Two for the price of one. Both Duke's vocal, and the instrumental. Both classic dancers from the days of the Torch.
Background on Duke can be found here.
Saturday, 30 October 2010
Friday, 29 October 2010
All In This Together, As Bosses Get 55% Pay Rise!
According to the Tories, we are all in this together. They have frozen Public Sector Pay, and for some like the Firemen, are cutting it.
They are sacking half a million Public Sector workers, and probably at least the ame number from the Private Sector, and yet according to a report just out, the last year has seen the pay of Chief executives in the UK rise by 55%!!!
GMB News.
Bonuses are back to pre-crisis levels.
Of course, the bosses will try to claim that without these huge pay-offs the top bosses could not be attracted. Yet, those same top bosses still get huge payments when the companies they run make huge losses, or when like with the Banks they threaten to throw the whole system into chaos!
And, worker-owned Co-ops like Mondragon outperform privately owned companies without paying their top bosses the same huge salaries that these private companies lavish on their Executives. In the UK last year, worker-owned enterprises outperformed even the FTSE 100 companies by 10%, as even the Tories have had to admit. Perhaps that's one reason that Co-ops like Mondragon can also pay out pensions to their workers several times that of what either UK private companies or the UK State says it can afford.
"The labour of supervision and management is naturally required wherever the direct process of production assumes the form of a combined social process, and not of the isolated labour of independent producers.[2] However, it has a double nature.
On the one hand, all labour in which many individuals co-operate necessarily requires a commanding will to co-ordinate and unify the process, and functions which apply not to partial operations but to the total activity of the workshop, much as that of an orchestra conductor. This is a productive job, which must be performed in every combined mode of production.
On the other hand — quite apart from any commercial department — this supervision work necessarily arises in all modes of production based on the antithesis between the labourer, as the direct producer, and the owner of the means of production. The greater this antagonism, the greater the role played by supervision. Hence it reaches its peak in the slave system.[3] But it is indispensable also in the capitalist mode of production, since the production process in it is simultaneously a process by which the capitalist consumes labour-power. Just as in despotic states, supervision and all-round interference by the government involves both the performance of common activities arising from the nature of all communities, and the specific functions arising from the antithesis between the government and the mass of the people.
In the works of ancient writers, who had the slave system before them, both sides of the work of supervision are as inseparably combined in theory as they were in practice. Likewise in the works of modern economists, who regard the capitalist mode of production as absolute. On the other hand, as I shall presently illustrate with an example, the apologists of the modern slave system utilise the work of supervision quite as much as a justification of slavery, as the other economists do to justify the wage system....
The capitalist mode of production has brought matters to a point where the work of supervision, entirely divorced from the ownership of capital, is always readily obtainable. It has, therefore, come to be useless for the capitalist to perform it himself. An orchestra conductor need not own the instruments of his orchestra, nor is it within the scope of his duties as conductor to have anything to do with the "wages" of the other musicians. Co-operative factories furnish proof that the capitalist has become no less redundant as a functionary in production as he himself, looking down from his high perch, finds the big landowner redundant. Inasmuch as the capitalist's work does not originate in the purely capitalistic process of production, and hence does not cease on its own when capital ceases; inasmuch as it does not confine itself solely to the function of exploiting the labour of others; inasmuch as it therefore originates from the social form of the labour-process, from combination and co-operation of many in pursuance of a common result, it is just as independent of capital as that form itself as soon as it has burst its capitalistic shell. To say that this labour is necessary as capitalistic labour, or as a function of the capitalist, only means that the vulgus is unable to conceive the forms developed in the lap of capitalist production, separate and free from their antithetical capitalist character. The industrial capitalist is a worker, compared to the money-capitalist, but a worker in the sense of capitalist, i.e., an exploiter of the labour of others. The wage which he claims and pockets for this labour is exactly equal to the appropriated quantity of another's labour and depends directly upon the rate of exploitation of this labour, in so far as he undertakes the effort required for exploitation; it does not, however, depend on the degree of exertion that such exploitation demands, and which he can shift to a manager for moderate pay. After every crisis there are enough ex-manufacturers in the English factory districts who will supervise, for low wages, what were formerly their own factories in the capacity of managers of the new owners, who are frequently their creditors.[5]
The wages of management both for the commercial and industrial manager are completely isolated from the profits of enterprise in the co-operative factories of labourers, as well as in capitalist stock companies. The separation of wages of management from profits of enterprise, purely accidental at other times, is here constant. In a co-operative factory the antagonistic nature of the labour of supervision disappears, because the manager is paid by the labourers instead of representing capital counterposed to them.
Stock companies in general — developed with the credit system — have an increasing tendency to separate this work of management as a function from the ownership of capital, be it self-owned or borrowed. Just as the development of bourgeois society witnessed a separation of the functions of judges and administrators from land-ownership, whose attributes they were in feudal times. But since, on the one hand, the mere owner of capital, the money-capitalist, has to face the functioning capitalist, while money-capital itself assumes a social character with the advance of credit, being concentrated in banks and loaned out by them instead of its original owners, and since, on the other hand, the mere manager who has no title whatever to the capital, whether through borrowing it or otherwise, performs all the real functions pertaining to the functioning capitalist as such, only the functionary remains and the capitalist disappears as superfluous from the production process.
It is manifest from the public accounts of the co-operative factories in England [6] that — after deducting the manager's wages, which form a part of the invested variable capital much the same as wages of other labourers — the profit was higher than the average profit, although at times they paid a much higher interest than did private manufacturers. The source of greater profits in all these cases was greater economy in the application of constant capital. What interests us in this, however, is the fact that here the average profit ( = interest + profit of enterprise) presents itself actually and palpably as a magnitude wholly independent of the wages of management. Since the profit was higher here than average profit, the profit of enterprise was also higher than usual."
Marx Capital Vol III Ch 3
They are sacking half a million Public Sector workers, and probably at least the ame number from the Private Sector, and yet according to a report just out, the last year has seen the pay of Chief executives in the UK rise by 55%!!!GMB News.
Bonuses are back to pre-crisis levels.
Of course, the bosses will try to claim that without these huge pay-offs the top bosses could not be attracted. Yet, those same top bosses still get huge payments when the companies they run make huge losses, or when like with the Banks they threaten to throw the whole system into chaos!
And, worker-owned Co-ops like Mondragon outperform privately owned companies without paying their top bosses the same huge salaries that these private companies lavish on their Executives. In the UK last year, worker-owned enterprises outperformed even the FTSE 100 companies by 10%, as even the Tories have had to admit. Perhaps that's one reason that Co-ops like Mondragon can also pay out pensions to their workers several times that of what either UK private companies or the UK State says it can afford."The labour of supervision and management is naturally required wherever the direct process of production assumes the form of a combined social process, and not of the isolated labour of independent producers.[2] However, it has a double nature.
On the one hand, all labour in which many individuals co-operate necessarily requires a commanding will to co-ordinate and unify the process, and functions which apply not to partial operations but to the total activity of the workshop, much as that of an orchestra conductor. This is a productive job, which must be performed in every combined mode of production.
On the other hand — quite apart from any commercial department — this supervision work necessarily arises in all modes of production based on the antithesis between the labourer, as the direct producer, and the owner of the means of production. The greater this antagonism, the greater the role played by supervision. Hence it reaches its peak in the slave system.[3] But it is indispensable also in the capitalist mode of production, since the production process in it is simultaneously a process by which the capitalist consumes labour-power. Just as in despotic states, supervision and all-round interference by the government involves both the performance of common activities arising from the nature of all communities, and the specific functions arising from the antithesis between the government and the mass of the people.
In the works of ancient writers, who had the slave system before them, both sides of the work of supervision are as inseparably combined in theory as they were in practice. Likewise in the works of modern economists, who regard the capitalist mode of production as absolute. On the other hand, as I shall presently illustrate with an example, the apologists of the modern slave system utilise the work of supervision quite as much as a justification of slavery, as the other economists do to justify the wage system....
The capitalist mode of production has brought matters to a point where the work of supervision, entirely divorced from the ownership of capital, is always readily obtainable. It has, therefore, come to be useless for the capitalist to perform it himself. An orchestra conductor need not own the instruments of his orchestra, nor is it within the scope of his duties as conductor to have anything to do with the "wages" of the other musicians. Co-operative factories furnish proof that the capitalist has become no less redundant as a functionary in production as he himself, looking down from his high perch, finds the big landowner redundant. Inasmuch as the capitalist's work does not originate in the purely capitalistic process of production, and hence does not cease on its own when capital ceases; inasmuch as it does not confine itself solely to the function of exploiting the labour of others; inasmuch as it therefore originates from the social form of the labour-process, from combination and co-operation of many in pursuance of a common result, it is just as independent of capital as that form itself as soon as it has burst its capitalistic shell. To say that this labour is necessary as capitalistic labour, or as a function of the capitalist, only means that the vulgus is unable to conceive the forms developed in the lap of capitalist production, separate and free from their antithetical capitalist character. The industrial capitalist is a worker, compared to the money-capitalist, but a worker in the sense of capitalist, i.e., an exploiter of the labour of others. The wage which he claims and pockets for this labour is exactly equal to the appropriated quantity of another's labour and depends directly upon the rate of exploitation of this labour, in so far as he undertakes the effort required for exploitation; it does not, however, depend on the degree of exertion that such exploitation demands, and which he can shift to a manager for moderate pay. After every crisis there are enough ex-manufacturers in the English factory districts who will supervise, for low wages, what were formerly their own factories in the capacity of managers of the new owners, who are frequently their creditors.[5]
The wages of management both for the commercial and industrial manager are completely isolated from the profits of enterprise in the co-operative factories of labourers, as well as in capitalist stock companies. The separation of wages of management from profits of enterprise, purely accidental at other times, is here constant. In a co-operative factory the antagonistic nature of the labour of supervision disappears, because the manager is paid by the labourers instead of representing capital counterposed to them.
Stock companies in general — developed with the credit system — have an increasing tendency to separate this work of management as a function from the ownership of capital, be it self-owned or borrowed. Just as the development of bourgeois society witnessed a separation of the functions of judges and administrators from land-ownership, whose attributes they were in feudal times. But since, on the one hand, the mere owner of capital, the money-capitalist, has to face the functioning capitalist, while money-capital itself assumes a social character with the advance of credit, being concentrated in banks and loaned out by them instead of its original owners, and since, on the other hand, the mere manager who has no title whatever to the capital, whether through borrowing it or otherwise, performs all the real functions pertaining to the functioning capitalist as such, only the functionary remains and the capitalist disappears as superfluous from the production process.It is manifest from the public accounts of the co-operative factories in England [6] that — after deducting the manager's wages, which form a part of the invested variable capital much the same as wages of other labourers — the profit was higher than the average profit, although at times they paid a much higher interest than did private manufacturers. The source of greater profits in all these cases was greater economy in the application of constant capital. What interests us in this, however, is the fact that here the average profit ( = interest + profit of enterprise) presents itself actually and palpably as a magnitude wholly independent of the wages of management. Since the profit was higher here than average profit, the profit of enterprise was also higher than usual."
Marx Capital Vol III Ch 3
Thursday, 28 October 2010
The Tories Kosovan Style Social Cleansing Policies
Not my words, but those of Tory London Mayor Boris Johnson, who has responded to the Tories proposals for capping Housing Benefit, by saying,
"What we will not see and we will not accept any kind of Kosovo-style social cleansing of London. On my watch, you are not going to see thousands of families evicted from the place where they have been living and have put down roots."
UKPA
Ordinary Liberals must be feeling a bit travel sick.
They started off a few months ago posing as some kind of Left alternative to Labour, now they find themselves in the van with a Tory Party to the Right of Boris Johnson!!! That's one hell of a lurch. Its not just on this issue either. The Liberals have always proclaimed their progressive stance towards Europe. But, now they are holding hands with a Tory Party that ditched the old Right-wing parties in Europe to form an alliance with various fascists and other nut jobs in the EU parliament. But, apparently, even that isn't far enough Right for some of the Tories backwoodsmen. Over the last few days, Douglas Carswell MP has usurped the role of Bill Cash in putting forward the Tory Eurosceptic position, getting himself in front of the TV cameras at every opportunity. For Carswell, even a right-wing Tory party under Cameron is still selling out.
Of course, its no wonder that Boris is speaking out. The tories policies from Day One appear to have been marked by a significant degree of amateurism and lack of thought. In fact, anyone who has spent time in Government of one kind or another might be cynical enough to beleive that some of that could be down to them not having the fullest co-operation of some of those sections of the bureaucratic State apparatus they are seeking to throw on to the Dole.
The proposals on Housing Benefit appear to be just the latest in a line of policies that seem to have been rushed out, almost as though they were designed on the back of a fag packet to meet the narrow minded concerns of Daily Mail and Daily express readers, rather than as part of any well-thought out strategy. The immigration Cap was another such policy. Already, Vince Cable has had to embarass the government, of which he is a part, over that, in relaying the concerns of Big Capital, particularly in London, that they are finding it already difficult to recruit trhe high-level talent they require. Boris is just reflecting a similar concern of Big Capital in London that recognises the danger. The majority of workers in Inner London receiving Housing Benefit, are not the picture of scroungers presented by the Mail and express and their ilk. They are workers in low status, low-paid employment - and some not so low paid - who cannot afford the ridiculously inflated house prices in London, and who forced into renting find themselves entitled to Housing benefit to cover similarly ridiculously extortionate rents. If the Housing Benefit is cut, they will have to move out, and possibly give up their jobs. Big Capital realises that if that happens, large numbers of currently unseen workers, who make the City tick, will disappear. Either, things will grind to a halt, or else they will be faced with a labour shortage and the need to significantly increase wages.
This is, in fact, a good example of why Big Capital needs the Welfare State, and why it created it. The welfare State, in this case via Housing Benefit, is the means by which Big Capital ensures the supply and reproduction of Labour-Power of the type and quantity it requires, where it wants it, and at the same time socialises the cost of that via the Capitalist State. Boris in the centre of Big Capital is representing its interests, whilst Cameron is trapped by the right-wing populist politics he needed to win over the Express readers to get elected.
