Monday, 6 December 2010

CPGB Cuts Strategy Falls Between Scylla And Charybdis - Part 2

But, what is just as significant is the fact that, contrary to Mike McNair's assertion, that Keynesian policies could not get Capital out of its bind, the facts tell the exact opposite story. The US is growing almost entirely due to the fiscal and monetary stimulus, and it looks as though that growth could become self-sustaining.
China, which never came close to a recession, introduced such policies and kept its growth rate at around 8%. Brazil introduced similar large scale stimulus and it has clearly worked. The UK introduced fiscal stimulus, which has resulted in higher growth than was forecast, and kept unemployment way below the predicted 3 million. The same is true about every other economy that introduced Keynesian stimulus. The question that he has to answer is why when such measures clearly were working, does he now believe that they cannot continue to work? Moreover, why does he believe that those policies continue to be used by the US and others? The sign that Keynesian policies were not working in the 1970's, was that increasing amounts of stimulus were failing to produce any signs of growth, but were resulting in high rates of inflation of more than 10% p.a. i.e. stagflation. But, that is quite clearly not the case today. The stimulus has clearly worked in the US and elsewhere, and yet the problem for the US remains not inflation, but the potential for deflation. The same is true in Europe. The UK has seen rising inflation due to its propensity to import inflation, which has been enhanced due to a devaluing pound. It would have avoided that had it been part of the Euro. Yet, even in the UK, official inflation figures remain around 3-4%. I anticipate that this figure will rise significantly, but that will facilitate the state clearing the debt rather than exacerbate its problems.

Let me be clear. I am not here arguing that Capitalism has become a system in which its contradictions can be resolved by the implementation of the appropriate technical solutions. I am not arguing in favour of Keynesianism. The use of Keynesian measures now will create their own contradictions, and those measures will have to be repaid at some point in the future. But, that is the whole point about Keynesian measures, as Nouriel Roubini has pointed out. They resolve the immediate crisis, in order that the conditions can be created by which they can be paid back. The actual question that has to be asked is why is this a solution that Capital can utilise at some points, but not at others? I have answered that question several times before. It is that in periods of Long Wave Boom the conditions exist whereby sufficient reserves of Surplus Value exist, sufficient conditions exist for sustaining economic growth that these measures can be implemented, and the subsequent growth allows the borrowing from Surplus Value to be paid back. In periods of Long Wave decline the opposite conditions apply. That is why Keynesianism was not used in the 1930's, and 1980's but was used in the 1950's and 60's, and is being used now.

Mike McNair only avoids asking this question, but his historical account is then contradictory. Speaking of the two elements of the Liberal-Tory narrative he says,

“The first, which is a total lie, is that the deficit level is largely attributable to Labour's 'reckless spending' in the period before the crash. The reason why it is a lie is that the turn which Labour took in spending more money was in response to international agreements to stimulate the economy in the wake of the east Asian crisis of 1997 and the dot-com crash of 2001. So the bubble and the structural deficit of the last period is not the result of the errors of the Labour Party in spending more money. It is a consequence of the recessions and house price crashes which should have followed either the first or the second of these financial crises (a serious recession after 1997 would probably have meant that 2001 would not have occurred), but which were averted by Keynesian deficit spending after 1998-99 and again after 2001-02.”

But, hold on, which is it to be? He wants to argue now that Capital is forcing these Cuts on the Government, because huge amounts of money have been lost and there is no alternative but to make the workers pay, and yet at the same time he wants to argue that in the 1990's and beginning of this decade, a similar situation, where perhaps even larger sums of money were lost in total, provoked the opposite response!!! It provoked Labour to use Keynesian and Monetary stimulus to overcome the crisis, and create the conditions under which those losses could be recovered through economic stabilisation and growth! The truth is that even here his facts are incorrect, even if the general thrust of the argument that Capital looked for a solution in growth is correct.

Public Sector Borrowing and Repayments shows that, contrary to Mike McNair's account, in the period after 1999 up to 2002/3, Labour was actually paying down the debt rather than intervening with Keynesian stimulus under instruction from Capital. Between 1979 and 1997 borrowing accounted for 3.4% of GDP, between 1997 and and 2005 it averaged just 1.2%. Moreover, even when Labour did begin to act counter-cyclically, under Brown, the increase in the deficit was nothing extraordinary. It is clear from the data that the significant change DID come in 2008/9, when, even excluding the amounts pumped into the Banks, net debt rose from 36.5% of GDP, to 43.2%, a bigger cumulative rise than in the previous 7 years combined!

