Pigs Return to the Trough

Its a sign the Financial Crisis is more or less over. The Pigs are returning to the trough. Rory Bremner in his new Series "Silly Money" See: Silly Money

illustrated how the Bankers, even after the catastrophe of their adventures into speculations that even John Law would have fought shy of, are, as we speak, devising even newer types of collateralised products that will result in the same kind of crisis some time in the future. But, worse than that.

Last week, there was a small snippet of news on CNBC, on US Squawk on the Street. It detailed that one of the US bankers, bailed out by the US taxpayer, had been asked what he was going to do with the $25 billion the Government had given them. Remember that the purpose of this recapitalisation was that the Banks should begin lending again, in particular, lending to each other, to reduce overnight lending rates, and thereby to end the Credit Crunch. So, what was his answer to this question? "NOTHING". In fact, that is not quite right, because it appears that the US Banks do intend to do something with all that taxpayers money. Its not to actually do what was intended and free up lending though. No. Apparently, they intend to use it as Capital to buy out other Banks!

Now, at the end of last week, we find that Barclays, in Britain, have shunned the offer of a State bailout in favour of 30% of the Company being bought by private Middle Eastern investors. The cost of this bailout is greater for Barclays than had they taken the offered State aid. So, why go down this route, which appears not to be in the Company's interest, and certainly not in the Share holders interest? The answer appears to be that it is in the interests of the Barclays executives! Banks, taking State aid, have some restrictions placed upon them, including some, informal at least, controls over the remuneration and bonuses paid to top Executives - you'd think given the mess they've created they should be paying back what they've had never mind not reciving huge bonuses in the future - but, by taking on Private Capital, Barclays avoids this problem, whilst its new backers benefit from getting a large share in the Company on the cheap.

In some ways, this is rather like what used to happen in the USSR. On the one hand, one class owns the means of production, but on a day to day basis it hands over control of them to a bureaucracy. In the USSR that class was the working class, in the US and Britain etc. its the Capitalist class. In both cases, the bureaucracy, as far as it is able to, acts to feather its own nest. In the USSR, with a very weak working class, and powerful class enemies inside and outside its borders, the bureaucracy was able to exercise huge political power, and feather its nest without the workers being able to exercise any control over it. In the US, in Britain and other Capitalist states, the capitalist class is a very powerful class with strong points of support inside and out of its borders. The bureaucrats, that it allows to act on its behalf, are closely tied into the class itself in a way that the bureaucracy in the USSR could never have been tied into the working class. The Capitalist bureaucracy's interests, as part of the capitalist class, are, as class interests, identical to those of the class as a whole, but as a bureaucracy it has its own group and individual interests. The Capitalist class are prepared to give it a great degree of freedom to pursue those interests, as an overhead cost of its rule, as a faux frais of production, but within limits.

The antics, the other year of the executives at Enron and elsewhere stepped over the boundary, and the Capitalists that own the means of production had to step in to pull back into line the bureaucracy they allow to manage them. Its likely that we might see similar actions against that bureaucracy within the Banks that caused the current crisis for capitalism. Its no doubt ahead of such challenges that the executives at Barclays have looked to shore up their positions.

US Democracy

The other week, I was watching the CNN coverage of the vote, in Congress, over the bailout package. Let us remember that this institution lies at the heart of US democracy, a democracy which over the last few years has asserted its right, on the world stage, to upbraid other states for their lack of democracy, and even its right to bring about "democracy" in other countries at the end of the barrel of a gun. At the time, I was also reading Charles Dickens' "David Copperfield". Dickens, who had been a court reporter, in many of his novels, used his experience to ridicule the workings of the courts, and of the British political system, of which they were a part. Watching the antics in the Congress made me wonder how Dickens would have utilised the bizarre goings-on for one of his novels.

For our enlightenment, the proceeedings were explained by a CNN correspondent. Firstly, at the bottom of the screen, there appeared the time remaining for all Congressmen/women to vote. In another panel, we had a breakdown of the number of Democrats and Republicans voting "Aye", or "Nay", as well as the number still who had not voted. The voting proceeded very slowly, and this began to raise questions, which, our interlocutor explained, for our enlightenment. The reason the voting proceeded slowly was that the bailout package was not very popular. For some strange reason, millions of Americans, constantly told, by their Government, that there is no money for healthcare, or other social programmes, were not keen on handing over billions of dollars to billionaire bankers. Consequently, many Congressmen/women, looking to their election chances, were not keen to be seen voting FOR the package. They wanted it to pass - US Capitalism and the bankers that have a vital role within it depended on it - but only wanted to vote FOR it, if it was absolutely necessary, to ensure that it did! So many held out voting for as long as they could, hoping that it would get a majority, leaving them free to vote against so that they could proclaim this to their electors.

As the time for voting ticked away, there was still no majority either way, and a large number still hadn't voted. Eventually, the time ticked away completely, but the voting continued! Why was that? Well, we were informed, the voting only stops when the Speaker drops the gavel to decide that it has stopped. This really was like one of those ludicrous instances that Dickens used to ridicule so well. What then was the point of the time limit? There didn't seem to be one.

Another strange occurrence was manifested. Sometimes, the number of "Aye" or "Nay" votes would actually go down! Was the computer on the blink? No. It appears that even after the Congressmen have thoroughly discussed and considered the issues, and have cast their votes accordingly, they can change their minds, and vote in completely the opposite way! Why might they do this our interlocutor was asked. One would, of course, expect that in this bastion of democracy, in the hallowed ground of the free world that it was due to some new piece of information, some new crushing argument being put to them. Well no. The reason is that every Congressman has important projects that they want in their State, some Bill they would like support for, some pet project they are pushing. They are persuaded to change their vote simply on the back of promises of support for these. And for all I know, given the amount of money that sloshes around in US politics, even more direct monetary reasons for changing their vote.

In fact, it reminded me of how British democracy used to work back in the 18th and early 19th Century, when people got into Parliament simply by buying more votes than their opponent, and when votes in Parliament were lost or carried on the basis of a similar principle. The similarity, is perhaps even more striking when you consider that Barack Obama has raised $650 million for his election Campaign alone, enough to have built and staffed a number of hospitals.

The vote was lost, but never mind, you can always hold another one, until you get the result you want. That was what happened with the Bailout Bill. A number of those that had voted against were collared and offered what in the US is called "Pork" or Pork Barrel deals - Federal Government money for projects in a particular State. Lo and behold the venerable ladies and gentlemen saw the light and the vote was passed.

Why should anyone in the world take lessons from this banana republic on how to run an economy or a democracy? Well, they shouldn't, but as a number of states have found they get those lessons whether they want them or not - of course, the US politicians are most offended if anyone criticises the inadequacies of what passes for democracy in their own country - because the US operates on the basis not of the principles of some great democratic ideologue, but the principles of one of the worst dictators, tyrants and murderers of the 20th Century - Mao Zedung. They operate under his dictum that "Power stems from the barrel of a gun."

Financial Crisis and a Marxist Response

Last night I caught a snatch of a “Briefings” programme on the BBC parliament Channel – unfortunately no longer available on-line – on the financial crisis. It was a talk given by Will Hutton of the Work Foundation and Martin Wolf Chief Economics Writer at the Financial Times. The bit I was interested in was in response to a question to Will Hutton, about the role that could be played by Co-operative and Mutual organisations, Credit Unions etc. Interested obviously because fort he last few years I have been arguing that a Marxist Programme has to be built around a bottom up approach of workers self-activity to develop such alternatives to Capitalism, the strategy indeed that Marx and Engels themselves advocated.

