Friday, 31 December 2010

The Small Business Myth

A few days ago I blogged about the need for systematic lying as part of the functioning of Capitalism. Often though its not a matter of outright lies, but of simply portraying facts in a particular way that perpetuates myths. Usually, these myths are highly ideological in content. One such is the myth about small businesses. Its a very old myth.

In his "The Development Of Capitalism In Russia", Lenin had to contend with this myth. In that instance it was being perpetuated by the Narodniks.
The Narodniks had started out as a revolutionary organisation - Lenin's elder brother had been a member, and was executed for an assassination attempt on the Tsar - and, in theory adopted the ideas of Marxism. Marx himself corresponded with them, and it is one of his comments that was used by the Narodniks as the basis of their argument. Asked if the peculiarities of Russian peasant life, based on the village commune, could mean that Russia could avoid having to pass through a stage of Capitalist Development, Marx had replied very cautiously that in theory it might, but only on condition that Socialism had been established in the developed economies first. The Narodniks, as a Populist organisation were based on the peasantry and other petit-bourgeois layers. As a consequence they played up the progressive and revolutionary role that these sections of society played and could play. The consequences of this were in fact reactionary.

That was so, as Lenin demonstrated in numerous writings - of which the above is the most comprehensive - because it both minimised the role of the working-class, and because of the ideological ties of the petit-bourgeois to the bourgeoisie, meant infecting the revolutionary movement with bourgeois ideas. Those bourgeois ideas were to take their ultimate form in the various parties that in the end replaced the Narodniks, be they the outright bourgeois parties such as the Cadets, or the essentially petit-bourgeois organisations such as the Social Revolutionaries, the Mensheviks, and the Anarchists.

The Narodniks using that quote from Marx, argued that Socialism could be built in Russia without the need for going through a Capitalist Stage. They argued that the Peasant farming, and small handicrafts businesses could be developed on a communal basis, and these would both provide the workers and peasants within them with better wages and conditions, and be capable of developing towards an overall Socialist society where ownership of the means of production remained in the hands of the Producers without every having to pass into the hands of Capitalists.
They produced vast amounts of statistics to demonstrate just how much this peasant production was developing, and so on. The other side of this argument was the idea that Capitalism in Russia was somehow alien, that it was being introduced from the outside unnaturally. The Narodniks placed great store in the idea that the Russian State was and could be utilised to counter this alien development of Capitalism, and could instead be used to foster the development of socialistic peasant production.

Lenin's great merit in the above works was to dismantle this idea, and to do it largely on the basis of the very data the Narodnik economists had themselves collated. First of all, he demonstrates that, in actual fact, the peasantry could not be seen as some single class. It was differentiating - just as it had in every other country on the path to Capitalism. Some peasants were becoming richer and turning into Kulaks, whereas at the other end, a large mass of peasants were becoming impoverished, forced to sell or rent out their land to the richer peasants, whilst they themselves became wage labourers. Looking at the other activities of peasants in handicraft, he saw exactly the same kind of differentiation, but more importantly, contrary to what the Narodniks claimed, the reality was that where peasants were themselves employed in such production, the data showed that they were better paid, and had better conditions the larger the establishment they worked in.

Lenin's conclusions from this were twofold. Firstly, this differentiation amongst the peasantry meant that in Russia as in all other countries that had travelled this path, the peasantry was differentiating into a small group of rich peasants on their way to becoming Capitalists, a larger group of Middle Peasants, and a much larger group of poor peasants who were being destroyed and turned into workers. Although, it was quite true that a lot of foreign Capital was being introduced into Russia, and spurring its development, the process of differentiation showed that the development of Capitalism in Russia was no alien development, but a normal part of its transformation. Secondly, precisely because the facts showed that it was this Capitalist Development, the development of large more capitalised farms and factories, which could be seen to provide the higher living standards, to try to hold back Capitalist Development as the Narodniks wanted to do, and to which they looked to the State for assistance, was actually reactionary.

But, Lenin's analysis went further than that. Looking at the State in Russia, its composition, and the measures it introduced, he also concluded that it was, in fact, already a Capitalist State. Although, the continuation of Tsarism meant that political power rested with the former Landlord Class, the State itself was already committed to having to act in the interests of Capital.
He examines a whole series of measures to prove his point, and basing himself on Marx's Materialist, class analysis, shows how the Narodniks arguments are a negation of Marxism, because like the German Katheder Socialists, the Narodniks, essentially turned the State into a class neutral vessel that could be influenced to act in the interests of "the people", rather than being determined by the needs and interests of the ruling economic and social class.

But we see a similar idea perpetuated today. On the one hand various types of Reformists and Stalinists object to Monopolies because they are seen as in some way unnatural. They argue for anti-monopoly policies to be implemented by the very Capitalist State whose job it is to look after the interests of Capital! They call for the establishment of "anti-monopoly alliances", and so on. Of course, they do not raise the same objections to the worst forms of such monopolies, those established by the Capitalist State itself even though as the current situation with the state-owned Water Company in Northern Ireland they are usually less efficient than similar private monopolies - the regulator in N.I. estimates that Northern Ireland Water is 40% less efficient than the water companies in England.
As with the Narodniks this stems from am ideological commitment to present the Capitalist State as in some way class neutral, or even progressive. But, also the reality is that frequently it is these very Monopolies - private and public - where workers are better paid and enjoy better working conditions. Some of that is due to the fact that in these companies it is easier for workers to organise into Trades Unions, but the larger part - as with Lenin's analysis - is simply down to the fact, that the greater efficiency of these large organisations means that they can afford to pay workers better, and provide better conditions, and in so doing they retain workers for longer, get better productivity from those workers, and in the end make bigger profits. And again, as Lenin argued, it is precisely these very large monopolistic type enterprises that offer workers the best opportunity to take them over themselves and run them efficiently, and to create the conditions for planning production, and integrating it with the production of other large enterprises.

To oppose these very large, monopolistic enterprises in favour of the idea of some return to competitive, small businesses is therefore, reactionary as Lenin pointed out later in his Imperialism, The Highest Stage of Capitalism, where he criticised Kautsky for such an approach.
They both tend to provide worekrs within them with higher wages and better conditions, and they are historically a more mature form of Capitalism, closer to the kinds of forms that will be established under Socialism.

But, of course, its not just Reformists and Stalinists who make these kinds of arguments in relation to small businesses and the State. It is a central part of bourgeois ideology in Tory and Liberal propaganda - and the same theme can be seen in the propaganda of the bosses' parties in the US. The most frequent application of this idea at times like the present is to be found in the argument that small business needs to be supported and assisted, because it is these small businesses that provide the bulk of employment. If unemployment is to be reduced, we are told, then it is these thousands of small businesses, growing rapidly, and each employing a few extra people who will bring it about. But, of course, this argument is as bogus as those employed by the Narodniks.

Of course, its true that a huge number of small business do employ the bulk of the workforce. But, its equally true that a small number of very large enterprises employ a much larger percentage of the workforce than they comprise as a percentage of the number of businesses.
And as the above has shown the wages and conditions in these businesses always tend to be much better than those provided by the frequently, anti-union, penny pinching small capitalists, who continually complain about having to meet the most basic requirements of employment in a civilised society. The economies of scale of the very big business means that they are able to provide education and training for their workers as a means of raising their skills and improving their productivity, and as a result such firms want to protect that investment by retaining those workers. The small employer, however, is happy to see workers laid-off, in the knowledge that, for the small numbers they require, when the time is right they can pick up additional workers, who have often been trained by a bigger employer.

