Wednesday, 27 June 2018

Labour Should Be The Champion of Business

Over the last week, amid the unfolding catastrophe that is Brexit, the Tories have been fighting like rats in a sack. Now, as well as attacking each other, they have begun to lash out willy-nilly, including at those sections of society that established wisdom has always seen as the monopolistic preserve of the Tory Party. As “business” speaks out against the disaster of Brexit, Bojo responds “Fuck, business”, whilst his associates tell Airbus and others to keep quiet, and do as they are told. The truth is that the Tories have never been the party of business. It is Labour that should be the champion of business. 

The Tories have always been the party of the landed and financial oligarchy, and those are interests hostile to business. The landed oligarchy lives off rents, which are a deduction from the profits created by business. Their cousins in the financial oligarchy, live not from renting out land, but renting out money-capital. They live off interest, which is, again, like rent, a deduction from the profits created by business. In more recent times, the landed and financial oligarchy have lived off huge capital gains, arising from the hyperinflation of asset prices, which has created the bubbles in stock, bond and property markets, which not only leads to huge levels of instability, as witnessed by the repeated financial and property crises (1987,1990, 2000, 2008, to name just the main ones in recent times) but also acts to divert resources away from actual business, and the production of goods and services, into this gambling for the sole benefit of a tiny minority. 

The reason that Brexit and the whole issue of the EU, for the last 40 years, causes such friction within the Tory Party is that that element of the Tory party's support is largely in favour of EU membership. The very rich shareholders and bondholders, have seen that membership of the EU, facilitated a growth in capital and profits, which meant that the interest and dividends they could scoop up was able to grow with it, as were the rents it could appropriate. Indeed, for the landed oligarchs, the subsidies they were able to get from the EU, just for owning land, ran into hundreds of millions of pounds. 

But, the Tories, also became the party of the small capitalists, once the Liberals were consigned to the dustbin of history at the start of the 20th century, with the creation of the Labour Party. Although, it is the landed and financial oligarchy that have the financial muscle, it is the millions of small capitalists that make up the core support for the Tory Party that call the shots in determining the Party's policy. When it comes to that element of the Tory's support, of the white van man, wheeler-dealer, market trader type small capitalist, there is generally a visceral hatred of the EU, and all it stands for, with the requirement for decent minimum standards for wages, working conditions, consumer rights, environmental protection, health and safety and so on. Their agenda is presented every day in the pages of The Daily Express and Daily Mail

So, on the one hand, the reactionary wing of the Tory Party, reflecting these elements within society, who also, like Hayek, see the large corporation, and its power, as just as much their enemy as the trades unions, are forced to push for Brexit, as a precursor to a bonfire of regulations and workers' rights, whilst the conservative, social-democratic wing of the party, which represents the interests of the landed and financial oligarchy, and recognises that, ultimately, the fortunes of the economy depend upon the large corporations, and membership of the EU, are pulled in the opposite direction. 

In either case, the Tories are not the party of business. One wing of the party is the party of the landed and financial oligarchy that leeches off business by the extraction of rents and interest, the other is the party only of small business “owners”. For too long the apologists for capitalism have been able to identify these minorities as representing business itself, but they do not. 

What is business? It is the way the labour process itself is organised. In every society other than the most primitive, labour is organised in some kind of business. Even in largely peasant economies, the peasant households, whilst producing a lot of what they consume themselves, also produce commodities. The peasant household here is a business. There are always things that the individual peasant household either cannot produce for themselves, or else it is simply not worthwhile them producing for themselves. In even very primitive societies, people such as blacksmiths exist, for example, who shod horses, and produce tools and weapons. They exchange them for commodities produced by peasant households.  These are businesses, just not capitalist businesses, driven by profit.

And, if capitalism was replaced tomorrow, businesses would continue to exist, just as businesses continued to exist in Russia after 1917, because it continues to be a basic requirement that we organise the labour process to produce goods and services to meet the needs of society, by one means or another. Socialists, are then not at all hostile to business, because we could not possibly be hostile to the basic requirement of society to meet its needs, and to organise the labour process so as to do so. On the contrary, we are the most ardent, and consistent proponents of business, because we want to ensure that business, the organisation of the labour process to meet society's needs, is able to grow as rapidly and effectively as possible, and thereby to meet the needs of society, which is comprised now, in its huge majority, of workers, of the very people whose labour is organised by business, and who actually thereby comprise business. Labour should be the champion of business, because business is actually comprised of workers – including all of those managers, technicians, administrators who contribute to production by their labour, and who are paid wages in return – and Labour is the party of the working-class. 

What Labour should not be the champion of, is those elements in society that leech off business. We can leave it to the Tories to represent the 0.01% whose wealth consists of shares, bonds and property, and who have acted against the interests of business by their continual draining of resources from business, as they have sucked up huge amounts of rents, dividends, interest and so on, to finance their gambling on stock, bond and property markets, as well as their disgustingly ostentatious lifestyles, rather than investing it in productive activity. All of these elements act to hold back the development of business, and Labour as a champion of business, and of the working-class, should act to remove the ability of those parasitic elements to hold back business in future. 

In the 19th century, radical elements of the bourgeoisie, basing themselves on the criticism of these parasitic elements, set out by Adam Smith, David Ricardo and others, for example, argued for the nationalisation of land, so that all rent would be used to cover the costs of running the state, and thereby reduce the amount of tax deducted from profits, which would then be available to be invested in expanding businesses. Labour should commit itself to that radical bourgeois demand today. It would also be a means of providing the land required for a major house building programme. 