The reason that increased spending was compatible with such lower levels of borrowing in that earlier period, was precisely because of the economic growth that was taking place, economic growth that was largely due to the global economic environment of strong and increasing growth, which hardly fits the CPGB picture of global Capitalist crisis.

In relation to the second part of the Liberal-Tory narrative, Mike says,

“The second thing which the Tories can say in relation to Labour opposition to the cuts is true. It is to point out that Labour was also going to carry out serious cuts. In the last months of the Brown government, Alistair Darling et al were talking about a serious reduction in public expenditure. So these cuts are not solely an ideological commitment of the Tories.”

But, this is not only nonsense, but it is to fail to utilise that basic tool of Marxist analysis, the dialectic, to fail to recognise the point at which quantity is transformed into quality. Mike has told us that Labour increased spending and the deficit, under instruction from Capital – which in itself deifies Capital, turning it into some all-powerful force capable of snapping its fingers and having its wishes implemented immediately, unquestioningly and fully no matter what the circumstance – and the facts show that under Labour Public Spending did increase substantially. Though its interesting that the Left has never described such large increases in spending as in some way reflecting a radical Labour administration. Funds for Local Government increased markedly even from 1997, spending on the NHS trebled, and so on. Yet, the facts, as I have shown above, demonstrate that by far the biggest increase in the deficit arose in 2008/9. Now, if the reason for that, which it clearly is, is that such a response was needed as a temporary response to an unusual event, if it meant that future spending was effectively brought forward, would we not expect that the consequence of that would be that once the unusual event had run its course, and stability had returned, the temporary response was unwound? That is precisely how Keynesian intervention is supposed to work. If someone has cancer, and receives chemotherapy as a result, they don't keep getting the chemo when the cancer has gone into remission.

There is a qualitative difference between an approach that recognises that, over a period a large deficit has to be reduced, and attempts to do that by attempting to create the conditions for growth to occur, and then begins to gradually remove the stimulus, and one which simply refuses to allow the patient to get any treatment to restore their health, and which asks him/her to do a full, hard day's work, when they are still in recuperation. The Liberal-Tory Cuts will return the level of spending to that of 2007, but will do so under conditions where that reversal will likely cause a recession or at least a significant reduction in growth. In fact, it may well be that difference which is itself part of the reason that Bond yields have spiked in the last few weeks. Ed Yardeni, who coined the term "Bond Vigilantes" in 1983, and who runs his own Fund Management company, in New York, has spelled that out. Quoted in an article by Richard Milne in Saturday's FT, he says,

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

That hardly sounds like a representative of Capital who is expecting the working class to be made to pay the costs of the crisis in those countries that have run up large deficits, and no doubt his fears were exacerbated in that regard by the decision of EU leaders, and spelled out by Angela Merkel, that Bond Holders (whose gains are limited compared to Equity investors, and who as a result expect at least to get their money back) would have to take a haircut on their investment, possibly amounting to 20%. And, its no wonder they should beleive that because the social and political costs of austerity measures are already apparent. In Ireland, for example, the Fianna Fail Government looks set to be reduced to a third of its current seats at the election, and is standing in fourth place in the polls even behind Sinn Fein. Latest polls put Fine Gael on 32%, Labour on 24%, and Sinn Fein on 16%. Moreover, the experience of the Liberals, who look set to be wiped out as a political force, shows what will befall any party under current conditions that talks Left ahead of an election, and then acts Right.

By contrast, Labour's proposed Cuts were only half of that proposed by the Tories, and were designed to be implemented much later, under conditions where the economic growth, that the fiscal stimulus had put in place, would have become entrenched. I find it hard to understand why Mike McNair believes that this strategy, employed in the interests of Capital, in the late 1990's and early part of this decade, employed still in the US and elsewhere, and moreover, employed successfully, now has to be abandoned! He can give us no answer to that question. He says, that the losses of money have to be paid by someone, and picks out the workers. Yet, as I have pointed out, it was not the workers who were chosen to pay the price on the previous occasions he describes. And, it is not true to say that it is only workers who can pick up the tab, in the sense he describes. The reality is that, if economic growth were to resume strongly, the losses made, by some sections of Capital, would quickly be recouped out of that growth. The only sense in which workers would be paying for the crisis, then, would be in the sense that they always pay under Capitalism, that they would be the source of the larger volumes of profits being made as that growth expanded. Yet, it would be a strange concept of workers paying for the crisis, by more of them being employed!