And, this is the main reason that this argument about the small business is a myth. It may well be true that small businesses account for the bulk of employment, it may be true that employment can be raised quickly if a large number of small businesses each take on a few additional workers, but the reality is that the number of small businesses is continuing to fall not increase. In other words, that process of differentiation described by Lenin continues to occur. Moreover, although a large number of additional workers can be taken on by these small firms, the question then arises, how long will that employment last. As stated above, the very large firm has many incentives to retain workers it has spent money on training, even if that is costly in the short term, whereas the small business will lay workers off quickly in order to minimise its costs. Even so, between 20-30% of new small businesses fail within the first year, and around 75% fail within 5 years.

Its all very well telling us about how many more jobs small firms create compared to large businesses, but what is never mentioned is the much larger number of jobs that these small businesses lose each year compared to the very large businesses. During the 1980's, a number of Marxist Economists did some very useful work looking at the way the scale of operation established barriers to entry in various industries. But, the general conclusion was that although these barriers prevented smaller producers from entering, the existence of much higher profits led to other very large firms entering the arena - Virgin's entry into the international airline business could be one example, and the entry of Tesco into Banking could be another. But, also, what was found was that these same barriers to entry, also acted as barriers to exit. A firm that has spent tens of millions of pounds on a car factory, is not likely to simply shut it down, even if its making short term losses. The Capital equipment is pretty specific, and cannot be simply transferred to some other use. This is one reason I'd argue that under modern Capitalism the equalisation of the Rate of Profit occurs initially via the adjustment of share values, and not through the continual movement of physical Capital from one activity to another.

Of course, this barrier to exit does not apply to small businesses, particularly very small businesses. Someone can open a shop selling Car Parts today, and if it fails open a shop selling clothes next year.

In reality, this myth of the small business is perpetuated by the Tories and liberals and other bourgeois apologists for obvious reasons. Firstly, an intrinsic aspect of bourgeois ideology is that there is free and fair competition dominating the market. Orthodox economics sees Monopoly and Oligopoly as an anomaly, just as the Narodniks saw Capitalism itself in that role. Just as we are presented with an idea of a police force of the Dixon of Dock Green, rather than the riot police, type, so we are presented with a vision of Capitalism based on the idea of hard-working entrepreneurs, working long hours in thousands of small businesses, rather than the reality of a small number of huge businesses, managed by extremely well paid professional managers, but owned by an infinitesimally small number of Capitalists, whose only function is to draw off their dividends, and maximising the Capital Gains on their share holdings.

But, the idea of putting forward policies designed to meet the needs of the smaller Capitalists reflects the political base of the political parties. As I have argued, following on from Engels analysis, the Big Capitalists adopted the programme of Social-Democracy as best suited to meet their needs in normal times.
It created the climate of social peace needed for large scale, long-term Capital Accumulation, it socialised many of the major costs for Education and Health required for the reproduction of the kind of Labour Power needed in a modern economy by those large firms, and as Engels points out, at the same time, these measures, which impose tax and other burdens on the small businesses, act to drive them out of business, facilitating the further growth of the large business. And, of course, because these measures, and the general stance of Social-Democracy acts to ameliorate the condition of workers, a ready made electoral base for these parties exists. Its not surprising then that Labour in Britain, and the Democrats in the US have tended to pursue policies which objectively benefit Big Capital, whereas the Tories and the Republicans, at least in their rhetoric, have appealed to their base within the small business class, the middle classes, and backward sections of workers.

That is not to say that the representatives of Big Capital overtly support Labour - though some do - in the way that they support the Democrats in the US. They did not support the ILP at the time Engels was writing either. Rather it is through various other channels that they push for the kinds of social-democratic consensus they require, and whilst the Trades Unions can be relied upon to bolster that consensus within the LP, it is through involvement in the Tory Party that Big Capital can foster that consensus on a bi-partisan basis, which was so eminently displayed in what was termed "Buttskillism" in the 1950's and 60's.

Saturday, 25 December 2010

Northern Soul Classics - I'm So Happy - Prince Phillip Mitchell

From two of the older Northern Soul Classics by Willie Mitchell, forward to one of the more recent biggies, this time from Philip Mitchell, who also had a big Northern Classic in the 70's with "Free For All".

Friday, 24 December 2010

Capitalism And The Importance of Lying

The experience of Wikileaks has shown what has long since been known, but rarely discussed. Capitalism depends upon systematic lying. Over recent weeks we have had a succession of politicians and State bureaucrats from all the Capitalist states appear on TV, and tell us how terrible it is that their duplicity has been exposed. Of course, they have been forced to admit they have to be free to lie their heads off, both to other Capitalists and to their own people, if Capitalism is to operate smoothly. They don't even now try to dress it up by claiming that Wikileaks exposures have been a threat to the lives of troops and agents, because that too was exposed as a lie, and also only highlighted the fact that those soldiers and agents were mostly at risk, because they had been sent by their Governments to do nasty things in other people's countries!

But, the last week has seen that Wikileaks has now set a trend. The Daily Telegraph, no doubt emboldened by its success in building circulation from its MP's Expenses exposes of the last year, has engaged in its own covert operations to bring into broad daylight the true views of Liberal and Tory Ministers. We find a whole series of duplicitous relations with Liberal Ministers telling us that they do not trust David Cameron and so on. The Liberals, who anyone who has been involved in politics knows have built their whole base by saying one thing to one person and something different to the next, again see nothing wrong in this. Of course, they say, we are two different parties with different policies, and different views. But, we are in a Coalition. Well, of course, that is fine, but why then do they tell us that these undercover operations have damaged the kind of relation they can have with their constituents? They say they will no longer be confident to speak openly to them, but why? If as they say they are two separate parties, and that they have different views to the Tories, should they not then feel free to vent their true views, even where they differ from the Government line, wherever, and to whoever they are speaking? Apparently, not. As usual they want it both ways. Of course, that is not surprising, because the kind of shambles that results from that was seen over the Tuition Fees, when Vince Cable found himself in the invidious position of being a Liberal Minister responsible for introducing a piece of legislation that he and his Party only months before had given a solemn pledge to oppose!!! He then found himself in the ridiculous position of considering abstaining on the vote on the legislation that he was himself recommending to Parliament!!! No wonder they find it much easier to simply lie about their real views.

But, its not just in the political arena that Capitalism relies on lying, or at least being economical with the truth. It is in reality the fundamental basis of the multi-billion pound advertising industry. And as one right-wing ideologist, Nicholas Taleb, has stated,

“Karl Marx, a visionary, figured out that you can control a slave much better by convincing him he is an employee.”

The whole basis of Capitalist exploitation, as Taleb admits here, is premised on convincing workers that their actual economic and social position is something completely different to what it actually is, and a huge State apparatus, including all of the Welfare State, is designed to imbue workers with precisely that ideology, and to shape them as a continuous supply of suitable Labour Power to meet the needs of Capital. In fact, the Capitalist State is a lie in itself – a lie that large sections of the Left have for the last 100 years or so helped perpetuate. It is portrayed as being some kind of neutral body, there to protect the nation from foreign threats, to protect all of its citizens from a range of dangers be it crime, or disease and ill-health, or unemployment or poverty. But, of course, it is nothing of the sort. Its function is to ensure the reproduction of labour power for Capital, and to protect the class interests of the ruling-class, of which the former is the prime need.

