Banks, Steel and The EU - The EU

In the previous posts on the banks and on steel, I spoke about the fact that, in the aftermath of the crash of 2008, billions of pounds were paid to rescue the banks, whilst when it came to saving a few thousand steel jobs, the UK state was found wanting. In some ways, the reason for that is apparent. The UK banking and finance industry has become a major part of the UK economy, whereas steel production has been in decline for decades. Service industry accounts for 80% of UK GDP, whereas manufacturing in total accounts for only about 10%.

But, that is not the whole or even the real reason for the different approach of the British state in these two situations. Firstly, as set out in the second post, the reality is that apart from the possibility of operating some smaller scale production, to meet the needs of high value, niche markets, any manufacturing production must take place on a huge scale with low profit margins. As I've set out elsewhere, low profit margins/rate of profit does not mean that capital employed in such a particular sphere does not make the average rate of profit, because these are two different things. The average rate of profit, or as Marx refers to it later in Capital III, the general annual rate of profit, is just that the annual rate of profit on the advanced capital, whereas the rate of profit, or profit margin is the rate of profit on the laid out capital, and these are two quite different things.

In fact, the process that causes the rate of profit to tend to fall, simultaneously tends to cause the general annual rate of profit to rise. It is that, as productivity rises, so the rate of turnover of capital rises. So, the profit margin per unit of output falls, even as the mass of profit rises due to the huge rise in the volume of output. Because the capital turns over more rapidly, the laid-out capital rises significantly in proportion to the advanced capital, which may remain constant or even fall. Because the mass of profit rises significantly, therefore, the general annual rate of profit rises. But, the low profit margin means that large amounts of profit can quickly turn into large losses, if not all the output can be sold. A small amount of profit per unit on a large volume of output produces large masses of profit, but equally small losses on every unit of a very large volume of output turns into a large overall loss.

But, producing at a globally competitive price means producing in these vast quantities, which is why China has such an advantage, as does any other very large economy that can produce to meet the needs of its own large domestic market. But, even then, the huge amounts of capital investment required, that can only produce returns over a long period, and which risks the potential for periods of large losses, if global production exceeds global demand – either because supply has risen too fast, or because demand has contracted, or grown very slowly – also requires an interventionist, social-democratic state, that can create the environment in which such decisions on capital investment can be taken. That is why it makes sense to develop an EU steel industry, and indeed EU wide industries for all large scale manufacturing production.

So, in a sense, it is obvious that a Tory government, that is irrevocably split over Europe, and likely to lead the UK into isolation from Europe has difficulty in defending the steel industry, because realistically that would mean calling for an EU wide solution, for greater EU integration, and for greater social democratic intervention by an EU state in regulating the economy. The Tories have difficulty in making the argument too, because the reason the party is irrevocably split is because the party, in practice, is left facing in two different directions, over Europe.

On the one hand, the Tory Party, historically, has been the party of the landed and financial oligarchy. At the same time, its membership and voter base is comprised of the remaining owners of private capital. That runs from the corner shop owner, through to the owner of medium sized, family owned engineering businesses etc. In proportion to the total population that is a relatively small, and continually declining group, reflected in the shrinking membership of the party, but in absolute terms, it still accounts for around 5 million people. All of these layers share a similar world outlook, or more accurately an outlook that is focussed within the national, and sometimes even just local economy, and only sees its relation to the global economy through that prism. That is the fundamental basis of Tory Euroscepticism.

On the other hand, Tory governments have to live in the real world, in which the global economy is dominated by multinational, large scale socialised capital. It is the interests of that capital which dominates, and its interests that have shaped the formation of social-democratic states, and social democratic transnational organisations. The basis of those social-democratic organisations is the fundamental need of this large-scale, socialised capital for all of those elements of regulation and intervention required to create the conditions for large scale productive investment in the modern world.

So, the Tories, including Cameron, complain bitterly about how the EU is hampering profitability and growth, and imposing restrictions on small businesses and so on. But, when Cameron goes to Brussels, his reform proposals are not even minor tinkering, and he drops even them, before throwing himself full force into a vote to maintain the EU status quo.

In reality, it is only social-democratic parties that could have provided a rational solution to these issues, but for the last twenty years, at least, most social-democratic parties across Europe had been captured by conservatives. The reason for that was basically that in the late 1980's, conservative ideas themselves became more influential. In search of an electoral majority, social-democratic parties moved their programmes increasingly to the right. The other and associated reason was that in the 1980's, the focus turned to monetary intervention, rather than fiscal intervention as the chosen means of regulating the economy. Instead of a creation of real wealth and productive investment, it led to the creation of financial bubbles, and the illusion of wealth as the prices of paper assets and property rose to astronomical levels, which created the bubble that burst in 2008, and which bond fund manager Bill Gross, currently describes as a supernova that must explode.

