may be, if the world proletariat should actually prove incapable of fulfilling the mission placed upon it by the course of development, nothing else would remain except openly to recognize that the socialist program based on the internal contradictions of capitalist society, ended as a Utopia. It is self evident that a new “minimum” program would be required for the defense of the interests of the slaves of the totalitarian bureaucratic society.

But are there such incontrovertible or even impressive objective data as would compel us today to renounce the prospect of the socialist revolution? That is the whole question.”

Of course, history provided another variant. Workers were neither defeated, nor seized power directly for themselves. Where I would disagree with Trotsky is in his definition of the USSR as a Degenerated Workers State. That implies that it was at one time a healthy Workers’ State, a position its not difficult to understand him holding. But, in fact I would argue the USSR always WAS a Deformed workers State, precisely because the workers never did hold political power themselves. From that perspective, the main difference between that revolution and the “revolutions” in Eastern Europe, China, Cuba etc. resided only in the political perspectives of the leaders of those revolutions, and the degree of “bureaucratism” with which that process was undertaken.

In fact, the basis of the theory of Bureaucratic Collectivism that a new bureaucratic/technocratic, managerial class was being created as a result of the changes in the productive forces, and the need to organise and control those forces via such a technical and bureaucratic elite, was precisely that set out by Burnham in his “The Managerial Revolution”, which logically concluded from that, that there would be a coming together of the USSR and Western societies towards such a model. The fact, that Capital had ceded a considerable degree of control over the production process to professional managers, and had seen the huge growth of a bureaucratic state apparatus, which developed along a corporatist route of tying together large Corporate interests manifested by professional managers with a similar sociological group in the form of State bureaucrats, appeared to give substance to such a theory.

But, in the end the Marxist critique of such theories held out. In the 1970’s Robin Blackburn and others showed fairly decisively that the Post-Capitalist thesis, which is a direct descendant of these Burnhamite theories, was false. It was ownership of the means of production, not control, which remains decisive. That was as true in the USSR as it is in the West. It was ultimately the inability of the working class in those states to utilise their ownership of the means of production, in order to exercise effective control, that led to that contradiction blowing apart. Its resolution was not eh establishment of some new class society based on some new set of property relations based on ownership and control by some new class, but that which Trotsky had suggested, the collapse of one workers ownership, and its replacement with a return to Capitalist ownership! Ultimately, control is only possible via ownership, even if ownership does not immediately imply control.

The AWL need to cling to this myth that Trotsky was moving towards a Bureaucratic Collectivist theory, because without that all of their legitimacy as an organisation that claims to stand in his tradition, and in the tradition, therefore, of those that they see as being in the same line – Lenin, Engels and Marx – disappears. That is why they put so much effort into such a re-writing of history, just as the Stalinists did, who wanted to claim the inheritance of Lenin, rather than simply saying – no Trotsky was wrong. They have to do that, because they have adopted the position of the Third Camp, whose fundamental premise is that Trotsky WAS wrong, and all of their politics follow from that. But, the fundamental difference lies in this, it is that the very basis of Trotsky’s arguments with the Third Campists was NOT really about the class nature of the USSR, that was simply the battleground upon which it was fought out. It was about that basic philosophical and methodological difference – on the one hand the bourgeois subjectivist, Moralism of the Third Camp on the other the objective, historical materialism of Marxism.

Trotsky summed it up like this.

“In his recent polemical article against me, Burnham explained that socialism is a “moral ideal.” To be sure, this is not so very new. At the opening of the last century, morality served as the basis for the “True German Socialism” which Marx and Engels criticized at the very beginning of their activity. At the beginning of our century, the Russian Social Revolutionaries counterpoised the “moral ideal” to materialistic socialism…

“The petty-bourgeois minority of the SWP split from the proletarian majority on the basis of a struggle against revolutionary Marxism. Burnham proclaimed dialectic materialism to be incompatible with his motheaten “science.” Shachtman proclaimed revolutionary Marxism to be of no moment from the standpoint of “practical tasks.” Abern hastened to hook up his little booth with the anti-Marxist bloc. And now these gentlemen label the magazine they filched from the party an “organ of revolutionary Marxism.”…

“The very first “programmatic” articles of the purloined organ already reveal completely the light-mindedness and hollowness of this new anti-Marxist grouping which appears under the label of the “Third Camp.” What is this animal? There is the camp of capitalism; there is the camp of the proletariat. But is there perhaps a “third camp” – a petty-bourgeois sanctuary? In the nature of things, it is nothing else. But, as always, the petty bourgeois camouflages his “camp” with the paper flowers of rhetoric. Let us lend our ears! Here is one camp: France and England. There’s another camp: Hitler and Stalin. And a third camp: Burnham, with Shachtman. The Fourth International turns out for them to be in Hitler’s camp (Stalin made this discovery long ago). And so, a new great slogan: Muddlers and pacifists of the world, all ye suffering from the pin-pricks of fate, rally to the “third” camp!…

“Only the other day Shachtman referred to himself in the press as a “Trotskyist.” If this be Trotskyism then I at least am no Trotskyist. With the present ideas of Shachtman, not to mention Burnham, I have nothing in common. I used to collaborate actively with the New International, protesting in letters against Shachtman’s frivolous attitude toward theory and his unprincipled concessions to Burnham, the strutting petty-bourgeois pedant. But at the time both Burnham and Shachtman were kept in check by the party and the International. Today the pressure of petty-bourgeois democracy has unbridled them. Toward their new magazine my attitude can only be the same as toward all other petty-bourgeois counterfeits of Marxism. As for their “organizational methods” and political “morality,” these evoke in me nothing but contempt….

“Advanced workers! Not one cent’s worth of confidence in the “third front” of the petty bourgeoisie!”

Trotsky - Petty-Bourgeois Moralists and the Proletarian Party

Cut & Run

In the last blog, I argued that the kind of draconian cuts, in Public Spending, being discussed at the moment, make no economic sense for British Capital. They probably make no political sense either, except that the parties have entered a Dutch auction around what they perceive as being a popular idea – actually recent opinion polls show it isn’t. Whatever happens, the very fact of the discussion of such cuts, in services so important to workers, should provide us with the lesson that we cannot afford to allow the bosses or their state to run them!

Pensions

For the last 100 years, the bosses, via their state, have been robbing money, from our wages, by law, in Tax and N.I., supposedly in order to provide us with a Pension. The bosses state is the Monopoly supplier of this pension. In fact, its like the old system of Truck, where bosses used to similarly take money from workers wages to cover the cost of their accommodation in company housing, or would pay them in tokens, that could only be redeemed at the Company owed shop.

