Cooking the Books: Hard Work, Taxes and Profits (2014)

The Cooking the Books column from the December 2014 issue of the Socialist Standard

In an article in the Times (30 October) David Cameron pontificated about having a moral duty to reduce taxes:

‘Every single pound of public money started as private earning. Every million in the Treasury represents a huge amount of hard work: early morning alarms, long commutes, hours spent on the factory floor, the office, the hospital ward or the classroom.’

The first sentence is not true but the rest is.

As the government as such produces nothing it does have to get all its money from elsewhere. However, it cannot be said that ‘every pound’ comes from ‘private earning’ if by this latter is meant wage and salary earners.

The government’s money comes from two sources: taxes and borrowing. Governments borrow from financial institutions but what these lend it can hardly be described as ‘private earning’. It is money capital accumulated from past profits, i.e., from past ‘unearned income’ (as the Inland Revenue used to call it in the days before spin).

As to taxation, some comes directly from taxes on profits, once again not ‘private earning’ but unearned income. Even the taxes paid by workers fall in the end on employers (though ‘paid’ is probably not the right word here as, with PAYE, workers never see it and what they have to live on is the take-home pay that goes into their bank account). A tax on wages is an indirect tax on profits as it increases the cost of recreating a worker’s labour-power and so what the employer has to pay for it. Economists have long known this but politicians are reluctant to acknowledge this as it blows apart their myth that we are all taxpayers together.

On the other hand, that ‘every million in the Treasury represents a huge amount of hard work’ is true. The hard work described by Cameron is the source both of the taxes that ultimately fall on profits on and of the accumulated profits that governments borrow.

So, if there’s any moral duty involved because of the ‘hard work’, it would not be to reduce taxes but to reduce, in fact eliminate, the unpaid hard work of wage and salary workers which produces the profits that governments tax or borrow.

In any event, Cameron’s moral high ground begins to crumble when he sets out another reason for reducing taxes on profits:

‘We know the economic case for cutting taxes: in a competitive world we cannot afford to carry on as a bloated, high-taxing, welfare-heavy nation (…) We have to fight the notion that you can endlessly suck more taxes out of businesses and bite the hand that feeds.’

That’s a rather different argument – that taxes on profits have to be reduced so that businesses operating from Britain can remain competitive on world markets. It’s an admission, too, that capitalism is governed by the quest for profits and that governments have to go along with this, even at the expense of the welfare of those they rule over.

In fact, how come that ‘welfare’ has become a dirty word under capitalism? The dictionaries define it as ‘the state of faring or doing well’ and ‘good health, happiness and prosperity’. Capitalism, on Cameron and the other politicians’ admission, is not geared to pursuing these objectives but to pursuing profits. It’s profits before welfare, which is why capitalism must go if we are to have a true welfare society.

The War in Ukraine (2014)

From the December 2014 issue of the Socialist Standard

The second in our three-part series on wars currently going on due to capitalism

The Ukraine Defence Minister stated 'A great war has arrived at our doorstep, the likes of which Europe has not seen since World War Two' (Independent, 2 September). The war in Ukraine in 2014 rose out of the 'Euromaidan' protests in Kiev in November 2013 when Ukraine under pressure from Russia backed out of a trade deal: the Association Agreement and Deep and Comprehensive Free Trade Agreement with the European Union. For the pro-European Ukrainians EU membership is seen as synonymous with democracy as opposed to membership of Russia's Customs Union: the Eurasian Economic Community (EAEC) which also includes Belarus, Kazakhstan, and Armenia. The divisions in Ukraine are basically a conflict between two groups of the capitalist class over the choice of the external orientation of the country; toward Europe or toward Russia. As a carrot Russia promised Ukraine $15 billion in loans and 30 per cent discount on natural gas prices.

