Making The Workers Pay? - Part 2

The drying up of the latent reserve, constituted upon the agricultural population, is addressed by Capital in a number of ways. Firstly, Capital has to recognise the limitations of a completely free market. It recognises the need for Regulation. That was manifest in the response of Capital, to the rapid wearing out of the working-class, which this initial period caused. In 1863 26 firms owning extensive potbanks in Staffordshire, including Wedgwood, petitioned the government for legislative action to limit working time, to set a maximum working day. And why did they need such legislation rather than voluntary agreement.

“Much as we deplore the evils before mentioned, (i.e. the length of the working day and poor conditions) it would not be possible to prevent them by any scheme of agreement between the manufacturers…Taking all these points into consideration, we have come to the conviction that some legislative enactment is wanted.” (Children’s Employment Commission Report 1. 1863 p 322)

The reason no voluntary agreement could be reached was precisely because free market competition would force each to cheat in order to gain an advantage. It was with this backdrop that the Factory Acts and the Ten Hours Bill were eventually introduced. In other words, the need to ensure the adequate reproduction of Labour Power causes Capital to have to accept that additional expenditure of social labour-time (that is a proportion of society's output) has to be devoted to meeting the needs of workers. So, in addition to things such as the Factory Acts, and the Ten Hours Act, a proportion of society's production is devoted also to improving Environmental Health, to reduce the spread of diseases. Other means of improving workers health, such as the introduction of Public Parks are also introduced.

Yet, the demand for workers who are particularly well educated is not yet sufficient to lead Capital to introduce schooling on a large scale. In fact, the first provision of both Education, and of Medical Care are introduced by workers themselves via their Co-ops. In China, today there is no provision of socialised healthcare, education and other welfare services. One reason that Chinese households save around 50% of their income is precisely to cover these kinds of costs. This illustrates a further problem for Capital. In China, and other developing economies, their development takes place under conditions where significant technological development has already occurred. This has a consequence for even the kind of unskilled Labour-power that is required. For workers just to function at any kind of basic level in such a society requires that they have a minimum level of education, which in turn implies the provision of other requirements, such as somewhere to study, the provision of educational materials, the existence of some minimal standards in which to live, a certain amount of free time, the provision of adequate levels of food and so on. In other words, the very process of Capitalist development itself operates into a feedback loop, which changes the nature of the Labour-Power required, and thereby changes the nature of the wage bundle required for the reproduction of this Labour-Power, with a consequent effect upon the Value of Labour Power itself.

But, what is clear is that they do form a necessary component of Labour Power. Society has to set aside a sufficient amount of Labour-time for their production, and allocate it to the Wage Fund. The workers wages do have to be sufficient to enable them to purchase these goods. As Marx puts it in the Grundrisse,

“It is clear, first of all, that the wage paid by the spinner to his workmen must be high enough to buy the necessary bushel of wheat, regardless of what profit for the farmer may be included in the price of the bushel of wheat; but that, likewise, on the other side, the wage which the farmer pays his workers must be high enough to procure for them the necessary quantity of clothing, regardless of what profit for the weaver and the spinner may be included in the price of these articles of clothing.”

The consequences of that, in relation to China, have been recognised by many economists. On one level of abstraction, in terms of the Capital-Labour relation, it does not matter whether the payment for the commodities of Healthcare, and Education etc. are done at an individual or collective level. In other words, it does not matter whether, as in China now, workers wages have to be high enough to enable them to save enough to cover the costs of education, healthcare, unemployment and retirement, or whether, as in the US, some combination of that with, what amounts to the same thing, the employer paying for those things, via some form of Insurance Scheme, or whether it is deducted from the working-class collectively, via some State run Insurance and Tax scheme.

