Wednesday, 5 December 2012

The Zombies Are Coming! - Part 3

Feeding The Zombies - Welfarism

Marx opposed welfarism, and other forms of state aid
and protectionism in all their guises.  They hold back
progress, and the development of the productive forces;
they undermine the independence of workers.
Another reason that these zombie companies have been able to survive is Welfarism. The first National Insurance Scheme was established by Bismark in Germany – though Prussia had created something similar at the in the early 19th Century – as part of his top down modernisation of the German economy. Welfare states were created by capital at the start of the 20th Century to meet its needs for regulation. They ensure that a sufficient quantity and quality of labour is supplied, and at the same time help regulate the level of aggregate demand in the economy. Although reformists purvey the myth that Welfare States were prised from capital by workers, and that they bring about a redistribution of income, they do nothing of the sort. As Marx set out, the basis of distribution is production, and without changing production relations i.e. transferring ownership of the means of production to workers, its impossible to bring about redistribution of income via tax and benefit policies. What Welfarism does, is to take money from one group of better off workers in taxes, and give it to another group of worse off workers in various benefits. Sometimes, it doesn't even do that. Marx, in the Critique Of The Gotha Programme, for example, opposed free university education, because it is mostly the preserve of the rich, and better off. Making it free i.e. paying for it out of state revenues, really amounts to giving the rich a subsidy, a subsidy paid for by the worse off workers, whose children usually don't go to University. The more Welfarism has grown, the more layers of workers have had to be taxed, at ever higher rates, which is why increasing numbers of workers have turned away from Social Democratic parties.

But, Marx also describes the bad effects Welfarism has in other ways. For example, he describes, precisely the condition of the zombie companies, that can only survive on the basis of state handouts, of one sort or another, and which in the process keep their workers in a state of penury. That was what happened with the hand loom weavers, who could not compete with modern power looms, but who lingered on in a miserable condition, because they received welfare payments to subsidise their income.

The competition between hand-weaving and power-weaving in England, before the passing of the Poor Law of 1833, was prolonged by supplementing the wages, which had fallen considerably below the minimum, with parish relief. “The Rev. Mr. Turner was, in 1827, rector of Wilmslow in Cheshire, a manufacturing district. The questions of the Committee of Emigration, and Mr. Turner’s answers, show how the competition of human labour is maintained against machinery. ‘Question: Has not the use of the power-loom superseded the use of the hand-loom? Answer: Undoubtedly; it would have superseded them much more than it has done, if the hand-loom weavers were not enabled to submit to a reduction of wages.’ ‘Question: But in submitting he has accepted wages which are insufficient to support him, and looks to parochial contribution as the remainder of his support? Answer: Yes, and in fact the competition between the hand-loom and the power-loom is maintained out of the poor-rates.’ Thus degrading pauperism or expatriation, is the benefit which the industrious receive from the introduction of machinery, to be reduced from the respectable and in some degree independent mechanic, to the cringing wretch who lives on the debasing bread of charity. This they call a temporary inconvenience.” (“A Prize Essay on the Comparative Merits of Competition and Co-operation.” Lond., 1834, p. 29.) (Capital Vol. I, Note 1, p 406)
In other words, the hand-loom workers were maintained in a condition of misery, because they could not compete with the more efficient machine industry, but were enabled to keep trying because of being paid Parish Relief, financed by other workers. As Marx says, this kind of “degrading pauperism” reduces workers to a kind of Oliver Twist character, instead of independent and proud, on their knees and reduced to pleading with the Capitalist State for a bit more gruel, into “the cringing wretch who lives on the debasing bread of charity.”

The Liberal-Tories, and the capitalist media
present benefits like Housing Benefit, Child Benefit
and Tax Credits as payments to workers.  They are not.
They are subsidies to Capitalist Landlords, and badly
paying, zombie employers, who pay such low wages
that their workers cannot live normally on them, without
being supported by better paid workers.
Today, this same Welfarism allows the bad, inefficient, low paying employers, who no doubt make up a large proportion of the zombie companies, to linger on, tying up capital and workers that could be more usefully employed elsewhere. Every payment of Housing Benefit, not only goes into the pockets of capitalist landlords, but also subsidises the low paying employer, who gets away with paying wages insufficient even to allow workers to cover their rent. At the same time, it allows the Liberal-Tories to present this subsidy to Capital as though it were money going to the low paid workers and unemployed. It thereby acts to drive a wedge between those workers receiving the benefit, and those workers paying the taxes to cover it. The same is true of the payment of other Benefits, such as Child Benefit, and Tax Credits. Workers in work should not need benefits to make their wages up to a decent level, and if employers cannot survive whilst paying an adequate wage, or providing normal conditions of employment, they should not be in business, they should not be allowed to continue exploiting workers on the basis of a subsidy from other workers in the form of benefits paid to their workers.

