Thursday, 21 October 2010

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

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