In all these instances, a proportion of society's production (social labour time) is put aside to cover them, in order to ensure the necessary reproduction of Labour Power. They form an integral part of the Value of Labour Power, whether they are paid for out of wages or out of the Social Wage. The only question for Capital here is, what is the most efficient means of producing these commodities, how can the social labour-time, required for their production, be minimised, and thereby the Value of Labour Power be reduced, and the amount of Surplus Value be increased. So, for example, in the US, Big Capital, competing on a global stage has found that it is being undermined because of the inefficient and expensive nature of private health insurance. The costs of that, born by large employers, through union negotiated Employer run Health Insurance Schemes, has raised their costs, and made them uncompetitive, particularly with European Big Capital, which benefits from more efficient, Socialised Insurance schemes. This was illustrated in an article in the US Business Magazine, Fortune, some years ago, by Matt Miller. He wrote,

“WHAT DO GENERAL MOTORS' WOES, the Medicare prescription-drug law, the state and local health-care time bomb described in the previous story, and Congress's recent refusal to trim soaring state Medicaid subsidies have in common? They're all stones on the path toward the nationalization of health-care spending--an idea that's so easy to slam politically yet so sensible for business that only Republicans can sell it!”

By the same token, it is why Capital in the UK has been looking to largely maintain the current National Insurance, and tax system as a means of financing healthcare – as happens essentially in Europe – whilst moving the actual delivery of healthcare out of the hands of State Capitalism, and into the hands of private providers, Mutuals, Co-ops and so on, where again the experience from Europe demonstrates greater levels of quality and efficiency are possible.

Much of the Left sees such a move as part of “Making the workers pay for the crisis”, and certainly, to the extent that any such moves act as a cover for reducing the actual level of healthcare, education etc. provided, that would be true. But, as set out above, in an economy like Britain, where the reproduction of Labour-power requires that workers receive a relatively high level of provision of these commodities, any such reduction is ultimately damaging for capital, because it means a reduction in the quantity and quality of Labour Power available to it. That means that as the Supply of that Labour-power falls its price would rise. The alternatives for Capital are to either pay up sooner or later, in one form or another, for the Labour-power it requires, or to settle for a lower quality of labour-power, which in turn means accepting producing lower value production, and being less profitable and competitive. On the other hand, to the extent that any such improvement in efficiency reduced the cost of this provision, and raised its quality, experience suggests that it would, in fact, be beneficial both to Capital and Labour. That is so because, since the latter part of the 19th century, the social-democratic consensus, the compromise reached between Big Capital and Labour, has seen any increase in Relative Surplus Value, achieved by the reduction in the Value of Labour Power, shared with workers via an increase in real wages. That is one way in which Fordism has ensured a gradually growing market for the results of mass production.

The Left's objection has been based not on any real application of Marxist principles and analysis, but rather on its attachment to the ideas of Lassalleanism and Fabianism, which misleads the workers into beleiving that these forms of State Capitalism are in some sense “socialistic”, or concessions won from Capital. But, in fact, this has nothing whatsoever to do with Socialism, and certainly not Marxism. That can be seen from Engels' response to such ideas in his Critique of the Erfurt Programme of 1891. In the Draft Programme, Point 8 stated,

“Free medical care, including midwifery and medicines. Free burial”

Engels responded,

“8 and 9. Here I want to draw attention to the following: These points demand that the following should be taken over by the state: (1) the bar, (2) medical services, (3) pharmaceutics, dentistry, midwifery, nursing, etc., etc., and later the demand is advanced that workers’ insurance become a state concern. Can all this be entrusted to Mr. von Caprivi? And is it compatible with the rejection of all state socialism, as stated above?”

That re-confirmed Marx's rejection, set out in his Critique of the Gotha Programme, of the idea that Socialists should demand that the State be the vehicle by which the means of production were socialised, rather than the direct action of the workers themselves in setting up Co-operatives. Like Marx, Engels also rejects the idea that such nationalisation and State Capitalism could, in some way, be made “socialist” by the introduction of a demand for Workers Control.

In reality, there is nothing different going on, as far as Capital is concerned, here than where it seeks to reduce the Value of Labour Power, and thereby raise Relative Surplus Value, in the provision of other commodities required for the reproduction of Labour Power. For example, Marx and Engels analysed the drive of the industrial Capitalists for the abolition of the Corn Laws, in precisely those terms. The Corn Laws were a protectionist measure, introduced by the political representatives of the Landlords, which restricted the importation of agricultural products. By this means the price of food was kept artificially high, which in turn enabled the landlords to charge higher rents on land, paid for out of the higher profits of the farmers. But, as a consequence, this meant that the cost of food for workers was kept artificially high. In turn that meant that the Value of Labour Power was maintained at an artificially high level. Industrial Capitalists had to pay these higher wages to ensure the reproduction of the necessary Labour-Power, and consequently, this meant that their Surplus Value was reduced.

