New Brexitory Economic Idiocy

The UK's Brexitory government continues its economic idiocy that is bankrupting the economy.  The latest idiocy is its plan to cap the revenues of low-cost, electricity generators, such as those using alternative energy sources like wind and solar power.  It is fully in keeping with the reactionary, petty-bourgeois ideology that seeks to hold back capital accumulation and economic growth, by penalising larger or more progressive forms of capital, via taxation and so on.

The basic position is this.  Firstly, global energy prices have risen, because NATO has boycotted Russian oil and gas supplies.  By taking out that large amount of supply - though it hasn't actually all been taken out, as the Russian supply has simply taken alternative routes via China, India and elsewhere, before re-emerging at higher prices, as seen by the burgeoning revenues going into Russian coffers - the EU was forced to meet its demand from much more expensive sources, primarily oil form the US, and gas via imports of LNG.  EU gas wholesale gas prices have been extremely volatile rising by over 1,000% at some points.

Although, Britain buys only 6% of its energy requirements from Russia, and produces nearly 50% of its own gas requirements from the North Sea, it cannot escape the effects of these much higher global energy prices, especially as North Sea oil and gas is some of the highest cost production in the world, and is becoming more so as the fields become exhausted.  Global oil and gas companies operating in the North Sea are going to sell their output to where they can get the highest prices for it, and so if Britain wants that supply, which it does, especially as it has very little gas storage capacity, it has to pay those highest prices too.

In the 1980's, Thatcher, desperate to defeat the miners at any cost, initiated the "dash for gas", by which electricity generation was switched from coal to gas.  As global gas prices fell dramatically in the 2000's, and countries signed up to reduce carbon emissions, switching power generation from coal and oil to gas, gave an easy win, as an interim to being able to produce sufficient electricity from alternative sources, such as wind or solar.  So economies continue to be reliant on gas, and, indeed, in may places coal and oil too.  Its these fossil fuels, and particularly gas that is the determinant of the costs for electricity generation.

As the NATO sanctions have massively pushed up global oil and gas prices, that has, therefore, also massively increased global electricity generation costs, and electricity prices to consumers, alongside massive rises in gas prices to consumers, and higher petrol prices.  Initially, governments did not see this as a bad thing, for two reasons.

Firstly, a bit like with Iraq in 2003, NATO's strategy against Russia seems to consist of wishful thinking, which is also then the foundation of its propaganda war, but as countries and politicians then believe their own propaganda it feeds into further wishful thinking.  So, basing themselves on their experience of the last 30 years, they thought that by flexing their military muscles in Ukraine, and applying economic pressure, Russia would buckle, but it didn't.  They have continued to hope it would, or that Putin was going to be removed, and so on, but he hasn't.  Instead, he's simply consolidating his position in Eastern Ukraine, which was always the goal, and over the Winter months, that consolidation will be completed, whilst his military continues to fire at NATO/Ukrainian command and control and infrastructure using long range missiles and so on.

Secondly, governments have been alarmed that as soon as lockdowns were relaxed, economies leaped forward, and, in particular the demand for labour grew rapidly.  That demand for labour pushed up wages, which, in turn fed back into demand for wage goods, which meant that firms had to accumulate capital to meet this additional demand - especially as profit margins are currently at historically very high levels - which meant that the demand for capital rose, causing interest rates to rise.  Higher interest rates cause asset prices to fall, and, because the ruling class now owns all its wealth in the form of these assets, that is the one thing that the state has been trying to avoid for the last 30 years.

So, again, conservative social democracy (neoliberalism) based its strategy on wishful thinking, which determined its propaganda, and fed back into its wishful thinking.  They assumed, again, that the conditions prevailing over the last 30 years would continue.  So, they assumed that, if workers found that their household incomes were all being used up to fund higher energy and food bills, and higher mortgage costs, as interest rates rose, they would simply suck it up, and spend less on other things, thereby, slowing the economy and demand for labour, so that wages would not continue to rise, interest rates would not need to rise further, and so the perpetual rise in asset prices could go on, increasing the paper wealth of the ruling class.

But, the conditions of the last 30 years have gone.  The financial crisis of 2008 was actually the sign they had gone, and it has taken herculean efforts to undermine the real economy since then to prevent that reality asserting itself.  In conditions of labour shortages, wages continued to rise, and workers sensing their renewed strength, started joining unions in large numbers, and taking action to get even bigger wage rises to compensate for the higher costs of living from energy, food and mortgage costs.  Firms responded by raising prices further, and central banks did their bit by increasing liquidity so that prices could rise, but that just leads workers to demand even bigger rises, and with still high levels of profits, firms continue to expand, and hire labour, and pay higher wages.

Despite all the talk of recession, the fact is that in the US, labour markets are extremely tight with two vacancies for every unemployed worker.  And, the same is true in Britain, with the unemployment rate now down to its lowest level since 1972.  Firms do not employ workers to sit and do nothing, let alone to actually reduce the amount of new value being produced.  So, these increasing levels of employment and falling levels of unemployment are an indication that there is no recession, and output continues to rise.  The falls in GDP are not an indication of recession or falling output, but of rising costs of constant capital causing a tie-up of capital that appears as a reduction in revenues.

So, seeing that rising living costs are actually feeding into rising wages, and more threateningly rising levels of unionisation and industrial action, by workers, governments have been led into trying to make superficial attempts to hold down the costs to consumers of energy, whose price had soared because of those governments' own actions in imposing sanctions on Russia.  Pressured by US imperialism, as shown in its blowing up of the Nordstream pipelines, European governments, including the Brexitories in Britain, have been loathe to do the obvious thing, and scrap those sanctions.  Instead they have come up with one hare-brained scheme after another to massage those higher prices away.

The decision of the UK and EU governments to cap energy prices to consumers, and, so to have to hand over billions in subsidies to energy producers, has blown a hole in budgets, sending borrowing soaring further, and so sending interest rates soaring further too.  As central banks again sought to do their bit, by printing even more money tokens, to add to the oceans of liquidity already inflating prices, that caused global inflation to take yet another leg higher, causing workers to demand even higher wages, firms to seek to compensate with even higher prices, and so led central banks to respond, not by reducing liquidity, but by instead raising their interest rates further, in the vain hope of slowing economies, which given the massively negative, in real terms, levels of those interest rates, they can never do.