But, the major form of parasitism today is that of the financial oligarchy, which drains billions of pounds from business each year in the form of dividends and other capital transfers. According to Bank of England Chief Economist, Andy Haldane, where in the 1970's only about 10% of profits went to pay dividends, today that figure is around 70%! Shareholders, like bondholders should be entitled to a market rate of interest on the money-capital they lend to business, but nothing more. It is a travesty even of bourgeois property laws, that shareholders, having lent their money-capital to business, and been paid for it, in the form of dividends, then demand the right to exert control over the money-capital they have loaned to the business. A bank that makes a loan to a business does not have that right, nor does a bondholder, nor an equipment leasing company that loans machinery to the company, or a landlord that leases buildings to the company. It's like a bank giving you a mortgage to buy a house, and then demanding the right to tell you what colour you can paint it, what flowers to have in your garden, and who you can have round for dinner! 

Labour should put a stop to that iniquity. Labour should commit to changing Company Law in relation to corporate governance so as to remove the right of shareholders to vote, or appoint Boards of Directors. Companies should elect Boards of Directors on the basis of the same kind of democracy that exists in the rest of society. In other words, the company can be nothing other than those who work within it, at any particular moment in time. They should elect the Boards of Directors, who would take strategic decisions in between General Meetings where the whole company would have the right to vote and participate in setting the general policy direction. 

If we take a current situation, the one which has caused such angst for Bojo and the Brextremists, the view expressed by Airbus in North Wales, if the company's policy was determined on the basis of industrial democracy, by vote of its workers and managers, then its very unlikely they would vote to close down their production, and shift it elsewhere. 

The apologists for all of the parasitic elements that leech off business would no doubt scream about all of the shareholders who are pensioners, and all of the workers whose pensions depend on the dividends paid out. But, it is all hot air and hypocrisy. Firstly, shareholders would continue to get dividends based on a market rate of interest. Indeed, as the company grew more strongly, with bigger profits, it would be able to pay higher dividends. Secondly, although its true that a large amount of the money-capital invested in company shares, comes from pension funds, the reality is that the workers whose pension funds they are, get no say whatsoever in appointing the pension fund managers, or determining how their funds are invested. The real truth is that the control over those pension funds is exercised by a small number of banks and financial institutions, who act not in workers interests, but in the interests of the top 0.01%. In doing so, they have been responsible for blowing up the huge asset price bubbles that have meant that workers pension contributions are able to buy fewer and fewer shares and bonds, and has seen yields fall more and more as a consequence. In effect, workers pension contributions have been used as just a cheap source of finance put at the disposal of the top 0.01%, even leaving out the huge amounts siphoned off from those contributions in commissions and other kickbacks, even before the money gets to be invested. According to Panorama a few years ago, around 65% of workers pension contributions goes to cover such commission and charges. 

It would be far better for workers and managers to have direct control over their businesses, on the basis of industrial democracy, and to have control over the money they set aside as pension contributions, which could then be pooled to ensure actual investment in additional productive capacity. 

And, as I suggested a while ago, on a similar basis, Labour should not favour higher Corporation Tax. Corporation Tax is another deduction from the profits made by the company, which could otherwise be used to expand the business. With workers able to exert such control on the basis of industrial democracy, they could use the profits for expansion, thereby also creating additional employment. What Labour should favour instead, is a higher rate of tax on unearned income, i.e. a higher rate of tax on dividends, interest on bonds, rents and so on. In fact, a Wealth Tax on assets over £10 million would provide the resources required to finance the Health Service and other public services. 

Of course, the parasitic elements, the top 0.01% who own the majority of shares, bonds and property would not sit back and agree to that willingly. They would threaten to sell their property, shares and so on and move to other countries. That is why, even such a progressive social-democratic programme requires that it be fought for across the whole of the EU, which is why also socialists should be fierce opponents of Brexit, which acts to divide workers across the Continent. 


Blissex2 said...

«for "Ponzi phase" I like H Minsky's definition, where the people buy assets (with debt typically) solely because of the prospect of capital gains (in the case of assets bought with debt the capital gains are needed to repay both principal and interest).»

Uhm, I had a potentially interesting insight as to why we have different opinions, and I think that's because we look at different aspects of the "Ponzi phase" definition of H Minsky:

* As I read it, it seems to me that in the "Ponzi phase" asset cash-flow cannot cover neither the repayment of the principal nor the payment of the interest of the debt that financed the building or acquisition of the asset, so future capital gains are expected to do that.
* That is in the "Ponzi phase" prices are "validated" by the prospect of future capital gains, not future cash-flows, and as long as prices continue to be "validated" by future capital gains a debt bubble keeps the "Ponzi phase" going.
* For me the important part is that cash-flow cannot finance the asset, for you perhaps (and for H Minsky) the need for debt financing is more important.

How does this relate to whether southern english property (or shares suitable for building a retirement fund) is wholly or just in part in a Ponzi phase?

Well, in my view cash-flows from it can largely finance the asset prices, "validating the price": unlike tulip bulbs southern english property produces significant cash flow, and unlike tulips staying out of the market is difficult (fewer people choose homelessness or living in job-poor areas than people choose to not buy or rent tulip bulbs). Of course renters and buyers cannot "validate" a significant percentage of any level of prices for southern english property, but their current levels are still somewhat off the point where potential renters or buyers have to choose homelessness; renters or buyers can still double up, and can still devote an even larger percentage of their incomes to housing costs.

Put another way, a £2,000/month rent for a 1 bedroom flat can still be "validated" by putting 2-4-8 (depending on the percentage of income they are willing to spend on housing costs) people in it.

To me the real story of that is the immense redistributive pressure needed to squeeze that cash-flow out of the renters and buyers, more than the debt that is needed to pay the big capital gain to the previous owner.

Boffy said...

I will try to respond to this and your other comments, this weekend.

Boffy said...

See my response to this and your other comments here.