The abolition of the Corn Laws meant that the price of food fell. That meant that workers could buy the same amount, or slightly more food than previously, for less money. In Marxist terms, the amount of Labour-time they had to perform in order to produce the equivalent Exchange Value to cover the reproduction of their Labour Power, fell.

Back To Part 1

Forward To Part 3

Northern Soul Classics - Hitch It To The Horse - Fantastic Johnny C

Another bit of early Northern based around a dance craze of the time. Punchy stuff from The Fantastic Johnny C.

Newsnight's Blackhole

Last night's Newsnight, argued that, according to Treasury figures, even if the Government succeeded with its austerity measures, the UK would be bankrupt by around 2050. That would be because an ageing population, and shrinking number of young workers, would mean that it would be impossible to pay for all the additional costs of health and social care that this population would need. Of course its nonsense. Paul Mason should know better. Its nonsense for the same kinds of reasons that the Reverend Thomas Malthus was wrong when he put forward similar ideas at the beginning of the 19th Century.

It is wrong because it unjustifiably extrapolates from current data and trends into the distant future. Let's just look at a few of the reasons why that is wrong.

The main argument for these kind of scare stories is in relation to Health Spending. There are several reasons why the idea that Health spending will simply continue to spiral upwards is wrong.

One argument for putting forward this idea is that people are living longer. That is true, but does that necessarily mean that they will require more, and more expensive health care? Part of the reason that people are living longer, is because general levels of health have improved. If general levels of health improve further due to people quitting smoking, adopting healthier lifestyles, suffering less from physical industrial diseases and so on, then it is quite possible that demands on the Health Service could reduce rather than increase. They could live to a decent age, before dying quickly rather than their demise dragging out over a period of illness. It is often suggested that people are living longer, because of the introduction of the NHS, but numerous studies have shown that the main cause of improved health, and longer lifespans has in fact been general improvements in housing, food and other living and lifestyle changes. There is no reason that should not continue. In fact, one of the criticisms that Marxists have of the NHS is that it provides Health as a commodity, as something that is essentially sold to workers (even if it is paid for by a collective payment of taxes out of their wages and consumption), to repair their health, rather than that it addresses the causes of workers' ill health in the first place, whose origins lie in the nature of capitalist society. (See: Why The NHS Cannot Protect Our Health.) Once again, many studies show that a focus on “wellness”, on primary care and prevention are far more effective than the current focus on the provision of mega hospitals, with all of their very expensive equipment, specialists and so on. But, of course, the latter better meet the needs of Health bureaucrats seeking to develop their own empires, and of high paid Consultants, not to mention the Big Capitalists who make billions from providings medicines, medical equipment, computer systems and so on.

Moreover, as I have pointed out elsewhere, although there is now some talk of merging Health and Social Care, particularly in relation to Old People, very little currently exists in this respect. From my own experience, I know that very little is done, with elderly people in Residential and Care Homes, to ensure that they are kept physically and mentally active, which would be a good way of reducing their potential health problems. Still less is done in terms of preventive treatments through physiotherapy etc. to prevent problems arising. Some small steps are taking place in that regard in the joint ventures between the NHS and Local Authorities to create Retirement Villages, but the UK seems way behind even the US in such developments. In the US, a quite considerable number of people retire to places like Florida, where they can enjoy the health benefits of the climate. It would make sense, as part of the UK's membership of the EU, for elderly people here too, to be able to make similar arrangements, by moving to Spain, the South of France etc. Of course, many do, but here, unlike in the US, such a move is more likely to provoke the ire of the gutter press, complaining about people taking their benefit entitlements from the UK, whilst living elsewhere in the EU!