And, the UK Brexitory government added fuel to this fire with its own insane petty-bourgeois, budget based upon the tax cutting ideas of Reagan's Voodoo Economics that was so disastrous in the US in the 1980's.  As UK borrowing soared, global financial markets took fright, and showed to the Brexitories just who did have control of the UK, and it wasn't Truss and Kamikwarzi Kwarteng.  So, now, they have to try to fill the hole in their books, and they don't want to adopt the Liberal/Labour policy of a windfall tax on energy producers.  More correctly, they don't want to be seen to be adopting it.

As I've set out before, a windfall tax itself is a very bad idea anyway, and itself simply an application of petty-bourgeois interests.  It amounts to a form of rent.  Rent arises because, the market price of commodities is determined, as Ricardo and Marx set out, by the marginal producer.  If demand can only be satisfied by the supply provided by the least efficient (highest cost producer), then, in order to get these producers to apply their capital, prices must be high enough to provide them with the average industrial rate of profit.  But, that means that other producers, who have lower costs of production, will make more than the average industrial rate of profit, at those market prices, and this surplus profit is then the basis of rent.

Rent, then is not an additional cost, which raises market prices, but is a deduction from profits, and, in the case of this differential rent, from this surplus profit.  However, as Marx describes, what rent does is to slow down capital accumulation and innovation.  If firms were able to make the surplus profits, then those surplus profits would invest additional capital, as they do in industrial production.  They would increase supply, and push out the less efficient producers.  The result would then be that the market price of the given commodity would itself fall, and the surplus profits would disappear.  This was the great drag that landed property continued to exert on economic development, Marx set out.

A windfall tax has the same effect, as does all those other measures aimed at subsidising the small inefficient producers at the expense of large-scale capital.  But, the Brexitories new plan is not to implement a windfall tax, but to cap the revenues that the low cost energy producers obtain, as a result of the high gas prices that NATO's sanctions have created.  Either that is a windfall tax by any other name, or its effects will be quite different to what the Brexitories intend.

Firstly, although the massive increase in gas prices has caused electricity prices to surge, and along with it, the mass of profits of electricity producers, its not clear that for those that use gas, their rate of profit has actually risen.  In other words, what we have is c + v + s, and let's assume c consists entirely of the gas used to produce electricity.  We can assume that v and s remain constant.  If we start with c 100 + v 100 + s 100, and now as gas prices rise we have c 500 + v 100 + s 100, then, the rate of profit will actually have fallen from 50% to 16%.  In fact, because prices are based on prices of production, the price will rise to try to restore the average rate of profit of 50%.  So electricity prices would rise  from 300 to 900, and whilst its true that this means the mass of profit rises from 100 to 300, the rate of profit does not rise at all.

So, a windfall tax on these producers would actually reduce their rate of profit below the average causing them to slow capital accumulation, and move capital to other spheres where a higher rate of profit is available.  In fact, given that they have to compete with the other lower-cost energy producers, its likely that they may not have been able to even raise their prices enough to maintain the average rate of profit, despite obtaining higher masses of profit as a result of higher market prices.

But, if we look at what the effect, then, of apply a cap on revenues for the low-cost producers is, it is even more devastating for the higher-cost producers.  If the low-cost producers face any "excess revenues", whatever that may mean, being taken away from them, then they would, indeed, have an incentive, to reduce those excess revenues, by reducing their prices for electricity.  However, that means they would then undercut the high-cost electricity producers, who would also have to cut their prices.  That is no doubt what the Brexitories want, but the effect will then be that the high-cost producers will not only see their rate of profit collapse, leading to them moving capital to other spheres, but may also see them reducing their existing production.

So, the consequence would be that electricity supply would fall, at a time, when OFGEM is already warning that electricity supply may be disrupted over Winter.  In fact, the high cost producers might find, not only that their rate of profit fell drastically, as the low cost producers cut their prices, but that their existing profits turned into actual losses.  That would put them in a similar position to all of the energy supply companies that went bust over the last year, because the costs of the energy they bought was higher than the prices they could charge to consumers.  That led to the government having to step in to subsidise other energy suppliers taking on the customers of those failed companies, again leading to government spending rising to fund it, which causes borrowing costs to rise further.

Everywhere you turn its like a game of whack a mole, with no coherent strategy, and each idiotic response simply adding to the confusion and mayhem.

Dealing With Energy Prices

As I wrote, last week, the current high energy prices could be ended overnight. An element of them is due to the general inflation that has arisen from vast amounts of money tokens thrown into circulation during the idiotic lock downs, and the answer to that is to stop printing additional money tokens, but a large part is due to the actions of NATO imperialism in attempting to block and boycott exports of Russian oil and gas. However, we have no immediate means of changing that, so we have to consider other immediate solutions. Those solutions, to be effective, can only be collective class based solutions.

So, campaigns like “Enough Is Enough”, which are basically petty-bourgeois, individualist and liberal consumerist solutions, can never provide such a solution. Whilst, of course, there are going to be individual households who actually cannot pay their energy bills, as there always are, and always have been, and that number will undoubtedly increase, what this campaign seeks to do is to put the onus on those individual households to respond in an atomised manner, to their position by refusing to pay. Well, if you can't pay, being told to refuse to pay isn't really helpful is it? What the campaign really is aimed at is a campaign of civil resistance, of actually not just those who can't pay, but of others along with them, who can pay, but who are then encouraged to refuse to pay. This kind of consumer boycott, is pure liberal individualism. Its not even like a rent strike, where all tenants in a building or community can join together to provide solidarity to each other.

The real immediate solution for households suffering poverty – and as I've written before there is no such thing as fuel poverty, or food poverty and so on, there is just poverty full stop – is to increase their income. That might be from increasing wages, or by increasing pensions and benefits for those not in work. Those solutions are ones that can be achieved by collective action. Workers by joining trades unions, and taking action can demand and win higher wages, and that is particularly the case when, as now, there are labour shortages throughout much of the economy. Workers as a whole, via the TUC, can take action, and demand a much higher Minimum Wage, on behalf of all of their comrades who are in jobs where organisation is difficult to achieve, and where the workers have less leverage, and, similarly, they can take action to demand a large rise in pensions and benefits for those that have retired, or who are unemployed.  Similarly, they can take action with workers across Europe to demand that NATO scrap its sanctions against Russian energy exports, and that the EU agrees to pay for gas in Roubles, and that Germany open up Nordstream 2, which would end the crisis overnight.

