Spanish Elections - Life Reflecting Fiction

In the Spanish Elections, at the weekend, the conservative government, became the last in a line of governments that have imposed austerity to lose substantial support. The classic example of that has been Greece, where a series of governments imposed austerity, and lost. Resulting in the creation of a new term “depasokification”. In Britain, a right-wing majority of 80 seats, held by the Liberal-Tories, was slashed to a 12 seat majority in 2015, and the obliteration of the Liberals as a political force. Then there has been the defeat of conservatives in Portugal. In fact, this situation, including the success now of the Left in Spain, mirrors the scenario depicted in my new novel – 2017.

Commentators on both right and left, have been arguing for some time now that the fact of Syriza being forced into a compromise, in Greece, had undermined the movement to the left, and had thereby undermined Podemos. In fact, the Spanish elections, following on from the Portuguese elections show this not to be the case. It would undoubtedly have been better had Syriza been able to hold out for longer, in Greece, but the fact remains that the potential is growing for a social-democratic alternative to austerity to be built across the EU. But, it should be understood that what Syriza, Podemos and others offer is, indeed just a social-democratic solution, rather than a revolutionary, socialist solution to these problems.

What, in fact we have, is merely appearance and reality being brought into alignment. Nominally social democratic politicians failed to act as social democrats, and so made themselves irrelevant.  It is a process I discuss in the novel. A central theme to the political scenario depicted in the book is that of a collapse of the political centre, and an explanation of this collapse based upon the underlying economic realities.

If we look at that political centre, it has been based, for the last thirty years, on a set of economic conditions, whose existence is now at an end. Those economic conditions can basically be summed up in one word – debt. Wages were low, profits were high and rising, the supply of loanable money-capital way exceeded the demand for it, so interest rates continually fell, and this facilitated both a build up of private household debt, to compensate for stagnant wage growth, and also acted to stoke asset price bubbles in stock, bond and property markets. In turn, these bubbles, and the possibility of huge, rapid capital gains, from such speculation, far outweighed the potential returns that could be obtained from productive investment of additional capital. That was especially the case when central banks back-stopped those asset price bubbles, and when the governments intervened to inflate property bubbles, whenever they were in the process of bursting.

The combination of these factors, increased the power of the owners of fictitious capital, which in turn influenced the policies adopted by governments. In essence, we have had parties that are nominally social-democratic, and which historically have been social-democratic, but whose elected politicians have failed to act as social-democrats. Instead they have operated as conservatives, serving the interests of the owners of fictitious capital rather than the interests of large-scale, socialised productive-capital.

As Marx and Engels point out, from around the end of the 19^th century, in the older, developed capitalist economies, capitalists in large part removed themselves from their social function in production. They became merely money-capitalists, who loaned money-capital to socialised capital. They became mere coupon clippers, living off the interest paid to them as dividends, interest, and rent. But, as Marx sets out, there are objective limits in which this can operate. As he points out, the more capital simply takes this form of money lending capital, relative to productive-capital, the lower the rate of interest becomes, until it reaches a level, whereby the income received from it, is no longer sufficient to provide the required income for at least some of the coupon clippers.

Take someone with £1 million of money-capital available to lend. At 5% interest, they obtain £50,000 per annum in interest, which may be enough to live on. If the rate of interest falls to 1%, however, their income falls to £10,000, which is not enough to live on. They may then have to look to use this capital in a different way. For example, if they believe that they could start a small business with this capital, they may expect to obtain an average rate of profit of 10%. It then becomes worthwhile using their capital actively in production.

So, Marx points out that at a certain point, some of these smaller money-capitalists will convert themselves back into productive-capitalists. It will only be the very large money-capitalists who will obtain sufficient income, at very low yields. What has distorted this situation over the last two decades or so, has been that the potential capital gain to be obtained from speculation has taken the place of a reliance upon yield for income, and this has been guaranteed by the policy of quantitative easing undertaken by central banks.

The political centre, for the last three decades has been able to pursue the polices it has, because, during that time, it was possible to sustain economies upon the basis of inflating these asset price bubbles, and thereby to sustain consumption levels on the basis of extending private household debt. That possibility has now ended. It is signified by the ending of QE in the US, at the end of last year, and by the raising of official interest rates this month.