The early forms of Capitalism, more properly Mercantlism were premised on a lie of the most blatant kind. Merchant Capital makes its Profit – what Marx, following earlier Economists like Steuart calls Profit on Alienation – through buying low and selling high; what is known in the parlance as arbitrage. By its nature this means paying the seller less for a commodity than its value, and selling to a buyer a commodity for more than its value. The Merchant themselves adds no value in this process whatsoever. They are in the strictest sense mere parasites, which is why in previous centuries they were so despised, as in Shakespeare's “Merchant of Venice”, or as Marx sets out in quoting from the works of Martin Luther, who described how they were viewed as worse than highway robbers. The bigger the lie – that is the better able the merchant to convince the seller that his product was of low value, and to convince the buyer that it was of high value – the bigger the profit he made, even though, in many cases, as in the Mediterranean City States, this actually led not just to the impoverishment of the actual producers, but the destruction of productive potential, and consequently the whole basis of making real profits, and creating real wealth.

We see the same thing today in the utterances of those such as Estate Agents, Mortgage Brokers, and Mortgage Lenders who not only were prepared to accept a lie themselves in order to lend to people who had little chance of paying them back, but who are always prepared to put a gloss on any situation in order to convince potential buyers and borrowers that house prices will continue to rise. The other day, I presented the chart below produced by Bloomberg from data collected by HBOS in its Consumer Confidence and House Price Indices. Yet listen to any of the commentators on the news programmes, or Business TV, and few will actually indicate that house prices are way too high, or that the indications are for a major fall. Even as they begin to collapse these commentators continue to talk about a modest fall of around 5% over the coming year – even though they fell by nearly that much in the last month alone! But, like the politicians and diplomats, of course, they believe that they should be free to garnish the truth, because the system depends upon it. A collapse in house prices now, would put a huge dent in confidence, and undermine the Government, and likely send the economy itself into a tailspin. Much better to continue to lie through your teeth, and if all those ordinary punters who believed you lose a packet, well, tough luck, at least the system was kept rolling for a while longer.

One of the best examples of this is Gold. After WWII, when the Bretton Woods Agreement was established, which made the dollar the world's reserve currency and set up the IMF, the official price of Gold was fixed at $30 an ounce. Despite the fact that the US printed lots and lots of dollar bills to pay for its wars in Vietnam and elsewhere, and to pay its overseas debts, as during the 1970's it began to import more than it could export, and despite the fact, that the costs of discovering and mining Gold, continued to rise, as the small amounts of it in the Earth's crust, became smaller with each year, the price of Gold remained fixed at that 1947 price of $30. It was of course, just an official lie. Increasingly, the lie could only be maintained by denying reality via legal rules. When Charles deGaulle began to insist that France be paid in Gold rather than dollars, the US declared that the dollar would no longer be convertible into Gold, and the US Government made it illegal for US citizens themselves to hold Gold. But, the truth was out there, and despite all of the attempts to maintain the lie via legal sanction, it broke through. Despite the official price for Gold being $30 an ounce, when it began to be traded on world markets as a result of a global currency crisis in the 1970's, its actual price soared to $800 an ounce.

During the late 80's and 90's, when the US was able to restore its position, and to once again impose the dollar as the world's currency, Gold once again fell out of favour. Because Gold cannot be destroyed, and, therefore, every ounce ever mined continues to exist, and because it has little application in industry, only being used for jewellery, the price of Gold fell back to a low of $250 an ounce in 1999. It was not alone, the prices of other raw materials like Oil, also fell during the period, which has been the case during every other Long Wave downturn. But, after 1999, when the Long Wave boom began, the prices of these primary products began to rise sharply as years of underinvestment caused by low prices and profits, meant that new supply could not be rapidly, and certainly not cheaply brought on stream. Gold began to rise along with them, and increasingly, as it was seen that the US, in particular, had been paying its way by continuing to print more paper dollars, which in themselves were worthless, Gold once more began to attract the attention of those who saw the need to have a store of value in a real money commodity. But, the whole global Capitalist system depends at the present time on the dollar continuing to fulfill its function as world money. Moreover, the basis of Capital flows, of lending from surplus countries to debtor countries is also premised on the purchase of interest bearing Government Bonds. Around the globe, huge sums of value were tied up in these Government Bonds, held by Banks, Financial Institutions, Sovereign Wealth Funds, and Pension Funds. The consequence of a sharp rise in the price of Gold was clear. Money would flood away from paper dollars and into real money, and more importantly it would flood out of those Government Bonds – many of them dollar denominated Bonds – decimating their value, and decimating the Balance Sheets of all those Banks and other Financial Institutions that held them. It would make the Credit Crunch look like a picnic.

From around 2000, then the Authorities began to manage the rise in the price of Gold. When prices rose to quickly, Central Banks, and the IMF, who hold thousands of tonnes of Gold, began to sell it into the market, driving down its price. Gordon Brown was heavily criticised for selling large amounts of Britain's Gold, but the reality is that this sale was part of this globally co-ordinated policy. Yet, despite that global drive to limit the rise in the Gold Price its price has continued to rise. From the low of $250 an ounce in 1999 it has risen to over $1430 an ounce. In fact, its price has risen so much that it has created a new business with first companies advertising on TV for people to send them their Gold, and as the profits from cheating people out of its true value were significant, the establishment in every town centre of several shops similarly encouraging people to give away real money in return for scraps of paper. Yet, despite the fact that these businesses have conned large numbers of people out of their money, and melted it down into bullion, the price of Gold continues to rise. Most Gold traders expect it to reach a short term high in the next few months of around $1650 an ounce. Many believe that its longer term price will rise to anything between $3,000 to $7,500 an ounce.

Certainly, China seems to believe that its price is rising inexorably. But as this article describes, even here the importance of lying is brought out again. The Chinese official figures for its Gold Reserves stand at just over 1,000 tonnes, but its thought the real figure is higher than this. Concerned that the dollar is falling in value, and needing at some point to break the peg of the Yuan to the dollar, China is in a Catch 22 situation. Sitting on trillions of dollars in its reserves, and holding trillions of dollars of US Bonds, a fall in the rate of the dollar to the Yuan, would mean that China would make a huge Capital loss. But, selling those dollars would be guaranteed to spark a run on the dollar, and bring precisely that situation about. China has been diversifying its reserves into Euros to try to avoid that problem, and has assisted in the problems the Eurozone has faced from the Credit Crunch by buying Eurozone debt. But, as this CNBC article suggests, China is losing patience with the Eurozone's ability to resolve its problems, and as this other Report suggests the debt ratings agencies are themselves now concerned that the European austerity measures are sending their economies into a renewed recession, and creating the very conditions under which debts and deficits will be impossible to deal with, and where then the chance of defaults will rise. A similar view that the UK's austerity measures will drive the UK into recession next year was also expressed by Bank of England Executive Director For Markets Paul Fisher, who also sits on the MPC.

But, as the article suggests, China is having to lie about its actual Gold purchases in order not to cause a massive increase in its global price. Its little wonder that crises emerge within such a system, and that the leading participants within it, are also led to say after the event - “No one saw this coming.” One wonders whether they are able to even know the difference between the real truth and the truth they have to convey to the world.