As Hutton pointed out, and as he had earlier warned, the consequence of demutualisation of Building Societies during the 1990’s was bound to lead to the kind of consequences we have seen since. Organisations that were once dependent upon their members, borrowers, and which, often based within local communities with the potential at least for democratic control, became like any other capitalist enterprise concerned merely with the bottom line, with profit maximisation, and as with Northern Rock, found the way to that by abandoning the principle of financing lending from saving with the disastrous reliance on the Money markets that has caused the chaos now as a result of the Credit Crunch. The fact that the potential for democratic control over these institutions, remained largely a potential rather than a reality, is not a real criticism of them anymore than the fact that there is a potential for democratic control over the Trade Unions, which is not taken up is an argument against Trade Unions. Rather it is a question for socialists to ask why it is that workers do not take up the opportunity for such democratic control, and find means of ensuring that they do.

The news that the Co-op Bank is in talks with the Britannia Building Society – which is linked to my own union UNISON, and remains a Mutual – to create a huge £75 billion Bank is great news. It should also be the catalyst for Unity Trust to join this organisation and begin to provide workers with a real means of exerting economic muscle. Already, the Co-op has a large role in the provision of Pensions and other Financial Services including the Co-operative Insurance arm. But, if a workers Bank is to really serve the needs of workers and take on the Capitalist Banks a number of things are necessary. Firstly, the other mutuals such as Nationwide should be brought under its umbrella. More importantly, it is necessary that such an organisation really is one that is under the control of workers, and that will mean creating structures throughout the Labour Movement to ensure that not only Board Members are truly representative of workers, but that the policies adopted are geared to meet workers interests, not just in the short-term, but in the longer term. That is such an organisation has to be not just a Bank owned by workers, but a workers organisation fighting alongside workers as part of the class struggle. The development of such an organisation would be an easy way for workers to demand the transfer of all their pension funds to its control, increasing its financial strength enormously – Workers Pension funds in Britain even after the current Stock market falls still amount to over £300 billion.

The Co-op already operates an “Ethical” policy refusing to deal with companies that do not meet certain criteria on the environment, working practices etc. But, “Ethical” is not enough. Oddly, whilst I was on holiday I was talking to the retiring head of the Co-op who had just bought one of the villas I was looking at. I took the opportunity to not only briefly raise some of these issues with him, but also to harangue over my own experiences with the Co-op. Twenty years ago, when I was president of the local TUC I organised a number of activities in support of the Silentnight workers who had been sacked. We contacted the local Co-op asking them to stop selling Silentnight beds. They refused. So we organised a leafleting outside their store. The outcome was that the manager called the Police, and myself and another comrade were arrested for “Conduct Likely to lead to a Breach of the Peace”. When I asked what that conduct was I was told it was handing out leaflets the content of which someone might take offence to! I also told him that I had rejoined the Co-op a year or so ago as a result of my experience of the local Co-op and because of my conviction that socialists should pursue Co-operative forms. My local Co-op, in a small Village mostly inhabited by pensioners now, I found stocked nothing that you’d expect. It seemed to have a lot of floorspace for booze, but despite the fact that there is no Butcher or Greengrocer in the Village, stocks no fresh meat, almost no frozen meat, and very little in the way of fruit or vegetables. I sent an e-mail about this to the Co-op about a year ago, but the situation hasn’t changed. I’m now trying to get other Labour Movement activists in the area together with the idea of arguing for a local Management Board for the Village Co-op.

But, this illustrates the point. If such Co-operative ventures are to have any socialist content it requires that workers exert control over them.

See Also:About the Co-op

And Co-operatives, Marxism and Guian economics

Incidentally, a good example of the "Kitsch" Marxist approach is given in this piece by the Alliance for Workers Liberty.

here .

The AWL talk about the Banks being taken over by a "Workers Government" that will ensure they are under Workers Control. Unfortunately, they don't inform us where this Workers Government is about to materialise from!!!! Elsewhere, they have said that socialists should not raise demands whose consequences are not what they desire. But, the only "Workers Government" that exists and could exist at the present time is the one we have. To demand the nationalisation of the banks, means in effect calling on the present Governemnt to do that! If the idea of a Workers Government had any grip on reality i.e. if the working class had a sufficient level of class consciousness that it had created a Workers Party that could be elected to Parliament with sufficiently socialist credentials and MP's to carry out such a policy, then such a programme would in fact be inadequate, because it would mean that workers themselves would be taking over the Means of production! But, of course, like most of the AWL's politics it doesn't have any grip on reality its nothing more than ridiculous demands for Socialism Now drawn up by people who want to draw up schema for socialism just as did their predecessors the Petit-Bourgeois socialists criticised by Marx. They claim to believe in "independent working-class politics", for the self-activity of the working class, but here as elsewhere they reveal in fact that they beleive in nothing of the kind, but in Lassallean programmes for the workers problems to be resolved by the State, and as Marx pointed out the only State that can mean is the one that exists - the Bourgeois State. As Marx pointed out in his Critique of the Gotha Programme those socialists that place such demands on that State are no socialists at all. They have not yet learned to get up off their bellies in their cringeing towards it, and until they do they are in no position to lead the workers.

Obama and Political Change

The message of the Obama political campaign has been "Change". Change is a very powerful message, but in reality a message that is totally meaningless. Why is "Change" a powerful message? Because, people not only get dissatisfied with what they have, but simply get bored with what they have. Think about the proverb, "A change is as good as a rest." The advertising industry, and the consumer society is wholly conditional on Change. People throw away perfectly good clothes, and other consumer items, for no other reason than they want to change them, they are led to believe that they are no longer fashionable, and nobody tends to want to be the odd one out. A large part of the reason for the production of new car models is not because of some improvement, but simply that by bringing out a new model, consumers can be cajoled into parting with their money. The whole of bourgeois democracy is based upon the same precept.

We have the accepted wisdom that Governments will always lose popularity mid-term. Why? Why should a Government that is doing a good job lose support part way through its term? And if you are going to change something, shouldn't you change it for something better? Yet, the fact is that for the last 100 years of bourgeois democracy workers have changed their Governments in elections not for something better, just simply for something different. They have abided by the proverb "A Change is as good as a rest." Its not that there has been a shortage of alternatives. Socialist parties have existed for all that time, but except for a short period they have failed to win over workers to a vision of a society that is different to the one we have.

To some extent, the same reasons, that cajole consumers into casting off perfectly good clothes in favour of spending money on different ones, can explain the reason for that. Bourgeois society has a huge advertising machine geared to convincing everyone that Capitalism is not only the best of all possible worlds, but, effectively, the only possible world. But, that can't be more than a minor explanation. No amount of advertising ultimately can convince consumers to buy something that is crap, or at least not to keep buying it. The reason workers continue to simply swap one brand of bourgeois politician for another, and to reject the real alternatives is because every aspect of their lives tells them that Capitalism IS the only possible world. Until they see some functioning alternative that works they will not be convinced in their vast majority, and without winning over the vast majority Socialism is not possible. A few might risk the idea of a new product, just as their are early uptakers of new products, but the majority will not be convinced until they see the proof for themselves. If those early uptakers build Co-operatives that work others might follow, but if the early uptakers are like the Leninists who simply want to impose their vision on the workers, who believe that in creating a new society from the top down the workers will automatically see the benefit of this new society, the reaction is likely at best to be suspicion, at worst hostility. Ideas do not change that quickly, and in the meantime those that believe they are the holders of "Truth" will simply turn themselves into a new set of political rulers. Workers are not daft. They have seen this happen before. So, in the meantime, they settle for simply chucking out one load of bums, and replacing them with another.

And so it will be in the US elections on Tuesday. For all the broo ha ha over this election being a historical moment in US history it is nothing of the kind. Barack Obama is a Centre-Right bourgeois politician. There are essentially no differences between him and John McCain in respect of politics. he would fit in perfectly well in the British Conservative Party. The fact, that he is Black does not change the nature of this election, anymore than the fact that Maggie Thatcher was a woman changed the nature of the 1979 General Election in Britain. In fact less so. In 1979 the choice was between an openly pro-business Conservative Party led by a group that accepted all of the extreme Right-Wing ideas of Frederick Hayek - at least whilst it suited them - and a Labour Party, which, whilst still riddled with bourgeois ideas, was at least tied to a still militant Labour Movement.