The vileness of that kind of politics was represented the other week by the odious David Starkey, who presented a report on the BBC's "This Week", arguing that the poor had no right to live in desirable areas where they could not afford to live. Yet, even then the argument was put forward by Dianne Abotte that the logic of this proposal was to force workers out of these areas, and create the kinds of problems only now being considered. But, apparently, Boris is not alone.
As, The BBC Reports, as many as a dozen London Tory MP's, have already had a meeting to oppose the proposals and call for exemptions. This is not the Tory Government of Maggie Thatcher - and even she found that the State continued to grow under her Government - it is racked with divisions, and those divisions, at least in part, reflect divisions within its class base. Workers should take heart from that, and redouble their efforts to defeat it, now. An early victory for workers will set the tone for future struggles.
"What we will not see and we will not accept any kind of Kosovo-style social cleansing of London. On my watch, you are not going to see thousands of families evicted from the place where they have been living and have put down roots."
UKPA
Ordinary Liberals must be feeling a bit travel sick.
They started off a few months ago posing as some kind of Left alternative to Labour, now they find themselves in the van with a Tory Party to the Right of Boris Johnson!!! That's one hell of a lurch. Its not just on this issue either. The Liberals have always proclaimed their progressive stance towards Europe. But, now they are holding hands with a Tory Party that ditched the old Right-wing parties in Europe to form an alliance with various fascists and other nut jobs in the EU parliament. But, apparently, even that isn't far enough Right for some of the Tories backwoodsmen. Over the last few days, Douglas Carswell MP has usurped the role of Bill Cash in putting forward the Tory Eurosceptic position, getting himself in front of the TV cameras at every opportunity. For Carswell, even a right-wing Tory party under Cameron is still selling out.Of course, its no wonder that Boris is speaking out. The tories policies from Day One appear to have been marked by a significant degree of amateurism and lack of thought. In fact, anyone who has spent time in Government of one kind or another might be cynical enough to beleive that some of that could be down to them not having the fullest co-operation of some of those sections of the bureaucratic State apparatus they are seeking to throw on to the Dole.
The proposals on Housing Benefit appear to be just the latest in a line of policies that seem to have been rushed out, almost as though they were designed on the back of a fag packet to meet the narrow minded concerns of Daily Mail and Daily express readers, rather than as part of any well-thought out strategy. The immigration Cap was another such policy. Already, Vince Cable has had to embarass the government, of which he is a part, over that, in relaying the concerns of Big Capital, particularly in London, that they are finding it already difficult to recruit trhe high-level talent they require. Boris is just reflecting a similar concern of Big Capital in London that recognises the danger. The majority of workers in Inner London receiving Housing Benefit, are not the picture of scroungers presented by the Mail and express and their ilk. They are workers in low status, low-paid employment - and some not so low paid - who cannot afford the ridiculously inflated house prices in London, and who forced into renting find themselves entitled to Housing benefit to cover similarly ridiculously extortionate rents. If the Housing Benefit is cut, they will have to move out, and possibly give up their jobs. Big Capital realises that if that happens, large numbers of currently unseen workers, who make the City tick, will disappear. Either, things will grind to a halt, or else they will be faced with a labour shortage and the need to significantly increase wages.This is, in fact, a good example of why Big Capital needs the Welfare State, and why it created it. The welfare State, in this case via Housing Benefit, is the means by which Big Capital ensures the supply and reproduction of Labour-Power of the type and quantity it requires, where it wants it, and at the same time socialises the cost of that via the Capitalist State. Boris in the centre of Big Capital is representing its interests, whilst Cameron is trapped by the right-wing populist politics he needed to win over the Express readers to get elected.
The vileness of that kind of politics was represented the other week by the odious David Starkey, who presented a report on the BBC's "This Week", arguing that the poor had no right to live in desirable areas where they could not afford to live. Yet, even then the argument was put forward by Dianne Abotte that the logic of this proposal was to force workers out of these areas, and create the kinds of problems only now being considered. But, apparently, Boris is not alone.
As, The BBC Reports, as many as a dozen London Tory MP's, have already had a meeting to oppose the proposals and call for exemptions. This is not the Tory Government of Maggie Thatcher - and even she found that the State continued to grow under her Government - it is racked with divisions, and those divisions, at least in part, reflect divisions within its class base. Workers should take heart from that, and redouble their efforts to defeat it, now. An early victory for workers will set the tone for future struggles.
Economic Theory & The Cuts - Part 4
Almost immediately after the Budget, we saw the large Building Maintenance and Social Housing business Connaught go bust as a result of the announcements.
The share prices of many IT Companies went a similar way, as the idea that lucrative Public Sector contracts would disappear for these companies. In the past, Councils have always been somewhat reluctant to simply close facilities, not just because of the public backlash, but because it meant paying out redundancy pay, and losing workers who could not easily got back. With much of the manual work of local Councils now already transferred to private companies, they will have less restraint, and that will immediately hit all of those private companies that have taken over that work. The large number of workers in these private companies likely to face the sack will have a good reason to link up with workers in the Public Sector.
There is another reason that the Cuts will have a bigger effect. One reason that the multiplier is only 1.2 even though most people spend the largest part of their income, is that many of the things we buy are not made in this country. Much of the stuff we buy in the shops is made in China, or other parts of Asia.
As soon as the money goes out of the country to pay for those Imports, it ceases being able to act as a multiplier. On the contrary, it acts as a multiplier in China or wherever it ends up. However, a lot of Public Sector spending at least in its early cycles of the multiplier is spent on employing local workers, buying local materials and so on. That is much less likely with say a tax cut, which benefits mainly the better off, and particularly benefits the better-off where they are most congregated in London and the South-East. Spending Cuts, which will have a more pronounced effect in those parts of the country most deprived will then have a multiple negative effect.
Before moving off this point, it is useful to also look at another economic concept connected to the multiplier, to see how this will also have a much bigger effect as a result of Cuts, and particularly in these areas. That concept is known as the Accelerator Effect. It works like this. Suppose a firm makes machines – let's say ride on lawn mowers used by Councils for cutting the grass. It may have work maintaining these machines, but let's say that its main work comes in repalcing them when they wear out. If Council A has 10 of these machines, which wear out at 1 a year, then our company has a regular order for 1 new machine a year. In fact, it would no doubt supply many other Councils on a similar basis. Now, if there is a pickup in economic activity of 10%, which means that new housing estates are built with grass verges to mow, new playing fields are established and so on, all of these Councils find they need additional mowers. They all buy an additional mower as well as replacing the usual worn out one. A 10% increase has led to the demand for mowers rising not by 10%, but by 100%! The mower firm has to hugely increase its productive potential, and of course, the usual multiplier effect then also kicks in.
But, the reverse is devastating to such a company. In conditions where the Councils have to cut back, they not only do not buy additional mowers, but decide to not even replace the worn out ones, cutting back on the grass cutting to make the remaining mowers do. Now the supplier has no work at all – and possibly none for more than year. Not only will many of these firms go bust, but the knock-on effect through the loss of income of its workers, the loss of orders for steel etc. to its suppliers will be significant too.
Once again, it can be seen how varying the economic consequences of this can be. Down in Esher, a company engaged in such business might be able to survive, even if it has to cut back, because it will have a demand for its mowers from all of the Stockbrokers and other City types with huge gardens to be maintained. But, up in Gateshead there are not so many Stockbrokers, not so many people with huge gardens or the money to buy sit-on mowers. If Public Sector contracts are lost then in these areas there is very little of an alternative market that these private companies can turn to.
In fact, despite the Tories crowing about the 3rd Quarter GDP figures that came out on Tuesday, showing growth of 0.8%, this shows the problem. A large part of that figure, as with the Q2 figure was accounted for by a large rise in Construction activity. Part of the Q2 figure was explained by changes in the way the number is calculated, and part by the fact that the bad weather in Q1, meant that work was held over. But, nearly all of that work was a direct result of the fiscal stimulus that the Labour Government had introduced in 2009. Without that stimulus, the Q2 figure would have been much less, and Q3 would have been close to zero. Indeed, this is only the Flash Estimate of GDP, which covers just the first two months of the quarter. All of the survey data done by industry organisations, and by Finance Houses over recent weeks, has shown that Construction activity has all but ceased. When the revisions to this figure come out, it is likely that the initial estimates of a figure around 0.4-0.6%, will be closer to the mark, and the trend is very bad news for the likely reading for the Fourth Quarter. However, the Fourth Quarter of any year tends to be stronger, and with the rise in VAT in January, it is possible that spending might be brought forward to avoid the increase. Given the months of announcements by the Liberal-Tories that the economy was as bad as Greece, that we were bankrupt, and that the world's financiers were about to stop lending to us, other than at interest rates through the roof, is it any wonder that many people believed them? Seeing the proposals in the Budget was enough to bankrupt Connaught. The CSR announcements on the cuts in Housing Benefit, and on Social Housing Construction at a time when the private residential market is going into freefall – a picture of the future is presented in Ireland where house prices have already fallen by 50% in the last year – is not going to encourage construction companies to go out and take on apprentices, or buy new equipment, or be buying up large plots of land.
Big Capital is already complaining that the Tories Immigration Cap has prevented them from recruiting some of the high level, skilled workers they need, and now Boris Johnson has even come out to declaim the Liberal-Tories proposals on Housing Benefit, as potentially leading to a Kosovo style “social” cleansing of Inner London. Its no wonder that Boris has spoken out, because Big Capital must be concerned that many of those upon whom it depends to keep the cogs of the City Machine working, but who are unseen – the cleaners, the porters, the tube workers – in large part, are the ones who depend on the Housing Benefit, and if they simply disappear, it will not only cause them great problems, but the resulting labour shortage will push up wages considerably for these types of jobs, with a consequent knock-on effect. The announcement of the scrapping of the Building Schools For the Future Programme will mean that the building contracts that many of these companies had been looking forward to have disappeared too, along with the IT contracts to fit them out with computers, networks and other high-tech equipment. Although, the Tories announced some high profile Capital investment such as in Merseyside, the go ahead with Crossrail, and of HS2, the reality is that, as is always the case with Public Sector cutbacks, Capital Spending has taken a proportionately bigger hit than Revenue spending, if Welfare Benefits are set aside.
Moreover, as is usually the case with Big State projects, those that have been announced are drawn out over such a long period as to be almost certainly a waste of money. Just as the UK wasted money on introducing diesel engines on to the railways in the 1950's rather than go for a rapid electrification, so today the timescale for introducing a high-speed rail network is so prolonged that it is almost certain that by the time it is completed, conditions and technology will have changed, and it will be out of date. The same is true of the proposals on high-speed broadband. Where the UK is only taking about introducing high-speed broadband nationally within ten years, countries like South Korea already have a fully developed high-speed broadband network covering the country using fibre, 3G, and wi-fi giving around 100 mbps, and are looking now to move to speeds of 1 gigabit per second!
If we look at the Tories proposals they amount to taking around 7% of GDP out of aggregate demand over the next four years. If we just apply the multiplier of 1.2 to that figure we get around 8.4% taken out over four years or an equivalent of around 2.1% p.a. Reduction in growth. In fact, because the proposals are back-ended, and we are already half way through the current financial year, its likely that we may see something more like 2.5% p.a. taken out in the last three years, and something less than 1% taken out in this year. But, additional demand will be taken out as a result of Tax changes. At best, this paints a picture of stagnation for the next 4 years. But, the reality is that economic growth also depends upon momentum, and confidence. Over the last six months the Tories have done everything they could to damage confidence with their announcements about how bad things are, and were going to become. By emphasising how deep and painful the Cuts were going to be they have added to the despondency and lack of confidence in the future. They have created the very worst conditions they could have done for implementing economic policies that actually will impact on economic activity significantly.
On that basis I would expect the actual growth figure for the whole of Calendar 2010 to struggle to reach 2.5%. That is because I expect the economy to contract or be flat in the Fourth Quarter. It is likely to be that momentum, and the lack of confidence that engenders to be what carries forward into 2011, when a significant reduction in Aggregate Demand will hit the economy early on with £12 billion taken out with the VAT rise in January. Soon after that, workers – though not employers – will be hit with a rise in NI, and, at the same time, they will probably face closure of facilities and increases in Rents, Charges, and Council Tax, as Local Authorities respond to Central Government reduction in their financing, which has been loaded more heavily on to 2011-12. Under those conditions, it is far more likely that the economic growth that had been underway would be choked off anyway. Taking an additional 2.5% out of the economy under those conditions is almost bound to lead to recession.
Of course, the Tories could be right. I continue to believe that globally Capitalism is in rude health. Unfortunately, for Britain and the US and other western economies the centre of global capitalism now revolves around Shanghai, and Mumbai. Britain may, as the Tories hope, be saved by an avalanche of exports on a scale we have not seen for decades. There are some companies capable of doing that, but I fear far too few to make a difference for now.
The UK might be saved by an increase in economic activity, in the rest of Europe and North America, but its hardly likely given that the Tories co-thinkers in Europe can see no alternative to austerity, and in the US, Sarah Palin and the Tea Party are in the ascendant. Indeed, despite all the tea and sympathy at the G20 last weekend, the reality is that it is all those policies, being pursued by the same right-wing populist politicians that created the conditions for the Great Depression, and, just as they did then, they tried to look after their own backyard, by various forms of currency devaluation, and Protectionism. The US has already passed the necessary legislation to impose protectionist measures against China, and it can be used against others such as Europe too. In Trade wars as with any other fight, getting the first strike in is always a strategic advantage. That was the lesson the US learned in the 1930's.
In fact, This Report In The Guardian, shows that already happening. Given the close trade ties between the UK and Ireland, it is clear that the fact of Ireland going into recession once again as a result of its austerity measures will have a serious effect on UK Exports.
China and other Asian economies have the advantage that the US had in the 1930's. If the world goes into a Depression, they have huge potential domestic markets, and they have the resources to be able to introduce the kind of Keynesian stimulus that the US did in the 1930's, to be able to ride it out. China, in particular would come out of such a situation as probably the leading global economic power, and would have gained huge global strategic advantage in Africa and Latin America where it has large numbers of bilateral trade agreements.