This, in turn, is one reason that the EU itself suffers from a democratic deficit, and the current EU Referendum in the UK highlights it. On the one hand, conservative governments across Europe, for the last thirty years have had to cater for the views of their base. Whatever the Brexiters say about the EU Commission making decisions, it is, in reality, no different than any other state bureaucracy, whether it is at the level of a local council, or the Civil Service. That permanent state bureaucracy has responsibility for drawing up the proposals, and for implementing decisions when approved. They present their proposals to the elected politicians, be it a committee of councillors, Ministers at Westminster, or the Council of Ministers in Brussels.

It is the politicians in each case who have to make the decision, and ultimately they are the ones who have to take responsibility for those decisions. But, at each of these different levels, the politicians in reality, always find that they take those decisions within certain constraints. Where what they need to do conflicts with what they have said they would do in seeking the votes of the electors, there are three options. Either they can simply ignore what they told the electors, or they can undertake a campaign to convince the electors that what they propose is the right course of action, or else they can fudge, and claim that what they have done is consistent with what they said they would do.

The democratic option is the second. But, it is one that politicians whose only concern is to get themselves elected so as to further their career, are unlikely to take. If the EU was to have provided the solutions that only it can actually provide for European capital, then it required social-democratic politicians across Europe to have engaged in a prolonged and persistent political struggle for those ideals on which the Common Market and its predecessors were founded, and which should have been carried forward into the EU itself. But, they failed to do that, because, in the short term, it would have meant the risk of losing elections in their domestic Parliaments.

Th existing social-democratic parties across Europe, whose origins date back to a period of internationalism, and the Second International, were themselves actually badly suited to such a project. Despite the outward claims to internationalism, the parties of the Second International were from the start national parties, and the International itself operated on the basis of mere diplomatic relations between these national parties, each of which, thereby refrained from criticising any other national party. It was one of the factors that facilitated their separation, and the lining up behind their respective ruling classes in WWI.

A starting point from here, should be the creation of an overtly EU Party of Labour that fights elections at every level across Europe on that basis. It should be linked to an EU TUC, an EU wide Co-operative Federation and so on. Instead we see a process of increased fragmentation of the existing Labour Party, with suggestions of creating an independent Scottish Labour Party. Such division and fragmentation can only weaken the working class. It is the opposite direction to that we need to travel. The current referendum could actually have been a perfect opportunity to start the process of creating such unity. The Labour Party should have organised large demonstrations and rallies in which a prominent role should have been given to those European social democrats from Syriza, from Podemos, from Portugal and so on, who have been waging a struggle against austerity and conservatism, and have succeeded in winning electoral support and governmental office in the process of doing so. That would have been the best reply to those who claim that Corbyn is not serious about Europe, and that a Corbyn Labour Party could not win in 2020.

The EU was established on social-democratic principles, as it had to be, given its function of rationalising productive-capital across Europe. Globally, those social-democratic principles of greater macro-economic planning and regulation have continued to advance, but they have done so by back door, bureaucratic means, as conservative governments and politicians, including those within the traditional social-democratic parties, have sought to capture votes from electoral coalitions built around their core support, at a time when conservative ideas were more dominant. It has created a democratic deficit, and has also now led to a collapse of that political centre that operated on that basis for the last thirty years. The collapse of the political centre is reflected in Europe by the coming to power of parties such as Syriza, Podemos, the Left Bloc and so on, and in the landslide victory for Jeremy Corbyn within the Labour leadership election. That has occurred alongside the so called Pasokification of other social-democratic parties, that had been captured by conservative ideas.

It is also reflected in the support won by Bernie Sanders in the US. On the other hand, the collapse of the political centre was not simply a collapse to the left. It has seen the rise of Golden Dawn in Greece – who as I argued some time ago, are still likely to be beneficiaries if Syriza is forced into more and more concessions – it has seen the rise of the FN in France, and far right parties across Northern Europe, in Austria, in Poland, Hungary and so on. In his recent speech, Gordon Brown has set out some of the ways that the EU can easily undermine those far right movements. It requires that the EU simply return to its original social-democratic principles of social solidarity, of fiscal intervention, to promote growth etc. The answer to the current problems resides not in reactionary demands for Brexit, or a return to other national borders, nor in the equally reactionary, and utopian idea of Lexit, or a supposedly left-wing exit, but in a struggle to unite workers across Europe, for more Europe, for a more rational Europe, based upon the creation of a United States of Europe, for the creation of a single fiscal structure able to organise investment across the whole of the EU, to end unemployment and promote growth, to combine all of the existing welfare systems into a single EU wide welfare system, and so on.

The idea of “Socialism In One Country” was reactionary one hundred years ago. It is all the more so today. Workers across Europe when they look for a solution to the problems such as those facing the steel industry, when they look at the way economies have been run to protect the paper fictitious wealth of the owners of money-capital, at the expense of the real economy, have to look forward not back. As a stepping stone to the slogan formulated by Marx and Engels 170 years ago, of “Workers of the World Unite”, we should at least start from the immediately achievable slogan of “Workers of Europe Unite”, for the creation of a United States of Europe, as the minimum rational unit for the modern world, for the unity of the European working class to engage in a struggle for a European Workers Government, and from there to the creation of a Socialist United States of Europe.