Like the Truck System, it disempowers workers, from obtaining the best deal, forcing them to accept whatever terms for their Pension, the biggest Capitalist Monopoly of all – the State – chooses to offer them. The consequences of that are what you would expect. For decades after the State Old Age Pension was introduced workers paid N.I. and taxes for it, but did not live long enough to draw it!! Those who did only received a pittance. It was a bit like a Mafia run, protection racket.

Yet, in the 19th Century, workers had not only created their own Trade Unions to cater for their needs, but had created Friendly Societies, through which they could collectively build up their resources to cover such things as Unemployment, Sickness and Old Age. These Societies, by using the workers small savings collectively, could turn them into Capital, which is what Marx had suggested was necessary if workers were to break free from their condition. They could be used to finance Co-operative production, or the buying up of Capitalist firms, and the profits from that activity would then cover the workers needs in relation to those Benefits. It would provide not only a much greater return on their savings than the scant unemployment provision, or the Pension most workers never lived to collect, but also strengthen the economic and social position of workers. Its no wonder Capital keen to undermine such a development by introducing State run schemes, and thereby robbing the workers of the resources they could have used more effectively themselves.

Of course, Social Democrats sold the idea on the basis of it being a means of redistributing wealth and income. But, in 100 years of Welfarism, no such redistribution has occurred. On the contrary, the gap between rich and poor has widened. As Eric Hobsbawm says, in “Industry and Empire”, all that Welfarism has done is to transfer money from one section of the working class to another section of the working class. In doing so, it not only wastes huge sums of money collecting and redistributing that money in taxes and benefits, via a vast bloated State bureaucracy, but it necessarily sets up conflict between those workers from whom taxes are taken, and those to whom benefits are paid. Its no wonder the Tories and Right-wing media are able to whip up hatred and division within the working class on that basis.

With no effective control over the bosses state, whenever it decides it is in the interests of Capital accumulation, the first place it turns is to these Benefits and pensions. The Tories broke the link of Pensions with wages knowing that the RPI grossly understates inflation, particularly for Pensioners. Gordon Brown offered pensioners an increase of 75p a week!!!

Now, as workers actually begin to live long enough to receive their pensions, and perhaps have a few years of active life to enjoy them, the response of the bosses state is predictable – it wants to raise the retirement age to 67 or even 70. The bosses and their state argue that because workers are living longer, and the costs of maintaining this older population are rising workers need either to pay more into their pensions, or draw those pensions for a shorter time, or both.

They lie. The retirement age was set at 65 decades ago, when life expectancy was around 70 on average. Life expectancy now is only around 80, or 10 more years of life. According to this study from the - TUC workers output in Britain rose by 69.6% in the last 30 years alone. (See Page 4) On average productivity has been rising by more than 2% a year. Put another way a 2% increase in productivity compounded over 100 years means that each worker produces more than 7 times what they produced back then. Okay, workers consume more of the things they consumed back then, and consume a wider range of products, but even allowing for that the increase in productivity means that rather than extending the working life, there is scope for it to be cut considerably. Just taking the 69.6% figure for the last 30 years means that the original 5 years of retirement could be extended to almost 9!

It is not that workers are not producing enough wealth to cover their retirement, it is that Capital consumes more of the wealth we produce. The money that the bosses rob from us via their state, in taxes and N.I. on the pretext of providing for our needs, goes instead to finance its own activities like the Bank bail-out, or the wars in Iraq and Afghanistan, or to buy nuclear weapons systems, or to finance the waste and corruption of the bloated state bureaucracy.

Both the Tories and labour claim that cuts will be needed, yet both remain committed to spending billions on replacing Trident! We cannot afford this State run Truck system and protection racket any longer, which forcibly takes money from our wages for something many of us will never receive, and for those that do, is continually under threat and subject to uncertainty.

Already workers have close to £400 billion in their own Pension Funds, which again they have no control over, and which is used in the interests of Capital, and against the interests of workers. The Trade Unions should launch a campaign demanding that workers be given total control over their own money in their Pension Funds, through democratically elected Boards. That is a basic bourgeois democratic right. Indeed one of the fundamental principles of Capitalist law and ideology is that individuals should have the right to dispose of their own property. Yet that basic right is denied to millions of workers! The Trade Unions should work with the Co-op Bank to establish a Workers Co-operative Pension Fund to manage the workers money, to which all of these private pension funds should be transferred, thereby using the expertise within the Co-op sector rather than relying on the “City” Fund managers. I addition, a calculation should be done of how much money should exist within the N.I. Fund to cover Pensions given workers tax and NI payments from their inception, and the actual payments made, so that this could be also transferred into such a Workers Fund, and enabling workers to then make their N.I. payments to this fund under their own control rather than to the bosses state.

Combined this would give workers close to £1 trillion immediately to invest, enough to buy up lock, stock, and barrel the majority of FTSE 100 companies, thereby drastically transforming the workers economic and social position overnight.

Health & Social Care

I’ve already slagged off the inadequacies of the State Capitalist NHS, and its poor provision for the needs of workers in previous posts such as US healthcare, The NHS and the Left , and Healthy Debate , so I don’t intend to add to that here. Instead, I intend to focus on practical alternatives that could be adopted here and now. After all, its not possible to simply roll out a workers alternative to the NHS overnight. In part, I’m motivated by a recent discussion on Charlie McMenamin’s Blog , and partly on my own experience relating to my Mother, as well as drawing on some of my experience from my former role as Vice Chair of Staffordshire County Council’s Health Scrutiny Committee.

Not only is Social Care likely to be one of the first areas looked to in relation to any cuts, but it is an area that has already faced on going cuts over the last few years as the cost of caring for an increasingly aged population rises. Council run Care Homes have been closed, old people have been encouraged to remain in their homes, and children have been encouraged to look after their parents. In fact, one of the Working Groups of the Health Scrutiny Committee whilst I was Vice Chair looked at the number of kids – some as young as 8 – who were fulfilling roles on a more or less full-time basis as Carers for their parents. In truth we do not know how many kids are fulfilling this role, but the known figures themselves are pretty shocking.

Moreover, whether a Care Home is for Children of for the Elderly both involved taking residents out of their existing environment and placing them in alien surroundings. For elderly people, not only do they face losing the familiar surroundings of their home, but all of the generations of friends and acquaintances that have been built up are taken away too. New friendships often arise with other residents, but it is not the kind of disruption an elderly person needs at a time in their life when they can feel generally uncertain. As repeated stories continue to demonstrate care is often not what it ought to be. I was continually shocked at the Monthly Reports that were presented to the Social Services Committee that set out just how little if any education was being received by children in the County’s Care homes, often no more than a few hours a week, frequently none at all. And when myself and the Chair of the Committee did eventually force the Department to do something, that something ended up to be just to appoint yet another well-paid bureaucrat to look into it, with no improvement in subsequent months as a result!

