Thursday, 18 November 2010

A Momentous Change - Part 2

A rational economic system would have organised and driven this restructuring. The contradictions within Capitalism mean that such a restructuring will happen, but it will not happen smoothly or efficiently. In the 1980's, many economists recognised the need for this restructuring, and Marxist economists even looked at various strategies for bringing it about in ways that were favourable to workers. The Alternative Economic Strategy, is perhaps the best known of these. It was the work of economists based in Cambridge, but was heavily influenced by the Communist Party, and its fellow travellers within the Labour Left. But, it was not alone. The National Enterprise Board had this kind of restructuring as its initial objective, and one of its early successes was Inmos. But, inevitably as a State Capitalist body it was highly restricted in its operations. The closest it came to offering any kind of Workers Control into the process was the idea of Planning Agreements, by which firms that were given support were supposed to negotiate with the Government and Trades Unions over the establishment of various targets and goals. Also inevitably, as the economic crisis deepened, instead of being a means of restructuring Capital by developing new dynamic industries, it became merely a vehicle for bailing out the old lame ducks, and for restructuring them at the workers expense via large scale redundancies and attacks on workers organisation such as at BL.

In some ways more hopeful were the local Enterprise Boards set up by large local authorities such as the Greater London Enterprise Board (GLEB), and the West Midlands Enterprise Board. Overseeing these were left-wing economists such as Robin Murray at GLEB and Richard Minns at WMEB. They also developed ideas about how this restructuring could be undertaken by using the Local Authority Pension Funds to invest in local industries, and to exercise democratic control over them. But, like all State schemes they had the obvious flaws that a) as Marx pointed, out such enterprises can only fulfil a progressive role if the workers within them WANT to exercise such control, if the motivation comes from them, and b) a change of Government means that any progress made can be quickly overturned. The NEB, and its local variants fell under the ideological axe of the Thatcher Government. It was not that the State ceased intervening under Thatcher but that the nature of the intervention changed. Firstly, it intervened overtly to undermine workers organisations at rank and file level, strengthening the role of the bureaucracy. Having undermined workers ability to resist, it then adopted Friedmanite Monetary Policy to expand the economy and thereby boost profits. Often where new investment was made it followed a Corporatist model of inducement and involvement of the State, and the incorporation of the Trade Union bureaucracy at a high level who in return for single union agreements, signed no strike deals.

The use of monetary expansion was not a new policy for the Tories. They had used it in 1970 under Ted Heath. The consequence was what came to be known as the “Barber Boom”, after Tory Chancellor Anthony Barber, which saw a huge rise in house prices, only to see the boom collapse along with house prices, as the reality of the end of the Long Wave Boom manifested itself. In fact, this kind of Monetary Policy could only work for Capital under certain conditions. The first was that workers were not strong enough to demand compensating wage rises, because otherwise it would lead to an inflationary spiral. Secondly, if it was to lead to increased profits then companies had to be able to sell more goods at these higher prices. That meant that either they had to be able to export more, or else some source of domestic demand had to be created that did not involve higher wages for workers. The Tories completed the first task essentially with the defeat of the Miners in 1984. The basis of the second was to scrap all financial regulations that limited who could obtain credit, and how much they could get. While wages in real terms stagnated living standards appeared to rise due to a massive illusion. On the one hand masses of cheap goods flooded in from China and other parts of Asia, so wages went further. But, increasingly expenditure was financed not out of income, with a small amount of income going to saving, but out of borrowing. But, the other consequence of this was to create a whole series of disproportions.
Firstly, as with the Barber Boom in 1970, the immediate consequence was that house prices bubbled up. The effect of that depended upon where you lived, and how old you were. In parts of the country, like London, facing housing shortage, already highly priced housing became even more expensive. Although the policy of selling Council houses, at huge discounts, could counter that, at the lower end, for a while, the longer term consequence was to remove that source of rented accommodation, for those at the very bottom, who would never be able to afford to buy, creating the conditions for the expansion of private rented property, and the “buy-to-let” market, which would, inevitably, also push up house prices via increased demand from potential landlords. If the Tories want to know why huge amounts of Housing Benefit are being paid out to Landlords they need look no further than these housing policies of the Thatcher Government of the 1980's. But, of course, if you had bought your house in London and the South-East during the 1960's or early 1970's, then the inflation during that period had devalued the Capital sum, and made repayments negligible. Rapidly rising property prices provided many people in that category, in London and the rest of the country, with a significant windfall. The same group of people also tended to benefit from having disposable income as a result, and the potential for savings in a variety of forms.

But, those who came after, and who came to buy at these increasingly inflated prices, but at a time when real wages were stagnant, were not so lucky. It was only because lenders were prepared to lend 90, 100, and even 125% of the price of houses without deposits, without any real check on the ability of borrowers to repay, and at multiples of even declared incomes that 20 years earlier would not have been countenanced, that housing demand could be sustained at these increasingly unsustainable prices. Ultimately, many could not afford to buy, even under those conditions, or even with the multitude of other scams such as part-ownership that Governments and housebuilders promoted.