Ukraine is the 'bread basket of Europe' with its extensive fertile farmlands of rich black soil (chornozem black earth) and the vast fields of wheat, barley, rye, oats, sunflower, beets and other grain and oil crops. In 2011, it was the world's third-largest grain exporter, and according to a 2013 forecast by the U.S. Department of Agriculture, Ukraine is poised to become the world’s second biggest grain exporter in the world, shipping over 30 million tonnes of grain out of the country last year. Ukraine also has a well-developed manufacturing sector, particularly in aerospace and industrial equipment, nuclear power generation and hydroelectric generation, an advanced rocket systems industry plus the old industries from the Soviet period of coal mining, steel, and metals. It also has its own proven, significant, but yet totally undeveloped shale gas reserves.

East or West?

For the Russian capitalist class Ukraine is the 'near abroad' and therefore within the sphere of influence of Russia. On 28 February Crimea (given to Ukraine in 1954) was occupied by Russia. Since the 1700s it has been the base of Russia's Black Sea Fleet but since Ukrainian independence in 1991 the base in Crimea has been leased from Ukraine, and the leasing agreement was due to expire in 2017, and unlikely to be renewed. This would have meant Russia not having a warm water port giving access to the Mediterranean and via the Suez Canal to the Indian Ocean. A great deal of Crimean real estate is Russian-owned, in late February Russia’s Ministry of Economic Development called on Russian capitalists to invest $5 billion in infrastructural projects in Crimea. Gazprom is interested in rich oil and gas deposits off the Crimean coast, as are such western companies as Exxon, Shell and ENI. In April Chevron signed a 50-year lease to develop Ukraine's shale gas reserves which probably stoked Russian fears about losing its influence in Ukraine and as a major gas market. International Business Times (8 November 2013) wrote that 'Chevron's agreement with Ukraine was supported by the US as part of its national security strategy to help reduce Russia's hold on Europe and Kiev.'

In April pro-Russian separatists in the Eastern Ukrainian provinces of Donetsk and Luhansk declared themselves 'independent' of Kiev as the People's Republic of Donetsk. Russia in a throwback to Tsarist times refers to the disputed areas of south-eastern Ukraine as Novorossiya. In six months of fighting 3,000 people have been killed. This area includes the old heartland of Soviet industry with its concentration of coal and steel production; the Don coal basin known as the Donbass. Essentially Russia wants the Donbass as a 'protectorate' so that Ukraine can never join NATO or fully orient its foreign policy westward. The loss of the Donbass region which accounts for 16 per cent of GDP and 27 per cent of industrial production would be a disaster for Ukraine, whose economy will contract 7 per cent this year and may not expand at all in 2015 according to the European Bank for Reconstruction and Development (Russia Today 14 May). In August the war expanded when a new war front opened on the coast where pro-Russian separatists took Novoazovsk, a small town on the way to the strategic port city of Mariupol on the Sea of Azov.

The economic war between Russia and Ukraine meant that Russian loans were frozen in January, the price of gas to Ukraine was raised by 80 per cent in April, and Russia insisted that Ukraine pay a $2.7 billion gas debt or it would halt natural gas supplies. Also Ukraine had a foreign debt of $135 billion in 2012 with $13 billion due to be paid in 2014 mostly to European banks, and another $10 billion due in 2015. Standard & Poor cut Ukraine's credit rating describing it as 'a distressed civil society with weakened political institutions' (Bloomberg.com 28 January). In March the IMF authorised an $18 billion loan to Ukraine over two years, and the World Bank coughed up $3.5 billion, both designed to stop Ukraine defaulting on interest payments on its foreign debt. The hryvnia (Ukraine’s currency) has lost 35 per cent of its value against the dollar since the beginning of 2014.

Ukraine has not recovered economically from the world capitalist crisis of 2008-09 and further austerity is required, nay demanded by the IMF as a condition of its loans. The IMF want 'commitment from the country to undertake painful austerity measures, tough reforms and a near-certain recession as a result' (The Times, 25 February) while Reuters called it 'some harsh economic medicine' (5 March). This will mean cutting fuel subsidies, government spending, pensions, and wage freezes for workers. All this will lead to higher gas prices which are projected to rise by 50 per cent in 2014 and by 120 per cent at the end of four years, rising inflation, an increase in unemployment, and a decline in the standard of living for the Ukrainian working class.