The other argument put forward is that because new discoveries and treatments are being developed all the time, not only can people be kept alive longer, but more things can be treated, and therefore, the demands for treatment keep expanding. But, this is no different from other parts of the economy. New commodities are being developed all the time, and new demand for these commodities is stimulated, but, at the same time, the time required, and the costs involved, in producing the older commodities, continues to fall. At any one time there will be far more existing commodities whose costs are falling than there are new commodities whose costs are high. In fact, it is because of these new discoveries that there is considerable hope that future costs will not continue to rise. Take genetics, and the possibilities it opens up for targeted treatment of a wide range of illnesses. Less than a decade ago, it looked like it would take decades to decode the human genome. But, the continued advances in computing power meant that, in fact it was accomplished in around 18 months, and now the genetic code of many viruses, cancers etc. is being unravelled on a daily basis. Not only has the cost of doing that tumbled, but the treatments it opens up, mean that the costs of these treatments is also likely to be slashed compared with the previous development of medicines whose effectiveness was not so great.

And, of course, that is not just true of medicines. The same rapid increases in productivity that have slashed the prices of many consumer goods mean that the prices of things such as CT and Body Scanners should be significantly reduced too, and used on a large scale, as part of a programme of preventative medicine, they could significantly reduce the instances of illness, and the costs of treating it. If workers themselves directly owned and controlled the Health Service it is likely that they would already be directing resources in this direction, rather than into the big vanity projects developed by the bureaucrats and top Consultants.

This ties into another idea of why Health costs do not, and should not, simply continue to rise. The Health Service, like the Education System, was developed to meet the needs of Capital, for the reproduction of Labour Power. To do that it was developed along the same lines as Fordist mass production. Hospitals and Schools were established as large factories. Schools took in children at one end, and passed them along a conveyor belt until they came out at the other end as Proletarians, produced to operate as a cog in the Capitalist machine. Hospitals helped to ensure that these young workers were brought into the world at least cost, reducing the costs to Capital that previously arose from Infant and Child Mortality, and then acted to repair those workers when they were damaged.

These kinds of mass production were efficient up to a point, but for the same reasons that Fordism came up against limits around 30 years ago, so its application to the provision of Health and other services has met similar limits. Capital searched around for solutions to its problem in relation to other aspects of consumer goods production, and came up with a series of answers. It reduced functions down to core operations, farming out other activities to a range of external suppliers; new technology and robotisation made it possible to replace the conveyor belt with more modular forms of production based around work groups, and flexible specialisation. The same “neo-fordist” solutions have been applied to other service industries, such as Banking, they are now, as Aglietta argued, likely to be introduced into the provision of Health, Social Care, Education etc. and as with its application elsewhere, it is likely to result in an explosion of increased choice, and reduction in costs.

Similarly, the kinds of processes that led to skilled jobs being replaced by machines elsewhere can be introduced. Computer Expert Systems, can for example, replace expensive Consultants diagnosis. In fact, a Computer system is likely to be able to have a database of possible illnesses far greater than any medical professional can store in their head, and be able to simply match symptoms with causes. The application of other technology is already allowing medical specialists to provide their services over long distances, via the Internet and teleconferencing. The development of computing power, and the advance in mobile technology means that everyone could now be monitored 24 hours a day via small implants, or by a mobile device embedded in a graphene strip used as a multi-functional device on the wrist, picking up signs of any problems - in the same way that computer chips in cars now monitor for any defects and report them - and notifying the appropriate medical services instantly.  In the same way that robots are able to replace skilled workers in many areas of manufacture, so surgical robots will be able to undertake many surgical tasks to a far greater degree of precision and consistency than any human.

Finally, we are only just beginning to see the revolutionary transformation of healthcare that the combination of computing power with biology, chemistry and genetics is about to bring about. That applies over a huge range of areas, from the ability to generate replacement organs via stem cells, to the use of new materials being made possible through nanotechnology, to the introduction of new drug delivery systems. In effect, Healthcare is still at the stage of the Model T Ford, and as happened with motor car production, the period ahead is likely to see not just a vast and rapid transformation of quantity and quality of what is available, but a massive reduction in the costs of what is provided.

