Who’s afraid of the WTO? (2001)

From the December 2001 issue of the Socialist Standard

The World Trade Organisation represents the interests of the capitalist class and is a product of the lessons they have learned for protecting their system

The World Trade Organisation is not to blame. Capitalism is. Although the WTO has emblazoned itself in everyone’s consciousness as the unacceptable face of globalisation – indeed as the secretive cabal directing the insidious movements of world finance – what it really represents is a trend as old as capitalism itself, and the continuation of old policies under a new name.

Capitalists are not oblivious to their own interest in preventing their system crumbling. The WTO and its associated world infrastructure is directly related to lessons they have learnt throughout the history of wars and disasters that the market has inflicted on the human race in the past century.

In the 1930s, national governments relied on the free trade in gold to regulate the relative value of their currencies, and structure international transactions. Capitalism’s tendency towards disharmonious movement and uneven economic growth meant that gold tended to concentrate into the hands of a handful of states (America possessed up to 60 percent of the world’s monetary gold at one point), leaving others (such as Germany) desperately short of the means of international trade. This imbalance in trading power led directly to the conditions which prompted the second world war, and devastated almost the entire continent of Europe.

Determined to avoid this situation happening again, the dominant capitalist powers met after the war, to construct an effective international machinery to enable trade to progress between states smoothly. The Bretton-Woods agreement, as devised largely by J M Keynes, sought to regulate international capital movements.

Likewise, the International Monetary Fund and the World Bank were created to ensure nations avoided suffering the same bankruptcy as Germany effectively endured in the 1920s. It was envisaged that these institutions would be joined by an International Trade Organisation, to lay-down the rules by which trade would be governed. This institution was, however, vetoed by the US at the Havana conference in 1947.

Unworkable system 

What stood in place of the ITO was the General Agreement on Tariffs and Trade, which came into force in 1948, and was based on the unobjectionable sections of the Havana Charter. Over time, GATT proved to be unworkable, with inadequate enforcement procedures, unclear rules and the rigidities of consensual agreement systems.

Thus, at the Uruguay round of GATT negotiations which ended in 1993, the World Trade Organisation was agreed upon, as a “superior” successor. The Uruguay round significantly expanded the scope of the international agreement’s remits, bringing agriculture, services and intellectual property within its field of competence, as well as seriously reducing tariffs and other protective measures allowed. This lead to an almost immediate increase in the volume of international transactions: according to the Eurostat Yearbook 2000 external investment by European Union states increased by almost 500 percent from 1995 -1999.

This is simply part of an on-going trend within the development of the market system. As trade progresses, so too does standardisation of the rules and groundwork. In the early nineteenth century England, for example, a merchant would have had to know how to reconcile his Durham pecks with his Dorset grains and his Norfolk drams, when selling goods by weight. Likewise, each town would have its own time (relative to its distance in minutes from Greenwich). These times and weights formed the legal framework for trade in each of these districts, and formed a burdensome cost to any business trying to operate across them.

In time, the need to concentrate capital, and increase the area and scope of the circulation of commodities meant that such discrepancies between local authorities were overcome. Usually, this meant over-ruling them through the authority of the centralised state, and enforcing a uniform set of rules across the whole economic zone. This tendency for the concentration of capital continues, and the same problem manifests itself in differences of trade regulations between nation-states, although this time there is no central authority powerful enough to completely over-rule them and impose its standards.

The reasons for the increasing concentration of capital lie, essentially, in the methods by which labour is exploited by capital. When a commodity is produced the capitalist calculates its cost of production (the cost of goods that went into it, plus labour), and then adds a profit mark up roughly in line with the expected rate of profit of their rivals. This average rate of profit applies regardless of the amount of value added by the specific production process involved, but, rather, the total value added across the whole economy.

What this means is that industries which involve a large input by labour (i.e. which add a lot of value) lose out because the average profit mark-up is less than the value they add. This means that this added value is transferred into the profits of industries which are less labour intensive. It is, therefore a competitive advantage for capitalists to increase the ratio of productive capital to labour (known as the organic composition of capital). With this increase comes an extension of the productive capacity in an industry, with capacity being taken up by fewer and fewer production units.

Alongside this concentration of capital is the increase in the transportation capacity of society. Technological advances in transport continue apace with productive capacity, meaning that, in general, the circulation of commodities and trade can increase faster than the productivity of society (more goods to transport multiplied by a faster rate of moving them). This is born out by the chart below from the WTO

In each period the rate of increase in trade is greater than the rate of increase in output of merchandise. One of the most significant details, however, if the massive increase in trade in 1990-2000, in a period in which merchandise output actually fell compared to the previous period. The effects of the inauguration of the WTO can be seen in this increase. It is an increase in excess of the usual growth in trade, and thus represents an exceptional occurrence.

The motivation for this spurt in trade may well lie in the observable decline in productive output across the whole chart. The rate of output growth is under half that of 1963-1973. Capitalists, misled by theories which see value as being created rather than realised by trade, treat trade as a good in itself, and think that by increasing the circulation of goods they will be able to dig themselves out of the profitability hole indicated by the drop in output growth. Alongside this is the temptation to exploit the differences in national and regional rates of profit to try and realise an exceptionally high profit.

What this means is, effectively, that through increased trade capitalists are attempting to rip each other off, as a result of their incapacity to exploit the workers enough. Through increasing trade competition, they are effectively increasing the scramble for a share of the total global production of surplus value. This can also be seen in the increase in currency speculation and finance capital movements around the world. Since these forms of activities are entirely unproductive they represent a mere redistribution of booty among the thieves.

This tendency can also be observed in the decision to open up services to international competition. Although British ministers maintain fervently that this does not mean the WTO will force privatisations upon countries, the fact is that International Monetary Fund (IMF) structural adjustment programmes usually force countries to attempt to decrease the size of their state sector, paving the way for firms from advanced capitalist countries to take over these services and sweat profits out of the workers there. It represents another way of opening up otherwise marginalised sources of surplus value to be taken back to the industrialised core.

Backwardness 

Vast areas of the world, the “post-colonial” zones are still dedicated to low value yielding primary products such as mono-crop agriculture and mining. Most of the increased trade remains between the industrialised manufacturing centres. The top five exporting states (EU, US, Japan, Canada, China) represent 53.2 percent of the world export market (according to WTO figures), whereas the top four importers take a 54 percent share between each other. The EU and the US both import considerably more than they export, and represent a substantial lucrative market to access.

This imbalance of trade between the core and the periphery indicates the way in which the idea that opening up free trade will benefit poor nations and assist in their development is flawed. The sheer economic clout of the big capitalist states means they can bully and force other states into letting them have their way. As George Monbiot noted in his Guardian column (6 November) one WTO delegate from a poor state saying “If I speak out too strongly, the U.S. will phone my minister. They will twist the story and say that I am embarrassing the United States. My Government will not even ask, ‘What did he say?’ they would just send me a ticket tomorrow”.