The buyers of shares, bonds and so on have been referred to as investors, but in reality, they are only speculators. The majority of the bonds and shares that they have bought, have not been new shares and bonds, issued to finance additional investment in productive-capital. What they have bought have largely been existing bonds and shares, so that all that happens is that the prices of these bonds and shares rises, which gives the appearance of rapidly rising amounts of wealth. The fall in the yield on these paper assets is the other side of this, because with no additional productive investment undertaken, no additional profit is generated out of which the interest is paid.

The same is true in relation to property. All of the speculation in property has gone into buying existing property, rather than the building of additional property. The consequence is that property and land prices rise, but no additional income is generated, so the rental yield falls.

There is another consequence of this. The money printing has caused a hyper inflation of these paper assets. But, in doing so it has also caused the value of labour-power to rise, whilst this has not been reflected in higher wages. The consequence of the hyper inflation of the property market – which has risen by 2000% between 1980 and 2000 – is that increasing numbers of people cannot afford to buy a house, or to move up from their existing house to a better one. So the proportion of people in home ownership has fallen. Even for those who can afford to buy, the massive rise in house prices represents a huge increase in their cost of living, a fact that will be even more apparent as interest rates rise.

The recent increase in the Fed Funds rate, for example, is being presented as only a quarter percentage rise. But, this is false. It is a rise of a quarter of a percentage point, but the actual increase is from 0.25% to 0.50%, which is a doubling of the rate, or a 100% increase. Imagine that the interest rate on your £200,000 mortgage is 5%. That is £10,000 p.a. in interest. If the rate goes from 5% to 10%, then the amount of interest you pay does not rise by 5%, but by 100%! It goes from £10,000 p.a. to £20,000 p.a. This is also a feature of the very low rates of interest that currently exist. Even a tiny absolute rise in the rate represents a large proportional rise in the rate of interest, and consequent large rise in the repayments of borrowers.

That has a corresponding effect on the rents that people are being forced to pay, which is why there has been such a significant rise in Housing Benefit, because wages have not risen to cover these massively increased costs of workers' shelter.

The same is true with pensions. The massive rise in the prices of shares and bonds has undermined workers' pension provision. Suppose you pay £100 per month into a pension plan. It buys 100 shares per month, that go into your pension pot. If each share produces £0.10 in dividends, this income is then available to pay out your future pension. However, if the price of shares rises 20 fold, as it has done in the last 30 years, your £100 a month contribution will only buy 5 sharers per month to go into your pension pot. Because, nothing here has actually increased the volume of profits to be produced, there is no reason why each share will not still produce only £0.10 in dividends. So, now instead of your pension pot producing £10 per month of income, it now produces only £0.50!

In order to be buying 100 shares per month, so as to generate the same level of income in dividends, the worker would need to have been paying in £2000 per month into their pension, which would have required higher wages. But, over the preceding period, wages have not risen to compensate for the rise in the costs of shelter, or pension provision. This represents a huge distortion, which history, and Marx’s theory, tells us will be rectified at some point. Either wages must rise massively – which seems unlikely – or else these costs will have to be reduced significantly, which means that property prices, and the prices of bonds, and shares will have to fall massively. In other words, large amounts of existing debt will effectively have to be written off. That will represent a huge loss of wealth and power for the largest owners of this fictitious capital.

But, it is on that material reality, and on those social forces, that the political centre has rested, both within the conservative parties, and within the social-democratic parties, whose politicians have been pursuing conservative rather than social-democratic ideals. The option of bailing out fictitious capital by the state, to prop up these asset price bubbles, and for the state to cover the cost of that, by imposing austerity upon the rest of the economy, has run its course. Greece has been the most classic example of that. It is not just that voters get tired of the austerity, but that the policy itself can no longer work. The debt itself has to be written off, on a massive scale, rather like happened with all of the unsustainable Third World debt, in previous times.

Those governments that attempt to simply apply those policies, in the face of changed economic realities will fail, and in the process, as happened with New Democracy and Pasok, the parties that remain tied by them, will be destroyed too. If we look in Britain, the reality of this collapse of the political centre is seen, by the fact that the government majority of around 80, was slashed to a majority of just 12 in the 2015 election. It was further signified, by the fact that the physical representative of that political centre, the Liberal Democrats, were obliterated. It is an indication of the extent to which the political centre cannot comprehend its own demise that its advice to both the left of Labour, and the right of the Tories is to imitate the policies and perspective of those very same Liberal Democrats!