But, in part these same factors are the other side of what is wrong with the argument put forward by Newsnight. As I've argued in the past, The Big Pensions Lie, the argument that workers have to work longer because they are living longer is a myth, because workers' productivity has increased hugely since the time that Pensions were first introduced, and in fact, even just since WWII. That means that fewer workers are needed to produce the goods and services consumed by those who have retired. We can easily allow people to retire earlier, and enjoy a higher living standard, even with a smaller working population to support them. The reason Capital seeks to make people work longer is because a smaller working population, means it has to pay higher wages, and, therefore, accept lower profits.

But, although productivity has risen sharply, the truth is that the UK economy, even during the period of the Post War Boom has not performed as well as it could have done. Rather like the US, during the 1980's, when much manufacturing went to China and other parts of Asia, Capital, instead of moving into high value areas of production, went into retailing, and into other forms of services. As a consequence productivity did not rise as much as it could have done. But, with the Financial Meltdown, and its aftermath, that model of the economy based around continually expanding retail outlets is no longer possible. Capital will be forced to restructure in these economies, or be destroyed. Assuming the latter is avoided, then the UK economy could see rises in productivity far in excess of what it has experienced since WWII, and that will finance the costs of the Welfare State, and a rising old population.

And, although I have argued that there is no need for workers to have to retire later, the chances are that as people live longer, they may CHOOSE to undertake work of some form or another. Many of the people I worked with, who took early retirement, from the Council, during the 1990's, topped up their pensions by working a few hours a week at B&Q, and other such jobs. Provided, employers are prepared to make it worth their while, and provided Governments do not tax away the benefits of doing so, many workers are likely to adopt such a strategy. And, of course, many retired workers already do work that is not counted in the economic data, because they work in the domestic sector, providing childcare etc. looking after grandchildren and so on.

Malthus made the mistake that he believed that the population would grow geometrically (2,4,8,16) whilst production would only expand arithmetically (2,4,6,8), and so population growth would outstrip the capacity to meet its needs, leading to starvation and so on. The same catastrophist ideas are put forward today by the environmentalists, who not only make the same warnings about resources running out, but who continually talk about the damage to the environment, but who do not seem to have noticed that in many old industrial countries the environment has been substantially improved in the last 50 years! Newsnight make the same mistake.

Malthus was wrong, as Marx pointed out, because like Ricardo, he assumed that agricultural production was already being conducted on the most fertile land, and because he failed to understand that the productiveness of the land itself could be transformed by the application of Capital to it. As I wrote some time ago, The Great Food Flim Flam, all of these ideas are false. As I set out in my blog Food, Population and development, back in 1953, Colin Clark showed that even with the technology available then it was possible to provide a standard of food consumption equal to that of the Netherlands for a global population of 12 billion. As I write there, that figure is likely to be around 30 billion today. The same argument applies in relation to providing for the needs of an ageing population.

Northern Soul Classics - What Kind of Lady - Dee Dee Sharp

This was my number one pick in my 6 of the best on Dave Evison's, Northern Soul Radio show many years ago. The brilliant Dee Dee Sharp. First I think released on the Action label that hosted many other great pieces of Northern like "Baby Do the Philly Dog" by the Olympics. I've put up this video version, because of the dancing, though it cuts off short of the end, but its worth checking out full length versions. I'm also including the Producers great instrumental version that was on the B Side of the release on Action.

Making The Workers Pay? - Part 1

Whenever Capitalism goes into one of its periodic crises, the stock response of the Left is to declare that the solution for Capital will be to “make the workers pay”. This post seeks to examine what that means. It is, of course, a catchy piece of propaganda, but is it true? If it is true, then in what context is it true? Does it mean, for example, that its the same as workers handing over a sum of money or value to Capital, to compensate them in some way? In other words, is it the same as saying, if I want to buy a car I have to pay for it, but in this case it is Capital buying the car, and workers paying for it? Or, is it like, my neighbour is burgled, but I have to compensate him for his loss? In fact, on the basis of a Marxist economic analysis, none of these things are true in any meaningful sense, and cannot be true given the Marxist understanding of the nature of Exchange Value, Surplus Value, Wages and the Value of Labour Power.