Such raw power means that whatever formal equality of the rules, they will still be used to serve the ends of the dominant states. Each national capitalist class seeks to protect its position and its investments, and is exceedingly unwilling to relinquish control of the state force which props up its power. The dominant policy is currently to pursue mutual capital interpenetration, and thus prevent losing control of their national economy at home, whilst having sufficient hostage capital to deter expropriation abroad. Whilst the times are good this policy is tolerable, but come a time of crisis each group will seek to save their own skins first and foremost. Should America sink into deep recession, it may decide to put a stop to the raiders taking a share of its profits, and throw the barriers back up.

Certainly, so long as world society depends first and foremost upon competing capitalist groups vying for profits, it will be subject to the anarchy of capitalist self-interest, and any world body will be subordinated to the Machiavellian manoeuvrings of these groups. So long as capitalism remains any world body will be used as a potential tool for exploitation and robbery. The only genuine way to move forward to a world human community is by the abolition of sectional national élite interest, and the creation of a world human interest of common ownership of the worlds wealth, so that we can end the horrendous divisions the property system has created.

Pik Smeet

Tobin tax – what a joke (2001)

From the December 2001 issue of the Socialist Standard

The call for a Tobin tax – a tax on financial transactions – is not “anti-capitalist”, as some in the “anti-globalisation movement” seem to think

It is all very well being against something but if this is to be anything more than permanently protesting against some never-ending problem you’ve got to be for something too. Most of those who organise the “anti-capitalist” and “anti-globalisation” protest demonstrations don’t seem to have thought it through this far, and those that have show themselves not to be against capitalism. What they are against is what some of them call “neo-liberalism” – by which they mean the return of laissez-faire economic policies. What they are for is to go back to a more regulated capitalism. They merely want states to intervene to try to control capitalism, to make it more human, to suppress what they see as its worst excesses.

A case in point is the French-based organisation, with branches in many other countries, ATTAC whose vice-president is Susan George, author of such readable and informative books as How The Other Half Dies and A Fate Worse Than Debt. Their hobby horse is a call for the so-called “Tobin Tax”, as is reflected in their full name: “Association for a Tax on financial Transactions and for Aid to Citizens”.

James Tobin was (actually, he’s still alive) an American Keynesian economist who, after the 1944 Bretton Woods agreement on exchange rates collapsed in 1971 when America floated the dollar, proposed a tax on currency transactions as a way of reducing speculation. Here’s how he has recently described his proposal:

“This tax aimed to limit exchange rate fluctuations. The idea is simple: on each operation a minimum levy is made equivalent to, say, 0.5 percent of the transaction. Enough to put off speculators. For many investors place their money for very short periods in currencies. If this money is suddenly withdrawn from the market, countries have to raise their interest rates considerably so that their currencies remain attractive. But high interest rates are often catastrophic for the internal economy, as the crises which hit Mexico, South East Asia and Russia in the 1990s show. The Tobin tax would give back some margin for manoeuvre to the central banks of small countries to fight against the tyranny of financial markets” (interview with Der Spiegel, reproduced in Le Monde, 11 September 2001).

Tobin got the idea from Keynes who had suggested a national tax on internal financial speculation as one of his reforms to get out of the Great Depression of the 1930s. The idea was to encourage money-capital to be invested productively instead of being used for unproductive speculation. Tobin was given a Nobel Prize for Economics in 1981 (not that this is worth much in academic terms; it’s little more than a monetary prize), but no government took up his proposal. In fact, for it to work, all governments would have to take it up. That was why he suggested it should be paid to the World Bank or the IMF.

The Bretton Woods agreement had laid down fixed rates of exchange between currencies, in particular with the dollar which in turn was tied to a fixed amount of gold ($35 an ounce). Devaluations and revaluations were allowed; in fact that is what a “devaluation” was: a formal downward change in a currency’s fixed rate of exchange with other currencies. This system collapsed at the beginning of the 1970s when the Nixon administration announced that the US was no longer prepared to exchange gold at $35 an ounce. So began the present period of floating exchange rates.

Today, the rate of exchange of a state’s currency is determined by market forces: the demand for it in relation to the desire to sell it, which in turn depends essentially on a state’s balance of trade. The more it exports the higher will be the demand from foreigners to buy it (to pay for the exports) while the higher its imports the more will be the supply for sale as importers sell it for foreign currencies (to pay for the imports). This is not to say that states don’t try to maintain a more or less stable rate of exchange. They do, but their only weapons now are short-term interest rates or getting their central bank (and/or some other central bank or banks) to buy and sell their own currency. But these are not always that effective as was demonstrated by Britain’s ignominious exit from the European Exchange Rate Mechanism in 1992 under pressure from speculators led by George Soros.

The collapse of Bretton Woods coincided with the last years of the long post-war boom, and was in fact a sign that it was coming to an end. When the boom did end, or rather, fizzled out corporations found themselves with large “cash mountains” made up of money they would normally have re-invested but which they didn’t because it was no longer profitable to do so. This money thus became available for currency and other forms of financial speculation.

Essentially, speculation is the use of money-capital, not to invest in the production of new wealth and new surplus value, but unproductively to try and swindle other capitalists’ out of their past profits. It’s a zero-sum game in which the total amount of profits remains the same but merely gets redistributed differently amongst capitalists depending on their speculative skills.

The statistics show that most international monetary transactions are now of this nature. Production of course continues and has even been increasing slowly if in fits and starts, so some international transactions are linked to productive activity – transfer of capital to be invested in productive activity in some other country, payments for exports or imports, etc. But these are only a fraction of the total, estimated at less than 10 percent.

Just like Keynes in the 1930s on a national scale, some members of ATTAC today look at this internationally and conclude naively that, if somehow you could discourage speculation, the money tied up in it would then be reinvested in production instead, so reducing unemployment. But this is to get things the wrong way round; there is so much money available for speculation because there are not enough profitable investment outlets. Even if speculation was made less profitable by, for instance, the imposition of a Tobin Tax this would not increase productive investment. To do that you would have to increase the rate of profit or expand markets, but that’s not something that can be done by any tax.

The horse wouldn’t drink

What would happen would be the same as happened in Japan over interest rates. The government there thought that what has been discouraging investment was not low profit prospects but too high interest rates. So they reduced short-term interest rates to zero – but nothing happened. They learned the hard way that you can take a horse to water but you can’t make it drink. Japanese capitalists hadn’t been not investing because of high interest rates but because of low profit prospects. Similarly, capitalists have been speculating rather than investing productively, not because the gains to be had from speculation are too high but because the gains to be had from productive investment are too low.

Actually, ATTAC are not agreed on why they want to impose an international tax on currency transactions. Some want to do this to encourage productive investment and so employment (on the mistaken arguments above). Others want to use the revenue to help the so-called Third World; which, of course, assumes that speculation should continue as the cow to be milked for this purpose. Susan George has explained the arguments here:

“One of the aspects of this tax is to slow down speculation, i.e. making money with money without passing via an exchange of commodities. It could build up a mass of money to help essentially the citizens of the South since it is there that the needs are. At the moment, there is a debate within ATTAC about whether we want a high tax to stop speculation or, on the contrary, a less high one to restrain speculation while building up this financial aid to the citizen. Personally, I prefer the second option” (Le Soir, 24 September).

It is for this reason that you find different rates being mentioned in ATTAC literature from 0.01 percent to 0.1 percent to the 0.5 percent that Tobin himself suggested (but he wanted to stop speculation and was not particularly concerned how the money raised was used).