Given the current high level of inflation, such general class action could also demand that all of these wages, pensions and benefits be indexed each month to a workers' cost of living index, calculated by trades unionists and socialist economists. Of course, alongside that general class action to protect workers from high energy prices, and inflation, we should also continue to point out the actual causes of that inflation, rooted in the astronomical amounts of money tokens that central banks have printed over the last 40 years, whose primary goal was to inflate asset prices, so as to protect the paper wealth of the ruling class, as well as in the actions of NATO imperialism in blocking huge amounts of cheap energy entering the European market. Simply reversing the German decision not to open the Nordstream 2 pipeline would reduce gas prices overnight, and provide Europe with huge amounts of cheap energy, for example.

The petty-bourgeois nature of “Enough Is Enough”, is also manifest in this statement by one of its backers – Anti-Capitalist Resistance. Susan Paskoff, reviewing Labour's strategy writes,

“Not allowing the energy price cap to rise is a good thing”.

But, as I set out recently, that is not true. It would mean that even more of the energy distributors would go bust, as they could not recoup their own massively increased costs of buying energy from producers. That would throw UK energy supply into chaos, doing no good to anyone - not to consumers who would lose supply, not to energy supply workers who would be thrown out of a job!

And, Paskoff admits that the only way this would work would be if the state itself stepped in to provide massive subsidies to those energy supply companies, to cover their additional costs. Labour only has plans to provide such funding until next April. The real answer, to that, is not such massive subsidies, which would cause government borrowing to rocket, but is the kind of rise in wages, pensions and benefits described earlier. 

At the very least, individual groups of workers, as they already are doing, can organise and take action to demand rises in their own wages, and that requires no reliance on the government pursuing the kinds of polices to restrain prices, and so on that the consumerists are calling for. Successful action for much higher wages – which, with Citigroup now forecasting RPI inflation of 21%, now means wage rises of around 25% - would itself spread over into other groups of workers, giving them confidence to take action, as is already happening. And, even smaller firms would not be able to resist raising wages in such a climate, because, otherwise, they would simply lose workers to other much higher paying employers.

In such conditions of generalised strike action, including in that action demands for higher pensions and benefits, for a much higher Minimum Wage, becomes simply a logical extension of that class wide action, in away that consumerist campaigns for boycotts, payments strikes and so on never can. The very name of Anti-Capitalist Resistance, of course, gives the clue to its petty-bourgeois nature, whose policies are based on that kind of reactionary, Sismondist approach of antagonism to large-scale capital, and attempts to constrain it within limits of things such as price controls etc.

After all, what would “Enough Is Enough” say in response to households not being able to pay for their weekly food bill? Don't pay at the check-out? At least, in the 19th century, the Chartists, here, in North Staffordshire, responded to such situations by marching en masse, in collective class action, down to the canal wharves, and liberating supplies from the canal boats transporting goods to wholesalers. But, the real power of workers resides in the workplace itself, at the point of production. It is there that we can act collectively, not only to demand the higher wages required to cover higher prices, but from where, when undertaken on a class wide basis, can force capital as a whole to act, via its state, to provide the required class wide increases in benefits etc.

But, more important than that, even these actions can only be effective at certain times, like those now, where labour is relatively scarce. At other times, workers do not have the leverage to win higher wages etc., no matter how militant their action. Its hard to demand higher wages, when the employer is laying you off, and a dozen unemployed workers are waiting to take your job. So, all of these immediate actions are only themselves partial solutions within capitalism. The real solution, as Marx sets out in Value, Price and Profit, is to replace capitalism, and the wages system along with it. But, it is, again, in the workplace where that lesson is learned, and where the potential to implement it arises.

It is, after all, workers who already run capitalism. We do not need capitalists, just as when capitalist farmers arose, there was no need for landlords any longer. Its not just workers who run capitalism by producing all of the goods and services, it is workers, as managers, administrators, accountants, and so on, who organise and supervise all of that production, and the operation of financial systems too. It is workers, today, who do all of the jobs in that regard that the private capitalist used to do in the 18th and 19th century. What is more, the vast majority of industrial capital in the economy is socialised capital, not private capital. In other words, it is capital that is owned by the firm itself as a legal entity. The firm simply borrows money to operate, whether it borrows that money by issuing shares, or bonds, or borrowing from a bank, or by borrowing from its own workers, as happens with a workers cooperative. In all events, the company is its associated producers – the workers and managers – and it is they that collectively own it.  It is absurd that they do not control it, and yet shareholders who do not own it, do not play any active part in production do control it!

Explaining this reality to workers, is the first step in getting them to also demand control of their own collective property, rather than that control being in the hands, improperly, of people that do not own it – shareholders. A situation like that we have now, of millions of workers taking action to protect their living standards, is precisely the time, where, in the workplace, this lesson can be learned, so that the longer-term interests of workers can be advanced, by not just seeking higher wages, but also demanding industrial democracy, and control over their collective property.

These are the real solutions that should be advanced, but, in the meantime, there are also real human beings involved, and some of them cannot wait over this Winter.  It is always necessary to deal with the world as it is, rather than how we would like it to be.  I would love for us to have already created Socialism so that these problems did not exist, and where the power to deal with any problems resided directly in our own hands, but that is not the case, and is a longer-term goal.  More immediate solutions are also collective, class based solutions, and in the rash of strikes, they are emerging, but are not yet achieved.  Most immediately, then, individuals need to be able to survive.  So, let me give some practical advice, on survival tips, learned over several decades, from growing up in an old, damp, cold terraced house with only a single coal fire, to living in a cold damp flat, with only electric fires for heating, to some later experiences that only some might be able to utilise.

Individual choices are always limited, and the poorer you are, the more they are limited.  That means that for the very wort off, they really are going to be dependent on class based solutions providing them with relief.  But, there are always are choices, no matter how unpalatable, such as eating or heating, and in that choice, eating is always a priority, because its possible to live without heating, but not without eating.

