The Chinese economy certainly does not have any element of workers' democracy within it, but it certainly does have very large elements of state control by the Communist Party over it. Investment and economic activity is driven by the five year plan targets, and implemented by the use of state control over credit, the state owned banks, planning controls and other such measures to ensure that activities are encouraged which meet the five year plan targets, rather than necessarily by profit targets. Yet, China has seen huge amounts of inward capital investment. In fact, in many ways, China has been an example of the kind of economic development model that Lenin envisaged under the New Economic Policy.
Similarly, Trotsky made a case for such a model in relation to Mexico.
“The reactionaries are wrong when they say that the expropriation of the oil companies has made the influx of new capital impossible. The government defends the vital resources of the country, but at the same time it can grant industrial concessions, above all in the form of mixed corporations, i.e. enterprises in which the government participates (holding 10 percent, 25 percent, 51 percent of the stock, according to the circumstances) and writes into the contracts the option of buying out the rest of the stock after a certain period of time. (This 'Trotskyist' policy was also used by Blair/Brown, in the shape of Public-Private Partnerships. AB)This government participation would have the advantage of educating native technical and administrative personnel in collaboration with the best engineers and organisers of other countries. The period fixed in the contract before the optional buying out of the enterprise would create the necessary confidence among capital investors. The rate of industrialisation would be accelerated.”
(On Mexico's Second Six Year Plan)
Moreover, the country with the most developed form of social democracy is Germany, and yet it has no problem attracting inward investment, nor of accumulating capital from its own resources. Quite the contrary, the fact that there are measures of worker democracy, tends to reduce the ability of capital flight by interest-bearing capital. Efficient German companies that make large profits, as a result of a higher rate of accumulation of productive-capital, have less dependence on global money markets than do less efficient companies, which make smaller profits, because they can generate the money-capital they require from their own profits. In fact, in a highly banked economy, there may even be no need for it to take the form of money-capital at all.
The real exchange is of the surplus product of company A, with the surplus products of companies B – Z, money-capital is only a temporary state taken by these surplus products, in the process of their metamorphosis. In a highly banked economy, the surplus product of A may never take the money form at all, but is immediately converted into an electronic deposit in its bank account, which is equally immediately netted off and transferred to the bank accounts of B – Z, in exchange for A's purchase of their surplus products. Indeed, much of the problem with the analysis of the situation in Greece, could be put down to a fetishisation of money and money-capital, and a failure to recognise that its real problems rested upon its possession not of adequate currency (deprived to it by the ECB), or of money-capital, but simply of capital.
As much currency as you like, in the form of notes and coins, or as much money-capital, as you like, in the form of loans advanced, could be thrown at Greece, and indeed has been, but will not solve the problem of inadequate capital. By contrast, a country with adequate capital, can always obtain the currency it requires, by printing it, or by use of credit, electronic transfers and so on, and can obtain the money-capital it requires by simply metamorphosing commodity-capital into money-capital, or using its existing capital as collateral. That, in the end, is the problem facing global banks and financial institutions. They have attempted to overcome a problem of their own solvency, because their bank capital has rested upon ever more inflated valuations of financial assets on their balance sheets, as opposed to real capital, by injecting ever higher levels of liquidity, fuelled by the central banks. But, that liquidity does not solve the underlying insolvency. It merely hides it, and in doing so, deepens the insolvency even further, until it eventually manifests itself in a spiralling series of failures.
In the end, the owners of interest bearing-capital are interested in obtaining the best total return on their money-capital. If they are in search of yield, they may invest in, or buy shares and bonds of those companies that have high rates of profit, and which can pay out from those profits, therefore, higher levels of interest and dividends. The existence of workers representatives, and other forms of social democracy, in Germany, has if anything contributed to those higher levels of efficiency and profits, rather than detracted from it. Something similar could be said about the Nordic economies. Ultimately, those higher levels of profits are a function of higher levels of productive investment, and only marginally affected by different tax regimes.
Where the owners of interest-bearing capital are concerned with a short-term search for capital gain, they may instead look to speculate in the shares of those companies, and in those markets, where such bubbles are being inflated, and particularly where they are being supported by the actions of the state. That is why such potential money-capital has flowed to the US, and UK, which undertook policies of QE, and other action to inflate such bubbles. But, the actual consequence of such money flows is also to remove this potential money-capital from the circuit of capital entirely. It converts potential money-capital into merely money revenue, because what is purchased is generally not additional productive-capital, but only existing fictitious capital – shares, bonds, property – whose prices are thereby inflated by it.
Such inflation of asset prices gives the illusion of an expansion of capital value, via capital gain, when, in fact, the opposite is the case. Inflation of prices, be it of asset prices or commodities generally represents a diminution of the wealth of those that own them, or seek to buy more of them, not the opposite. The owner of shares and bonds, is just as much suffering a delusion when these prices are simply inflated, by thinking that their wealth has risen, as is the home-owner who suffers that delusion, simply because of a house price bubble.
The consequence of these bubbles is to both reduce yield, and to undermine productive investment. In order to continually boost stock valuations resources have to be devoted to maintaining dividend payments, to providing capital transfers, via share buybacks and so on. Such bubbles are often supported by conservative measures that favour such activity, but by definition the bubble ultimately bursts, and so the focus returns to the real source of wealth and revenue, investment in productive-capital.
Mike is correct when he quotes Mellon to the effect that a depression reduces the value of real assets, but its wrong to present this as being a matter of these assets returning to their “rightful owners”. Quite the contrary. All that the money-lending capitalist owns – be they a bank, bondholder or shareholder – is the money-capital they lend. They do not own the productive-capital of the firm they have lent to. In the case of the shareholder, they do not even effectively own the money-capital they have loaned, because they have loaned it on the basis of a perpetual loan, rather like an annuity, in return for the payment of dividends.
The owners of money-capital are able, during such periods, not to reclaim assets they own, but to take ownership of assets they do not own, on the cheap! But, the opposite also applies. It applies in periods when productive-capital is expanding. During these periods, interest rates rise, (although as Marx demonstrates this is usually accompanied with a reduction in the proportion of the surplus value that goes to interest rather than profit) and the consequence is that the capitalised value of revenue producing assets, such as shares, bonds, property declines. In reality, that amounts to a writing off of debt. That writing off of debt is all the more pronounced, when as now, the debt takes the form of astronomically inflated prices of fictitious capital. All of those who have previously bought shares, bonds and property see the prices of these assets fall, and the money they have spent is lost. Marx and Engels describe that situation in relation to the crisis of 1847. But, as Marx points out, such financial crises are usually beneficial to productive-capital.
“As regards the fall in the purely nominal capital, State bonds, shares etc.—in so far as it does not lead to the bankruptcy of the state or of the share company, or to the complete stoppage of reproduction through undermining the credit of the industrial capitalists who hold such securities—it amounts only to the transfer of wealth from one hand to another and will, on the whole, act favourably upon reproduction, since the parvenus into whose hands these stocks or shares fall cheaply, are mostly more enterprising than their former owners.” (TOSV2, p 496)
Such financial crises, as indeed was the case with those of 1847 and 1857, frequently arise during periods of rapid growth of the economy, as the demand for capital causes a rise in interest rates, which causes the capitalised value of financial assets to fall. If Mike considers his earlier analysis, therefore, he may see why it is that Atlee appears more left-wing than McDonald, and why Wilson and Callaghan appear more right-wing than Atlee.
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