George’s preference for a low rate, to raise money to spend in the Third World, is in accordance with ATTAC’s main declared aim, but it involves calling people on to the streets not to denounce capitalist exploitation, but to demand a minimal tax on the financial transactions in which capitalists try to swindle each other out of the proceeds of their past exploitation of the working class. It really is one of the most pathetic reform proposals for which people have ever been called upon to demonstrate for. Of course, people are right to protest against the deal capitalism is meting out to the poor in the capitalistically-underdeveloped parts of the world, but the Tobin tax is not going to help them in the least, even if the political will and technical means to implement it could be found.

Tobin was – and still is – an unrepentant Keynesian. Despite the fact that the main result of implementing Keynesian policies was a 30-40 year period of permanent inflation, Susan George and ATTAC are essentially “global Keynesians”, people who want to apply on a global scale Keynes’s ideas on how to make capitalism work better. George in fact has openly called for the adoption of Keynesian policies. As she put it in the Le Soir interview we have already quoted:

“Our leaders must be more serious and move towards Keynesian solutions, as was the case after the Second World War. We need a Marshall Plan for the environment, for reducing inequalities in the world and particularly in the South”.

And

“We don’t expect le grand soir [a derogatory French term meaning “the Revolution”], but a more democratic type of economy. The market will have its place, but not all the place”.

What ATTAC, and their equivalents in this country, the campaigning non-governmental organisations (NGOs) such as Oxfam, the World Development Movement, Christian Aid, etc (not that some of them are all that “non-governmental”, given the grants they get from the state), want is to retain the world market economy but to try to control it for the benefit of humanity, to humanise it. Their hearts may be in the right place but this is to display an incredible lack of vision as well as an appalling ignorance of the way capitalism works, and has to work.

Capitalism operates according to the rules of “no profit, no production” and “can’t pay, can’t have” and, as the world market system, is what is responsible for the desperate plight of most of the world’s population. Before anything lasting and constructive can be done about this, capitalism has to go. The productive resources of the Earth have to become the common heritage of all humanity, so that production can be directed to meeting people’s needs – all people’s needs – instead of to making profits.

Adam Buick

Globalisation – what does it mean? (2006)

From the August 2006 issue of the Socialist Standard

We begin a two-part article on the continuing surge in capitalist globalisation. This month we deal with the globalisation of capital.

Following the downfall of state capitalism in Eastern Europe the idea of one global market soon found common cause in neo-conservative and neo-liberal circles. Indeed, for these ideologists of capitalism the world market  only became truly global once the former state capitalist regimes threw open their doors to private finance and capital investment from the G7 nations. Obviously, for such thinking to take hold it had to ignore a multitude of historical facts concerning the economic development of capitalism and its eventual transformation into a world system.

In 1865, for example the first global regulatory agency was formed with the creation of the International Telegraph Union, along with the first global medical resource, which we know as the Red Cross. Also, if globalisation only took place when the G7 nations became G8 (with Russia joining) then the new ‘thinkers’ need to explain how two wars commonly referred to as world wars were fought over who was to dominate access to global raw materials and a market that was already global. Another historical fact that is largely ignored is that despite supposed ideological differences the trade between the state capitalist regimes and the rest of the world increased throughout the Cold War.

This is how the economist Keynes confirmed – rather belatedly – in the aftermath of World War One, the process of globalisation that had gone on until then: 

“What an extraordinary episode in the economic progress of man that age which came to end in August 1914! . . .  The inhabitant of London could order by telephone, sipping his morning tea in bed, the various products of the whole earth, in such quantity as he might see fit, and reasonably expect their early delivery upon his doorstep; he could at the same moment and by the same means adventure his wealth in the natural sources and new enterprises of any quarter of the world, and share, without exertion or even trouble, in their prospective fruits and advantages; or he could decide to couple the security of his fortunes with the good faith of the townspeople of any substantial municipality in any continent that fancy or information might recommend.” (The Economic Consequences of the Peace, 1919)

Coming from Keynes it would be rather naive to expect him to describe the wave of globalisation that had taken place around the turn of the twentieth century in terms other than pro-capitalist ones. For unlike Marx, who saw the main instrument for social change originating with the class conscious workers, Keynes was convinced throughout his life that the capitalist class held the centre stage, albeit with the need of some interventionist help from the state.

Marx had also predicted the potential for capitalism to become a global system, with its attendant economic, political and social consequences, when he and Engels drew up the Communist Manifesto in 1848. And he confirmed, far earlier than anyone else, the trend for capitalism to evolve towards economic interdependency and globalisation when Das Capital was published in 1867.

Spoils of war

The arguments over the benefits of ‘protectionism’ versus free trade that existed during the nineteenth century, and then in the periods just before and then after the First World War, were never entirely resolved within the capitalist class one way or another. Fierce arguments raged with various policy initiatives and reversals, though for most of the dominant states of the time (such as Britain) what passed for ‘free trade’ gained something of an ascendancy by stealth.

But in terms of the globalisation of the system, the most crucial event took place rather later, towards the end of another war caused by competition over economic power and military interests — World War Two. Significantly, in the summer of 1944 at Bretton Woods, New Hampshire the gangster representatives of 44 countries held a meeting to hammer out a deal on global trade and sharing the spoils of (the latest) war. This included the creation of the World Bank and the IMF and the initial setting up of a General Agreement on Tariffs and Trade (GATT),with the latter coming into force in 1948.

Although these new institutions eased the existing rules on tariffs and the movement of currency, by seeking common ground on exports and imports and Foreign Direct Investment (FDI), they had no powers to control new forms of protectionism that had been instigated by the major powers in order to maintain their market share and economic dominance. And this was reflected in what happened shortly after the Second World War ended, when the US introduced the Marshall Plan in 1949 involving $13.5 billion of loans by the US government to near-bankrupt European economies. All told $90 billion was steered towards 16 countries that agreed to move towards currency convertibility, lowered trade tariffs, who promoted exports to the US and who were ‘tough on communism’. This not only meant that the US export market was protected in Western Europe but was also, in retrospect the first economic warning shots in the start of the Cold War.

Cold War Economics

The Cold War itself proved to be a nice little earner for those countries in the “developing” world who allied themselves to either East or West, with most of the proceeds ending up in arms deals or directly into the pockets of corrupt politicians and bureaucrats. Not that this bothered the developed countries, for during this period of Cold War economics many developing and undeveloped countries found themselves accepting loan agreements whether they wanted them or not – and with very favourable terms of borrowing at very low rates of interest, plus longterm payback dates. They seemed at the time to have little to lose by becoming debtor nations. As for the creditor nations, both East and West, their aim during the cold war was to increase their hegemony and market share by making the client debtor nations militarily and financially dependent on them as creditor states and to gain the upper hand over their competitors.

The loans themselves came from a variety of sources: manufacturing and financial businesses, banks, donor states, the IMF and the World Bank being the main lenders. Much of this money was lent under a ‘no risk’ guarantee covered by Export Credit Agreements (ECA), where individual donor states with their export agencies would underwrite the loans through aid contracts — specifying that the capital investment could only be spent through named companies established in the donor state.