The experience of Thatcher demonstrates the point. Thatcher did not advance the cause of women - certainly not the vast majority of women who belong to the working class - if anything she set that cause back. Obama will not advance the cause of Black Americans, indeed in pursuing - as he undoubtedly will - bourgeois politics that cannot provide answers to the American workers - Black or White or any other colour - he will sow disillusion within those most oppressed sections of the US working class. The experience will give the opportunity to all of the multifarious racist and Right-Wing groups in the US to blame not Obama's bourgeois politics for what transpires, but simply his blackness.

In my opinion socialists have to be active members of the Democrats in the US for the same reason that they have to be active members of the Labour Party in Britain, or whatever party attracts the support and votes of the majority of workers anywhere. Not because to do so is to support the lesser evil, but for the reason that Marx and Engels outlined - the reason they gave for joining the openly bourgeois Democrats in Germany - because the job of Marxists is to be with the workers, to go through the experience of life and politics with them, to explain, to help organise, to educate those workers, and thereby raise their consciousness. The main reason for Marxists to be in the Democrats at the moment is not to mislead workers into believing that a vote for Obama is a step forward or even a lesser evil - though given the politics of Sarah Palin I think socialists have to do everything possible to prevent any ticket on which she appears from being elected - but is to go through that process with them at a time of heightened political activity and discussion, to demonstrate to them what is wrong and inadequate with the Democrats and bourgeois politics in general, to offer them in daily activity and discussion a real alternative, to do that in the Democrat organisations, and in the Trade Unions and other Labour organisations. It is far easier to do that from the inside, far more likely to get a hearing than simply standing on the outside pissing into the tent and thereby arousing the ire of the workers inside. But, as I said above if Marxists are to do that effectively they have to demonstrate to workers in practice an alternative. This fight cannot be won on the basis of the bosses terrain, of simply trying to win workers over to the idea of electing some "real" socialist Workers Government. At least not at this stage. They have seen that top down approach before, and were betrayed at best. It is necessary to utilise that work with the workers to convince them of the need to build that alternative here and now through their own self-activity. In place of the Capitalist Banks and Finance houses that have created the current crisis, to build through their Labour Movement and other working class organisations, Co-operative banks and insurance companies such as exists in the Co-op Bank in Britain or in the Trade Union bank Unity Trust, owned and controlled democratically by the workers, neighbourhood Credit Unions in place of the vicious loan sharks and so on. In place of the almost feudal Landlords, or the mortgage companies, that will sell your house from under you for not paying the mortgage they should never have sold you, its necessary to get back to that age old US custom of "Barn Raising", whereby neighbours would all work co-operatively to build a barn, but now in a modern setting by establishing co-operative building and construction companies, working with Co-operative financing, and Co-operative housing and community management organisations to build decent, affordable housing not for profit, but for the benefit of the people living in it.

These and many more such schemes and ideas are not Utopian, they have been accomplished by workers in the past, and could easily be accomplished today. In the US as in Britain, workers in their pension schemes have huge sums of Capital that could be mobilised to meet the workers needs, if the workers themselves had control of them. But they do not. Control rests with those same financiers that caused the current financial crisis, the workers savings go instead to provide cheap finance for those companies, and to keep the bosses of those companies in huge salaries and bonuses. A fundamental principle of bourgeois ideology is that the individual should have control over their own property. So why does bourgeois society deny workers control over their own pension funds? The transformation of society that could be brought about by such control would be startling. It would begin to create the kind of alternative society that workers need to see in order for them to believe in the idea that the whole of society could be organised this way. Then they might even be prepared to vote for the kind of Workers Government that would carry through the kind of measures necessary to prevent the bosses from undermining it.

Now that would be a "Change We Can Believe In"

Georgian War Crimes

Time Whewell's report, on last night's Newsnight, (See: here, showing the extent of the War Crimes committed by Georgia in its invasion of South Ossetia was clearly uncomfortable, not only for the, Walter Mitty like, Georgian President, but also for Britain's Foreign Minister, Miliband, given that Georgia is Britain's ally, and that for the last few months Britain, and the rest of the West, have presented the events as simply being Russian aggression. (See also Whewell's BBC account from 2008)

Whewell dryly demolished the supposed evidence of the Georgian's, of Russian instigation, that was supposed to be represented by a supposed intercepted phone call between Ossetian border guards, evidence which, despite its clear importance, had apparently not been put forward at the time of the conflict, and which had been "lost" for over a month. This evidence was also contradicted, by eye witnesses who reported no sign of Russian troops, other than those there as part of the agreed monitoring arrangement, by the fact that the Ossetians themselves criticised the Russians for their original failure to respond to the Georgian bombardment, and the fact that when eventually the Russians did manage to respond they were so disorganised that their first detachment walked into a Georgian ambush that attacked journalists and troops alike.

Whewell's report illustrated the way that Georgian tanks had systematically shelled apartment blocks from just yards away, had launched attacks on civilians trying to flee the conflict etc. To find the West's Georgian ally committing such barbarous acts and war crimes must be deeply embarrassing for the British Government. The West has vehemently denied any similarity between Russia's intervention, to prevent Georgian atrocities in Ossetia, and NATO intervention in Serbia to oppose Serbian atrocities in Kosovo, though they have never said why the two situations are different, other than that a supposedly "democratic" imperialism, and "democratic" Georgia are involved on one side against a totalitarian or undemocratic Serbia and Russia. I doubt, however, that those suffering the atrocities could tell the difference between a "democratic" or a "totalitarian" bullet.

It must be deeply embarrassing for those too, including some of those who claim to be on the Left, who told us that Saakashvilli was "No Milosevic", and who doubted that Georgia had engaged in murderous attacks on the Ossetians, and who were all too eager to believe that it was all the responsibility of the Russians. Even where those that fall into this category take a less strident anti-Russian stance they are keen to be "balanced" in their condemnation over the Russia-Georgian-Ossetia conflict telling us that there were a number of wrongs involved.

On this basis the US expansionism, putting a military ring around Russia is wrong, the Georgian attack on Ossetia is wrong, and the Russian response was wrong. Fine, yet the same people told us in Kosovo that imperialism's bombing of Serbia was "good" to stop the Serbian atrocities! But, as recent discussions on the AWL's website demonstrated the "kitsch" Marxists that argue this kind of social imperialism make exactly the same distinction that the politicians of the Miliband variety make between "democratic", and "totalitarian" states. At least it would show that if the AWL had not deleted a series of comments by comrades critical of their positions!

Of course, none of this confirmation of the murderous attacks of Georgia on Ossetia, could lead a Marxist to defend the Russian response, that would be as bad as the AWL's position on Kosovo, or their refusal to condemn a possible Israeli attack on Iran, and no doubt any further investigation will uncover similar atrocities carried out by Russian troops in Georgia. Marxists rather argue for a workers solution to such conflicts, and potential conflicts, for workers unity across borders and communal divides, for that workers unity to fight for consistent democracy for minorities to oppose any oppression against them by the state, to recognise that their main enemy is not other workers living across those divides, but their own ruling class and its state. Its a pity that many Marxists have abandoned that fundamental aspect of proletarian internationalism, settling instead for lining themselves up with one side or another in such conflicts depending upon which side they consider the lesser-evil.