Churchill introduced the first Minimum
Wage in 1909, and made clear it was
in the interest of the Big Capitalists
against the low paying, small capitalists.
In the past, the representatives of Big industrial capital understood that. As President of the Board of Trade, in 1909, Winston Churchill introduced the first Minimum Wage. In doings so, he made clear that it was being done in the interests of those Big Capitalists. He said,

It is a national evil that any class of Her Majesty’s subjects should receive less than a living wage in return for their utmost exertions… where you have what we call sweated trades, you have no organisation, no parity of bargaining, the good employer is undercut by the bad and the bad by the worst; the worker, whose whole livelihood depends upon the industry, is undersold by the worker who only takes up the trade as a second string… where these conditions prevail you have not a condition of progress, but a condition of progressive degeneration.”

That is not the same, of course, as unemployed workers not being entitled to a decent amount of income paid out of a social insurance fund, or equally for workers who fall ill, or who are retired, enjoying a similar decent income. Of course, experience shows that workers cannot rely on the Capitalist State providing such protection. It is keen to take money in, from workers, in taxes, on the promise of providing such insurance, but not so keen to honour its commitments when the economy turns sharply downwards for any prolonged period. Again, as Marx and Engels, and the First International argued, the real solution is for workers to create and maintain their own such social insurance funds to cover periods of unemployment, sickness and old age. In fact, the more these benefits provide workers with a decent level of income in these circumstances, the less can capital, utilise the reserve army of labour to force down the wages of workers in work. And, because provision of such insurance constitutes a normal element of the reproduction of labour-power, workers should seek to ensure that their wages are sufficient to allow them to set aside these funds, to cover such eventualities. Moreover, as the early Co-operative Movement sought to do, where unemployed workers are sustained out of such a worker owned and controlled, social insurance fund, they can be put to productive work or training, in worker owned and controlled enterprises, doing useful work for working-class communities, based on meeting need, not profit. In this way, workers build their own alternative to Capitalism.

The importance of that can be seen in relation to Pensions. The level of pension provided by the Capitalist State in the UK is abysmal compared to how much workers pay in for it. The level of private pensions is also abysmal, because the Pension Companies that run these schemes, snaffle around two-thirds of the contributions to cover various commissions and kick backs. Yet, compare that with the pension paid by the Mondragon Worker Co-ops. The average pension there is £13,600 a year, despite wages being much lower in Spain than the UK. Yet, the Mondragon Pension Fund, is more than adequately funded, with twice as much income as required for the payment of benefits.

The consequence of keeping all of these zombie companies going is that workers income is being drained away into them, which could otherwise go to developing efficient businesses paying workers adequate wages, and decent conditions. Even the Bank of England has recognised that these zombie companies are the reason the economy is so weak, yet it continues to feed them, just as it feeds the zombie housing market, with additional supplies of cheap credit, and money printing. It means that the average level of businesses in the UK will continue to get less efficient, thereby making the ability to compete globally that much harder. Ultimately, that means that these companies will drag down many more with them, with a consequent bad effect on UK workers living standards and employment. But, also any further deterioration of economic conditions, or increase in interest rates – both of which are highly likely – will, in any case explode these zombie companies. That will have further consequences in the increasingly zombie economy created by the Liberal-Tories.

That brings us to the other set of zombies – the zombie properties. The money printing and financial deregulation carried through by Thatcher and Reagan in the 1980's, blew up the asset price bubbles in Bonds, Stocks and property. Ever since, whenever these bubbles burst, the State has printed more money to reflate them again. It has done so, because the economy had become dependent on consumer spending, and state spending to provide aggregate demand. As large chunks of industry became zombified, the average real wage fell, and workers ability to continue consuming could only be maintained and extended, by encouraging them to take on more and more debt. Private debt, is in fact, much bigger, and a much bigger problem than public debt, though you wouldn't know it from listening to Tory politicians.

The major facilitator of rising consumer debt, for the average worker was rising property prices, as the property bubble, was blown up to ever more stretched proportions over the last 30 years. But, the Financial Meltdown of 2008, meant that process was essentially brought to an end. In the US and Ireland, the banks were essentially nationalised and recapitalised. That meant they did not have to maintain the fiction of property prices, upon which their balance sheets were founded. Property prices in the US and Ireland fell by between 60-75%. That meant prices returned to some semblance of normality, and their housing markets have begun to stabilise and recover.

But, in the two other countries where huge bubbles were blown up in property – the UK and Spain – the banks have not been properly recapitalised. The banks there still need to retain the fiction of massively inflated property prices, because their balance sheets continue to be based on them. If property prices, as they must, fell by similar amounts to those in the US and Ireland, then the Spanish and UK Banks would be seen to be essentially bust. They would need massive recapitalisation, which could only come from the State. As happened in Ireland, the consequence of that would be to crash the sovereign credit rating, leading to the State needing to seek a bail-out. The UK, could conceivably just print money to cover it, and write off the debt i.e. an outright monetisation of the debt. That would though send the pound through the floor, and Bond Yields soaring, along with inflation. Spain is currently in the process of trying to recapitalise its banks from the top down, and is setting up a Bad Bank, which will take on all their bad property loans. In the UK, the banks have simply stopped lending.

In Part 4, I will look further at this other zombified sector of the economy.

Back To Part 2

Forward To Part 4

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