Feeling The Pain

Greece is an emblem for Europe. It is the problem facing European workers writ large (and to an extent European Capital). The living standards of many Greek workers, and even small business people, were not particularly high to begin with, but it is clear that the standard of living as a whole, the cost of a bloated Public Sector, and pensions and retirement packages for some that would be generous even for a much richer country, could simply not be sustained. Yet, its not clear that its possible to easily remedy that situation quickly. The rest of Europe, with the possible exception of Germany and some small Scandinavian countries, faces essentially the same problem.

The problem is an inevitable consequence of globalisation, a consequence which is historically progressive, but which will be extremely painful for Western workers who have enjoyed almost two centuries of rapidly rising living standards. As I have written before, that globalisation is part of the historic mission of Capital as Marx described it, that proceeds via a process of combined and uneven development. It is the means by which millions of human beings are rescued from poverty and “the idiocy of rural life”. It is the means by which a global working class is created, the revolutionary force that will establish Socialism as a global system. That process was already well under way in the 1980’s, and was facilitated by the end of the Cold War.

It enabled Western Capital to respond to the problem of a low rate of profit by relocating production of mature products, requiring mostly unskilled labour, in low wage economies, often in Greenfield sites, and specially created Enterprise Zones that offered all of the protections of a Capitalist State, but also the kind of transport and other infrastructure that had previously only been available in developed economies. But, this process also saw, in Asia in particular, a strong growth of domestic Capital too.

During the 1980’s, this process of “de-industrialisation” of developed manufacturing economies went alongside the rise in unemployment of traditional organised industrial workers that enabled Capital to defeat organised Labour. But, alongside it went social unrest that was destabilising. Western Capital produced a compromise. Large numbers of workers were drawn into low or unskilled jobs in retailing, distribution and services on new developments, built on old industrial sites. They were low-paid and badly organised, but the effect on workers living standards was disguised by two factors. Firstly, many of the things these workers bought as consumer goods – and which they sold, distributed etc. in their new jobs – because they were now coming from new, efficient, up to date factories in Asia using very low paid labour, were available at very much reduced prices. Secondly, the second half of the 80’s saw the Tories introduce the Financial deregulation, which, alongside the same process in the US, was ultimately to lead to the Financial Meltdown of 2007-9. Together with a policy from that time on of loose money, it meant that people who previously would have been denied access to credit, became now the target customers – hence all those inane TV adverts advertising credit to people with no possible means of affording it, or like those fronted by people like Carol Vorderman, offering people already drowning in debt the prospect of a lifeline by taking on even more, over even longer periods. Of course, unlike Governments, individuals cannot simply print money to pay back those debts. In addition, the Tories financial deregulation meant that the age old rules about how much money could be borrowed, for example for a mortgage, were scrapped. Where previously you could only borrow two and a half times combined income for a mortgage, it became common for people to be offered up to six items combined income, and frequently on bogus income figures to boot. The consequence of throwing so much money into demand for assets such as housing, which are fairly limited in supply was obvious, prices bubbled up. That in turn meant that those who had houses appeared to become wealthier, as their main asset was now worth double what it had been only a couple of years before, and on that basis, some at least, borrowed even more using it as security. Of course, it was a nonsense the real value of the house was no different than it had been before, a fact that was quickly demonstrated in 1990, when the bubble popped and house prices fell by 40%! People should have been forewarned, because in 1987, a similar bubble caused by the same factors had led to the Stock Market bubble popping with share prices falling by 25% at a stroke, and along with it the value of all those personal pensions the Tories had encouraged people to take out. The real problem for Britain and most developed economies has not been Public Sector debts, but a ballooning Private Sector debt over the last 25 years, as people were encouraged to borrow recklessly.

But, that encouragement was no accident. It was the means by which Capital pulled off the trick. One the one hand this fictitious wealth meant workers did not notice that in storing up all this debt they were not becoming wealthier whatever the paper value of their houses, but poorer. It also meant that as the thought they were becoming wealthier, they also felt they were becoming more affluent, because the same debt, the same loose money, alongside those cheap imported goods, meant that they could go out each week and buy some other piece of ephemera. All the time they were led to miss out the fact that their real wages were standing still. Not only did it buy them off, but it also gave Capital a breathing space. Capital employed in retailing, distribution etc. got to share in the Surplus Value being produced by all those workers in Asia. Capital employed in Finance created new Surplus Value through the production of new financial products sold to consumers, and also shared in the Surplus Value of others – in Asia or elsewhere – through its traditional role as a provider of Money Capital.

