“Think about what lies behind the cuts. There has been an international capitalist crisis with massive sums of money lost in the financial markets. The question follows: who is going to pay for these losses? In the first instance, it is the masses in Iceland, Greece, Ireland and elsewhere who are going to pay. We are seeing a process by which the central imperialist powers use their control of the financial system (plus, lying behind that, US power and the implied threat of military action in the case of a default) to offload the crisis onto the masses of these peripheral countries.”
But, besides the fact that, as far as I can see, although the US has agreed to pump yet more money into peripheral EU economies, to avoid the crisis getting worse, there is absolutely no indication that it is about to invade any part of Europe!,
there are a number of things wrong with his analysis even within the context of real world politics. Firstly, he seems unaware that Iceland actually did hold a referendum on whether it should pay up, and the people voted to default. The Icelandic President has, in fact, argued in the last week or so, that the decision to default on its debts, has allowed it to begin to restructure and grow its economy, and he recommended that course of action to Ireland. 
See: here, and here. As this latter article notes, Nobel Prizewinning Economists, Paul Krugman has said,“Iceland may be an example of “bankrupting yourself to recovery.””
Bloomberg says,
“Krugman says Ireland’s “orthodox” response -- pushing through austerity measures and guaranteeing bank liabilities to stay in the Euro -- contrasts with Iceland’s “heterodox” solution -- devaluing the currency, restructuring bank debt and putting capital restrictions in place.
“Heterodoxy is working a whole lot better than orthodoxy,” according to Krugman. Iceland’s budget will be in surplus by 2012, compared with Ireland’s deficit of 9.1 percent of GDP, the European Commission estimates. Unemployment in the euro member will stay at 13.6 percent this year and next, compared with a 2011 peak of 8.1 percent in Iceland, OECD data show.”
And it quotes Michael Derks of FXPro,
“Senior bondholders in some countries must accept that they may have to take haircuts or participate in restructurings,” said Michael Derks, the London-based chief strategist at FXPro Financial Services Ltd., in an interview. “It just doesn’t add up otherwise; senior bondholders will need to participate. There is no avoiding it.””
Iceland's President, Grimsson, commented,
“How far can we ask ordinary people – farmers and fishermen and teachers and doctors and nurses – to shoulder the responsibility of failed private banks… That question, which has been at the core of the Icesave issue, will now be the burning issue in many European countries.”
Despite that, I'm not aware that the Nimitz is currently steaming its way to the North Sea.
Secondly, he also seems unaware that what actually provided the spark to the fall in Irish and other peripheral EU countries' Bonds, was the statement from Angela Merkel and other EU leaders, that, as part of the longer-term resolution of the debt-crisis, the Bondholders themselves i.e. Capital, would have to take a haircut.
Of course, there is a way in which that is making workers pay, because the biggest investors in these Bonds are Workers' Pension Funds, those same funds into which we pay billions of pounds, but over which we have absolutely no control. The reality is that the US policy of Quantitative Easing, accompanied by similar policies in the UK, and soon to be adopted in the EU, already amount to Bondholders taking a haircut, because what it amounts to is the Bonds in their possession being repurchased with devalued currency. The fact that these policies are largely being implemented by sections of the Capitalist State i.e. by Permanent State Bureaucrats such as those within the Central Banks, and independent of Governments is an indication of where the fault lines between the interests of Capital, and the short term electoral interests of Governments and parties lie.Back in the Spring I argued that the Eurozone debt crisis could be resolved by implementing three separate measures in the short term. Firstly, to monetise the debts of the peripheral economies. Within a week the ECB had begun to do that buying up their Bonds.
It has yet to completely implement that policy in the way the US has done via Quantitative Easing, because it has sterilised this intervention. The second thing was to establish a single EU Debt Management Office responsible for issuing Bonds for the whole Eurozone Area. That would overnight end the speculation against the Bonds of the weak economies, because it would in essence mean them speculating against Germany's powerful economy. It would raise yields on those Bonds slightly above what Germany now pays, but not by much.
In the last week this proposal has also now been put forward. As CNBC report,“Jean-Claude Juncker, Luxembourg’s prime minister who also chairs meetings of euro zone finance ministers, and Giulio Tremonti, Italy’s finance minister, argue in Monday’s Financial Times that the launch of “E-bonds” would send a clear message to financial markets and European citizens about the “the irreversibility of the Euro”.
They say the market for such bonds should become the most important in Europe, and as liquid as that for US Treasuries.”