In both Council run and Private Residential Care homes workers are low paid, and with low status difficult jobs to perform. As a consequence they are usually understaffed with a consequent effect on care for residents. Even basic care is often lacking let alone the kind of encouragement to engage in stimulative activities that both the elderly and the underprivileged child requires. Councils are not even allowed to run Nursing Homes, but Councils do finance the Residential Care component of such accommodation. The Health Care component is also supposed to be covered in the same way that a stay in a hospital bed is free, but reports continue to abound about people being charged for what appears to be Health Care, especially where they have their own resources such as a house that can be sequestered.

Yet, in some ways this clearly provides an opportunity for workers. In a situation of a Co-operative scheme or a Co-operatively managed estate, there is no reason why the Co-operative could not establish its own Residential Care homes – for both Children and for the Elderly – to provide Social Care on a Permanent or Respite basis. As in the case of Private Nursing Homes and Residential Care homes it would then be able to negotiate with the Local Authority to cover the cost of residents stay. It would also mean that residents could remain in their own Community, and maintain their relationships with friends and acquaintances.

A couple of years ago my son made a film for the NHS and Stoke City Council about Bradeley Retirement Village , which gives some idea of the kind of facilities that could be developed. He was really impressed with what he saw such as one young woman who was confined to a wheel chair, but who within weeks of entering the village was taking part in organised activities including absailing!!! Stoke Council and the NHS also have another such village in Berryhill, and another in progress at Meir. But, bringing such functions under workers ownership and control via Housing and Estate Management Co-operatives can develop and protect them against the potential for future cuts, as well as ensure that they are open to a wider range of people including those totally dependent on Benefits.

Moreoever, as will come to later in talking about Education, by being a part of a Co-operative Community that has ownership and control of a wide range of assets and facilities, residents can also be encouraged to participate in a wide range of activities to keep them physically and mentally active. For example, they could make use of Health and Fitness Facilities at Sports Centres, which could be extended to include suitable spa and physio facilities. They could take advantage of educational facilities within Community schools, whether it be a simple use of the library, to use of computers, or additional learning. Not only would this benefit them, but it would enrich the learning experience of children too, as well as possibly reducing levels of anti-social behaviour in the classroom.

But, there are many other similar developments that could be made. Last week my son went to have some skin tags removed. He didn’t go to the Doctor he had them removed at the local Co-op Pharmacy. Increasingly, Pharmacies are undertaking such minor medical work taking the strain off GP’s. The fact that this was a Co-op Pharmacy demonstrates the potential. I have argued in the past that we should all be members of the Co-op, and campaign for the idea of setting up Management Boards for each Co-op Shop, made up of members from the Community in which its situated. The same applies to Co-op Pharmacies. That would immediately give workers a direct ownership and control over a growing area of healthcare within our communities.

But, as Pharmacies are taking on work previously done by GP’s, so GP’s are taking on work formerly done by Hospitals and Clinics. In Stoke there is already a Doctor’s Co-operative that provides locums, and out of hours facilities for other GP’s. But, given the nature of healthcare such Co-ops should not be just producer Co-ops – I have no idea of the politics of the GP’s involved in this one, but clearly they can function as nothing more than a Partnership – but should also involve the local Community in owning and controlling their function. Particularly, as the idea of Polyclinics develops along the lines that it operates in Europe, the establishment of Community based Co-operative Clinics could begin to make healthcare properly accountable to the workers that rely on it, whilst not immediately challenging the fundamental basis of the NHS.

Part of the problem that workers face with healthcare is that they confront a huge monolith as atomised individuals, and do so at times when they are most vulnerable. By bringing workers together collectively in Co-operative organisations whether they be Housing and Estate Management Co-ops, Residential and Nursing Care Co-ops, or Community Primary Healthcare Co-ops that atomisation can be broken. A Care Home can draw up a legally binding contract for a range of healthcare required for its residents setting out a minimum that must be provided, thereby preventing that being cut in the future. Though, this might sound like heresy, if the NHS cannot guarantee or refuses to enter such contracts, then a campaign should be launched for the right to enter into such contracts with other Healthcare providers who will, with the State reimbursing the cost. That would for now mean private healthcare providers, but would open the door to Co-operative Healthcare providers setting up to meet that need.

This after all is the basis on which workers proceeded in the 19th Century to create their own source of supply in place of the poor quality goods they were being offered by the Company stores, and the small shopkeepers who adulterated the workers food to cut their own costs, and inflate their profits.

Education

Most Councils have policies setting out their belief that schools should be Community facilities. Few if any actually put that into practice. Go past most schools in the evening, at weekends or holidays and the only people you will see using them are the kids who’ve climbed over the gates. Yet, schools are potentially tremendously important facilities for every community. I’ve already spoken earlier about the way they could be used by the elderly, especially where schools have sports centres or facilities attached. In rural and other areas where Libraries have either never existed, or been closed or are under threat of closure, the existence of a school library only requires extension to provide for all the Community rather than just the kids in the school.

In my blog The Plebs , I spoke about the Plebs League and the National Labour Colleges Movement. Co-operative Communities could restart such initiatives using existing school building and facilities providing a range of classes outside those offered within the confines of the normal “Evening Classes” constrained by the limitations of the bourgeois curricula imposed by Local Authorities. Moreover, our schools are full of alienated kids, who resort to anti-social and disruptive behaviour. Not only would the general culture of a Co-operative Community create conditions which would mitigate against that alienation, but the general involvement of the Community within the school throughout the day would help minimise any anti-social behaviour. And by providing education that addressed the real needs and concerns of those kids outside the normal school environment, they might be encouraged to develop the learning process discovered in that environment into a greater involvement during the school day too.

As I wrote in my blog Marxism, Education and The State , education is an arena of class struggle too. As the Plebs said, there is no such thing as class neutral knowledge. No matter the politics of individual teachers bourgeois education acts as a transmission belt of bourgeois ideas. Only by creating an alternative workers educational system can that be changed, but alongside the development of such an alternative bourgeois education has to be challenged in the schools and colleges. That cannot be left to individual or even groups of teachers to undertake what are essentially guerrilla tactics. Moreover, as stated in the above blog, just as with the way in which workers confront the health Service as atomised individuals so do students and parents confront the educational system. The very working of the Capitalism instils those concepts of competition, and the idea of education as nothing more than a means of getting a better job, which undermine any attempts by radical teachers to try to make it more than that. But, that atomisation as with healthcare can be overcome via a Co-operative Community, particularly one whose educational horizons are widened by the ideas that can be developed through a Labour College system.