It would occupy the kind of role economically, and militarily that the US did as the world went into WWII. But, for the reasons I have set out elsewhere this is not yet the 1920's or 1930's. This is more like 1900 or 1960. If the West goes into a Depression, it will be brutal, deep, and could last for up to 40 months. But, a consequence will be a massive restructuring and rebalancing of western economies, and with it the world economy. It will set the stage for a massive development of economic forces.
But, just as that same kind of process after 1900 and up to 1914, created massive contradictions, and frictions that eventually could only be resolved by WWI and II, so the much greater development this time, will result in even greater contradictions, and an even more violent resolution of them.
Back To Part 3
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The share prices of many IT Companies went a similar way, as the idea that lucrative Public Sector contracts would disappear for these companies. In the past, Councils have always been somewhat reluctant to simply close facilities, not just because of the public backlash, but because it meant paying out redundancy pay, and losing workers who could not easily got back. With much of the manual work of local Councils now already transferred to private companies, they will have less restraint, and that will immediately hit all of those private companies that have taken over that work. The large number of workers in these private companies likely to face the sack will have a good reason to link up with workers in the Public Sector.There is another reason that the Cuts will have a bigger effect. One reason that the multiplier is only 1.2 even though most people spend the largest part of their income, is that many of the things we buy are not made in this country. Much of the stuff we buy in the shops is made in China, or other parts of Asia.
As soon as the money goes out of the country to pay for those Imports, it ceases being able to act as a multiplier. On the contrary, it acts as a multiplier in China or wherever it ends up. However, a lot of Public Sector spending at least in its early cycles of the multiplier is spent on employing local workers, buying local materials and so on. That is much less likely with say a tax cut, which benefits mainly the better off, and particularly benefits the better-off where they are most congregated in London and the South-East. Spending Cuts, which will have a more pronounced effect in those parts of the country most deprived will then have a multiple negative effect.Before moving off this point, it is useful to also look at another economic concept connected to the multiplier, to see how this will also have a much bigger effect as a result of Cuts, and particularly in these areas. That concept is known as the Accelerator Effect. It works like this. Suppose a firm makes machines – let's say ride on lawn mowers used by Councils for cutting the grass. It may have work maintaining these machines, but let's say that its main work comes in repalcing them when they wear out. If Council A has 10 of these machines, which wear out at 1 a year, then our company has a regular order for 1 new machine a year. In fact, it would no doubt supply many other Councils on a similar basis. Now, if there is a pickup in economic activity of 10%, which means that new housing estates are built with grass verges to mow, new playing fields are established and so on, all of these Councils find they need additional mowers. They all buy an additional mower as well as replacing the usual worn out one. A 10% increase has led to the demand for mowers rising not by 10%, but by 100%! The mower firm has to hugely increase its productive potential, and of course, the usual multiplier effect then also kicks in.
But, the reverse is devastating to such a company. In conditions where the Councils have to cut back, they not only do not buy additional mowers, but decide to not even replace the worn out ones, cutting back on the grass cutting to make the remaining mowers do. Now the supplier has no work at all – and possibly none for more than year. Not only will many of these firms go bust, but the knock-on effect through the loss of income of its workers, the loss of orders for steel etc. to its suppliers will be significant too.
Once again, it can be seen how varying the economic consequences of this can be. Down in Esher, a company engaged in such business might be able to survive, even if it has to cut back, because it will have a demand for its mowers from all of the Stockbrokers and other City types with huge gardens to be maintained. But, up in Gateshead there are not so many Stockbrokers, not so many people with huge gardens or the money to buy sit-on mowers. If Public Sector contracts are lost then in these areas there is very little of an alternative market that these private companies can turn to.In fact, despite the Tories crowing about the 3rd Quarter GDP figures that came out on Tuesday, showing growth of 0.8%, this shows the problem. A large part of that figure, as with the Q2 figure was accounted for by a large rise in Construction activity. Part of the Q2 figure was explained by changes in the way the number is calculated, and part by the fact that the bad weather in Q1, meant that work was held over. But, nearly all of that work was a direct result of the fiscal stimulus that the Labour Government had introduced in 2009. Without that stimulus, the Q2 figure would have been much less, and Q3 would have been close to zero. Indeed, this is only the Flash Estimate of GDP, which covers just the first two months of the quarter. All of the survey data done by industry organisations, and by Finance Houses over recent weeks, has shown that Construction activity has all but ceased. When the revisions to this figure come out, it is likely that the initial estimates of a figure around 0.4-0.6%, will be closer to the mark, and the trend is very bad news for the likely reading for the Fourth Quarter. However, the Fourth Quarter of any year tends to be stronger, and with the rise in VAT in January, it is possible that spending might be brought forward to avoid the increase. Given the months of announcements by the Liberal-Tories that the economy was as bad as Greece, that we were bankrupt, and that the world's financiers were about to stop lending to us, other than at interest rates through the roof, is it any wonder that many people believed them? Seeing the proposals in the Budget was enough to bankrupt Connaught. The CSR announcements on the cuts in Housing Benefit, and on Social Housing Construction at a time when the private residential market is going into freefall – a picture of the future is presented in Ireland where house prices have already fallen by 50% in the last year – is not going to encourage construction companies to go out and take on apprentices, or buy new equipment, or be buying up large plots of land.
Big Capital is already complaining that the Tories Immigration Cap has prevented them from recruiting some of the high level, skilled workers they need, and now Boris Johnson has even come out to declaim the Liberal-Tories proposals on Housing Benefit, as potentially leading to a Kosovo style “social” cleansing of Inner London. Its no wonder that Boris has spoken out, because Big Capital must be concerned that many of those upon whom it depends to keep the cogs of the City Machine working, but who are unseen – the cleaners, the porters, the tube workers – in large part, are the ones who depend on the Housing Benefit, and if they simply disappear, it will not only cause them great problems, but the resulting labour shortage will push up wages considerably for these types of jobs, with a consequent knock-on effect. The announcement of the scrapping of the Building Schools For the Future Programme will mean that the building contracts that many of these companies had been looking forward to have disappeared too, along with the IT contracts to fit them out with computers, networks and other high-tech equipment. Although, the Tories announced some high profile Capital investment such as in Merseyside, the go ahead with Crossrail, and of HS2, the reality is that, as is always the case with Public Sector cutbacks, Capital Spending has taken a proportionately bigger hit than Revenue spending, if Welfare Benefits are set aside.Moreover, as is usually the case with Big State projects, those that have been announced are drawn out over such a long period as to be almost certainly a waste of money. Just as the UK wasted money on introducing diesel engines on to the railways in the 1950's rather than go for a rapid electrification, so today the timescale for introducing a high-speed rail network is so prolonged that it is almost certain that by the time it is completed, conditions and technology will have changed, and it will be out of date. The same is true of the proposals on high-speed broadband. Where the UK is only taking about introducing high-speed broadband nationally within ten years, countries like South Korea already have a fully developed high-speed broadband network covering the country using fibre, 3G, and wi-fi giving around 100 mbps, and are looking now to move to speeds of 1 gigabit per second!
If we look at the Tories proposals they amount to taking around 7% of GDP out of aggregate demand over the next four years. If we just apply the multiplier of 1.2 to that figure we get around 8.4% taken out over four years or an equivalent of around 2.1% p.a. Reduction in growth. In fact, because the proposals are back-ended, and we are already half way through the current financial year, its likely that we may see something more like 2.5% p.a. taken out in the last three years, and something less than 1% taken out in this year. But, additional demand will be taken out as a result of Tax changes. At best, this paints a picture of stagnation for the next 4 years. But, the reality is that economic growth also depends upon momentum, and confidence. Over the last six months the Tories have done everything they could to damage confidence with their announcements about how bad things are, and were going to become. By emphasising how deep and painful the Cuts were going to be they have added to the despondency and lack of confidence in the future. They have created the very worst conditions they could have done for implementing economic policies that actually will impact on economic activity significantly.
On that basis I would expect the actual growth figure for the whole of Calendar 2010 to struggle to reach 2.5%. That is because I expect the economy to contract or be flat in the Fourth Quarter. It is likely to be that momentum, and the lack of confidence that engenders to be what carries forward into 2011, when a significant reduction in Aggregate Demand will hit the economy early on with £12 billion taken out with the VAT rise in January. Soon after that, workers – though not employers – will be hit with a rise in NI, and, at the same time, they will probably face closure of facilities and increases in Rents, Charges, and Council Tax, as Local Authorities respond to Central Government reduction in their financing, which has been loaded more heavily on to 2011-12. Under those conditions, it is far more likely that the economic growth that had been underway would be choked off anyway. Taking an additional 2.5% out of the economy under those conditions is almost bound to lead to recession.
Of course, the Tories could be right. I continue to believe that globally Capitalism is in rude health. Unfortunately, for Britain and the US and other western economies the centre of global capitalism now revolves around Shanghai, and Mumbai. Britain may, as the Tories hope, be saved by an avalanche of exports on a scale we have not seen for decades. There are some companies capable of doing that, but I fear far too few to make a difference for now.
The UK might be saved by an increase in economic activity, in the rest of Europe and North America, but its hardly likely given that the Tories co-thinkers in Europe can see no alternative to austerity, and in the US, Sarah Palin and the Tea Party are in the ascendant. Indeed, despite all the tea and sympathy at the G20 last weekend, the reality is that it is all those policies, being pursued by the same right-wing populist politicians that created the conditions for the Great Depression, and, just as they did then, they tried to look after their own backyard, by various forms of currency devaluation, and Protectionism. The US has already passed the necessary legislation to impose protectionist measures against China, and it can be used against others such as Europe too. In Trade wars as with any other fight, getting the first strike in is always a strategic advantage. That was the lesson the US learned in the 1930's.In fact, This Report In The Guardian, shows that already happening. Given the close trade ties between the UK and Ireland, it is clear that the fact of Ireland going into recession once again as a result of its austerity measures will have a serious effect on UK Exports.
China and other Asian economies have the advantage that the US had in the 1930's. If the world goes into a Depression, they have huge potential domestic markets, and they have the resources to be able to introduce the kind of Keynesian stimulus that the US did in the 1930's, to be able to ride it out. China, in particular would come out of such a situation as probably the leading global economic power, and would have gained huge global strategic advantage in Africa and Latin America where it has large numbers of bilateral trade agreements.
It would occupy the kind of role economically, and militarily that the US did as the world went into WWII. But, for the reasons I have set out elsewhere this is not yet the 1920's or 1930's. This is more like 1900 or 1960. If the West goes into a Depression, it will be brutal, deep, and could last for up to 40 months. But, a consequence will be a massive restructuring and rebalancing of western economies, and with it the world economy. It will set the stage for a massive development of economic forces.
But, just as that same kind of process after 1900 and up to 1914, created massive contradictions, and frictions that eventually could only be resolved by WWI and II, so the much greater development this time, will result in even greater contradictions, and an even more violent resolution of them.Back To Part 3
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Wednesday, 27 October 2010
Economic Theory & The Cuts - Part 3
The Cuts, in so far as they threaten to send the economy into a serious recession, are not in the interests of Big Capital, but addressing the problem of reducing the Value of Labour Power, in the West, as part of a strategy to make it more competitive, so as to restructure and rebalance western economies, in order to restructure and rebalance Global Capitalism, is in the interests of Big Capital.
Its in that context that policy formation has to be analysed, at the same time as analysing the complex of contradictions that exist between Party, Class and State, and between different fractions of Capital within and between States, and the contradictory interests of States within the global social relation that is Imperialism. Trying to understand the Cuts, or any other aspect of Government policy, according to a method of crude determinism, and superficialities, is bound to lead to error. The truth is always concrete.
The question that has to be addressed then is, to what extent do the Cuts threaten to send the economy into a tailspin. Once again, it is perhaps easier to understand this discussion with the aid of a graph, this time Keynes' graph setting out the basic relationships between Expenditure and Income, and the part played by Consumption, Investment and Saving.
Economists do not argue over the relationships set out in this diagram by Keynes, which is essentially descriptive. The disagreements come over the policy prescriptions drawn from it.
What Keynes says, and what the diagram illustrates is that Expenditure and Income are equal. It should not matter whether we calculate the GDP on the basis of all the Expenditures within the Economy, (by Consumers, or Firms), or whether we calculate it on the basis of Incomes (in the form of wages, rent, interest and profit) because all of the latter are payments earned as a result of the sale of goods and services, which make up the Expenditure figure. However, Keynes recognised the fallacy of Say's Law, (actually developed by Mill not Say) which says that Supply creates its own Demand i.e. that markets will always clear because the incomes earned in production will be used up in purchasing goods and services, provided the market is allowed to adjust relative prices accordingly to ration Supply. As soon as society moved beyond barter, that is the act of production and consumption were completely separated, this no longer holds. Producers can sell their products, but have no necessity to immediately spend the proceeds of the sale, in another purchase. Money allows them to save instead. Consequently, he deals with this by making Saving equal investment, and includes under the term investment, any increase in inventories. That is, if firms find they have fields of unsold cars, this increase in inventories, is classed by Keynes as “Investment”.
The line, which runs up at 45 degrees from the origin, is a line which symbolises this equation of Income with Expenditure. At any point on it, a line down to Income, or across to Expenditure will result in the same amount of money. The other two lines show how Consumption rises with income. The angle of this line is determined by what is called the Marginal Propensity to Consume. In other words, if on average, people spend 90%, of their earnings on Consumption, and save 10%, then the MPS is equal to .9. That means that for every £1 billion of new income, in the economy, £900 million will be spent, and £100 million will be saved. However, precisely because of the relation between Income and Expenditure. If this £900 is spent on consumption, that means that £900 million is received as new income by those firms and workers producing these goods and services. That means that rather than £1 billion of new income in the economy, we now have £1.9 billion. But, similarly, this additional £900 million of income will result in 90% of it also being spend or £810 million, and so on until we reach zero. In fact, this “multiplier effect”, will mean that if the MPC is .9 then any new income in the economy will result in income and expenditure increasing by 10 times that figure. But, don't get carried away just yet, the last estimates I saw for the multiplier in the UK was for a figure not of 10, but of more like 1.2.