When I was a kid, my parents house, as stated, was cold and damp. Ice would form on the inside of windows overnight in Winter. It was heated by a single coal fire in the living room, supplemented by inefficient electric fires, when required.  Obviously, we huddled in the living room around the coal fire, and used lots of blankets and Eider Downs (in the days before duvets) on the bed, along with hot water bottles. If you use a hot water bottle, make sure you wrap it in something so as not to get burned. That kind of limited, but immediate, heat can be useful to keep you warm, rather than needing to warm an entire room. Later we were able to buy electric blankets, which were a more effective means of achieving that objective.

Similarly, we bathed in an old zinc bath in front of the fire, once a week on a Sunday night.  The bath was filled with buckets of hot water heated in an old boiler used also for washing clothes in the dolly tub.  the bath was topped up with kettles of hot water, and all four of us in the family shared the same bath water.  In the 1970's drought, people were also encouraged to share baths to save water.  In fact, during lockdowns, my shower wasn't working properly, and isolating I decided not to have a plumber come and fix it, so for the last two years, instead of showering or bathing, I have managed perfectly well with having an all over wash with water from the basin, using a face cloth, which saves both in water usage, and in the cost of heating a much smaller volume of water required.

Similarly, the first year my wife and I lived in our flat, it was so cold and damp that she ended up getting pneumonia and a collapsed lung. We only had electric fires. But, we found that, again, a sensible solution was to move into just one room, rather than needing to heat a bedroom. That way, it could be heated, and the heat retained in it. In both cases, using home made draught excluders from stuffed tights and so on, curtains hung over doorways etc., made a big difference in keeping out cold draughts. Also, if you need quick heat to warm up, a fan heater seems to do the job, whereas, an oil filled radiator, can retain heat more effectively. That is useful if you do need to use another room like a bathroom for short period, to shower.  Use of high tog duvets to wrap in whilst sitting, also prevents heat loss, and a hat, even in doors stops a lot of heat loss through your head.

Various people have talked about using public buildings for the retired and unemployed, during the day time, as they are heated, and avoid needing to heat your own home. I'm not convinced. Firstly, when you come back home, you then have to heat it from stone cold, and you have yourself got cold from being out in it. Then, for the elderly, there is the risk of accidents in bad weather. If you can get together with others to share accommodation, and so heating costs, that is preferable, as well as encouraging solidarity and companionship.

But, lots of people are not in such absolutely dire straits as that.  I see lots of people walking around engrossed in their latest iPhone, and so on.  I was amazed when someone told me that they had paid £800 for one, and yet such things appear ubiquitous.  I don't even have a mobile phone of any kind.  If its a choice not of eating or heating but smart phone or heating, I know which I would choose, which makes some of the talk about the additional costs somewhat hypocritical.  Again, when I hear lots of people talking about going out to eat or to the pub, an average amount spent, per person, per night seems to be around £50.  Even just once a  week that is £2,500 a year, which would cover most of the increase in energy costs.

Now, I am not at all saying that people should not be able to have smart phones, or be able to go out.  Obviously they should, and preferably much, much more, and under Socialism that would be the case, but dealing with current reality, and not some future condition, its necessary to deal with real choices, here and now.  The working-class is not homogeneous, and the position of working-class households in terms of incomes and savings differs considerably, even if negligibly compared to the position of the bourgeoisie.  We have to try to address the different conditions of all workers.

When we were working, and our kids were young teens, we found that they had gone a bit beyond more toys and stuff. We started, saving up holidays to add to the annual Xmas break, so as to have enough for at least a two-week and sometimes longer holiday in The Canaries. At that time, before the Internet, we used Ceefax, to find very cheap last minute deals. In Xmas 1999, we managed to book a 2 week holiday for the four of us, with two studio apartments, for just £600, and we have the video of the Millennium fireworks display from the top of a hill in Gran Canaria to prove it.

That might not seem like a solution for all, and it clearly isn't.  It might even seem frivolous compared to starting this post talking about an inability to pay for heating and other basic items, but I have included it for a specific reason.  Given the extent to which energy prices are rising, when you consider your saving on energy, saving on what you would have spent on Xmas, and what you might have spent for a holiday at another time of year, the figures begin to stack up, and getting some sunshine in the dark days of Winter provides huge health benefits.  Again, obviously, there are lots of people who cannot afford holidays at any time of year, just as some can't afford smart phones, or going to the pub, so this does not apply to them, but the reason I have included it, is there is a tendency on the Left, especially amongst catastrophists, to talk as though the entire working-class is comprised of paupers, and semi-paupers, which it isn't.

I used to speak to lots of old retired miners, when I used to go to the council gym and sauna, who went away to Benidorm for several weeks, on pensioners breaks over the Winter. Some for as long as 3 months.  These were not affluent people at all, most of them living on the old Miners Estate.  Its reported that energy bills could go to over £6,000 a year, and most of that is going to be for energy used over the Winter months, mainly January and February. If you are going to be spending even £3,000 on energy to stay in cold, dreary conditions in Britain, why not, instead, put that £3,000 towards a long stay holiday in the Canaries, or the Costa Blanca? You can book 28 nights in Costa Blanca, in January, half-board, now, for as little as £600 per person, in Portugal for less than that. There are reports that, already, an increasing number of pensioners are choosing this option, to escape the misery of Brexit Britain over the Winter, even if some of them might have voted to impose that misery in the first place!

Clearly, those in the direst of straits are not going to be able to do that, which is why I began by talking about the general class actions required, to raise wages, pensions and benefits.  In that respect, it would be useful if Starmer and his reactionary Blue Labour, would actually get out on picket lines and support striking workers rather than sacking Labour MP's for having done so.  But, even with this energy crisis, its only a minority in such severe dire straits, and as socialists we should speak to all workers, rather than only talking as if the condition of the most deprived is typical to all, otherwise we alienate the majority of workers.

In Marx's day there was a growing absolute number of paupers, whose ranks grew whenever unemployment struck, but they were not typical of the working-class itself, indeed, they formed a relatively shrinking proportion of it, and Marx and Engels never based their opinions or their politics on them.  They sympathised with their plight, but, in fact, they saw them as forming the ranks of those that often made up the dangerous class, used against the organised workers.  Marx and Engels, always framed their politics and vision, not on them, but on the more advanced sections of workers, the more educated, skilled and organised.  Indeed, as Engels describes in his History of the Communist League, its members were not only these better educated, skilled workers, but were themselves largely petty-bourgeois, self employed artisans.  It was this latter fact of their relationship to the means of production, rather than them being more affluent, better educated workers that was their limitation, Engels explains.