Tuesday, 21 December 2010

Strictly Shambolic!

Having Waltzed into the Coalition Government, Vince Cable's footwork has been far from nimble ever since. But, the this Government from Day One has been marked by a degree of incompetence and amateurism not seen in Government for some time. Now it seems as though Uncle Vince has missed another step. Bad enough that he let slide to a couple of young women who just walked into his Constituency Office that he could drop his Coalition Partners faster than Anne Widdicombe, but when, after they had backed him up on that, it immediately came out that he'd also told these two total strangers that one of the most important business deals being discussed by the Competition Authorities - Murdoch's takeover of the remaining share in BSKYB - had already been decided in his mind, and that a "War" had been declared on the Murdoch Empire, it looked like he was about to be Quickstepped out of his job.

In fact, many backbench Tories must be up in arms, because it looks as though, Vince, instead of being left Twisting in the wind, is to be kept on, though with hugely reduced powers. The reality is that Campo and Clegg can't get shut of an embarassment, because if Cable was booted on to the backbenches it would only be a matter of time before he became a focus of Liberal opposition to the Government, and then its days would truly be numbered. There are apparently other revelations in the telegraph interview which are likely to spell out the degree of fractures in the Coalition, and otehr Liberal MP's are apparently worrying that they have been caught in the same sting. As one Labour MP put it, this is not surprising because we have always known that the Liberals are characterised by their extreme duplicity and opportunism. Saying different things to different audiences has been the stock-in- trade of the Liberals for years.

Of course, no one will shed any tears for Murdoch in this affair. On the contrary, he is probably laughing all the way to the Bank, because this almost certainly means that any opposition to his takeover is now dead. But, in reality, we should never be in favour of the State intervening in these processes, because in the future the same measures will be used against workers when they begin to develop their own Co-operative property. The Capitalist state is not our friend against people like Murdoch. Our answer to him and his ilk is effective workplace organisation, strong Trade Union resistance, and the development of worker-owned and controlled media production.

Normally, the kinds of mishaps that this Government has been experiencing over the last few months tend to come towards the end of a Government, not at the beginning. That is a mark of its incompetence, and perhaps of the degree of covert opposition to its approach if not its policies. More and more it will come under pressure - the fact that unemployment is rising, interest rates are rising, and its chosen acid test (the deficit) has worsened dramatically in the last month - show that it is not in control of its own destiny. The sooner workers can apply the necessary pressure to break it apart and consign it to history the better.

Saturday, 18 December 2010

Marx Forces His Way Back

For most of his lifetime, the bourgeoisie tried to ignore Marx. After his death, like most revolutionaries, they tried to tame his memory, to incorporate him, whilst at the same time spending billions of dollars and millions of hours of the time of the brightest bourgeois academics trying to provide arguments against him.

At an academic level they failed, and in place of the vibrant living Political Economy of Marx,they introduced the "Dismal Science" of Economics, whose vision was deliberately limited within safe bounds, into a myriad of micro studies into price formation and markets, that could only ever attempt to provide a description of everything in detail, but an explanation of nothing even in outline. An explanation required not just an acceptance of the factor allocation assumed by orthodox economics, but an historical evaluation and analysis of how and why that allocation came about. It was an Economics that knew the Price of everything and the Value of nothing.

But, Marx's theory was so sharp, so penetrating of the very laws that govern Capitalist Society that nearly 130 years after his death they still cannot bury him. The outbreak of the Credit Crunch, and the subsequent recession came promptly after the "End of History" had been announced by the ideologists of the bourgeoisie, whose limited vision could see no potential for any further human development beyond it. All those who once more had accepted the idea that Capitalism was a self-regulating system were given a serious reminder by the ghost of Marx, haunting them like Old Marley, and presenting them with the apparitions of Capitalism Past, Present and Future. A rash of interest in Marx followed just as it did in the 1960's.

If you want a couple of books to read over Christmas there are two, which are by no means Left-wing, but nevertheless interesting in their own right. Both are forced to pay homage to Marx. The first is Crisis Economics by Roubini and Mihm. It ought to be compulsory reading for the Government. In it, they write,

“Marx was the first thinker to see capitalism as inherently unstable and prone to crisis....Capitalism is crisis,” the authors conclude, in agreement with Marx. In part this reference was a shot across the bows of Nicholas Taleb, whose book the Black Swan, saw Capitalist Crises as rare events that overturned previous conceptions.

The second book is by Taleb himself, and in it Taleb also pays homage to Marx when he writes in – The Bed Of Procrustes,

“Karl Marx, a visionary, figured out that you can control a slave much better by convincing him he is an employee.”

This last comment was almost enough to give CNBC's Joe Kernen a connery in this video.

Cuts, Inflation And Interest Rates - Part 4

In my post, Why QEII is Sunk, I argued that while QE had been an effective tool to bring the Credit Crunch to an end, it could not act to end an economic downturn. Where economic activity is robust, but there is simply a shortage of currency, it is fine, but under conditions where economic activity is in decline then as Keynes pointed out, it is like “pushing on a string”. QE could only work in conjunction with fiscal stimulus to achieve that end. At the time I wrote that blog, the chances of further fiscal stimulus in the US looked remote. Republicans were attacking the democrats for the deficit, and their Right was flanked by the Tea Party whose brand of right-wing populism mimicked that of the Tories in Britain. But as Harold Wilson said, a week is a long time in politics. In fact, now we have a 2 trillion dollar stimulus package put through Congress with the support of the Republicans, and with much of the opposition coming from the Democrats, because the package continues Bush era Tax Cuts for those earning over $250,000 a year.

But, in a sense its no wonder the Republicans supported this package. The reality is that the US Fiscal Stimulus is showing clear signs of working, whereas the European austerity measures are having the opposite effect. At the beginning of this week, there were signs that the “Bond Vigilantes” may have made an appearance sending the yield on US 10 year Treasury Bonds up by 24%. Even then it wasn't clear whether this was in response to what was seen as fiscal irresponsibility, or rather the fact that the measures were working, economic activity was picking up, and with it the likelihood that down the road inflation would rise. Either way, by the end of the week US Bond Yields had fallen back again to where they began. It could hardly be otherwise given QE, because one of its effects is that so long as the federal Reserve is prepared to keep printing money with which to buy Bonds, demand for them can always be made to equal or exceed Supply, thereby pushing up their price. Bond traders are smart enough to know never to get on the wrong side of what is a guaranteed one way bet.

Of course, down the road, the consequence of this policy WILL be that inflation will rise. But, as I pointed out in my blog Paying For The Crisis, that has always been the way Governments down the millennia have paid for their debts, by debasing the currency. That is what QE is, its printing money with which to pay your creditors, and because there is more of it, each unit of it becomes worth less, as Marx put it each piece of paper is reduced to becoming a token of a smaller amount of the money commodity for which it stands. As inflation rises the initial debt becomes devalued. The original debt remains measured in the money at the time it was incurred, but as inflation rises, the nominal values of prices of goods and incomes increases, and alongside that nominal increase goes a nominal increase in the Taxes received by the Government, which are used to pay the interest on the debt. As inflation rises the values of Bonds falls, and the interest rates demanded for future loans rises, but as I showed in that blog, with much of this lending being done by Big money Capital institutions, and indeed by Pension Funds, who need to have a high income stream over the longer term, to cover their future Pension commitments, this is not in any way a negative for Capital. Moreover, as the experience of Japan has shown in a deflation even zero interest rates are positive in real terms. Similarly, in periods of high inflation, even high interest rates can be negative. If I want to buy something that costs £1,000, and have to pay interest of 10% to buy it now rather than in a year's time, it will in fact cost me £1100 including the interest. But, if inflation is running at 20%, then waiting a year instead would have seen its price rise to £1200 leaving me £100 worse off than if I'd borrowed the money.