But, another reason that it is difficult to assess exactly what the economic consequences of the Cuts will be is that it is clear from this figure that the Marginal Propensity to Consume is not the same for everyone. Someone earning £750,000 a year, might only spend a quarter of that, saving the rest. But, someone on Income Support is likely to need to spend all of it, and more besides! Just from a consideration of economic efficiency, the Tories proposals, which target the Cuts on the poorest in society rather than the richest are badly aimed, because they will result in a bigger proportionate fall in spending, and therefore of income, and economic activity.
The other side of this equation is the saving. Because Saving = Investment, as National Income rises, it is not just Consumption that increases. Alongside it, the saving is also matched by an increase in Investment, as firms spend money buying machines, factories, and materials – and building inventories. These two things Consumption and Investment form the basis of the total demand (Aggregate Demand) for Goods and Services within the economy.
But, another consequence of the equation, between Income and Expenditure, is that, given an average figure for Income per head, it is possible to calculate what the level of National Income would have to be for there to be Full Employment. Consequently, according to Keynes, if there is not Full Employment, it can be achieved by raising National Income to the necessary level, and National Income can be raised by increasing Expenditure to that same figure.
There are a number of ways that Expenditure (Aggregate Demand) can be raised. One way is to promote additional demand from overseas, by increasing exports, or encouraging Tourism etc. Additional foreign investment in new factories, mines etc. would have the same effect. But, of course, Governments cannot control, only encourage these things, and if other countries are facing difficulties, exports might fall not rise etc.
But, Governments CAN directly affect the amount of spending that takes place within the economy. If consumer spending is too low, and therefore, saving is high, leading to firms increasing inventories, then the Government can cut taxes like VAT. This will encourage people to spend rather than save, and the spending will create additional income, which will in turn promote additional spending and so on.
It can increase taxes on unearned income, which will dissuade saving, and encourage spending, or as Charlie Bean admitted recently, it can use its control over interest rates to penalise savers, in order to persuade them to spend instead. But, in a market economy, there is no guarantee this will work. In Japan, interest rates have been near zero for a decade, yet saving remains very high. The reasons can be many fold. Firstly, in Japan there has been prolonged deflation – prices continually falling. As I pointed out in my blog Why Charlie Bean Could Be Disappointed, with house prices falling like a stone, one of the major items that households spend money on, housing is deflating rapidly.
In September, house prices fell 3.6%. That's more than 40% a year, which is a better return on your money than you would get from many high risk investments. You are not going to worry about only getting 2% p.a. Interest on your money, if, in effect, by leaving it in the bank, it has become worth almost twice as much in terms of the house you could buy with it! That's what happened in Japan with all prices.
If, the Tories send the economy into a serious recession, or if Mervyn King was right in his warnings that a continuing Currency War, which is a direct result of various states introducing austerity measures at home, whilst trying to maintain economic activity by exporting under cover of a devalued currency, threatens a repeat of the 1930's, then that kind of deflation suffered by Japan will become widespread.
Attempts to reflate the economy by printing money will fail, as they did in Japan, because as Keynes pointed out, in such an economy, where no one has a demand for that money, Monetary policy becomes like pushing on a piece of string. Velocity slows down, as, however, much money the Government prints, it simply gets stored up in bank vaults, waiting for someone to want it. Under such conditions the only economic agent that can have the will to step in to borrow that money and put it to use, is the State.
Consequently, another line can be drawn on the graph in addition to the Consumption and Investment lines, and that is a line representing State Expenditure. By stepping in to spend money, the State can raise the level of Aggregate Demand, thereby creating additional income, which in turn creates additional expenditure and so on, via the multiplier. That is what most States have done over the last two years in order to prevent the Financial Crisis leading to an uncontrolled economic downward spiral. But, the reverse is true, when the State takes demand out of the economy by reducing its spending, or by increasing taxes, that same mulitiplier effect acts to reduce income in the economy, and thereby further expenditure.
But, just as with the varying consequences on the Marginal Propensity to Consume of giving money to rich people or poor people, the consequences of taking money out of the economy will vary too. On this basis the Tories policies fail the test of economic efficiency too. The Tories have made no secret, from even before the election, that they intended to cut the Public Sector in those areas of the country, like the North-East, where the Public Sector accounts for a large part of the local economy.
But, one reason that the Public Sector accounts for a large part of these economies, is because they have suffered decades of low growth in the private sector going back to the 1920's. Aside from small pockets, they have high levels of deprivation, and low living standards. The Public Sector is not the cause of the lack of a private sector in these areas, but a response to that absence of the private sector. It is an application of the kind of Regional Economic policy that the EU could, had it been a rational Federal State, used over the last 30 years, to develop its periphery in Greece, Spain and so on, so as to avoid the current crisis of the PIIGS. In fact, were it not for the Public Sector in places like the North-East, much of the private industry that exists there would not have developed either. Consequently, removing Public Spending in these areas will have a far higher proportional effect than will Cuts of a similar amount in say the South-East.
An immediate effect will be that companies that depend on the Public Sector for contracts will go bust, and many more will barely scrape by. Their workers will be thrown on the dole. Given that these workers will more predominantly be those on low pay, with a higher than average MPC, the multiplier effect of that on the local economy will be more pronounced than in more affluent areas. The extent to which this will affect the private sector, and not just small companies, should not be underestimated as a result also of the effect of CCT and Best Value during the 1990's. The bloke who lived next door to me was a brickie with Stoke Council. That is until one day he come home in a Keir Van, because they had taken over all the Council's Direct Works.
Now, everywhere you look you see Keir Vans, because the company has taken over much of that work for the Public Sector. At the Council where I worked all of the Grounds Maintenance work had been privatised in the early 90's, and what was left of other services such as the Sports centres was heading the same way.
Back To Part 2
Forward To Part 4
Its in that context that policy formation has to be analysed, at the same time as analysing the complex of contradictions that exist between Party, Class and State, and between different fractions of Capital within and between States, and the contradictory interests of States within the global social relation that is Imperialism. Trying to understand the Cuts, or any other aspect of Government policy, according to a method of crude determinism, and superficialities, is bound to lead to error. The truth is always concrete.The question that has to be addressed then is, to what extent do the Cuts threaten to send the economy into a tailspin. Once again, it is perhaps easier to understand this discussion with the aid of a graph, this time Keynes' graph setting out the basic relationships between Expenditure and Income, and the part played by Consumption, Investment and Saving.
Economists do not argue over the relationships set out in this diagram by Keynes, which is essentially descriptive. The disagreements come over the policy prescriptions drawn from it.
What Keynes says, and what the diagram illustrates is that Expenditure and Income are equal. It should not matter whether we calculate the GDP on the basis of all the Expenditures within the Economy, (by Consumers, or Firms), or whether we calculate it on the basis of Incomes (in the form of wages, rent, interest and profit) because all of the latter are payments earned as a result of the sale of goods and services, which make up the Expenditure figure. However, Keynes recognised the fallacy of Say's Law, (actually developed by Mill not Say) which says that Supply creates its own Demand i.e. that markets will always clear because the incomes earned in production will be used up in purchasing goods and services, provided the market is allowed to adjust relative prices accordingly to ration Supply. As soon as society moved beyond barter, that is the act of production and consumption were completely separated, this no longer holds. Producers can sell their products, but have no necessity to immediately spend the proceeds of the sale, in another purchase. Money allows them to save instead. Consequently, he deals with this by making Saving equal investment, and includes under the term investment, any increase in inventories. That is, if firms find they have fields of unsold cars, this increase in inventories, is classed by Keynes as “Investment”.The line, which runs up at 45 degrees from the origin, is a line which symbolises this equation of Income with Expenditure. At any point on it, a line down to Income, or across to Expenditure will result in the same amount of money. The other two lines show how Consumption rises with income. The angle of this line is determined by what is called the Marginal Propensity to Consume. In other words, if on average, people spend 90%, of their earnings on Consumption, and save 10%, then the MPS is equal to .9. That means that for every £1 billion of new income, in the economy, £900 million will be spent, and £100 million will be saved. However, precisely because of the relation between Income and Expenditure. If this £900 is spent on consumption, that means that £900 million is received as new income by those firms and workers producing these goods and services. That means that rather than £1 billion of new income in the economy, we now have £1.9 billion. But, similarly, this additional £900 million of income will result in 90% of it also being spend or £810 million, and so on until we reach zero. In fact, this “multiplier effect”, will mean that if the MPC is .9 then any new income in the economy will result in income and expenditure increasing by 10 times that figure. But, don't get carried away just yet, the last estimates I saw for the multiplier in the UK was for a figure not of 10, but of more like 1.2.
But, another reason that it is difficult to assess exactly what the economic consequences of the Cuts will be is that it is clear from this figure that the Marginal Propensity to Consume is not the same for everyone. Someone earning £750,000 a year, might only spend a quarter of that, saving the rest. But, someone on Income Support is likely to need to spend all of it, and more besides! Just from a consideration of economic efficiency, the Tories proposals, which target the Cuts on the poorest in society rather than the richest are badly aimed, because they will result in a bigger proportionate fall in spending, and therefore of income, and economic activity.
The other side of this equation is the saving. Because Saving = Investment, as National Income rises, it is not just Consumption that increases. Alongside it, the saving is also matched by an increase in Investment, as firms spend money buying machines, factories, and materials – and building inventories. These two things Consumption and Investment form the basis of the total demand (Aggregate Demand) for Goods and Services within the economy.
But, another consequence of the equation, between Income and Expenditure, is that, given an average figure for Income per head, it is possible to calculate what the level of National Income would have to be for there to be Full Employment. Consequently, according to Keynes, if there is not Full Employment, it can be achieved by raising National Income to the necessary level, and National Income can be raised by increasing Expenditure to that same figure.
There are a number of ways that Expenditure (Aggregate Demand) can be raised. One way is to promote additional demand from overseas, by increasing exports, or encouraging Tourism etc. Additional foreign investment in new factories, mines etc. would have the same effect. But, of course, Governments cannot control, only encourage these things, and if other countries are facing difficulties, exports might fall not rise etc.But, Governments CAN directly affect the amount of spending that takes place within the economy. If consumer spending is too low, and therefore, saving is high, leading to firms increasing inventories, then the Government can cut taxes like VAT. This will encourage people to spend rather than save, and the spending will create additional income, which will in turn promote additional spending and so on.
It can increase taxes on unearned income, which will dissuade saving, and encourage spending, or as Charlie Bean admitted recently, it can use its control over interest rates to penalise savers, in order to persuade them to spend instead. But, in a market economy, there is no guarantee this will work. In Japan, interest rates have been near zero for a decade, yet saving remains very high. The reasons can be many fold. Firstly, in Japan there has been prolonged deflation – prices continually falling. As I pointed out in my blog Why Charlie Bean Could Be Disappointed, with house prices falling like a stone, one of the major items that households spend money on, housing is deflating rapidly.
In September, house prices fell 3.6%. That's more than 40% a year, which is a better return on your money than you would get from many high risk investments. You are not going to worry about only getting 2% p.a. Interest on your money, if, in effect, by leaving it in the bank, it has become worth almost twice as much in terms of the house you could buy with it! That's what happened in Japan with all prices.If, the Tories send the economy into a serious recession, or if Mervyn King was right in his warnings that a continuing Currency War, which is a direct result of various states introducing austerity measures at home, whilst trying to maintain economic activity by exporting under cover of a devalued currency, threatens a repeat of the 1930's, then that kind of deflation suffered by Japan will become widespread.
Attempts to reflate the economy by printing money will fail, as they did in Japan, because as Keynes pointed out, in such an economy, where no one has a demand for that money, Monetary policy becomes like pushing on a piece of string. Velocity slows down, as, however, much money the Government prints, it simply gets stored up in bank vaults, waiting for someone to want it. Under such conditions the only economic agent that can have the will to step in to borrow that money and put it to use, is the State.Consequently, another line can be drawn on the graph in addition to the Consumption and Investment lines, and that is a line representing State Expenditure. By stepping in to spend money, the State can raise the level of Aggregate Demand, thereby creating additional income, which in turn creates additional expenditure and so on, via the multiplier. That is what most States have done over the last two years in order to prevent the Financial Crisis leading to an uncontrolled economic downward spiral. But, the reverse is true, when the State takes demand out of the economy by reducing its spending, or by increasing taxes, that same mulitiplier effect acts to reduce income in the economy, and thereby further expenditure.
But, just as with the varying consequences on the Marginal Propensity to Consume of giving money to rich people or poor people, the consequences of taking money out of the economy will vary too. On this basis the Tories policies fail the test of economic efficiency too. The Tories have made no secret, from even before the election, that they intended to cut the Public Sector in those areas of the country, like the North-East, where the Public Sector accounts for a large part of the local economy.
But, one reason that the Public Sector accounts for a large part of these economies, is because they have suffered decades of low growth in the private sector going back to the 1920's. Aside from small pockets, they have high levels of deprivation, and low living standards. The Public Sector is not the cause of the lack of a private sector in these areas, but a response to that absence of the private sector. It is an application of the kind of Regional Economic policy that the EU could, had it been a rational Federal State, used over the last 30 years, to develop its periphery in Greece, Spain and so on, so as to avoid the current crisis of the PIIGS. In fact, were it not for the Public Sector in places like the North-East, much of the private industry that exists there would not have developed either. Consequently, removing Public Spending in these areas will have a far higher proportional effect than will Cuts of a similar amount in say the South-East. An immediate effect will be that companies that depend on the Public Sector for contracts will go bust, and many more will barely scrape by. Their workers will be thrown on the dole. Given that these workers will more predominantly be those on low pay, with a higher than average MPC, the multiplier effect of that on the local economy will be more pronounced than in more affluent areas. The extent to which this will affect the private sector, and not just small companies, should not be underestimated as a result also of the effect of CCT and Best Value during the 1990's. The bloke who lived next door to me was a brickie with Stoke Council. That is until one day he come home in a Keir Van, because they had taken over all the Council's Direct Works.
Now, everywhere you look you see Keir Vans, because the company has taken over much of that work for the Public Sector. At the Council where I worked all of the Grounds Maintenance work had been privatised in the early 90's, and what was left of other services such as the Sports centres was heading the same way.Back To Part 2
Forward To Part 4
Tuesday, 26 October 2010
Economic Theory & The Cuts - Part 2
It is not the Rate of Interest, which determines the demand and supply of Capital, but the demand and Supply of Money Capital, which determines the Rate of Interest. 