Where We've been, Where We Are, and Where We're Going - Part III – Where We Are Going

The Credit Crunch

It normally takes two years for a Credit Crunch to unwind. The current one is already 16 months old. On the one hand there has been an unprecedented amount of money thrown at resolving the current crisis, and the Capitalist State has stepped in to effectively nationalise the world’s largest banks and finance houses. The State has taken on responsibility for ensuring that all risk related to lending is socialised. However, the current crisis is itself unprecedented in scope and scale. In addition to the problems arising from sub-prime mortgages, remains the question of other sub-prime lending, on Credit Cards etc., and of non-sub-prime loans, which could default in the event of an economic slowdown. In addition, as the Lehman’s collapse demonstrated the big problem arises with counter-party risk. The result of the huge explosion of derivatives is that no one knows who the counter-party is! Whilst, in theory, the trillions of dollars of those derivatives are netted off – basically for every derivative buyer there is a derivative seller, for every winner a loser – in reality things are not so simple. Firstly, the extent of leverage means that even the winners may not be winners if the losers cannot pay up, and if a large finance house is a loser like Lehman’s the time taken to unwind all of its positions to identify all of the counter parties to these trades etc. is likely to be too long a time in a fast-moving maelstrom of panic. The problem that could arise given the scale is that the same causes of breakdown of trust and relations between Banks, which led to the Crunch could simply be transferred to the relations between States now acting as banks. We have already seen that to some extent. It was seen over the actions of the Dutch, Belgian and Luxembourg governments over Fortis. It was seen in the scramble for advantage when Ireland stepped in to guarantee all Bank deposits, threatening a stampede out of deposits in other EU countries. Most classically, it has been seen in the conflict between Britain and Iceland over deposits in Icelandic banks, and which was reminiscent of the 1970’s Cod War. It is certainly the case that some of these banks such as UBS of Switzerland have Balance Sheets bigger than the GDP of their host nations.

If this problem does begin to materialise – and it is clear even now that the huge sums put in by States will have to be increased – there are essentially only three solutions. The first is the Libertarian/Free Market solution, which I saw presented on TV the other day by Peter Schiff. It is essentially for the State to withdraw and allow the market to have its way. The argument is that the Banks that brought this on themselves by their actions will go bust – those that make this argument never consider that the biggest losers will not be the bankers who made the decisions, but will be the workers who lose their jobs, but who never had any say in the decisions that caused the crisis – and those Capitalists – in Banking or otherwise – who acted responsibly will do well and pick up the pieces. The Capitalist State will never adopt that position under current conditions. Were this at the beginning of a Long Wave downturn it might have no choice, and would prepare to promote fascism as it did in the 1930’s, to beat down the inevitable social eruption. For now, it has no need of so risky a strategy. Rather, it will either simply pump even more money into resolving the problem – a few years ago Ben Bernanke earned himself the nickname “Helicopter Ben”, because he argued that the fed could defeat deflation by simpling printing dollars and dropping them from helicopters – or else it will seek to encourage the trillions of dollars held in various Sovereign Wealth Funds to come in and re-capitalise the collapsing financial system.

No Good Options For Capital

Both options have serious problems. In the main, Governments do not increase money supply by actually printing money. They achieve it by increasing the potential of the system to create Credit. In a severe Credit Crunch this option can be restricted precisely because the Banks and finance houses cannot be persuaded to create more credit – the analogy of “pushing on a string”. That problem is to some extent removed if those banks are State owned and controlled. But, if the problem becomes one of these State Banks themselves owing money to other State owned banks in other countries then, if the problem becomes severe it does become tempting to actually just crank up the printing press and pay these debts in devalued currency. That was what happened in the 1920’s in the Weimar Republic as a means of Germany repaying its commitments under the Treaty of Versailles. The consequence then, and now in Zimbabwe, of such a strategy is inevitable – hyperinflation.

Even without such a catastrophic likelihood, it is clear that the huge amounts of liquidity pumped into the world economy during this period will result in much higher levels of inflation – there is around a two year lag between changes in Money Supply and the effect on prices. Even before the crisis took its latest turn a month or so ago, inflation was rising and capital was worrying about workers looking to defend wages against rising prices. If even higher inflation for a more prolonged period, manifests itself then an increasingly militant and confident working class will demand wage rises to keep pace. In order to avoid this problem, the better solution for Capital is to mobilise the trillions of dollars sitting in SWF’s around the globe, built up in economies with high savings rates, and which have prospered from a growing world economy as they have exported more than they have imported. But, there are problems with this too. Firstly, some of these SWF’s have already had their fingers burned. They already invested large amounts in US financial institutions and saw their investment collapse. In addition, the US over recent years has stepped in to block some foreign investments where it felt that they threatened US National or Strategic interest. Finally, in a situation where economic growth is slowing some SWF’s appear to be intent on ensuring they give precedence to putting money into their own economy and institutions.

Given the complexity of all these derivatives, and the extent of counter-party risk its impossible to say how bad this situation could become. It seems likely, however, that some floor might have been put under the financial system. My guess is that further capitalisation will be required and will come from a combination of further State funding, together with funding from the SWF’s backed by State guarantees. Given the almost complete collapse of the price of Bank Shares – RBS, which is not only the second largest UK Bank, but also the fifth largest US Bank, has seen its share price fall by 90% - and the continuing ability of these companies to generate huge volumes of cash flow – its likely that in the next few months they will begin to attract investors. Already, people like Warren Buffett – who has a personal wealth of around $40 billion – have begun to buy bank shares, and Buffett’s mantra has always been only to buy shares in companies that represent long-term value.

In short, its likely that the worst of the financial crisis is over, but the consequence will be that the US has been fundamentally weakened, if not mortally wounded. The biggest investors in hard US assets – the purchase of actual companies, Banks etc. – will be those like the China, OPEC and Russia, sitting on huge dollar reserves. Those dollar reserves will diminish in home currency value as the dollar falls – an inevitable consequence of the huge increase in Supply of dollars pumped into the market – but those dollars can be used to buy up those dollar denominated assets effectively neutralising that effect. Not only does this present political and strategic problems for the US, but it will also suffer the problem other economies have in the past – a Capital transfer out of the Country as profits are paid out to foreign owners. Already, the huge extent of the US’s indebtedness has left it on the verge of a tipping point whereby its economic growth was barely sufficient to keep pace with its foreign debt financing.

A couple of years ago George Soros said that the dollar would lose its role as world reserve currency within 5 years. That is not likely to occur until the present crisis is resolved, but it now seems inevitable. Already, China is saying that the US and the dollar’s role cannot continue after this crisis. It is likely that China will move its peg from the dollar to a basket of currencies as a first stage in that process. Its possible that OPEC could begin to price oil in Euros or the Gold Dinar.

The Responses

In short, there are no good solutions, particularly for US Capitalism – already on CNN and other news channels questions such as, “Is this the end of Capitalism?” are being raised (to which the answer is clearly no) – only less bad solutions. Marxists would no more call for the Capitalist State to save the system than would the Libertarians, but where the Libertarians simply want to punish one group of Capitalists who they believe acted irresponsibly and in cahoots with what they see as a socialistic State (!), and want workers to simply suck it up for a crisis not of their making, whilst another group of Libertarian minded Capitalists make a killing, the Marxist says workers have no interest in saving the system that oppresses them, especially by strengthening the Capitalist State! The Marxist, though, has no interest in promoting the idea that workers should just suck it up. The Marxist argues that the experience shows why they need to replace Capitalism, why they can place no faith in the Capitalist state bringing that about – a State which continually says it has no money for health care, education etc. but can find trillions to bail out its ruling class – and whythey should use the crisis as an opportunity to take over the means of production for themselves. The Libertarian cannot understand why Capitalism requires the State to intervene, because they have a narrow view of what Capitalism is, one still rooted in the 18th Century, a view which fails to recognise that Capitalism is not based on the principles that applied then of the free market and small state, but is based on Monopoly Capital, and its close integration with a large, interventionist, bureaucratic State. The Neo-Cons, and Neo-Liberals understand that perfectly well.

