Can Western Social-Democracy Survive Its Economic War Against Russia and China? - Part 1 of 4

War is the continuation of politics by other means, and politics is concentrated economics. The economic war that the West has been waging against Russia and China, now, for several years, is just the opening salvos of a shooting war, which has every chance, once it starts, as with every shooting war, of taking on a dynamic of its own, and rapidly spiralling into nuclear war, and consequently the end of mankind. The fact that, once again, western labour movements have rushed headlong into social-patriotism, as they did prior to WWI and II gives little to be hopeful about. And for some of those, ironically, who claim to be on the Left, its not even social-patriotism, but just outright pro-imperialism, whilst the nature of those, like Starmer, who leads a sovereigntist, English nationalist, Blue Labour Party, means they have now even abandoned conservative social-democracy into a headlong rush towards petty-bourgeois, reactionary nationalism. If this is the best we are, and the working-class and its leaders have been unable to progress – in many ways having gone seriously backwards – over the last century, perhaps its all we deserve or can expect.

Last week, I wrote that shooting wars rarely result in falls in financial markets.  A week later, we are now seeing equity markets entering a bear market (20% off their recent highs), with some markets in Europe falling more than 3% in the last 24 hours.  But, these falls are not due to the war in Ukraine - they are the result of the intensification of the economic war that the US, in particular, is waging against Russia and China, but which also impacts the US's main competitor, the EU, as acceptable collateral damage.  The falls in these equity markets are a direct result of the impacts that intensification is having on finance, and on inflation, as the price of energy is increased hugely, bringing a tie-up of capital, and lower rate of profit, requiring additional money-capital to finance continued and strengthening economic growth (as seen in the latest US jobs numbers), which means higher interest rates, and crashing asset prices.

That is disastrous for conservative social-democracy, because its entire strategy for the last 30 years has been based on a continual inflation of asset prices, and the realisation of those capital gains as revenues.  The higher energy prices, unlike the 1970's, are not going to cause slower growth, even as oil has now hit $140, and is predicted to rise closer to $200, because oil no longer accounts for the same proportion of costs as it did back then.  When oil hit $147 in July 2008, it did not cause economic growth to slow, because the underlying drivers of the long wave continued to push it higher, and the same is true today.  What it is doing, with oceans of liquidity available if to feed through into higher prices and wages, which will again cause problems for conservative social-democracy and asset prices, as well as, ironically, bringing a transfer, from economies like those of the US and UK, to primary product producers like Russia.

The growing economic ties between Russia and China, in a new Eurasian economic bloc, will largely protect both economies from the sanctions being imposed, as China, dependent on masses of primary products it can get from Russia, can pay for them with commodities that China is now the main producer of, as the workshop of the world.  In fact, this in part, explains why the US has been waging economic war against both of them for the last few years.

Effects of Depleted Uranium Munitions

The calls for economic sanctions/economic warfare against Russia, are presented as being some kind of more targeted sophisticated war against Putin, and the Russian oligarchs, but, of course, they are nothing of the kind, any more than the smart bombs and missiles used by NATO did not result in the death and destruction of thousands of civilians, and its depleted uranium munitions did not lead to long-term effects, even on unborn generations. Economic warfare, against Russia, plays the same role that the Versailles Treaty did in relation to Germany, or that, for example, sanctions on Iraq had under Saddam. It affects the weakest in those societies, just as Brexit, by slowing economic growth, and increasing costs, affects the poorest and weakest in Britain, the most. But, when such economic damage is inflicted by sanctions, then it enables the rulers of those societies to cynically use it as an effective recruiting sergeant to their cause. It enables, those who would rule on the basis of an authoritarian, nationalist agenda, to whip up nationalist sentiments, in order to put them in charge, and to strengthen their positions.