In fact, as Marx points out, in Capital, whereas the Exchange Value of commodities is determined by the labour-time required for their production, the Rate of Interest is solely determined by the interaction of Demand and Supply for Money. But, again as Marx points out, with reference to concrete examples, in the 19th Century, and as I have demonstrated above, the Demand and Supply of Money are not themselves exogenous factors, or independent variables. The reason that a large Supply of Money is available – set aside the increase in Money Tokens as a result of QE – is precisely because of an increase in economic activity. Companies that made huge profits, but were unable to productively invest all of it, accumulated it on their Balance Sheet. Large numbers of workers in Asia found their incomes rising, or became workers, having previously been peasants, and found that they could save money, to cover an uncertain future. Governments, in countries with high levels of manufactured or primary product exports, found that their revenues were increasing faster than their expenditure, and so were able to create Sovereign Wealth Funds. Moreover, as Marx, again points out, developed Capitalism soon created its own alternatives to Money and even Bank Credit. Provided trade is expanding, one firm will extend credit to another, in the form of not requiring payment until some time after delivery of its goods. It is only when trade begins to contract, when certainty of payment is reduced, that firms begin to demand prompt payment, and even cash payment. This rapid increase in the demand for actual Money, and the tendency of those with it to hoard it, is what really pushes up interest rates, and a perfect example of that is the Credit Crunch itself.
Consequently, it is not the Rate of Interest, the cost of Capital, that is determinant in the Supply of Capital, but the Absolute Volume and Rate of Profit. Viewed from that perspective, the Tories proposals appear even more dubious. Even, if the Cuts do not send the economy into Recession, not even they deny that they will have a negative effect on economic activity, and if economic activity declines, then absent a large reduction in the Value of Labour Power, the Absolute Volume and Rate of Profit will fall. Moreover, as Marx and Engels, and Lenin demonstrated, any attempt to counteract this latter tendency by simply reducing wages is bound to fail. Marx pointed out that workers form the majority of consumers. If wages are reduced then consumption will fall, and with it the Absolute Volume of Profit once more. Unless, the total amount of Capital employed is reduced the Rate of Profit will also fall.
But, if the total amount of Capital is reduced – Capital Destruction – then again not only will the number of workers fall, but the demand for machines, materials and so on will also fall, bringing about yet a further decline in the absolute volume of profit. There is an alternative to that. If Capitalists reduce wages, they can make up for the lost consumption (Aggregate Demand) by utilising the freed up Capital to buy additional or better machinery. But, as Lenin points out, although, on one level, Capitalism is marked out from all other Modes of Production, by its drive towards Production for the sake of production, the reality is that even Capitalism ultimately has to gear its production to Consumption. There is every reason, during normal times, for competition to drive each Capitalist to expand production, because, in doing so, they hope to increase their profits. But, that is not true in non-normal times.
No Capitalist, who only invests to make profit, is going to buy additional machines at a time when demand for their products is declining! They will only buy a better machine under such conditions, if old ones have worn out, or if it is so much better that it will hugely reduce their costs.
There is one other alternative. That is that Capitalists having freed Capital by reducing wages, use that Capital for unproductive consumption. They buy a new yacht, or whatever. But, in transforming this Capital into Revenue, they have essentially destroyed it. They create a demand for Capital in Department III producing Luxury Goods, and to that extent Capital is accumulated in that sector. But, as I have demonstrated elsewhere, Capital Consumes Itself, this is not a real Accumulation of Capital, but a transfer.
It is an exchange of Capital with Capital to the extent that these goods are only bought by Capital, and consequently not productive of Surplus Value. The Capital destroyed in one sector simply reappears in the other. Nor is this a very practical solution for Capital in the short-term. The consequence of reducing wages is that workers demand for wage goods falls, and alongside that production of wage goods must fall. That in itself hits the profits of those Capitalist producing and distributing wage goods (not an inconsiderable part of a modern economy). It means that the Capital and workers in this section must then be reallocated to Department III to produce the luxury goods now demanded by all Capitalists. But, its not at all clear that the workers involved in wage goods production (generally mass produced), will be suitable to be employed in the production of Luxury Goods (usually very skilled, such as jewellers, and individually produced).
Moreover, even if consumption does not fall sufficiently to dissuade Capitalists from investing – maybe as the Tories hope to meet demand in export markets – as I have demonstrated elsewhere, and following Marx and Engels, Wages, Prices And Profit, the consequence of this higher rate of profit, and spur to accumulation, has to be an increased demand for Labour-power, which will in itself once again result in higher wages. Ultimately, what we are led to here is the same conclusion as Marx and Engels, which is that the ultimate determinant is the Value of Labour Power. If Capital wants to sustainably raise the rate of profit, by reducing nominal, if not real, wages, it has to reduce the Value of Labour Power. But, it has to be clear what is meant here by reducing the Value of Labour Power, as I have pointed out elsewhere. A Capitalist can buy a machine for £1,000 as opposed to £1,500 that looks to be identical. Yet, if the machine has been poorly constructed, and breaks down every day, it will no have been a better Value option. The cost of repairs, let alone the cost of the stoppage of production, leaving all other pieces of equipment idle, will cost him dearly. Similarly, a textile manufacturer who buys cheaper yarn that snaps every few yards, will soon learn to buy the slightly more expensive, but better quality material. And, it is in this sense that Engels, as someone with manufacturing experience himself, recognised that these methods of cutting corners, and doing this on the cheap, trying to save the odd copper were the methods of the small-scale Capitalist, not the Big Capitalist, and that applied to their attitude to the most important commodity they bought too, labour-power.
It is no use Big Capital skimping on workers education, if the result is that instead of the increasingly skilled and educated workers they need, they get workers who lack the necessary skills, and who have to be trained at the employers expense just to bring them to a necessary standard. It is no use, particularly in a modern economy, having workers who suffer ill-health, and who like the faulty machine cause the boss to lose not only their production for the days they are off-sick, but the knock-on production to other workers production. It was for these reasons that Big Capital around the globe found ways to introduce various forms of Welfare State in order to ensure that such minimum standards were achieved, and so that each employer did not try to gain their own advantage by scrimping on their own provision.
No, in order to reduce the Value of Labour Power, it is necessary, not to reduce the quality or quantity of the components needed to reproduce modern workers, but to reduce the cost of those components.
In an interview on Al-Jazeera, the other day, I heard Costas Lapavistas, argue that the Cuts were not necessary, and the fact that the actual Cuts, once announced, were much smaller than everyone had been led to believe, demonstrated that what had been taking place was an ideological exercise, which proved they were not necessary. The ideological exercise is to soften up the Public Sector ready for a transformation of working practices within it, and for increased privatisation. Over the last decade or so, there has been massive investment in the Public Sector, a tripling of spending on the NHS, for example, which was not in any matched by equivalent increases in output. Productivity gains have been abysmal in many, though not all, sections of the Public Sector. In part, it was frustration at that, which led Blair's Government to introduce targets, in order to exercise some control over the burgeoning bureaucracy. As Michel Aglietta argued, in the 1970's, changes in technology, even then, the massive increase in computing power, and so on, were bringing about changes in the work-process, affecting white-collar, administrative, and managerial functions, in a way that mass production had changed worked practices, for manual workers, in the 1920's. In fact, I can remember in the 1990's seeing an indication of that. During a period of about 18 months, whenever, we advertised various administrative posts, we had a flood of applications from former Bank Managers, because that technological change had caused a restructuring of Banking and Finance jobs.
Aglietta called this process Neo-Fordism, and he argued that it could be seen in Europe, in hospitals and other areas of the Public Sector, and it would open up the potential for Capital to consider effective socialised provision of these commodities, by the private sector, which hitherto had been considered only possible of efficient and effective provision via the Capitalist State.
Back To Part 1
Forward To Part 3
In fact, as Marx points out, in Capital, whereas the Exchange Value of commodities is determined by the labour-time required for their production, the Rate of Interest is solely determined by the interaction of Demand and Supply for Money. But, again as Marx points out, with reference to concrete examples, in the 19th Century, and as I have demonstrated above, the Demand and Supply of Money are not themselves exogenous factors, or independent variables. The reason that a large Supply of Money is available – set aside the increase in Money Tokens as a result of QE – is precisely because of an increase in economic activity. Companies that made huge profits, but were unable to productively invest all of it, accumulated it on their Balance Sheet. Large numbers of workers in Asia found their incomes rising, or became workers, having previously been peasants, and found that they could save money, to cover an uncertain future. Governments, in countries with high levels of manufactured or primary product exports, found that their revenues were increasing faster than their expenditure, and so were able to create Sovereign Wealth Funds. Moreover, as Marx, again points out, developed Capitalism soon created its own alternatives to Money and even Bank Credit. Provided trade is expanding, one firm will extend credit to another, in the form of not requiring payment until some time after delivery of its goods. It is only when trade begins to contract, when certainty of payment is reduced, that firms begin to demand prompt payment, and even cash payment. This rapid increase in the demand for actual Money, and the tendency of those with it to hoard it, is what really pushes up interest rates, and a perfect example of that is the Credit Crunch itself.Consequently, it is not the Rate of Interest, the cost of Capital, that is determinant in the Supply of Capital, but the Absolute Volume and Rate of Profit. Viewed from that perspective, the Tories proposals appear even more dubious. Even, if the Cuts do not send the economy into Recession, not even they deny that they will have a negative effect on economic activity, and if economic activity declines, then absent a large reduction in the Value of Labour Power, the Absolute Volume and Rate of Profit will fall. Moreover, as Marx and Engels, and Lenin demonstrated, any attempt to counteract this latter tendency by simply reducing wages is bound to fail. Marx pointed out that workers form the majority of consumers. If wages are reduced then consumption will fall, and with it the Absolute Volume of Profit once more. Unless, the total amount of Capital employed is reduced the Rate of Profit will also fall.
But, if the total amount of Capital is reduced – Capital Destruction – then again not only will the number of workers fall, but the demand for machines, materials and so on will also fall, bringing about yet a further decline in the absolute volume of profit. There is an alternative to that. If Capitalists reduce wages, they can make up for the lost consumption (Aggregate Demand) by utilising the freed up Capital to buy additional or better machinery. But, as Lenin points out, although, on one level, Capitalism is marked out from all other Modes of Production, by its drive towards Production for the sake of production, the reality is that even Capitalism ultimately has to gear its production to Consumption. There is every reason, during normal times, for competition to drive each Capitalist to expand production, because, in doing so, they hope to increase their profits. But, that is not true in non-normal times.
No Capitalist, who only invests to make profit, is going to buy additional machines at a time when demand for their products is declining! They will only buy a better machine under such conditions, if old ones have worn out, or if it is so much better that it will hugely reduce their costs.There is one other alternative. That is that Capitalists having freed Capital by reducing wages, use that Capital for unproductive consumption. They buy a new yacht, or whatever. But, in transforming this Capital into Revenue, they have essentially destroyed it. They create a demand for Capital in Department III producing Luxury Goods, and to that extent Capital is accumulated in that sector. But, as I have demonstrated elsewhere, Capital Consumes Itself, this is not a real Accumulation of Capital, but a transfer.
It is an exchange of Capital with Capital to the extent that these goods are only bought by Capital, and consequently not productive of Surplus Value. The Capital destroyed in one sector simply reappears in the other. Nor is this a very practical solution for Capital in the short-term. The consequence of reducing wages is that workers demand for wage goods falls, and alongside that production of wage goods must fall. That in itself hits the profits of those Capitalist producing and distributing wage goods (not an inconsiderable part of a modern economy). It means that the Capital and workers in this section must then be reallocated to Department III to produce the luxury goods now demanded by all Capitalists. But, its not at all clear that the workers involved in wage goods production (generally mass produced), will be suitable to be employed in the production of Luxury Goods (usually very skilled, such as jewellers, and individually produced).Moreover, even if consumption does not fall sufficiently to dissuade Capitalists from investing – maybe as the Tories hope to meet demand in export markets – as I have demonstrated elsewhere, and following Marx and Engels, Wages, Prices And Profit, the consequence of this higher rate of profit, and spur to accumulation, has to be an increased demand for Labour-power, which will in itself once again result in higher wages. Ultimately, what we are led to here is the same conclusion as Marx and Engels, which is that the ultimate determinant is the Value of Labour Power. If Capital wants to sustainably raise the rate of profit, by reducing nominal, if not real, wages, it has to reduce the Value of Labour Power. But, it has to be clear what is meant here by reducing the Value of Labour Power, as I have pointed out elsewhere. A Capitalist can buy a machine for £1,000 as opposed to £1,500 that looks to be identical. Yet, if the machine has been poorly constructed, and breaks down every day, it will no have been a better Value option. The cost of repairs, let alone the cost of the stoppage of production, leaving all other pieces of equipment idle, will cost him dearly. Similarly, a textile manufacturer who buys cheaper yarn that snaps every few yards, will soon learn to buy the slightly more expensive, but better quality material. And, it is in this sense that Engels, as someone with manufacturing experience himself, recognised that these methods of cutting corners, and doing this on the cheap, trying to save the odd copper were the methods of the small-scale Capitalist, not the Big Capitalist, and that applied to their attitude to the most important commodity they bought too, labour-power.
It is no use Big Capital skimping on workers education, if the result is that instead of the increasingly skilled and educated workers they need, they get workers who lack the necessary skills, and who have to be trained at the employers expense just to bring them to a necessary standard. It is no use, particularly in a modern economy, having workers who suffer ill-health, and who like the faulty machine cause the boss to lose not only their production for the days they are off-sick, but the knock-on production to other workers production. It was for these reasons that Big Capital around the globe found ways to introduce various forms of Welfare State in order to ensure that such minimum standards were achieved, and so that each employer did not try to gain their own advantage by scrimping on their own provision.No, in order to reduce the Value of Labour Power, it is necessary, not to reduce the quality or quantity of the components needed to reproduce modern workers, but to reduce the cost of those components.