The economic crisis hasn't affected the profits of Rinat Akhmetov, the richest man in Ukraine (assets of up to $28.4 billion), his company DTEK controls half of Ukraine's coal, steel, iron ore and thermoelectric industries, and is the largest employer in the Donbass. A Russian oligarch Abramov owns the mining company EVRAZ. The coal industry in Ukraine is affected by a crisis of over production which was identified in the trade magazine Coal Age in December 2013: 'A production surplus in 2013 has hurt the Ukrainian coal industry which needs to reduce the level of production, and in addition, has even decided to temporarily close about 17 percent of all mines in the country. Ukraine is the fourth largest coal producer in Europe after Russia, Germany and Poland. The Ukrainian coal industry is believed to have 4 per cent of world coal reserves, or 33.9 billion Mt of proven reserves. This is enough to maintain the level of coal mining for 2012 in the country for almost 400 years.'

As always in capitalist crises, the working class are made to pay for the failures of the capitalist system. Ukrainian miners in the Independent Trade Union of Miners at the EVRAZ-owned Krivyi Rih iron ore mine in the Kryvbas (iron ore basin) near Dnepropetrovsk in Eastern Ukraine are fighting to defend their interests as workers against attacks by the capitalist class who are seeking to make redundancies, and 30 to 50 per cent cut in their real wages. The miners oppose Ukrainian nationalism and Russian separatist ideology and concentrate on fighting against 'the never-ceasing encroachments of capital' (Marx Value, Price and Profit), but the miners have had to establish self-defence militias to defend themselves against intimidation, and attacks by lumpen elements called 'Tatushka' recruited by the Russian separatists. Essentially these are gangs of thugs organised by mine bosses to crush organised workers before the region can be absorbed into the petro-oligarchy and anarchic-capitalist state that is Russia.

Sanctions

Because of Russia's involvement in Ukraine, the western capitalist powers have imposed sanctions on Russia's capitalist economy with its large energy reserves (oil and natural gas represent 68 per cent of Russia's total exports). These commodities are under pressure as new and cheaper supplies come onto the market, and crude oil prices worldwide hit a nine month low in August. Russian capitalists targeted by western sanctions included the largest bank Sberbank, oil companies Rosneft and Transneft, and Gazprom. Their access to capital markets for any long-term funding was restricted, new exploration projects in Siberia and the Arctic were affected by barring foreign oil companies Exxon and Shell from providing any equipment, technology or assistance to deep-water, offshore, or shale projects with Gazprom Neft, LukOil, Surgutneftegas, and Rosneft. Russian gas is delivered to Europe by pipeline which probably explains why Gazprom's main business is reported not to be on the sanctions list.

Russia is the EU’s third-biggest trading partner with a cross-border trade of $460 billion, and the EU gets a third of its oil and gas from Russia with 40 per cent of that gas pumped across Ukraine. The dominant capitalist power in Europe, Germany, has an economy intertwined with Russian gas and oil exports worth more than $75 billion a year. Larry Elliott wrote that 'a key aim of Berlin's foreign policy for the past quarter of a century has been to re-integrate what used to be the Soviet Union and its satellites into the market economy. Expanding capitalism to the east was seen as both good for German business and for German security. Resistance from German industry makes it unlikely Merkel will agree immediately to Iran-style sanctions that would freeze Russia out of western markets' (Guardian 28 August). The objective of US and European capitalism is energy diversification which means to reduce dependence on Russian oil and gas.