One of the underlying assumptions that socialists have about future socialist society is the idea that children will cease to be seen as the property or responsibility of individual parents, but will once again as they used to be, be seen as society’s children, as the basis of future society, and therefore, the responsibility of all. Simply establishing a Co-operative community will not bring about such a change of itself, but the very working of a Co-operative Community, will engender the idea that all its members should not only help police it against anti-social behaviour, but should also provide assistance to parents to help prevent the kinds of problems that lead to such behaviour. Extending that mindset, and such a Community confronting a school within its midst as a collective will immediately change the relationship. The Community as a collective will be concerned with the needs of its children’s not each parent being concerned only with the needs of their children, and that in itself will impose a different set of conditions on teaching within the school, as well as developing a more pro-active involvement in its day to day affairs. A relationship which will be furthered to the extent that members of the Community are involved in the school throughout the day, not just as assistants, whereby they become absorbed into the schools establishment, but as consumers of its products.

On that basis the general lessons that such a Community will engender of Co-operation and solidarity will naturally be reflected in its children who could be supported in establishing their own unions, and collectives within the school to present their own needs and demands.

Responding To The Calls For Cuts

Instead of simply responding to the current propaganda surrounding proposed cuts by a reflexive defensive response, workers should respond aggressively and offensively by developing their own agenda along the above lines to spell out how they could provide for themselves under their own ownership and control those vital services which the bosses state now says it is unable to provide.

But, we can do more than that. The bosses and their parties claim that these cuts are necessary, yet as stated earlier neither the Tories nor Labour will commit to cutting the billions of pounds for replacing Trident. The Tories, in fact, have got plans for other expensive offensive weapons schemes, whilst they plan to cut spending on those basic necessities for keeping troops safe – despite hypocritically criticising Labour for not properly providing troops with adequate supplies. The Tories have said they would scrap the plan for ID cards, but only in order to give that money away in tax cuts for their rich supporters. Labour could achieve the savings it needs by scrapping Trident, scrapping the proposals for ID cards, and by bringing the troops home from Afghanistan, and other parts of the world.

A much better defence of British workers could be achieved via the means I have set out in my blog Proletarian Military Policy . Co-operative Communities running and monitoring themselves, having their own democratically controlled neighbourhood patrols, which could be built into a local and National Militia, could give much better security and defence against terrorism, and against drug dealers and criminal gangs than any amount of Big Brother methods such as ID cards, CCTV, and so on, which form a battery of weapons aimed as much at British workers and their organisations as against any foreign threat.

The left has to provide workers with an alternative to the failed ideas of the past, and to simply fighting a fire fighting battle against attacks from the bosses and their State. We have to give workers a vision of a future worth fighting for that is different from the failed offerings of Capitalism and State socialism, a future they can begin to implement themselves today.

Debt And Destruction

Accepted wisdom is that after the next election, whoever wins, there will be swingeing cuts in Public Spending in order to reduce the huge amount of Public Debt, run up to bail out the banks, and to provide a Keynesian fiscal stimulus to offset the effects of the recession. I’ve never been one to simply go along with accepted wisdom.

Arguments For Cuts

The argument put forward for the need to reduce the debt is straightforward. Debt has to be paid for by interest payments. Its not the Government that pays for it, but taxpayers, and that means imposing a burden both on individuals and businesses, draining resources that otherwise would have financed consumption and investment, and thereby reducing growth and prosperity. The additional argument to this is that the borrowing undertaken by the Government is met by lending by other states and financial institutions, who at very high levels of debt might decide that Britain’s creditworthiness is in doubt, and so will demand much higher rates of interest on the money they lend, thereby again leading to a drain of resources and restriction on growth. These arguments are bogus.

The last argument is the easiest to deal with. Moody’s, the credit rating agency has recently stated that there is no possibility that Britain’s AAA credit rating will be downgraded. It is true that in the past there has been a group of people known as the “Bond Vigilantes”. This was a group of large institutions and investors who specialised in Bond Funds, that is Funds whose returns for investors in them was based on both the interest payments received, and Capital Gains made on, the Government and Corporate Bonds bought by the Fund. They had such weight in the Bond Markets that if they felt that inflation was likely to rise as a result of too lax monetary policy they could push down Bond prices, and thereby push up interest rates in spite of the rate set by the Central Bank.

But, the Bond Vigilantes have not been pushing up interest rates. In fact, rates along the yield curve – that is the rates payable on Bonds of different lengths of maturity – have been falling both due to the reduction in economic activity, and due to the vast amounts of money pumped into the system via Quantitative Easing. Moreoever, QE, actually undermines the ability of Bond purchasers to push up interest rates. Although Government Debt Offices increase the demand for money, by issuing Bonds, that increased demand can be completely neutralised by the Central Bank printing an equivalent amount of new money with which to buy those Bonds itself! Moreover, in Britain Pension Funds are obliged to buy a certain amount of Long Dated Bonds in order to guarantee a long-term income stream from which to pay pensions. That places a bottom under the level of demand for those Bonds with the consequent effect on their price.

Over the last 20 years Japan has issued far more debt than Britain, its debt as a proportion of GDP is far higher than any projections for Britain, yet it has had no difficulty whatsoever in selling Bonds to cover that debt. The same is true for the US.

The first argument is, however, more substantial. In my previous blog I wrote about the consequences of debt or savings when combined with the magic of compound interest. However, the first thing to say here is that states are not individuals, and the same rules do not apply. For one thing, individuals cannot simply print money to pay for their debts, unless they want to risk gaol for counterfeiting. There is some similarity, however, with the current vogue for IVA’s to deal with individuals debts, and the way state’s can deal with a similar situation. Poorer countries tend to have their debts simply cancelled or written down like an IVA, whilst richer states tend to effect the same thing, by manipulating their currencies, paying back their creditors in devalued money.

Bill Jeffries of Permanent Revolution has a good account of the economic reasons why there is no need to resort to such cuts to deal with the debt. From Credit Crunch To Class Crunch , though I disagree with the conclusions he arrives at. As he states there not only does the increase in money supply mean that a certain amount of nominal economic growth is built in simply through higher prices for a given amount of output, thereby providing the basis for higher nominal tax revenues, but at some point the massive investments in the banks amounting to billions of pounds will be paid back – possibly with big Capital Gains on them. As I have written elsewhere the easiest option by far for Capital to deal with the debt is the way Government’s throughout human history have dealt with it, to simply inflate it away. See: Paying For The Crisis .