The neo-Marxist, or perhaps they should be labelled “kitsch” Marxists, also have some grasp of that. But, with a statist ideology, rooted not in Marxism, but Lasalleanism, they end up with effectively the same position as the neo-Liberals. They see State intervention as good, as in some way a concession to Socialism, and therefore, to be promoted. Of course, as marx and Engels argued, State ownership is objectively considered, historically progressive, just as capitalism is historically progressive compared to feudalism, or Monopoly is progressive compared to small-scale ownership. It represents the same kind of logical development from the monopolisation, cartelisation, and trustification of the means of production inherent in Capitalism, and therefore, its more mature form. But everything is relative. Bourgeois democracy is progressive compared with feudal absolutism, but it is reactionary compared to workers democracy. Marxists defend Bourgeois democracy against a return to feudal absolutism, but do so by the methods of and by promoting workers democracy. Marxists do not call for State property to be turned back to private property and defend it against such a move, but do so on the basis of exposing the limited nature of State capitalism, of its reactionary nature compared with direct workers ownership, argue for its conversion to Workers property, the establishment of Co-operatives etc. Marxists should oppose to this programme of statisation of these financial companies their takeover by the workers – both as workers and customers – the extension of existing Co-operative and mutual enterprises into these spheres – the Co-op Bank and CIS, Unity Trust, The Mutual Building Societies, Credit Unions etc. – and for the mobilisation of the Labour movement to ensure that these Co-operative and mutual enterprises are brought under meaningful workers control and democracy.

A couple of months ago, when I warned this financial crisis was about to break, I based my warning on the fact that there had been a rapid fall in the price of oil, which appeared to have been caused not because of any fundamental or psychological change in the oil market, but because of forced selling by financial institutions, who were having to sell profitable positions in order to boost their cash holdings. At the time, Bill Jeffries of permanent Revolution, dismissed this warning saying that the oil price drop was not unusual. (some of the background discussion can be found here, and the actual discussion on the oil price is part of the discussion here

The Economic Fallout

The warning and my reason for giving it has been proved more correct than I believed at the time. In fact, in the last few weeks we have seen not just the price of oil, but the price of other commodities, as well as other assets e.g. the share prices of mining and energy companies etc. fall even more dramatically. The price of oil has fallen more than 50%. Xstrata, a broad based mining company has seen its share price fall from a high of over £46 to less than £8. The common argument for these falls is fear of a serious world recession or even Depression. This is nonsense. The reason for these price falls is, as legendary Commodities Trader, Jim Rogers, said on CNBC the other day, forced selling by financial institutions, hedge funds and other investors and speculators. At around $100 a barrel the demand and supply of oil appeared to be in short-run equilibrium. The spike in the price to $147 was partly a risk premium based on a justified fear of an attack on Iran – I commented a year ago that some oild traders believed an insufficient risk premium was included in the price for such an eventuality – and was a reflection of the fact that some financial institutions were piling into what appeared to be a one-way bet, and that some hedge-funds recognised that in the medium term Peak Oil means that the oil price is going to $200 and above. The fall to below $70 is a reflection of the degree of forced selling. When that stops oil prices are likely to head back towards $100 in the near future, absent of course an Israeli attack on Iran as the forerunner to US involvement that would just happen to benefit McCain’s chances ahead of the election. In real terms oil is still below its 1970’s levels. Despite all the broo ha ha the main economies are not YET in recession. China’s growth has fallen to 9%, but in part that is the result of natural disasters earlier in the year, and of the Olympics. Despite the references to 1929 and the Depression there is no evidence that the World economy is headed even for the kind of recession seen in the 1980’s let alone the 1930’s. In the US there is talk of a $300 billion Keynesian stimulus package, China is stimulating its economy by both Monetary and fiscal policy, Japan too, Britain will scrap the Golden Rule, and Europe will scrap the Stabilisation pact to allow a massive Keynesian stimulus. The recession is likely to be restricted to some of the largest ddebt-ridden economies. The IMF still sees World growth at 4%, ahead of the 2.5% required for a world recession. The main demand for raw materials, foodstuffs etc. is coming from China, India and other Asian economies, which look set to continue growing strongly. As the FT commented in its World economy Supplement of 10th October, any fall in Commodity prices is likely to be limited and short-lived.

There are, however, likely to be some significant price falls. Traders often speak of reversion to the mean. In other words, if prices rise rapidly they are likely to fall significantly until they return to the mean or trend level. The last 20 years of massive injection of liquidity has resulted in huge bubbles in the prices of some assets – share prices, property. The Dow Jones is still hugely expensive compared with its long-run relation to Gold. Traditionally, Price-Earnings ratios fall to around 8 in a serious recession, but remain in the mid-teens for many markets. Despite recent falls, property prices in many parts of the US, UK and other countries like Spain, where there has been speculation – and where the structure of the housing market makes such price rises possible, compared to say Germany where it has been absent – remain at high levels. If there is any comparison with the 1930’s it is that these inflated prices may well suffer a severe deflation – the more so if a recession is most marked in these debt-ridden economies – which for related reasons outlined earlier is likely. In the 1930’s the property prices fell in the US to around 10c on the dollar. Its quite possible that there could be a fall of around 50% in property and share prices from current levels (I wrote this a couple of weeks ago since when share prices have already fallen dramatically). However, the consequence of the liquidity injections already undertaken, and those to come will lead to a large inflation in a year to two years time – probably as high as 20% - as that liquidity feeds through, and economic activity resumes strongly. This will bring about a re-establishment between these asset prices and commodity prices – reversion to the mean – a relation which has been thrown off completely as a result of the bubble in assets, and the effective deflation of the prices of commodities over the last 20 years. Gold is likely, by the same token, to rise to between $2,000 - $3,000 an ounce before hitting a peak in 2010 – that is a real terms peak. Gold hit a real terms peak in 1960 (compared with the prices of all other commodities), but peaked in nominal terms in 1980 as a result of prolonged inflation, and the other factors I outlined earlier.

From a Marxist perspective there is another consequence of this. In the last 30 years the resultant structure of economies in the UK, US in particular, has meant that Finance Capital has been almost hegemonic. There has been gloating not just on the left, at the rapid fall of the City spivs, and comments about the fact that the best and brightest might in future look for jobs in industry or science. As Marx and Engels elaborated, classes are not homogenous. As Marx demonstrated, the Capitalist class itself is wracked with division, not just because of market competition, but because Money Capitalists, Merchant Capitalists and Industrial Capitalists compete over the division of the Surplus value created in the latter sphere, and although all Capitalists have a common interest against the working class, they have diverging interests over the division of the spoils of their collective exploitation of the workers. One of the characteristics of the last period has been the degree to which, particularly large companies, have built up sizeable cash positions on their balance Sheets, and that some of these companies, and others such as TESCO, Sainsburys etc., have ventured into the sphere of Money Capital. It is important for Marxists to analyse these divisions within the Capitalist class, divisions which will heighten as a result of the current crisis.

Resumption of the Boom

It is possible that the severity of the financial crisis could cause a severe recession, but not a Depression which implies a prolonged period of economic downturn. If that happens it is likely to be uneven. Some economies will grow strongly, and new trade relations will develop on the basis of that changed pattern of economic activity. Any recession is likely to be short, and followed by very rapid growth.

There are a number of things with this boom which are different from previous Long Wave booms. For one thing, the World economy is now much greater in its scope than in previous booms. The market is bigger, and Exchange Value dominates more extensively. Although, technology always plays an important role in ever new boom there are some differences this time. Computer technology is now so advanced that it plays itself a role in speeding up technological advance. It plays into the very process of innovation e.g. the role played by computers in the Genome Project. All sciences are now becoming susceptible to mathematical modelling. Everything is becoming digitised so that even sciences such as biology can be dealt with by mathematical techniques, and anything that can be digitised and subjected to mathematics can be modelled and analysed rapidly using computer technology. The other consequence of this is that what have in the past been separate scientific disciplines are being integrated in a way that was not previously possible. Computer technology and biotechnology are being merged in a way that not only allows the very fabric of life to be manipulated, but also allows computers to be developed on the same kind of basis as organisms. Nanotechnology is already allowing the manipulation of matter at an atomic level. This is a qualitative change in the productive forces which has not been adequately theorised, and so neither has its consequences for the productive and social relations.