Social-democracy, by promoting such economic warfare, inevitably promotes the ultra-nationalism, and right-wing authoritarianism that feeds off it, just as it did in promoting the rise of nationalism and Nazism in Germany in the 1920's and 30's. As Trotsky put it,

“The democracies of the Versailles Entente helped the victory of Hitler by their vile oppression of defeated Germany. Now the lackeys of democratic imperialism of the Second and Third Internationals are helping with all their might the further strengthening of Hitler’s regime. Really, what would a military bloc of imperialist democracies against Hitler mean? A new edition of the Versailles chains, even more heavy, bloody and intolerable. Naturally, not a single German worker wants this. To throw off Hitler by revolution is one thing; to strangle Germany by an imperialist war is quite another. The howling of the “pacifist” jackals of democratic imperialism is therefore the best accompaniment to Hitler’s speeches. “You see,” he says to the German people, “even socialists and Communists of all enemy countries support their army and their diplomacy; if you will not rally around me, your leader, you are threatened with doom!” Stalin, the lackey of democratic imperialism, and all the lackeys of Stalin – Jouhaux, Toledano, and Company – are the best aides in deceiving, lulling, and intimidating the German workers.”

(Phrases & Reality, in Writings 1938-9, p 21)

Let's think about what is going on, here, in terms of economics and class relations. Large corporations, oligopolies, compete again each other. Each one wants to grab as much of the market as it can, because that is how it makes more profits, and by being able to sell more, it can also produce more, and by producing on a larger scale, it obtains economies of scale, enabling it to be more competitive, and so grab more market share, and so on. But, this competition between corporations is not like the dog eat dog competition of small independent commodity producers, in the days before capitalism, nor even the competition between all of the small private capitalists in the early days of industrial capitalism. The large-scale industrial capitalists, recognised long ago that such dog eat dog competition was destructive for them, as a whole. They saw that competing on the basis of price, for example, meant that, if one cut prices to gain market share, everyone else followed, and the consequence was that profits were squeezed, whereas, if one was led to raise prices, because its costs were higher, others did not necessarily follow, and so these other lower cost producers, would gain market share at its expense.

This monopoly competition takes place on this basis, and on the basis that each oligopolist, rather than seeking to gain market share by cutting prices, does so by offering better quality products at the same price – whether in reality or simply giving that impression via clever marketing and branding. The last thing they want is actually falling prices of their commodities, especially as workers resist falling nominal wages, even if those falling money wages, represent higher living standards, because prices fall more.

Such conditions of falling money prices, whilst money wages remained sticky, would inevitably lead to squeezed money profits. So, at the start of the last century, the ruling class created central banks, like the US Federal Reserve, whose function is to produce “stable prices”, by which is meant that money prices should rise marginally each year, even if the value of commodities continually falls, as a result of rising social productivity. In fact, the competition, on the basis of ever improving quality of products, and the need for oligopolies to expand their profits by reducing their costs, is itself the fundamental driver of this rising productivity via technological innovation.

So, although the monopolies compete against each other, they also cooperate with each other, because they have shared interests in maximising total profits, and by preventing workers money wages from rising at a time that money prices might be falling. They also cooperate in other ways to that end; big car makers, for example, cooperate in sharing technologies, using the same engines, gearboxes across a wide range of different car marques; they cooperate in lobbying for common standards that each can adhere to, and that make it difficult for new, smaller producers to apply. In Britain, the big corporations, of all kinds, cooperate inside the CBI, to pursue the interests of these big companies, inside government and the state.

And, in pursuing these shared interests, they necessarily do so in competition with the collective interests of others. So, whilst the CBI represents the collective interests of the monopolies, the British Chambers of Commerce represents the interests of the smaller capitalists, and these are not at all necessarily aligned, as mentioned above. That is even more the case when it comes to the collective interests of the even smaller capitalists, and self-employed petty-bourgeoisie, a classic example being the support for Brexit amongst the latter, and the opposition to it by the CBI, and the larger capitals even within the BCC.

But, all of them, as owners of capital, of some kind, whether fictitious-capital, large-scale socialised industrial or small private capital, despite these divergent interests amongst themselves, have a shared interest as against labour. When it comes to the crunch, if labour was on the march, and seriously advancing its interests, all of the former would close ranks, and move against it, using the state to defeat it, as they did, for example, in the 1980's, most starkly in the 1984-5 Miners Strike.

Forward To Part 2