During the period of the Long Wave downturn, throughout the 1980’s and 90’s, although there were repeated sharp recessions, these measures meant that unemployment and the destruction of Capital never reached the kinds of levels of the 1930’s or previous Depressions. In so doing, Capital was able to avoid the kind of social instability of the 1930’s too, and the political costs and risks that went with it. But, there were consequences. One function of such crises is to destroy Capital in those areas where it has been over-accumulated, and, thereby, to lay the basis for it to move to those areas where it can be more effectively used, where the Rate of profit is higher, which also means it can afford to pay higher wages. This process was never thoroughly accomplished. In the US, in particular, huge monopolies like Ford, GM, and Chrysler, which not only many workers relied upon, but on which many other industries depended, were able to keep much of their production going, solely because of their dominant position, state support, and the huge Balance Sheets out of which they could fund losses. But, many of these too also kept afloat by diversifying into the provision of finance.

The downside of that was that the Capital that might have otherwise gone too higher profit areas e.g. in developing new forms of energy and technology, remained locked up. The other side was the effect in relation to Labour. In the 1930’s, in the areas of chronic unemployment, workers were prepared to do any work almost at any wage. Workfare schemes were introduced in exchange for Dole. Of course, as an answer to the demand for such schemes today, and to those who believe that markets automatically clear, none of this led to unemployment falling or to the markets clearing. In the 1980’s/90’s, as part of the price of maintaining social unrest within limits, Capitalist States, despite some posturing by politicians, actually extended Welfarism. The consequence was that, amidst quite high levels of unemployment, it was unable to adequately recruit to some of the lowest paid jobs that still needed doing. In both the US and UK, in particular, these jobs were frequently done as part of a black economy. Either they were done by people who were claiming Benefit, and did them to top it up, always risking being caught, or else they were done by illegal immigrants. In both cases those doing them were often putting themselves at risk, and were being super-exploited by employers, because being illegal in both cases, none of them were covered by employment protection on wages, or Health and Safety. Even where they were not done illegally, they were often done by legal migrants on very low wages, and in poor conditions.

In both countries, agricultural work is a good example. Unable to obtain sufficient domestic labour, growers brought in foreign workers. The argument some have used that the growers should have had to pay higher wages to attract domestic workers is spurious. It is, in fact, no different than the argument as to why Capital went abroad to find cheap labour. Had domestic growers paid higher wages, then the prices of produce would have to have risen. Otherwise, growers would not have made a sufficient return on their Capital, and would not have risked it. They may well have simply invested that Capital abroad where they could obtain sufficient cheap labour with a consequent economic loss for the domestic economy both in terms of the loss of demand from the incomes spent by those workers, the loss of tax revenues etc., and from the fact that those products would now have to be imported! Worse, had they raised prices to compensate then they would have found themselves driven out of the market anyway by cheaper imported produce.

And, herein lies the problem. In a globalised economy, the market for Labour and the Value of Labour Power, is increasingly being set at a global level. In terms of its effect on millions of workers around the globe, whose standard of living lags a long way behind that in the West, that is a massively progressive development. For Workers in the West, however, it will be a painful readjustment. Some economies, like Germany, possibly show the answer – not just here and now under Capitalism, but for the foreseeable future under Socialism too. In order for workers, in the West, not to experience a dramatic fall in the value of their Labour-Power, the nature of that commodity has to change. Exports account for more than 40% of Germany’s GDP. Despite being a high-wage economy, with a good social-wage too, Germany does not appear to have great difficulty competing on a global scale. Until recently, it was the world’s largest exporter. That was true even when the Euro was rising sharply against Asian and other currencies. In part, that is due to a longstanding commitment to investment that meant large amounts of Capital stood behind each German worker. But, also, in large part, it is due to the fact that Germany has focussed on the production of high-value/high quality products. Instead of competing on price it competes on quality. How long such a strategy is possible is hard to say. How quickly, such a market place would become crowded, if other Western economies pushed a similar strategy is even more difficult to assess. For one thing it depends on the range of new high-end products that can be developed. For another, it depends upon the extent to which new markets in Asia and other developing economies grow to absorb such products. VW, for example, already sells more cars in China than it does in Germany. It also depends on how quickly developing economies themselves move into this high-end production. The US has had more than ten years since the commencement of the new LW boom to have been moving into high-end areas such as Green Energy production. It is beginning to do so, but so is China! Already, many Asian Tigers, not to mention China, are exporters of Capital to even lower wage economies, as they have been gradually moving their production up the value chain. China, in particular, is pumping quite huge sums into the developing African Lion economies, not just in deals to secure oil and minerals, but also developing the necessary infrastructure, and production that marked the beginning of the development of the Asian Tigers.