In an interview on Al-Jazeera, the other day, I heard Costas Lapavistas, argue that the Cuts were not necessary, and the fact that the actual Cuts, once announced, were much smaller than everyone had been led to believe, demonstrated that what had been taking place was an ideological exercise, which proved they were not necessary. The ideological exercise is to soften up the Public Sector ready for a transformation of working practices within it, and for increased privatisation. Over the last decade or so, there has been massive investment in the Public Sector, a tripling of spending on the NHS, for example, which was not in any matched by equivalent increases in output. Productivity gains have been abysmal in many, though not all, sections of the Public Sector. In part, it was frustration at that, which led Blair's Government to introduce targets, in order to exercise some control over the burgeoning bureaucracy. As Michel Aglietta argued, in the 1970's, changes in technology, even then, the massive increase in computing power, and so on, were bringing about changes in the work-process, affecting white-collar, administrative, and managerial functions, in a way that mass production had changed worked practices, for manual workers, in the 1920's. In fact, I can remember in the 1990's seeing an indication of that. During a period of about 18 months, whenever, we advertised various administrative posts, we had a flood of applications from former Bank Managers, because that technological change had caused a restructuring of Banking and Finance jobs.
Aglietta called this process Neo-Fordism, and he argued that it could be seen in Europe, in hospitals and other areas of the Public Sector, and it would open up the potential for Capital to consider effective socialised provision of these commodities, by the private sector, which hitherto had been considered only possible of efficient and effective provision via the Capitalist State.Back To Part 1
Forward To Part 3
Saturday, 23 October 2010
Northern Soul Classics - Reconsider - Brenda Holloway
This is the last of the Motown sounds that also made it as Northern Classics for now. There are many more that could have been included, as well as all those on labels such as Ric-Tic, Golden World etc. that were taken over by Motown.
Brenda Holloway's classic is one of my favourite Northern sounds from the the vaults of Motown, dug up by Northern afficianados.
Brenda Holloway's classic is one of my favourite Northern sounds from the the vaults of Motown, dug up by Northern afficianados.
Friday, 22 October 2010
Economic Theory & The Cuts - Part 1
Judging, the economic consequences of the Cuts is not easy. The Tories argument is that by cutting the deficit, the private sector will move in to fill the gap.
The basis of this argument, in even orthodox economic theory, is very dubious. The basic argument, put forward, is that Government Expenditure "crowds out" the private sector, because, in borrowing money, to finance this expenditure, the Government necessarily raises interest rates above where they would otherwise have been. By raising interest rates, this increases the cost of Capital, and so at any level of economic activity the Supply of Capital will be reduced, so employment will be lower, and consequently, incomes and expenditure will be lower.
There is no doubt that, at times, this argument could be valid. But, essentially, those times are when there is a shortage of loanable funds. On any basis, there is clearly no shortage of loanable funds at the present. Despite the fact that private sector indebtedness has ballooned in Britain, at the same time, the total amount of savings has also increased, as the survey from the NS&I demonstrates here. Moreover, this figure of £18,000 average in savings accounts does not take into account the large amounts of money that many people have accumulated in ISA's and PEP's in the last 20 years or so, or the vast amounts saved in Pension Funds, currently estimated at around £800 billion. Given that Pension Funds have to place significant amounts of money in Long dated securities, the Government has had a captive market for money into its Long dated Gilts, which is one reason that the structure of UK debt tends to be of much longer duration than other EU countries.
But, that is not the only source of loanable funds. As many economists have identified from the late 1980's onwards, the rate of profit has been rising. A look at the masses of profit, of large companies, such as Tesco, racked up year after year, is a testament to that fact. Although, some of that profit is paid out as dividends, and some is utilised for investment, most large companies, in profitable sectors of the economy, have stored up large cash balances on their Balance Sheets.
Moreover, Capital is now truly global, and it is not just large companies in the UK that have been amassing large cash balances. Microsoft, had at one point over $40 billion in cash. Its Total Current Assets stand at $55 billion. But, as this analyst points out,
“With almost $37 billion in cash and short term securities on their balance sheet as of June 30, the company has very little need for more cash. But two weeks ago Microsoft announced the offering of $4.75 billion in bonds at record low rates. For example, it is issuing $1 billion of 10 year bonds yielding 3%.
If you can borrow money for 10 years at 3%, why not?”
I'm tempted to say that surely what is good for Microsoft should be good for the UK Government, which can also borrow for ten years at 3%. The point is that both Microsoft and the British Government can borrow at these historically low levels, precisely because there is no shortage of loanable funds! The list of where these loanable funds can come from is by no means exhausted. In addition to the vast sums, built up on the Balance Sheets, of large companies, around the globe, there are also vast amounts, sitting in the savings accounts of individuals around the globe, particularly in Asia, whose lifestyle leads them to have a culture of “saving therapy”, rather than “retail therapy”.
On top of that, countries such as China, and other Asian economies, along with countries in the Middle East, in Russia, and in Latin America, and even in Africa, have created huge Sovereign Wealth Funds with the revenues they have received as a result of booming economies, and exports to the West. All of these funds have to be put somewhere in order for them to fulfil their function as Capital, to bring in a return, and although higher returns can be made by using these funds to invest in global equities, and physically buying up companies, such investments are more risky than simply buying the debt of developed western economies such as the US and UK.
Finally, there is another reason that there is no shortage of loanable Capital, and that is that over the last year or so, countries have been engaging in Quantitative Easing, money printing.
A Government can always find a buyer for its debt, simply by turning to its Central Bank, and asking it to buy that debt with newly printed money. One reason that the Tories analogy with domestic budgets is a crock is precisely that if a family did that they would end up in gaol.
There is no basis for an argument that the private sector is being crowded out. There is no basis for the Tories argument that, had they not addressed the deficit, by introducing huge cuts, that international Capital would have raised the interest rate it demanded from the UK either.
As Alan Johnson said, in his response, the reality is that, despite the deficit, UK interest rates have been falling since the beginning of the year! The UK has had much higher debt to GDP ratios than this before, and no serious person believes that the UK is going to default on its debt. For one thing, it could do what the US has done many times and simply print money to cover those debts, and, just as the figure for private indebtedness hides the fact of huge domestic private savings, so Britain's Public Debts hides the fact that, as a result of several centuries of Colonialism and Imperialism, the UK has vast investments overseas. It could repatriate those investments if need be to cover the debts. The Tories say there is no alternative, but the reality is that there are many, many alternatives.
But, there is also another problem with the Crowding Out Theory. Its best viewed with the aid of a graph.
The graph shows the relation between total profits and the Supply of Capital. This can be viewed as the greater volume of profit to be made the more Capital is supplied, as Capital comes in in search of that profit. If, at any point, we divide the Total Profits by the Total Capital, (P/Q), then we get, at that point, the Rate of Profit, R. However, the theory is that if interest rates rise, the cost of Capital goes up. Consequently, because Capitalists have to pay more for that Capital, the amount left over for them (Profit of Enterprise) is reduced, so at any particularly Rate of Profit, they will tend to bring forward less Capital. The graph shows that, with higher interest rates, the curve, for the Supply of Capital, shifts to the left. In order to bring forward the same quantity of Capital at this new interest rate, the Rate of Profit has to rise from R1 to R2. In fact, at any point along this curve, R has to be higher, because, by definition, the same quantity of profit is divided by a smaller quantity of Capital.
We would expect then, if the theory is correct, to see that, in periods when the Rate of Interest is rising,the Supply of Capital would be reduced, and that consequently, the Rate of Profit would be rising. Conversely, where the Rate of Interest is falling, the Supply of Capital would be rising, and the Rate of Profit would be falling. In other words, because Capital is cheaper, Capitalists employ more of it, and as this results in an increased supply of goods, and competition between them, the Rate of Profit is squeezed. But, the problem is that from the mid to late 1980's, the trend for the Rate of Interest was falling, and continued to fall for around 20 years! In that case, we should have seen a declining Rate of Profit. But, it is precisely during this period that we have seen the opposite, the Rate of Profit has been rising from the mid to late 1980's.
That is not a surprise for a Marxist. For a Marxist, the determining factor is not the Rate of Interest, but the Rate of Profit, and the Absolute Volume of Profit.
The Rate of Profit will determine the movement of Capital from one sphere to another. If the Rate of Profit is low in steel-making, but high in Chemicals, Capital will tend to move from the former to the latter. By this means the supply of steel will fall, prices and profit will rise, whilst the Supply of Chemicals will rise, prices and profits will fall, bringing about a dynamic equalisation of profits, via a constant disequilibrium. But, this cannot determine the amount of Capital in total that is supplied. As Marx points out, although there is a minimum below which wages can fall – i.e. below a certain level labour power is simply not reproduced, so its supply will fall and its price rise – the same is not true for Capital. Capital is only Capital if it self-expands, and it can only do that by being productively employed. However, its clear that Capital CAN be destroyed. Capital used to produce commodities which have no Exchange Value – because there is no demand for them, either because simply no one wants them, or because due to a recession or other economic circumstances, consumers lack the resources to buy them – is effectively destroyed, it is not reproduced. Moreover, below a certain level of profits, its likely that Capitalists will simply decide that the risk of investment is too great. Rather than use Capital as capital, they will destroy it by reducing it to simply a means of unproductive consumption i.e. they will convert it to money, and spend it on luxuries, or simply hoard it in the bank.
Forward To Part 2
The basis of this argument, in even orthodox economic theory, is very dubious. The basic argument, put forward, is that Government Expenditure "crowds out" the private sector, because, in borrowing money, to finance this expenditure, the Government necessarily raises interest rates above where they would otherwise have been. By raising interest rates, this increases the cost of Capital, and so at any level of economic activity the Supply of Capital will be reduced, so employment will be lower, and consequently, incomes and expenditure will be lower.There is no doubt that, at times, this argument could be valid. But, essentially, those times are when there is a shortage of loanable funds. On any basis, there is clearly no shortage of loanable funds at the present. Despite the fact that private sector indebtedness has ballooned in Britain, at the same time, the total amount of savings has also increased, as the survey from the NS&I demonstrates here. Moreover, this figure of £18,000 average in savings accounts does not take into account the large amounts of money that many people have accumulated in ISA's and PEP's in the last 20 years or so, or the vast amounts saved in Pension Funds, currently estimated at around £800 billion. Given that Pension Funds have to place significant amounts of money in Long dated securities, the Government has had a captive market for money into its Long dated Gilts, which is one reason that the structure of UK debt tends to be of much longer duration than other EU countries.
But, that is not the only source of loanable funds. As many economists have identified from the late 1980's onwards, the rate of profit has been rising. A look at the masses of profit, of large companies, such as Tesco, racked up year after year, is a testament to that fact. Although, some of that profit is paid out as dividends, and some is utilised for investment, most large companies, in profitable sectors of the economy, have stored up large cash balances on their Balance Sheets.
Moreover, Capital is now truly global, and it is not just large companies in the UK that have been amassing large cash balances. Microsoft, had at one point over $40 billion in cash. Its Total Current Assets stand at $55 billion. But, as this analyst points out,“With almost $37 billion in cash and short term securities on their balance sheet as of June 30, the company has very little need for more cash. But two weeks ago Microsoft announced the offering of $4.75 billion in bonds at record low rates. For example, it is issuing $1 billion of 10 year bonds yielding 3%.
If you can borrow money for 10 years at 3%, why not?”
I'm tempted to say that surely what is good for Microsoft should be good for the UK Government, which can also borrow for ten years at 3%. The point is that both Microsoft and the British Government can borrow at these historically low levels, precisely because there is no shortage of loanable funds! The list of where these loanable funds can come from is by no means exhausted. In addition to the vast sums, built up on the Balance Sheets, of large companies, around the globe, there are also vast amounts, sitting in the savings accounts of individuals around the globe, particularly in Asia, whose lifestyle leads them to have a culture of “saving therapy”, rather than “retail therapy”.
On top of that, countries such as China, and other Asian economies, along with countries in the Middle East, in Russia, and in Latin America, and even in Africa, have created huge Sovereign Wealth Funds with the revenues they have received as a result of booming economies, and exports to the West. All of these funds have to be put somewhere in order for them to fulfil their function as Capital, to bring in a return, and although higher returns can be made by using these funds to invest in global equities, and physically buying up companies, such investments are more risky than simply buying the debt of developed western economies such as the US and UK.Finally, there is another reason that there is no shortage of loanable Capital, and that is that over the last year or so, countries have been engaging in Quantitative Easing, money printing.
A Government can always find a buyer for its debt, simply by turning to its Central Bank, and asking it to buy that debt with newly printed money. One reason that the Tories analogy with domestic budgets is a crock is precisely that if a family did that they would end up in gaol.There is no basis for an argument that the private sector is being crowded out. There is no basis for the Tories argument that, had they not addressed the deficit, by introducing huge cuts, that international Capital would have raised the interest rate it demanded from the UK either.
As Alan Johnson said, in his response, the reality is that, despite the deficit, UK interest rates have been falling since the beginning of the year! The UK has had much higher debt to GDP ratios than this before, and no serious person believes that the UK is going to default on its debt. For one thing, it could do what the US has done many times and simply print money to cover those debts, and, just as the figure for private indebtedness hides the fact of huge domestic private savings, so Britain's Public Debts hides the fact that, as a result of several centuries of Colonialism and Imperialism, the UK has vast investments overseas. It could repatriate those investments if need be to cover the debts. The Tories say there is no alternative, but the reality is that there are many, many alternatives.But, there is also another problem with the Crowding Out Theory. Its best viewed with the aid of a graph.
The graph shows the relation between total profits and the Supply of Capital. This can be viewed as the greater volume of profit to be made the more Capital is supplied, as Capital comes in in search of that profit. If, at any point, we divide the Total Profits by the Total Capital, (P/Q), then we get, at that point, the Rate of Profit, R. However, the theory is that if interest rates rise, the cost of Capital goes up. Consequently, because Capitalists have to pay more for that Capital, the amount left over for them (Profit of Enterprise) is reduced, so at any particularly Rate of Profit, they will tend to bring forward less Capital. The graph shows that, with higher interest rates, the curve, for the Supply of Capital, shifts to the left. In order to bring forward the same quantity of Capital at this new interest rate, the Rate of Profit has to rise from R1 to R2. In fact, at any point along this curve, R has to be higher, because, by definition, the same quantity of profit is divided by a smaller quantity of Capital.