Capital And Public Spending

There are a number of reasons why Capital attempts to reduce Public Spending. Firstly, is the basic reasoning presented here. That is, it is paid for by taxation, which, as Marx demonstrated, in the end is a deduction from Capitalists’ Surplus Value. They, therefore, seek to minimise this deduction. Secondly, there may be areas of economic activity undertaken by the State, which private Capitalists could undertake, and make profits from, whilst at the same time reducing the cost to Capital in general. Thirdly, where demand for inputs is constrained, thereby pushing up their prices, Capital may seek to make those inputs available for itself, by reducing the demand for them by the State. This was, for example, the argument about “crowding out” in the late 70’s and early 80’s. Basically, with the amount of Money Capital available for investment limited – because this was at the end of the post war Long Wave boom – the demand for it from Government, to finance its operations, “crowded out” private Capital, who found that either they could not borrow sufficient Capital, or else its cost was pushed up to levels, which meant that any investments made were unprofitable. The same argument can be made if there is insufficient Labour, or Land.

Let’s take these arguments in order. This argument applies all the time, not just now. Capital always wants to minimise its “faux frais of production” as Marx called it, the overheads which are necessary, but add nothing to value. But, Capital is not omnipotent. It attempts to achieve things, but is subject to the law of unintended consequences. Capitalists in the 19th Century increasingly withdrew from their direct role in production, because the task of management became more complex, and it became more profitable to employ professional managers. Although, it was more profitable those Managers as a result acquired considerable power through their own direct control over the means of production, their specialised knowledge etc. As Marx shows in relation to the salaries paid by workers to the Managers employed by them in the Co-operative factories, the salaries paid to managers in the factories of the Capitalists were grossly inflated. That unintended consequence arose out of the rational decision to increase profits by employing professional managers.

The same is true with the bureaucrats employed by the State. Capital allows the State to undertake certain functions, which it cannot at any particular time undertake profitably itself, but which are necessary for the functioning of the system as a whole – faux frais of production for Capital as a whole. In doing so, it hands over considerable power to those bureaucrats who thereby gain control over huge economic resources. Like the Managers in the individual enterprise, although their function is to serve the needs of Capital, and their actions are constrained by that function, their position affords them considerable power to look after their own personal interests, even as this conflicts with the interests of Capital to minimise those overhead costs.

In almost any sphere of Public activity the same experience can be seen. Where attempts are made to cut spending it is the front line service that gets cut, whilst the back-room staff, the supervisors, the administrators, the accountants and monitors of all sorts increase, often by more than the number of front-line staff has been reduced! Despite the reductions in the Civil Service in Job centres etc. the total number employed in the Public Sector has gone up significantly in recent years. The reason, as I have said before, for that is simple. The top bureaucrats status, power, and salary is not based on the number of low-paid staff they have under them, but the number of highly paid, high status staff. That is how bureaucratic empires are built.

When I worked for a Local Council I had direct experience of that. Although, I had been employed as an IT specialist, the fact that I was also an economist meant that I was drawn in to help produce budgets and estimates. During the 90’s when the Tories were introducing cuts every year, we were faced with demands to cut spending by at least 5% every year. The response was simple. Managers began by asking what the most important projects were for Councillors. So the offered up cuts would be in high profile things such as close a Community Centre or Park or Playground, or reduce the number of times the grass was cut per year. That way each Department attempted to push the cuts on to some other Department. But, over a period of ten years 1,000 workers at the depot went as a result of CCT – which led to a massive increase in the number of Managers and Supervisors who now had to draw up specification documents, supervise the contractor and so on, and of legal work for the solicitors who had to ensure the Contracts were right, and Accountants, because separate Client and Contractor accounts had to be kept, and so on. Community centres were closed or handed over to local communities, playgrounds were rune down, and so on, but the number of managerial and administrative staff grew continuously. A Public relations Department was created where none had existed, which came to employ about 8 people, the wages office was divided up creating a new post of Personnel Director, again employing more people, millions was spent on new computer systems, and so on. In short, whatever happens to front line services the mandarins will do all in their power to ensure that their empires remain in tact.

Nigel Hawthorn may be dead, but Sir Humphrey is alive and well.

The only real way in which Capital can deal with that is if it is able to privatise the function. It is one reason for the growth of companies like Capita and Serco who take over the management function. But, there are large swathes of Public Expenditure that are not susceptible to privatisation. If they were they would already have been privatised in the great drive of the Thatcher era, and the early years of New Labour. Technological developments, especially with the growth of IT and the Internet, means that increasing numbers of activities become susceptible – which is happening with the Post Office now – but this is an on going process, not something determined by the economic crisis or the current level of debt.

Finally, this is not the 1970’s. There is not a shortage of investable Capital. On the contrary there are vast reservoirs of Surplus Value around the globe looking for a home. And QE means that in the coffers of the Banks and financial institutions there is a massive pool of money available to be borrowed at low interest rates. Nor is there a shortage of Labour. Not only has the low growth of Britain over the last decade due to the overhang of debt meant that employment has not risen as fast as it might, but in this first stage of the Long Wave, the increase in Labour productivity derived from utilising new techniques and inventions from the innovation cycle means that increased economic activity always fails to mop up the reserve army. Were that not enough, then Capital can simply meet its labour requirements for particular skills by simply importing skilled labour from Europe and other parts of the globe.

Surplus Value

The only economic argument that really stands up is that paying for the debt involves a deduction from Surplus Value. So let’s look at that. In a sense, that cost is the cost that Capital has to pay for the fact that the debt was run up in order to avoid a much bigger reduction in Surplus Value, and destruction of Capital in the first place. But, that is no reason why Capital would not still try to minimise that cost. The question then is what happens if it attempts to do that? What are the costs in turn of making such cuts?

Keynes produced a basic formula that equated total output to total income. Its based on Adam Smith’s “Trinity Formula”, which basically says that the value of output is equal to the sum of the incomes paid to the owners of the various factors of production – Rent (Land), Profit (Capital), Wages (Labour). In fact, Marxists would have a criticism of Keynes formulation for the same reason we disagree with Smith’s Trinity Formula, which I will deal with in the next part of my series on “Reclaiming Economics”. But for now let’s stick with Keynes equation. The importance of the equation is this; if you want to bring about full or higher employment then this implies increasing the level of output. But, output can only be increased if there is a demand for it, which in turn implies sufficient income to create that demand. The demand for output can two from two initial sources from that Trinity Formula – wages or profits (within which can be subsumed Rent, and Interest Payments to Landlords and Money Capitalists). Demand from wages is demand for consumer goods, whereas demand from profits can go into consumer goods and demand for Capital Goods. The two main forms of demand are then Consumption (C), and Investment (I).

But, Keynes recognised that the basis of Neo-Classical economics, and of Say’s Law, that markets automatically clear as a result of adjustments of prices does not hold. The Great Depression illustrated that. There is a separation of Production and Consumption, and not all income may go to consumption or Investment. Some may go to saving, and so there will be “underconsumption” of the given level of output, which will result in output being reduced, which will in turn result in incomes falling, which will result in more underconsumption, and so on. A new equilibrium level will be arrived at, but it will be a level where resources will be unemployed.