Is it true that during a recession workers suffer? Yes, of course that is true. In that sense workers pay a price for the fact that Capitalism is a chaotic system, which proceeds via contradiction, and the resolution of those contradictions via crises. But, what does that mean? If a member of my family unwisely goes to a Party, where a lot of people have the early symptoms of flu, then they are likely to pass it on to me. If I then catch the flu, the misery I suffer means that I am paying a price not for my own actions, but for theirs. But, it can't be said that in any way my suffering represents some kind of payment to them!!! My suffering the flu, is in no way a compensation for the fact that they caught the flu in the first place, and passed it on to me. In fact, it could be the other way around. If they depend upon me in some way, to provide for their needs, then the fact that I too am now laid up with the flu, may mean that I am no longer able to fulfil that function, and so, rather than my illness representing some kind of payment to them, it represents a further cost to them.

The Reserve Army of Labour

This is indeed a good analogy of a Capitalist crisis leading to large scale unemployment. Capitalism, as Marx demonstrated, always needs a Reserve Army of Labour for its efficient functioning. This Reserve Army, in fact comprises, three different types - floating, latent, stagnant - whose importance and function change depending upon the conditions. For example, in economies which are newly industrialising, the Peasantry constitute a latent reserve army. In other words, they are a potential source of workers, should Capital require them. When Britain went through, the Industrial Revolution, it was the revolution in Agriculture, combined with the Enclosure Acts, which forced peasants off their land, which turned this latent reserve army, into an actual reserve army, as those peasants then flooded into the towns and cities, with nothing to sell other than their labour-power. The same has been true, of the industrialisation of China in the last 30 years, which has been made possible by the movement of millions of peasants from the countryside into the towns and cities. As part of answering this question let's look at these three types of Reserve Army, beginning with the Latent Reserve.

i. The Latent Reserve

This kind of Reserve Army is crucial where an economy is industrialising, and where, therefore, what is important is the availability of massive reserves of low paid, labour power, that can be exploited via the extraction of Absolute Surplus Value. That means that this Labour Power can be paid low wages, and worked intensively for long periods of time. But this, as Marx explains, has a cost for Capital. Workers, who receive low wages, eat poorly, are badly clothed, housed and educated themselves, produce low value labour power, labour power whose Use Value is extremely limited. The low value of their Labour Power represented by these low wages, is also reflected in the low value of their output. That in turn means that the only way that Capital can extract maximum profits from this labour is by making it work long hours, and more intensely. But, the more it is worked both extensively and intensively, the more its Use Value is used, or put another way, the more the worker becomes worn out, the shorter the workers' life span. It is only because during this period of industrialisation, there are these vast latent reserves of Labour, that Capital can continue on this basis.

In Capital, Marx goes into great detail to explain this, by quoting from the reports of the Government Inspectorate, and having taken a lot of his information from Engels', “The Condition of the Working Class In England”. He sets out, how in the Potteries, the conditions of the workers were so bad, that it was only by intermarrying with people from the neighbouring rural areas, that the working population were not completely wiped out. The average lifespan for a worker was cut in half compared to prior to the Industrial Revolution. In many of the Northern manufacturing towns, it was only because manufacturers were able to literally buy workers, off workhouse managers, elsewhere in the country, that they could replenish their needs for labour-power.

In Capital, Marx quotes the MP Thomas Ferrand from his speech in the House of Commons.

“This system had grown up unto a regular trade. This House will hardly believe it, but I tell them, that this traffic in human flesh was as well kept up, they were in effect as regularly sold to the (Manchester) manufacturers as slaves are sold to the cotton grower in the United States…. In 1860, the cotton trade was at its zenith…. The manufacturers again found that they were short of hands…. They applied to the ‘flesh agents’ as they are called. Those agents sent to the Southern downs of England, to the pastures of Dorsetshire, to the glades of Devonshire, to the people tending kine in Wiltshire, but they sought in vain. The surplus population was ‘absorbed’.” (Ferrand’s speech in the House of Commons 27th April 1863.)

This last reference to “absorbed” relates to comments made by the cotton manufacturers in 1834. Ferrand in his speech gives details of the way in which the intolerable conditions of the workers was affecting their life expectancy. He commented,

“The cotton trade has existed for ninety years…It has existed for three generations of the English race, and I believe I may safely say that during that period it has destroyed nine generations of factory operatives.” (ibid.)