"On the one hand, the exploiters of these artisans was a small master; on the other hand, they all hoped ultimately to become small masters themselves. In addition, a mass of inherited guild notions still clung to the German artisan at that time. The greatest honour is due to them, in that they, who were themselves not yet full proletarians but only an appendage of the petty bourgeoisie, an appendage which was passing into the modern proletariat and which did not yet stand in direct opposition to the bourgeoisie, that is, to big capital — in that these artisans were capable of instinctively anticipating their future development and of constituting themselves, even if not yet with full consciousness, the party of the proletariat. But it was also inevitable that their old handicraft prejudices should be a stumbling block to them at every moment, whenever it was a question of criticizing existing society in detail, that is, of investigating economic facts."

(History of The Communist League)

Finally, there is the question of what to do about tariffs. Personally, the rise in prices has not affected me, yet. For the last two years, I had a fixed price tariff that was well below where the price cap came out at, and it only ran out a couple of months ago, so, with my heating now off until the Winter, my energy usage is minimal. But, I've decided not to go for another fixed price tariff. For one thing, those offered were way above the current variable rate. As I might well take advantage of the ending of lockdowns, and having been fully vaccinated, to go away for several weeks to the sun, I should escape the heavy energy usage period.

Moreover, I expect that the EU will end up having to drop its current energy boycott against Russia, so that cheap gas will start to flow again, and prices will crash. For one thing, I expect that Russia is now going to entrench its positions in Donbas, and Southern Ukraine, leading to some form of agreement being reached to end the fighting. With any such pretext, Europe will be keen to get that gas flowing, to open Nordstream 2, and so on, in which case, gas prices could fall by around 80-90%, at which point, you certainly would not want to be tied into a fixed rate tariff determined by today's prices.

Labour Manifesto – Economy and Energy

Labour says, 

“Labour led the UK Parliament in declaring a climate and environmental emergency. The next Labour government will lead the world in fighting it, with a plan to drive up living standards by transforming our economy into one low in carbon, rich in good jobs, radically fairer and more democratic.” 

All very good and admirable, but the UK economy accounts for only about 3% of global GDP, whereas the EU economy accounts for around 28%. The EU and US together account for around 50% of global GDP. The small UK economy, on its own, is in no position to effectively lead anything. Outside the EU, the UK will lose most of the leverage it was able to apply in determining these large global responses. It will be the big players such as the EU, the US, and China that will set the pace and determine the rules of the game. Moreover, precisely because any new advanced technologies required to really resolve the climate emergency will require vast amounts of investment in research and development, and will require large markets into which these new technologies can be sold, to make production on a large enough scale worthwhile, it will only be these large economies that will have the resources to take it forward. 

One of the first things that the EEC did, for example, after its inception, was to be able to develop the European Atomic Energy Industry, on a continent wide basis, so as to obtain the benefits of both state support for the industry, as well as the pooling of resources and know-how, along with a large European market. As, in the past, if Britain does succeed in developing new green technologies, having ploughed large proportions of its own tax revenues into such development, it will be European, US and Chinese companies that will simply adopt these technologies, and develop them at scale, reaping the profits and jobs that results from it. A Britain outside the EU, will certainly face problems in selling at scale, so that any new businesses that arise, in this sphere, will quickly relocate their operations to other EU countries, to avoid tariffs and non-tariff barriers, having first taken advantage of any government grants, tax concessions and so on that the UK government has given them during any development programme. 

In the US, despite Trump's pledge to bring back coal mining jobs, and despite his tariffs on imports of coal and pretty much everything else, coal mining jobs continue to drop. One reason is that, to compete, coal miners have had to introduce more and better machines, each one of which replaces miners jobs. The other main reason is that coal is being undercut by cheap gas production in the US, coming from the development of shale oil and gas production. Coal and oil could also be undercut in Britain by gas from fracking, but Labour has committed itself to opposing it, which is really a populist response to the opposition to it that various environmentalist groups have waged. Given that many coal mining communities, across the country, continue to suffer, not just from the legacy of poisoned land, but also from widespread subsidence, affecting housing, the minor, by comparison, effects of fracking seem to pose little cause for objection in being able to, in the short term, reduce carbon emissions. 

Moreover, if we look at Scotland, one effect of Brexit, particularly if Scotland were to become independent, is that its economy will be heavily dependent on continued North Sea Oil production. As I pointed out to Paul Mason, in relation to Postcapitalism, oil will be far more valuable in the future, because of its use for producing petrochemicals, fertilisers, plastics and so on, which will become more significant as materials technology develops, along with 3-D printing and so on. But, for now, North Sea oil and gas remains important as an energy source. Any attempt to withdraw from it will leave a large hole in the country's coffers, at a time when Brexit will already be undermining the economy, and the tax revenues obtained from it. 

Labour says, 

“We will ask the Office for Budget Responsibility to incorporate climate and environmental impacts into its forecasts so that the cost of not acting will be factored into every fiscal decision. 

The cost of not acting is far greater than the cost of acting. We will launch a National Transformation Fund of £400 billion and rewrite the Treasury’s investment rules to guarantee that every penny spent is compatible with our climate and environmental targets – and that the costs of not acting are fully accounted for too. Of this, £250 billion will directly fund the transition through a Green Transformation Fund dedicated to renewable and low-carbon energy and transport, biodiversity and environmental restoration.” 

But, in a post-Brexit environment, where British businesses are already thereby disadvantaged in competing with EU businesses, lumping these additional costs on to them will only make them even less competitive, less profitable, and thereby less able to invest, either to develop new technologies or to grow the economy. In turn that will hit tax revenues for the government, making Labour's plans for funding these investment schemes even less achievable. Yes, it may be true that the long-term costs of not acting on climate change will be greater than the cost of doing nothing, but that does not change the short term costs of such changes. Meanwhile, whatever changes Britain imposes on its business will not change the reality of global climate change, and if our nearest neighbours in Europe do not adopt the same measures, it will not prevent that from affecting Britain too. Outside the EU, Britain will have no say in those matters. At the same time, Britain outside the EU weakens the EU, itself, in trying to impose more stringent measures on the US and China. 