The US and EU capitalist blocs are using the military threat of a revived NATO against Russia as part of the western capitalist attempt at influencing the external orientation of Ukraine towards Europe. In September NATO announced the creation of a spearhead 4,000 strong 'rapid reaction' force, with a HQ in Poland and forward units in Poland, Romania and Estonia who have all indicated willingness to host the bases so that NATO would have a continuous presence in eastern Europe. Ukraine has decided to pursue membership of NATO, and clearly the western capitalist powers regard the Russian 'near abroad' as their own sphere of influence. The Lithuanian president said 'It is a fact that Russia is in a war state against Ukraine. That means it is in a state of war against a country which would like to be closely integrated with the EU. Practically Russia is in a state of war against Europe' (Financial Times, 31 August).

The war in Ukraine was no impediment to the NATO military exercise in Ukraine in September known as 'Rapid Trident' at the International Peacekeeping and Security Center at Yavoriv, 60 km from Lvov in Western Ukraine close to the Polish-Ukrainian border. 1,300 troops from fifteen countries including the US, Britain, Germany, Spain, Poland, Norway, and some former Warsaw Pact countries that are part of NATO's Partnership for Peace programme (non-NATO members such as Ukraine and other former Soviet Republics) took part.

Russia went to war with Georgia in August 2008 when Georgia sought to join NATO. Russia could not allow this and Russia halted NATO expansion into the Caucasus. A Ukraine integrated into the EU and NATO would encircle Russia, which was the same reason for war against Georgia in 2008. As always in capitalism the economic conflict over control of mineral resources and trade routes (such as pipelines) will be the cause of war.

Steve Clayton

(Next month: concluding article on the war in Gaza)

Editorial: The Choice is Always Ours (2014)

Editorial from the December 2014 issue of the Socialist Standard

The media have not been short of political drama to occupy them in recent months: the rise and rise of UKIP, the defections of two sitting Tory MPs , the accusations of dirty tricks, or the ‘nail-biting’ drama of the Rochester by-election.   Anyone following all this might be forgiven for thinking that the political process is a media soap centred on the rivalries and intrigues of a cast of political celebrities.  They might think, too, that it is a game of little consequence for the lives of working people whose only role in all this is to be persuaded to vote this way or that.  With the declining turnout at the polls in recent years, it seems that working people, the majority of voters, think so too. 

But then in September a remarkable 84.5 percent of the electorate north of the border went to the polls to vote in the Scottish referendum on independence.  If working people in Scotland were disillusioned with the current political establishment, then they showed themselves still strong in their belief that their future depends on having the right national institutions and leaders to run the capitalist system. Whichever way they voted, ‘yes’ or ‘no’, they demonstrated their ongoing willingness to give away their power to political leaders, representatives of the capitalist class.

Then, in November, alongside the reports of political recriminations and infighting, the media sought to bring a patriotic lump to our throats by reporting on an ‘art installation’ at the Tower of London.  The installation consisted of an assemblage of 888,246 ceramic poppies, each one representing a British military death in the ‘Great’ war.  (An insult, you might think, to those conscripts among the dead who objected to the slaughter). The unintended symbolism of the event went largely unremarked, but revealed the nationalist and militarist sentiments underpinning it – for the poppies, forming a blood-red sea of lost working-class lives, were set in the defensive moat of the Tower of London,  a building deliberately erected to represent the authority of the state in eleventh-century Britain and the power of the economic elites that controlled it. 

Millions of working people of many nationalities followed the orders of their political and military leaders and slaughtered  one another on the battlefields of WWI – the ‘business war’ as it was known. Yet it was also tens of thousands of working-class Germans in uniform that helped bring the slaughter to an end by their refusal to carry on the fight. We should also remember that had the fragile internationalism of working-class organisations before the war been more firmly cemented, their pledge not to fight one another might have withstood the onslaught of nationalism. War would then have been prevented and millions of lives spared. Our past failures as a class stand as lessons to us for the future.

We always have a choice: we can continue to place our power as a class into the hands of institutional leaders who use it to pursue the narrow interests of a capitalist elite, or, we can take responsibility for it collectively and democratically, use it to further our own majority interest and, in the process, act in the interests of all humanity.