But, there were other consequences. The other immediate consequence of this deregulation of finance was that the City of London was enabled to expand massively as a centre of global financial services. The massive expansion of borrowing, the encouragement, by Thatcher, for people to invest in shares, in PEP's, and Personal Pensions, fuelled a boom in a Financial Services industry, offering a range of schemes by which people could get rich quick, or not so quick depending upon their risk profile. Alongside this high-value Financial Services sector the encouragement to borrow and spend also led to the development of other services, and retail. Alongside that there had been development of some of those new types of industry. Often they were developed out of Universities who were establishing Science Parks as a means of generating income by using some of the talent available. That is similar to the way that in the 1930's, the dynamic industries of the day – motors, chemicals, and electronics – developed, but not on a scale sufficient to overcome the problems of the Depression. Once the Depression ended these industries were able to expand rapidly, and to drag the rest of the economy with them. That is the basic mechanism that has applied in other such periods.

But, the disproportions that had been built up during the 1980's and 90's now acted as a drag on that development. On the one hand Capital was tied up disproportionately in Financial Services, Retail and other services. On the other large sections of the younger sections of the population were facing large debts. From 2000 onwards, repeated attempts to exit this situation, to engineer the deleveraging of personal and business Balance Sheets were attempted in Europe and in the US. But each attempt to raise interest rates resulted in a fall in consumer confidence, falling retail sales, falling share and property prices. In economies dependent upon consumer spending, and consumer spending dependent on borrowing against assets, this was a Catch 22. Capital needed to restructure to move into those higher value added areas, but so long as loose money had to be continually injected to avoid a recession, Capital did not have sufficient incentive to move from where it was, and where profits could still be made. The restructuring would have to be a long drawn out process, and would have to comprise a number of aspects.
In addition to moving into these high-value added industries where a comparative advantage could be obtained, changes in the structure of these economies was also required. In repeated testimonies to Congress, Alan Greenspan argued that the US educational system was failing to produce enough people with the high levels of skills and education to fill the jobs that these industries were creating. That shortage of supply, he said, was leading to wages for these jobs to be too high, and to unsustainable divisions between those wages, and the wages of ordinary workers. But, this implied a further contradiction. Increasing educational provision was not free. At a time when the Budget Deficit was widening already, finding vast new sums to invest in education was not going to be easy. The only solution was growth, but growth involved at least sustaining the basic underpinning of the economy that State spending provided, whilst attempting to channel into the new growth areas. The only means by which that could be achieved was by continuing large scale borrowing from those parts of the world which had massive savings, in Asia, in the Middle East etc.

But, even in the medium term it would be unlikely that enough of these high value added jobs would be generated to employ a majority of workers. That meant a further contradiction. Even unskilled and semi-skilled workers in US car plants like GM were still being paid anything up to 30 times what the average Chinese worker was being paid. Even allowing for Chinese workers doubling their wages every 6 or 7 years, it would take around 30 years before that gap was closed. Increasingly, those jobs would go, and the workers in them would either take up jobs in those high value areas, or they would end up going the other way, into a lower status, lower pay job. The only other alternative would be a massive restructuring of those existing industries, including large reductions in wages and conditions. Five years ago I reported on the restructuring of Delphi the car parts company that had once been part of GM. Workers had to accept a drop in wages of 66%! The restructuring of GM has seen similar changes. But, this highlights further economic restructuring that western economies will have to introduce.

Five years ago the large US companies were already bemoaning the fact that they were massively disadvantaged as against European companies. The latter did not have to bear the cost of Health Insurance, but the former were paying out billions to insure their workers for increasingly expensive healthcare. As part of a move towards socialising healthcare in the US, Bush agreed to take $750 billion off private Balance Sheets for drug costs, and to absorb them by the State. This reflects the next problem that Capital in these economies faces. If not all workers can be found jobs in high value production, if workers in the west will continue to be massively uncompetitive with workers in Asia and other developing economies, and if this is not to be resolved quickly, then the living standards of the majority of workers will have to fall. For capital, the best means of that happening is for it to be a slow fall. Ideally, this would be ameliorated by a steadily falling Value of Labour Power brought about by a further cheapening of wage goods, and of the social wage. Anything else threatens the social stability of these economies, and as Paul Mason has written in a recent blog that is something Big Capital has a very big incentive to avoid Why To Avoid a Repeat Of the 1930's. The US socialisation of healthcare is a response to that need of Big Capital, but the reaction from sections of the US population to it, and the support the Tea Party populists have been able to generate illustrates the problem. The attempts to find more efficient means of providing education and healthcare in the UK and elsewhere are part of the same drive. But, the problem was highlighted in an article in 2005 by Matt Miller in Fortune Magazine, writing about that socialisation of US Healthcare in the interests of Big Capital,

“The bigger hurdle may be stereotypes. Business's sensible drive to get Uncle Sam to take on more of the health burden will run into the nihilistic (but potent) "big government" rhetoric of the GOP--plus the party's delusion that we can keep federal taxes at 17% to 18% of GDP as the boomers retire. If Republican pols want to help Republican CEOs solve their biggest problems, this caricature of a political philosophy will have to give way to something more grown-up.”


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