For instance, the Nigerian government could have decided to build a university, and could approach a donor state like the UK to finance the project, both seeking agreement as to the profitability of the aid. The UK government would then stipulate that the university could to be built by a UK developer and equipped by British manufacturers and key posts staffed with British-trained personnel. Should the Nigerian government default on their repayments of the loan what would usually happen is that the UK would agree to pay off the loan under ECA if the Nigerian government issued a bond tied to a percentage of Nigerian oil exports in order to cover the amount owed. This would ensure the capital invested stayed in circulation via petrodollars, despite the losses incurred. Obviously, deals like this could only continue whilst there was sufficient confidence in the strength of the US-driven Western economies.

Crisis of Over-Accumulation

During the early 1970s this changed dramatically when loss of confidence over escalating costs of the Vietnam War became evident with many countries selling off their dollar reserves in favour of gold. Unable to withstand this pressure the US came off the Gold Standard in 1971 and allowed the fixed exchange rate system that was pegged to the dollar to collapse. The price of gold increased and there followed a period of financial instability which, in essence, reflected the return of economic crisis in the sphere of production, with economic downturns in major western economies and growing unemployment. It was at this time that the main oil-producing cartel dominated by capitalists in the Middle East (OPEC) decided to quadruple their oil prices. These events eventually flooded the North American and European financial markets with vast amounts of accumulated petrodollars searching for profitable investment that was difficult to find in the more ‘traditional markets’ of the post-war period. Due to the European Economic Community (EEC) at the time being insufficiently organised or integrated to attract the massive amounts of capital in the OPEC countries, some of it filtered towards the Pacific Rim, commonly referred to as the ‘Asian Tigers’.

With the exception of the Multi-fibre Agreement drawn up by GATT, much of this investment for Asia hit a variety of protectionist barriers on the export of capital. Although GATT tried to get around monetary restrictions with the introduction of the SWIFT system for electronic interbank fund transfers worldwide and other measures, the pressure for change in currency regulations intensified throughout the 1980s as capitalism’s trade cycle returned with a vengeance with plummeting production and soaring unemployment.

Out of this emerged what came to be called the ‘Washington Consensus’ instigated by the neo-liberals within the US Treasury, IMF and World Bank who advocated a programme to free up capital assets by: privatising state owned monopolies; reducing personal and business taxation; deregulating financial institutions; removing restrictions on FDI; and reducing public spending, particularly on welfare benefits. Urged on by the collapse of the state capitalist regimes who could not compete economically or militarily any longer with the dominant Western economies, the pressure continued to intensify for deregulation of currency movement and the abandonment of GATT, and its replacement by the World Trade Organisation. This eventually took place in 1995 and under it trade and the movement of currency and capital assets has had a much more straightforward path to profitable markets.

Deregulation of currency movement and the removal of restrictions on FDI, however, proved to be just too late for the developing countries on the Pacific Rim. By 1997 these countries had found their credit was severely overextended, delivering a lower rate of profit than predicted by the pundits and speculators of the financial institutions. The unintended consequence of the crisis in South East Asia was the acceleration of the movement of currency into other areas still — like China and India — where there were better prospects of profits.

This is the nature of capitalism for the accumulation of capital is dependent on economic growth, regardless of the risk attached, and is essential to the workings of a system that puts competition and the pursuit of profit, at each link in the chain — from production to distribution and eventual sale to the consumer — above all else.

Risks

With the velocity facilitated by the internet, clearly the overall economic trend is towards short-term profits through FDI, currency speculation and by squeezing market share of competitors, particularly in manufacturing and services. But that does not mean that the developed countries are solely concentrating their investments in the developing countries — far from it. The greater volume of trade and investment is still between the G8 countries themselves who, forced by global market conditions, have taken into account the relative economic, political and social stability of the developed world, compared to what they would sometimes gain from relatively precarious investment in any of the developing, or even undeveloped countries.

Generally, what is most noticeable about this economic activity is that all the developing countries targeted by the World Bank, IMF and the WTO were selected because they have access to sufficient energy and water supplies to sustain a short-term industrialisation programme, rather than sustained long-term growth. For example, China is scouring the world for all the uranium ore available and every drop of oil necessary to accomplish its aim of overtaking Japan and becoming the main industrial nation in South East Asia and second to the US globally. And China is currently finding it very difficult to meet the increased demand for electricity and for bottled and industrial water, and consequently using 47 percent of the world’s cement to complete the damming of the Yangzi, and meet their targets on urbanisation and industrial capacity. In effect the Chinese have soon come to realise that without sufficient energy and water their plans for long-term growth are unachievable. Although this economic targeting over energy and water resources is undoubtedly a high-risk strategy, and has all the potential for military conflicts over essential resources, it is one explanation why the emphasis is on short-term profit and speculation.

What is also apparent is that the freeing up of the movement on capital has not entirely been accompanied by a corresponding deregulation in the movement of labour. Indeed, the restrictions on immigration have been tightened in some cases, and strictly enforced by some countries to hold back the flood of economic, and mostly illegal, immigrants chasing the movement of capital in the developed and developing countries. These phenomena have led to the growth in human trafficking — and the casualties are being found suffocated in the back of lorries at Dover harbour, or drowned on a beach in Morecambe Bay or even crushed by a train in the Eurotunnel.

There are also other risks associated with the pursuit of industrial growth in the developing world, the most obvious one being the spread of AIDS, particularly in Africa where it has been helped along by a tenfold increase in the transportation of commodities. And then there’s the risk that the increase in global pollution and the onset of global warming will put severe pressure on the relocation of coastal communities.

A less immediately obvious risk is of an increase in capitalist industrial growth in some countries facilitating and encouraging the manufacture of weapons of mass destruction and their eventual use in competitive power struggles between states. These and other risk factors can only accelerate as the demands for more energy and water increase in line with industrial growth.

The reasons why these patterns of risky economic activity are so pronounced are many and varied, but all are nonetheless based on capitalism’s inherent competitive drive to maximise profits regardless of the consequences. The actual growth in economic development in parts of the developing world attracting investment has been on a tremendous scale with developing countries like Brazil, China and India sucking in vast amounts of capital to increase their infrastructure and manufacturing base. In particular the annual percentage increase in GDP for China (9.8) and India (8.1) illustrates how these economies are being dramatically reshaped in the interests of capitalism.

Brian Johnson

Next month: the impact that the continuing surge in globalisation is having on people in the developing and undeveloped countries.

Victory for what? (1985)

From the May 1985 issue of the Socialist Standard

  It is now fairly commonplace to read that the First World War was a useless massacre in which millions died for nothing. This is much less commonly admitted in the case of the Second World War, perhaps because the war time propaganda which billed it as a "war to defend democracy" has not yet worn off. Yet the Second World War was just as much a business war as the First World War. in that its primary cause too is to be sought in a clash of economic interest over markets, raw materials, trade routes and investment outlets between two rival blocs of imperialist powers.