The proposal to create a National Investment Bank, and Regional Investment Banks with a £250 billion fund to invest over ten years is the kind of social-democratic measure that has long been in operation elsewhere in the EU. The problem for Labour is that it wants it both ways. On the one hand it wants to proclaim its measures as somehow being radical socialism. Corbyn commented that he welcomed the hatred of the rich for these measures being introduced. On the other, Labour wants to say “Nothing to see here, all normal measures, applied by moderate governments across Europe.” The reality is that there is nothing tremendously radical in Labour's proposals, but its left populist verbiage, of trying to make it all sound more radical and threatening than it actually is, combined with its vacuous verbal attacks on “the rich”, and “billionaires”, together with the duplicitous nature of the Corbyn leadership, over the last four years, means they get the worst of both worlds. They do not get the credit for introducing the kinds of measures that large-scale socialised capital has benefited from across the EU, and which are standard fare for any modern industrialised economy, and instead they potentially scare off investment by their populist rhetoric. 

The world's largest bond fund PIMCO, has already said that, given the scale of additional borrowing, proposed by Labour, they would steer clear of buying UK Gilts. Well, we'll see. As I set out recently, there is $15 Trillion of negatively yielding bonds across the globe, such is the demand for bonds as safe assets. No one thinks the UK government is going to default, and UK Pension Funds, alone, need to buy a significant proportion of UK issued debt. But, there is one reason that all of the money printing, as part of QE, has not caused general price inflation. It is that all of the additional money tokens that have been printed have been deliberately diverted into buying financial and property assets. There has been a hyper inflation of the prices of stocks, bonds and property. Had the money gone into actual productive investment, so that more factories were built, more machines were bought to go into the factories, more workers were employed in the factories, and more raw materials were bought to be processed by those machines and those workers, then not only would the economy have grown more rapidly, but the additional demand for all of these factors of production, would have sucked that additional money into general circulation, and inflation would have soared. 

This is the basic problem with Modern Monetary Theory. It has looked at QE and seen there has been no rise in inflation, but does not question why that is. The truth is that a Labour government, if it faced problems of borrowing on global capital markets, could simply print the additional money. The Bank of England could buy the additional debt, and the government could use the debt to finance real investment in infrastructure and so on. But, then the economy is stimulated – the one thing central banks and states have tried to avoid over the last ten years, so as to keep interest rates down, and keep asset prices inflated – wages would rise, raw material prices would rise, profits would be squeezed, but as wages rise, and more workers are employed, firms are led to produce more wage goods, as the demand for them rises, and they now have to finance this additional investment by using a larger portion of their profits to do so, rather than paying it out as dividends. Firms have less profit to put into the money markets, and have to borrow in those money markets on a greater scale. They have to issue new shares and corporate bonds, so that as their supply rises, their price drops, causing yields to rise. As the prices of shares and bonds drop, the guaranteed capital gains that speculators in these assets have come to expect, disappear. The speculators sell out of those assets, causing crashes, whilst the money starts to flow into real productive investment in search of profits. 

The consequence is that as asset price bubbles burst, and money flows into real productive investment, economies grow more rapidly, but the rapid influx of the vast oceans of liquidity currently tied up in financial and property assets causes general price inflation to spike higher, and as it does so, real interest rates spike higher too, as the demand for money-capital rises relative to its supply. The days of being able to borrow cheaply in the bond markets are coming to a close, and unless a Labour government has borrowed very big, very early, by issuing a lot of long dated bonds, it will find that its cost of borrowing rises to levels that make its spending plans unachievable without significant rises in taxation. 

Labour also says it will make smaller loans available to small businesses via a new Post Bank based in Post Offices. This does not seem to be a particularly well thought out proposal. Credit Unions that enable members of local communities to deposit savings, and to make small loans, work because those who lend and borrow have some connection. The amounts of lending tend to be small, and those who borrow can be helped to ensure that they pay back what they owe. But, lending to small businesses is different. A number of peer to peer lending companies have developed that lend to small businesses, to fill the gap left by the fact that banks no longer lend on any significant scale to small businesses. It has been far more lucrative for banks to lend to house-buyers, and to buy the bonds of large companies, where the underlying collateral has benefited from capital gains, than to lend to small businesses. Where money has been lent to small businesses, many of them have gone bust. There are around 150,000 zombie firms in Britain, that are only able to just repay the interest on their bank loans, but do not make enough money to repay the capital sum borrowed. 

It is very unlikely that local Post Offices are going to have the specialised staff required to be able to judge whether any application by a small business for a loan is likely to be repaid on the basis of the commercial prospects of the firm. Three-quarters of all small businesses go bust within the first five years, and a large proportion of those go bust within the first year. Making a large number of these loans to small businesses, by people who are not properly qualified to assess this business risk looks like a guaranteed way of throwing large amounts of money down the drain that could have been utilised more effectively elsewhere. Again, it looks like a populist measure designed to suggest that Labour is on the side of small businesses as against the multinationals and billionaires. 

Labour says, 

“Years of under-investment and neglect by Westminster have left too many communities feeling powerless and too many areas left behind with low- quality jobs, weak productivity and slow growth.” 

In fact, its not neglect that has led to that, but deliberate government policy! In the 1980's, Thatcher's government deliberately de-industrialised large parts of the country, in order to weaken the position of workers and their unions. She used North Sea oil revenues to pay for high levels of unemployment so as to weaken and defeat the unions. She built a low wage, low skill economy that was kept afloat by debt. The debt helped to inflate asset price bubbles whether in property, or in stock markets. And, each time that those bubbles burst, such as in 1987, 1990, 1994, 2000 and 2008, the central bank intervened to pump additional liquidity into the economy to reflate them. The low wages, low levels of growth, and low levels of productivity are not an accident, but the result of deliberate policy to inflate and reflate asset prices, the main form of wealth of the top 0.01%. Labour's approach is back to front in thinking that wages can be raised by raising productivity. Throughout history it has been high wages that force capital to invest in developing labour-saving technologies that raise productivity, and which thereby also raise living standards. Here Labour's proposals are way too timid. 