We would expect then, if the theory is correct, to see that, in periods when the Rate of Interest is rising,the Supply of Capital would be reduced, and that consequently, the Rate of Profit would be rising. Conversely, where the Rate of Interest is falling, the Supply of Capital would be rising, and the Rate of Profit would be falling. In other words, because Capital is cheaper, Capitalists employ more of it, and as this results in an increased supply of goods, and competition between them, the Rate of Profit is squeezed. But, the problem is that from the mid to late 1980's, the trend for the Rate of Interest was falling, and continued to fall for around 20 years! In that case, we should have seen a declining Rate of Profit. But, it is precisely during this period that we have seen the opposite, the Rate of Profit has been rising from the mid to late 1980's.
That is not a surprise for a Marxist. For a Marxist, the determining factor is not the Rate of Interest, but the Rate of Profit, and the Absolute Volume of Profit.
The Rate of Profit will determine the movement of Capital from one sphere to another. If the Rate of Profit is low in steel-making, but high in Chemicals, Capital will tend to move from the former to the latter. By this means the supply of steel will fall, prices and profit will rise, whilst the Supply of Chemicals will rise, prices and profits will fall, bringing about a dynamic equalisation of profits, via a constant disequilibrium. But, this cannot determine the amount of Capital in total that is supplied. As Marx points out, although there is a minimum below which wages can fall – i.e. below a certain level labour power is simply not reproduced, so its supply will fall and its price rise – the same is not true for Capital. Capital is only Capital if it self-expands, and it can only do that by being productively employed. However, its clear that Capital CAN be destroyed. Capital used to produce commodities which have no Exchange Value – because there is no demand for them, either because simply no one wants them, or because due to a recession or other economic circumstances, consumers lack the resources to buy them – is effectively destroyed, it is not reproduced. Moreover, below a certain level of profits, its likely that Capitalists will simply decide that the risk of investment is too great. Rather than use Capital as capital, they will destroy it by reducing it to simply a means of unproductive consumption i.e. they will convert it to money, and spend it on luxuries, or simply hoard it in the bank.Forward To Part 2
Well Done Bill!!!
I had to write a quick post to congratulate my old mate, and comrade, a long-time stalwart of the Labour Movement, Bill Cawley, for winning tonight's round of BBC's Matermind.
Bill answered questions on US Presidents. Coming third in the first round, Bill's General Knowledge was enough to secure victory in the final round. If you are reading this, Bill, well done. If not, why not?
Thursday, 21 October 2010
Victims Of Their Own Incompetence - Part 3
As I said at the beginning, I haven't had time to analyse the data properly, but from what I can see, the Tories have attempted push some of this down the road. The cuts in Welfare are savage, and no surprise. But, before they can be fully implemented a variety of administrative changes will have to introduced. That will push the actual economic hit to the economy down the road.
Moreover, changes to Benefits are notoriously difficult to quantify. Moving large numbers of people off ESA, and on to JSA, for example, is likely to only result in a large number of people qualifying for Income Support, because with jobs in many areas already hard to come by, the increased unemployment resulting from the Tories measures will make it even more difficult to find work. The main effect is likely to be in relation to Housing Benefit for people living in London, and other high-cost areas.
The other main area affected is Local Government, but the actual cuts there will not begin happening until after the start of the next financial year in April 2011. The strategy there has already been seen, and is likely to be used in other parts of the Public Sector. Workers have been issued redundancy notices and told to re-apply for their jobs on lower wages.
That appears to be the strategy, to offer workers the option of retaining their jobs provided they take a pay cut. Although, again the effect of that is to take demand out of the economy in lower wages, it spreads it out over a longer period. It places a heavier burden on the actual workers in the Public sector than would an actual removal or cut in a service, which would affect those receiving the service as well. The Tories obviously believe that many Public sector workers will go along with that in order to keep their jobs, and it will reduce the potential for workers to combine to resist.
Looking at it purely from an economics point of view, the Tories probably could have got away with this without significant economic damage. The UK economy was growing by around 2% p.a., and possibly a bit more on the basis of the Q2 data. At a rough estimate, I calculate the Tories Cuts would take immediately around 1 – 1.5% out of GDP for the current year, and slightly more in the next 3 years. That means that even this year growth could have been achieved of around 0.5%.
Although, the cuts would have taken out more in the next three years, I expected that on the existing trends, UK growth could have risen to around 3.5 – 4%, in coming years, such that even with the effects of the Cuts, growth would have been around 2 – 2.5%. However, the Tories have been running the narrative for many months now of an age of austerity. Consumers have cut back, and businesses have retrenched. The latest figures show that economic activity has slowed down markedly. It looks as though it is now at best around 1%, and may even be zero. Deducting the effect of the Cuts means that the likely figure for the coming year is that the UK will have gone back into recession with output falling by between 0.5% - 1.5%. And, under those conditions, the effects on the housing market are likely to be severe, and in turn a collapsing housing market is likely to have a seriously depressing effect on the wider economy. It is likely that instead of steadily rising growth over the next 3-4 years, we are likely to see at best stagnation, and at worse prolonged recession.
The extent of that will be determined by what happens in the rest of Europe, and by the success of the Tea Partiers in the US in lumbering the US economy with similar policies.
It is under those conditions, and with an already existing Currency War in progress that the recent comments of Mervyn King, Governor of the Bank of England that we risk a re-run of the Great Depression should be taken seriously.
As I have written elsewhere, even were that the case i.e. that we went into a 40 month deep decline, I do not believe that it would be a lie for like situation. It would mean a significant and rapid drop in incomes, and a serious deflation, most particularly of asset prices i.e. property prices down 90%, stock markets down 75%-90%, and a brutal restructuring of western Capital, with many sectors such as in retail, and other low status service industries being annihilated, whilst other sectors such as high-technology grew rapidly, but not rapidly enough to soak up the vast numbers made unemployed. It would provide the basis for a very rapid upturn on the basis of that restructuring, with high rates of profit generating rapid Capital Accumulation, and growth rates probably approaching those of China currently. But, Harold Wilson said that a week is a long time in politics. Forty months of such conditions, and the inevitable social and industrial unrest it would bring would seem like an eternity to Big Capital. As I wrote in the past at the onset of the crisis in 2008, the decision Capital, particularly Big Capital has to make is this. In large part, the capitalist system hinges upon the belief by the majority of workers and the middle class that it is capable of generally meeting their needs, of in general enabling them to enjoy steadily rising living standards with only the minor, short-lived disruption along the road. That is the material basis of that Social-Democratic consensus. The consensus could be easily shattered if that material basis is destroyed. If large numbers of workers and sections of the middle class find that living standards are falling for a prolonged period, that the disruption is not just a minor short-lived inconvenience, but a prolonged period of uncertainty, then the illusion is shattered, and along with it the basis of bourgeois ideology. It is, of course, not necessary that such an eventuality is of benefit to the left, it is more likely to benefit some Right-wing populist demagogues. But, the experience of Fascism in the 1930's for Big capital is not likely to be one they want to repeat. It is not at all the conditions under which long-term Capital accumulation can proceed efficiently, and the loss of political influence it brings is not one that Big Capital would relish.
There is an alternative, and we need concerted working-class action to force Governments to take it.
Back To Part 2
Other Posts Like This
Moreover, changes to Benefits are notoriously difficult to quantify. Moving large numbers of people off ESA, and on to JSA, for example, is likely to only result in a large number of people qualifying for Income Support, because with jobs in many areas already hard to come by, the increased unemployment resulting from the Tories measures will make it even more difficult to find work. The main effect is likely to be in relation to Housing Benefit for people living in London, and other high-cost areas.The other main area affected is Local Government, but the actual cuts there will not begin happening until after the start of the next financial year in April 2011. The strategy there has already been seen, and is likely to be used in other parts of the Public Sector. Workers have been issued redundancy notices and told to re-apply for their jobs on lower wages.
That appears to be the strategy, to offer workers the option of retaining their jobs provided they take a pay cut. Although, again the effect of that is to take demand out of the economy in lower wages, it spreads it out over a longer period. It places a heavier burden on the actual workers in the Public sector than would an actual removal or cut in a service, which would affect those receiving the service as well. The Tories obviously believe that many Public sector workers will go along with that in order to keep their jobs, and it will reduce the potential for workers to combine to resist.
Looking at it purely from an economics point of view, the Tories probably could have got away with this without significant economic damage. The UK economy was growing by around 2% p.a., and possibly a bit more on the basis of the Q2 data. At a rough estimate, I calculate the Tories Cuts would take immediately around 1 – 1.5% out of GDP for the current year, and slightly more in the next 3 years. That means that even this year growth could have been achieved of around 0.5%.
Although, the cuts would have taken out more in the next three years, I expected that on the existing trends, UK growth could have risen to around 3.5 – 4%, in coming years, such that even with the effects of the Cuts, growth would have been around 2 – 2.5%. However, the Tories have been running the narrative for many months now of an age of austerity. Consumers have cut back, and businesses have retrenched. The latest figures show that economic activity has slowed down markedly. It looks as though it is now at best around 1%, and may even be zero. Deducting the effect of the Cuts means that the likely figure for the coming year is that the UK will have gone back into recession with output falling by between 0.5% - 1.5%. And, under those conditions, the effects on the housing market are likely to be severe, and in turn a collapsing housing market is likely to have a seriously depressing effect on the wider economy. It is likely that instead of steadily rising growth over the next 3-4 years, we are likely to see at best stagnation, and at worse prolonged recession.
The extent of that will be determined by what happens in the rest of Europe, and by the success of the Tea Partiers in the US in lumbering the US economy with similar policies.It is under those conditions, and with an already existing Currency War in progress that the recent comments of Mervyn King, Governor of the Bank of England that we risk a re-run of the Great Depression should be taken seriously.
As I have written elsewhere, even were that the case i.e. that we went into a 40 month deep decline, I do not believe that it would be a lie for like situation. It would mean a significant and rapid drop in incomes, and a serious deflation, most particularly of asset prices i.e. property prices down 90%, stock markets down 75%-90%, and a brutal restructuring of western Capital, with many sectors such as in retail, and other low status service industries being annihilated, whilst other sectors such as high-technology grew rapidly, but not rapidly enough to soak up the vast numbers made unemployed. It would provide the basis for a very rapid upturn on the basis of that restructuring, with high rates of profit generating rapid Capital Accumulation, and growth rates probably approaching those of China currently. But, Harold Wilson said that a week is a long time in politics. Forty months of such conditions, and the inevitable social and industrial unrest it would bring would seem like an eternity to Big Capital. As I wrote in the past at the onset of the crisis in 2008, the decision Capital, particularly Big Capital has to make is this. In large part, the capitalist system hinges upon the belief by the majority of workers and the middle class that it is capable of generally meeting their needs, of in general enabling them to enjoy steadily rising living standards with only the minor, short-lived disruption along the road. That is the material basis of that Social-Democratic consensus. The consensus could be easily shattered if that material basis is destroyed. If large numbers of workers and sections of the middle class find that living standards are falling for a prolonged period, that the disruption is not just a minor short-lived inconvenience, but a prolonged period of uncertainty, then the illusion is shattered, and along with it the basis of bourgeois ideology. It is, of course, not necessary that such an eventuality is of benefit to the left, it is more likely to benefit some Right-wing populist demagogues. But, the experience of Fascism in the 1930's for Big capital is not likely to be one they want to repeat. It is not at all the conditions under which long-term Capital accumulation can proceed efficiently, and the loss of political influence it brings is not one that Big Capital would relish.There is an alternative, and we need concerted working-class action to force Governments to take it.
Back To Part 2
Other Posts Like This
Victims Of Their Own Incompetence - Part 2
The question is then why are the Tories undertaking these measures if they are not necessary and in the interests of Big Capital? Indeed, why are other Governments in Europe such as in France, Spain, Portugal, Greece, and even to an extent Germany, pursuing similar policies. The answer is multi-fold. Firstly, as I've argued for several years part of the structural imbalance I referred to earlier is the fact that the development of a global economy means that we now have something far more approaching a global Value of Labour-Power than we have ever had. That means that globally wages for similar types of labour have to converge. Although, wages in China are rising rapidly, it would take several decades before they caught up with those in the West.
It is inevitable that wages and living standards for labour of the same type would have to fall in the West. Opening up western labour markets and bringing in cheap labour to fill low wage, low status jobs has been one means of achieving that. But, if those economies are to avoid a rapid and dramatic fall in living standards they have to combine a number of strategies to reduce the Value of Labour Power, such that even stagnant nominal wage levels are compatible with fairly stable living standards. The raising of the retirement age is a means of extracting Absolute Surplus Value without reducing current wages. Bringing in cheap wage goods has already acted to reduce the Value of Labour Power, measures to improve efficiency in the main areas of workers consumption – Healthcare and Education and Social Care – are also designed to reduce the Value of Labour Power. But, the more significant aspect of this restructuring for western Capital has to be the development of new industries such as in high-technology, media and entertainment, Financial Services etc. where the West still retains a comparative advantage, and where the nature of the complex labour employed enables both a high rate of profit, whilst being compatible with the kinds of nominal wage rates that western workers have become accustomed to. Consequently, the measures being introduced in, for example, France and Germany, are qualitatively different in scale to those being proposed in Britain and other European economies.
Secondly, in the case of some European economies like Ireland, Greece, Portugal and Spain the measures they have adopted have been forced upon them because of the nature of their economies, and the nature of the EU.