Mike's real target here is the political approach of this whose program for dealing with the Cuts is limited to that of a form of the old nationalistic AES. He says,

“There is a consequence of this. Because where the cuts are coming from is not a combination of stupidity on behalf of the Tory leadership and the Orange Book Liberals, because the cuts are not simply about a series of corrupt payments to the Conservative Party, addressing them on the level of a Keynesian alternative is not a realistic proposal. Because the actual overthrow of the existing regime of capital is not on the agenda, the Keynesian solution is presented as a realistic one - Britain can adopt an 'alternative economic strategy' and adjust its position in terms of the global world order.”

I would agree with him that we should not advocate a Keynesian solution, and certainly not one framed around the kind of nationalism of the AES, but that does not mean that such a solution is not one that Capital itself might favour. In fact, I'd argue that all the evidence is that it IS the solution that Big Capital favours, though I suspect that within that, the multinationals will press more intensely against any kind of restrictions on trade, and Capital flows. Moreover, the flip side of his argument here is that if these partial solutions are not viable, the only alternatives he is left with are precisely to put on the agenda “the actual overthrow of the existing regime of capital”, or else to counsel workers to suck it up, and wait for a more propitious time.

I'm not aware of any serious argument that says that the Liberal-Tories are pursuing this course in the interests of Party donors. There are already a number of potential such firms that have gone to the wall as a result of even the announcement of Cuts. But, Mike's political analysis here is very crude, implying an almost immediate and one to one relationship between Tory Party policy and the interests of Capital. For one thing, it is simply not possible to talk about the interests of Capital per se, because different fractions of Capital have different interests. Moreover, as I have argued previously, as much for the Tories as for Labour, there is no point having policies that are in the interests of the class you are supposed to represent, unless you can get elected to Government. That very fact, of bourgeois democracy, tends to drive parties to the centre, and to have to build their programme around a coalition of views. That in itself is partly conditioned by the ideological roots of those parties, and their resonance within the wider population. I would argue that it is precisely due to this fact that the Tories and Orange Book Liberals position on the Cuts IS ideologically driven rather than being driven by the immediate and long-term interests of the dominant section of Capital. It may come as a surprise to some with a crude version of Marxism that Capital does not have God-like powers, but is more like the the Wizard of Oz.

The Governmental power has to have significant freedom of manoeuvre for the facade of bourgeois democracy to function, and that causes all kinds of contradictions for Capital in and of itself. Only when those contradictions reach a particular level do they break out in a crisis as a means of resolving them. Within that the role of ideology can indeed play an independent and significant role as I have demonstrated in relation to the US, for example. The right-wing commentator, Matt Miller, wrote, of the drive by Big Business in America to get the introduction of some form of socialised healthcare,

“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.”

Socialised Healthcare From Republicans

Mike goes on,

“But it is actually not a realistic proposal. The reason is that underlying the decision to go for cuts is a sense of a non-hegemon power having reached its limits - the limits of the Keynesian interventions of 1998-2001. Now the losses have to fall on somebody, and any government which pursues British 'national interests' and seeks to maintain Britain's standing in the world, or to maintain the enormous role of financial services in the British economy (one of the biggest sources of income to Britain from foreign economies) is going to have to implement something like these cuts.”

But, he provides us with no basis for accepting his assertion that Keynesian intervention has reached its limits, and so no reason that any Government would have to implement these cuts. In fact, as I have previously set out, the level of the debt currently is nothing to write home about. UK Debt – The Facts. Britain had a much higher debt level in the 18th Century, and up to the beginning of the 19th Century as it accumulated Capital, restructured and industrialised. The same was true up to 1950. In both cases that restructuring, and recapitalisation provided the basis for the economic growth that both repaid the debt, and significantly raised workers living standards. In fact, I'd argue that it is precisely this kind of restructuring that is gradually occurring, and which Capital in the developed economies needs to carry through, which is again the underlying cause of the build up of debt – the same was actually true in the 1980's and 90's in the emerging Asian economies, which led to the Asian debt crisis in the late 90's – and which will reduce the dependence on those industries such as Financial Services as part of a broad restructuring towards higher end production and value added industries.

Back To Part 1

Forward To Part 3

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