It continues,
“Mr Juncker and Mr Tremonti outline institutional arrangements for E-bonds that they say would impose market discipline on governments without them being exposed to “speculative attacks”, while at the same time fostering Europe’s financial and economic integration.”
And, this was the third measure I raised. It is inevitable that any single market has to have a single currency, but just as inevitable that it must have a single fiscal policy to go with it. The reality is that the current EU debt crisis is a result of there being no single EU fiscal policy. Every other crisis within the EU has been resolved by bringing about a gretaer degree of integration, and given the political commitment to the Euro project, and the wider EU project, and the need for it by big multinational Capital, particularly in Europe, that remains the most likely result now. The idea of greater supervision over national budgets has already been agreed, and the need for a single fiscal policy is now on the agenda. The opposition of Germany to the immediate establishment of such E-Bonds, does not stem from any principled opposition, but from the fact that it is in a position to dictate terms, and given that it will act as paymaster for this project, has every reason to extract as much from the negotiations as it possibly can.
Mike continues,
“So in essence what we see is the US and other top-dog powers using their position in the global order to dump these losses - onto the broad masses of their own countries to some extent, but also to a much larger extent onto weaker countries, which can be made to carry the can: loan capital is withdrawn back into the central core, which leads to a global debt crisis, and this then transmutes - as it has in Greece and Ireland - into a state debt crisis. This now looks likely to hit Portugal and Spain too.”
But this is totally removed from reality! The US has engaged in, and is still engaged in a huge fiscal stimulus! It has over the last few years introduced measures to prevent people being thrown out of their homes. In the last week or so it has introduced further measures to extend Unemployment Payments, and so on.
Just today Obama has put forward measures to increase that stimulus even further by compromising with Republicans demands for Bush era tax cuts for the rich to continue, in return for their support for a $1 trillion dollar package over two years that will give a family earning $50,000 a year another $1,000, and which extends Unemployment Benefits for 13 months. Far from withdrawing loan Capital, the US has contributed significant amounts through being the largest contributor to the IMF, in the rescue packages to Greece and Ireland, and has offered more to try to prevent the contagion spreading. But, where does Mike get his facts from about a debt crisis, which affects a few peripheral EU economies, which account for less than 5% of EU GDP, let alone global GDP, being a GLOBAL debt crisis???
In fact, China and many other countries are awash with cash, and even in an economy like the US, which has a large amount of debt, its biggest companies have masses of cash on their Balance Sheets!He says,
“The US would also very much like to externalise losses onto China by forcing Beijing to float its currency. If the Chinese currency is allowed to float freely and Chinese capital controls are removed, then there will be a very large asset bubble leading to a rapid crash à la Japan. After all, in the 1987 crisis floating currencies allowed the US to externalise the losses made in the financial system onto Japan, creating a slump in that country which has persisted to the present day.”
But this is bad economics as well as bad history. What the US is currently doing is trying to force China to revalue the RMB, by pushing inflation on to it as an RMB tied to a falling dollar causes Chinese imports of food and raw materials to rise in price, and as the increased Chinese Money Supply needed to keep the RMB low leads to domestic inflation.
Contrary to what Mike says, a revalued RMB would cause the imported inflation to fall, and the curtailment of internal money supply would act as a drag on Chinese Asset prices. In other words the very OPPOSITE of what Mike claims. It is the current peg to the dollar, which is causing the Chinese Authorities to introduce further restrictions on Bank Assets, and increases in interest rates to limit the CURRENT rise in property prices.It is similarly perverse to believe that it was floating currencies, which caused the Japanese crash of the early 90's, which was, in fact, the product of a long developed asset price bubble stemming from the build-up of domestic savings, and the structure of Japanese Banks. Moreover, if we are to accept this writing down of inflated, fictitious Capital Values as the same as the destruction of real productive Capital, then we have to accept the reverse. Although, 1987 saw a dramatic collapse in paper values of fictitious Capital, the next year saw those values more than recovered, and subsequent years saw even further gains on top of that, which made the losses of the '87 Crash pale into insignificance!
Oddly, Mike then says,
“So states can externalise losses to the extent that they and their currencies remain high up in the pecking order.”
But hold on, we've just been told that the US is trying to DEVALUE its currency
– to lower its position in the pecking order, by means of getting the Chinese to revalue!!!
Mike says further,
“To escape the imperatives of that situation it is necessary to carry out resource allocation in a different way: ie, to move very substantially towards direct planning in use-values and very substantial demonetisation of economic decision-making. That is the highest level at which the cuts could be defeated: we could defeat the cuts by overthrowing capitalism.”