As I've pointed out before, the US is a different economy to the UK. It is very large and able to source much of its needs from within side its boundaries. The problem it is facing at the moment is not inflation but deflation. But, the UK is dependent on trade, and on imports. At a time when the countries from which we buy many of these things are raising their prices, and when the pound is falling in value, the UK is effectively importing inflation. The QE that the Bank of England has carried out, at a time now of fiscal restraint, is going not to cover those Government debts, or to stimulate economic activity, but is essentially going to monetise the higher prices of imported goods. It is essentially going to continue to finance private debt.

A reflection of that was seen in last week's inflation data, which continued to confirm the argument I made several months ago, that reduced economic activity would NOT lead to the falling inflation that the Bank of England has kept promising for the last 2 years. On the contrary, both measures of inflation CPI, and RPI once again began rising, and that is before the effects of large rises in utility prices, and other basic items, as well as the 16% hike in VAT, from 17.5%, to 20%, take effect in the next month. It is no wonder that at a time when the Liberal-Tories are freezing Public Sector wages, and when private sector wages are stagnant, they felt keen to offer to link Pension to Earnings rather than rapidly rising prices!!! Its no wonder that a central component of their Cuts strategy is to use inflation to reduce the real value of Pensions, and Benefits and wages. But, in reality, the two figures are both bogus. According to the BBC, CPI rose from 3.2% to 3.3%, while RPI rose from 4.5% to 4.7%. But, as I've previously set out each person's inflation rate is different, and it is different in different parts of the country. If you have little money, and most of it goes on those basic items which are going up massively in price, if VAT accounts for a large part of your spending, if you are dependent upon Council Services, which are likely to increase in price as part of the Cuts, then your inflation rate is going to be much higher than these official figures.

You would think, given the Liberal-Tory narrative that simplistically equates household finances with the national finances, and which repeatedly tells us that families in debt have to clear their debts, and so the State should do the same, that they would be keen to take action to encourage people to do precisely that. But, of course, they are not. In fact, they are doing the exact opposite. Far from telling people to clear their debts, they are telling people to go into massive and increasing amounts of debt in order to cover their increased University Tuition Fees, for example. Moreover, given that inflation has now been way above the Bank of England’s 2% target Rate for inflation for more than 2 year's now – a failure that most ordinary Council workers or NHS workers would not have been allowed to get away with – you would have thought that the Government would have been inisting that it acted responsibly and raised interest rates as MPC member Andrew Sentence has been calling for. That would encourage people to reduce their spending in the way the Government claims the State needs to do – after all as I pointed out in my blog UK Debt The Facts, Personal debt is more than double the amount of Public Debt – and would encourage them to save. But, the Government does not at all really want the State to follow the example of the average family, because the Government wants the average family to continue to spend like there is no tomorrow, and to go into debt to do it. It wants that, because if they stop then demand in the economy will collapse, and the economy will follow it!

That was made clear in an interview on Newsnight, with Liberal Treasury Minister Lord Oakshott. If you can find the video watch it because its hilarious. Oakshott does the usual Coalition mantra of trying to blame everything on Labour, but asked what they were actually doing to control the Bank bonuses, or to get the Banks to lend, he had nothing to say. Seeming to forget that he and not Labour was now in Government he trotted out the fact about two of the biggest Banks now being state owned! But, what worse worse, losing not just the Coalition narrative about debt, but apparently also his own about the problems caused by irresponsible Bank lending, he insisted that the solution lay in even more of that same irresponsible Bank lending. Julian Pendock of Senhouse Capital, pointed out that it would not be very responsible of those Banks to lend for the sake of lending to companies that might soon go out of business, particularly as many of them were suffering from the economic conditions created by the Government's austerity measures. Nor would it be a good idea to go back to the kind of lending to homebuyers that marked the actions of people like Northern Rock. As he pointed out, prior to the last 20 years or so, it was not at all considered unreasonable that people should save up around 25% deposit to put down if they wanted to buy a house.

But, Oakshott, whose Government is about to place large sections of the population in lifelong debt slavery, seemed to believe that there was nothing irresponsible in demanding that Banks and Building Societies lend huge sums of money to people who already have £50,000 plus of student debt hanging round their neck, plus all the other debt accumulated as a result, and who, therefore, are going to be very high risk of going bust, and not being able to make the payments. The real problem, which he did not seem to understand, is not that it is unreasonable that Banks should only lend if they have some prospect of getting depositor's money back, but that people cannot save that 25% deposit because house prices are around 4 times what they should! In part they have bubbled up to those ridiculous levels precisely because of the previous irresponsible actions of Banks and Financial Institutions after the Thatcher Government deregulated Financial Services in the 1980's and encouraged this huge expansion of private debt as a means of hiding the fact that real wages were stagnant.

As, I pointed out recently, A Momentous Change, some are recognising this fact, and see why and how it needs to be resolved, if a big reduction in the Value of Labour Power – i.e. the minimum amount that workers have to spend at a given time and place to reproduce their Labour Power in the same quantity and quality – is to be achieved. As Stephanie Flanders wrote,

“If the Bank of England were really serious about helping the economy, it would be trying to tank the housing market. That is not quite how the economists at Fathom Consulting would put it, but it's a key implication of their latest report on UK monetary policy. The Monetary Policy Committee are unlikely to follow their advice - or not directly, anyway. But the policy paper will make for sobering reading as they prepare for the start of their November meeting on Wednesday.

How, you might ask, could a sharp fall in house prices possibly help the economy? It would help because it would get it over with. Like many economists, the authors of the report, Danny Gabay and Erik Britton, believe that the British economy will not truly put the crisis behind it until it has fixed the banking system and dramatically lowered the amount of private sector debt weighing on the economy. Unlike some of their peers, they think that a correction in house prices is a crucial part of that process in Britain, and it has barely begun.”

Has this idea been taken on by the Bank of England? There is certainly a debate about raising interest rates going on inside the MPC. In theory, it is possible to both raise interest rates whilst at the same time expanding QE. In reality, the bank base rate is pretty meaningless when it comes to determining mortgage rates, which are more dependent upon Bond Yields, and as was seen in Part 3, UK Bond Yields are already increasing. The Bank seems to think that interest rates may have to rise much sooner than many would like to have the public believe. Hence, the The Bank Of England Warns 7 Million At Risk, as many people with mortgages will see their monthly payments rise sharply, at a time when house prices are already falling, and where the economic downturn being caused by the Government's austerity measures is likely to exacerbate that trend. Money Week has a very good article on the potential for sharp house price falls in the next couple of months. Moneyweek On House Prices and Consumer Confidence The, graph from Nationwide produced by Bloomberg is very interesting. It shows that its House price Index has almost exactly matched its Consumer confidence Index over a long period of time. The Consumer confidence index is showing a 15% fall in the next two months suggesting a fall of that amount in house prices during that time. Some are predicting falls of 50%, which would almost match the falls seen in Ireland.