  This was well brought out in a carefully-researched book written in France during the war, but not published until 1945. by Henri Claude entitled De la crise économique à la guerre mondiale (From the Economic Crisis to the World War) After showing how the 1930s crisis had led to the division of capitalist countries into two groups pursuing different economic and trading policies ("liberalism" and "autarky") depending on whether or not they had access to gold (as a means of international payment) and raw materials. Claude goes on:

The economic crisis thus led to an opposition between two antagonistic forms of capitalism: liberal capitalism and authoritarian capitalism. This antagonism has been too often seen as "ideological" for us not to show that in reality it was solely a conflict of material interests.

What, in fact, was the real meaning of this world liberalism?

It had a very precise meaning at the beginning of the industrial era when England began to export its manufactured products. As England was at this time the only industrial nation all that was required for it to find external outlets was that no customs barrier should "artificially" stop at frontiers its products whose costs of production were lower than those of the rest of the world. Originally liberalism meant, crudely: "The world for English products". "Economic liberalism" thus expressed perfectly the interest of British industry. Later, when England was forced to struggle against the industries which came into being nearly everywhere, it partly gave up this "liberalism", but did not however cease to demand its application by the others; for the fate of its industry, trade and banks depended on the freedom which the other nations granted it. The wealth of the City remained linked to the free play of supply and demand, to the open market, to world trade. Everything that restricted the freedom of exports and the commercial and financial operations of the City caused it a serious prejudice. The policy of autarky which banned its commercial and financial expansion into certain zones and which fixed prices without paying attention to “world” prices was thus its most redoubtable enemy.

What would become of the London market if the appetite for autarky was to gobble up the major part of the planet? Thus one of the members of the Stock Exchange. Mr Maguire, rightly insisted, in a speech at the Bankers’ Institute, on the necessity, for England's interests, of maintaining as far as possible the freedom of the market in other countries. "The whole history of the Stock Exchange", he declared, “is tied to the principle of the maintenance of the free and open market where the law of supply and demand operates without hindrance".

The United States also felt the same need for liberalism amongst others. The mass production of manufactured goods and the extremely developed industrialisation of its agriculture allowed it to beat all its competitors on the world market, provided that this market was free. It therefore considered all measures of economic nationalism taken by the other nations, and in particular autarkic measures, as an obstacle which hindered it from selling to the extent of its productive capacity and of its low production costs. "Freedom of trade", President Roosevelt was to say. "is essential to our economic life. With the victory of totalitarian conceptions the system on which American society is based would be compromised" (speech of 28 May 1941, Le Temps, 29 May 1941). This did not prevent it practising a rigorous protectionist policy to defend its own market, but “this contradiction" in no way goes against the logic of imperialism which seeks to push aside all that obstructs it externally, without ever making any self-criticism.

Neither could the US accept the system of bi-lateral agreements for, unlike Germany, it was an exporter of both raw materials and manufactured products, which ruled out it concluding compensation agreements with the agricultural countries. It had to be able to sell manufactured goods to the agricultural countries and agricultural products to the industrial countries. It is thus that is to be explained the policy of Cordell Hull (US Secretary of State) in favour of commercial treaties signed on the basis of "economic liberalism" and of what is called "the most favoured nation clause", a policy which was the exact opposite of Germany’s and which openly worked against it. In fact the American leaders did not fail to underline the opposition and permanent conflict between their commercial methods and interests and those of Germany. In January 1939 Mr Landon. former Republican presidential candidate, noted that an intense struggle "to the death" was going on between the democracies and the totalitarian countries. "It is", he said, "an economic war based on new methods of economic penetration" (Information, 24 January 1939). On 10 April 1939 a Havas News agency wire from Washington was even more explicit:

  The disastrous economic and social consequences of the extension of the zone of influence of autarkic commercial methods are insisted upon here. According to the White House and the State Department, the whole world is rapidly heading towards a conflict between two irreconcilable economic systems. In presenting the problem from its economic angle, the White House spokesmen wish to make American public opinion aware that the menace, pointed out many times by Mr Roosevelt and again on Saturday evening by Mr Cordell Hull, is ceasing to be remote and that the time could rapidly come when the whole economic and social system of the United States would be endangered

England and the United States thus temporarily had the same industrial, commercial and financial interest to fight autarkic imperialism.

All the other countries whose financial power was based on gold necessarily found themselves on the same side of the barricade. Common financial interests were the real cement that bound the democracies together and not. as some would have us believe, the fact that they had the same political regimes.

Statements by statesmen and economists on the "war aims" of the Allies afterwards provided a brilliant proof of this. The British Prime Minister, Chamberlain, declared at the beginning of the hostilities in a speech on the economic reconstruction of the world after the war that full freedom of trade must be restored and that autarky and the methods arising from it must disappear from old Europe. A few hours after this speech. Mr Cordell Hull declared on behalf of America that he was in full agreement with Mr Chamberlain (L'Oeuvre, 2 February 1940). Commenting on this speech the Tribune de Lausanne wrote: "One can thus reasonably hope that autarky, which is an instrument of combat, will be cast aside along with the canons, the tanks and the machine-guns when the war economy gives way to the peace economy” (quoted in Le Temps, 4 February 1940). At the same moment, Paul Reynaud (French Prime Minister) declared at the opening session of the Société d'Economie Politique that the ultimate war aim of France and Great Britain was a return to liberalism, particularly economic liberalism (Le Temps, 7 February 1940).

The great financial expert. Mr T. Jenny, wrote a few days later:

   In practice only one thing could threaten — temporarily — the value of gold. That would be a development leading all countries to retreat behind insurmountable barriers, reducing exchanges between nations to the rudimentary system of barter, where there would no longer be any need for an international means of payment because there would no longer be international payments properly so-called. But are not the Allies fighting precisely to spare the world this return to barbarism, to allow peaceful exchanges between the various countries to resume their growth tomorrow? (Le Temps, 12 February 1940).

  If France and England were thus making war to maintain their financial power, it is quite obvious that the United States, whose stock of gold had been increasing unceasingly since the outbreak of the war, would be led to line up beside them. Commenting on the growth of this stock of gold in May 1940 the New York Times wrote: "Many American bankers and economists have already announced that this enormous metal holding will become useless if the totalitarian dictators are victorious" (quoted in Le Petit Purisien, 24 May 1940).

During the war the financial and price stabilisation methods, similar to the totalitarian ones, proposed by the economist Keynes and Major Attlee were rejected as "contrary to the very principles for which the Allies are fighting" (statement by Sir Robert Kinderley. Governor of the Bank of England, Le Temps, 15 January 1940) and as "not only alienating from the war those who were supporting His Majesty's Government by their loyal effort" but also as "tending to exclude any possibility of US intervention" (statement by the Chancellor of the Exchequer. Sir J. Simon. 25 August 1940).

The nature of the links which united the Western democracies against the totalitarian States can thus be clearly seen.

On the other hand, Germany, Italy and Japan were in the same camp because these countries found themselves facing the same economic obstacles. The creation of the Asiatic Bloc and of the European Autarkic Bloc had the same irreductable opponents: England and the United States.

Also, Germany, Japan and Italy were linked by common methods. The mark, the yen and the lira had the same common enemy in currencies based on gold and not subject to exchange control. Germany, Italy and Japan had the same commercial and financial interest to reduce, by extending the autarkic areas, the zones where the pound and the dollar reigned; for the capital which had accumulated in the hands of German. Italian and Japanese industrialists from public works, rearmament and the production of substitutes had no value and could only be invested within the limits of the autarkic areas. Hence the necessity for capital called "national" to extend the space where it kept its value to the detriment, evidently, of capital called "international", i.e.. foreign capital based on currencies and gold.