If Labour wants to raise productivity levels, it should propose a large, progressive rise in the Minimum Wage. But, Labour also needs to stop setting the Minimum Wage as an hourly rate. Even £20 an hour is not much good to you if you only get three or four hours work each week. Labour should set the minimum weekly wage at £400, rising each year in line with inflation, or average wages, whichever is the greater. It should set a Minimum Hourly Rate of £12, so that someone working a 40 hour week would get £480. Labour should combine this with its proposals for a 32 hour week. In that way, capital will be incentivised to introduce new labour saving technologies. 

But, again, such a progressive policy is only achievable on an EU wide basis. Any large firms that have the option of relocating to the EU, whilst still being able to export to the UK, will obviously choose to do so. Britain outside the EU, will instead face pressure from firms not to raise Minimum Wages, but to cut them. Certainly all of those small, inefficient, low profit firms that Labour is pinning its hopes on, can only survive by paying low wages, and providing poor conditions. Indeed, that is why all of those small firms back the right-wing of the Tory Party, and back Brexit. 

Labour says that it will create 1 million new jobs as part of its Green New Deal, but with unemployment back to levels seen in the 1970's, though not yet back down to the levels of the 1960's, when it was between 1-2%, its difficult to see where the workers for these jobs are to come from. The latest data shows that the workforce is shrinking as EU workers go home. If Brexit goes ahead then even more EU workers are likely to leave, and its not likely that workers from elsewhere will want to come to Britain given its attitude to foreigners either. There is already a shortage of around 50,000 lorry drivers, rising to 75,000; we have huge shortages of NHS staff, social workers and so on. Given the additional demands for building workers, if Labour goes ahead with its house building programmes, then finding the workers to fill all these vacancies, plus a million more for green energy jobs looks a stretch, especially as training in the skills for these jobs will take several years, and will itself involve additional investment in education and so on. It looks likely a recipe for labour shortages causing spikes in wages in particular industries, which in turn cause destabilising disproportions. 

To give one other example, a lot of brick production in Britain has been mothballed, because of the low levels of construction over the years. Most of the bricks are now imported from Europe. Whenever construction picks up, often there is a delay in being able to obtain the bricks, and shortages cause short-term spikes in prices. If construction of new houses and so on is ramped up quickly then that problem will be magnified. Brick production in Britain could be ramped up again, but would not be immediate, and given Labour's environmental objections to fracking, imagine the objections there would be to large scale opening up of new marl holes to provide the clay required for all these new bricks! 

Labour says, 

“We will not achieve the promise of a fair and sustainable economy if we repeat the mistakes of the carbon era, when the capture of a natural resource for private profit created a vastly unequal and polluting economy dominated by powerful vested interests. 

It’s not just carbon. From the depletion of fish stocks to the burning of the Amazon, profit has proved a poor regulator for use of our natural resources.” 

True, but its not just private profit that had that effect. The nationalised coal industry in Britain was no better, and the Plan For Coal, was continually subordinated to the economic, short-term interests of the government. Indeed, some of the worst pollution on the planet was caused, not by private capitalists, but by the Stalinists of Eastern Europe, where the state run industries treated both the environment and workers as totally disposable in their attempts to maintain their own kleptocratic plundering of those societies. 

Labour says, 

“We will put people and planet before profit by bringing our energy and water systems into democratic public ownership. In public hands, energy and water will be treated as rights rather than commodities, with any surplus reinvested or used to reduce bills. Communities themselves will decide, because utilities won’t be run from Whitehall but by service-users and workers. 

Public ownership will secure democratic control over nationally strategic infrastructure and provide collective stewardship for key natural resources.” 

Which is all well and good, but does not spell out how this will be achieved. Ultimately, if the state owns these companies then it will exercise ultimate control. There is no reason that the capitalist state is going to give real control to workers over this capital, any more than it did with the NCB, British Steel, British Leyland and so on. He who pays the piper calls the tune, and in any nationalised industry, the funding will come from the capitalist state. Moreover, the interests of workers in these industries are not identical to those of consumers. You can bet that the state will have its own representatives on Boards, and as divergent interests between the stakeholders manifest themselves, the state's representatives will manipulate them in its own interests. A look at the way, something like a consumer cooperative works illustrates the problem. There workers are actually barred from being on the Board, but consumers themselves also find that they become passive, meetings are ill-attended, and so the Board actually becomes dominated by the full-time bureaucrats employed by the co-op. A look at what happened with the Co-op bank demonstrates this problem. 

Its only in a worker owned cooperative, where the workers themselves must exercise day to day democratic management over the labour process, and where they have skin in the game as owners of the capital, that any real industrial democracy exists on a sustainable basis. Rather than its expensive and unnecessary plans to nationalise large companies that already represent socialised capital, Labour should simply change the laws on corporate governance, removing the right of shareholders to vote in any company meetings, thereby placing them in the same position as bondholders and all other creditors. It should introduce new corporate governance laws to ensure that the boards of companies are 100% elected by and from the workers and managers in the company. In that way we can bring about real industrial democracy, and, on the basis of it, begin to ensure that production indeed does begin to be organised on the basis of providing for need rather than for profit. 

Labour's plans for steel production are pie in the sky, because steel production is one of those areas where large economies of scale are vital, other than for some specialist steels. China already dominates global steel production, and a small British steel industry simply is not going to compete with it. That is especially true if Britain is outside the EU. Throwing money into a small British steel industry is unfortunately simply throwing money down the drain. It would be better to divert that money into the development of other metals production, and the production of the new age of materials, such as carbon fibre, graphene and so on, but even in some of these, and even where they were developed originally in Britain, it is China, which can simply invest on a scale not possible for the small British economy, and can sell into its own vast market, that has become the world leader. This again demonstrates the problem even of trying to build social democracy in one small country, let alone Socialism. 

Energy Security

The decision, earlier in the week, to give the contract for the construction of a new nuclear power station, at Hinckley Point, to a consortium comprising French energy company EdF, and the Chinese government, has raised questions about energy security from a number of angles.

There has been widespread under-investment in UK infrastructure for a very long-time. Despite, all the advantages of the bonanza of North Sea oil that Britain enjoyed from the early 1980's onwards, which brought huge amounts of tax revenues into the coffers of the Treasury (£69,838 million between 1980 and 1997), the Tory governments from 1979 to 1997, squandered nearly all of it. Instead of using this windfall to repair the roof of Britain's crumbling infrastructure, whilst the sun was shining, the Tories instead allowed the infrastructure to rot even further, imposing austerity measures that not only prevented necessary investment, but even undermined vital maintenance. 