Faced with this shortage of labour the manufacturers had applied to the Poor Law Commissioners that they should send the “surplus population” to them with the explanation that they would “absorb and use it up” to use their own words. Hence Ferrand’s reference.

We see something similar in China today. So long as the requirement is only for masses of unskilled labour, the Capitalists have no need for workers to be particularly well fed, clothed, housed, educated or maintained via adequate healthcare. They can simply be replaced by new supplies drawn from the countryside. But, as a strategy for growth this is extremely limited, as China has found. Sooner or later, as growth continues to accelerate, this latent reserve is effectively used up. In China, wages are now rising rapidly, with demands for 50% wage increases, as the Supply and Demand balance for Labour Power shifts towards Labour. And the Chinese authorities are responding by supporting those wage demands.

As David Pilling put it in the FT, the authorities are reflecting in their statements a basic reality. He says,

“The years of an endless supply of cheap labour, on which the first three decades of China's economic lift-off was built, are coming to an end. That is partly demographic. Because of China's one child policy, the supply of workers under 40 has dwindled by as much as a fifth. Fewer workers means more bargaining power.”

And rather like Britain at this stage of its Industrial Revolution, the limited requirements of Capital in relation to the nature of that Labour Power is reflected in other ways. For example, Capital having no need for workers to be particularly healthy or educated, does not see why it should pay for such things as part of the Value of Labour Power. So wages are not set at a level that enable such things to be bought, because these commodities, as components of the wage bundle required for the reproduction of Labour Power, do not constitute, a necessary expenditure of Social Labour Time. It is only as this Latent Reserve becomes used up, that Capital is forced to look to other ways of maximising the Labour-Power available to it, for exploitation. This takes a number of forms.

Forward To Part 2

Inflation & Interest Rates Up, Wages & House Prices Down

In the last year, the Misery Index – Inflation Rate plus Unemployment Rate – has been soaring, as I predicted it would. Despite the Tories assuring us that slashing State Spending would create a private sector boom that would produce an avalanche of new jobs, all their austerity has done is to send the recovering economy back into recession, and sent unemployment heading up towards 3 million. That is despite the fact that, so far, the Liberal-Tories have only implemented 6% of their planned austerity measures! Despite the Bank of England promising us that inflation would fall – a promise they have been making continuously for the last 4 years – inflation rose even more, fuelled by their low interest policy and money printing, and its consequent policy of devaluing the pound, which has pushed up import prices for things such as fuel and food. Last month's fall in the inflation rate, which was largely technical due to the falling out of the calculation of last year's VAT rise, looks likely to be short lived, as oil is heading back up to record highs, and petrol prices are already at record highs. Now Interest Rates are rising too, whilst wages are frozen, and falling sharply in real terms, whilst house prices are beginning to collapse by up to 50%.

According to the BBC, Banks and Building Societies are set to raise Mortgage rates by a whacking 14%, from 3.5% to 4%. That will come as yet a further blow to a rapidly falling property market on top of the removal of the Stamp Duty holiday that has been in place. Already, as the property website Propertysnake is showing, even Asking prices for houses are being cut by as much as 50%. Propertysnake monitors changes in asking prices across the country. Its very useful, allowing you to put in a postcode, and see exactly how much prices are falling for actual houses in that area.

With wages frozen, benefits being cut, and rapidly rising inflation cutting into workers' living standards, its now wonder they have no money left to keep the huge property bubble inflated. With rising unemployment, and now sharply rising interest rates, all of the conditions are in place for a repeat of the collapse of the property market that occurred in 1990. But, this bubble is bigger, meaning the collapse will be bigger too.