The capitalist world thus found itself divided into two blocs whose commercial and financial interests and whose methods of expansion were constantly coming into opposition on the world's markets. As a report by the Economic Committee of the League of Nations noted in 1938:

  Efforts to penetrate export markets have contributed to accentuating the contrast between the commercial system based on a free currency and the commercial system based on a controlled currency By the former is to be understood the system in which the money received in payment for exports can be freely employed and in particular can be used for purchases in third countries. By the second, on the other hand, is to be understood the system in which the foreign currencies received by traders are blocked and can only be employed for purchases in the countries to which the exports went. The Committee is of the view that everything should be done to reduce the clashes between the countries with a free currency and those with a managed economy.

It is this split in the capitalist world, this antagonism between forms of expansion, methods of financing and monetary conceptions which, superimposed on the classic struggle for markets, distinguishes the Second from the First World War.

In 1914 German capitalism and English capitalism were not only of the same rank and nature; they wore the same clothes. Mr Bethman-Holweg dressed the same way as Lord Grey.

But while in 1938 Mr Eden's elegance was still very 1900ish, German imperialism wore a brown shirt and boots. This difference in dress revealed the break in the unity of the capitalist world brought about by the economic crisis of 1929. While the Second World War was, like the First, a consequence of the necessity for capitalism in general to find "external" markets and for each imperialism in particular to expand at the expense of its competitors, this fundamental struggle was doubled this time by secondary conflicts which gave to this war a particular face and features: struggles of gold against barter, of secured currencies against controlled currencies, of the free market against autarky, of "international" finance capital against "national" capital, the antagonism was everywhere, in the expansionism as well as in the forms of expansion.

The essence of the conflict was thus economic, and nothing but economic. It did not result at all from the difference of political institutions, any more than the alliances resulted from the similarity of regimes.

#    #    #    #

  It only remains to add that, although the Allies' original "war aim" of restoring economic liberalism on the world market ceased to be so frankly proclaimed as the war dragged on as it had been by the British and French Prime Ministers in 1940 (after all, restoring world economic arrangements which benefited the capitalists of the Allied powers was hardly an issue on which to appeal to people to kill and get killed), it nevertheless remained the Allies' over-riding reason for wishing to see the defeat of Germany and Japan. Plans for the post-war reconstruction of liberal capitalist trading and financial arrangements were discussed from as early as 1941, even if out of the limelight. These discussions culminated in a Conference held in Bretton Woods, in New Hampshire. in July 1944 at which the IMF and the World Bank were set up as the main institutions of a post-war liberal international payments system to be based on currencies tied to gold at a fixed rate. The outlawing of the "autarkic" trading practices of pre-war German and Japanese imperialisms was confirmed in 1947 with the drawing up of the General Agreement on Tariffs and Trade (GATT).

  Thus was ensured the continued domination of the world by the capitalist powers which benefited from liberal world economic arrangements, and in particular American imperialism. However, in allying themselves with a power which practised the same economic and political methods as the German and Japanese enemy, American, British and French imperialism conjured up another challenger to their domination of the world: state capitalist Russia, which obtained as its war prize an Empire in Eastern Europe. So the struggle for world domination between "the old and fatter bandits". and their younger and more vigorous rivals continued as it will for as long as capitalism is allowed to last.

Highway-One Revisited (1994)

From the October 1994 issue of the Socialist Standard

Meanwhile in neighbouring Vietnam, the state bureaucracy is also well down the road to quietly burying the experiment of “Socialism in One Country". Seventy-five international construction companies arc now bidding for $317 millions-worth of contracts to rebuild Highway One. This road, which links Hanoi in the north with Ho Chi Minh City (ex-Saigon) is a key symbol of the war fought to rid Vietnam forever of American "Imperialism”.

Among the key bidders are US corporations anxious to repair the potholes and craters gouged by their own bombs and mines — and close on their heels the South Koreans, key supporters of the US’s Vietnam war effort. Even the Chinese are having a go, reckoning that this is one area where their technology can compete with the ex-imperialist enemy.

The renewed interest in Vietnam follows its full rehabilitation into the international capitalist system, capped with renewed access to International Monetary Fund and other multilateral agency loans. Naturally there are no humanitarian motives behind this. The flow of international capital into developing economies, set up by the Bretton Woods regime after the last world war, was designed to keep depression at bay in the West by allowing developing countries credit to buy excess production from Western corporations.

In the case of Highway One, international construction companies are now confident that with IMF and World Bank loans pump-priming the Vietnamese economy, traffic volumes will increase sufficiently to yield an acceptable profit from tolls.

And as in China, there are richer pickings to come. The World Bank estimates that Vietnam will need $7 to $10 billion by the year 2000 for infrastructure repair, with at least $2.2 billion allocated to transport.

Andy Thomas

On Third World debt (1988)

From the December 1988 issue of the Socialist Standard

At the Economic Summit held in Toronto in June this year, the seven leaders agreed, in principle, measures to ease the debt problems of the poorest countries in sub-Saharan Africa. Africa is mainly dependent on raw materials for its trading income, but because of the state of the world economy, and the introduction of substitute materials, the demand for Africa’s staple products has dropped, so that a typical 'basket' of exports buys nearly one third less imports than ten years ago. Debt service obligations for countries like Mozambique. Sudan and Somalia now pre-empt the whole of their export income.

The measures eventually worked out by the Paris Club, from the "menu of options" (sic) agreed at the Summit, will do little to relieve the conditions of the poor in those countries. The lucky beneficiaries of debt relief must first be undertaking internationally approved "adjustment" programmes. This means conditions laid down by the International Monetary Fund (IMF). The aim of such conditions is to increase exports, and those most frequently imposed are devaluation of the currency, drastic reduction of government expenditure, price increases, wage cuts, and the reduction of domestic consumption. When added to the difficulties arising from the dependance on particular products, the concentration on growing cash crops, "unfair" competition and falling world prices, these policies spell disaster for people whose incomes are precarious at the best of times. Over forty countries are under IMF "guidance", while others practice Fund doctrine without formal agreement, in order to obtain loans from other sources.

Formed at the Bretton Woods Conference in 1944, the IMF is a financial institution, primarily concerned with promoting trade, which only slowly became involved in developing countries. It is governed by the Group of Ten leading members, and voting rights are related to the quotes put in by each member country, although the US has what amounts to veto power on important issues.

Although the deprivation endured by mill ions in Third world countries has intensified, their poverty did not begin with the debt crisis. It is a capitalist world. Every country is run in the interest of its owning class, following the dictates of a system geared to sale and profit. The Third World (or "The South' or "less developed countries") accounts for three-quarters of the world's population, and includes countries at widely differing stages of development. Most of the high interest debt has been incurred by the better-off developing countries, while the countries needing most help to "develop" are the least attractive from an investment/profit point of view. There has not been the same incentive to push loans to them. Sub-Saharan Africa accounts for less than 9 per cent of total Third World borrowing. In A Fate Worse Than Debt Susan George details the background, and the many implications, of debt for the less developed countries. She describes the dire consequences of IMF adjustment programmes for the poor — who do not benefit from the loans; how repressive ruling elites are assisted by IMF loans; how billions of dollars have been "squandered on current consumption or spent on sterile pursuits or has ended up Northern banks" (p59); and the way in which huge foreign loans have contributed to "environmental plunder, widespread impoverishment and ethnocide" (p161).