Roads were left to crumble, hospitals were closed and those remaining, many of which were built in Victorian or Edwardian times, were left unmodernised, and often even unmaintained. Its not surprising that satisfaction and support for the NHS fell to their lowest levels by the mid 1990's. The findings of the Social Trends Survey, found that the percentage of those satisfied with the NHS stood at 55% in 1983, and fell steadily until 1994, when it stood at 44%. It then fell again sharply down to 34% in 1997.

After Labour came to power satisfaction rose steadily to an all-time high of 64% in 2009. The same was true of schools. For years, school class sizes were too large, often averaging more than 30, compared to an average of about 10, in Public Schools. At a time when school rolls, in the early 1980's, were falling, the oil bonanza could have been a perfect opportunity to invest in the education of Britain's future workers, so as to provide the kind of highly educated and skilled labour required to work in high value production, that could have been competitive in the world market. Instead, falling school rolls were used as an excuse to close schools, and to leave class sizes unchanged, whilst the schools themselves often literally had leaky roofs. When I was teaching in the early 1980's, many classes were even in portacabins rather than actual school buildings.

At the same time, the Tory government created vast amounts of additional fictitious capital, through its privatisation process. The justification for fictitious capital, in the shape of shares, is that a firm that needs to buy productive-capital has to borrow money to buy the buildings, machines, materials and labour-power that comprise this productive-capital. The firm borrows this money from owners of loanable money-capital, in various ways, such as issuing bonds, or shares. But, all of the industries that were privatised by the Tories in the 1980's and 90's, already had all of this productive-capital! It had already been bought, over previous decades, by the taxpayer. All that selling shares in these companies did, therefore, was to allow the owners of those shares to be able to draw a revenue from them, which itself was only payable as a result of the profit generated by the real productive-capital that had previously been bought by the taxpayer.

Despite all of this, the Tories still managed to run budget deficits during all but two of the years they were in office, and to run an average deficit to GDP ratio that was twice what it was under the succeeding Labour government, despite the fact that the Labour government had to begin to make up for all of the neglect that those Tory governments had been responsible for over the previous eighteen years.

There is nothing new in that. There were Tory governments from 1951 through to 1964, during a period of rapid economic growth and prosperity, yet the Tories only managed budget surpluses in three of those years (1951,1955 and 1958). Moreover, the surpluses were tiny compared with the deficits they ran in the other years. The total surpluses came to just £177 million, whereas the total deficits came to £5,031 million! Yet, during that period, Britain suffered a series of shortages. As the TV series, Planet Oil, showed recently the great smog of 1952 was a result of Britain burning too much coal inefficiently, when it lost control over its oil supplies from Iran. It was that, which led Britain to enlist the support of the US to undertake a dirty tricks campaign, followed by a coup to overthrow the Mossadegh government, so as to regain control over the oilfields.

Even as late as the early 1960's, there were regular power outages, not just of electric, but also of gas, prior to the introduction of North Sea gas.

Once again, Britain is living on the edge of such power outages, due to lack of investment, just as lack of investment in sufficient reservoirs, maintenance of water mains and so on, means that, even with Britain's rainy climate, every time there is a few dry weeks, the country faces a drought! The UK now imports a lot of its natural gas, and has very little in terms of storage capacity compared to other European countries. The safety margin for electricity supply is now also very narrow, so that a very bad winter could cause blackouts due to lack of capacity.

That is why large scale investment in new capacity is required. But, energy security requires that a mix of different energy sources is used. (I wrote a feature article on this for Socialist Organiser, back in the 1980's, that I will reproduce at some point).  The ideas coming out of the Corbyn camp to reject the old, bureaucratic, state owned forms of energy production and supply are interesting. Its long been known, for example, that a lot, up to 30%, of power is lost in transmission of electricity across the national grid. It makes sense, therefore, to look towards more community based power generation, so that power is transmitted shorter distances, though it would be necessary to maintain a national grid, in order to provide the security of supply needed, in case of problems at any local level. That opens up the possibility not just of combined heat and power generation systems, but also of the use locally of biomass, and other forms of energy. It also means at this local level that instead of either ownership and control by private capitals, or by the capitalist state, the possibility opens up of ownership and control by the workers themselves in various forms of co-operative, or other mutual organisation.

The question that has been asked in relation to Hinckley point is should the UK allow China to play a role in the provision of a power station, because it might use it as a weapon at some point in the future. But, that issue arises also with domestic private capitals.

In 2000/2001, California suffered a series of energy blackouts. It was subsequently discovered that the cause of these blackouts was deliberate manipulation by Enron. The market manipulation was itself a consequence of deregulation of the energy production and supply industry. As contracts came up for renegotiation, over the prices to be paid, Enron, took power stations off line, under cover of the requirement for maintenance, so that shortages arose, and blackouts occurred. Between April 2000 and December 2000, wholesale electricity prices rose 800%!.

This deliberate action by Enron caused a number of business, depended on secure energy supplies, to go bust, but it also caused the bankruptcy of some larger companies such as Pacific Gas and Electricity. A subsequent investigation, which discovered taped telephone conversations, showed that the taking off of power stations for maintenance at peak times, was a thinly veiled cover for this manipulation .

This indicates why the labour movement needs to spend time drawing up its own longer term plan for energy security, and for ensuring that such vital strategic industries are brought under the direct ownership and control of workers themselves. The lessons of the 1984-5 Miners Strike show why such vital industries cannot be placed in the hands of the capitalist state either, not only because it has no reason to run these industries in the interests of workers, or to allow workers any control over them, but because the capitalist state can actually use such industries against workers.

For example, as Marx sets out, when workers created their textile co-operatives in Lancashire, or the agricultural co-operative at Ralahine, they were charged higher rates of interest on the money they borrowed. Its also the experience indicated in the film  “Chance of a Lifetime”.

If workers are to develop their own property in opposition to capitalist property, they have to be aware of the danger of the capitalist state doing everything in its power to frustrate their efforts. That requires a strategy for bringing about direct workers ownership and control of these strategic industries.