I suspect that for workers in Europe the process will be very uneven, and in part will depend upon the degree to which the EU economies hang together as a bloc, or hang separately by descending into rivalry. Gordon Brown was almost certainly correct in his repeated statements during the election campaign that any workers who do not equip themselves with sufficient intellectual skills will suffer badly. Those who do equip themselves may, at best, see only modest improvements, though this may be masked by a continuing cheapening and widening of the range of products. There may also be a reversal of another phenomena that has given rise to discussion. The last 20 years or so has seen repeated inflations of asset prices, as set out above. For workers who bought their houses 30, 40 or 50 years ago, that has given a huge boost to apparent wealth – for some it has also meant a boost to real affluence, because the wage-price inflation of the 60’s, 70’s, and 80’s, meant that Capital sums on mortgages were inflated away, providing almost free housing costs for those who used that to pay off their mortgages. In contrast, it has placed a huge burden on those buying in the last 10-20 years. There have been corrections. In 1990, house prices fell by 40%, but by 1996 they had recovered, and have risen sharply since. Even with the last correction, during the Credit Crunch, prices only retreated marginally. I have just been looking at property in Spain, and decided against buying, at least for now. Prices have fallen, but nowhere near enough given the economic realities.

Spain is one of the PIG or Club Med economies being targeted by the markets. I can remember even as short a time ago as in my late teens and early twenties, things in these countries were much different than they are today. It has to be remembered that at around that time when Greece was ruled by a Military Junta, Spain and Portugal were ruled by Fascist dictators. Spain’s economy has grown considerably sicne then as a result of EU membership, but, in large part it has grown by attracting tourists and northern European buyers of homes in the Sun. The other Club Med economies are the same, which is why whereas exports account for more than 40% of Germany’s economy, they account for only 20% or so of the GDP of these economies, despite their lower wages. It is why the fall in the Euro is not any great benefit to them. Huge numbers of people in Spain, in particular, were employed in construction, building these homes, as their prices rose in a classic bubble. Like all bubbles, such as John Law’s Mississippi Scheme, its closing stages were marked by an attempt to keep it going by building in less desirable areas like the scrub and desert areas, where prices could be kept lower. That bubble has stopped inflating but has not popped. It has left tens of thousands of construction workers without jobs. Spain is still in recession and probably suffering deflation. Even before the latest cuts programme was announced by the Government, unemployment stood at over 20%, which is Depression levels (over 40% for Youth Unemployment). During the 1930’s the level of property prices fell in some case to just 10% of their previous level. Other asset bubbles when they have burst have shown similar falls – the NASDAQ, which listed mainly Technology shares fell by 75% in 2000, when the tech bubble burst. At the moment some sellers in Spain are holding out still hoping to sell at prices higher than they have paid. That is not sustainable. Although, Keynes wrote that markets can remain irrational for longer than investors can remain solvent, its also true as Warren Buffett points out that as a buyer you do not have to buy an investment if you don’t see anything worth buying. Its far more likely under the current economic conditions that it will be the sellers not the buyers who will become insolvent first.

A fall in house prices in developed economies might then mask some of the fall, or sluggish growth in wages by means effectively of a shift in wealth from existing home owners to future home buyers. That will be more so if, as I expect, the massive amounts of liquidity, pumped into the economy, leads to a significant rise in commodity price inflation and nominal wages. What is clear, is that, in respect of workers in developed economies, the kinds of arguments that the Left has put forward in the past, will be even less relevant than they have been in the past. As I pointed out recently, in relation to Greece, even a Workers’ State cannot simply re-write the laws of Economics. Workers will have some benefits if they can create their own Co-operatives in areas of production, which enable them to compete in a global market. But, in that global market, the problems that workers face will increasingly be resolvable, at least, only on a Continental basis. Calls simply for more state intervention, for more militancy and so on will completely miss the point. Defensive actions through the Trade Unions will be necessary, but not enough. Political action, especially to demand common standards across Europe will be necessary, but unlikely to be granted unless workers are first in a stronger position. Demands for international wokers unity and solidarity and common organisations in Europe, are undoubtedly correct, but unlikely to be established for so long as the very working of Capitalist competition is a more powerful force dividing workers from each other.

In reality, as I have argued elsewhere, building Workers Co-operatives is a means of getting round that. A National Co-op Federation can easily join together into a European Federation. The same economic forces that drive Capital to combine in monopolies, cartels and trusts, would impact on workers as owners of the means of production too. And through such combination in these Co-operative Federations, Labour that is not Labour, Capital that is not Capital, to use Marx’s terms in the Grundrisse, will increasingly demonstrate to Labour that is Labour the immediate benefits of doing so themselves. If we are to build workers unity we have to begin to do so on our terms, on the basis of our property forms not on the bosses. On the basis of the former it can be a basis for advance, on the latter only at best for defence.