The International Bank of Reconstruction and Development, known as the World Bank, was also founded at Bretton Woods. The 134 member countries have to be members of the IMF. and subscriptions and voting power are on the same basis. The projects financed by the World Bank are supposed to follow guidelines with regard to migration, minorities and the environment. These guidelines have been flouted by internal migration programmes in Indonesia and Brazil. The Grande Carajas iron ore project in Brazil is receiving major funding from the World Bank, Carajas, the "several billion tons of iron and half a dozen other mineral-ore deposits", has been described by the Brazilian government as a "national export project", and as an answer to the country's crippling debt problem. It will cost $62 billion (with an EEC contribution of $600 million) and will mean an area the size of France and Britain together, being partially or totally deforested. To hasten the completion of the Tucurui Dam. forest was not cleared but sprayed instead with the defoliant Dioxin — agent orange. Landless peasants are sent to the deforested areas, where the soil is unsuitable for cropping. to grow soybeans — a major cash crop — for the foreign exchange needed to help pay between $12 and $14 billion in interest on loans each year. The price of soybeans is depressed because of “overproduction" in the US (the effect of the current drought in US remains to be seen), so more must be grown “to keep the revenues stable". However the motivation for extracting mineral wealth, and for the drive to export, is the pursuit of profit — regardless of the debt problem

Servicing the debt is seen as a major obstacle to development, with development itself adding to the debt burden. Under the influence of foreign experts, the western industrialised model has been followed in Third World countries regardless of whether it was appropriate, and the costly capital goods and energy requirement have been financed by borrowing. Some highly inappropriate and expensive projects have been debt financed. In the Philippines a nuclear power plant was sited in a zone of high seismic activity — it is not being made operational. Possibly up to $40 billion of Brazil’s debt is due to the purchase of nuclear reactors (also non-operational to date). Twenty per cent of Third World debt is down to military spending.

Over a quarter of the debt accumulated by the totality of Third World countries is accounted for by the increase in oil prices following the oil and energy crisis of 1973/4 and 1979/80. When the Reagan administration refused more resources to the IMF bank, lending, which had already expanded, was increased to the most heavily indebted countries. In the four years to the end of 1982 the amount loaned by US banks grew from $110 billion to $450 billion. The banks eagerly sold money to Third World countries, including those with oil (Mexico borrowed heavily to develop the oil industry), ignoring the usual constraints and safeguards. There was pressure to serve the interests of their domestic clients. Bank loans enabled countries to purchase the products of US and European corporations like Boeing and Westinghouse. Some of the money borrowed is invested outside of the debtor country. Banks accommodate this capital flight which accounts for billions of dollars in debt — possibly 70 per cent of the new loans to the big ten Latin American countries between 1983 and 1985. Money from corrupt government officials, or national companies whose government has guaranteed the debt, goes straight back to the banks — some of it actually carried back in suitcases taken there empty for this purpose — but has still been added to the burden of debt. Multinational corporations have taken over the role of direct investment. Apparently the banks do not consider development to be any of their business Bank strategy, based on the assumption that countries could not cease to exist, was (is) simply to make money. Even the debt crisis was looked on as "a true windfall" with Brazil, for example, paying back $69 billion in interest between 1979 and 1985. However, global recession brought home to the banks their over-exposure. Clearly countries could have repayment problems, with further borrowing as the only way to service their debts.

Borrowing and lending are normal commercial and banking practices, and the usual answer when countries get into repayment difficulties is to reschedule the debt. There were 144 reschedulings of official debt alone in the ten years to 1985. Default is not in the interest of either side. All of the indebted Latin American countries defaulted in the 1920s and 1930s when most of their debts were in the form of government bonds held by individual investors. Today the situation is different. In 1982 Mexico came close to default when holding $80 billion of debt. The nine largest US banks had 44 per cent of the capital tied up in loans there. A deal was eventually agreed between assorted representatives from US government Departments and Agencies — including the White House, "top brass" from the commercial banks with their lawyers, the Mexican team led by their Finance Minister, and with the involvement of the IMF. The banks were saved from having their stock plummet, an international financial crisis was averted — and Mexico got $8.3 billion in fresh money. Dividends declared by the big nine banks increased by more than a third between 1982 and 1985. (the fate of more than 400 smaller banks was rather different.) A country which defaulted would have considerable difficulty getting new loans. When Argentina showed signs of stopping interest payments in 1984. coercion was applied by US bankers, and representatives from the IMF, commercial banks and officials from major industrial countries. The US Treasury compiled a list of items likely to become "scarce" — and raised questions of what would happen to a President of a country if, for example, "the government couldn’t get insulin for its diabetics? (George. p68).

Third World countries are expected to solve their problems by exporting, but their exports have to compete in world markets. They also provide markets for creditor countries. The Brazilian computer industry became so successful that in 1985 it managed to outsell the transnational competition, which brought threats of "trade reprisals" from the US if local (Brazilian) demand continued to be satisfied at the expense of IBM. Ironically IMF imposed conditions mean fewer imports. US exports to Latin America fell by 42 per cent between 1982 and 1984. and hundreds of thousands of US workers lost their jobs. The annual report of the United Nations Conference on Trade and Development (UNCTAD) calls for the writing off of at least $90 billion of Third World bank debts, and says that, if combined with the $5 billion of debt relief for sub-Saharan African countries, debtor countries could increase their "net demand for imports by $18 billion each year". A third of this would come from the US “helping its trade get out of the red" (The Guardian, 2 September 1988). The report also argues that debt relief on this scale (30 per cent of the $300 billion owed to banks by the 15 worst afflicted countries) would enable Third World economies to grow faster, and boost the world economy.

Since the Mexican rescue the banks have made their own provision against the effects of possible bad debts, by adding to their reserves. (Some debts have been sold at a discount, and some "debt for equity" swaps have also been made.) Together with the IMF. they are opposed to the UNCTAD proposal, preferring the present strategy whereby each near-defaulting country is dealt with "case by case".

Whatever deals over debt relief are agreed in order to facilitate trade, they will not end Third World poverty — that is not their purpose.

Pat Deutz

Sick society (1999)

Book Review from the July 1999 issue of the Socialist Standard

The Cancer Stage of Capitalism by John McMurty, Pluto Press, 1999.

In the UK, one in three people will suffer from some form of it. At most about 5 to 10 percent of cases are caused by defective genes, the rest have their cause not just in the natural environment but—as oncologists are increasingly becoming aware—the social environment. (How long before the Chief Medical Officer issues the health warning: “Capitalism seriously damages health”?) McMurty takes the argument much further and identifies the causes of the world’s social problems in the global market, which in the last 30 years or so has developed a cancerous state. He argues that the global market is “a profound perversion” of the market, “much as a diseased cell formation is a perversion of a healthy cell formation, but succeeds in invading its host by masking its nature as the normal ‘self’ of the body”. Money no longer has a direct relation to wealth creation. Within the global market transnational corporations in particular make money out of money. Corporations “create credit and thus increase domestic money supply with no restriction on the amount of new currency demand so created in the host economy”. This is the carcinogenic disorder within the global market.