Before the election, the Tories had promised to introduce a fuel price stabiliser that would cut fuel duty whenever the price of oil rose. Now with diesel prices already over 140p per litre, and headed for 150p, the Tories cannot cut fuel duty much further without risking blowing a hole in their Budget. There are several reasons for the rising price of oil. For one the world is probably at a stage of Peak Oil production, so with demand rising rapidly in China and other developing economies, Supply cannot rise fast enough to meet it. Secondly, as the interview on Fareed Zacharia with Ronen Bergman spelled out today, Israel is planning to launch a strike on Iran some time this year. With a developing Cold War by proxy in the Middle East, as western imperialism lines up behind the Sunni Feudal Monarchies of the Gulf, and their allies, and Russia and China line up behind Iran, Syria, and oppressed Shia populations in the Gulf Monarchies, such an event is likely to spark an extensive regional war at the very least, and something wider at worst. The fact, that clerical-fascist regimes have now come to power in Iraq, Egypt, Tunisia, Libya, and could well come to power in Syria and elsewhere, make the future even more uncertain. Even if the Straits of Hormuz did not get closed, such a conflict would mean that oil production and distribution in the region was severely curtailed. Under such conditions, the current price looks likely to be far from taking full account of the necessary risk premium. A serious dislocation would be likely to send Oil to anything between $200 and $400 a barrel. Thirdly, apart from those factors, the policy of the Bank of England over recent years of printing money has pushed up inflation in general, and by devaluing the pound has had a direct effect on increasing the price of imported oil.

On top of that, as I predicted a while ago, interest rates are now also rising, despite the policies of the Bank of England. That is because the interest rates charged by the Banks and Building Societies are more determined by what they have to pay in the money markets to borrow money. Over the last 6 months or so, those rates have been rising rapidly, because, as happened with the Credit Crunch of 2008, the Banks are now worried about their own financial health. The interbank rates that banks charge each other has soared, as banks worry that they might not get their money back, and scramble to boost their own cash holdings. When the ECB pumped out €500 billion in the Long Term Refinancing Operation (LTRO) at the end of last year, it helped ease that situation. Banks were able to offload some of their dodgy Bonds to the ECB, in return for cash at 1% interest rates. Its basically Money printing, and the ECB acting as lender of last resort by any other name.

The idea of the LTRO was that these banks would then use the money they borrowed to buy up the Bonds of their own Governments in what is termed a “Carry Trade”. That seemed to work to an extent as the Yields on Italian and Spanish Bonds fell, though they are hardly at low levels even now. They have just repeated the exercise. Over 800 Banks across Europe borrowed money. But, for the last few months, European Banks have also been depositing record amounts with the ECB itself overnight. The ECB points out that its not the same Banks who are depositing the money that are borrowing the money. The message from that seems clear. Of those 800 Banks, a large number seem to need the money to bolster their own liquidity and solvency. That also seems to be the analysis of the Credit Ratings Agencies, who continue to downgrade European Banks.

The other reason for that is that across Europe, and within the UK, many Banks are in a position similar to that of Japanese Banks in the 1990's, or US banks after the Sub Prime crisis. They are zombie banks. They have large amounts of loans outstanding on property that is listed at unrealistic prices. Once those property prices are rectified, once the loans of the Banks begin to be properly written down, many of those Banks will be seen to be bankrupt. Bloomberg had a story setting that out on Friday. They write,

“Investors view the 182 billion euros of bonds tied to Spanish residential-mortgage backed securities as being among the least creditworthy in Europe, trailing securities from the U.K., Netherlands and Italy. The outlook for the collateral is expected to worsen as mortgage arrears rise with increasing unemployment and house prices continue to fall, Moody’s Investors Service said in a report last month.”

As austerity across Europe causes these property prices to collapse, as well as causing economic activity to go back into recession, no amount of money printing by Central Banks will lead to higher borrowing to reflate these bubbles, and consequently, the Banks will go bust in large numbers. All the ECB has done is to buy Sovereign debt in Greece, Italy, Portugal, and Spain some temporary relief, but only at the cost of throwing the burden back on to the Banks.

Northern Soul Classics - Earthquake - Bobbi Lynn

Another toon from the pre-All-Nighter Torch days. This time the classic from Bobbi Lynn. Incidentally, talking of old toons. The Financial Times had an article last weekend about rare vinyl, particularly Northern. It spoke about John Manship who recently sold one of only two existing copies of Frank Wilson's "Do I Love You (Indeed I Do)" for £25,742. Good job I kept all that vinyl then!