Keynes argued, then that under such conditions it was necessary to crate another type of demand to make up for this lack of demand from Consumption and Investment. That is the role of Government. By stepping in to spend money the Government creates new incomes for firms and individuals, which are in turn spent, which creates new employment, which creates new incomes, which are then spent, which creates new demand and so on. A new equilibrium is reached at higher levels of employment. This is what Governments around the globe have done over the last year. In fact, the spending by the State does not inject demand into the economy only equal to the amount of money it spends, because of the process described above – what is called the multiplier effect.

Suppose, on average everyone spends 90% of their income. If the Government creates a job for someone, and pays them £20,000, this individual will then spend £18,000, saving £2,000. Now that £18,000 will go say to a third person from whom goods are bought. Of this income of £18,000, £16,200 will be spent and so on. In fact, the multiplier will be equal to 10. That is from this initial £20,000 of new income, new demand of £200,000 will arise. There are leakages from this. To the extent that money is spent on exports then that money will go to create incomes in some foreign economy, and so on. In fact, although the savings rate in the UK is low, the latest estimates of the multiplier put it at only around 1.1, or for every £1 billion of new income created, only £1.1 billion of final demand is created.

But, this works in reverse too. If money is taken out the effect is greater than the initial reduction. Some commentators have spoken of reductions in Public Spending of between 10% and 20%. One commentator said recently that if this were translated directly into Public Sector job cuts it would mean between 700,000 and 1.4 million job losses. The higher figure would mean increasing current unemployment by more than 50%, directly. But, the increase in unemployment arising from the secondary effects described above as all that income, plus all the attendant expenditure that in turn goes to a wide range of firms and suppliers of goods and services, was taken out of the economy would be much more than that. And, part of the consequence would be a massive increase in the amount of Public Expenditure that then went to cover the Benefits payments of those made unemployed with a simultaneous reduction in taxes paid due to the huge reduction in income!

Even for someone like me that argues that we are in a Long Wave boom it is difficult to see how this massive reduction in income and output could be quickly replaced by an increase in private sector Consumption and Investment! On the contrary, not only would Consumption fall from such action, but seeing that fall – including for many companies that Supply the Public Sector, a massive reduction in their order books – firms would be hardly likely to increase their investment!!! Moreover, one consequence of economic uncertainty is that individuals and firms increase what Keynes called the Precautionary Demand for money. In other words, they increase their savings to try to guard against unforeseen events. That has the effect of raising interest rates, and of simultaneously reducing consumption even further.

Given that this huge economic contraction would be taking place whilst Britain’s economic competitors have all said that they intend to continue their stimulus measures for as long as necessary, the other consequence would almost certainly be a fall in the value of the pound, from its already low levels against the Euro. Although, that would benefit exporters, it would push up the prices of imports considerably with a knock-on effect to firms costs.

Capitalist Strategy

Simply in economic terms it seems difficult to see how such a course of action is in the interests of Capital. But, there are even bigger costs and dangers for Capital in such a course of action. One possible area of cuts would be in Benefits. A Government might hope that opposition to such cuts would be muted because those affected are not organised in Trade Unions, they are atomised. But, the recipients of Benefits tend to be clustered in deprived areas. Such action could well be an eruption of the same kind of inner city riots that were a feature of the early 1980’s. That in itself could create a social climate hostile to Capital.

But, cuts on the scale described would have to hit other vital areas of provision, including large scale closures of things such as schools, day care centres etc. Where such closures at the moment tend to be individual events opposed by relatively isolated groups of affected people, widespread closures would result in such opposition being widespread, and potentially could be linked up. Such opposition from communities, alongside industrial action by Public Sector Trade Unions – where the majority of TU strength resides – would create massive social unrest with the high potential for it removing the Government in the way that Heath’s Government was kicked out in 1974, and with little chance that an incoming Government would then try to repeat the exercise.

Of course, Capital could resort to the methods of the strong state to smash down such resistance, but that poses even greater threats for Capital if it fails, and the question is given the simpler option suggested previously of simply inflating away the debt, why take those chances in a period of potentially strong growth, and corresponding social peace??? It makes no real sense for Capital, which is why I think its unlikely.

That is not to say that there will not be cuts, but the scare stories being touted at the moment set the stage for ensuring that the opposition is muted to any small-scale cuts that do arise, as people are encouraged to think they have dodged the bullet. It also sets the stage for people being unprepared for the real means of resolving the issue of debt by inflation, which is required if that tactic is to succeed. If people are expecting inflation they can act accordingly pulling out their savings, and putting them where they won’t be destroyed by inflation, preparing to fight for higher wages and so on – again something workers will be frightened off doing if they think that job cuts are likely. Economic growth does not require additional stimulus, but it does require no major reductions in public spending until private consumption and investment increase to a level where they can sustain it.

Aftershock?

Last night’s extended Newsnight Aftershock looked at the world 1 year after the collapse of Lehman Brothers. It began by asking the question, “How has the world changed?” The answer despite all the hyperbole is – surprisingly little!

The Credit Crunch, that began in the Summer of 2007, and saw the collapse of Northern Rock, prompted some preventive action by Capitalist states. It was not enough, and a year later the increasing restrictions on Credit in the interbank markets broke out in full fury. The collapse of Lehman Brothers was not, as some have suggested, the cause of what happened next, but was merely a dramatic symptom of the underlying crisis. The financial crisis, that ensued, has been the worst, probably, in history. But, its necessary to separate out that Financial Crisis from the Economic Crisis. Given the ferocity of the Financial Crisis, that was like a heart attack, starving the economic body of blood, it was bound to have consequences, for the real economy, as well as the fictitious economy of financial markets. In fact, the economic consequences did not materialise as quickly as might have been expected. World trade and economic growth continued to rise even after the financial crisis erupted at the end of Summer 2008, as I wrote in my blog at the time - Where We Are , and, in large part, that was due to the reality of the new world economic order, in which the increasingly important players are in Asia i.e. those economies that had huge savings ratios, and which have continued to grow over the last year.