McMurty claims that the global market and the new role of money is a development that Marx did not foresee, and that “the gold standard, and therefore the dead-labour basis of money value which Marx supposed as money’s stable yardstick, was eliminated in 1974”. However, Marx’s theory of money, which explained the prices of commodities by the value of gold using a fully convertible currency, is not the same thing as the Bretton Woods gold standard which McMurty refers to, which was concerned mainly with international exchange rates between currencies. If McMurty were correct in his claim that transnational corporations make money out of money, mainly through the creation of credit, then this would be incredibly inflationary. In fact, in recent years in the UK and US and a number of other countries, inflation has declined while globalisation has continued apace. Furthermore, no corporation would go bust in this scenario. If in difficulty, corporations would merely pull themselves up by their own bootstraps by “creating money”. McMurty’s grasp of what constitutes capital is decidedly shaky: “wealth that can be used to produce more wealth”. In which case your garden spade and many other inanimate objects become capital. It would have made more sense if he had added: “for sale with a view to profit”. But then this would have altered his argument about the dynamics of capitalism and this would have been a very different book.

Is the prognosis for capitalism terminal? With enough political momentum, McMurty argues, internationally enforceable legal limits can be established so that money “returns to its proper value function”. This begins the eradication of the carcinogenic disorder and markets then serve the common interest. If you believe that, then you don’t understand the economics of capitalism.

Lew Higgins

Editorial: Williamsburg conference (1983)

Editorial from the July 1983 issue of the Socialist Standard

At the end of May a conference to solve world economic problems was held at Williamsburg, Virginia, attended by representatives of four European countries, America, Canada and Japan. It was one of a regular series of such conferences, the next to be in Britain in 1984.

Verdicts on the conference ranged from the self-congratulatory official statement — “Our discussions give us new confidence for recovery" — to the Financial Times — “Two Cheers for Williamsburg" to “Playacting" (Liberal/SDP Alliance) and “Fiasco", "Catastrophe for the whole world" (Labour Party). Margaret Thatcher claimed that the conference decisions were an endorsement of the policy of her own government.

In the agreed statement of aims the conference declared itself in favour of reducing inflation, interest rates, unemployment, government spending and budget deficits; encouraging investment and aid to poorer countries; stabilising foreign exchange rates; getting rid of trade barriers, conserving energy and developing alternatives to oil.

The Times (31 May) reported that in the private discussions the European leaders, especially Mitterrand, were highly critical of America for its current budget deficit of £125 billion which, they said, is the cause of high interest rates in America and prevents interest rates from falling in other countries. Mitterrand. before the conference met, had been pressing for a world monetary conference like that at Bretton Woods at the end of the last war, which set up the International Monetary Fund and the World Bank. He did not get his way but the conference did agree to consider a high level international monetary conference at some unspecified time in the future.

The International Monetary Fund and the World Bank have a particular relevance to the present situation because it was the declared aim of those institutions to expand international trade, keep unemployment down, increase production, raise living standards, encourage investment and make exchange rates stable — all problems which the Williamsburg conference found itself once again considering nearly forty years after Bretton Woods. And Bretton Woods was not the first. Some twenty years earlier, after the first world war, a series of international monetary conferences took place also dealing with inflation, unemployment, falling production, trade barriers and unstable foreign exchange rates. There was a link between those conferences and Bretton Woods, in that the economist J.M. Keynes played a part in both.

And earlier still, in the 19th century, a number of inter-government conferences took place to deal with monetary problems, including the stabilising of exchange rates by setting up the gold standard in most of the industrialised countries. This did not prevent the Great Depression in the last quarter of the century, during which the British government set up a series of committees of enquiry to try to discover why the depression and heavy unemployment had happened and how they could be avoided in future.

Capitalist economists have always taken the view that stable exchange rates arc desirable in the general capitalist interest. A British company importing from abroad wants to know that the American dollars or German marks it pays will cost a known and unchanging number of pounds. The British company exporting to foreign countries likewise wants to know that it will receive a known and unchanging number of pounds. But, as in all such questions, there are sectional conflicts of interest. While not wanting constantly changing exchange rates. British exporters have an interest in the pound being fixed at a low rate against foreign currencies because, for a given number of dollars or marks for which their exports are sold, they receive a larger number of pounds. Conversely, British importers have an interest in the pound being fixed at a high rate because these imports will cost them fewer pounds.

The gold standard was a method of stabilising the exchange rates between all countries on the gold standard, as each of the national currencies was legally fixed at an unchanging weight of gold. (The British pound at about a quarter of an ounce of gold.) In the years 1900 to 1914, for example, the exchange rates between the pound, the dollar and the German mark (all being gold standard currencies), were completely stable, showing only minute fluctuations. The gold standard also brought comparative stability of prices because all the gold standard currencies were tied to gold. It did not prevent changes of prices due to other factors, such as the rise of prices in booms and fall of prices in depressions. The gold standard ruled out anything like the multiplication of average prices by about eighteen that has occurred in Britain since 1938.

It is here that we see the outstanding difference between the Bretton Woods agreements after World War Two on the one hand and the gold standard agreements of the 19th century and the international monetary conferences after World War One. Capitalism's major problem, as the Bretton Woods conference saw it, was not inflation and prices but unemployment and depression. It was the beginning of “The Age of Keynes" who had shown them, as they thought, how they could for ever get rid of both, and maintain a state of permanent boom and low unemployment.

For many years events seemed to support their trust in the Keynesian doctrine, though in fact low post-war unemployment happened for other reasons. Then came the day of reckoning, the present world depression, in which it is not a question of having to deal with inflation or deal with unemployment, but having to deal with both together.

Robert Skidclsky, Professor of International Studies at Warwick University, told their sad story in The Times (4 June):

  In the last ten years things have gone terribly wrong. The talisman has failed: economics — and economics — are in a mess. There is scarcely a government of a major country in the world which would now call itself Keynesian. The charge against Keynes is that in putting out one fire, unemployment, he started another one, inflation, which in the opinion of many economists was bound to bring back unemployment too.

Those economists have one thing wrong. It is not inflation which brings about unemployment and depression, or deflation, or the gold standard, or Keynesian doctrine or anti-Keynesian doctrine, but capitalism itself. That is the way capitalism operates, with the cycle of alternate periods of expansion and boom and periods of depression and heavy unemployment.

There was one set of economic doctrines not present at any of the international conferences of the past hundred years — that of Karl Marx. Indeed it was specifically claimed by the Keynesians that Keynes had destroyed Marxian economics for ever. This has led some economists to wonder, now that the Keynesian doctrine has failed them, if perhaps they can find in Marx the real way to maintain capitalism in permanent boom. They won’t find it. Marx’s conclusion was that capitalism can only operate in accordance with its own structure and economic laws and that the way out is to abolish capitalism and establish socialism.