This means that this Long Wave Boom, irrespective of the consequences of the current crisis, will be much more explosive and extensive than previous booms, including the post-war boom. Similarly, the consequences arising out of the end of the boom - sometime between 2020 and 2030 – will be that much greater, particularly given a world in which there is no hegemonic power – as there was for example in the 19th Century in the form of Britain, or in the period after 1974 in the form of the US – so the danger of imperialist conflict is that much greater – in 1974 the second superpower, the USSR, was not Capitalist and so was not driven by the same imperialist drive that Capitalist economies are subject to. This background explains much of the current manoeuvring and strategising by the major powers. It should be of concern to the whole of humanity not just to Marxists, but it is only Marxists that can provide humanity with the solution to the catastrophe the world may face.

Back To Part II - Where We Are

Where We've Been, Where We Are and where We Are Going - Part II – Where We Are

A Multi-Podal World Economy

I remember back in the 1980’s the Economist ran a series of articles on a number of countries – Malaysia, Singapore, Taiwan amongst other Asian nations. They were what were to become known as the “Asian Tiger” economies. At the time I was working on a number of papers on the question of Imperialism and “sub-Imperialism”. I still have the articles somewhere in my archives. These were all countries, which only a few years before most Marxists would have had no difficulty in understanding within the context of the established theories of imperialism at the time, as oppressed nations, dependent upon some metropolitan centre. Indeed, not long before that they were classic, politically oppressed colonies. But, the Economist articles showed that even by the early 1980’s that model was no longer applicable. All of these economies were not only formally, politically independent, but they were rapidly industrialising, had a rapidly growing domestic bourgeoisie, arising out of that development, rapidly rising levels of education and culture for a growing number of their people, and indeed were not only exporting their manufactured goods around the world, but were also exporting Capital, often to other Asian economies whose wage levels were even lower than their own. In my opinion, today even the term “emerging economies” is no longer appropriate to most of these economies. Countries such as South Korea, Singapore etc. have already emerged. They are still young and dynamic, still capable of rapid growth (and by the same token rapid slowdown), but they are no more emerging in that context than was say the US at the beginning of the twentieth century. In some respects – as was the case with the US and Germany in the past – they have leapfrogged the developed nations. For example, Singapore has probably the best wired economy in the world in terms of access to broadband technologies. Some have such well developed systems that children can be taught at home on line over Video networking. Geoffrey Kay in his book “Development & Underdevelopment – A Marxist Analysis”, explains why. Capital will, despite low wage levels always have an incentive to exploit even cheap labour by using the most efficient, most modern means of production. That is why the Neo-Classical Development Economists were puzzled that that model failed to explain the actual development of such economies, why despite low wages high levels of unemployment was created. That is not to say, of course, that the kind of combined and uneven development seen and analysed by Lenin in Russia can’t be witnessed in these economies – China is a good example – but it is the more advanced that pushes out the less, and subjugates it to itself.

Lenin, in his “The Development of Capitalism in Russia”, not only produced a huge opus of statistical data showing how Capitalism was developing on Russian soil, but in doing so he took apart the ideas of the Narodniks. I think there has been a great deal of Narodism in post-war Marxist theories. The Narodniks believed that there was something unnatural about Capitalist development in Russia, that it was something foreign, transplanted on to their soil. In large part, of course, it was. The huge new factories often were foreign owned, or built with foreign Capital. But, as Lenin showed there was plenty of home grown Capital too, and as the market grew, as it inevitably did, increasing numbers of peasants and artisans found themselves producing for that market rather than themselves. The consequence was an increasing differentiation into bourgeois and proletarians. This was not something to be deplored as the Narodniks did, but welcomed as Marx had done. Moreover, as Lenin showed, in general, the more developed, the larger, the more capitalistic the business, the better the wages and conditions of the workers. The problem, Lenin proclaimed, in contrast to the Narodniks, the reason for the workers and peasants poverty, was not Capitalism as the Narodniks said, but “Not enough Capitalism”! Moreover, the Narodniks looked to the State as being the means by which the development of Capitalism could be held back, and instead measures pursued by which the Russian form of Socialism, based on the Village Commune, could evolve. But, Lenin pointed out, the State is a class state, the instrument of a ruling social class, and in Russia by the late 19th Century that class as Lenin pointed out was already the capitalist class.

Many of the Narodnik ideas can be seen in the positions of Marxists in the post-war period. Firstly, the very real existence of foreign Capital has emphasised the idea that the Capitalism that exists is in some way alien, and hostile to the development of the economy e.g. the notion of “the development of underdevelopment”. Even the term “underdevelopment” emphasises this notion. As I have written elsewhere this notion of “underdevelopment” is applicable in relation to Colonialism, as the overseas activity of merchant Capitalists – usually in conjunction with a ruling Landlord Class – whose method of extracting a profit – buying low and selling high – necessarily implies an impoverishment of the counter parties to such trades, and the political regimes established on the back of such economic and social relations reflect that. But, that is not true of Imperialism as the overseas expansion of industrial and financial Capital. Merchants’ Capital can buy and sell into any kind of economic and social system. The introduction of industrial Capital, of Capitalist production proper necessarily sets in motion the kind of development of market relations and thereby Capitalist relations described by Lenin in “The Development of Capitalism in Russia”. Moreover, this type of production necessarily brings with it the other things seen in any other Capitalist economy; the need for infrastructure, markets, a level playing field, Capitalist property laws, bourgeois freedoms etc. Increasingly, technological production requires educated workers, a middlec lass of technocrats and administrators. In short, it is as much required here to undertake its “civilising mission” – as Marx described it in the “Grundrisse” – of raising workers living standards, improving their education and culture etc. as it was in Britain and other developed economies.

Locked into a mechanical view of Trotsky’s “Permanent Revolution” or afraid to admit that a Capitalism that was supposed to be in its death throes was capable of any objectively progressive role – clearly Imperialism was not and is not subjectively progressive; it didn’t/doesn’t act consciously to improve the lives of workers and peasants in these countries, did not and does not act out of some moralistic quest to spread freedom and democracy around the world as the AWL, for example, seem to believe; it acted and acts out of pure self-interest and greed for profit that has led and will lead it to install dictators just as readily as democracy when that suits its interest; but overall the consequences of the development it brought were progressive – they denied the reality, refused to recognise any independent national development, branding such nations as neo-colonies and so on. And like the Narodniks, who placed misguided faith in the Russian bourgeois State, post-war Marxists have placed faith in various bourgeois-nationalist states rather than in the workers in opposition to those states. A good example now is Venezuela.

Does the fact of the emergence and subsequent development of these economies during the 1980’s and 90’s contradict the notion of the Long Wave downturn during that period? Not at all. Firstly, the concept of the Long Wave as explained in Part I does not involve ABSOLUTE declines during the downturn, just below average trend growth. Secondly, its necessary to look at the underlying reasons for the downturn, the consequences of the response of Capital to them.

