Monday, 29 February 2016

Another Pro-Austerity Government Falls

The Irish government is just the last in a long line of pro-austerity governments to fall. That process began where the contradictions were most acute – in Greece. That process required a number of iterations of one pro-austerity regime being replaced, by another nominally less pro-austerity government, which then fell as it too implemented austerity. When it came to the supposedly social-democratic PASOK, it appeared to have reached its apotheosis. The gutting of its support, led to a new term “de-pasokification”. Since that time, one government after another that have occupied the political centre-ground, as it has existed for the last thirty years, has fallen. It indicates the lunacy of the Blairites, in their various manifestations across Europe who want to continue to pretend that nothing has changed, and to try to present those old failed policies, as a route to success.

Of course, the actual process in each country has been different. In Ireland, much as in Britain, prior to 2015, the domination of politics took the form of the two large pro-austerity parties, Fine Gael and Fianna Fáil. Unlike in Britain, the main division of these two parties goes back to the divisions of the Irish Civil War after independence. As some commentators have noted, this election, more than others has started to configure Irish politics, more along that of other European states, as one between Left and Right. The reason that the two main parties are unlikely to form a grand coalition, has nothing to do with any major ideological differences in relation to the economy.

As in Britain, one party could pose as an austerity-lite version of the other; as in Britain, that did little to attract voters to either; even between the two main parties, they could not scrape a majority of support between them. As in Britain, the main reason the two main parties were able to hold on to the vote they did, is partly due to inertia, and partly due to the fact that they faced no real credible opposition, as others have been pointing out for several weeks.

In Britain, the left for years has been impotent. Not only was it racked with the sectarianism that pulled apart the workers movement from the start of the 20th century, but even its most radical manifestation amounted, for all of its rrrevolutionary verbiage, to nothing more than statist, left-social-democracy, or Fabianism. At its worst, it amounted to nothing more than sectarian party-building, mixed with radical trades unionism. In Ireland, the largest of the alternative parties – Sinn Fein – itself stands more in that same Irish tradition of communalism than of European class based politics. It only presented its own version of austerity-lite solutions, which offered no real way forward for Irish workers. As for the rest, despite the advantages they had over the British Left, because of the Irish electoral system, they mirror the same problems of the British sects, to which many are linked.

The importance of the Irish election then, like many others across Europe, lies not in the solutions it has provided, but in the solutions it has rejected. The process of de-pasokification in Greece, led to the election of Syriza, as the Greeks realised what was becoming increasingly obvious, which was that austerity was not a solution to economic problems, but was in fact, causing those problems. In the period between 2000 and 2008, economic growth in the EU was robust, as it was across the globe, as the new long wave boom progressed through the Spring phase. Th economies of places like Greece were flattered, because of the low interest rates which flowed from the masses of loanable money-capital flooding into global capital markets, as the rate and mass of profit soared, but also because of the creation of the Eurozone.

That meant that global economies were significantly divergent, as I have pointedout in the past.

On the one hand there were dynamic, efficient economies like China that were building up huge amounts of productive-capital, as well as accumulating huge quantities of loanable money-capital. On the other hand, there were economies like the UK and US, that were in relative decline, that had seen significant de-industrialisation, and which relied on being able to borrow from the surplus countries, such as China to fund their continuing consumption, now of manufactured commodities produced in China and other emerging economies. To add to that bifurcation, within economies like the US and UK, there were some new dynamic industries, but their economies had been shaped by two decades of low wages, and cheap credit, which also fuelled the development of a rentier economy, based on financial speculation on stock, bond and property markets. That in turn, sucked in speculative money-capital, from global money markets, and made the financial services industry in those countries both into a major foreign exchange earner, as well as an important employer within the national economy, with a consequent effect on government tax revenues.

In Europe, that bifurcation was also fairly stark between a rich north, with modern globally competitive industries, particularly in Germany, and a poor South, which provided a market for northern produced goods, and in return provided capital transfers to the north, in the shape of increasing debt. In fact, Ireland was a partial exception to that division. On the one hand, it suffered the same credit fuelled asset price bubble as Greece, Spain and elsewhere, and yet the Irish economy was one of the most modern in Europe, having built itself up on the basis of new technology industries during the 1980's and 90's. That, indeed is the reason that the Irish economy rebounded so quickly, after the financial meltdown, and the Eurozone crisis of 2010.