The real effect was not felt until the Fourth Quarter of last year, when fear of a collapse of world capitalism, engendered by media doom mongering, amongst other factors, combined with the consequences of the complete shutting off of credit, to finance transactions, led firms to cancel orders, and run down inventories, causing a necessary knock-on effect to manufacturers and primary producers who, in turn, laid off workers or suspended production, as in the case of car producers. Such a sudden cessation of economic activity was bound to have serious repercussions, and the figures for economic activity, for those two quarters, were grisly, representing an annual decline equal to that experienced during the Great Depression of the 1930’s. But, as I had written last year 1929 And All That this was not the 1930’s! The crash of 1929 came at the end of a decade of slow growth in Europe as part of the onset of the Long Wave downturn. The Great Depression of the 1930’s was the continuation of that Long Wave downtrend. But, the financial crisis of 2008 came 9 years into a new Long Wave upswing, probably the most powerful long wave upswing that human history has seen so far! It is the conditions created by that conjuncture, which have produced the vast reservoirs of Surplus Value within the Capitalist Economy – which can only be viewed as a Global Economy – which have been tapped to finance the huge amounts of Keynesian stimulus over the last year, conditions which did not exist during the 1930’s or the 1980’s Depressions. The consequence has been that the sharp reduction, in economic activity, was short-lived, compared to other recessions, historically. At the very least the sharp contraction stopped dead, at best it was reversed into a resumption of economic growth, as the run down of inventories at least ceased even if restocking has not yet taken hold. Gordon Brown and others are, however, still correct in saying that the economic system cannot stand a withdrawal of that stimulus as the Tories propose, which is one reason that despite all the talk about swingeing cuts in Public Spending after the election it is not likely to happen. Far more likely, as I have written elsewhere Paying For The Crisis , is that the problem will be resolved via a large dose of inflation, which is inevitable given the vast amounts of liquidity pumped into the system, which will simply reduce the real level of debt.

Consequences

But, as I said above, the actual consequences of the crisis, one year on, are remarkably small. According to the unemployment statistics for the UK out today, the rise in unemployment was less than had been expected. I doubt that it is going to reach the 3 million figure that many commentators have been citing, though it is likely to continue to rise for a few months yet. I was talking to a Transport Manager from the local ANC Depot at the gym on Monday, and he said they are really busy and setting on new workers. That is significant because transport is always a good indicator of economic activity. Even in the Internet age, goods have to be distributed from producers to consumers. Car plants have resumed production, and latest figures now show a shortage of Supply, which is one reason, alongside the number of second-hand cars taken off the road, through the scrappage scheme, for why second hand car prices have risen sharply. Even if the car workers themselves have not come off the unemployment statistics, the resumption of work means that thousands of small and medium size suppliers to those plants now have orders again, which is likely to result in increasing employment.

The ILO unemployment figure, which is the most significant, puts the rate at just over 7%, that is everyone currently without a job for whatever reason, and seeking work. But, in fact that number includes perhaps 2-3%, of people who are simply frictionally unemployed, that is moving between jobs. Even during the 1930’s as Hobsbawm points out the average period of unemployment was only around four months. It was only in areas of high levels of long-term, structural unemployment, such as the North-East, where very high levels of long-term unemployment persisted. Again that is significant. If you have built your spending patterns around a given level of income, which ceases, and ceases for a prolonged period, that will significantly change your spending habits. If, however, you are only out of work for a few months the change will be less significant. Moreover, as I pointed out in a previous post The Truth About The Economy for that component of that 7%, amounting again to perhaps 2%, which does constitute the long-term unemployed and unemployable, what sociologists have called the underclass, or the lumpen-proletariat in Marx’s terminology, whose spending patterns were already based on the amounts of Benefits they receive, then again the crisis is not going to have had any effect. We are left then with, perhaps a remaining 2-3% of people, whose spending patterns will have been significantly altered as a result of the crisis. Of course, as I said in the above blog, one of the consequences of the ageing population, and the large percentage of pensioners, is also that such people, whose spending patterns are based on these long-term income streams, will be largely unaffected by the crisis.

As an economist it makes far more sense to concentrate on the 97%, who are unaffected than on the 3% who are. And, in fact, for that 97%, the consequences have not necessarily at all been negative. The average mortgage is around £100,000. The slashing of mortgage rates, as a result of the crisis, has meant that many such people have seen their annual mortgage repayments fall by between £5,000 and £7,000 depending upon the mortgage type. Even taking the lower figure, and an average wage of £25,000 p.a., that saving is the equivalent of a 20% pay increase!

Although, undoubtedly, one consequence of the crisis has been that some groups of workers have suffered pay cuts, the figures out today also showed that, on average, wages rose by more than 1%. Given that, measured by RPI, prices have fallen, then this means, on average, real rises in incomes. Whereas, prior to the crisis, the housing bubble meant that many first time buyers could not afford to buy, the fall in house prices now makes many more houses affordable to first time buyers, and if you already own a house and were thinking of moving up to a more expensive house then that too has become much more affordable. The consequent savings alongside the savings resulting from lower prices in general, and lower mortgage costs, means that, for those in work, the last year has actually seen a significant improvement in disposable income! Its no wonder that personal indebtedness has fallen, whilst Retail Sales have remained far more resilient than many had predicted.

And, as I have set out elsewhere, another consequence of the savings on Mortgage payments, and the consequent reduction in personal indebtedness, most particularly in Credit Card debt, provides another explanation for that resilience in Retail sales. With credit card interest payments of between 20 and 30%, anyone, who runs up credit card debt, is handing over, every month, huge amounts of money, from their income, not to actually buy goods and services, but simply to finance those interest payments. In fact, its symptomatic of what the previous 30 years has been about. Productive Capital was saved, from large sections of it disappearing, as a result of the Long Wave downturn, as a result of future demand being brought forward by the use of Credit. The price that Productive Capital paid, for that, was a huge increase in the proportion of Surplus Value handed over to Money Capital in the form of interest payments from consumers. Take someone who has saved £5,000 on their mortgage payments, and who has a £10,000 outstanding debt on their credit card. The annual interest payment on that is then, say £3,000 – money that otherwise could have gone to buying goods. If they now use that £5,000 mortgage saving to pay down half that credit card debt they save a further £1,500 in interest payments. In other words, if they now finance their current expenditure out of income, rather than out of credit, they have £1,500 extra to spend on goods and services than they had previously. It is this switch from paying interest to Money Capitalists to paying for goods and services out of income, and the savings on those interest payments arising out of the paying down of debt that I think explains the resilience of retail sales figures.

Credit

Yet, asked about the consequences of this shift from Credit spending to spending out of income, the former head of Lloyds Bank commented on Newsnight that it would mean people going back to Black and White tellies!!! This is absolute nonsense. Consumer credit began, in the 1920’s, in the US, as a means of enabling consumers to buy the vast quantities of mass produced goods being churned out by US factories, some of which like motor cars, even middle class families would not have been able to buy immediately out of income. It took off, in the 1950’s, in Britain, for similar reasons. But credit for the majority of people has never assumed the kinds of proportions it has in the last 30 years. In fact, for many people, of my generation, whose parents lived through the Depression, the simple motto was, “If you can’t afford it, don’t buy it.”