The conditions which lead to the rise of the Long Wave are essentially these. Raw materials and foodstuffs prices have fallen to their lows, as new long-term supplies have been maintained/extended whilst demand has been falling either relatively or absolutely. Wages have fallen due to the weakened position of workers viz a viz Capital. Some developments of the Innovation Cycle have been introduced raising Labour productivity, thereby reducing Labour and input costs further. The rate of profit rises. There is often a blow-off of debt which leaves available productive assets which can be bought up cheap and used by more dynamic entrepreneurs. The causes of the Long Wave downturn are essentially an unwinding of these. Raw materials and foodstuffs prices are forced up rapidly at the beginning of the new upswing as Supply cannot keep up with demand. There is a scramble for resources, and an explosion of exploration and development as we have seen since the late 90’s. High prices force attempts to find new more efficient means of using energy and materials, which again we have seen during that period. As most traders will tell you, a Commodity Bull Market runs for around 20 years. This corresponds to the fact that it takes time to carry out exploration, and around seven years to bring on stream new production. Food production can usually be increased more rapidly. Driving around Europe recently I have noted how many fields are now given over to Maixe compared to previous tours. But, bringing on stream entirely new sources of food production can take longer. Potential areas have to be identified, land cleared, drainage installed, infrastructure built to take products away and for fertilisers and equipment to be brought in. In Africa, there are now some huge programmes being developed along these lines as one benefit of high food prices that makes such investment profitable. Angola is engaging in a Programme worth around $6 billion to develop agriculture on its highly fertile lands, and again reasserting the point made earlier, it is seeking to do so not by extending inefficient small-scale peasant production, but by encouraging foreign multinationals to invest in the development of large high-tec industrial farming.

Eventually, all of this new production exceeds demand, its lower marginal costs arising from the larger scale production, the new techniques and higher proportion of Constant Capital employed ensures that prices fall. Falling prices for these primary producers is one component of the slowing of the expansion, both in respect of their own very large investments, and in potential markets for industrial goods producers. Meanwhile, the expansion has raised the demand for Labour, strengthened workers position and militancy, and thereby eaten into the Surplus Value of Capital, slowing accumulation. The period of expansion of Constant Capital (exacerbated by the rise in the input prices of raw materials component of C) together with relatively rising wages means a falling Rate of profit, a phenomenon noted by Glyn and Sutcliffe during the period of the last Long Wave boom in the 1960’s. Alongside the diminishing potential arising from the slowdown of the primary producer economies, Capital also faces problems realising Surplus Value, and a problem of over-production. But, as Marx pointed out, this overproduction is not an overproduction of Use Values, but of Capital. There may be a great need of Use Values, of articles of consumption, the problem for Capital is not producing too much, but producing more than can be sold profitably. The trick for capital appears to be to reduce the cost of production in order that goods sold at the price the market will bear, create a profit. In fact, this is one of the reasons that such crises escalate. Competition ensures that each tries to expand and undercut the others.

But, here in part at least is the explanation for the development of the Asian Tigers. Not only does the globalising nature of Capitalism – its low prices that break down all Chinese walls as Marx put it – mean that all economies are forced to begin producing Capitalistically – and hence those with large untapped Labour forces tend to have a competitive advantage through lower labour costs, go straight to the latest machines, techniques etc. as did US, Germany, Russia Japan – progressively spread Capitalist production and thereby create ever new capitalist and proletarian classes, but at a certain point industrial Capital from developed countries naturally sees the answer to its need to produce at lower cost as being to locate its production in such low wage economies. As Marx pointed out, this is not straightforward. In the developed economy there is decades of development, infrastructure, trained workforces, and so on that reduces the unit labour cost. It is only profitable for capital to relocate if some at least of these things exist. By the early 1980’s that was true of these Asian economies.

As Keynes and other economists noted, wages are “sticky” downwards. In other words, workers having established a certain standard of living are loathe to have it reduced. Even in dire economic conditions it is difficult for Capital to force wages down below a certain point. This is similar to the idea of a “historical” or “cultural” component of the value of Labour Power referred to by marx. In the 1930’s living standards did not fall to that of the 19th century, nor in the 1974-99 downturn did wages fall even to that of the 1950’s. The social and political costs for Capital are simply too great, especially as the working class has shown on several occasions what the consequences for it must be if it pushes too hard – for it to attempt such a catastrophic reduction. Rather it seeks to manage the decline in workers living standards, to effect it by Salami tactics, and through a prolonged relative decline.

That is the strategy Capital has adopted over the last 30 years. That is the context within which “De-industrialisation” took place – for a discussion from the time of De-industrialisation see the book produced by the NIESR, “De-industrialisation”. There is no reason other than the ability to exploit cheaper labour for Capital to locate manufacturing in certain countries – apart in some cases from the costs and problems associated with pollution. There is a certain logic arising from the Harvard School Model of the product Cycle as to why products in their mature phase can be more profitably produced in a low wage, low skill economy, but as India and other Asian economies are demonstrating the supply of highly educated, highly skilled workers does not remain a constraint for long. Indeed, even the “De-industrialising” economies can only pursue this course up to a point. The US retains considerable manufacturing capability though concentrated at the high end e.g. aerospace (although it retains large auto production it is pretty much all loss-making except for the Japanese and other foreign owned plants). It has been able to de-industrialise to the extent it has due to a number of factors. First, because of its large service sector, secondly because of its high-tec base and other high-value export industry, thirdly because of its huge agricultural sector, and finally due to the role of the dollar as reserve currency, which has enabled the US to both pay for its imports in devalued currency, and to borrow huge sums from foreigners. At the other extreme Japan was less able to de-industrialise. It has no sizeable agriculture or raw material production. It has to produce in order to import absent the role of the Yen as a reserve currency like the dollar.

The development of the Asian Tigers and other “emerging markets” then from the 1980’s does not at all contradict the idea of this being a period of Long Wave downturn, but in fact is a consequence of it, as Capital seeks strategies to deal with it, to maintain the Rate of profit in the face of “sticky” wages, by relocating to economies where wage rates are a fraction of even the depressed levels in developed economies. In so doing it is able through prolonged unemployment and the removal of these large scale enterprises to shift labour towards lower-paid, casualised employment etc., and thereby effect over a period of years the necessary adjustments.

Some time ago I wrote about the wage cuts etc, imposed on US auto workers. For example at GM and Delphi where workers saw wages cut by up to a staggering 60%, and saw entitlements to Health Insurance slashed.

The world can no longer be seen in the terms that Lenin viewed it when he wrote “Imperialism”, or even that viewed by Trotsky in the 1930’s. The world is no longer made up of a handful of very powerful economies. Indeed, increasingly, national economies have formed natural geographical associations – the EU, North America and Asia. It is increasingly these economic blocs (which trade more and more within themselves forming increasingly coherent common markets) that confront each other on the world stage to push their particular interests. The latest Nobel Laureate for Economics Paul Krugman won for his work on analysing trade patterns. He asked the question why was it that trade cannot be theorised in the terms of Ricardian Comparative advantage, why is it that some countries produce essentially the same products, but trade these similar products between them? His answer was simple – economies of scale. It does not make sense to produce at a single car plant small batches of 5 different models. It makes sense to produce a large number of one model. It then makes sense to produce the other 4 models at 4 other plants, and these can just as easily be in say Canada as in the US, resulting in trade between the two.

Only Africa and parts of Latin America stand outside this framework, and increasingly they too are being drawn into the globalised industrial economy, just as Asia was in its turn.

An Economy on Steroids

Viewing the world economy and the relations within it simply on the basis of a superficial look at the economic statistics for each nation can only lead to error. Simply basing yourself on those statistics for the US, for instance, over the last 20 years would have led you to believe that this monster economy also remained vibrant, increasingly productive etc. But, such a view would have been false as the present crisis is demonstrating. The crisis is financial, but the roots of that finacial crisis have been spreading over the last 20 years from their heart within a fundamentally weak US economy, and they have done so as a result of the measures taken over that period to mollify that economic weakness. The US economy during that period has been like a Tour De France cyclist, always suspect to those with a critical eye, and wholly revealed when the results of the drug test comes in.