In an BBC World Forum last weeken this point was made both by Joe Stiglitz, and by Dominic Strauss-Kahn of the IMF. Kahn himself, who has been trotted out by the Tories in support of heir measures, said that those economies that could stimulate should do so. In reality, if the EU were a single state like the US, it would issue its own Bonds to raise money on the global markets. There is no question that the creditworthiness of the EU is at least, and no doubt better than that of the US. It would have no problem issuing such bonds, and doing so with low yields, about the same as those enjoyed by German Bunds. That would obviate the kinds of problems in raising funds that the PIIGS have experienced. But, if it were to do so that would mean that a central EU State would also have to have control over Monetary and Fiscal Policy as the means of preventing economies such as Greece overspending in the first place. It would mean that the kind of regional policies that the UK and other developed economies adopt to smooth out differences within their borders would have to be adopted. As I've written previously Capital is unable to bring about such a situation without a significant struggle against reactionary nationalist remnants within sections of its own class - A Tale Of Contradictions. It attempted to do that with the EU Rescue Package announced earlier in the year, and markets responded immediately with big rises. But, as soon as it became apparent that those contradictions meant that the price these economies would have to pay was the introduction of economic austerity they fell just as rapidly. In short, the reason for the introduction of these measures in the PIIGS is not that it is in the interests of Big Capital in Europe, but because Big Capital has been unable to mobilise the necessary political/electoral coalition to create the kind of Federal European State it requires, and absent that it is hostage to those same electoral constraints in bringing forward the same solutions required. Individual national electorates would simply reject the idea of transferring their wealth and income to the PIIGS.
Finally, it is this political constraint, which explains the actions of the Tories and other right-wing populist parties in Europe. In Germany, actual legislation requires that Governments achieve a balanced budget over the cycle, which has to be taken into consideration. But, more significantly, the stance adopted by Merkel has to be understood in that wider context of events within Europe. Moreover, in Germany as in France, the UK, and the US, there is today less political difference between the main parties than there has been for some time. In the 1960's that was also true, but the social-democratic consensus spoken of earlier was one generally to the Left economically to where it is today.
In the 1950's/60's it was manifest in what was termed “Buttskillism” an amalgam of Labour's Hugh Gaitskill, and the Tories R.A. Butler. It was a period during which the tories accepted the basic ideas about the Welfare State, nationalised industry, the need for full employment and so on. In the US it was represented by LBJ's “Great Society”.
In France, the tradiiton of Statism goes back to its inception as an industrial Capitalist economy, and is integral to the French economic and political system. But, in response to the onset of the Long Wave downturn in the mid 1970's that locus shifted to the Right. It has remained there. With Social-democratic parties occupying that electoral ground slightly Right of centre, the traditional Centre-Right parties were squeezed out. They could only move further Right even if that was intended to be only a rhetorical stance. The example, of the Liberals in the UK is interesting in that regard. Their response was to tack Left, to present themselves as a radical, Left of Centre alternative to Labour. The fact, that this stance was adopted wholly for opportunist, electoral reasons has been demonstrated by their Coalition with the Tories, a development I had predicted as inevitable before the election.
The consequences of that for the Liberals are becoming apparent. It is differentiating into its component parts. Its Orange Book Right-Wing is completely at home with the Tories. It is a direction they have been wanting to move in for some time. But, at a grass roots level, many of those taken in by the radical “Left” rhetoric are deserting in droves either to labour, or just to oblivion. The obvious conclusion is for the Liberals to effectively disappear, its Right-wing merging with the Tories, and the rest returning to Labour as a rewinding of the film of the split of the SDP. But, similar processes have been at work within the rank and file of the Tory Party too.
Although the Tories are not short of links to Big Capital, nor of its representatives staffing some of its higher echelons, the reality is that the foot soldiers of the Tories, are made up of the small Capitalists, the petit-bourgeois financial traders, and other sections of the middle classes, and not a few misguided workers. It is these elements that reflect all of those backward reactionary ideas referred to earlier, and which actually conflict with the real interests of Big Capital. Yet, in terms of numbers, in terms of activists and so on it is these elements that are determinant not Big Capital. It is also the wider periphery, and representation of those ideas within the electorate that the Tories have had to appeal to – as have other Right-wing parties in Europe, and the Republicans in the US – if they are to differentiate themselves sufficiently to obtain an electoral mandate.
The difficulty of doing that has been demonstrated by the last election. It is also demonstrated in France by the fact that although 70% of people believe that the Government's Pension changes are necessary, the same number support the strikes in opposing them!
The contradictions that this causes explains the current situation. The Tories policies do not reflect the interests of Big Capital under current conditions. Indeed, recent statements by organisations representing small businesses demonstrate a concern that they do not represent the interests of small capital, dependent on Government contracts and spending by Public Sector workers, either. But, it adopted a stance in order to recruit what it believed was an electoral coalition of views capable of getting it into office. Having done so it has become prisoner to its own words. I think that Martin Thomas, of the AWL has it partly right when he says in a recent article,
“the Tories' talk before the election about "restoring responsibility" (as they put it) to government finances ties them now.
A government which repeated soberly that it saw no immediate problem and it would adjust in due course might be ok. A governing party which raised an alarm about budget deficits, then made no cuts, would alarm the international financiers to whom the government sells bonds.
Once the international financiers are alarmed, then it is harder for the government to sell bonds. The interest rates it has to offer rise. Its future financial projections look worse. A vicious spiral of alarm damaging the government's credit, and the damage to the government's credit in turn generating more alarm, can develop, as it did for Greece after its October 2009 election.”
In actual fact I think it is far less the international financiers who would be spooked by the Tories actions not coinciding with their previous words than consumers and businesses. The International financiers, after all, are pretty savvy people, unlike the ordinary man in the street, they have the ability to see through the rhetoric and look at the facts – which is why, as Alan Johnson said yesterday, from the beginning of he year the yields on UK Bonds have been falling despite the level of debt. But, today's Retail Sales figure showing that high street sales fell 0.2% in September on top of a downwardly revised drop of 0.7% in August, shows that ordinary people have responded to the Tories rhetoric by retrenching, and that has been reflected in tumbling consumer and business confidence, and in a housing market that looks about to go into something approaching freefall.
In Ireland, which the Tories have, until recently, used as one of their examples, house prices have already fallen by 50%. The last housing prices and RICS data, showed a 3.6% month on month fall for September, and sentiment amongst surveyors at the lowest since 1983! Bearing in mind that in 1990 house prices fell by 40%, the extent to which house prices are likely to fall can be imagined. My latest estimate is a fall of around 75% from current levels.
And herein lies where the Tories have screwed themselves. 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, of course, the Liberals were deficit deniers right up to the point where the doors of the Ministerial limousines began to open for them. As, I demonstrated in my blog A Liberal Rewriting of History, their claim that they only changed course as a result of the Greek crisis is nonsense.
Forward To Part 3
Back To Part 1
It is inevitable that wages and living standards for labour of the same type would have to fall in the West. Opening up western labour markets and bringing in cheap labour to fill low wage, low status jobs has been one means of achieving that. But, if those economies are to avoid a rapid and dramatic fall in living standards they have to combine a number of strategies to reduce the Value of Labour Power, such that even stagnant nominal wage levels are compatible with fairly stable living standards. The raising of the retirement age is a means of extracting Absolute Surplus Value without reducing current wages. Bringing in cheap wage goods has already acted to reduce the Value of Labour Power, measures to improve efficiency in the main areas of workers consumption – Healthcare and Education and Social Care – are also designed to reduce the Value of Labour Power. But, the more significant aspect of this restructuring for western Capital has to be the development of new industries such as in high-technology, media and entertainment, Financial Services etc. where the West still retains a comparative advantage, and where the nature of the complex labour employed enables both a high rate of profit, whilst being compatible with the kinds of nominal wage rates that western workers have become accustomed to. Consequently, the measures being introduced in, for example, France and Germany, are qualitatively different in scale to those being proposed in Britain and other European economies.Secondly, in the case of some European economies like Ireland, Greece, Portugal and Spain the measures they have adopted have been forced upon them because of the nature of their economies, and the nature of the EU.
In an BBC World Forum last weeken this point was made both by Joe Stiglitz, and by Dominic Strauss-Kahn of the IMF. Kahn himself, who has been trotted out by the Tories in support of heir measures, said that those economies that could stimulate should do so. In reality, if the EU were a single state like the US, it would issue its own Bonds to raise money on the global markets. There is no question that the creditworthiness of the EU is at least, and no doubt better than that of the US. It would have no problem issuing such bonds, and doing so with low yields, about the same as those enjoyed by German Bunds. That would obviate the kinds of problems in raising funds that the PIIGS have experienced. But, if it were to do so that would mean that a central EU State would also have to have control over Monetary and Fiscal Policy as the means of preventing economies such as Greece overspending in the first place. It would mean that the kind of regional policies that the UK and other developed economies adopt to smooth out differences within their borders would have to be adopted. As I've written previously Capital is unable to bring about such a situation without a significant struggle against reactionary nationalist remnants within sections of its own class - A Tale Of Contradictions. It attempted to do that with the EU Rescue Package announced earlier in the year, and markets responded immediately with big rises. But, as soon as it became apparent that those contradictions meant that the price these economies would have to pay was the introduction of economic austerity they fell just as rapidly. In short, the reason for the introduction of these measures in the PIIGS is not that it is in the interests of Big Capital in Europe, but because Big Capital has been unable to mobilise the necessary political/electoral coalition to create the kind of Federal European State it requires, and absent that it is hostage to those same electoral constraints in bringing forward the same solutions required. Individual national electorates would simply reject the idea of transferring their wealth and income to the PIIGS.Finally, it is this political constraint, which explains the actions of the Tories and other right-wing populist parties in Europe. In Germany, actual legislation requires that Governments achieve a balanced budget over the cycle, which has to be taken into consideration. But, more significantly, the stance adopted by Merkel has to be understood in that wider context of events within Europe. Moreover, in Germany as in France, the UK, and the US, there is today less political difference between the main parties than there has been for some time. In the 1960's that was also true, but the social-democratic consensus spoken of earlier was one generally to the Left economically to where it is today.
In the 1950's/60's it was manifest in what was termed “Buttskillism” an amalgam of Labour's Hugh Gaitskill, and the Tories R.A. Butler. It was a period during which the tories accepted the basic ideas about the Welfare State, nationalised industry, the need for full employment and so on. In the US it was represented by LBJ's “Great Society”.
In France, the tradiiton of Statism goes back to its inception as an industrial Capitalist economy, and is integral to the French economic and political system. But, in response to the onset of the Long Wave downturn in the mid 1970's that locus shifted to the Right. It has remained there. With Social-democratic parties occupying that electoral ground slightly Right of centre, the traditional Centre-Right parties were squeezed out. They could only move further Right even if that was intended to be only a rhetorical stance. The example, of the Liberals in the UK is interesting in that regard. Their response was to tack Left, to present themselves as a radical, Left of Centre alternative to Labour. The fact, that this stance was adopted wholly for opportunist, electoral reasons has been demonstrated by their Coalition with the Tories, a development I had predicted as inevitable before the election.The consequences of that for the Liberals are becoming apparent. It is differentiating into its component parts. Its Orange Book Right-Wing is completely at home with the Tories. It is a direction they have been wanting to move in for some time. But, at a grass roots level, many of those taken in by the radical “Left” rhetoric are deserting in droves either to labour, or just to oblivion. The obvious conclusion is for the Liberals to effectively disappear, its Right-wing merging with the Tories, and the rest returning to Labour as a rewinding of the film of the split of the SDP. But, similar processes have been at work within the rank and file of the Tory Party too.
Although the Tories are not short of links to Big Capital, nor of its representatives staffing some of its higher echelons, the reality is that the foot soldiers of the Tories, are made up of the small Capitalists, the petit-bourgeois financial traders, and other sections of the middle classes, and not a few misguided workers. It is these elements that reflect all of those backward reactionary ideas referred to earlier, and which actually conflict with the real interests of Big Capital. Yet, in terms of numbers, in terms of activists and so on it is these elements that are determinant not Big Capital. It is also the wider periphery, and representation of those ideas within the electorate that the Tories have had to appeal to – as have other Right-wing parties in Europe, and the Republicans in the US – if they are to differentiate themselves sufficiently to obtain an electoral mandate.
The difficulty of doing that has been demonstrated by the last election. It is also demonstrated in France by the fact that although 70% of people believe that the Government's Pension changes are necessary, the same number support the strikes in opposing them!The contradictions that this causes explains the current situation. The Tories policies do not reflect the interests of Big Capital under current conditions. Indeed, recent statements by organisations representing small businesses demonstrate a concern that they do not represent the interests of small capital, dependent on Government contracts and spending by Public Sector workers, either. But, it adopted a stance in order to recruit what it believed was an electoral coalition of views capable of getting it into office. Having done so it has become prisoner to its own words. I think that Martin Thomas, of the AWL has it partly right when he says in a recent article,
“the Tories' talk before the election about "restoring responsibility" (as they put it) to government finances ties them now.
A government which repeated soberly that it saw no immediate problem and it would adjust in due course might be ok. A governing party which raised an alarm about budget deficits, then made no cuts, would alarm the international financiers to whom the government sells bonds.
Once the international financiers are alarmed, then it is harder for the government to sell bonds. The interest rates it has to offer rise. Its future financial projections look worse. A vicious spiral of alarm damaging the government's credit, and the damage to the government's credit in turn generating more alarm, can develop, as it did for Greece after its October 2009 election.”
In actual fact I think it is far less the international financiers who would be spooked by the Tories actions not coinciding with their previous words than consumers and businesses. The International financiers, after all, are pretty savvy people, unlike the ordinary man in the street, they have the ability to see through the rhetoric and look at the facts – which is why, as Alan Johnson said yesterday, from the beginning of he year the yields on UK Bonds have been falling despite the level of debt. But, today's Retail Sales figure showing that high street sales fell 0.2% in September on top of a downwardly revised drop of 0.7% in August, shows that ordinary people have responded to the Tories rhetoric by retrenching, and that has been reflected in tumbling consumer and business confidence, and in a housing market that looks about to go into something approaching freefall.
In Ireland, which the Tories have, until recently, used as one of their examples, house prices have already fallen by 50%. The last housing prices and RICS data, showed a 3.6% month on month fall for September, and sentiment amongst surveyors at the lowest since 1983! Bearing in mind that in 1990 house prices fell by 40%, the extent to which house prices are likely to fall can be imagined. My latest estimate is a fall of around 75% from current levels.And herein lies where the Tories have screwed themselves. 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, of course, the Liberals were deficit deniers right up to the point where the doors of the Ministerial limousines began to open for them. As, I demonstrated in my blog A Liberal Rewriting of History, their claim that they only changed course as a result of the Greek crisis is nonsense.
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