The Government could respond to these events by recognising that it is not an idle spectator of economic events. It could change its narrative on the Cuts, and begin to give out the message that it now recognises that the message coming from US Capital has been proved right, that the solution lies in further stimulus, or at least not carrying through large-scale Cuts. It could join with the other European leaders such as Merkel, who have argued that the EU and its states, need to develop co-ordinated programs for growth. Within that growth taking place within the context of a more integrated European economy, it would be possible for British Capital to continue the process of restructuring already underway. Ideally, as part of that greater European integration, it would mean the UK also bringing its currency within the realm of the Euro, and the issuance of EuroBonds, which like the Euro could stand on the world economic stage in some kind of parity with the Bonds and Currency of the US.

Will, the Government do that? Probably not, for all of those political as opposed to economic reasons I have previously set out, which affect not just the British but all other Governments operating within the confines of a bourgeois democratic regime. But, in reality, although as Marxists we can outline what would be a rational solution for Capital to take – even within the limitations of its own system – our job is not to provide them with such solutions to their problems. We simply point out that they do not even make rational choices in their own terms. Marx, for example, in Capital Vol.III, goes into great length to relate the history of the economic crisis of 1847. That crisis stemmed from one simple fact, the introduction of the 1844 Bank Act. That Act, was based on a piece of flawed economic theory of David Ricardo. We should not turn oursleves into Functionalists, who see Capital and its representatives as essentially infallible, every act of Government, and so on, as being precisely designed to meet the needs of Capital. The 1844 Bank Act, as Marx clearly sets out, most certainly was not that. So much so that in order to resolve the crisis the Government had to suspend the Act!

Such a situation is inevitable in a political-economic system whose fundamental basis is that the economy is some kind of creature independent of Men's Will, rather than that it is an artificial creation by Man himself, and only acts to hide what it really is, a series of social relations between men, because instead of those social relations we are required to fetishise the “commodity”, and the relation between things. The first step in workers providing a solution to those problems that is in their own interests, is to cease in their own minds that “commodity fetishism”, and to begin to restore their relation between themselves as human beings. Instead of reducing themselves to being merely appendages of Capital, set in motion by it, they have to turn things back from off their head. They have to restore Capital to its rightful place as mere means of production set in motion by Labour, and not vice versa.

That is where the work-in of the workers at UCS are so important, why the occupations at Visteon and Vestas, and now at various Universities are so significant. That is why the experience of the Argentinian Workers, who faced with the closure of their factories, occupied them, turned them into Co-ops linked to their local communities and to the class struggle, can help to point the way forward.

Back To Part 3

Northern Soul Classics - The Champion - Willie Mitchell

Another two for the price of one. I'm starting with THe Champion from Willie Mitchell. Like most of his stuff, its a great stomper, and the video has a bit of stomping to go with it, from the Casino. But, I'm also including "That Driving Beat", which I posted a long time ago when I was just putting stuff in the sidebar, partly because of that, partly because the dancing on the second video is better than on the first.

Friday, 17 December 2010

Cuts, Inflation And Interest Rates - Part 3

If we are to be able to fight the Cuts effectively we need to understand the context in which they are taking place. For example, it quite clearly is not the case as the Liberal-Tories tried to present earlier in the year, and has continued to be part of their narrative since, that the UK had to make immediate Cuts, because we faced the same problems that Greece was facing in the Spring. As I said at the time, Britain Is Not Greece. Greece's problems stemmed not just from the fact that it had massive debts, but that its economy lacked many of the requirements to be able to deal with them. As a small economy it was largely dependent upon the benevolence of strangers to lend money to it, and within the confines of the Eurozone, it lacked the mechanism by which such economies in the past have dealt with such problems in the short term via devaluation. Its economy was highly dependent upon tourism, and a speculative property boom similar to the situation in Spain and Ireland, and so did not even benefit from the limited reduction in the value of the Euro, which occurred, but which did benefit a strong exporting economy like Germany.

But, the UK economy, for all of its sclerotic nature, was not at all the same. A lot of its Public Debt is actually held not by foreigners but by British Financial Institutions, and Pension Funds. Where Greece was paying up to 15% on its debt, the UK was paying less than 4%. The UK has massive overseas assets of its own, and has control of its currency and printing presses. Finally, although a lot was and is made of the fact that the UK had a high degree of dependence on Financial Services, the reality of the modern global capitalist system, is that in a world where the most important form of Capital, IS mobile Money Capital, which whizzes around the globe in search of the highest return at that split second in time, Financial Services ARE a most profitable, most high value added industry! In the 19th Century, when railways first began to appear, there was massive speculation in them – a Bubble – that like all such events was accompanied by corruption swindling, and an inevitable bust. But, it did not mean that Railways were NOT one of if not the most important industries of the time. The same was true of the Tech Bubble in 2000. Like these other events, we will almost certainly be left at the end of this crisis with a much smaller number of very powerful, very profitable Financial Institutions – whatever Vince Cable thinks he might be able to achieve by breaking them up – and, whichever country is home to them, will have a significant economic advantage.
Not only is this view that the Cuts in the UK were not necessary – at least not of the scope the Liberal-Tories have proposed, and as early as they have proposed – shared by many economists, both Right and Left – but as I've previously demonstrated, the Liberals themselves, even during the Coalition negotiations, continued to hold to that position - Liberal Economy With The Truth. Of course, the reality is that even in Greece – and particularly in Ireland, which had been held up as an example by the Tories – the austerity measures have had the exact opposite of the effect that was intended. At the same time as causing massive economic and social unrest, which is never a good state of affairs for Big Capital to proceed with the kind of long-term Capital Accumulation that modern economies require, the fact, that these measures have reduced economic growth, reduced tax revenues, and increased the need for welfare expenditure through higher unemployment, has meant that they were less likely to be able to repay their creditors, and more likely to default. As a consequence, instead of the interest rates for these economies falling, they have actually risen, because they have become WOSRE credit risks than they were before! But, as I have previously written, in terms of Europe, these economies represent less than 5% of Eurozone GDP. If the Eurozone is taken as a single economy, which is that it should be, then these problems are pretty insignificant for that economy. The reality is that they are merely a manifestation of a political struggle taking place within Europe itself. The most likely outcome of that struggle is that Germany will increase its dominance within the EU, and in return for bailing out the deficit countries – either by the establishment of a more permanent and much larger stability Fund, or else by the introduction of Eurobonds, which is the obvious solution – will win a much greater centralisation of Europe, a greater degree of integration of fiscal policy, and thereby a further step towards the establishment of a Federal European State.
At the moment, it looks like the Tories position will leave the UK once more sitting on the sidelines of that development, and damaged as a consequence. In the meantime, the Liberal-Tories policy amounts to administering the economic medicine being imposed on the peripheral economies, but without the long-term benefits that will stem from the establishment of that EU State. The reality is that the political messages in Europe, are a necessary form of right-wing populism used by parties needing to get elected, and by Government's such as the Germans to persuade their electorates that it will be worth paying up in the short term, in return for a federal Europe, in which the profligate will be brought under the kind of Teutonic restraint and discipline that has made the German economy strong. The Tories position is also a form of right-wing populism. The truth of that can be quite easily seen by the position of the Liberals. In order to garner votes they held a completely OPPOSITE position to the Tories before the election, and even into the Coalition negotiations as set out above, just as they did over Tuition Fees. But, as I have pointed out previously Victims Of Their own Incompetence, the Tories populism has led them to move their position on the question of the deficit for electoral advantage too.