Credit does not create new demand, or wealth, it only shifts its place in time. It enables consumption now at the expense of reduced consumption in the future – because, as demonstrated above, if you are paying interest, that is money not available for consumption. And, in fact, the miracle of compound interest means this has considerable effects. Take my own case, I have never relied on credit or borrowing to buy anything, including housing. I bought my first house for cash when I was 23, and my wife was 21. It cost £5,500. That certainly wasn’t due to either of us having high salaries or being given money. At the time we began saving to buy the house, I was being paid just over £25 a week. My wife, at 18, had just started work as a Mainframe Computer Operator, and was paid even less. By the time we bought the house, I was getting just over £40 a week. But, having studied Economics at Day Release, I understood some basic economic principles. For three years we lived in a cold, damp flat. We lived on my wife’s wage and saved mine, which meant some weeks we lived on beans on toast, we had no telly, no car, we bought clothes from Jumble Sales, we picked blackberries and made our own Jam, which I took on sandwiches, for my lunch, and many other such activities to save every penny. We walked everywhere, including, when I went to Day Release, I used to walk first to work, then, later in the day, walk 5 miles to College, and then 8 miles back home at night. It saved what, today, would be money paid out, for the same exercise, to go to the Gym. Every Month we bought Premium Bonds to the extent that after 6 months we were winning something every month.

It took 3 years to save the £5,500 pounds, including the interest payments and Premium Bond winnings. (To put that in context comparing my wages then, and average wages today, it is the equivalent of saving around £80,000. Coincidentally, the price of a Town House like the one we bought in the same road today is also around £80,000, which shows how little in 30 years the relation between house prices and incomes have changed.) I’d decided I would not go to University until we actually owned a house, so that, whatever happened, we would have somewhere to live that we couldn’t be thrown out of. Yet another consequence of that mentality I inherited from my parents’ experience, of the 1930’s, about dealing with insecurity, and which I’d experienced myself, leaving school in 1970, when unemployment was already rising. See A Tribute To My Parents . However, the consequence was that having bought the house for cash – which also enabled me to bargain the price down – we had no mortgage payments to make. Instead of suffering at the hands of compound interest, we were able to benefit from it, by simply continuing the lifestyle we had adopted of living on one wage and saving the other, something that was useful during those periods, when we in any case only had one wage. Compare that with someone who buys a house on a mortgage. During that period the average mortgage rate was around 10%. With a 20-year mortgage, in fact, it’s like buying not just one house but three! The mortgage payments amount, over that time, to twice the actual cost of the house. The consequences of compound interest then in saving that money rather than paying it out are fairly obvious.

And, in fact, that is precisely the kind of thing we see, today, in China. Despite low wages, it is common, for young couples, in China, to live on one wage and save the other. This is one reason that China has such a high savings ratio. Yet, that has not at all led to a constriction of consumer demand! On the contrary, consumer demand in China is soaring. There are now more cars sold in China than in the US. And, this kind of balanced growth, whereby consumption is financed out of current income, rather than credit, and with high savings rates, to finance investment, is far more sustainable than the kind of growth, experienced in the US and UK, over the last 20 years. Again, its one reason that, during the crisis, China continued to grow at high rates.

If anything has changed, significantly, it is that a convergence towards that kind of economic activity has, and is, occurring as part of a rebalancing and resolution, of the crisis of disproportionality I have spoken of before. It is precisely the extent of the underlying economic strength, created by the Long Wave boom, that enables these contradictions and disproportions to be resolved without it descending into a catastrophic crisis of the kind many predicted, and some continue to predict.

The other thing that has changed, as part of that, is a change in the balance of power within Capital itself. It was the weakness of Productive Capital in the West, beginning from the late 60’s, and escalating rapidly, during the de-industrialisation process of the 1980’s and 90’s, which facilitated the rise of Money Capital. It was the use of Friedmanite Monetary policy, which pumped huge amounts of liquidity into the system, from the late 80’s onwards, to facilitate the growth of credit, in order to revive and sustain consumer demand, that led to the development of asset bubbles, that, in turn, stimulated the growth of a range of financial products to be sold to consumers, and, as a result of the huge drain of Surplus Value towards Money Capital, referred to earlier, set the scene for the rise of the financial sector as an increasingly important sector of the Capitalist economy in London, and in the US.

Marxists have to remember that although Capital confronts Labour as a class relation, Capital, no more than Labour, is homogenous. The interests of Money Capital and Productive Capital are contradictory. Money Capital has had a good run, and, the fact that Capitalist States are continuing to provide almost free money, to Banks, means that, these institutions, remain very profitable organisations – which is why RBS shares have risen almost 6 fold in the last 6 months – but, the balance of power has shifted, back towards Productive Capital. Already, other sections of Capital – for example TESCO and Sainsbury have both moved into banking – are encroaching on Money Capital’s turf. Government’s will no doubt, in coming years, make large Capital Gains, when they sell their Bank shares, but the buyers of those shares could well be, not just the foreign Sovereign Wealth Funds from China, Russia and the Middle East, but also large transnational companies with large balance sheets.

It was interesting, on Newsnight, that Hedge Fund Manager, Hugh Hendry, himself commented that one positive consequence might well be that the next generations of students, coming out of Universities, will not head, straight away, for the City, for jobs shifting pieces of paper about, but might now take up employment in areas of the economy producing goods. That, in itself, I think, is an indication of how that material change is already being absorbed into the consciousness of sections of the ruling class.

Alternatives

But, as Paul Mason pointed out, one consequence of the crisis has NOT been the development of any cogent alternative to the neo-liberalism of the last 30 years. The Left has been more concerned with issues such as environmentalism, and other such issues where it has thought that the petit-bourgeois and studentist milieu offered it the best possibility of recruiting new, young members to replenish the dwindling numbers of its, increasingly, marginalized organisations. In that respect, it’s in China and Russia and other Stalinist, or formerly Stalinist, states that the main effect has been felt with the gloss of Market Capitalism, as an alternative, increasingly tarnished. But in truth, in neither China nor Russia was there ever an adoption of Market Capitalism. In both, Stalinist ruling cliques remained in power, in both the State retained overall economic control, and used it, to achieve its objectives, by pulling those levers of power, to direct the operations of firms operating in a controlled market.

Yet, there seems no great movement in those states for a return to full blown State control either. Certainly, there is no mass upsurge of support in Britain or most of Europe for a return to statism and dirigist policies. In the US, Obama’s popular support is dwindling in the face of opposition from workers and the middle class to the idea of the US state having control of their healthcare. No wonder; workers’ experience of state run industries in the West is little better than the experience in the East. The rise of statist policies in relation to the banks can have done nothing to suggest to workers that ownership by the Capitalist State is in any sense in their interests.

An alternative is required, but a return to those failed models of the past with which the Left has tried, and necessarily failed, to convince the workers are definitely not it.