The rise of a multi-podal world economy has fundamentally changed the nature of trade and economic relations within it. The dependence of the US on Chinese, Russian and Middle Eastern creditors for its survival is just one part of that. These relations are often seen as still giving a whip-hand to the US. The quote, “if you owe a thousand pounds to the Bank then you have a problem, if you owe a million pounds to the Bank then the Bank has a problem”, is frequently used to describe the problems the US’s creditors have in withdrawing their support. The argument only stretches so far. The economic consequences of actions are always multi-faceted at this level in a way that does not apply to the Bank and its customer – and let’s not forget that Banks DO foreclose on people even when they owe very large amounts of money. For as long as China wanted to sell huge quantities of goods to the US the dollar-peg was useful. It would not want to force a dramatic fall in the dollar. However, the US now only accounts for a minority of China’s exports. The majority goes to the rest of Asia, as intra-Asia trade (particularly with Japan) expands. Europe is the next largest market for China’s exports with the US third. Additionally, the Chinese dometic market accounts for around a third of all Chinese production and is growing rapidly. Over the last few years rising oil and raw materials prices have hit hard at economies pegged to the dollar. The falling dollar meant that these commodities prices rose much more quickly, and as the Authorities sought to maintain the peg, they were forced to import inflation through the increase in liquidity needed to sell RMB and buy dollars. Chinese and other Asian economies began to suffer high rates of inflation. It was against this backdrop that the Authorities decided to relax the peg, allowing the value of the RMB to float higher, and the dollar to fall. In fact, the idea that the dollar could not be allowed to fall rapidly has been disproved several times. It lost 50% of its value against the Deutschmark for instance, and since 2002 has lost 50% against the Euro. Now Chinese spokesmen have openly stated that the time has come for the role of the dollar as reserve currency, and the US’s unique position stemming from it to end.

Its true that if the dollar falls then its Creditors get paid back in devalued currency, but much depends on what they do with those dollars. For instance, if its creditors cut off support not only would the dollar fall dramatically, but the consequence would also be a huge falls in US Stock Markets, and the market capitalisation of its companies, alongside a similar fall in other asset prices, for example, property, in anticipation of a big reduction in economic activity. Under those circumstances, all of those dodgy dollars could be used to snap up these cheap assets in effect exchanging worthless paper for physical assets. By that means the effect of the devalued currency is mitigated if not neutralised. The current events demonstrate just how many such deflated assets may be available to purchase with these dollars. Indeed, it is probably the prospect of all these dollars finding their way back home for the purpose of such purchases – together with the effects of forced liquidation of foreign assets by US financial companies in need of cash – which has prompted the current short term rise in the dollar.

World Trade Relations

A clear indication of the Long Wave can be seen by looking at the graph of world trade over this last cycle. Such a graph was provided in the World Economy Supplement of the FT on 10th October on Page 7. Between 1980 and 1990 global trade rose from around $4,000 billion to around $6,000 billion, remaining flat until around 1994. Between 1994 and 2000 it rose from around $6,000 billion to $12,000 billion. But, the sharpest rise has most notably been since 2002 where it rose from around $12,000 billion to around $28,000 billion by 2007. (Source: WTO Thomson Datastream) The FT article here shows another aspect of this multipodal economic order. The seven years of unresolved discussions over the Doha Round demonstrate these increasing economic interests coming to play and the inability of the US to simply impose its will. The intervening period has been one in which these contending economic powers have sought advantage by establishing multifarious bilateral trade agreements. China, thirsty for raw materials, has been highly active in this regard developing deals in latin America and Africa for its foodstuffs and raw materials in return for infrastructure, training and manufactures, and has not been slow to use such deals to further its strategic and political goals in the bargain. The fact that the world economy is divided into these three main competing blocs does not mean that they are free of internal frictions, as the recent attempts to obtain a common strategy, across Europe, to deal with the financial crisis, showed. And, as the FT says, “China and Japan are engaged in what appears to be a competition to make themselves the dominant hub in a hub-and-spoke pattern of agreements.”

Against all of that has also to be placed the emergence of economies in latin America. Many of these like emerging economies in Africa are prospering on the back of soaring raw material prices. Yet, that once was true of Asian economies. Other, for example Brazil, have rapidly industrialised and diversified their economies. Even in Africa a number of Lion economies are emerging with the potential for rapid growth and industrialisation provided they are able to divert earnings now into the necessary industrial development, capital accumulation etc. Angola, as mentioned earlier, not only benefits from huge mineral wealth, but is looking to make a huge investment in developing agriculture on an industrial scale, using the latest technology etc. other economies such as Kenya are developing rapidly, whilst as I said in a blog some time ago even places like Mauritania have very high growth rates. See:here. China has a huge bilateral deal with Congo (not to be confused with the Democratic Republic of Congo which is currently in Civil War) for the supply of raw materials in return for the building of roads, railways, hospitals, schools, Universities and the training of technicians.

If the world does not blow itself up in a new imperialist war at the end of this cycle, then in 50 years these countries are likely to be the equivalent of today’s Asian Tigers.

Not unusually then the picture of the world economy at the present time is one that is racked with contradictions. We have a financial crisis rooted in the Long Wave downturn, that manifests itself a third of the way into the Long Wave upturn. That financial crisis is if anything worse than that which erupted in 1929. Yet, as I have written in another blog the two cannot be compared. The 1929 Crash came in a period when the Long Wave downturn was already more than 10 years old, when Europe had been in recession throughout the 1920’s. The current financial crisis at a period of strong and continuing world economic growth. That financial crisis began in the early Summer of 2007, yet more than one year later its effects are only just beginning to be felt in the real economy. The US is probably now in recession, but we will not know fopr some months. France is in recession, and Britain will probably be in recession by the end of the year. Growth in germany has slowed rapidly. Yet, as the FT stated on 10th October, “Contraction Likely, But Decline May be Overstated”. (World Economy Supplement p10) Chinese economic growth has slowed from around 12% to 9%, but as a spokesman said some of that was due to natural disasters, earthquakes and floods earlier in the year, and is also partly due to industry being closed down prior to and during the Olympics. But 9% growth for the world’s fourth largest economy cannot be sneezed at, and now the State has cut interest rates and introduced other monetary measures to stimulate growth.

Despite all the talk about China as a Capitalist Market economy it has to be remembered it remains in general a centrally planned and directed economy as the Olympics demonstrated. One economist declares,

“Third, the Chinese production structure is all the more unbalanced since the investments of local companies have been mostly financed by the state-owned Chinese banking system, in which credit is allocated according to the aims of an industrial policy and not according to profitability expectations (even in companies belonging to the private sector which represent 45% of the total) [3]. This explains that depending on the source (Morgan Stanley, Moody's, etc.), the share of nonperforming loans is estimated at over 50% of total loans [Pei, Shirai, 2004]. According to Rawski [2001], the share of interest paid on interest owed stood at 84% in 1994, below 60% between 1996 and 1998 and under 50% in 1999. As a result, when they develop an industrial project, companies in China worry less about projected profitability or the competitive environment than about the State policy in favor of regions, fiscal incentives, or access to public credit [Huan &alii, 1999].”

See:here

It retains huge scope for using its reserves for internal development as the announcement today of a huge multi billion dollar railway programme illustrates, and may need to do so to buy off internal social problems if the recent demonstrations of sacked workers from a toy factory and elsewhere are a prelude.

For a Marxist, the notion of decoupling – the idea that some economies are unaffected by problems elsewhere, usually in the US – is a nonsense. If anything, for a Marxist, globalisation and the cloer integration of all economies is a desirable inevitability. Yet, that does not mean that the severe problems being experienced by the US necessarily means severe problems for the whole world economy. It is the very fact of the development of a multi-podal world economy, and globalisation that means such a development is not inevitable. Certainly, a severe US slowdown in US consumer spending will have a consequence for world growth. But, US consumer spending is not going to cease. Far too much attention in media coverage of the current crisis has been on the effects in the US, as though the US WERE the World economy. Its not, and in Part III I shall seek to set out where I think we are going, and the consequences.

Back To Part I - Where We've Been

Forward To Part III - Where We Are Going