“Last night's “Newsnight” looked at the changing position of the Tories. It is illustrative as a response to those on both Right and Left who claim that the Tories actions are unavoidable. The report demonstrated that back in 2007 David Cameron and George Osborne were far from being deficit hawks. On the contrary they were deficit deniers. In fact, they criticised Labour for not spending enough on Health Education! At that time with Public Spending already having risen sharply as Gordon Brown attempted to use counter-cyclical measures, they announced that under their leadership their would be under a future Tory Government not just increases in Public Spending, but real terms increases year on year in Health and Education! Only in 2008 as Lehman's collapsed did the Tories change their tack, and argue for cutting spending. Even then the extent to which this was electorally driven can be seen from the fact that as this narrative proved to be unpopular, the Tories changed tack once again. As late as January of this year, David Cameron was appearing on TV to announce that no one was talking about “swingeing Cuts” in the first year - See Here."

And, as I have written there and elsewhere, the incompetence of the Liberal-Tories lies not in the fact that they have made such “swingeing Cuts” in the first year – in reality they have not, they have made plenty of high profile announcements about Cuts, but the biggest actual Cuts in 2010 have probably been those stemming from the immediate ending of the Building Schools For the Future Programme, again only some of which falls in 2010 – but in the fact that they have seriously damaged the economy by their continual talk about how disastrous the situation was! It is that, together with the Cuts they have made in 2010, which has had the effect of collapsing business and consumer confidence, with an inevitable effect on aggregate demand. The growth that was returning to the economy as a result of Labour's fiscal stimulus ensured that things continued to look okay, for a few months, but already we now see growth slowing significantly, unemployment rising, and every prospect for that trend continuing into next year. In fact, it has only been the growth in the global economy, which has created demand for UK exports that has enabled UK Manufacturing industry to perform reasonably well, and keep growth from completely stalling.

Yet, even in the area that the Liberal-Tories placed most of their attention in justifying the need for immediate deep Cuts, their narrative has collapsed. In January 2010 the UK was paying less than 4% on its borrowing via the Ten Year Gilt. That figure continued to fall from that figure even prior to the Election. The Liberal-Tories attempted to claim credit for this falling Yield, saying that it was a consequence of their Cuts agenda. But, the FT last weekend had a chart (page 23) showing that, in fact, having fallen from a level of 3.6%, down to 2.9% in July, the yield on UK 10 Year Gilts then rose fairly steadily to around 3.7%, where it currently sits. That is a 25% increase in yield from just after the Liberal-Tories Cuts Budget was announced in June, and is consistent with the rise in yields on the Bonds of other countries that have initiated similar policies in Ireland, Greece, Spain and Portugal. The conclusion is that either the Big Capitalists and Financial Institutions who buy these Bonds believe that the Cuts will be detrimental to their interests, or else as Ed Yardeni put it, they simply don't believe Governments will make the Cuts,

"Individually, it is driven more by fear than a vigilante desire to punish Governments. But, as a group investors are in effect maintaining law and order, because they have given up on expecting fiscal and budgetary discipline."

In reality, its more likely as I have pointed out before, and as happened under Thatcher, that Cuts will be made in those areas where the Liberal-Tories can push them through with little or only fragmented opposition – for example cuts in Welfare – or else where they do not affect the long-term interests of Big Capital, only for the size of the State to expand in other areas, and to the benefit of that same dominant section of Capital, and its representatives within the State.

In a sense, this is also why we should not get hung up on the question of the size of the Cuts, which ultimately becomes a question of how big or small we think the Capitalist State itself should be.
Marx was not in any sense in favour of a large Capitalist State, quite the contrary. But, we have to start from where we are after 100 years of Fabianism and Statism, and the growth of an oppressive, bureaucratic and paternalistic State apparatus. We cannot just go Cold Turkey in withdrawing the working-class dependence on it. We can only begin to rebuild working-class independence from that Capitalist State gradually. We have to find ways of achieving that at the same time as opposing the Cuts and Privatisation. In the final part, I will look at the strategies that are open to Capital in resolving the current situation in the UK, and the responses that workers can adopt.

Back To Part 2

Forward To Part 4

Thursday, 16 December 2010

Cuts, Inflation And Interest Rates - Part 2

In the 19th Century, Karl Marx and Frederick Engels developed the idea of Permanent Revolution. It is a direct application of the dialectical logic, the concept that all though we experience phenomena as a series of discrete events or categories, in fact, these are just moments within a process, and each of these moments is itself contradictory, containing within itself an element of the past, and an element of the future. So, within Feudal society, the elements of Capitalist Society were already present, and the struggle of those elements against the feudal elements, is what was progressive and revolutionary. Feudal society did not remain one static phenomena, but changed as the Capitalist elements became more dominant, until eventually they predominated and the society became something qualitatively different – it became Capitalist Society. They learned the political implications of that in 1848 in Germany. At that time, Germany was still ruled politically by the old feudal ruling class, even though, the Capitalist Class had become very powerful economically and socially. They expected that the German ruling class would seek to gain political power for themselves in the same way that the British Capitalists had done in a series of battles that started with the Civil War, proceeded through the Glorious Revolution, and culminated in the 19th Century with a series of victories beginning with the Reform Act of 1832, the repeal of the Corn Laws, and culminating at the end of the century with the extension of the franchise to most adult males.

But, in fact, although the German Capitalists did engage in such a confrontation along with the Capitalists of other European states at the time, ultimately, they pulled back from that fight. The reason was that as Capitalism had developed this dialectical process also brought into existence the elements of the next stage of human development – the modern working class, and socialised production based on co-operative labour. When the British Capitalists had set out to carry through their Political Revolution, the working-class was still a weak new class. The Capitalists were able to mobilise it as its foot soldiers against the Feudalists, just as it had previously mobilised sections of the peasantry. But, by the time of the Revolutions of 1848, the working-class across Europe had become much bigger, much stronger, and now was beginning to recognise its own distinct interests, and to develop its own political programme and parties, such as the Chartists in Britain. The Capitalists were torn between the need to fight against the representatives of the past, and the representatives of the future. They chose to make a compromise with the representatives of the past, who were fellow exploiters.

The lesson they learned, and which was taken up by Trotsky, in his Theory Of Permanent Revolution, in which he sets out the reasons by which, in countries where the bourgeois political revolution has not been completed – which applies both to countries with their own feudal political regime, and to countries which have a Colonial political regime – a developed, organised working-class cannot simply resolve to undertake a limited struggle for the carrying through of the bourgeois revolution – the so called “Stages Theory” advanced by the Mensheviks and other Social-Democrats, and by the Stalinists – because as Marx and Engels learned in 1848, the Capitalists at a certain point, fearing that such a process will continue, and provide the workers with the opportunity to impose themselves on it, will turn on the workers, and make a deal with either the Landlords, or the Colonial power, or both. At a point in history where the existence of large working classes, of large-scale socialised production and co-operative labour makes, the fight for Socialism possible, workers cannot limit themselves to simply fighting for the lesser-evil, of Capitalism, or even a more progressive form of Capitalism over a less progressive form, but can only achieve even these limited aims, by combining it with a struggle for its own independent interests i.e. for Socialism.