Those crises, were, in fact, financial crises of the kind seen before in history. In previous times, such financial crises led to a major write down of asset prices, and provided sufficient liquidity was available to prevent a credit crunch curtailing economic activity, they were generally beneficial, by clearing away large amounts of debt. But, what has been peculiar about these financial crises, has been that so many resources have been put into maintaining these prices of fictitious capital, whilst at the same time, draining the real economy of its lifeblood. The economy in Europe has been hit by a policy driven double whammy of austerity to suck aggregate demand out of the economy, and thereby discourage productive investment and employment, whilst at the same time flooding that same economy with huge amounts of liquidity, which was intended for no other purpose than to reflate the already astronomical asset price bubbles, and thereby to drain even more potential capital from productive investment, in favour of short term, speculative capital gain.

The resultant policy of extend and pretend, reached ludicrous proportions, when everyone knew that an economy like Greece was being crucified by such policies, that the debt was not going to be repaid, and yet no one was allowed to suggest turning that widely held knowledge into appropriate policy action. Instead, the Greeks were told to keep doing what was already killing their economy, to keep borrowing more money, not to invest, but simply to be able to repay existing debt interest payments to the banks, so that more of those banks did not go bust, on top of those that had already collapsed. Yet, long after this obvious truth was virtually universally accepted, when Syriza attempted to draw the obvious conclusions from it, with the overwhelming backing of the Greek people, conservative politicians across Europe, insisted they keep drinking the poison.

It is partly, because of the ludicrousness of that, and because of the strength of the conservative opposition to Syriza's social-democratic alternative that they have so far retained the support of the Greek people. There is a significant difference, as Lenin pointed out between those politicians who genuinely seek to pursue one set of policies, but who are forced by the balance of power to enter into a compromise, and those for whom compromise is a way of life, and an excuse to adopt the policies they supported all along. The real test for Syriza lies not in the compromises it has so far been forced to accept, but in how it uses the breathing space it has gained from those compromises, now to link up with other social-democratic forces across Europe, such as Podemos, the Left Bloc in Portugal, the Corbynistas in Britain and so on to begin to change that balance of power, and make possible a different set of solutions.

What the Irish elections demonstrate again is that process of the collapse of the political centre. It is based upon real changes in the global economy. It is a process again represented by significant bifurcations. A look on the surface shows yields on the sovereign bonds of economies in Europe and North America at record low levels, as loanable money-capital floods into them in search of a safe haven. At the same time, yields on a range of high risk (junk) bonds, and the insurance costs of protecting against default have risen sharply. That also matches the problems some small businesses have in obtaining money-capital at all, not to mention the astronomical interest rates that many private households face for borrowing.

At the same time, China which pumped trillions of dollars into global money markets itself now has a debt to GDP ratio of more than 200%, with its non-performing loans rising sharply. As its own asset prices fall, and the Yuan depreciates, it faces the need to repatriate some of its own money-capital. The same is true of all those rent based economies in the gulf, and elsewhere, which poured loanable money-capital into global capital markets from the revenues they received from high primary product prices, pumped up by the huge increase in global demand resulting from the onset of the long wave boom after 1999. Now those economies, like Saudi Arabia, are themselves having to become large scale borrowers of money-capital, simply to cover their own expenditure.

All of that is causing the demand for money-capital to rise relative to the supply, and thereby pushing up the average rate of interest, which thereby causes the prices of revenue producing assets to fall, as a result of capitalisation. Hence the falls seen on global stock markets over recent months. The strategy of the political centre, for the last thirty years, was founded upon the idea that this paper wealth could keep increasing for ever, simply by trading pieces of worthless paper, at every higher prices. That dangerous illusion has come to an end, and with it the basis of the political centre.

In Ireland, as in Britain, the junior partner in the pro-austerity government got crushed. Just as the Liberals have been wiped from the face of British politics, so has Labour in Ireland. It demonstrates the lunacy both of those who would have Labour link up with the Liberals in Britain, and of the Blairites, who still want to pursue that same austerity-lite agenda that saw the Liberals in Britain, and Labour in Ireland get crushed! In reality, the UK election of 2015, was just as much a part of that trend seen across Europe. It is being portrayed as a vindication of Tory policies, but the opposite is the truth. The reality of the 2015 election is that a pro-austerity government majority of around 80, was reduced to a majority of just 12. It saw a slightly less pro-austerity Labour Party gain seats in England and Wales, and increase its vote share faster than the Tories, and a more vocally anti-austerity SNP, more or less sweep the board in Scotland.

The challenge now is to provide the ideas and the strategy to replace that of the old political centre. For socialists, that problem is in some ways easier. For socialists, the task remains the same at all times, to foster the independent development and self-government of the working-class, and the expansion of worker-owned property, along with the social relations that arise from it. But, that is a long-term strategy. For now, socialists have to also give critical support for social-democracy in its struggle against conservatism, and that is a more difficult feat. It requires the overcoming of all the national prejudices that social-democracy has itself fostered over its history; it requires the forging of a new Europe wide social-democracy.

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