But, to achieve this state of things described does not just require overthrowing Capitalism. It is, in fact, two stages down the historical path from where we are, and more realistically three.
At the very least, it would require some kind of overthrow akin to 1917. That is workers or their representatives gain control over the State. But having done that is not at all the same thing as gaining the ability to organise production on the basis of Use Value rather than Exchange Value. The Stalinists, and the Ultra-Lefts, of course, believed that War Communism was the reflection of true Bolshevik strategy, and that the NEP was a retreat, but Lenin and Trotsky never believed that.
On the contrary, they believed that it was the other way around, that it was, War Communism that had been forced on them by the necessities of the Civil War. Lenin commented that he believed NEP would have to last for twenty-five years, and that was on the back of his belief that the international revolution would have come to their rescue during that time.In fact, Marx argued that just as capitalism had only developed gradually so its demise would also be a gradual process.
I would argue, that looking at Marx's strategy as opposed to that of Lenin, the process has to be far more of a gradual development of worker owned Co-operative property in competition with Capitalist property, as the next historical stage to pass through, before Workers' consciousness is raised sufficiently to seize political power, and only then under what Marx describes as the Dictatorship of the Proletariat, will that take the form of an organised attempt to gradually replace Exchange Value with Use Value, and that in itself could take more than one generation to achieve, if, indeed as Marx points out, it could ever fully be achieved at all.His statement,
“Obviously the problem with this, as we have seen in the Soviet Union, is that it cannot be done in a single country - not even one as enormous as the USSR in terms of population, resources and expansiveness. But it certainly cannot be done by unilateral action in the UK, which is not able to feed itself and is dependent on food imports just to keep its population alive - leave aside everything else in terms of the productive economy and the dependence on the financial services sector. So the overthrow of capitalism needs to take place at an international level.”
is, of course, true, but that does not preclude the idea of building worker-owned, Co-operative property within the confines of Capitalism, as an immediate solution to workers problems. And, as the Co-operative Movement has already demonstrated, the general laws of Capitalist Accumulation, and Competition themselves act to spur greater concentration of capital, and co-operation between different units.
Those same laws can act even more to spur worker owned firms to come together, to concentrate their resources, and to co-ordinate their plans and actions, not just within the UK, but across national borders. We do not and should not have to make the great leap from where we are to the idea of an internationally co-ordinated workers revolution as the only salvation.Yet, it is odd that having explained correctly why strikes and demonstrations cannot be an effective means of defeating the Cuts, Mike believes that simply raising things to the level of Europe overcomes these problems. He writes,
“We could begin the overthrow of capitalism at a European level. We should certainly aim to prepare for such a project. That is why we have on our masthead "Towards a Communist Party of the European Union". But, even short of this aim, we can aim for and fight for coordinated Europe-wide demonstrations, strikes, etc, against cuts and 'austerity'.”
The analysis is further flawed by the facts.
“But in order to do that we need mass action on a European scale. The reason is that, as long as the austerity consensus holds across Europe, any individual country which makes concessions to the working class will face a flight of capital.”
But, as I have previously demonstrated, back in the Spring when the crisis erupted, it was initially quelled, and Stock Markets soared, by the announcement of the $1 trillion rescue package. What sent those markets spiralling down again, and caused the crisis to resume was when it was announced that the quid pro quo was the austerity measures, and the sterilisation of ECB Bond buying. What has sent Irish Bond yields soaring in recent weeks was not any concessions to Irish workers by the Irish Government, but the very obvious fact, outlined by many bourgeois commentators and economists that the austerity measures were themselves tanking the economy, and creating the very conditions under which Bondholders would not get paid back!!! By contrast, Iceland's economy is recovering nicely thank you having refused to bail-out the banks and Capital.
In reality, in what is a long article, Mike McNair has no strategy for fighting the Cuts. He ends by saying that the solution can only come through the creation of a United Communist Party, but in reality he has no strategy for achieving that either. In fact, its appropriately seasonal, because what he ends up with is really just a Christmas wish for things to be different.
If Santa Claus existed, he might get his wish, but in the absence of such a supernatural phenomenon, the real solution lies in ordinary Marxists getting involved with ordinary workers in day to day ordinary struggles, around partial solutions to those problems, but partial solutions, which in the spirit of the Communist Manifesto enable those workers to increase their standing and understanding of the world around them, in order that they can increasingly change it to their benefit.Back To Part 3
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