Trotsky, applied this theory, with devastating effect, to the struggle of the Chinese workers and peasants against Japanese Imperialism in the 1920's and 30's. The Stalinists argued for the Chinese workers to subordinate themselves to Chiang Kai Shek, and invited him into the Comintern. Trotsky was vilified and hounded by the Stalinists for opposing this policy, but as he predicted, the result was that Chiang and the Kuo Min Tang, turned on the workers and Chinese Communists, murdering them in their thousands. Trotsky applied the same theory in Spain during the Spanish Civil War, arguing for the need to dismantle the Officer Corps, and for the workers to keep their independence, and fight for their own independence. See: Lessons Of The Spanish Civil War. Similarly, in his A Program Of Action For France, where he was advising the French workers on how to oppose the attacks on bourgeois democracy by the French fascists, he argued that although, the French workers should obviously defend all of those aspects of bourgeois democracy – free speech, right of assembly, right to organise in Trades Unions, Universal Suffrage etc. - which facilitated the workers organisation and struggle, they should do so not by simply limiting themselves to that struggle, not by simply seeing it as a lesser-evil against fascism, but by using its own proletarian methods to defend them against the fascists, by establishing Factory Committees, by establishing Peasant Committees, by setting up Workers Defence Squads, and Militia, by demanding Workers Control and other measures that enhanced the workers position, and provided workers with a real reason to become involved and mobilised than just to defend a Capitalist System that they already recognised was not meeting their needs. In other words, the fact that the workers were on the back foot, was not a reason to adopt a purely defensive posture, but to defend by attacking, to defend the present against a return to the past, by combining it with a struggle for the future.

Just to complete the historical analogies; he took the same attitude to the Stalinist States, and the attacks upon them by Imperialism. More than anyone, Trotsky had a right to vilify the political regime of Stalinism, and did so in the most devastating manner. Yet, Trotsky argued that whether you defined these states as some form of Workers State, as some form of State Capitalism, or even as some new unknown form of society such as Bureaucratic Collectivism, Marxists should still defend them against a return to private Capitalism, which would represent a step away from the establishment of Socialism. It would be just another form of the Stages Theory, but this time suggesting that a return to private Capitalism was a stage that had to be gone through BEFORE workers could once more argue for Socialism. Instead, he argued that they should defend those States, not by keeping quiet about what was so terribly wrong, bureaucratic and oppressive about them, but precisely by highlighting precisely why those things were ultimately the reasons why they would FAIL, and result in a restoration of private Capitalism. What existed could only be defended on the basis of vigorously advocating advance from them, of counterposing the need to democratise and transform them, to push forward workers control and ownership, and alongside it, workers democracy.

The reason I have introduced this lengthy digression, is that in this method of dialectics developed by Marxists like Marx and Engels themselves, and developed by others such as Lenin and Trotsky, we see the basic method of struggle that we should advocate today on a whole range of issues whether it is advocating the completion of the bourgeois democratic revolution, of defending bourgeois democracy against fascists and other reactionary ideologies such as Political Islam, or of defending jobs or opposing cuts and privatisation. We should not oppose the Cuts and Privatisation of our own bureaucratic, inefficient and oppressive State Capitalist institutions such as the NHS, or other Public Services by presenting them as some lesser-evil to private Capitalism, we should not be shy to highlight the fact that these State Capitalist organisations ARE bureaucratic, inefficient, and oppressive – a fact that most workers who have to rely on them, and work in them already know – but should oppose the Cuts on the basis that it is by pushing forward towards workers ownership and control of these organisations that the solution can be found, and that by going back to private Capitalism we are moving in the wrong direction, creating the conditions under which a whole period of historical development will only need to be repeated.

Its rather like the response Lenin gave to Kautsky in relation to the question of Monopolies and the free market, in “Imperialism The Highest Stage of Capitalism”. Lenin quotes Hilferding approvingly,

“It is not the business of the proletariat,” writes Hilferding “to contrast the more progressive capitalist policy with that of the now bygone era of free trade and of hostility towards the state. The reply of the proletariat to the economic policy of finance capital, to imperialism, cannot be free trade, but socialism. The aim of proletarian policy cannot today be the ideal of restoring free competition—which has now become a reactionary ideal—but the complete elimination of competition by the abolition of capitalism.”

And in response to Kautsky's call for a policy of breaking up the Monopolies Lenin writes,

“Kautsky broke with Marxism by advocating in the epoch of finance capital a “reactionary ideal”, “peaceful democracy”, “the mere operation of economic factors”, for objectively this ideal drags us back from monopoly to non-monopoly capitalism, and is a reformist swindle...

Let us assume that free competition, without any sort of monopoly, would have developed capitalism and trade more rapidly. But the more rapidly trade and capitalism develop, the greater is the concentration of production and capital which gives rise to monopoly. And monopolies have already arisen—precisely out of free competition! Even if monopolies have now begun to retard progress, it is not an argument in favour of free competition, which has become impossible after it has given rise to monopoly.

Whichever way one turns Kautsky’s argument, one will find nothing in it except reaction and bourgeois reformism.”

Lenin – Imperialism

But, as both Engels in Anti-Duhring and Lenin in Imperialism set out, State Capitalism is merely the logical conclusion of this process of concentration. At its most logical conclusion it results in an economy where industry is totally statified, but where commodity production continues, and competition exists between huge state owned Trusts, and where Capital is allocated by the State to where the highest rate of profit can be made at any one time. It means the logical conclusion of the development of the Capitalist Class away from its former direct role into production, through to part-time Managers as opposed to worker-owners, to providers of private Capital whilst professional managers administer it, to ultimately becoming mere owners of Money Capital, which they lend through the Bond Markets to the State, for it to allocate, and from which they draw interest – having no other role other than that of “coupon clipping”.In fact, we see that increasingly today. Just look at the crisis in the Bond Markets we are experiencing today. But, within the context of a “mixed” economy", it operates in other ways too. In reality the Public Sector has always been used as a means of massively subsidising the private sector. Public Sector energy producers charged much lower prices to industry than they did to private consumers. The NHS has always been an easy target for private firms to treat as a milch cow. The latest example of that was shown in the Channel 4 News/British Medical Journal investigation into the way the NHS is paying around a quarter of a billion pounds more over 5 years, for insulin than it need to. NHS Spending On Insulin

Such State Capitalism like any other form of Monopoly is not in any way Socialist, it is just a more mature form of Capitalism. We do not advocate it any more than we would advocate any other form of Monopoly, but as Lenin points out, nor do we advocate or support a return to more primitive forms of Capital. Our answer to both is to advocate Socialism. And, if that is not to be just another meaningless phrase here and now, asking workers to simply wait for the revolution, it can only mean one thing, and that is what Trotsky set out. It is to fight to push things forward. It is to argue the need for Workers Control, which in reality can only be achieved either under conditions of dual power, or else by workers taking ownership of their particular means of production. A first step in that process is the Occupation, and the work-in. But, the logical conclusion of that in the short term, is the demand that those particular means of production be handed over to the workers within them, and the establishment of a Workers Co-operative, operating as one unit within a developing Co-operative Federation of Workers property.

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